Force Majeure Clauses

19th September 2013 phil Demurrage 0 Comments

I came across an article a couple of weeks ago in Tanker Operator ‘World’s “Hot Spots” Cause Havoc’.  The article relayed the report from McQulling Services which indicated that continued unrest in Egypt could affect tanker demand if there was disruption to the Suez Canal.  The article also mentioned disruption in Libya, Iraq and Syria and whilst such disruption may lead to more demand in tankers I got thinking about Force Majeure clauses and how this will affect Owners and Charterers who may currently be delayed in one of today’s how spots.

The suppliers – most oil contracts have Force Majeure clauses which protect the suppliers for specified events such as those we are seeing in these areas.  A feature of these clauses is normally the need to ‘declare’ Force Majeure’ which is effectively a notice to buyers that they will be relying on the FM clause when it comes to such matters as demurrage.  In most cases the FM Clause will state that demurrage is not payable for as long as loading is prevented by one of the causes specified.

The Buyers – as we can see the buyers are unlikely to collect any demurrage for these periods of delay and as they would have chartered a vessel to load the cargo they may have a liability to the Owners for these delays and this will be governed by the charter party.

The Charter Party – most charter parties have clauses similar to Force Majeure clauses but there are a number of differences. 

The Causes – They will all mention the causes of delays to which the clause applies and these may be similar to some of those found in Oil Contracts, but watch out for the differences.  Where FM is declared by a supplier under the Oil contract the FM clause in the charter party will not automatically apply unless the charter party clause specifically mentions the same type of delay.

Time Counting – Where the FM clause in the charter party does apply then normally the delay will count at half the time or will be paid at half the demurrage rate.  This, of course, leaves Owners earning less than they had forecast.

As you can see from the above there are no winners in situations like these with the Charterers and the Owners sharing the cost of these delays on a 50/50 basis.

Frustration may be a remedy but if you are considering this then I would urge legal advice as a wrongful termination could be expensive.  A contract can only be terminated on the basis of frustration if it becomes impossible to perform, not if it just becomes more expensive to perform.

Mutual Cancellation – this is the best way to bring a close to any agreement and if both parties agree to terminate the charter party then there can be no claim for wrongful termination.

Have you had some bad experiences or maybe some good experiences with Force Majeure situations?  Want to add you views on this subject?  Please add your comments here.

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