By Frazer Hunt, Partner 

A recent decision of the Supreme Court of NSW, Woolworths vs SCT Logistics [2021] NSWSC 344, held that despite there being a force majeure provision in a transport contract that relieved the parties from fulfilling their contractual obligations in a force majeure event, the carrier SCT remained liable to fulfil its contractual obligation to indemnify Woolworths for its cargo loss in a train derailment.

This decision is a significant reminder of the following:

1. Force majeure clauses must be read strictly and do not automatically act as an exclusion of liability or necessarily relieve parties from their requirements to perform contractual obligations;
2. Parties to an agreement may be required to indemnify other parties regardless of what the cause of the loss was, or if the cause of the loss was completely outside of their control such as an in a force majeure event, if that is what the parties contractually agreed;
3. Parties must be extremely careful in the drafting of the provisions of their transport agreement to ensure their intention is reflected in the provisions of the agreement; and
4. Provisions of an agreement must be read in light of the whole agreement, its commercial purpose and the bargain struck between the parties.

Background

Woolworths appointed SCT to transport Woolworth’s goods by rail throughout Australia. Some of Woolworth’s goods were damaged in a train derailment on 10 April 2014 during an extreme weather event with torrential rain and flooding. Woolworths claimed losses against SCT on the basis that SCT was required to indemnify Woolworths pursuant to their transport agreement, including their Transport Terms and Conditions (‘the Terms’) and Prescribed Procedures (‘the Procedures’) with SCT. SCT denied liability to the claim, relying on a force majeure clause under the Terms that SCT said relieved SCT of all their obligations under their agreement with Woolworths, including their obligation to indemnify Woolworths for their losses from the train derailment.

The Court was required to consider whether SCT could rely on the force majeure clause to avoid its obligation to indemnify Woolworths in respect of the train derailment if the train derailment was in fact a force majeure event and found that SCT could not rely on the force majeure clause. .

Relevant Terms

The relevant clauses of the Terms are as follows:

7.2 Force Majeure Events

If a Force Majeure Event occurs, neither party is liable to the other for any delay or failure to fulfil its obligations under these Terms or the Procedures that is owing to the Force Majeure Event.

12.2 Risk

The Carrier is liable for Goods in its possession from collection at the Load Point until Acceptance occurs at the Delivery Point.

13.1 Indemnity

Subject to clauses 13.2, 13.3 and 13.4, the Carrier indemnifies Woolworths on demand against all Losses incurred by Woolworths arising from or in connection with

(b) the Carrier’s breach of these Terms or the Procedures; and

(c) any loss, theft, destruction or damage to the Goods

14 Insurance

(a) While these Terms are operative, the Carrier must effect and maintain the following insurance cover on such terms as those commercially available in the marketplace:

(i) insurance, of its full replacement value, of the Goods against damage, theft, destruction or loss in transit

Woolworths and SCT’s Submissions

Woolworths submitted that SCT’s obligation to indemnify Woolworths under clause 13.1(b) applied irrespective of any force majeure event or failure to perform the services because SCT was allocated the risk for Woolworth’s goods while in their custody, and SCT had a corresponding obligation to have insurance cover for Woolworth’s goods.  Further, the force majeure clause does not operate as an exception for SCT general liability and obligation to indemnify Woolworths, rather, it was intended to operate to relieve SCT’s obligations if performance of their obligations that were affected by delay.

SCT submitted that the force majeure clause relieved SCT of any obligation to indemnify under clause 13.1(b) in circumstances where the loss and damage to the Goods was caused by a force majeure event. In essence, SCT submitted that the force majeure clause overrode SCT’s requirement to indemnify Woolworths if there was a force majeure event.

Accordingly, the dispute related to the interaction of the indemnity clause at clause 13.1(b) of the Terms, with the operation of force majeure clause at clause 7.2 of the Terms.

The Decision

The Court found in favour of Woolworths for the following reasons:

• SCT’s reference the commercial purpose and the intent of the parties in construction of the force majeure clause to exclude liability in force majeure events was not supported by the text of that clause or the other provisions of the agreement;
• The force majeure clause must be considered in the context of the agreement as a whole, which includes the allocation of the risk of loss or damage of the goods to SCT from collection until delivery to Woolworths, regardless of any neglect or default by SCT;
• Woolworth’s construction of the agreement that SCT is required to indemnify Woolworths for any loss or damage to Woolworth’s goods while in SCT’s custody, was consistent with the commercial bargain struck between the parties, as SCT was allocated risk for Woolworths’ goods while under SCT’s custody and was required to have insurance cover for loss, damage, theft or destruction of the goods; and
• The force majeure clause is directed at relieving SCT for liability for delays or failures in fulfilling its obligations in performance of services to the extent that the delays or failures are due to a force majeure event, but it does not absolve SCT of its risk for loss or damage to goods or liability in respect of Woolworths’ goods while under their custody.

Mills Oakley’s Insurance Partner, Frazer Hunt represented Woolworths in their successful claim against SCT.