By Mills Oakley partner Maurice Lynch and lawyer George Glen

SVITZER is a leading marine towage company whose services are critical to allowing container ships and bulk carriers in and out of ports. They have announced that they will lock out 582 of its striking staff from Friday. The lockout is said to be for an indefinite period and is an attempt by Svitzer to stem ongoing industrial action arising out of negotiations relating to an enterprise agreement.

The result is that from Friday, no shipping vessels will be towed into or out of 17 ports serviced by Svitzer across NSW, Victoria, Queensland, South Australia and Western Australia. Naturally, this will lead to delays in ships discharging and loading cargo which could see losses from delayed delivery of goods and supply chain disruptions for both imports and exports.

Unless this lockout is prevented, impacted parties and their insurers will need to consider whether or not any losses from lockout are recoverable under marine insurance policies which apply to the shipment of relevant goods, and whether they can be excused from performing contractual obligations as a result of force majeure.

Marine cargo insurance polices

Most marine cargo insurance policies incorporate the Institute Cargo Clauses (A) 1.1.82 or 1.1.09 which contain several carve outs so that losses as a result of the lockout are not covered.

Clause 4.5 of the Institute Cargo Clauses expressly excludes “loss damage or expense caused by delay, even though the delay be caused by a risk insured against”. Accordingly, if goods are damaged (for example by deterioration) due to the delayed arrival of a vessel into port caused by the Svitzer lockout, then no loss is recoverable under the insurance policy.

Further and importantly, clause 7 of the Institute Cargo Clauses: “In no case shall this insurance cover loss damage or expense” which are:

  • “caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions”; or
  • “resulting from strikes, lock-outs, labour disturbances, riots or civil commotions”.

The words “strikers, locked-out workmen, or persons taking part in labour disturbances” are construed in their ordinary everyday sense. Accordingly, clause 7 of the Institute Cargo Clauses applies to the industrial action occurring at Svitzer and cargo policies will not cover loss or damage caused by the Svitzer lockout.

However, despite the above, some marine cargo insurance policies also incorporate the Institute Strike Clauses (Cargo) 1.1.82 or 1.1.09 which pursuant to clause 1 and subject to certain exclusions provide limited cover for loss or damage to goods insured caused by locked out workmen but not loss or damage or expense resulting from lockout. However, if the loss or damage is proximately caused by delay, then it is still excluded.

The cover under the Institute Strike Clauses (Cargo) is clear in that insurers will not indemnify for cost or expenses arising as a result of a lockout but are content to pay claims for physical loss of or damage to goods caused by lockout but no more. So, for example, if the locked out workers set fire to goods on board a ship and cargo is damaged as a result of that fire, this is covered being damaged to cargo caused by lockout. However, if the lockout means labour is withheld and cargo damaged because of that withholding of labour, such losses are not covered.

Force majeure

In the context of agreements for the supply of goods or services, they may incorporate a force majeure clause which will excuse the performance of a contract should a force majeure event occur. A force majeure event is usually defined in the contract to encompass certain happenings. A lockout is generally defined as a force majeure event.

Force majeure clauses will often require the party affected by the force majeure event to notify the other party of the event comprising force majeure as soon as reasonably practicable and require them to take all reasonable steps to limit its effects to be excused from performing their contractual obligations as a result. So, if a container shipping line seeking to claim force majeure, they would need to at least make inquiries as to whether there are other towage services available. If there are and this leads to increased costs, they may seek indemnity for these costs from cargo owners pursuant to bill of lading terms.

Accordingly, if a supplier of goods or services is seeking to rely on a force majeure clause in the context of the current lockout action by Svitzer, they should immediately notify the other party to the contract of their intention to rely on it and provide details of the event.