environmental disaster in Brazil’s history. Production was halted and Limbungan was unable to fulfil its obligation to make shipments under the contract. Classic sued Limbungan for damages. As the freight rates in the contract were agreed prior to the collapse in demand for steel in 2009, they were more than seven times the market rate at the time the dam burst, giving a sizeable claim for damages. Limbungan defended the claim on the basis of a force majeure clause in the contract providing that: “… the Charterers … shall [not] be Responsible for loss of or damage to, or failure to supply, load, discharge or deliver the cargo resulting from: … accidents at the mine or Production facility… always provided that such events directly affect the performance of either party under this Charter Party…" There was no argument about whether events constituted an “accident at the mine”, as referred to in the clause. However, Classic argued that due to the collapse in demand for steel, Limbungan would not have been in a position to meet the required shipments under the contract even if the dam hadn’t burst. On the facts, the court agreed with Classic and found that Limbungan would not have made the shipments regardless of the production stoppage. This raised an issue as to whether the force majeure clause applied in such circumstances.
The 'but for' test upheld Limbungan relied on the cases noted above dealing with force majeure clauses which result in the discharge of a contract akin to the common law doctrine of frustration. The court accepted the strength of this line of authority and acknowledged that the wording of the clause before it was in essence the same as considered in those cases. Nevertheless, the court considered that a different approach was warranted for clauses which merely exempted a party from liability for non-performance: “There appears to me to be an important difference between a contractual frustration clause and an exceptions clause. A contractual frustration clause, like the doctrine of frustration, is concerned with the effect of an event upon a contract for the future. It operates to bring the contract, or what remains of it, to an end so that thereafter the parties have no obligations to perform. An exceptions clause is concerned with whether or not a party is exempted from liability for a breach of contract at a time when the contract remained in existence and was the source of contractual obligations. It is understandable that a contractual frustration clause should be construed as not requiring satisfaction of the "but for" test because that is not required in a case of frustration.” But to no avail The application of the “but for" test meant that the force majeure clause did not apply and Classic had made out its claim for breach of contract. Somewhat paradoxically, however, the force majeure clause was found to defeat the quantum of Classic’s claim. Classic’s damages claim was calculated by reference to the position it would have been in had Limbungan made the required shipments under the contract (i.e. absent the breach of contract). Although that is an entirely conventional approach to damages, the court found it to be “unrealistic” because it ignored why Lumbungan was in breach of contract. Lumbungan was in breach not simply because it didn't make the shipments, but because the