Force Majeure Clause 2022

Overview

This clause addresses force majeure events occurring under contracts used by the shipping industry that affects the performance of the parties.

It is a model clause that should be carefully reviewed by the parties and adapted as required to fit the context of the type of contract it is used in.

Force Majeure Clause 2022

BIMCO Force Majeure Clause 2022

NOTE: This is a model clause and the parties should adapt it to fit the nature of their agreement. It should not be included in any agreement without careful consideration. Caution is urged when including the clause in a period time charter party with a broad trading area. We strongly recommend that the parties read the explanatory notes before incorporating this clause.

(a)       Definitions - “Force Majeure” means the occurrence of an event or circumstance as defined in (b) below (“Force Majeure Event”) that prevents a party from performing one or more of its contractual obligations (“the Affected Party”), provided that such party proves:

(i) the existence of a Force Majeure Event;

(ii) that such Force Majeure Event is beyond its reasonable control;

(iii) that the Force Majeure Event could not reasonably have been foreseen at the time of the conclusion of the contract; and

(iv) that the effects of the Force Majeure Event could not reasonably have been avoided or overcome by the Affected Party.

(b)       Force Majeure Events – For the purpose of this Clause the following shall be Force Majeure Events:

(i) actual, threatened or reported war, act of war, civil war or hostilities; revolution; rebellion; civil commotion; warlike operations; laying of mines;

(ii) act of piracy and/or violent robbery and/or capture/seizure; act of terrorists; act of hostility or malicious damage;

(iii) blockade, generally imposed trade restriction, embargo;

(iv) act of government or public authority whether lawful or unlawful, compliance with any law or governmental order, expropriation, seizure of works, requisition, nationalisation;

(v) plague, epidemic, pandemic;

(vi) act of God, natural disaster or extreme natural event such as earthquake, landslide, flood, or extraordinary weather condition;

(vii) explosion; fire; destruction of equipment; destruction of port facilities; obstruction of waterways; cyber security incident; break-down of transport, communication, information system or power supply; in each case unless caused by negligence of the Affected Party;

(viii) ionising radiation or contamination by radioactivity, chemical or biological contamination;

(ix) general labour disturbance such as boycott, strike and lock-out, occupation of factories and premises; in each case unless limited to the employees of the Affected Party or a third party engaged by it; or

(x) any other similar event or circumstance unless caused by negligence of the Affected Party.

(c)        Notices and Mitigation – The Affected Party shall:

(i) give written notice of the Force Majeure without delay to the other party identifying the relevant Force Majeure Event and its anticipated effect on the performance of one or more of its contractual obligations;

(ii) exercise reasonable endeavours to minimise the effect of the Force Majeure Event upon its performance of the contract and provide any relevant information and documentation to the other party in relation to the Force Majeure and the measures taken; and

(iii) notify the other party as soon as the Force Majeure Event ceases to prevent performance of its contractual obligations.

(d)       Cooperation – The parties shall cooperate to minimise the effects of the Force Majeure on performance of the contract and shall discuss in good faith alternative ways in which the contract can be performed and/or the effect of the Force Majeure can be minimised.

(e)       Non-liability for breach – Neither party shall be considered in breach of contract nor liable in damages for delay in or for non-performance of one or more of its contractual obligations to the extent caused by the Force Majeure from the time a valid notice under subclause (c)(i) was given.

(f)        Continuing payment obligations – Nothing in this Clause shall impact on either party’s payment obligations under the contract unless those payment obligations are directly affected by the Force Majeure.

(g)       Termination – Where a valid notice has been given in accordance with subclause (c)(i) above and the Force Majeure has the effect of:

(i) rendering the performance of the contract impossible, illegal or radically different from what was intended at the time of the conclusion of the contract; or

(ii) substantially affecting the performance of the contract as a whole and the duration of the Force Majeure exceeds [ …………..] days from the time notice was given (if this space is left blank then this subclause (g)(ii) shall not apply).

either party has the right to terminate the contract by written notification within a reasonable period to the other party.

Where a party terminates under this subclause (g) both parties shall be discharged from future obligations only and neither may claim damages for the other’s future non-performance. The parties must perform all obligations not affected by Force Majeure up to the date of the termination with any sums paid in advance and not earned or due being refunded, save where the contract or applicable law provides otherwise. Nothing in this Clause shall impact on any separate rights of termination under this contract or at law.

