Coronavirus, a Force Majeure? A matter of facts, the legal team should do something…
There is an argument, whether the coronavirus outbreak constitutes Force Majeure to shipping or sales contract, it seems there is no conclusion and legal men are busy quoting English cases to get a ‘Yes’ or ‘No’ answer. My opinion is, the answer is actually a matter of facts.
Reports say one oil major is considering to declare coronavirus outbreak as force majeure on LNG contracts in light of demand disruptions, etc.
Another press report appeared on Feb 3rd, 2020, to the extent YangShan LNG terminal upgrades its virus prevention level and ensures the whole receiving operation in a completely controlled, enclosed environment so as to secure the 65% LNG supply to the Metropolitan city of Shanghai in the bitterly cold winter season. When the supplier of the LNG and shipping company worried whether the ship can deliver the cargo, with every effort, the LNG tanker, Seishu Maru berthed at 16:00 on 31stJan, just hours after WHO’s decision as a PHEIC, and the delivery was done.
Having read the two pieces of press reports, I think the answer to the argument is clear now.
So as to satisfy yourself, the best thing to do is to have legal team work on it now, trying to get as much information as possible surrounding the performance of your contract. Do not wait until the arbitration or hearing starts, that’s too late, move now.
Seishu Maru- discharging her 150,000 CM LNG
2) Identify the key frustrating facts
There might be so many issues which stop or frustrate the performance of the contract, but do identify those key factors.
An auto part manufacturer may find the situation a force majeure if the government stops people movement so he is not able to find the experienced workers locally to do the job in time; but this situation may not be an issue for receiving bulk iron ore from a ship;
Lockouts may produce huge impact to logistics. Wusteel almost runs out of iron ore due to various transportation restriction along the river. If it cannot deliver contracted steel products due to shortage of raw materials with the direct effects of the disrupted logistics, then that would be something more like a force majeure, I would argue.
Normally the performance of sales contract has nothing to do with the health of ship’s crew, but now an infected crewmember would cause the whole port shutdown, or stops the ship from berthing, then non-performance of a sales contract might find an excuse of force majeure.
3) To establish or fight the force majeure argument, you need the following information, at least;
Decisions from central government, say the state council, or the central committee;
Decisions and petitions made by the Anti-virus task force (state level). On Feb 6th, it required, apart from virus combatting, sooner reopening of business across the country except Hubei province, provided the factories/businesses satisfy the hygiene requirements.
Decisions or announcements, notices, reminders from ministerial levels; up till now, there are several in place, Ministry of Transport published notices on 23rd Jan, 27th Jan and 30th Jan, each with a different tone. On 27th Jan, MOT says priority should be given to those ships which performs emergency response tasks, such as delivering medical/health materials. On 30th January, MOT said it is not allowed to have ships unreasonably quarantined for 14 days in anchorage, or prohibiting ships from normal operation, urging crew to say onboard unless absolutely necessary. All these do produces influences to the performance of the contracts.
The local governments decisions, announcements. Shanghai and Zhejiang were the lead to extend the holidays by another week to Feb 10th, which was followed by more than 20 provinces and cities. This definitely delays the performance of the contract, sometie it produces ripple effects to the whole production chain. In the last 4-5 days, many local governments published stimulus plans encouraging businesses to come back to normal, including waver of 1-2 months rent, reducing bank loan interest rates (by subsidy), to reducing the company’s share of social security contribution, tax cut, etc;
Monitoring the situations of road transportation, restrictions on movements of migrant workers, restrictions on ship’s entry, change of crew, development of the virus spread in that area, development of pratique;
More importantly, do monitor your business partners activities on controlling the virus and keep yourself informed of any progress. If you can, do monitor other similar businesses. Do check their websites. Port of NingBo-Zhoushan, on 30th Jan, held a Virus Prevention meeting, one of the tasks was to keep the port run as usual, though it is hard giving consideration to the blocked traffic, travel frustrations of the migrant workers, shortage of hygiene materials, in-efficiency of online operation. Happy to see Chilean copper concentrate suppliers have agreed to postpose the shipping date to a later stage.
You do not like force majeure, right? Then speak to your business partner and show a helping hand, in any case, mutual cooperation is the best way out.
Source:Simon Young
The opinions expressed herein are the author's and not necessarily those of The Xinde Marine News.
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