Does the war in Ukraine constitute force majeure according to Gafta and FOSFA?

Does the war in Ukraine constitute force majeure according to Gafta and FOSFA?

On 24 February 2022, Russia attacked Ukraine. In this article, we analyse whether the war constitutes a force majeure event as per Gafta and FOSFA contracts.

The short answer: hostilities can be considered as force majeure. The main condition required is the impossibility to fulfil the contract because of an unforeseen event beyond the parties’ control, in this case war. Force majeure does not mean automatic termination of the contract. The Gafta and FOSFA contract proformas provide for clear procedures on the occurrence of force majeure. These procedures are different. In both cases, the other party must be notified of the force majeure and receive an explanation of its nature. First, the delivery period under the relevant contract is to be extended for a specified period, and only if performance remains impossible beyond this extended period may the contract be terminated due to force majeure.

General principles of force majeure under English law

The term "force majeure" comes from the French legal doctrine and is not recognised in English law. Thus, force majeure can only be invoked if the contract contains a force majeure clause. In England, there is no legislative act on force majeure applying to all contracts.

The English courts interpret force majeure clauses narrowly. For example, if a contract specifies an exhaustive list of force majeure events, the court will not consider any other events not listed in the force majeure clause.

For an event to be considered as force majeure, two conditions are required:

1) Impossibility of performing the contract. It must be "impossible" and not just "difficult" or "unprofitable" to perform. Here are the examples:

Delivery of rye on FOB Odessa term between 1 and 15 March 2022. Ukrainian ports are closed, and grain terminals do not work for export due to military operations. On 8 March, the Ukrainian government banned export of rye.

Delivery of Ukrainian sunflower oil on CIF Rotterdam term between January and December 2022. If hostilities end in March, there would still be 9 months to fulfil the contract, making it enforceable.

The impossibility of performance must be due to events beyond the control of the party. If the impossibility of performance is due to an act or omission of the party, such an event will not be considered force majeure.

2) The event must be one that could not have been foreseen by the parties, and must be insurmountable. A party should make reasonable attempts to overcome or avoid force majeure. For example, a party should endeavour to find other suppliers or to charter another vessel, etc. If this could be done, then the event is not insurmountable.

Force majeure under Gafta

Force majeure under the Gafta contracts is an open-ended list, i.e. any event having the characteristics described above can be considered as force majeure:

(a) prohibition of export or other executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the port or ports named herein is/are situated, restricting export, whether partially or otherwise, or

(b) blockade, or

(c) acts of terrorism, or

(d) hostilities, or

(e) strike, lockout, or combination of workmen, or

(f) riot or civil commotion, or

(g) breakdown of machinery, or

(h) fire, or

(i) ice, or

(j) unforeseeable and unavoidable impediments to transportation or navigation, or

(k) any other event comprehended in the term force majeure.

Prevention of shipment clause under Gafta 49

As stated above, the occurrence of force majeure does not automatically terminate the contract. First, the delivery period is extended. If force majeure continues beyond the extension, the contract can be terminated. Only the Sellers are entitled to rely on a force majeure clause under Gafta No. 48, 64 and 100 contracts, whereas either party can do so under a Gafta No. 49 contract.

The procedure on the occurrence of force majeure is as follows:

1. To notify the counterparty in writing of force majeure. A notice of force majeure must be served within 7 days of the occurrence of force majeure, or 21 days before the beginning of the delivery period (whichever is later).

These deadlines are not to be missed without a good reason. The other party is entitled to claim written evidence of such a reason. Otherwise, the right to claim force majeure may be lost.

2. If force majeure lasts more than 21 days after the end of the delivery period, the other party is entitled to terminate the contract. A notice of termination should then be submitted no later than the next business day after the expiry of the 21-day period.

3. If the contract has not been terminated and force majeure continues for a further 14 days, the contract (insofar as it has not been fulfilled) shall be deemed to have been automatically terminated without consequences for the parties.

4. The counterparty must be notified immediately if the force majeure event has been resolved prior to termination of the contract. In such case, the delivery period shall be extended by the time remaining for the affected party to fulfil its obligations prior to the occurrence of the force majeure.

For example, the delivery period is until 30 March. The force majeure occurred on 5 March and ceased on 25 March. In such case, the delivery period is extended by 20 days.

5. If there are 14 days or less until the end of the delivery period whenforce majeure occurs, the delivery period shall be extended by 14 days from the date on which the force majeure event ends.

Force majeure under FOSFA

The list of force majeure circumstances under FOSFA contracts is also open-ended:

(a) fire

(b) strikes

(c) lockouts

(d) riots

(e) civil commotion

(f) any cause falling under the term force majeure.

However, in FOSFA the time limits and algorithm for action by the affected party are different.

In case of force majeure, the delivery period is extended by 21 days. If force majeure continues for more than 60 days after the end of delivery period, the contract (in the part that has not been fulfilled) is automatically cancelled without consequences for the parties.

The counterparty must be notified about force majeure without delay. Also, the counterparty can demand evidence to prove the occurrence of force majeure.

What if there is no force majeure clause in the contract?

The affected party can claim frustration. Under English law, frustration means an unforeseeable event, which (i) makes performance of the contract impossible, or (ii) radically changes the parties' original obligations. If so, the contract is terminated, and the parties are released from their obligations. According to English case law, it is more difficult to justify frustration than force majeure. Frustration is a separate large concept that is not covered in this article.

Conclusion

The Russia-Ukraine war may constitute force majeure. The main condition is the causal link between the war and the impossibility to perform the contract by the affected party.

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