COVID-19: Global implications for charterparties

Update March 2020


Introduction

On March 11, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 (coronavirus) to be a pandemic. The situation globally is changing minute-by- minute as countries, states, provinces, and local governments implement shipping industry restrictions. Such restrictions, both official and unofficial, can include preventing crew from embarking or disembarking (thereby preventing crew changes), delayed port clearance, and the imposition of quarantine. For example, the Department of Transport of the Philippines has issued guidelines that crew of cargo vessels originating from COVID-19 countries will not be permitted to disembark. At the time of drafting of this article, Lebanon has just announced that it has closed its ports, among other things, until March 29. The extent of the closure is at this time unclear. Authorities in most jurisdictions require that they be informed when there is an illness aboard the vessel. By way of example, the US Coast Guard issued Marine Safety Information Bulletin dated March 9, 2020, advising that persons who exhibit symptoms consistent with COVID-19 must be reported to the US Coast Guard Captain of the Port, as it is considered to be an illness that may adversely affect the safety of a vessel or port facility and is therefore a “hazardous condition.”

Upon reporting an illness, there have been instances where the following has taken place: (a) pilots refusing to board, resulting in a vessel being ordered to anchorage; (b) land transport companies refusing to take ill crew members to hospital (even when the symptoms did not match COVID-19), necessitating an ambulance; (c) stevedores, upon noting an ambulance, refusing to work on a vessel; and (d) port authorities refusing to permit a vessel to berth.

The foregoing can result in delay, deviation, detention, and difficulty obtaining necessaries. All of this can give rise to charterparty disputes as owners and charterers seek to deal with the repercussions. While the language of the particular charterparty in question and the facts of each case will be determinative, there are nevertheless a number of issues that should be highlighted.

BIMCO Infectious or Contagious Diseases Clause

While this clause was drafted during the Ebola outbreak in 2015, it is intended to address equally serious strains of existing, or newly identified, diseases that can occur from time to time. The clause has been modelled on the BIMCO War and Piracy Clauses and thus enables owners to refuse to trade in an area of danger. If that option is waived, then charterers will nevertheless be responsible for the resulting liabilities and additional costs incurred by owners taken to protect the vessel and her crew.

Given the declaration by the WHO that COVID-19 is a pandemic, it is likely to fall within the definition of “Disease” (“a highly infectious or contagious disease that is seriously harmful to humans”), although this is not a foregone conclusion, as it could be argued that the currently available mortality rates are lower than SARS and Ebola.

Note that for voyage charters, the clause expressly limits application of the clause to situations arising after the date of the charterparty. Given that COVID-19 is now a known factor, the clause will not protect an owner for measures already in place at a port loading or destination at the time the voyage charter was entered into. Given the rapidly evolving situation, parties should carefully consider providing for the possibility that COVID-19 measures will be put into place elsewhere.

Off-Hire

Clause 15 of the NYPE 1946 form provides that where there is a “deficiency of men” or “any other cause preventing the full working of the vessel,” the vessel shall be deemed off-hire. The NYPE 1993 form replaces “deficiency of men” with “deficiency and/or default and/or strike of officers or crew” but still maintains the general “or any other cause” sweeping up language.

Where a time charter is on the NYPE form, or contains similar sweeping up language, it is probable that an illness such as COVID-19, or even suspected COVID-19, as it impacts on the efficiency of the crew and/or prevents the full working of the vessel, would fall within this language. This is equally the case, where the vessel is held in quarantine due to an actual or suspected case of COVID-19.

Shelltime 4, alongside referencing a general deficiency of personnel, also specifically places the vessel off-hire where time is lost for (a) obtaining medical advice or treatment for or landing any sick or injured person, or (b) due to any delay in quarantine arising from the master, officers or crew having had communication with the shore at any infected area without the written consent or instructions of Charterers.

Safe Port Warranty

Charterers have varying obligations, depending on the charter, to nominate ports which are safe under time and voyage charters. While it certainly is both possible and probable that commercial ports will remain open despite the spread of COVID-19, owners will have to evaluate the risks to the crew, and therefore safety measures in place, prior to calling at a particular port. Another factor for owners to evaluate is whether calling at a particular port will then expose the crew or vessel to restrictions at later ports of call.

Free pratique

Free pratique is the clearance given to a vessel to enter a port and berth on the assurance of her captain that the vessel and crew are free from contagious disease. While this is often a formality, given the current circumstances, owners should plan for delays depending on where the vessel has traded. A delay in obtaining free pratique is important, particularly with respect to a vessel under voyage charter. Until free pratique is obtained, an owner is generally unable to tender a valid notice of readiness so that the calculation of laytime may commence. Note, however, that it depends on the terms of the charter, as certain charters may provide that laytime can commence “whether in free pratique or not.”

Force majeure

Many charters do contain force majeure clauses, however, whether COVID-19 constitutes a force majeure event will depend on the clause in question. In general, a force majeure clause will list a number of events beyond the parties’ control, and provide for what will take place should force majeure be triggered, i.e. notice, suspension, and/or termination, and the consequences thereof. If the force majeure clause in question lists “epidemic” or “quarantine,” then it is likely that COVID-19 could trigger the clause.

The impact of force majeure will also depend on the governing law. While under English law, force majeure will not be implied into a charter, this is not the case for all legal systems. Chinese law, for example, permits parties to plead force majeure without a clause in the contract. Indeed, certain Chinese entities, notably the China Council for the Promotion of International Trade, have been reported to have issued thousands of "force majeure certificates" to Chinese companies to rely on in order to claim that they have been unable to perform by reason of COVID-19.

Hague and Hague-Visby Rules

If the charter at issue contains a clause paramount incorporating the Hague or Hague-Visby Rules, then the owner should be able to benefit from an exception for quarantine. Article IV(2)(h) of the Rules provides that neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from quarantine restrictions. As such, owners should be protected should COVID-19-related quarantine cause loss or damage to charterers.

Conclusion

While the global situation continues to evolve rapidly, COVID-19 is now a known factor. While we cannot predict the extent to which it will disrupt commercial shipping, we can confirm it already has and will continue to do so for the foreseeable future. In the context of charters, we urge parties to plan for this disruption by (a) reviewing the terms and conditions of your current charters in order to access your exposure, and (b) ensuring you provide for the impacts of COVID-19 in any new charters you negotiate.

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