The English High Court judgement of 13 September 2018 in Classic Maritime Inc v. Limbungan Makmur & Lion Diversified Holdings examines the need to show causation when claiming force majeure. In this article, we take a further look at some of the issues to consider when drafting force majeure clauses.
This is a case with an unexpected twist. Limbungan was contractually obliged to supply Classic with iron ore cargo. When the supplying mine shut down due to a dam bursting, Limbungan claimed force majeure under the Contract of Affreightment. Classic claimed for US$20M of lost freight charges.
The court found that, since Limbungan would not have shipped the cargo even if the dam had not burst, the causation requirement of the force majeure clause was not met. Limbungan failed the “but for” test: but for the dam bursting, would Limbungan have shipped? The judge found on the facts that it would not have shipped: the breach was due to Limbungan not wanting to ship (for economic reasons), not due to the dam bursting. Limbungan could therefore not rely on force majeure to excuse its failure to supply cargo and was liable in breach.
However, when it came to assessing damages, the judge held that one had to compare the position that Classic was in due to the breach, with the actual position it would have been in had Limbungan complied with its obligations - and that position was that, had Limbungan wanted to ship, no cargoes would have shipped because of the dam bursting - and the dam bursting would have excused Limbungan’s failure to ship. Limbungan was therefore not liable for substantial damages.