The unfortunate medical issues that the coronavirus causes have been all over the news recently. While the biggest concern is how the virus will affect human health, it will also have a far-reaching effect on the global economy and international shipping. Since the virus originated in Wuhan, China, it is the country that is currently the most affected by the virus.
Due to restrictions in certain areas of China, shippers, carriers, and freight forwarders are reviewing their contracts to see how the virus and its restrictions on shipping will affect their agreements.
Is it Force Majeure?
The legal term force majeure is used in contracts to describe a situation or event in which the affected party has no control over the outcome. Some examples include natural disasters, riots, or wars. Does the coronavirus qualify for a force majeure clause? There are different interpretations about what qualifies for force majeure and to what extent it can be enforced. The specific wording of the clause in each contract dictates if it can be enforced. The correct wording is crucial and could be the difference between saving or losing a large amount of money. For some companies, the coronavirus spreading from China may qualify due to the major disruptions to the supply chain.
When a government closes its ports, a shipper or carrier is not able to offload its cargo. This supports the definition of force majeure, but the closing of banks or local offices may not be covered under the clause. In addition, events that occur that only result in a delay of shipments and bookings would not fall under force majeure. While some services or slot agreements cannot fulfill bookings, it is not enough to impose force majeure.
Most shipping contracts do include a force majeure clause in order to protect both parties. However, other events except for the complete shutdown of the port would require a closer look at the clauses in the contract.
Being able to impose force majeure depends on the following factors:
- The choice of law that is dictated in the contract.
- Exemptions to the clauses.
- The advice of a legal expert as to how the contract is interpreted.
The third factor is the most important. Trying to navigate the language of the contract without legal advice can be very costly. If the pandemic continues to worsen there could be additional port and transportation closures throughout China. While illness is not usually a reason for declaring force majeure, the coronavirus is more than just a standard medical issue, continuing to lead to the quarantining of entire cities, leaving warehouses, ports, and other links to the supply chain completely empty.
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