UNEXPECTED, ACCIDENTAL, AND CATASTROPHIC EVENTS - DISRUPTION TO INTERNATIONAL SUPPLY CHAINS - CONTRACTUAL FORCE MAJEURE - LAYTIME AND DEMURRAGE

 FORCE MAJEURE! - 'AN EVENT OR EFFECT THAT CAN BE NEITHER ANTICIPATED NOR CONTROLLED'

BLACK'S DICTIONARY OF LAW.

The world's oceans provide a global highway for the transportation of bulk cargoes. In recent times, these supply routes have been disrupted by pandemics wars and terrorism. The COVID-19 pandemic has been followed by conflict and humanitarian disaster. For the first time in 80 years, two nations are at war in the European landscape. Ships have been terrorised in the Red Sea, affecting 12% of global trade.

The impact of these events has been felt in several ways. Ships have interrupted voyages and been rerouted. Delays have been caused at load and discharge ports because of the disruption these events cause. Many parties are wondering or worrying about their contractual commitments. What are their obligations? Laytime and demurrage analysts must consider who pays for lost time.

FORCE MAJEURE

The expression 'IT'S FORCE MAJEURE!' is often used in the mistaken belief it is a legal principle that applies to all accidental and unexpected events erasing liability for delay. It does not work this way. There is no principle of force majeure that applies to all contracts.

Force majeure is a contractual mechanism it is not a principal of English law. There is no all-embracing definition of what events are covered, what it means, or what the consequences will be when a force majeure event occurs.

The contract must be consulted.

FORCE MAJEURE CLAUSES IN OIL INDUSTRY SALE AND PURCHASE CONTRACTS AND TANKER VOYAGE CHARTERPARTIES.

The modern era tanker voyage charterparties and the general terms and conditions of sale (GTCs) have contractual clauses which cover disruption, unexpected, accidental, and catastrophic events.

The types of events which are classified as triggering these clauses vary contract to contract, (and industry to industry). They seek to cover the following categories of events:

FORCE MAJEURE UNDER TANKER VOYAGE CHARTERPARTIES

Clauses that cover unexpected, accidental, and catastrophic events are usually called ‘exceptions’ in tanker voyage charters. These clauses are exceptions to liability that might otherwise rest on a party if no clause existed.

There are two principal categories of clause in oil and gas voyage charters standard forms.

'GENERAL EXCEPTIONS CLAUSES'

These are clauses that apply throughout the life of the voyage.

ASBATANKVOY CL 19, BPVOY 4 CL 38 and EXXONMOBILVOY CL 29 are examples. They are not labelled as force majeure clauses, they are called General Exceptions or Exceptions clauses, but their provisions cover the type of events listed above and share features of typical force majeure clauses. CLASSIC MARITIME INC V LIMBUNGAN MAKMUR SDN BHD (2021).

‘As with most things, what matters is not the label [on the tin] but the content of the tin’ (See CLASSIC MARITIME supra)

The exact coverage depends on the clause. It does not matter if the clause is labelled as a force majeure clause or an exceptions clause.

General exceptions clauses in the standard form charters do not apply to laytime or time on demurrage. In LONDON ARBITRATION 7/04 loading was stopped by the port authority for environmental reasons even though cargo could be safely loaded. The Tribunal decided that the language of a general exceptions clause was insufficiently "precise and clear" to make it apply to laytime.

English case law has firmly established that even general exceptions clauses that refer to 'delay' in performance do not create an exception to demurrage. The clause must expressly refer to laytime and demurrage to create an exception.

POINT TO NOTE: Whilst it would be very unusual it is not unknown for amendments to be made to general exceptions clauses so that they apply them to laytime and demurrage.

FORCE MAJEURE TYPE EXCEPTIONS THAT APPLY TO LAYTIME AND DEMURRAGE

Exceptions to laytime and demurrage in charterparties and sales contracts allocate the risk and most importantly the cost of delay between the parties. Together with the freight clauses the laytime and demurrage regime provisions govern the payments the charterer makes for the cost of the services of the ship. If completing operations within laytime is 'par for the course' Demurrage is a Bogey with the charterer paying for extra time in the form of demurrage. THE THERIOS (1971)

Some of the most crucial laytime and demurrage exceptions are those which deal with accidental and unexpected events – those in the nature of force majeure - that arise during laytime or time on demurrage beyond the control of either party. Generally, but not always, the cost of lost time is shared 50/50.

Clause 17 of BP VOY 4 HALF LAYTIME/HALF DEMURRAGE/FORCE MAJEURE lists a series of unexpected accidental type events which sees the parties sharing the loss of time.

BP VOY 4 CL 38.2 'EXCEPTIONS' also lists events commonly regarded as FM events. It would appear to overlap in part with events listed in CL 17. However, it does not overlap because the provisions of CL 17 only apply to events within BPVOY4's laytime and demurrage regime.

POINT TO NOTE: Access to the exceptions in CL 17 does have an important test that the charterer must pass to rely on its exceptions. Delay must be beyond their reasonable control.

BP VOY 5 does not use the expression force majeure to describe the excepted events and it is not a defined term for users of this charter. Apart from no longer using the term force majeure in the clause heading, broadly speaking it retains the same scheme of exceptions as BPVOY 4 for accidental delay.

ASBATANKVOY also does not use the expression force majeure. ASBATANKVOY CLAUSE 8 gives a limited range of exceptions to demurrage for what are traditionally regarded as FM events. The standard ASBATANKVOY form employs a comprehensive General Exceptions Clause, which the English High Court has unequivocally ruled does not apply to laytime or time on demurrage.

EXXONMOBILVOY 2012 takes a unique approach. CL 14 (b) lists some force majeure type events (weather explosions strikes) with time counting at half rate even when such events do not cause a loss of time by using a deemed causation mechanism.

We shall examine cover force majeure clauses under sale and purchase contracts in our next newsletter and how clauses covering unexpected and accidental events impact the laytime and demurrage regime.

 THAT’S IT. YOUR DONE.

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UPCOMING EVENTS

LONDON
05 September 2024
LAYTIME AND DEMURRAGE IN THE CARRIAGE OF GOODS BY SEA IN THE OIL AND GAS INDUSTRY – A ONE DAY FOUNDATION COURSE
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LONDON
18/19 September 2024
LAYTIME AND DEMURRAGE UNDER OIL AND GAS TANKER VOYAGE CHARTERPARTIES: BEYOND THE BASICS
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LONDON
25/26 September 2024
LAYTIME AND DEMURRAGE UNDER OIL AND GAS INDUSTRY SALE AND PURCHASE CONTRACTS: BEYOND THE BASICS
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