Dispute on whether “storm” to be a force majeure event?
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The contract could list natural phenomena that were considered “force majeure” such as storms, floods, earthquakes, lightning, volcanic eruptions… But when this event occurred, many businesses considered themselves to be automatically exempted from liability when breaching the contract. Therefore, it could lead to a dispute like the one below for your reference.
Summary of facts
An automobile manufacturing joint stock company
(Manufacturing Company) participated in cargo
insurance under Policy No. 4586869 issued on August
24, 2020 (Amendment and Supplemental Letter No.
1984575 dated August 24, 2020) at an insurance
enterprise (Insurer) with the insurance amount of VND
34,487,011,694. On December 1, 2019, the Manufacturing
Company signed a Service Contract (Contract) with
the Respondent (Shipping Company), under which,
the Respondent carried the insured goods of the
Manufacturing Company from the Port of Xingang, China
to Haiphong Port, Vietnam according to Bills of Lading
No. CKPANXG2008169 and No. HASLC2200800106.
On October 2, 2020, when checking the delivery and
receipt of goods at the Warehouse of the Manufacturing
Company in Gian Khau Industrial Park, Gia Tran commune,
Gia Vien district, Ninh Binh province, the Manufacturing
Company discovered that the goods in the containers
No. TEMU8652994 and DRYU9733017 were wet and sent
a Notice of Loss dated October 5, 2020 to the relevant
parties.
The Insurer (Claimant) paid an insurance compensation
amount to the Manufacturing Company and subrogated
to claim the reimbursement of that amount from the
Shipping Company, but the Shipping Company did not
pay and a dispute arose over many problems related
to the loss of goods (components). Below was a dispute about whether a “storm” was a force majeure event or not. The Respondent argued that the storm caused damage to the goods, therefore, it should be considered force majeure and they did not have to compensate for the damage, but the Claimant did not agree and filed a lawsuit at arbitration, requesting the Respondent to reimburse the amount of VND 1,776,998,112 (excluding 10% VAT).
Respondent’s point of view
The Respondent argued that under Article 10 of the
Contract, a “storm” should be considered a force
majeure event because, that was: “… an event
or circumstance, or a combination of events or
circumstances, which, in whole or in part, prevents
or is an unavoidable delay by a party in performing
its obligations under the Contract, but not only if
and to the extent of events or circumstances not
within the scope of reasonable control, direct or
indirect, of the affected party and could not be
avoided if the affected party had taken reasonable
care, including but not limited to: war, hostilities
(where war declared or not), invasion, act of
foreign enemy, mobilization, requisition, embargo,
rebellion, revolution, uprising, military or usurpation,
civil war, terrorism, natural disaster according to
the Vietnamese laws and regulations”.
Storm Maysak caused the situation that cargo
stuffed containers located at Gamman Terminal
of Busan Port (Korea) were flooded with sea
water, damaging the gaskets and floors of the
containers, and sea water damaged the goods.
The Respondent considered this to be a force
majeure event, therefore, according to the
provisions of Clause 2, Article 351 of the Civil Code
2015 (“Civil Code”), Clause 2, Article 151 of the
Vietnam Maritime Code, Clause 1 Article 294 of
the Commercial Law and Clause 4, Article 10 of
the Contract, the Respondent was exempt from
liability when breaching the contract due to force
majeure events.
Claimant’s point of view
About force majeure events, Claimant based on
the provisions of Article 156 of the Civil Code and
argued that storm Maysak was not a force majeure
event, because: (a) storm Maysak was not an
unforeseen event; (b) the Respondent had failed
to prove that it had taken all necessary measures and permissible capacities as a transport service provider to its customer; and (c) Respondent failed to demonstrate that storm Maysak was the direct cause of the loss. In addition, the Respondent also did not perform the notification obligation under the Contract for the occurrence of a force majeure event.
Arbitral award
The Arbitral Tribunal considered that in order to
be recognized as a force majeure event, such
event should satisfy the conditions prescribed
in Article 156 of the Civil Code. Although storm
Maysak was an objectively occurring event, it was
not unpredictable in the course of the Contract
performance, as it had been publicly forecasted by
the relevant authorities and the Parties were aware
of the occurrence of this storm.
The case file also showed that there was no notice
from the Respondent about the force majeure event.
There was also no evidence that the Respondent
had taken all necessary and permissible measures
to overcome and limit the impact of the Maysak
storm event in Busan, Korea. In addition, Clause
3, Article 9 of the Contract stipulated: “If the
damage is caused by […] the omission of Party A
(i.e. the Respondent) in the process of assessing the
risk of the occurrence of damage, Party A cannot
apply the limitation of liability provided for in the
Commercial Law, the Maritime Law and the Bill of
Lading”.
The Arbitral Tribunal found that the Respondent
had not fully assessed the risk of damage caused
by storm Maysak, so they did not notify the force
majeure event and did not apply all necessary and
permissible measures to overcome and limit the
impact of the storm Maysak event in Busan, Korea.
This was the Respondent’s omission as prescribed in
Clause 3, Article 9 of the Contract. For the foregoing
reasons, Respondent could not rely on the storm
Maysak event to claim an exemption from liability
for damage to the goods carried by Respondent.
Therefore, the Arbitral Tribunal decided to force
the Respondent to reimburse the entire amount
of money that the Claimant had indemnified the
insured.