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C0VID-19 and force majeure

by Nurlan Agayev, Owner and Recovery Specialist, Alterlaw, and Gabriele Gotkovic

2/2020 1 Baltic Transport Journal

– Introduction

Vessels in quarantine, both empty and laden containers with restrictions on movement stuck in terminals, no boxes available on the market, country border lockdowns. The coronavirus (COVID-19) pandemic has already had a huge impact on the maritime industry worldwide, leading in many cases to delays or no deliveries at all, hence losses in production and an overall hit to the economy. As such, carriers will, in all probability, face a rising wave of claims against them. lnvoking force majeure will probably be their primary line of defence. However, it’s not a silver bullet that can be shot absent-mindedly.

The Hague-Visby Rules, H(V)R, the applicable convention to many transport contracts/bills of lad­ing, reads, “Neither the carriernor the ship shall be responsible for loss or damage arising or resulting from: (q) Any other cause arising without the actual fault or privity of the carrier nor without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.”

Carriers will also refer to the delay-clause in the bill of lading issued by them, stat­ing that the carrier is not liable for direct and indirect damages caused by the delay. Finally, yet importantly, the carrier will state that the advised departure and arrival times are an estimation rather than the actual time of departure/arrival.

Delay: primary or secondary cause of los

A common mistake is to classify every loss – that is the result ofa prolonged voyage – as a delay daim. Not all delays are created equal, though. Delay is the primary cause of loss when the master of the vessel sails at a slower speed. Delay is the secondary cause ofloss following unseaworthiness ofa vessel. or a deviation of the schedule by the master.

The burden of responsibility in the former case differs radically from that of the unseaworthiness ofa vessel or the duty to carry and deliver the cargo safely. From the carriers’ perspective, it’s in their interest to focus on the delay itself rather than on the vessel ‘s unseaworthiness, as they can escape liability should they be successful in proving they have exercised sufficient due diligence in the conduct of the voyage.

Carriers are, in principle, liable for unjus­tifıed delay if the delay has caused a loss. They can, however, fall under the protection of the H(V)R if the act that caused the delay is beyond their power (port congestion and extreme weather are the most used exon -erations, but COVID-19 is and will be used massively in the foreseeable future). But even in that case, the liability of the carrier can be involved, entirely or partially. Foreseeability, due diligence, and reasonability should be, therefore, examined in order to fınd out whether the carrier was (partially) negligent for the delay or not delivering at all. 

Foreseeability

If the carrier wishes to exclude liabil­ity for the loss which resulted from a delay coming from a lockdown or restric­tions on movement, they should prove these circumstances were indeed unfore­seen. Importantly, the delay should be in balance with the actual cause of the delay. If the restrictions/lockdown lasted, say, two days, whereas the vessel arrived a week later than scheduled at the port of call, the car­rier cannot just “hide” behind lockdown/ restrictions and reject liability (a similar logic applies to had weather forecasting; interestingly enough, however, because COVID-19 has brought air traffic, a major source of real-time weather data, to a stand­still, this may as well have its implications when it comes to foreseeability legal-wise). 

Due diligence

Carriers should also exercise due dili­gence in performing the voyage. Otherwise, it means that the carrier is negligent (irre­spective whether we’re in the middle of “corona times” or not). If negligence leads to delay, the carrier is liable for the con­sequences of that negligence. When delay beyond the control of the carrier is about to take place, in which the liability of the car­rier is in principle excluded according to the H(V)R, the carrier should: inform the merchant about the delay (in consultation with the merchant, the carrier can deliver the cargo to a nearby port/terminal); take care of the cargo during the delay – as the voyage prolongs, so does the duty of care of the carrier; overcome the delay – the carrier should take reasonable measures to overcome obstructions and deliver the  cargo on time; fınally, the carrier should resume and continue the voyage as soon as possible.

Reasonability

The carrier is only expected to do what reasonably can be done to overcome the delay given the circumstances. lhe onus of proof is, nonetheless, on the carrier to prove that the lockdown wasn’t foreseeable, that they exercised due diligence to avoid delay (and consequentially – loss), and that they did what reasonably could be expected from them.

Circumstances

There is no general rule to decide whether a carrier is liable for the damage caused by prolonged voyage ( or no voyage at all). Every case should be examined fac­tually, doing justice to the circumstances in which this-and-that case took place. The importance of going through a com­prehensive, fact-finding analysis cannot be, therefore, underestimated. This holds true for both clashing in an actual court case as well as when trying to resolve the issue during the amicable phase; in fact, a great deal of claims is solved amicably/ out-of-court, therefore, a decent formula­tion of the cause ofloss starts in the ami­cable phase. The opposite is valid, too, as a poorly prepared legal action can break the court case; especially the claiming party should be surgically specific on the cause of damage.

Different jurisdictions

It is important to note there are country differences when it comes to the interpreta­tion of the H(V)R. In many civil law jurisdic­tions, such as the Netherlands or Germany, the concept is codifıed. Under the Dutch Civil Code, for instance, a party relying on force majeure must demonstrate that its inability to perform cannot be attributed to it – by showing that failure isn’t their fault, legal­or standard-wise. In practice, however, it often proves difficult to establish because the burden of proof is signifıcant. In Germany, the concept is codifıed in a number of dif­ferent pieces oflegislation, hence the precise application depends on the particular case. In contrast, common law jurisdiction, such as the English one, is not in the habit of codifying legal doctrines. lhat said, a pecu­liar feature of the common law contract law, unless provided otherwise, gives the parties the discretion to set out their own rules gov­erning their contractual relationship. lhis gives the contractual parties flexibility and freedom to decide on the applicable terms and conditions as well as the certainty that these established terms will not be altered by legal principles existing outside the contract. As such, it is always a safer choice to include a force majeure clause in the contract under English law. Even so, the H(V)R are often manda­tory, and related general principles are often enforced in a similar manner in different countries. 

Claim-critical

In the case ofloss claims caused by delay, the involved parties should fınd out what was the primary cause of damage. ünce that is done – and let us assume that the delay was actually the root problem – the respon­sibility regime of the delay should be exam­ined, independent ofthe liability-excluding clauses of the terms and conditions of the bill oflading. If the delay cannot be justifıed, the carrier is liable for the consequences of the negligence. If the carrier is, however, of the opinion that the act that caused the delay was beyond their responsibility, they should prove that this act couldn’t be foreseen, even after exercising proper due diligence. As such, it seems that the reasonability part is of critical importance when it comes to examining foreseeability, due diligence, and what can be expected from a carrier.

About the author

Nurlan Agayev

Nurlan Agayev

LLM

Nurlan Agayev is specialist op het gebied van claims, incasso en contracten bij Alterlaw, een in Nederland gevestigd juridisch advies- en claimkantoor.