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Trade Advantage March 2020

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Trade Advantage March 2020 March 2020 A commodities Trade Advantage update Coronavirus – legal implications and force majeure examined As the global crisis arising from the ongoing spread of COVID-19 (coronavirus) continues, we examine the potential legal implications arising from sale contracts and charterparties involving goods destined for China. Last month, the China Council for the Promotion of International Trade made headlines worldwide with its issuance of over 1,600 force majeure certificates to firms across a number of sectors covering contracts worth over US$15 billion. Can Chinese counterparties rely on such certificates in support of invoking any force majeure clause in an international sale contract? The first consideration is that English law does not have a general concept of force majeure. Accordingly, any claim to ‘force majeure’ must rely on a contractual term. If there is no such applicable term, then the party must establish that the contract is frustrated as a whole, such that the contract is effectively null and void. This would involve seeking to prove that the performance of the contract has changed radically from that which was envisaged. >>> continues on page 2 Brexit update - Scrubbers and delays Arbitration update: Jurisdiction/Frustration - IMO 2020 update English seat does not necessarily mean Page 4 Page 6 x English law Page 12 x hilldickinson.com/commodities TRADE ADVANTAGE MARCH 2020 Welcome >>> continued from page 1 Where there is a contractual force • General catch-all wording such • Finally, the clause may contain When analysing whether such Both force majeure and frustration majeure term, the English courts will as ‘all other causes beyond the provisions for notifying the a term is applicable, the first are difficult doctrines to rely on to It is a pleasure to welcome readers to this edition of Trade Advantage. pay very close attention to how the control’ will need to be treated counterparty, including the step is to identify precisely what absolve a party of their performance clause itself is worded. The court with caution, since the ‘other timing of such notice and the contractual obligation is at risk of obligations. Because of the effect of As I write, the World Health Organization may well interpret the term as a causes’ must be similar in kind to information, and possible evidence, non-performance and its degree a force majeure clause in ending a has now declared the coronavirus epidemic a pandemic, so it is inevitable that we form of exceptions clause, for which the specific events previously listed to accompany it. The courts of importance to the contract as a contract or suspending performance, have held the front page for an article in strict rules are applicable. This has a in the clause (the ejusdem generis require strict application of such whole. It is not enough, for example, it will be strictly interpreted and, which Beth Bradley and Fred Konynenburg number of practical consequences. principle). If on the other hand requirements, failing which the for a CIF China buyer to claim that therefore, not straightforward to together with contributions from other the general wording is ‘all other notice will not be effective. they are unable to import goods apply with any certainty in any given members of the team consider whether it • A general force majeure clause causes whatsoever’, that will widen into China, since English law states case. Similar considerations apply to could be a force majeure event. will stipulate its specific effect, • In addition, for all charterparty the types of other, non-stipulated that a contract simply stating CIF declarations of frustration. i.e. that it gives rise to a right to fixtures currently in negotiation, The UK formally left the EU on 31 January event that will trigger the clause. China, with no more, does not oblige 2020. Since the UK government has ruled delay or suspend performance or the wording of particular force The best recommendation to anyone the buyer to import the goods into out an extension to the transition period to a right to cancel the contract. If • Whether there is a relevant event majeure clauses will need to seeking to rely on a force majeure that country or for the seller to that ends on 31 December 2020, we can the clause only applies to relieve will depend on the facts and be analysed closely. For those clause or considering declaring expect to see more brinkmanship from procure such import. For a contract performance during loading crucially, there must be a causal requiring the occurrence of an frustration is to investigate all avenues both sides as they negotiate the future to have such effect, the intention operations for example, it will not link between the event and unforeseen or unforeseeable event, for alternative performance. In the relationship and a hard Brexit remains a real must be made known to the seller risk for our clients. As Paul Taylor explains, apply to delay at any other point. the prevention or hindrance of then the clause will likely not bite authors’ experience, most force at the time of or before contracting. the decision in Canary Wharf & Others -v- If the clause does not provide for performance. for coronavirus-related issues. This majeure defences fail either because Alternatively, the contract itself would European Medicines Agency is a sobering cancellation rights, even if there is is because the fixture itself was causation and mitigation cannot be lesson for contracting parties who have not • The clause will usually provide that have to expressly cater for such an operative force majeure event, negotiated and concluded in the or have not been proved, or because expressly allocated the risks and costs of a the relevant event must be beyond obligation, e.g. by requiring certain hard Brexit. a right to terminate will not arise throes of a pandemic, which is of technical mistakes in the notice the control of the party seeking key documentation to ensure import under the clause. The party seeking known to the world at large and provisions. Furthermore, this edition contains notes to rely on it, as well as prevent or into China. to extricate itself from the contract cannot, therefore, fall within the on two contrasting anti-suit injunctions hinder performance. This reflects Whether coronavirus is a force cases, one on that increasingly rare species, would then have to fall back on ‘unforeseen’ and/or ‘unforeseeable’ Primary obligations that go to the the general position under English majeure event will depend heavily on the application under section 68 of the the doctrine of frustration to avoid category. root of the contract include the law and brings into play mitigation. the facts of any given situation and on Arbitration Act 1996 (serious irregularity) exposure to a claim for default. supply of goods, payment for goods and some practical guidance on a widely Generally, it will not suffice to show The alternative remedy of frustration the specific terms of any contractual or of freight, and the ability of a misunderstood subject, the without • The clause will usually list a that a relevant event has caused involves proving that a supervening provision. Care should be taken in ship to get into port in order to load prejudice privilege. number of events that constitute delay. If a party can perform its event outside the parties’ control has giving notice of force majeure to or discharge cargo. An inability to Finally, Jean-Francois Van Hollebeke reports force majeure, followed usually obligation by taking reasonable defeated the commercial purpose ensure that the notice correctly perform this sort of obligation (or on a recent contribution to the debate by a generic catch-all provision. A steps to mitigate the effect of the of the contract. Examples where this identifies a qualifying event and is extreme delay in performing it) will about the role of good faith in the English relevant event in the list needs to event, for instance by an alternative doctrine can apply are: given in accordance with the relevant law of contract. lead to termination and claims for have occurred to trigger the effect method of performance, then it clause (with particular care given to • Performance of the contract default unless a contractual term or I hope that you find this edition of Trade of the clause. ‘Plague’, ‘epidemic’ should take those steps. any applicable time constraints within (including by any alternative, the doctrine of frustration apply to Advantage of interest. Your comments are and ‘quarantine’ are the most which notice should be given). An always welcome. • Similarly, the party attempting reasonable method) is impossible relieve the obligor from liability. likely contenders for a stipulated incorrect declaration of force majeure to rely on such a clause may due to legal prohibition or Best wishes, category that might encompass Breaches of minor obligations due could amount to a repudiatory well be required to prove that it insuperable practical obstruction. coronavirus. to delay or inability to perform will breach. Similarly, a party in receipt Ed Cheyney would have been able to perform Partner • Performance is impossible because usually only give rise to damages of a force majeure notice should the contract if the event had not [email protected] the subject matter of the contract is unless a contractual term protects the proceed with caution and check occurred. destroyed or requisitioned. obligor. The doctrine of frustration contracts to ascertain whether force • The event causes an actual and/ will not come into play at all in this majeure is applicable at all. Accepting context. a wrongful notice and diverting cargo Contents or prospective delay that is so extreme that the performance could amount to anticipatory breach. Coronavirus – legal implications and force majeure examined 1-3 of the contract will be radically Beth Bradley Brexit update - Jurisdiction/ different from that which the parties [email protected] originally contemplated.
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