Carrier voyage termination, force majeure and cargo insurance

We have already seen a number of major container lines issuing notices to cargo owners that voyages are being terminated. Whilst some are issuing general notices with no reference to any particular contractual clause upon which they rely, others are claiming Force Majeure.

Force majeure under contracts of carriage

The first question is whether the bill of lading (or other contract of carriage) includes a “Force Majeure clause”. Such clauses are not implied into contracts as a matter of English law.

Where contracts do include a Force Majeure clause or similar clause, the terms  will need to be considered carefully to determine when a carrier can rely on a Force Majeure defence.

These clauses are, in effect, exclusion clauses and will be interpreted relatively restrictively by English Courts.

The fact that performance of a contract has become expensive to perform - for example, by a carrier having to take a longer alternative route - is seldom sufficient to relieve a party on the grounds of Force Majeure.

Alternative ports and diversion clauses

Carriers often have clauses within their bills which allow them to offload the cargo at an alternative port if, and to the extent that, the intended voyage was frustrated or substantially hindered.

Where the carrier is able to still perform the carriage, albeit at increased cost and inconvenience to itself, it will need very clear wording to excuse itself from performance. Whilst the wording of some bills of lading is wide enough to cover this, the remedies available to the carriers in the event of such a hindrance, cost or inconvenience are often less expansive than may be suggested.

Ongoing duties to the cargo

If cargo becomes caught up in delays, or other such issues, the carrier will still have an ongoing duty of care towards the cargo whilst it remains in the custody of the carrier. The carrier will not be relieved of its obligations simply because the initial problem occurred outside the carrier’s control.

Additionally, a notice terminating the voyage does not mean that a carrier no longer needs to take care of the cargo that is still within its control.

Carriers will need to be mindful of their ongoing statutory duties towards the cargo under the Hague and Hague-Visby Rules.

Regional law considerations

The territories being most immediately affected by the current situation are located in the Gulf region.

It is possible that affected contracts will be subject to a regional law and jurisdiction, such as the United Arab Emirates. Countries in the region almost exclusively operate on a Civil Code, rather than a Common Law basis.

The application and effect of a Force Majeure clause is similar under regional civil codes, which stress that, for Force Majeure to apply

• An event or circumstances must be genuinely outside the parties’ control.
• The contract must become ‘impossible’ to perform, rather than merely ‘difficult’ or ‘onerous’.

Further, regional civil codes expressly provide for Force Majeure in a tortious situation.

Force Majeure and Insurance

Delay exclusions

Insofar as the loss is caused by delay, such loss is excluded under Clause 4.5 of the Institute Cargo Clauses.

Some shipping lines have suspended the carriage of all reefer containers. Given the current events, maintaining temperature-controlled cargo within the required range has understandably become a challenge. This is exacerbated if the cargo is delivered to an alternative port where there are insufficient facilities to keep refrigeration units running.

Such cargos are susceptible to delay and so cargo owners have, in many instances, purchased additional cover in the form of the Frozen Food Extension Clauses (C.L.334).  Whilst this extension to cover removes the delay exclusion, it is not always as helpful to insureds as they might hope.

The Extension excludes loss caused by loss of market. 

Forwarding costs

Some cargo owners will seek to recover increased forwarding costs. Clause 12 of the ICC(A) includes cover for forwarding costs, but it is qualified:

“Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter insured to the destination to which it is insured.”

Where the cargo is simply facing delay or difficulties in discharge, or the cargo has been diverted due to the risks of war, it may be difficult for an insured to demonstrate that the on-forwarding charges have been incurred “as a result of the operation of a risk covered”.

That being the case, many cargo owners may be facing such additional costs without the benefit of insurance.

Much may turn on whether cargo owners have purchased additional war cover and the terms of that cover.

The Institute War Clauses (Cargo) do not contain an equivalent of the cover in Clause 12 of the ICC(A).

Under Civil Codes, the contract (i.e. the parties’ bargain) is effectively sacrosanct and courts will generally not look to interpret another meaning.

A defence of Force Majeure is seen more often in the Gulf region than in (say) England & Wales, but its success will wording of the insuring clause and a strict interpretation of what is being insured against.

Courts will assess a Force Majeure defence against the principles set out in the local Civil Code, and whether an event was genuinely unforeseen.

Attempts were made by certain insurers to rely on a Force Majeure defence in relation to business interruption claims during COVID-19, usually to limited effect. 

Ultimately, the allocation of risk will depend on the wording of the relevant contracts and the scope of any applicable insurance cover.