COVID-19 Majeure: A valid “Force Majeure” for the shipping industry?

April 22, 2020

2 min read

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What's going on here?

In consideration of the globalised nature of shipping and the strict port state measures adopted to prevent the spread of COVID-19, this has resulted in the rise of ships relying upon “force majeure” clauses contained within their respective contracts.

What does this mean?

A “force majeure” claim is where unforeseeable circumstances beyond the control of either party, prevents a party from fulfilling their contractual obligations, thus excusing the ongoing performance of such obligations.  In many common law jurisdictions, including English law, there is no general right to rely upon “force majeure”, therefore parties must rely upon contractual provisions.

Crucial to the trade and shipping industry is clarity upon whether COVID-19 is regarded as a valid “force majeure,” particularly within the sphere of insurance implications arising from unfulfilled contracts. Therefore, much reliance will be placed on the construction of the contractual clause itself. Well-constructed clauses may adopt terminology directly applicable to COVID-19 such as: “pandemic”, “epidemic” or “disease.” However, where terminology lacks clarity and is available for broad interpretation, this will require a more creative application of the law, perhaps necessitating subsequent investigations into the definitional nature of such terms. For example, there may be potential for implicit connections between COVID-19 and an “act of God” in the spread of disease, or even on the basis that an unfulfilled contract was based upon mandatory “government action” outlined in the law and regulation of that jurisdiction. 

(For a comprehensive list of national government actions adopted in the maritime domain,  see: https://www.nepia.com/industry-news/coronavirus-outbreak-impact-on-shipping/).

What's the big picture effect?

With 90% of global trade reliant upon the shipping industry and effective transportation of goods across the maritime domain, COVID-19 carries significant global repercussions across this sector.

Fortunately, some mechanisms providing much-needed clarity on this issue have been introduced. For example, the China Council for the Promotion of International Trade (CCPIT) has agreed to distribute “force majeure certificates”. These certificates provide the necessary proof for companies affected by the COVID-19 epidemic to demonstrate that they have experienced significant restrictions and disruption considered to be within the scope of “force majeure”. Whilst many agree that such measures are greatly beneficial, there are still barriers to be overcome for businesses with overseas counterparts. Brian Perrott, Partner at Holman Fenwick Willan, asserts that even those with these certificates “face a rude awakening if they think it will allow them to get out of contracts with international parties”. Building upon such observations, Clyde & Co warns businesses “against undue reliance on the certificates”.

In summary, whether successful or not when relying upon “force majeure,” it is inevitable that COVID-19 will bear significant implications for the various industries active in the maritime domain. Nevertheless, as we continue to monitor fluctuating rates of infection and varied governmental responses, it is fair to say that the true impact of COVID-19 remains to be seen.

Report written by Karolina Smolicz

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