1919/22, 20:31 March, 2022 - Stuck inthe middle? Force majoure and frustration issues from a charlerer's perspective. - UKDC / UK Defence UKaEe UK DEFENCE CLUB jarch, 2022 - Stuck in the middle? Force majeure and frustration issues irom a charterer's perspect a at: oorz022 Pay Ladd pits {ra ome seep te nan eo eames AC ACD ION OMCs Gno GND iphprrrebehxSoeIN Healy, contacts andthe transactions they goven would procond smoothly ~ cargo would be available atthe easing port whoninlonded, ships woul rive on time to colt it and it woul then be transported to and ofoaded atthe intended dlscharge pot. no fe Nowover, many things can go wrong, ‘The cargo or te ship (or both) could be delayed, eter by the feu ofa party to the contact, or, by corres, dus to ental unforeseen events, natural disasters or "hr party causes - usually refered to a8 “Torce maeute" ("FM"). Indeed, cue to climate change ane increasing geopotical tenslons, we can perhaps expect to see an increase in FM events (loods, droughts, huricanes, dam falures landslides, war, hostile, expor prohbitonslembargoes, strikes, rots, Wes and So an} anc Ino coinince thal, n terms of insurance losses rom natural catastrophes and extome weather patterns, 2021 was reportedly one ofthe very worst on record (itis ngs ena ti yt nyt When Understanng and providing for these sk in contac, kis Important to note however that under English tw (unk the laws of some ober urisdicbon) thee is no general concept oo protection from FM events. FM an ‘entray contractual concept in other words, FM is only what tne conrac says is, and a party wil anly be abe to escape ts contractual obligations due to FM ‘events to the exten that the conrac allows Increasingly (and unsurprisingly) nthe lst coupe of yaar, FM clauses have ake included epidemics or pandemics in holt of speciiog FM avents. has aso long boon como forthe isto specie FM events ina claus to conclude wih a catch-all provision covering any oer events beyond a party's reasonable contol. However, such catchall provisions are usualy constued narowly. Its also essontl in mast cases forthe party seeking fo aly onan FM vet to excuse the non-peformance to prove not only thatthe FM even ook place ontemporanously wth tha flue to perfor, but also thatthe FM event caused that fare ‘The problem fan FM event arses, panies might thnk thir contractual terms wil protect them, but they may not aways be right. The problem can be parteuly acute for charterer who, in any gven transaction, might be werking under three separate contact: +. Apurchase contract (PC), under which tne carg is bought, ang which governs the aval and loading of the cargo athe lnagpor ang 2..\sale contract 'SC’), under wrieh the cargos ol, and whieh may also governs the arrival an loading ofthe cargo a the load and {3A charterpary CCP) forte sp that wil oad, anspor ang then dcharge the ergo. Inthe worst case scenario, a charterer might be faced wih a stuaion in which is PCISC counterpart can terminate and walk away frm the transaction eto fan FM event, but the charter ise cannot similarly walk sway ftom its CP with a shipowner. ‘Standard form contracts “Te above problam can often a eat wth because standard forms for PCSCs and CPs can difergraaly in how FM stustons a ‘Those dieroncos can include but may rot be tinted tothe tigger or nlfcation requirements a party must comply with ellowing an event, the suspension ofthe partes obligations either in whole orn part during th event, or the right fo terminate the contract after a cetanpetiod or duration has elapsed folowing he event Inexrome situatons the contracts may not align on more than one of ese issues, dine separate or nartoworypes of events or, as a worst case seanario, Be completely sient So, for example, whereas the commonly used BP General Terms and Condtions 2015 (fr crude ol! patrolaum produc sales) contain substantia provisions at clause 65 dealing with FM issues, which allow the affect party to suspend performance and thereafter trminate the contact fhe FM event ren pectormance impossible or would éelay mates beyond th contractual layday, these same toms by conras are nel mired or recorocaed in mary of he customary tanker veyage charter party formats wih BP's own BPVOYS standard wording ony allowing te charterer o suspend me partly dung any such alas. Similarly fr coal siments, arte 15.5 of SCOTA 8 permits any shipment to be canceled if FM delays iby more than 60 days fofowing notice ofthe retvant FM evant yot he corresponding ANWELSH92 contact, ins un-amendd farm, imparts no auch right on he charter, LUnsurprinaty In agrcutwral commodty trades, his achotomy