Force Majeure

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • Key discussion points are the uncertainty of the duration of the coronavirus outbreak, in China and in the rest of the world, and its intensity, and just what level of economic impact it will have.  SARS was about 4 months long and affected China’s passenger traffic more than freight.  Travel restrictions now being imposed could potentially impact fright traffic more under the coronavirus restrictions. 
  • Base metal markets generally remain fundamentally tight, notably Cu, Zn, Pb, and are incrementally continuing to tighten.   Watch for supply disruption(s), and disruptions to demand.  In 2020 there are numerous key labour negotiations at Cu operations in Chile.  Supply disruptions such as these, in absence of dramatic (geopolitical) drivers are likely to drive price responses.  Chinese ‘travel restrictions’ brought about by the coronavirus epidemic, are likely to disrupt ability to supply and or receive 
  •  ‘Force majeure’ has been raised and is likely to be invoked more in coming months:  

·         A number of important contractual issues need to be considered by buyers, suppliers, ship operators, charterers and brokers. 

§  For example, how safe is the planned load or discharge port?

§  A second consideration relates to the quarantine and how that will impact on off-hire, laytime and demurrage.

§  A third consideration is what the declaration of force majeure means in practical terms.  Given the recent declaration by the WHO, force majeure provisions are likely to be “increasingly relied upon and invoked by an affected party”.  Indeed, the China Council for the Promotion of International Trade (CCPIT) has announced that it will offer “force majeure certificates” to businesses in China affected by the outbreak.  

·         However, whether a party can successfully invoke force majeure and/or rely on the CCPIT certificates, will depend on the governing law of the contract and the terms of the relevant clause.

o   “As a matter of English law, force majeure is a creature of contract,” it says. “Generally, a party who seeks to rely on a force majeure clause bears the burden of demonstrating the following: 

§  It could not perform its obligations due to the relevant event.

§  The inability to perform was beyond its control.

§  There were no reasonable steps the party could have taken to avoid the event or its consequences.”  

o   Examples of circumstances that might require a force majeure are war, strike, riot, piracy and Act of God.  A force majeure clause does not, however, excuse a party from its negligence or failure to perform under conditions that are ordinary or expected.  

o   In the absence of a force majeure clause, parties to a contract are left to the mercy of the narrow common law contract doctrines of “impracticability” and “frustration of purpose,” which rarely result in excuse of performance.