Force majeure, causation and damages – a “Classic” conundrum

Limbungan failed to deliver iron ore to Classic Maritime when a flood shut down the mine producing the ore. The High Court, had held that to rely on the clause in question that carved out liability for these type of events, Limbungan had to establish that “but for” the flooding it would have delivered the ore. On the facts, Limbungan would not have been ready and willing to provide the cargo even if there had been no flood, so could not rely on the clause. However Limbungan only had to pay nominal damages because, as a result of the flooding, Limbungan would not have been able to deliver the ore in any event.

Much of the debate before the High Court had centred on whether the clause was

• a "contractual frustration clause" that automatically cancelled future contractual obligations;
• an "exceptions clause" that excluded or limited liability for breach; or
• a "force majeure clause" that is typically concerned with events which have an impact on a party's ability to perform whether or not that party would in fact have performed.

The Court of Appeal took a more holistic approach noting that “what matters is not the label but the content” of the clause. Ultimately, the Court of Appeal agreed with the High Court's conclusion that the wording of the clause required Limbungan to establish that its failure to fulfil the contract was “resulting from” the dam burst, which it could not.

However, the Court of Appeal disagreed with the High Court’s approach to damages and found that substantial damages were due to Classic Maritime. The difference between actual breach and anticipatory breach was central to this conclusion. Anticipatory breach occurs when one party is unwilling to fulfil the contract. Therefore, damages to the innocent party may be reduced if subsequent events mean that they would not have suffered loss even if the other party had been willing to perform the contract. In this case, Limbungan had actually breached the contract, so damages were payable to put Classic Maritime in the position it would have been in had delivery of ore taken place irrespective of whether this would, in hindsight, have been impossible due to the flooding.