Applicability of Force Majeure Clauses in the Aftermath of Hurricane Sandy
Hurricane Sandy was the largest Atlantic hurricane on record, and possibly the costliest hurricane in U.S. history, causing damage in excess of approximately USD 50,000,000,000 and claiming the lives of at least one hundred ninety-three (193) individuals.
On October 28, 2012, the USCG Captain of the Port of New York and New Jersey set port condition YANKEE for all commercial waterways requiring, inter alia: (1) commercial deep draft vessels greater than 500 gross tons to evacuate all port piers by 6:00 p.m. local time; and (2) all vessels to evacuate Bay Ridge, Stapleton, and Gravesend Bay anchorage grounds by 6:00 p.m. local time. On October 29, 2012, Sandy’s storm surge hit New York City flooding streets, tunnels and subway lines and causing massive power outages throughout New York, New Jersey and Connecticut. It is estimated that litigation arising out of delays and damages caused by Hurricane Sandy will be voluminous as insurance claims continue to mount and disputes over coverage under various policies have already begun.
As individuals and businesses continue to deal with the effects of Hurricane Sandy, many have questioned the applicability of force majeure clauses in charter party contracts, specifically, whether Hurricane Sandy qualifies as an “Act of God,” excusing the non-performance of one (1) or more parties. While each clause is unique and subject to fact specific review, force majeure clauses, in general, will be upheld by Courts of the United States “to relieve a party from its contractual duties when its performance has been prevented by a force beyond its control or when the purpose of the contract has been frustrated.” Phillips Puerto Rico Core, Inc. v. Tradax Petroleum, Ltd., 782 F.2d 314, 319 (2d Cir. N.Y. 1985) (internal citations omitted).
The Second Circuit Court of Appeals (the Federal Circuit governing New York and Connecticut) and the Third Circuit Court of Appeals (covering New Jersey and Pennsylvania), have each held that the burden of demonstrating force majeure is on the party seeking to have its performance excused, and the non-performing party must demonstrate its efforts to perform its contractual duties despite the occurrence of the event that it claims constituted force majeure. Phillips Puerto Rico Core, Inc., 782 F.2d at 319 (citing Gulf Oil Corp. v. FERC, 706 F.2d 444, 452 (3d Cir. 1983), cert denied, 464 U.S. 1038, 79 L. Ed. 2d 164, 104 S. Ct. 698 (1984)). In reviewing whether the non-performing party has met these burdens, the Court will conduct a factual review of the specific language and requirements of the contract and the force majeure clause at issue.
Specific issues which deserve consideration include, inter alia, (1) whether a storm, hurricane or weather event was specifically included in the force majeure clause (for example a hurricane can be treated differently in the U.S. Gulf, an area in which such storms are frequent, as opposed to New York and New Jersey); (2) whether Hurricane Sandy actually caused the non-performance; (3) what are the notice requirements (if any) to declare force majeure; (4) when does the force majeure event end thereby allowing performance to be completed; and/or (5) any obligations of the parties to mitigate damages, including whether steps were (or could have been) taken prior to, during, and after the storm which would have enabled the performance of the contract.
In short, before declaring force majeure, or accepting a force majeure declaration from another party under a particular contract, parties should give close consideration to the causal relationship between the storm and the type of performance for which excusal is sought. If the non-performance of a specific contract was not directly related to Hurricane Sandy, it is arguable that force majeure would not apply.
For more information about force majeure clauses and their applicability to a potential claim or controversy, please do not hesitate to contact us at [email protected].