Losses sustained by the UK economy and in Kent in particular as a result of continued disruption to cross channel freight this summer have been significant. Port closures and the suspension of Eurotunnel services as a result of striking port workers and farmers at Calais have caused significant delays on both sides of the channel.
Lengthy queues of lorries on both sides of the channel have been a familiar sight. In the UK Operation Stack has been implemented on the M20 turning the Dover bound carriageway into a lorry park for 5,000 vehicles. The effects on the local community in Kent have been well publicised ranging from displaced traffic, congestion, environmental and noise pollution, lost business and a fall in tourism. At Calais the queues of lorries have been targeted by illegal immigrants attempting to enter the UK. This has caused further significant delay as resources are diverted to prevent unauthorised access.
The issues are complex and wide ranging and require concerted action at local, national and international level. For businesses the true scale of the damage caused is difficult to accurately quantify. The Freight Transport Association based in Tunbridge Wells estimates that Operation Stack alone costs the haulage industry £750,000 per day and £250 million to the economy as a whole. The Road Haulage Association recently gave evidence to a Home Affairs Select Committee estimating that companies could be losing up to £1 billion pounds a year resulting from goods destroyed as a direct result of the problems of illegal immigration.
Delays and possible damage or destruction of cargo mean disrupted supply chains, missed or significantly revised production schedules, expensive re-orders, alternative and less cost effective shipment routes, insurance claims and so on. It is inevitable in these circumstances that disputes arise.
Detailed and robust stress testing of supply chains and careful risk management well in advance can help to ensure these issues when they arise can be handled promptly and alternative arrangements made at very short notice in a manner which causes minimum disruption to normal business operations.
Businesses throughout the UK faced with disrupted supply chains will be carefully reviewing contracts to assess potential exposure and liability. Attention usually focusses on force majeure clauses, that is clauses which are designed to excuse one party (or both) from contract performance following the occurrence of certain specified events or circumstances beyond the control of either party.
In addition to the precise wording of the clause, such clauses must be considered carefully in the context of the particular circumstances giving rise to the declaration of force majeure. The party seeking to rely on the clause has the burden of proving it is applicable to the given event. They must establish not only that the event was beyond their control but also that no further steps could have been taken to avoid or mitigate the loss.
A force majeure clause may provide that if certain events or circumstances arise which delay, hinder or prevent performance by a party (or performance in the manner expected by the parties) and which are beyond the party’s reasonable control, that party will be excused performance and will have no liability to the other party. Whether the current position at Calais constitutes such an event will depend on the specific force majeure provision.
It is important to note that a party will not be able to evade liability where performance remains possible notwithstanding that performance in an alternative manner might be more expensive. For instance, if a supplier can still meet their contractual obligation by shipping by air or via an alternative cross channel route that may prevent the supplier from invoking the force majeure clause. Each case turns on the particular wording and the relevant factual background.
Attention should also be paid to the operative effect of the force majeure provision. It may be that the clause simply suspends performance for the duration of the intervening event alternatively it may suspend performance for a defined period after which the parties may then terminate.
If there is no force majeure clause within the contract then a party will need to consider whether the circumstances amount to a frustration of the contract. When a contract is frustrated it will be terminated with both parties excused further performance. A contract may be frustrated if the relevant intervening event is unforeseen, has occurred without the fault of either party and makes performance impossible or destroys the fundamental purpose of the contract. The English Court applies this restrictively and contracts are rarely frustrated.
Parties to sale and supply contracts may seek to recover losses from the forwarders or hauliers concerned. Claims for delay and damage caused to cargo arising from strikes, port congestion and illegal immigration have been issues which the freight industry and their insurers have been handling for years. It is the scale of the problem this summer which has been marked.
The majority of international shipments by road passing through Dover will be subject to the Convention on the Contract for the International Carriage of Goods by Road 1965 (“CMR”). The CMR contains detailed provisions relating to the liability of carriers and includes clauses operating to limit and exclude liability in certain circumstances. Specific provision is made with respect to both delay and damage to cargo which will be highly relevant to those caught up in the difficulties at Dover and Calais.
The CMR imposes liability on carriers for the total or partial loss of the goods and for damage occurring between the time when the carrier takes over the goods and time of delivery, as well as for any delay in delivery. Extended delays beyond the relevant time limits set out in the CMR or which are considered to be unreasonable result in the cargo being treated as a total loss. This is subject to certain defences such as compliance with instructions given by the claimant, wrongful act or neglect by the claimant or inherent vice of the goods. Importantly, the carrier will be relieved of liability through circumstances which the carrier could not avoid and the consequences of which he was unable to prevent.
Delays arising from strikes or actions of officials may provide a defence on this basis subject to the precise circumstances. However, if the effects of a strike could be avoided by taking a different route or some alternative action, it will be difficult for a carrier to avoid liability.
If the Claimant proves that damage has resulted from delay, the carrier will be required to pay compensation not exceeding the carriage charges. It is important to note that no compensation at all will be payable for delay unless a reservation is submitted to the carrier in writing within 21 days from the goods being placed at the disposal of the consignee.
In addition to delay, damage to cargo as a result of infiltration by illegal immigrants will result in claims. Once inside the trailer the stowaways will often damage the cargo as they move around the trailer. They will be inside for a considerable period of time without sanitation in unhygienic conditions. Once a seal to a trailer is broken during transit questions will immediately be asked as to the integrity of the cargo. The problem is acute across numerous business sectors but for obvious reasons of particular significance where the cargo is perishable, for human consumption or where the integrity of the supply chain is fundamental to the use of the product. Such consignments are invariably considered a total loss by retailers or other end users and rejected in their entirety regardless of whether damage has actually been sustained. This often leads to disputes where it might be argued that this was an unreasonable decision. Some loads may retain a salvage value but many products will simply be destroyed as manufacturers, producers, retailers and distributors will not risk reputational damage.
Carriers under the CMR are liable for loss or damage unless they can demonstrate that the loss or damage resulted from circumstances which they were unable to avoid or prevent. Once a lorry driver is targeted by immigrants there may be little which he can do on the ground at that stage to protect the cargo. It is not enough for a haulier to simply say that the driver was not complicit or otherwise negligent to avoid being liable for subsequent loss or damage. The test under CMR is a difficult one for a haulier to pass. Liability will not be avoided if no consideration is given in advance to detailed risk management in conjunction with cargo owners and their insurers. In an industry where margins are tight the costs of implementing enhanced security measures or increasing costs through less cost effective or direct but more secure route planning will fall on businesses with an interest in the cargo.
It is however primarily the geopolitical issues which need to be addressed if the freight industry and the wider economy are going to avoid another summer of discontent.