CARgo on Fire: Can Felicity Ace invoke Force Majeure?

Update: Felicity Ace, the massive cargo ship left stranded on the Atlantic Ocean, has finally sunk.

On February 16th, the Roll-On-Roll-Off (RORO) car carrier vessel went up in blazes, while carrying ~4,000 luxury cars including Porsche, Lamborghini, Volkswagen and Bentley, among other cargo. The cars were being transported from Germany to Rhode Island. The situation was such that the captain had to abandon the ship. Following the distress signal sent, all crew members were rescued and the ship was towed to a shelter in Azures with the help of the Portuguese Navy and other nearby vessels.

However, this is not the first time that Porsche would be handling such a situation. In 2019, the carrier ship Grande America sank with 37 new Porsche cars on board, including four 911 GT2 RS. The ship sank in the Bay of Biscay on its way from Germany to Brazil.

Circling back to Felicity Ace, the risk modelling company Russels has estimated the total value of cargo on the ship to be USD 438 million out of which USD 401 million was for luxury cars and goods vehicles. According to the ship’s captain, the lithium-ion batteries in the cars were what caused the fire, which needs special equipment to be extinguished. Experts confirmed millions of dollars in damage to the car manufacturers.

In such a situation, it remains unclear whether the Panama flagged vessel can invoke Force Majeure in its contracts with the shippers. Let’s start by differentiating Force Majeure from Frustration. While, according to English law, Force Majeure can be invoked only if there is a specific clause for it in the contract, Frustration is a rather common doctrine. A contract can be terminated under the doctrine of Frustration if an event deems the contract physically or commercially impossible to be fulfilled, or makes its performance completely different from how it was designed to be performed when entered into. However, using both clauses should be done very carefully and in the right events by either of the parties involved.

When can Force Majeure be invoked?

To invoke Force Majeure, the following three basic conditions must be met:

  • The clause must specify the event(s) under which it can be invoked and such event should have happened. Such event(s) must, usually, be out of either party’s control.
  • The above mentioned event(s) should have ‘prevented’, ‘delayed’ or ‘hindered’ the performance of contractual obligation on part of the party invoking Force Majeure.
  • There are no possible steps to avoid the event(s) or consequences.

What comes after?

Even when a carrier relies on Force Majeure, it does not always mean that the cargo will not be delivered. The carrier has a duty to deliver the cargo unless it is completely impossible to do so.

“One of the most fundamental principles behind force majeure in most jurisdictions is that performance needs to be truly impossible — not just more expensive or more difficult.” says Jennifer Semko, Partner at Baker McKenzie.

So, for instance, when a carrier invokes Force Majeure due to COVID-19 related restrictions, one may expect a delay but not a total suspension of service. While on the other hand, in the current situation of Felicity Ace, when most to all cargo is deemed unsalvageable, invoking Force Majeure will most probably mean getting relieved from its contractual obligations. But that is something we’re yet to see.

Some common consequences of invoking Force Majeure are:

  • Suspension: Obligations are put on hold, while the event continues
  • Right to terminate: Provided in some clauses to discharge the carrier of its obligation in case a pre-defined time has passed and the event is still active.
  • Non-liability: Under this, once Force Majeure is invoked, both the carrier and the shipper are relieved of their obligations for as long as the event is ongoing.
  • Obligation to mitigate: Force Majeure clauses often require the party who suffers the event, to exercise ‘reasonable endeavors to avoid or mitigate’ the Force Majeure.

How will it work in the Felicity Ace situation?

The carrier can invoke Force Majeure with the exclusion of fire and declare a general average for costs to save the vessel or the cargo on board. On the other hand, the car manufacturer(s) will probably investigate whether carriers had any fault on the fire to try to challenge the exception.

SIANO & MARTINS Advogados Associados is a law firm specializing in helping vessels keep sailing while they deal with accidents, claims, contracts, authorities and ports issues). We contacted Fabiana Martins, Partner at the firm, to know her views on this situation. She said, “It will depend always on which law will apply. The first thing we do is to list all the possibly involved parts and contracts (owners, cargo interests, freight agents if any etc) to analyse what applies to who. Traditionally if we look to Hague/Hague Visby Conventions, fire is one of the traditional exclusions of owner’s liability, however, we need to check/investigate better.”

The Hague / Hague-Visby Rules exception of “fire” contained in Art. IV r2 (b) of the Rules states that “Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from fire, unless caused by the actual fault or privity of the carrier.”) since the cause cannot be caused by fault or privity of the carrier.

“With regard to high-value goods, note that according to Rule 4 (5)(e), neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with the knowledge that damage would probably result. In other words, if the shippers are able to prove the negligence with the carriers: 1) they cannot use the exception of fire and 2) they cannot limit their liability to the discussion. Then it lawyers around whether there was neglect or not,” Martins added.

While the fate of the vessel is still unknown, it is currently unclear as to what are the next steps that will be taken by Felicity Ace. As of now, special firefighting equipment is on its way from Rotterdam to salvage the ship and being supported by two large tugs, it cannot be docked at the Azores port considering its size.

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