 

BACKGROUND

In recent years, extreme events have emphasised the need to provide contractually for the unexpected. When a force majeure event occurs that prevents a party from performing, the parties will need the protection of a clause to avoid claims for breach of contract and to provide a mechanism for handling the situation.

The philosophy behind the clause is that in a force majeure situation the parties should communicate and cooperate to handle the situation together. Termination should only be the last resort.

BIMCO is grateful to the subcommittee for their invaluable advice and expertise in developing the Force Majeure Clause:

Inga Frøysa, Torvald Klaveness (Chairperson)

Nicola Ioannou, Oceanfleet

Peri Ertugruloglu, Viterra

Philip Stephenson, The Standard Club

Rory Butler, HFW

Andrew Rigden Green, Stephenson Harwood

BIMCO secretariat support was provided by Mads Wacher Kjærgaard, Manager, Contracts & Clauses.

Explanatory Notes

Health Warning

At the top of the clause, a “health warning” has been included. This is unusual for BIMCO clauses, but has been included due to the special characteristics of the clause and the fact it may be included in a wide range of shipping contracts. The Force Majeure Clause is a model clause, which means that it should not simply be included in a contract without first carefully reviewing it in the context of other clauses included in the contract. For example, if the contract includes a clause specifically dealing with piracy, the parties should consider deleting piracy from the list of Force Majeure Events.

The health warning mentions that the force majeure clause might not work as intended in period time charter parties with a broad trading range. The reason for this is that the charterers under a time charter party are entitled and obliged to provide orders for the ship’s employment. If the charterers order a ship to a place where a force majeure event occurs, the charterers will normally be able to resolve the force majeure by finding alternative employment for the ship. However, if the charter party is for a dedicated trade, or cargo is already onboard, the clause could still be relevant.

Subclause (a) (Definitions) sets out the triggers for the clause and defines “Force Majeure”, “Force Majeure Event”, and “Affected Party”. The clause sets a high threshold for invoking it in order to avoid abuse. To be able to invoke the clause, a party has to be prevented from performing one or more of its obligations under the contract. In addition, it has to prove that there is a Force Majeure Event as defined in subclause (b); that the event is beyond its reasonable control; that it could not reasonably have been foreseen at the time of the contract; and that the effects of the event could not reasonably have been avoided or overcome.

Subclause (a)(iii) addresses foreseeability. The clause cannot be triggered if the Force Majeure Event could reasonably have been foreseen at the time of the conclusion of the contract. The rationale is that if something is foreseeable, then the parties should contract their way around it instead of relying on a force majeure clause.

Subclause (a)(iv) is about unavoidability. There will be no Force Majeure if the Force Majeure Event could “reasonably” have been avoided or overcome. This wording can also be found in the ICC Force Majeure Clause 2020. In the ICC guidance notes it is explained that the wording provides a lower threshold than impossibility in order to relieve a party from its duties, by introducing the criterion of reasonableness.

Subclause (b) (Force Majeure Events) sets out a detailed list of what is regarded as Force Majeure Events under the clause. The list contains both “natural” events such as earthquakes, floods, landslides, and other natural disasters, and “political” events such as war, piracy and strikes, but also epidemics, fire and obstruction of waterways.

In Subclause (b)(iii) the words “generally imposed trading restrictions” are not intended to cover sanctions, but rather import/export bans and restrictions on a specific commodity or commodities stemming from a particular geographical area. BIMCO has published specific sanctions clauses which the parties should consider including to cover sanctions risks. These clauses can be found here: Sanctions Clause for Voyage Charter Parties 2020 (bimco.org)Sanctions Clause for Time Charter Parties 2020 (bimco.org) and Sanctions Clause for Container Vessel Time Charter Parties 2021 (bimco.org).

In Subclause (b)(iv) the wording “compliance with any law or governmental order” deals with unforeseeable new laws or governmental orders that come into force during the contract. For example, a government that introduces a ban on ships that are older than 10 years after the contract has been concluded. A party to a long-term contract with a 12 year old vessel will want to be able to rely on this clause as it will be impossible to continue with the contract. Another example is if a country suddenly decides to ban all ships flying a certain flag.

Subclause (b)(vii) provides for “obstruction of waterways” which would apply to e.g. the scenario that occurred in 2021 where the Suez Canal was blocked by the containership "Ever Given".

