Delay or inability to perform for force majeure?
NKD Maritime v Bart Maritime (High Court) [2022]
The principle of ‘force majeure’ to excuse what would otherwise constitute a contractual breach does not apply unless there is an express clause to that effect and then it is entirely dependent upon its drafting.
Facts:
The defendant was selling a ship to the claimant. The contract's force majeure clause (clause 10) provided that:
"Should the Seller be unable [our emphasis] to transfer title of the Vessel … due to … restraint of governments … then the Buyer may terminate this Agreement."
The ship could not reach its intended delivery location by the contractually agreed date because clearances needed from the Gujarat Pollution Control Board (GPCB) to enter port were not received for Covid related reasons. On 14 April 2020, the Indian government extended lockdown restrictions to 3 May 2020. The Buyer then terminated the contract under clause 10 claiming that the delays in obtaining port clearances amounted to ‘government restraints’ and therefore constituted force majeure. The Seller maintained that there was no force majeure event and argued that the termination was therefore a repudiatory breach. The Seller argued that it had accepted the repudiation, it was entitled to retain the initial payment of over $4million and recover damages.
Decision:
The High Court held that the force majeure clause only applied when a party was "unable" to perform and could not be relied on when performance was only temporarily delayed. The judge concluded that the ship was not delivered by the termination date because GPCB staff were not granting the necessary anchoring permissions. They had been diverted to Covid response duties and this did indeed constitute a ‘restraint of government’. However, the clause required a party to be "unable" to perform for force majeure to apply. The judge noted that:
• ‘Inability’ is a significantly higher bar than a provision that refers to being hindered or delayed.
• Inability for force majeure purposes should not be judged by inability to meet the contract's delivery deadline. Otherwise, short-lived delays would trigger the clause. Inability depends on whether the likely duration of the force majeure event would materially undermine the commercial venture. This involved similar considerations to considering whether a contract is frustrated.
The court considered the background context. The claimant intended to demolish and recycle the ship. This was a lengthy process. Delays in the course of that process were to be expected. When the contract was terminated, it was not reasonably probable that disruption would last beyond 3 May 2020. The delays up until the termination date, together with the likely extent of any future delays, did not constitute an inability to perform for the purposes of clause 10.
Because the Buyer’s termination was wrongful, the Seller was entitled to retain the initial payment (pursuant to the terms of the contract) but was not entitled to further damages as the losses suffered were more than covered by the initial payment.
Points to Note:
- A force majeure clause is entirely dependent upon its drafting. If the intention is to cover delays in performance as well as a complete inability to perform, that should be expressly stated.
- Consider specifying a specific period of delay before a right to terminate can be invoked.