Force Majeure in Shipping Contracts vs Event Contracts

What Is Force Majeure in a Shipping Contract?

Under English maritime law, force majeure (FM) isn’t a standalone legal doctrine. It exists only through contract. If a charterparty or bill of lading doesn’t include an express force majeure clause, there’s no automatic exemption. This matters because English law governs most international shipping contracts, and English courts won’t imply FM protection the parties didn’t draft.

A typical force majeure clause lists the events that qualify: natural disasters (earthquakes, floods, severe weather), war and armed conflict, government actions and port closures, strikes, quarantine restrictions and pandemics. Broadly, these are events outside either party’s reasonable control. The clause then sets out what happens: obligations are suspended, liability is removed, or a party can terminate after a long FM period.

Force majeure is legally separate from the frustration doctrine, which arises by operation of law instead of by contract. The UK’s highest court at the time set out the frustration standard in Davis Contractors v Fareham UDC [1956] AC 696: performance must be so fundamentally changed from what was agreed that enforcing it would be unjust. Courts apply frustration narrowly, so most commercial shipping parties rely on express FM clauses.

Illustrative example: a port authority closes a terminal after severe flooding, and the vessel can’t berth. The shipowner serves an FM notice on the charterer, which suspends laytime and relieves the carrier of delay penalties for as long as the qualifying event lasts.

Key FM Clauses in Practice: GENCON 22 and Hague-Visby Rules

GENCON is the most widely used standard voyage charter form in the world. GENCON 22 brought in an updated liability framework that incorporates the Hague-Visby Rules directly, replacing the older GENCON 1994 liability regime with a more structured approach to carrier exemptions. (GENCON 22 sample copy)

Under the Hague-Visby Rules, Article IV Rule 2, the carrier has a statutory list of exemptions: act of God, act of war, act of public enemies, arrest or restraint of rulers, quarantine restrictions, acts or omissions of the shipper, strikes or lock-outs, saving or attempting to save life or property at sea, perils of the sea, nautical fault and inherent vice of the goods, among others.

Notice requirements are strict. Most FM clauses require the party relying on the defence to serve written notice on the other party promptly, commonly within 24 to 72 hours of the qualifying event. Courts have held that missing the notice deadline can waive the FM right entirely, even if the event genuinely qualifies. (WFW, COVID-19 issues under shipping contracts)

English courts treat FM clauses as exclusion clauses and apply the contra proferentem principle, which means any ambiguity is read against the party relying on the exemption. Recent cases show that even well-drafted clauses get close scrutiny. (HFW, “A rare force majeure success — but still a narrow one”)

When Force Majeure Excuses Delay, and When It Doesn’t

An FM defence generally needs three conditions: (1) the event was beyond the invoking party’s reasonable control, (2) it wasn’t reasonably foreseeable when the contract was made, and (3) the event directly caused the inability to perform.

Laytime and demurrage catch many parties out. Under standard charterparty interpretation, a general force majeure clause doesn’t automatically suspend laytime. It only does if the charterparty has matching express provisions in both the FM clause and the laytime/demurrage clause. Courts have consistently rejected arguments that an FM event should interrupt unconditional laytime obligations. (International Trade Insights, “The Application of Force Majeure Provisions to Shipping Disputes”)

Some things don’t count as FM. A sharp rise in freight rates, even to several times the contract rate, isn’t FM if the voyage is still physically possible. If another route exists, however expensive, courts have generally refused to find that performance is impossible. Port congestion without an extraordinary underlying cause usually falls outside FM. Weather that fits normal seasonal patterns rarely counts as unforeseeable.

The Strait of Hormuz, the Red Sea rerouting after recent geopolitical incidents and similar chokepoint cases show how courts look at the specific facts each time, separating foreseeable risk from genuine FM events. None of these is an automatic trigger.

The Business Gap Force Majeure Doesn’t Close

Legal analysis often gives too little weight to one commercial fact: when force majeure succeeds, the carrier is protected and the cargo owner isn’t.

A shipowner who successfully invokes FM is released from contractual liability. There are no delay damages, no breach of contract and no penalty. The cargo owner’s commercial losses are still there, though. The goods are still late, and every consequence downstream falls on the cargo side.

When a vessel is delayed under FM circumstances, the cargo owner can face these losses:

Late delivery penalties and SLA breaches. Commercial contracts with buyers often carry fixed daily penalties that the cargo owner pays whatever happens in the carrier arbitration.
Perishable cargo losses. For temperature-sensitive or time-critical goods, a delay of a few days can make the whole cargo unsaleable.
JIT production stoppages. Just-in-time supply chains hold very little inventory, so one delayed component can stop a production line. (Illustrative: a 10-day vessel delay could mean 10 days of factory idle time.)
Demurrage and detention at destination. Even when the carrier escapes liability under FM, the cargo owner may still owe charges on equipment and terminal slots at the receiving port. See our analysis of demurrage and detention costs for a detailed breakdown.
Missed commodity delivery windows. For traders in agricultural commodities, metals or energy, delivery timing often matters as much as price.

The FM defence decides who bears contractual responsibility. It does nothing to help the cargo owner recover a commercial loss.

Legal protection ≠ financial recovery. Market instruments are built for that gap.

