Force majeure clause does not excuse non-performance of contract but force majeure event can prevent award of damages

Force majeure clause does not excuse non-performance of contract but force majeure event can prevent award of damages

In Classic Maritime Inc. v Limbungan Makmur SDN BHD & Anor [2018] EWHC 2389 the High Court found that a force majeure clause did not excuse the defendant’s non-performance of a contract but that the occurrence of a force majeure event did mean that the claimant was debarred from recovery of substantial damages.

The case demonstrates the risk to a defendant of relying on force majeure clauses when seeking to excuse contractual non-performance. At the same time, however, it also demonstrates that, regardless of a defendant’s ability or inability to perform its contractual obligations, the occurrence of a force majeure event may ultimately prevent an award for damages being made.

Facts of the case

Classic Maritime (“Classic”) brought an action against Limbungan Makmur (“Limbungan”) for failure to perform five shipments of iron ore under a contract of affreightment following the burst of the Fundao dam in Brazil in 2015. 

The flooding which occurred as a result of the dam burst forced production to stop at the mine from which Limbungan sourced its iron ore.

Consequently, Limbungan claimed that, as a result of the dam burst, they were unable to provide the iron ore cargo to Classic. Limbungan sought to rely on a force majeure clause in the contract which provided as follows:

“Exceptions – neither the vessel, her master or owners, nor the charterers, shippers or receivers shall be responsible for loss of or damage to, or failure to supply, load, discharge or deliver the cargo resulting from: Act of God,…floods…accidents at the mine or production facility…or any other causes beyond the owners’ charterers’ shippers’ or receivers’ control; always provided that such events directly affect the performance of either party under this charter party…”

Classic contended that the dam burst had no causative effect; Limbungan would have failed to perform the shipments in any event, a position which was supported by the evidence.

Decision

It was held that the force majeure clause did not excuse Limbungan’s contractual non-performance.

To rely on the force majeure clause, Limbungan would have had to show that, but for the dam burst, they would have performed their contractual obligations. The court found that it was more likely than not that, but for the dam burst, Limbungan would not have been willing and able to supply the cargo. Causation was therefore not established and Limbungan was unable to rely on the force majeure clause.

However, despite the fact that Limbungan was found to be in breach of the contract, the court held that Classic was not entitled to recover damages in respect of that breach.

The Court compared the position Classic was in with the position it would have been in had Limbungan been able and willing to perform its obligations under the contract. It reasoned that the dam burst meant that no iron ore would have been shipped in any event. To award Classic damages would be to put it in a better position than it would have been in had Limbungan been able and willing to perform its contractual obligations.  In other words, it would put Classic in the position it would have been in had the dam not in fact burst.

Comment

The case highlights the fact that a force majeure clause will most likely not be of assistance to a party in breach of contract unless that party can demonstrate that, but for the force majeure event, they would have been able to perform their contractual obligations.

It would seem, however, that any such party could draw comfort from the fact that, even in circumstances where a force majeure clause cannot be relied upon, the very fact of a force majeure event itself may still prevent an award of damages from being made.

For any further information, contact Teja Pisk or Andrew Quick or your usual S&B contact.  

Classic Maritime Inc. v Limbungan Makmur SDN BHD & Anor [2018] EWHC 2389

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