Force majeure: headache of today

15th July 2020

I am into week six of lockdown. The new office is closed and all partners and staff working, more or less happily, from home. The roses are out, the potatoes are in, the lettuce are pushing on but there is absolutely no sign of the parsley (sown late because more efficient people ordered up the entire stock of seeds before I woke up to the problem). Even more concerning, however, is that the boat is high and dry on its trailer: at least the woodwork has been getting some extra coats of varnish this year.

Meantime out in the real world, the buzzwords have been force majeure and this has been causing more than a few headaches for hard-pushed hirers or charterers in particular.It is one of those standardised provisions, often known as boilerplate clauses, that most people skim over as we focus on the important bits. Surely, you say, our vessel will never be requisitioned but perhaps it is as well to have it covered, just in case.

Every so often, after a war or significant event, the courts are pulled in to resolve an issue none had foreseen on wording that, with the benefit of hindsight, might have been more suitable. Then the standard wordings are improved. The Wikipedia definition, itself borrowed from a textbook, is rather good: A force majeure clause is designed to protect against failures to perform contractual obligations caused by unavoidable events beyond a party’s control, such as natural disasters.

Force majeure clauses are primarily used to identify circumstances in which performance of contract may be forgiven. The most common questions have been whether the contract can be terminated or hire suspended. Sadly the advice is invariably negative, and it would be an unusual provision to allow that. Indeed, if hire is outstanding the owner is likely to have a right to withdraw the vessel, but he might not be able to recover any losses caused by this, thanks to the clause.

Currently, however, no owner is likely to want to terminate because he may struggle to find employment at a better rate or at all. This dynamic has led most parties towards a compromise: a suspension of hire for a period, albeit on terms. Of course, each case is different and no reader should treat this as any substitute for picking up the phone to your lawyer.

Compromise in litigation or arbitration meanwhile is always to be encouraged.

The legal process is an expensive way of resolving problems. One way of seeking to keep down costs in arbitration is via a fixed costs and documents only procedure. These are intended to serve as short cuts – and short cuts do not always mean that complications are avoided.

In salvage arbitrations the procedure is a simple one in any event, but the parties may seek to avail themselves of the Lloyd’s fixed costs arbitration procedure (FCAP). This usually applies where security does not exceed US$2m, where dangers are low and where there are no complex issues. Where applicable, the recoverable legal costs of the claimants are then limited, the number of documents is restricted and the arbitrator is on a fixed fee.

We have had three cases recently where FCAP has been considered and I now share with you the outcomes.

In the first case, the services were short and the other criteria were largely met. The only risk was of collision as the vessel was drifting in the approaches to a busy traffic separation scheme. It was argued that nowadays with traffic warnings out, AIS and radar, collision was highly unlikely. Eventually, after two or three days, albeit not in rough seas, the vessel might eventually have run aground but there was little prospect of it remaining unassisted. The salvors were well known international salvors. The arbitrator decided that FCAP was not appropriate.

In the second case, the danger of running aground within about half a day existed and the weather faced by the abandoned ship was quite rough. Two salvors intervened, one under LOF, but they failed to get a line on board, while a competitor’s tug succeeded in so doing before eventually handing the casualty over to the LOF contractor once in shelter. The successful tug owners brought a common law claim for salvage in London and the parties agreed to appoint the same Lloyd’s arbitrator to review both claims.

FCAP was agreed in both cases with separate concurrent hearings on documents only with a common bundle of documents. As the parties co-operated sensibly, no decision on FCAP was required from the arbitrator who also agreed to issue two awards but only one set of reasons. Given the potential complications that might have arisen, this represents a very efficient outcome.

Finally, in the third case, the values and dangers were high and security was well above the threshold. On the other hand, the services were completed within a day and although bravely conducted in the nick of time, were essentially, it was argued, a pick up and tow. The LOF arbitrator considered submissions from both sides and decided with little hesitation that the case was not suitable for FCAP.

No peace for the wicked as they say, but at least it’s been very pleasant working from home.

Simon Tatham is a partner at Tatham & Co and founder member of the www.tugadvise.com service. He has more than 30 years’ experience of shipping law.

Reproduced with kind permission of International Tug & OSV magazine.