With companies taking recourse to this clause, Force majeure has emerged as a breather for companies across the globe striving to maintain seamless operations while coming to terms with the global crisis we are in. In this feature, we demystify the nuances of the Force Majeure clause in Logistics and Supply Chain and explore if it is a clause of deliverance or a shield to protect oneself from being accountable or going the extra mile.
What is Force Majeure?
Force majeure refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations.
Black’s Law Dictionary defines the term ‘force majeure’ as ‘an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.’
In Indian statutes, force majeure has not been defined or addressed however some reference can be found in Section 32 of the Indian Contract Act, 1872 (the “Contract Act”) that underlines how if a contract is contingent on the happening of an event which becomes impossible, then the contract becomes void.
Force Majeure in Supply Chain & Logistics
Global supply chains are multi-layered and complex, and due to such an intricately-built system, it leads to situations where disruption can be unexpected or poorly understood. The pandemic has been a stress-inducing factor for many supply chains and hence is more likely to create severe disruptions across most industries around the globe.
As a sector that is vulnerable to such events, what has been the impact of Force Majeure clause on Logistics and warehousing?
The Government of India had deemed shipping and logistics as ‘essential services’ that should stay operational even during the nationwide lockdown. In an office order issued on March 23, the Shipping ministry had directed port authorities of all major ports and state maritime boards to ensure that cargo operations are not deterred by the lockdown imposed by state governments.
Steve Felder, Managing Director, Maersk South Asia writes on how under such circumstances, “it is our responsibility to keep the supply chains running without exception, as these could include movement of crisis-critical essentials”.
He adds, “Against this background, all the ports and terminals continued to be operational under the strict guidelines of hygiene and social distancing. We have been operating our facilities with minimum required staff, undertaking regular cleaning and sanitation processes, creating awareness amongst truck drivers and labourers around hygiene and distributing PPEs amongst them too.
That said, in terms of moving cargo itself, the logistics ecosystem has faced hurdles such as acute shortage of truck drivers. We have mitigated this situation by moving as much cargo as possible on rail or by offering our customers storage options.
Logistics is a vulnerable sector in such a crisis, but as a responsible logistics partner, it is up to each of us to stay true to our responsibilities towards our customers.”
The Impact of Force Majeure Clauses in Contracts
The manner in which a FM clause impacts a company with respect to COVID-19 and/or resulting governmental orders depends upon the language of the force majeure provision, the facts, and the law that applies to the contract.
Generally, a delay or interruption in performance will give rise to force majeure, but whether this can be enforced will often boil down to the specific wording of the clause.
It can save one thousands of dollars if one gets it right, but should one get this wrong, it could lead to a breach of contract and be very costly.
Force Majeure: Emancipation or Excuse?
Is the Force Majeure clause, a doctrine of relief that has been taken advantage of, by parties, in order to excuse its non-performance?
Dhruvil Sanghvi, CEO, LogiNext addresses this important note.
“It is true that COVID19 has called Force Majeure into play but the clause does not cover the companies incompetence for a longer duration of time. It can protect the company until it activates its business continuity plans.”
He further throws light on the dynamics of why the clause cannot be taken advantage of.
“Force Majeure cannot be called into play for small value transactions, nor can it be called into play unless it is approved by both parties. Pandemic has not been classified by the government as a Force Majeure invoking event. In most scenarios, we have observed that both parties are sharing the load of this unforeseen event and at some point have opened new channels of revenue to get back into the business.
Even if certain companies stop their operations and safeguard themselves by invoking this protection clause for the time being, but their customers are going to go ahead with other vendors who are able to perform and provide in these unforeseen circumstances. So these companies will be protected now but their future business is jeopardized.
To keep such impacts in check, companies must partner up with vendors that have business continuity planning and superior technology in place that can enable them to function even in such haphazard situations.”
Download the July Issue of the Logistics Insider Magazine to read the complete unabridged version of this feature article.
