The Covid-19 pandemic and the war in Ukraine have focussed attention on force majeure clauses and the likely approach of Courts in common law jurisdictions to the construction of such clauses.
Woolworths v Twentieth Super Pace Nominees is a timely reminder that Courts will generally construe such clauses narrowly, based on the express wording of the clause and other relevant terms in the contract.
In April 2014, Super Pace Nominees Pty Limited, trading as SCT Logistics (SCT), loaded 258 pallets of goods onto a train to transport to West Australia on behalf of Woolworths Group Limited (Woolworths). The carriage of the goods was subject to an ongoing agreement entered into between the parties in 2012 (Contract).
Unfortunately, the railway corridor on which the train was travelling was subject to heavy rain and flash flooding and the train derailed, causing extensive damage to the goods. Woolworths brought a claim against SCT and Australian Railtrack Corporation Limited, which owned and operated the railway corridor, for losses incurred in relation to the damaged goods.
Woolworths claimed it was entitled to recover from SCT under a clause in the Contract which provided that SCT would indemnify Woolworths against all losses arising from any loss, theft, destruction or damage to the goods.
SCT asserted that it could rely on a force majeure clause in the Contract, which it argued relieved it of any liability for damage caused by an extraordinary event beyond its control (the extreme weather) (Force Majeure Clause).
In December 2020, the Court heard a separate question as to whether the proper construction of the Contract entitled Woolworths to be indemnified for the loss it had suffered, even though the loss was due to or sustained by reason of a force majeure event.
The Force Majeure Clause provided that if a force majeure event occurred, neither party was liable to the other for any delay or failure to fulfil its obligations under the Contract. Unfortunately, the clause did not define a force majeure event.
Woolworths argued that SCT’s obligation to indemnify it arose irrespective of the Force Majeure Clause, because the Contract provided that SCT assumed the risk of the goods being damaged during carriage.
It said that the Force Majeure Clause only relieved SCT of liability for breach of its obligations relating to the performance of the services under the Contract, such as a delay or failure in delivery of the goods to the end location. It did not relieve SCT of liability for damage to the goods.
Not surprisingly, SCT disagreed and argued that this construction was inconsistent with the commercial purpose and intent of the Force Majeure Clause, as well as force majeure clauses generally, which typically provide that a party should not be liable for damage caused by an event that is beyond its control.
The Court preferred Woolworths’ argument. The Contract was clear that SCT was responsible for the goods from collection until acceptance by Woolworths at the delivery point.
The Contract provided that SCT would indemnify Woolworths for any losses incurred arising from or in connection with damage to the goods. This indemnity did not require there to be any fault on the part of SCT.
It followed that SCT was on risk for damage to the goods during the period it had responsibility for them. The Force Majeure Clause protected it against non-performance caused by a force majeure event. The force majeure clause did not exclude liability for damage in this case. Further, putting Woolworths on risk for damage to the goods caused by a force majeure event was seen to be inconsistent with the commercial allocation of risk in the Contract.
Force majeure clauses are commonly found in commercial contracts. When unforeseen events cause delay, loss or damage, parties may be able to rely on such clauses to relieve them of liability.
The disruption caused by Covid-19 and the war in Ukraine has resulted in an increasing number of parties invoking force majeure clauses in the supply chain.
As shown in this case, the extent of the application of such a clause is always dependant on the specific wording of the force majeure clause, and potentially other terms in the contract, as well as the wider factual matrix.
Legal advice should always be taken when drafting or incorporating force majeure clauses into contracts, and before seeking to invoke force majeure clauses.
Hesketh Henry’s Business Advice and Trade & Transport teams regularly advise on the drafting and application of force majeure clauses in the aviation, commodities and construction sectors.
If you have any questions about this decision, please get in touch with our Transport Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.