We live in strange and difficult times with information changing on an hourly basis. Now, more than ever, it is virtually impossible to cover every eventuality when drafting new contracts, much less successfully navigate the hurdles faced under existing contracts.
We have assisted our members with an unprecedented number of enquiries in recent weeks relating to the COVID-19. While the advice given is guided by, and tailored to, the facts of individual circumstances there are some common issues that frequently arise. Those questions are shared below and will hopefully be of assistance in the days ahead.
As always, if you have a general or specific question relating to the COVID-19, or otherwise, we remain ready and willing to help. On a practical note, most of us are now working from home but have the same capabilities that we did in the office. General and specific contact details are located on our website www.nordisk.no.
1) Are ports in affected countries “safe ports”?
The definition of safety was established in The Eastern City : “… a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship …” The focus is thus usually on the ship, although it has been suggested that risks to the crew can render a port unsafe even where there is no risk of damage to the ship itself.
As we learned from the Ebola virus, under English law the threshold for a port to be determined unsafe due to illness is quite high. Whether or not a port is “unsafe” due to COVID-19 will require a factual inquiry based on the risk factors of the port including, inter alia:
(1) What measures are currently in place in the port to reduce or avoid the risk of infection?
(2) In calling at the port would the crew members be likely to be exposed to the virus?
(3) What would be the proximity of the vessel to the shore / likelihood of the vessel’s crew coming into contact with possible sources of infection?
(4) Is there a risk of quarantine or detention at the port?
In short, Owners will have to prove a very high risk of infection for a port to be deemed unsafe.
Whilst measures may vary between ports, and even terminals within the same port, measures that might be taken to reduce the risk of contamination include: (1) provision of health information on crew members prior to berthing, (2) prohibitions on crew changes or disembarkation, (3) daily monitoring and reporting of crew’s health and temperature during the ship’s stay in port, and (4) wearing of face masks or similar protective devices by crew members during the ship’s stay in port etc.
As matters stand, it would seem to us that it is difficult for an owner to refuse to call at a port in a COVID-19 affected country for fear of unsafety, particularly where adequate preventive measures (as outlined above) are in place. However, this may change in the event of a significant escalation of the spread of COVID-19.
2) Can owners refuse to proceed on the basis that the Vessel will be subject to quarantine?
Whilst some printed forms include a Quarantine Clause, they do not as a rule, grant owners the right to refuse to go to a port where there are quarantine rules in place. These clauses simply allocate the risk of delay incurred as a result of the quarantine.
In simple terms, the general regime is that if charterers knowingly send the vessel to a port affected by quarantine, i.e. the quarantine exists at the time the port is nominated or the vessel is ordered there, the delay falls on charterers and vice versa, the delay falls on the owner if the quarantine is declared after the port has been nominated or the order to go there is given.
By now, quarantine restrictions are already in place in various ports around the world, commonly for ships that have called in China, Iran, Republic of Korea and/or Italy. However, as the COVID-19 spreads, the quarantine restrictions will inevitably be continually updated to include more countries within the restrictions.
Note, also, that where the Hague-Visby rules are incorporated, Art.IV Rule 2(h) excludes liability for loss/damage arising out of quarantine.
3) Indemnity Claims – Can owners claim an indemnity for complying with charterers’ orders and calling at an affected port?
Some time charters contain an express indemnity clause. For example, clause 13(a) of the “Shelltime 4” form states, inter alia, as follows: “The master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the vessel… Charterers hereby indemnify Owners against all consequences or liabilities that may arise… from the master otherwise complying with Charterers’ or their agents’ orders”.
If the loss falls within the ambit of the indemnity clause and can be said to have been effectively caused by owners complying with charterers’ order (i.e. there is no break in the chain of causation), then owners should be entitled to be indemnified. However, the extent of protection afforded to an owner will in all cases depend on the exact language used in the indemnity clause, and which has to be read in the context of the charter as a whole.