Subclauses (b)(vii) and (b)(x) include a carve out for negligence by the Affected Party as one should not be able to invoke force majeure if it is one's own actions that have caused the Force Majeure Event. Similarly, as per subclause (b)(ix) force majeure is not available for strikes by the Affected Party’s own employees.

A general carve out for a party’s own negligence is not necessary and was not included in the clause for the other items as they will not have been caused by a party to the contract, for example, war, piracy, trade restriction, act of government, epidemic or an earthquake. Furthermore, a general carve out for all listed events would require the Affected Party to prove that the Force Majeure Event was not caused by their own negligence, which would be a negative burden of proof that could potentially lead to a lot of litigation. It therefore makes more sense to have a limited carve out for a party’s own negligence only for events that may be within a party’s control such as strikes, explosion, fire, breakdown of IT systems, etc.

Subclause (b)(x) provides a sweep-up provision to capture other events similar to those listed in the clause and is limited by the “ejusdem generis” rule under English law which means that any other event must be similar to the above listed events. In the context of force majeure, this is a sensible provision covering unforeseen events that may occur in the future but are not in the minds of the parties at the time of negotiation.

Subclause (c) (Notices and Mitigation) sets out in a chronological order what the Affected Party must do to rely on the clause.

Subclause (c)(i) covers the initial written notice from the Affected Party to identify the Force Majeure Event and the effect it is expected to have on the Affected Party’s performance under the contract. The notice needs to set out how the requirements of subclause (a) are fulfilled. The reason the notice should include the anticipated effect is to enable the other party to plan ahead. The phrase “without delay” may be modified by the parties by agreeing to a specific number of days instead. The reason for referring to “without delay” instead of giving a deadline for giving notice is because sometimes it can be difficult to identify at what point in time the Force Majeure Event occurred. In addition, subclause (e) excuses the Affected Party from breach only from the time notice is given, which should give the Affected Party an incentive to notify the other party as soon as possible.

Subclause (c)(ii) covers the obligation on the Affected Party to mitigate the effect that the Force Majeure Event has on its performance and continue to share information with the other party, to emphasise cooperation and transparency. It should be noted that the information and documentation requirement relate both to the Affected Party’s mitigation efforts and to Force Majeure as defined in subclause (a).

Subclause (c)(iii) provides that a notice should also be given when the event is no longer preventing the Affected Party from performing its contractual obligations.

Subclause (d) (Cooperation) sets out the “spirit” of the clause. Namely that the parties should work together in good faith and discuss how to best resolve the situation. This provision has been included to encourage collaboration between the parties to find alternative ways to perform.

Subclause (e) (Non-liability for breach) provides that a party is not in breach or liable in damages if it is delayed or cannot perform under the contract because of Force Majeure. Under English law, a party will be in breach of contract for not performing, even if the reason is force majeure. That is because force majeure is not a legal concept recognised under English law as it is in most civil law jurisdictions, for example, France where force majeure is part of the Code Civil. Under the subclause, a party is excused from breach only to the extent that it is prevented or delayed in performing due to force majeure.

Subclause (f) (Continuing payment obligations) clarifies that the parties’ payment obligations that are not directly affected by Force Majeure must still be performed. The payment obligations referred to in this subclause are both accrued and ongoing payment obligations. As the clause has been drafted as a general contract clause, specific reference to charter party terms such as laytime/demurrage or hire has not been made in this subclause, but recommendations in this respect have been added below.

Subclause (g) (Termination) includes two alternative ways for the parties to terminate. First, a party may terminate immediately if the requirements of subclause (g)(i) are fulfilled. This sets a high bar for terminating and the wording mimics the English law “doctrine of frustration”. This is considered useful as it gives access to the case law on frustration of contracts governed by English law.

An important difference between the doctrine of frustration and the right to terminate under subclause (g)(i) is that if a party can bring itself within (g)(i) it will be able to terminate immediately. Under frustration, it may that a significant period of time has to pass before the contract will be considered frustrated (and thereby automaticallyterminated).

Another reason for paraphrasing the test for frustration is that frustration is a residual remedy under English law and may not be applicable if the parties have provided for the event contractually, such as by a force majeure clause. So, to retain a remedy similar to frustration, also for non-English law contracts, it has been codified in this clause. Even though the test is more or less the same under subclause (g)(i) and frustration, subclause (g)(i) will be easier to apply than the doctrine of frustration as such, as the Clause lists the Force Majeure Events under subclause (b), and the event does not have to last for a prolonged period of time.

