Against the backdrop of Covid19, commercial contracts – including charter parties and other shipping contracts – have faced scrutiny as never before. Parties whose ability to perform their obligations have been impacted by Covid have sought to avoid performance by relying on force majeure clauses or the legal doctrine of frustration.
When entering new contracts therefore it’s crucial to consider how you and the other party wish to regulate your relationship in the event that Covid19 or a similar event occurs that throws performance of the contract into doubt. One prominent shipping organisation has spent over a year examining the issue of force majeure and shipping contracts, and has issued a new force majeure clause. You may wish to consider this provision or similar when entering any future contract.
At ParrisWhittaker in the Bahamas our award-winning lawyers regularly advise on shipping law, including contractual matters and disputes. Understandably it’s sometimes difficult to fully appreciate how contractual issues like this can affect the day-to-day running of your business. At ParrisWhittaker, we understand this. And that’s why we’re ready to work with you, bringing our years of expertise to the table and ensure you understand fully your contractual obligations from the outset. We’re available on 1-242-352-6110 and 1-242-352-6112 or you can always contact us online.
What is Force Majeure?
‘Force majeure’ clauses are common contractual provisions that remove contractual liability in the event of some external, out of the ordinary event. During the Covid19 pandemic these clauses garnered huge attention because of the legal uncertainty over whether force majeure clauses drafted before the pandemic could be interpreted as covering Covid19 specifically.
We’ve discussed the issue before, highlighting the need to ensure these types of clauses are drafted precisely with the nature of the particular contract in mind. If the terms of the contract are unclear disputes are more likely. Cases on interpreting force majeure clauses continue to come before the courts. In the 2022 English High Court case of European Professional Club Rugby v RDA Television for example the decision (which has highly persuasive authority in the Bahamas) went in favor of a broadcaster who sought to terminate an agreement covering media rights to a rugby tournament. The broadcaster, faced wit the cancellation of the tournament’s final stages due to Covid19 relied successfully on a force majeure clause which referred specifically to ‘epidemics’.
All of this shows that if you are considering a force majeure clause it’s important to give it careful consideration. This means pinning down as far as possible the events the provision will apply to. You should also make clear what you intend to happen in the event that the force majeure clause kicks in.
Bimco’s Model Force Majeure clause
Getting the force majeure clause right is crucial. Unsurprisingly a number of comprehensive, model clauses have emerged from various quarters. The shipping industry has been particularly impacted by Covid19, and one industry body has created a model force majeure clause for use by those entering any kind of shipping contract. We wouldn’t always advise using the clause wholesale. You should always seek legal advice on the specifics of your case. But BIMCO’s model clause is certainly a useful starting point for many of our clients in the shipping industry.
There’s a high threshold to meet before the BIMCO clause can be relied on. A party must be prevented (not just hindered) from performing its obligations and must also prove:
There is in fact a force majeure event as defined in the clause;
That the event is beyond its reasonable control;
That the event could not reasonably have been foreseen at the time of the contract; and
That the effects of the event could not reasonably have been avoided or overcome.
The clause also sets out a detailed list of what is regarded as a force majeure event. It includes natural events such as earthquakes, floods, landslides, and other natural disasters, and political events such as war, piracy and strikes, but also epidemics, fire and obstruction of waterways.
BIMCO is a significant industry player. According to its website it is the largest direct entry shipping organisation with over 1,900 members in more than 130 countries. Its membership represents 60% of the world cargo fleet measured by tonnage. With this in mind it’s likely that the BIMCO model force majeure clause will be widely used in shipping contracts.
Importantly the clause begins with a ‘health warning’. This is unusual but serves to emphasise the unique characteristics of the clause. While it may be used in a wide range of shipping contracts, it should not simply be automatically included in a contract without considering first, whether it is appropriate in the circumstances and second, how it will sit with other clauses in the contract.
Contact Us
We offer practical and incisive legal advice when you need it. For specialist guidance on shipping contracts and related matters please feel free to reach out to us at ParrisWhittaker for an initial, no-obligation discussion.
