A force majeure clause in a contract is designed to protect a shipper or carrier against “acts of God.” But whether a supreme being’s actions include a pandemic is far from certain.
That was one of the messages that came through in a recent webinar organized by the trucking law firm of Moseley Marcinak, with partners Rob Moseley and Fredrick Marcinak leading the discussion.
A declaration of force majeure can allow a party to a contract to not actually perform and not suffer a penalty, with the “act of God” allowing a pass from the obligation. Although the law firm might question whether it can be invoked, it already has.
As to whether a pandemic is an act of God that allows the triggering of a force majeure clause, Marcinak expressed his doubts. “The answer is you need to look at the clause and see what it says,” he said. “But typical of most of them as written, it doesn’t say a pandemic or disease is a force majeure event.”
But Marcinak did spell out one situation where he said a carrier or shipper could invoke force majeure: when a government steps in. For example, he described a situation in which a government entity seizes a truck because it is carrying health care equipment. Any sort of court looking at the case “will say that government activity is a force majeure event,” Marcinak said. “So the government seizing your truck is going to excuse you from performance.”
Moseley joked that the sudden changes that have jolted the trucking market means he might add “zombie apocalypse” to the list of events that could trigger a force majeure declaration. But more seriously, he noted that going forward, a carrier looking to put a broad force majeure clause in to a contract, “depending on how it’s written, it may give you an out, but it may give your customers an out also.”
“It works both ways,” he said.
The question of force majeure was just one of several that the attorneys on the webinar discussed as the legal ramifications of the pandemic begin to impact companies in the trucking supply chain. Financial relationships between buyers and sellers, and borrowers and lenders, also took center stage in the discussion.
Marcinak said most loans in the industry are “airtight, and they’re not going to have anything in there that states you can stop making payments” because of the pandemic.
But he added that some local governments have passed laws that temporarily allow the suspension of some payments. Checking on whether a locality has those laws needs to be undertaken by the borrower seeking to avoid making a payment, he said.
The first recommendation to deal with the payments issue, Marcinak said, is “you have got to be on top of your accounts receivable.”
But after that, there are several steps that can be taken “rather than just saying, ‘pay me when you have the time,’” he added.
The first step Marcinak recommended was to reach a “consent judgment” with debtors who are not making their payments. With that in hand, Marcinak said, non-payment in the future, at the time designated in the consent judgement, will allow the creditor to take the issue “to the courthouse immediately without having to go through a year and a half lawsuit.”
There are other steps, he said. A creditor can ask for a personal guarantee: “if we’re going to give you essentially an unsecured loan (by not collecting) we want you to personally guarantee it” was the way Marcinak put it. There are other types of security that can be put up, Marcinak added.
“But I would recommend you look at something other than, ‘just pay it over time,’” he said.
Another area the webinar focused on fell under the broad heading of claims. But more specifically, it dealt with a very specific type of development that has happened in the age of COVID: what if a shipper doesn’t want a driver to come too close?
The problem that creates is that the driver doesn’t serve as a check on the quantity or quality of the goods that are being loaded onto a truck. As Marcinak described it, for social distancing reasons, the carrier is told: “We don’t want your driver on our loading dock when picking up freight and we don’t want your driver on our dock when you’re delivering freight.”
And beyond that, the message might be, according to Marcinak: “We don’t want to sign any paper. We don’t want any contact with the driver.”
The obvious concern, Marcinak said, is that what gets loaded might not be what is contracted for, along with issues of damage.
Take care of the issue in advance, Marcinak advised. Setting those terms should be agreed upon in writing, as an addendum to the contract or at least exchanged by email. Another option, he said would be to include the terms in the tariff for the transaction.