As the threshold for fulfilling the requirements of subclause (g)(i) is high, a second alternative to terminate is provided for in subclause (g)(ii) by way of a long stop number of days after which a party may terminate if the Force Majeure substantially affects the performance of the contract as a whole.

It is important to note that subclause (g)(ii) will NOT apply unless the parties agree on a number of days and insert it in the blank space. Great care should be taken by the parties when agreeing a number of days to be inserted here. As a general guideline the period should be relatively short for short term contracts and longer for long term contracts, but other factors such as the size and value of the contract should also be taken into account.

Subclause (g)(ii) requires that that the force majeure has to substantially affect the performance of the whole contract. This is because it would otherwise be too easy to terminate after a certain number of days. Without this qualification a party could terminate a long-term contract for a relatively minor consequence of force majeure as long as it lasted for the agreed number of days. As drafted now, a minor effect on performance will not give rise to termination rights, but the Affected Party will not be liable in damages if it is prevented from performing one or more contractual obligations.

The presumption of the force majeure clause is that the Affected Party is prevented from performing one or more of its obligations under the contract. Subclause (e) protects the Affected Party from being in breach and liable in damages for non-performance due to force majeure. The final paragraph of subclause (g) addresses the parties’ other obligations under the contract that they can still perform. In other words, the Force Majeure Event will not relieve the parties from performing all of its obligations under the contract. And it is these other obligations that are still possible to perform that the last paragraph of (g) is addressing by requiring the parties to perform those up to the date of any termination.

The right to terminate has been given to both parties. In practice, it may be that it is the Affected Party that will be interested in terminating in most cases. However, there can be situations where it will be in the interest of the non-affected party to terminate as well.

Subclause (g), final paragraph, second sentence provides that payments made before termination must be refunded if they have not been earned. Conversely, if payments have been earned before termination but not paid, they must be paid.

-------------------------

 

B. SPECIAL CONSIDERATIONS AND RECOMMENDATIONS IN RELATION TO CHARTER PARTIES AND CONTRACTS OF AFFREIGHTMENT

Where the Force Majeure Clause is used in a charter party or contract of affreightment it is recommended that the parties consider adding subclauses that clarify the position with respect to on/off-hire or laytime/demurrage, and describe what should happen if cargo has been loaded on a ship.  Proposals for such additional clauses are set out below as subclauses (h) and (i), but the parties must consider carefully whether these provisions are suitable for their particular charter party or coa.

The proposed subclause (h) is intended to be a supplement to subclause (f) and clarifies that laytime/demurrage or hire will continue to run/accrue in accordance with the applicable terms of the charter party/contract during the force majeure. This mirrors the position under English law. The position is not as clear under, for example, US law and it is therefore helpful to ensure the same result in all jurisdictions.

The proposed subclause (i) addresses the situation between owners and charterers where cargo has been loaded on the ship, in part or in full. It has been drafted on the presumption that it may be either party declaring force majeure and looking for a solution where cargo is on board the ship.

Subclause (i)(i) sets out the starting point that termination should not be possible under the Force Majeure Clause if there is cargo on board since the owners will remain responsible at law as bailees of the cargo and will have to bear the costs of discharge with no contractual rights to claim against the charterers.

It should be noted that a situation where a Force Majeure Event prevents loading completely, so that no cargo can be loaded at all, this can be dealt with under the standard provisions of the clause. Subclause (i) only addresses a situation where cargo had been loaded, in full or in part.

Subclauses (i)(ii) and (iii) are intended to break any “deadlock”, to get the parties to agree what to do with the cargo on board the ship. The Affected Party should suggest at least one of the options in (i)(ii)(1)-(4), and the other party will then be able to choose which option to accept. If the other party does not agree to any of the proposed options, or fails to respond, then the last resort will be that the Affected Party has the right to discharge the cargo at the nearest safe port or place as per subclause (i)(iii). It is recognised that this may be difficult for a charterer to control, but the provision is based on the presumption that it may be either owners or charterers that invoke this right.

