Written by Paul J. Kozacky on March 12, 2015
Over the last eight months, shippers and carriers constituting the Pacific Maritime Association have been embroiled in a protracted dispute with the International Longshore and Warehouse Union, affecting 29 U.S. West Coast ports from northern Washington to Southern California.
The two sides hit an impasse when their contract expired in July 2014. The PMA had accused ILWU members of intentional slowdowns, and recent weeks saw international trade halted as a result of partial and occasionally complete port closures, leaving containerships stranded at distant anchorages, racking up tens of thousands of dollars a day in contractual demurrage and detention charges.
On Feb. 20, the two sides reached a tentative agreement, which hopefully will bring stability to the industry. While a sigh of relief is in order, now is the time for shippers and carriers, even those without West Coast connections, to ensure that their contracts have viable force majeure clauses.
A force majeure is an event or effect that is neither anticipated nor controlled, which prevents a party’s performance of a contractual requirement as previously agreed. A force majeure contract clause attempts to relieve a party from liability in the wake of such an event or effect. It typically lists such examples as “compliance with any law, regulation or order”; and “acts of God, fire, flood, war, sabotage, supply shortage”; and maybe even “labor disputes,” “strikes,” “labor shortages,” “work stoppages” and “work slowdowns.”
But does including the latter terms in your force majeure clause actually protect you in the event of such occurrences? And, if so, to what extent?
It is too early to tell the volume of force majeure litigation that will arise out of the West Coast dispute, but since many truckers already have declared force majeure, some amount of litigation can be expected. A brief overview of the few decisions likely to play a role in resolving these disputes will help understand the semantic obstacles shippers and carriers may encounter.
Many of these companies likely do not realize that based on the language of their force majeure clause, the port standoff may not be an actual “labor dispute” that excuses nonperformance.
This was the harsh lesson learned by the contractor in Murdock & Sons Construction Inc. v. Groheen General Construction Inc., 461 F.3d 837, 841 (7th Cir. 2006). There, the court found that even though the contract contained a force majeure clause explicitly listing “labor disputes,” the contractor was not excused from performance due to a work slowdown.
The court reasoned that even if the employees “consciously slowed their pace in an effort to make more money,” this did not meet the legal definition of “labor dispute” because there was no actual controversy between the contractor and employees about terms or conditions of employment or concerning the representation of the union. Further, the contractor should have anticipated — and thus assumed — labor productivity risks.
Similarly, in Teco Coal Corp. v. Orlando Utilities Commission, No. 07-CV-444-KKC, 2010 WL 8750622, at *14 (E.D. Ky., Sept. 17, 2010), a coal supply contract contained a force majeure clause that explicitly included “strikes, labor disputes and work stoppages.”
When the supplier failed to ship the contracted-for coal to the buyer, the supplier argued that its failure should be excused because it was the result of a work stoppage — contract mining companies had abandoned operations. The buyer moved for summary judgment, arguing that this did not constitute a “labor dispute” or “work stoppage” under the contract.
Since the contract did not define these terms, the court looked to a dictionary for assistance but denied summary judgment because the dictionary defined “work stoppage” as “a concerted cessation of work by a group of employees usually more spontaneous and less serious than a strike.” From this definition, the court could not find, as a matter of law, that the abandonment of mine operations constituted a force majeure under the contract.
In Aquila Inc. v. C.W. Mining, 545 F.3d 1258, 1263-65 (10th Cir. 2008), a coal supplier learned that explicitly including “labor disputes” in a force majeure clause did not protect the supplier completely when a labor dispute arose.
There, the contract contained a lengthy force majeure clause excusing performance due “wholly or partly” to “labor disputes; boycotts; lockouts; [and] labor … shortages.” The supplier was hit by a labor strike shortly after executing the contract and, within a few months, encountered several geological problems that affected production.
The court found that the labor dispute was not the primary cause of the supplier’s failure to perform and held that based on the language of the clause, and despite the explicit inclusion of “labor disputes” as a force majeure event, the supplier was entitled to only partial protection. The supplier had the difficult burden of proving the extent to which the labor dispute, as opposed to production problems, affected its nonperformance.
These cases highlight the importance of having a force majeure clause explicitly contemplating “labor disputes,” “strikes,” “labor shortages,” “work stoppages” and “work slowdowns,” as well as including appropriate language to ensure that every such event disrupting shipments is actually and fully covered.
Arguably, comprehensively defining “labor disputes” and “work stoppages” in the contracts in Murdock & Sons Construction and Teco Coal could have excused nonperformance. Clearer language may have completely excused non-performance in Aquila.
Applying the cases here, it is likely that some West Coast truckers who couldn’t deliver due to the slowdowns at the ports will not be excused under the narrow language of their force majeure clauses. A contract scrivener also is well advised to incorporate ejusdem generis catchalls like “and similar events and occurrences” when enumerating excuses.
By: Paul J. Kozacky and Brian O’Connor