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By Jeremy M
Joseph (Advocate & Solicitor)
High Court of Malaya
It has been said time and again that
the invasion of Iraq by the US would
cause serious disruption in trade
and a sharp increase in the price of
oil. One major consideration for
international traders is whether the
war would have an impact on the
performance their contractual
obligations.
It is without doubt that the war
would have far reaching effects on
contractual obligations. Generally,
under international shipping law,
parties may be excused from further
performance of their obligations
like voyage charterparty or bills of
lading commitments where the
contract becomes "frustrated." A
contract is deemed frustrated when
performance becomes impossible or
illegal, or when the circumstances
in which it falls to be performed
are so radically altered as to be
wholly outside the contemplation of
the parties at the time when they
made the contract. A war in Iraq or
any international sanctions or
resolutions passed by the United
Nations Security Council could be
argued to be circumstances that
become radically altered that would
make a contract impossible to
perform.
But it must be emphasized that the
change in circumstances must not be
the fault of either party and the
supervening event must not have been
foreseeable at the formation of the
contract. For example, it is
submitted that international traders
who are presently considering
entering into charterparties or
other shipping contracts that
involve trade with Iraq must
seriously consider making provisions
for liabilities and damages of the
parties in such circumstances.
Otherwise, the contract cannot
become frustrated because it is
quite foreseeable at the formation
stage that an invasion of Iraq is a
highly probable event that would
occur. In many existing contracts,
the parties will already have
provided for the rights and
liabilities of the parties, in the
event, for example, war, illegality,
force majeure or "any other events
occurring beyond the reasonable
control of the parties". Such
clauses may excuse the parties from
performance provided that they are
not liable for damages in the event
of non-performance or even provide
for an alternative method of
performance. However, it is
important to note that the ability
of a party to rely on such a clause
is essentially a question of
construction of the particular
wording and legal consultation is
advisable.
A contract will not be frustrated if
it is merely more difficult to
perform the obligations - it must be
impossible. For example, a vessel
leaving Malaysia bound for France
may find it difficult navigating
through the Suez Canal or other
restricted waters in the Middle East
during war time but it does not
necessarily mean the voyage cannot
be completed. The vessel can still
take a longer route for example, via
the Cape of Good Hope. If a contract
is frustrated, then normally both
parties are discharged from further
performance of the contract, but
legal rights already accrued in
accordance with the terms of
contract are undisturbed.
In essence, it must be stated that
whether any particular contract has
been frustrated by either, the
invasion itself or the regulations,
sanctions or resolutions which have
been issued as a result of it will
depend on the terms of the contract
and the nature of the obligations to
be performed. |