So, if the force majeure prevents the completion of loading; or the departure from the load port; or the arrival at the discharge port; or discharge, for more than 21 days from when notice was given under subclause (c)(i), then the options in subclauses (i)(ii)(1)-(4) for the Affected Party kick in. The words “or is reasonably expected to prevent” are meant to cover a situation where the ship is on its way to the discharge port and it becomes clear that it is not going to be possible to discharge there because of force majeure. This wording allows the parties to look ahead and avoid having to go to a discharge port and wait for 21 days before being able to invoke the rights under subclause (i)(ii) if they know, for example, that discharge is impossible.

The reason for requiring a certain minimum number of days to have passed before the options are triggered is that otherwise there could be a Force Majeure Event preventing loading for just one day and the Affected Party would be able to request, for example, discharge at an alternative port.

Any alternative ports for discharge must be within the contract/charter party range.

Subclause (i)(iv) provides that any costs incurred in exercising any of the options set out in subclauses (i)(ii) or (i)(iii) should be allocated as per the contract. In other words, one will have to look at how the responsibility for loading and discharge has been allocated in the contract, for example, if it is on FIOST (Free In Out Stowed and Trimmed) terms. Even though it is difficult to find a cost allocation mechanism that is suitable for all types of contracts the drafting team felt that it was better to address this as opposed to staying silent, as that would not  be very helpful.

Subclause (i)(v) addresses liability towards third-party bills of lading holders and that subclause (i) should prevail in the event of a conflict with other implied or express provisions of the contract.

 

(h)       Only to apply where the contract is a charter party or contract of affreightment

For the avoidance of doubt, where the contract is a charter party or contract of affreightment the Force Majeure shall not affect time on hire, or laytime/demurrage, which shall be dealt with as per the applicable provisions of the contract.

Where the contract is a contract of affreightment termination under (g)(ii) above shall only apply in relation to the specific shipment affected by the Force Majeure and not the entire contract of affreightment.

(i)        Only to apply if and when there is cargo on board

(i) While a vessel has cargo on board neither party shall have the right to terminate the contract under subclause (g).

(ii) Where cargo has been loaded or part loaded and Force Majeure prevents or is reasonably expected to prevent completion of loading; departure from the load port; arrival at the discharge port; or discharge at the nominated discharge port, for more than twenty-one (21) days from the time valid notice under subclause (c)(i) was given, the Affected Party may request the other party to accept one or more of the following options:

(1)       discharge of the cargo at the load port or at the nearest safe port or place;

(2)       completion of loading at an alternative berth or load port within the terms of the contract;

(3)       proceeding part loaded to the discharge port; and/or

(4)       nominating an alternative safe port which lies within the contract range for discharge.

(iii) If the other party does not accept or fails to respond to the Affected Party’s request under subclause (i)(ii) within seven (7) days of receipt, the Affected Party may discharge the cargo on board at the nearest safe port or place where discharge is possible without being in breach of the contract.

(iv) In each case any costs and expenses incurred shall be allocated as per the contract.

(v) If in compliance with this subclause (i) anything is done or not done, such shall not be deemed a deviation, but shall be considered as due fulfilment of this contract and any contract in which this subclause (i) is incorporated. In the event of a conflict between the provisions of this subclause (i) and any implied or express provision of this contract, this subclause (i) shall prevail.

 

The Force Majeure Clause and third-party bills of lading

It is not the intention that the Force Majeure Clause should apply to third-party bills of lading holders such as cargo receivers. For example, a cargo receiver should not be able to invoke subclause (i) to direct the ship to discharge at an alternative safe port. This could be problematic if the parties do not agree with the cargo owners in respect of what to do with the cargo. From a shipowner’s perspective it is better to have only the charterers’ requests under the clause to respond to as opposed to receiving possibly conflicting orders from charterers and cargo receivers.

The clause is only meant to apply to the parties to the contract in which it is inserted into, for example, the owners and the charterers under a charter party. Nevertheless, under English law it may be that the Force Majeure Clause is interpreted as applying to bills of lading because it refers generically to “party” and may be considered to be relevant to the bill of lading. A third-party bill of lading holder might therefore argue that they are entitled to invoke the clause as an Affected Party. If this is a concern of the parties, the following provision may be added to subclause (i):

“(vi) If this Clause is incorporated into a document evidencing a contract of carriage only the carrier shall be entitled to invoke this subclause (i).”

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