Does force majeure have universal meaning?
Force majeure is a term that in the context of the cargo world is commonly and historically associated with the impact of natural weather forces. In a legal sense, we must pause and ponder what that phrase means in today’s integrated supply chain world. A fire caused by lightning aboard a 17th century wooden cargo vessel would have been deemed an act of God. With modern technology and a global system of instantaneous information, however, many traditional acts of God are foreseeable and the resulting damages preventable. Even in the instance that the calamity would be deemed a force majeure event, logistics providers must be mindful of the fact that service failures may not be excused and the supply chain needs to continue moving. Obviously no logistics provider could have prevented the disaster that was Hurricane Sandy and its lingering effects, but nevertheless, must anticipate such events and manage their rights and legal obligations. In the aftermath of Hurricane Sandy, global logistics service providers, transport entities, warehousemen, freight forwarders and third party logistics providers currently confront many dilemmas with regard to the ramifications of delay and damage claims arising from Hurricane Sandy. This can range from the closure of a warehouse facility (due to flooding/water damage or to personnel not coming to work), cargo held on the vessel or at the port and unable to discharge, rail lines out of service, unavailable truckers and air transit delays arising out of airport closures. All of these occurrences can interrupt supply chains in a very tangible way. Service providers must evaluate multiple relationships in determining the best ways to proceed in the context of a catastrophic event such as Hurricane Sandy.
The question arises as to how best to respond. Of course, the role undertaken by the service provider may dictate the scope of the response required. In other words, a customs broker may have different factors to consider then an indirect air carrier. There are however certainly many overlapping areas of consideration.
Below is a brief check list of potential issues to considered:
- Master Service Agreements will invariably have a force majeure provision. However, these provisions are not always worded the same and they contemplate different scenarios. We note that Article XVIII of the Montreal Convention, the treaty governing the international air transportation, while retaining reference to many defenses typically associated with a broad reading of force majeure, specifically does not contain a reference for Act of God type events. It is not resolved as to whether the closing of an airport could be considered an act of public authority where the closure itself is caused by a weather event.
- Article IXX of Montreal Convention states: “the carrier shall be not liable for damage by delay if it proves that it and its servants and agents took all measures that could reasonable be required to avoid the damage or that it was impossible for it or them to take such measures.” The term “take all measures” does not necessarily mean that airline or and indirect air carrier must do everything in its power to avoid delay, but only what is reasonable.
- The Convention on Contracts for the International Sale of Goods (“CISG”) and the Uniform Commercial Code (UCC § 2-615) may also be applicable to excuse performance if an event beyond the control of the performing party makes performance impractical. However, these laws may not apply to the contract.
- Master Service Agreements may impose liability that is not measured by cause (in other words, strict liability) and the force majeure clause as drafted may not include weather. At the same time, the indemnity rights against an underlying carrier or third party may (and often do) require prompt or specific notice. It should also be noted that carriers may claim an Act of God defense under the Carriage of Goods Act which does not match the service agreement language.
- In addition, if a contractual clause requires invocation of a force majeure defense (assuming it applies based upon weather conditions) there may be obligations to advise the shipper or consignee of this intention. Notice would not be based upon common place public knowledge, but specific terms of the written instrument. Further, many contractual provisions and some statutory provisions require a party that is claiming force majeure to notify the other parties to the contract of the event of force majeure. Some provisions require “prompt” “timely” or “seasonable” notice. Therefore, it is important to determine promptly whether there is a notice requirement.
- Care must be exercised in determining whether or not a force majeure event not only has occurred, but whether it suspends, excuses, or delays the performance of contractual obligation. For example, an assessment may be made as to whether state law may govern a force majeure issue regarding cargo stored in a warehouse that may address the impossibility of a performance.
- Does the contract set forth an assumption of liability for an unforeseen force majeure event? How far does the defense of force majeure go if the issue moves away from the weather because people cannot come to work at a facility that otherwise would be open for business.
- Some force majeure provisions or situations may totally relieve a party of an obligation to perform a contractual obligation. Other situations may merely suspend or delay the time for performance. It is important to determine which is applicable in a particular situation.
The logistics service provider should analyze the potential for delay or damage
- Shipments en route or scheduled to depart for an affected area
- Shipment in the affected area which are scheduled to depart
- Time-sensitive shipments, including food and pharmaceuticals
- Take all steps possible to prevent damage or delay (or additional damage or delay), including re-routing
- It is important that you contact, and maintain contact with your customers, as soon as possible, to advise them of the possibility of any delay, re-routing, any potential effect on shipment or delivery and that you are taking all reasonable precautions and measures regarding the cargo, and keep them informed.
Claims procedures must still be followed – however, any notification to shippers/consignee of the damage should reference the event and the cause of the damage. It is very important to not waive existing terms and conditions or notice provisions simply because of the “chaos” of the event.
Be aware of potential defenses to the acceptance of goods by the consignee, as the “Event” may prevent or inhibit a consignee from accepting cargo and the consignee may have a force majeure or similar clause in its contract or be protected under state law.
Accounts receivable – Companies may look at frustration arising from delay due to weather conditions as a basis to simply avoid payment of charges that are due and owing to the forwarder and/or the carrier.
Insurance issues: stoppage in transit may require notification to insurers. Remedial measures for mitigation may need to be approved by insurers in some situations.
Logistics service providers need to be aware of the ramifications of claims scenarios and indemnity rights arising from events such as Hurricane Sandy. Whether or not the incident can constitute a force majeure is a factually intensive question to be determined on a “case by case” basis, depending on the applicable law and contractual language. Care must be exercised to anticipate claims that may occur and to plan the best way to mitigate any potential liabilities. This requires a prompt assessment as to contractual language, notification periods and potential insurance and mitigation-related remedies. Most importantly, the cargo must keep moving.