Force Majeure in the aftermath of Hurricanes Harvey and Irma

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There is often an assumption that events such as the closing of the ports along the US Gulf Coast in advance, or in the aftermath, of Hurricanes will create a force majeure event that will automatically excuse all parties of their obligations of performance under a contract. The recent devastation caused by Hurricanes Harvey and Irma have once again given rise to questions surrounding continuing charterparty obligations if a force majeure event is declared.

For a detailed explanation of the concept of force majeure please see the Club’s article - What is Force Majeure? In summary, in some civil law systems force majeure can operate as a matter of law. If so, specific advice would need to be sought in that jurisdiction as to any rights that might arise. In contrast English law does not recognise a general free-standing concept of force majeure. For force majeure to be relevant there must be specific provision – in the form of a reference to force majeure or a clause defining events that are force majeure events and their effect on the contract if they arise - in the charterparty.

In the case of a specific clause making reference to force majeure the clause has to be carefully reviewed to determine whether the events arising fall within the definitions as set out in that clause. As with any exceptions clause the burden of proof under English law will be on the party seeking to rely on the force majeure clause to establish such an event has arisen, but that party will also have to show (i) its performance has been adversely affected by the event, and (ii) that both non-performance was beyond its control and there were no reasonable steps it could have taken to avoid either the event or its consequences.

In the absence of specific charterparty provisions a party has no right under English law to claim termination on the basis of force majeure. This applies even if there are valid force majeure declarations elsewhere within the contractual chain, for example a voyage charterer is able to terminate but absent provisions in the time charter the disponent owners will remain bound to their obligations to head owners¹.

English law does, however, recognise the separate concept of frustration. Frustration is the termination of a contract by operation of law due to unforeseen circumstances that either: (i) prevent achievement of its objectives; (ii) render its performance illegal; (iii) make it practically impossible to execute; and (iv) that arise without the fault of either party. The ability to rely on the doctrine of frustration will depend on the specific facts. Generally, in order to rely on the doctrine of frustration, a party would need to show that there was an unforeseeable change of circumstance which either makes the contractual obligation incapable of being performed or renders performance radically different from that which was undertaken. Frustration is not a doctrine that can be invoked lightly. Inconvenience, additional expense or temporary delay will not usually amount to frustrating events.

Although the aftermath of Hurricanes Harvey and Irma is causing delays and additional expenses to the shipping industry, it does not mean that it will automatically be impossible for a party to perform under any contracts affected by the disruptions. Whether there are rights to terminate or cancel contracts will depend on the specific facts and careful consideration of the charterparty terms.

¹For a discussion on Force Majeure and causation see The Crudesky - Chain of causation - Force Majeure or Not?