Event Contracts as a Market-Based Instrument

An event contract on a vessel delay is a market position. It isn’t insurance or a legal claim, and it isn’t tied to any specific cargo shipment. It settles on one published number: did a named vessel arrive more than the market’s threshold after the arrival estimate locked when the market opened?

On GADUIN a vessel market has three outcomes, On time / Delayed / Cancelled. Each has a live price between 1¢ and 99¢, which is the chance the market gives it. A share pays $1 in USDT if its outcome happens and $0 if it doesn’t, and the market settles automatically on terms fixed when it opened. Getting paid doesn’t depend on a carrier’s solvency or its willingness to settle a claim. You don’t have to prove legal causation, and the settlement rule has no FM exception.

This is where event contracts and the FM framework part ways. A force majeure clause allocates liability based on legal cause. An event contract settles on the fact of delay, whatever caused it.

Suppose a qualifying FM event, such as a storm, a port closure or a geopolitical rerouting, makes the carrier divert or anchor. The carrier may escape legal liability entirely. An event contract position on that vessel’s delay still settles in USDT, because the arrival the destination port published was later than the threshold the market fixed before it opened.

If you’re exposed to specific trade lanes, this independence from legal cause matters. For how event contracts work at specific high-risk chokepoints, see our coverage of vessel delay contracts in the Gulf.

Event contracts involve trading risk. Settlement is determined by the published arrival record measured against terms fixed when the market opened, not by the outcome of any legal dispute. GADUIN does not provide legal or financial advice. Past settlement outcomes do not guarantee future results. GADUIN is not an insurer, carrier, or legal adviser. Not available to US persons.

Force Majeure Clause vs Event Contract: Side-by-Side

The two work in completely different areas. Keeping them apart avoids two mistakes: thinking an FM clause gets you money back, or thinking an event contract gives you a legal defence.

Dimension	Force Majeure Clause	Event Contract (GADUIN)
Nature	Legal exemption / contractual defence	Market position
Trigger	Qualifying event + notice + direct causation proof	The published arrival against a threshold fixed at the open
Who benefits	Carrier, exempted from contractual liability	Position holder, paid in USDT
Legal process required	Yes, arbitration or court proceedings likely	No
Settlement currency	Reduced liability / claim waiver	USDT
Dependent on legal fault	Yes	No
Effect on cargo owner losses	None, the cargo owner’s losses remain	Settlement proceeds received by position holder
Basis risk	N/A	Yes, route or metric mismatch is possible

Basis risk deserves attention. An event contract may not match the exact vessel or route you’re exposed to. A position on a strait’s weekly transit count carries basis risk against one cargo shipment on one ship. Position size is also limited: each account starts with a maximum of $50 per trade and $500 in total across all markets. For more, see basis risk in event contract hedging.

The two can be used together. A charterer can pursue a force majeure defence in arbitration while holding an event contract position that has already settled on the fact of delay. The two processes are completely independent.

Practical Use Cases for Freight Professionals

Different roles in the freight supply chain carry different exposure. Each can take event contract positions whether an FM defence is available, pending or successful.

Charterer: When FM excuses the carrier, the charterer usually ends up with the commercial losses. An event contract position on vessel delay offsets some of the demurrage exposure and missed port windows, whatever the result of any arbitration.

Freight forwarder: A forwarder’s SLA commitments to clients stand regardless of what happens with the underlying carrier. An event contract gives a buffer against the cost, financial and reputational, of missing SLAs when geopolitical disruption pushes transit times past contracted terms.

Importer (JIT): FM disputes in shipping arbitration can take months or years. A just-in-time manufacturer needs money within days. Event contracts settle on a published record against terms fixed before the market opened, with no legal proceedings.

Commodity trader: If delivery timing matters as much as price, an event contract on a specific vessel’s arrival lets you take a view on the chance of delay, separate from any physical cargo position. See how cargo insurance compares to event contracts for a wider comparison of commercial risk tools in freight.

None of these needs you to prove legal causation, meet notice deadlines or start an arbitration. The positions settle on a published arrival record, against terms fixed before the market opened.

Summary

Force majeure protects the carrier, not the cargo owner’s bottom line. A successful FM defence releases the carrier from contractual liability. The cargo owner keeps all its commercial losses.
English law reads FM clauses narrowly. Notice requirements are strict and causation must be direct. Cost increases, foreseeable disruption and general port congestion usually don’t qualify.
A force majeure clause doesn’t automatically suspend laytime and demurrage. It only does if the charterparty has matching express provisions in both the FM clause and the laytime/demurrage clause.
Event contracts settle on the fact of delay, not its legal cause. Whether or not the carrier’s FM defence succeeds, a delay market whose recorded arrival crosses the threshold pays $1 a share in USDT. How liability is split between carrier and shipper has no effect on settlement.
You can use both at once. Legal FM procedures and market positions on vessel delay are separate, and you can hold both at the same time.

GADUIN is not an insurer, carrier, or legal adviser. Event contracts involve trading risk. Settlement outcomes are determined by the published arrival record against terms fixed when the market opened, not by legal proceedings or cargo ownership. Nothing in this article constitutes legal or financial advice. Not available to US persons.