If there is no express indemnity given to owners (as in the “NYPE 93” form), then the owners’ claim will depend on whether an indemnity can be implied. An indemnity will usually be implied against loss or damage suffered by the owners as a consequence of complying with the charterers’ orders unless the owners have, by other clauses in the charter, agreed to bear the loss or damage in question. If the loss in respect of which the indemnity is sought arises from a risk which is notorious at the date of the relevant charter, for example COVID-19 being widespread in South Korea, the owner may also be taken to have assumed the risk associated with calling at a South Korean port.
Absent any express wording in the charter, there is generally no implied indemnity in a voyage charter.
That said, we are increasingly seeing parties incorporate bespoke COVID-19 or epidemics clauses which deal with the allocation of risks consequent upon having ships call at ports and or places affected by COVID-19 (see more below).
4) When is the vessel off-hire?
A frequent question raised is whether a vessel will be off-hire under an existing time charterparty when time is lost by reason of COVID-19 issues.
The starting point for time charters is that hire runs continuously unless a provision suspends hire. It is charterers’ burden to bring themselves within the ambit of such provision, typically an off-hire clause. As will be understood, the precise wording of such clauses will be of utmost importance. The off-hire clauses in the various charterparties are all different. The pivotal criteria for placing the vessel off-hire is that an off-hire event must have occurred. In the COVID-19 context the most relevant off-hire events are deficiency of crew and quarantine, assuming they are listed in the off-hire clause.
If a sufficient number of crew fall ill due to the COVID-19 and as a consequence the vessel is unable to perform the services required there is likely to be “a deficiency of men”. If, on the other hand, the healthy crew is able to perform the services without any loss of time, the vessel will not be off-hire.
The off-hire clauses that contain “quarantine” as an off-hire event usually limit off-hire to situations 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 or their agents. This means that if the vessel is quarantined in the next port after having traded to an affected area, the vessel will remain on-hire. More problematic is the situation where the vessel is delayed in connection with a crew change where the incoming crew is placed in quarantine. The quarantine of the incoming crew is owners’ risk and if this causes the crew to be deficient, the vessel will be off-hire
It should be mentioned that some off-hire clauses contain extensive sweep-up wording, i.e. “any other cause whatsoever”. Such language often proves to be the most realistic alternative for charterers to rely on. The term “whatsoever” is held to mean what it says. It would most likely cover COVID -19 related delays if there has been loss of time.
When it comes to off-hire, the importance of the precise wording of the relevant clause cannot be underestimated. For a more detailed analysis of the position under Shelltime 4, BP Time 3 and ExxonMobil Time 2012, please see the NOTE on off-hire.
5) Laytime and demurrage regimes – is time going to count?
The starting point for laytime is the tender of a valid NOR. Under common law, obtaining free pratique is considered a mere formality and NOR can (in the absence of express clauses) be validly tendered despite free pratique not having been granted. In the midst of COVID-19, that is most likely no longer the case. In all situations, where there is a delay in obtaining free pratique, we recommend that owners re-tender NOR on a without prejudice basis as soon as free pratique is granted.
The position under the various printed forms regarding tender of NOR in the absence of free pratique varies. In general terms, the dry charterparties tend to allow tender of NOR WIFPON if the berth is congested /unavailable on arrival, see e.g. Gencon, Amwelsh. There is more disparity amongst the wet charterparties, ranging from the more owner friendly Asbatankvoy to the more charterer friendly oil major charterparties which place the risk of obtaining free pratique on the owner. See for example Shellvoy6, under which NOR is invalid if free pratique has not been obtained within 6 hours.
When it comes to excluding periods from laytime/demurrage once valid NOR has been tendered, the position is governed by the terms of the contract. Aside from a Quarantine Clause, there may be an exclusion for time lost/delays due to the orders of the Health or Port Authorities. There may also be a catch all provision for time lost beyond the control of the charterer.
The laytime analysis depends not only the terms of the charterparty but also the specific factual scenario. It is beyond the scope of this Circular to provide comprehensive advice on the individual printed forms, however, the above are some of the clauses to look out for.
6) Is this a force majeure event?
Force majeure is not a standalone concept under English law, the relevant contract must contain a force majeure clause.