i no ferent wth the rhs atferded to sll (and o a much mere limited extent, buyers) under CGAFTAs ‘provortion of shipmsnt” provisions, which aro vastly super t tho options typically afrded oa voyage charter under standard grain chartorparbos such asthe NORGRAWN ang SYNACONEX fons. ‘scan be sean horofor, while these standard form chatapartes may include trms that recognise the rk o possility ofan FM even, itis entraly foreseeable that nthe absence of express and extensive amenainents, they wil at accommodate many possible scenarios nor cover the ul ramifatins of sueh an event tps twwn-ukdefence.comnsightsmarch.2022-stuck:in the-middle-force-majeure-and-fustratondssues-ftom-a-chaterers-perspective-157128/ 1/31919/22, 20:31 March, 2022 - Stuck inthe middle? Force majaure and frustration suas from a charlere's perspective, - UKDC / UK Defence happening, [As such, even where such contacts might allow ar excuse a fale to perform a partular oblgatin under certain circumstances, they will not excuse a retusal to pectorm the GP asa whol. Further there i laine regime wrin the CP that contain exceptions. and tne general exceptions clause does not sale that it apples to lame, then that exceptions clause wil not apply to the tuning of latine or demuage ‘Such a stucture could therefore leave the charterein the unenvable presicament whersb, flowing a signicant FM event, thelr FOB seller is contractually ‘enitled not to perfor or lad he shipment in queston bu the charter party nonetheless remains in flor and effec wth no right to terminate or mete tigger of frustration (se below) and with any ate fo unaterally cancel his agreement kel to be deemed a repudiation onthe charterer’ part. he charterer has bought on FOB tems, and sold on CFRICAFICIF terms, tet positon may be even worse. For example, it may be thal het sll is eid Io exten time fr loading under her purchase contact, bu the charterer is nt ened to do the same under thi sale contact In such a scenario, an altematve means of voiding the charter party or PCISC might be Ifthe charterer coulé argue or eslabsh thatthe effect ofthe FM event has been to ander tne contract incapable of performance, under the English law doctrine of rustatin”. Ineesonca ia contact is made an lle events ousde the partes conta render Ine contac eer impossible to peorm (rift can somehow be performed, radially aéforent rom what the paces agreod) sc that would be unjust fo Hod the patos to tho contract, English lw dew that he contract has boon "rysteatod. In such stuatons the contract is terminated automaticaly, regacles of any actions which either ofthe parties may take This sounds promising for charterer, bul consider this: how iklyis itn a GP or PCISC conten that an FM event wll make performing the contract Impossible or racially afferent? A conract mht be fustrated he patil ship inks ors requistoned, or ihe contract a forthe sal or cariage ofa spactic carga which ie then destroyed, Bu outise of sich extome circumstances, when most contacts are for he sale oF eariage of genetic cargoes which could usualy be replaced (and thee isa demurrage regime to deal wih unexpected slays), ustration in such a coraxt is Iksy to be very rar. conclusion Wiistit's never easy preicting tho future, any charter would be well advised o ty and ensure that on both tho commosty and shipping sides of any contractual siruture, any terms in relation to FM aro consistent such that, where unoresoon ovonts do arse, a back-to-back poston canbe adopted or mainained if racassany (0 course there may conceivably be tines and instancos where declaring FM might be impractical o counarproduetve bu having the option to comprahensivaly ‘manage or reduce such an exposure would seem more vluabl oday than ever. itis not posite to incorporate or negotiate such terms nt te contract due o commercial consrans, charters should be wary of tying to rely on generic oF Imprecse contractual prowsons (such a exceptions clauses) or the doctrine of fusratan toy and escape the contract gating wrong could lad to 8 reputiatory breach. lean also be vial to follow any coriractual quirements to give a counterparty nel otce of an FM ever In any such stuation however, and respective the contractal terms on ether se, understanding tha immediate, actual and lkaly ten of the prablam an its ‘onuine impact wi be etcalin this decsion making procoss and theres a such no suse fr efective realtime nfrmationgathring ad poring atthe time ofthe event [1] Source pape wen crimeaster-n ‘About the author: Alex McCue Senior Claims Executive Like what you read? 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