Force Majeure: Could The Contract Be Fulfilled 'But For'?

A party seeking to rely on a force majeure or exceptions clause needs to show that "but for" the force majeure or excepted event, it would have performed the contract. However, where that party is unable to perform the contract, the innocent party is still entitled to substantial damages in circumstances where the contractual performance would nevertheless have become impossible by reason of extraneous events. The Court of Appeal considered these two issues in Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102, on appeal from Teare J's first instance decision ([2018] EWHC 2389 (Comm)).

Facts

On 5 November 2015, a dam operated by Brazilian mining company Samarco Mineraçao SA (Samarco), collapsed in what remains to this day the worst environmental disaster in Brazilian history. As a result, production at Samarco's iron ore mine came to a halt, affecting customers of the mine and impacting on their sale purchase contracts as well as their transportation agreements.

Previously, on 29 June 2009, the parties to this dispute, Classic (Shipowner) and Limbungan (Charterer), had entered into a long-term contract of affreightment (COA) providing for shipments of iron ore pellets from Ponta Ubu or Tubarao in Brazil to Port Kelang or Labuan in Malaysia, on tonnage to be provided by the Shipowner.

The Charterer claimed that the bursting of the dam prevented it from supplying five of the cargoes for shipment under the COA, and that Clause 32 of the COA protected it from liability for breach of what was otherwise an absolute duty to supply cargoes.

The clause provided:

"Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be responsible for... failure to supply, load ... cargo resulting from: Act of God ... floods ... landslips ... accidents at the mine or production facility ... or any other causes beyond the Owners', Charterers', Shippers' or Receivers' control; always provided that such events directly affect the performance of either party under this Charter Party."

Whilst the parties agreed that the dam burst did constitute an "accident at the mine", the Shipowner argued that the collapse of the dam had no causative effect for the Charterer because the five shipments would not have been performed even if there had been no dam collapse. An unfavourable steel market, and reduced demand from its own customers, had already caused the Charterer to miss two shipments between July and October 2015, and...