To rely on force majeure, the party seeking to invoke the clause has to show (1) that there has been a force majeure event. Whilst some force majeure clauses may specifically include “epidemics”, “disease” etc. the current situation may be caught by “act of god” or alternatively, a catch all type provision for matters outside the parties’ control; and (2) that performance of the contract has been prevented, delayed or hindered by reason of the force majeure event i.e. there must be causation. It is important to check the terms of any force majeure clause as they commonly impose requirements such as service of notice and supporting documentation.
Generally, a force majeure clause will protect the parties from liability in the event of delays to or prevention of performance as a result of force majeure. However, the specific remedy will be set out in the clause and these do vary. Before declaring force majeure (or indeed on receipt of a force majeure notice), it is important to carefully consider whether factually the situation falls within the clause, what the notification requirements are and what the available remedy is. A failure to properly follow the terms of the clause can either prove fatal to the claim or alternatively, if the wrong remedy is exercised, amount to breach of contract.
A contract is frustrated if performance becomes impossible or the nature of the contractual obligations are radically altered. It will not, however, assist where performance simply becomes more onerous or expensive. When it comes to delay, it has to be excessive. Note also that you can only claim frustration if the consequences of the event have not been regulated elsewhere in the contract.
As with force majeure, whether or not a contract has been frustrated has to be assessed on the specific facts, however, the threshold for proving frustration is high and it is unlikely that the immediate effects of COVID-19 would be sufficient to frustrate a charterparty.
8) COVID-19 clauses
We have seen a wide range of “COVID-19” clauses circulating in recent weeks. Some are good for owners (like the Bimco and Intertanko clauses) while others offer virtually no protection.
If members are considering using the BIMCO clauses, we would recommend amending the “affected area” language in sub-clauses (a) and (b) such that they read as follows:
“Affected Area” means any port or place where, in the reasonable judgement of the Master or Owners, there is a risk of exposure to the Vessel, crew or other persons on board to the Disease and/or to a risk of quarantine or other restrictions being imposed in connection with the Disease.
“(b) The Vessel shall not be obliged to proceed to or continue to or remain at any place which, in the reasonable judgement of the Master/Owners, becomes is an Affected Area after the date of, whether or not such place was an Affected Area at the time of entering into this Charter Party or became so thereafter.”
When members are considering including any of these clauses there are a few key issues that they should consider as outlined below:
Under Time Charters
Under Voyage Charters
We have developed a COVID-19 clause that we have shared with some of our members already. It was drafted on the basis that many members were finding it difficult to get institutional clauses accepted and therefore needed a shorter, more concise clause.
“Affected Area” means any port or place where, in the reasonable judgment of the master or owners, there is a risk of exposure to the vessel, crew or other persons on board to the disease and/or to a risk of quarantine or other restrictions being imposed in connection with the disease.
The vessel shall not be obliged to proceed to or continue to or remain at any place which is an Affected Area, whether or not such place was an Affected Area at the time of entering into this charter party or became so thereafter. Any delay due to COVID-19 related measures, including vessel quarantine at any of charterer’s nominated ports, to be for charterer’s account. Same also to apply where valid nor has not been tendered due to delay in obtaining free pratique. Should charterers nominated port be closed due to COVID-19 or COVID-19 related causes, all cost and time waiting to be for charterer’s account.
Any additional costs, expenses or liabilities whatsoever arising out of or in connection with the vessel visiting or having visited an Affected Area, including but not limited to screening, cleaning, fumigating and/or quarantining the vessel and its crew and time spent witing for the same, shall be for the charterers’ account and any time lost shall count as laytime or time on demurrage.
Any delays and additional costs and expenses incurred at any load or discharge port(s) under this charter arising out of the vessel having visited or called at an Affected Area prior to the commencement of this charter shall be solely for owner’s account and any time lost shall not count towards laytime/time on demurrage. Owners warrant that the vessel has not called at any port or ports in an Affected Area in the 14 days prior to the commencement of this charter.
The terms of this clause shall override any conflicting provisions in the charter party.
NB! The inclusion of the highlighted paragraph in the COVID-19 Clause must take into account the nature of the vessel’s trade. This is especially so in light of the increasing number of Affected Areas and the imposition of a 14 day quarantine in many ports.