A shipper typically has very few rights, while a forwarder and carrier has a number of options, in these circumstances.

The first point to bear in mind is that, unless a freight forwarder has accepted liability as principal (by issuing a house bill of lading or waybill for instance), a forwarder is merely the agent for the shipper in arranging a contract of carriage between the shipper and the carrier. A forwarder undertaking traditional forwarding services has no liability for loss or damage to goods or the cost of carriage.

In any event, standard freight forwarding terms and conditions and Bill of Lading terms include rights for the carrier/forwarder to:

• depart from customer instructions, or carry the goods to the contracted port of discharge or place of delivery by an alternative route to that indicated in the bill of lading/other shipping documents (and charge additional freight accordingly);
• if the carrier/forwarder considers that continued carriage will incur additional expense or risk or be effected by any hindrance, risk, delay, difficulty or disadvantage, abandon the cargo at any place or port (with the customer remaining liable for the full freight costs as if the carriage had been completed as contracted, plus any additional costs from abandonment); incur any additional expense to continue the carriage (at the customer’s cost); and/or suspend the carriage and store the goods at any place at the customer’s cost;
• if the cargo is perishable or is not collected by the customer following suspension or abandonment, sell or dispose of the goods at the cost of the customer; and
• exercise a lien over the goods and related shipping documents for all amounts due.

Who bears the risks and extra costs?

Where the risks and costs referred to above ultimately fall depends on the terms of any relevant supply contract. Often, that question is determined by the relevant incoterm.

Incoterms

As we described in this column in last month’s article, Incoterms outline the responsibilities of sellers and buyers for the delivery of goods under sale contracts, including the point of delivery/passage of risk and which party is responsible for which costs. There are eleven different Incoterms and each one differs in the extent to which it is either seller or buyer favourable.

Insurance

Insurance is also likely relevant here, depending on the scope of cover and any relevant exclusions. Business should contact their insurance brokers to check how any applicable marine cargo/transit insurance would respond to the exercise of any of the above rights by a carrier/forwarder. Unfortunately, exclusions for claims relating to any epidemic may prevent recovery.

Force majeure

Force majeure (French for ‘superior force’) clauses operate to suspend or excuse non-performance of obligations when certain circumstances beyond the parties’ control prevent such performance. Under New Zealand law, force majeure is a contractual concept. That means each clause needs to be interpreted on its own terms and if your contract does not have a force majeure clause then you cannot rely on the concept. However, be aware that force majeure (or equivalent legal principles relieving liability for events outside a party’s control) can be implied under some foreign laws if applicable to a particular contract and force majeure forms part of the UN Convention on Contracts for the International Sale of Goods to which NZ and many of our trading partners are subject.

Pandemics and unexpected Government intervention would normally fall within the scope of a force majeure clause. But the analysis doesn’t end there:

• force majeure clauses typically only relieve non-performance of obligations if and to the extent, and for so long, that obligation is actually prevented by events outside the party’s control. For instance, while obligations to deliver a “non-essential” product which is not currently being manufactured, or delivery timeframes or quantities which cannot be met due to reduced airfreight capacity, might be excused by a force majeure clause; payment obligations will likely remain.
• the clause may require prompt notice and mitigation of the impact of the force majeure event – both of which would be prudent in any event.
• continued non-performance due to force majeure for an extended period of time, may entitle one or both parties to terminate the contract – again, it depends on the contract’s specific terms.

To read more on the effects of Force Majeure and the frustration of contracts, click here. Our team have written extensively on the impact the outbreak has had on contract terms.

Other contractual provisions may also be relevant, eg. material adverse change clauses or hardship provisions; rights to adjust prices due to changes in law or increased costs (Incoterms might be important to apportion responsibility for such costs in a supply relationship); and cancellation or suspension rights. In a shipping context, typical forwarding and carriage contract terms give wide rights to the forwarder/carrier to depart from customer instructions, use alternative routes, abandon cargo, suspend carriage and store the cargo and sell or dispose of perishable cargo.

These are difficult times and the issues are, in many cases, novel. Early, open and honest communication is key – with customers, suppliers, insurers, forwarders, carriers…and lawyers.