Shipping Contracts in the Time of Coronavirus Anna Hoffmann, 4 Pump Court ahoffmann@4pumpcourt.com
The shipping market has been heavily impacted
The shipping market has been heavily impacted Capesize Index, which tracks freight costs for the largest carriers of dry bulk commodities, fell into negative territory last week for the first time since its creation in 1999, indicating that shipping companies are running at a loss on certain routes. (FT, 13.2.20) Maersk, who handles one in five containers shipped at sea, warned of the impact of the coronavirus based on the weak start into 2020. (20.2.20)
Be prepared…
Key topics for shipping lawyers in this talk Specific Infectious Disease Clauses (BIMCO) Does Force Majeure Apply? Frustration Safe Ports Outlook – other matters to consider (c) Google Maps
BIMCO specific infectious disease clauses In January 2016, BIMCO released a Special Circular containing clauses re contagious diseases for Time and Voyage Charters. The Time Charter clause has, for example, been incorporated as clause 25 into the BIMCO 2017 Supplytime. Applies to any virulent disease and therefore drafted in general terms without reference to specific conditions. Meant to introduce a high threshold and only deal with extreme illness. Modelled on the BIMCO War and Piracy Clauses. Whether an area presents the degree of danger justifying a refusal to proceed is a subjective decision to be taken by owners in the light of available evidence and information.
Example: extracts from the BIMCO Time Charter Clause (a) For the purpose of this Clause, the words: “Disease” means a highly infectious or contagious disease that is seriously harmful to humans. “Affected Area” means any port or place where 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, is an Affected Area. (c) If the Owners decide in accordance with Sub-clause (b) that the Vessel shall not proceed or continue to an Affected Area they shall immediately notify the Charterers. (d) If the Vessel is at any place which the Master in his reasonable judgement considers to have become an Affected Area, the Vessel may leave immediately, with or without cargo on board, after notifying the Charterers.
Example: extracts from the BIMCO Time Charter Clause (e) (…) If the Charterers do not issue such alternative voyage orders within fortyeight (48) hours of receipt of the Owners’ notification, the Owners may discharge any cargo already on board at any port or place. The Vessel shall remain on hire throughout and the Charterers shall be responsible for all additional costs, expenses and liabilities incurred in connection with such orders/delivery of cargo. (f) In any event, the Owners shall not be obliged to load cargo or to sign, and the Charterers shall not allow or authorise the issue on the Owners’ behalf of, bills of lading, waybills or other documents evidencing contracts of carriage for any Affected Area. (g) The Charterers shall indemnify the Owners for any costs, expenses or liabilities incurred by the Owners, including claims from holders of bills of lading, as a consequence of the Vessel waiting for and/or complying with the alternative voyage orders. (j) If in compliance with this Clause anything is done or not done, such shall not be deemed a deviation, nor shall it be or give rise to an off-hire event, but shall be considered as due fulfilment of this Charter Party
Force Majeure I Will be relevant: On 30 January 2020, the China Council for the Promotion of International Trade released a statement confirming that China was offering force majeure certificates to local companies unable to fulfil their international contractual obligations due to the coronavirus outbreak. The relevant directives and certificates do not, for the time being, apply to Hong Kong law contracts where the counterparty is a non-Chinese entity. Q1: Does the clause catch the event? e.g. ”Acts of God, Rulers, Governments… ‘other circumstance beyond the parties’ control’
Frustration In Davis Contractors Ltd v Fareham Urban DC [1956] AC 696, Lord Radcliffe said at p. 729 that “ …frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do ”. In National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, at p. 700, Lord Simon said: “ Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance ”. Davis Contractors and National Carriers both make clear that a party cannot invoke the doctrine of frustration where the supervening event results from that party’s own default.
Force Majeure II Q2: Is event only effective cause? Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102, event described in the exception or force majeure clause must be cause the default in the sense of “but for” causation. However – all depends on wording of clause! Q3: Mitigation? Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323, the Court of Appeal held that any clause which included language referring to events “beyond the control of the relevant party” could only be relied upon if all reasonable steps had been taken by aid party to mitigate its results.
Safe Ports E.g. Clause 5 of the NYPE 93 form, which provides: “The vessel shall be employed in • such lawful trades between safe ports and safe places … as the Charterers shall direct”. The classic definition of a safe port : The Eastern City [1958] 2 Lloyd’s Rep 127 “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 ” (p. 131, col 2, as per Sellers LJ approved by the SC in The Ocean Victory [2017] UKSC • 35). In Ciampa v British India Steam Navigation Co Ltd [1915] 2 K.B. 774 a vessel was held to • be unseaworthy as it had come from a port contaminated by plague. Time Charters (2014) para.10.3: dangers to the crew alone can be sufficient to render a • port unsafe.
Outlook: other implications Deviation Quarantine / Port interventions NORs and free pratique
Thank you for listening Any Questions? Anna Hoffmann ahoffmann@4pumpcourt.com
Sources and Follow up https://www.shipownersclub.com/media/2020/02/BIMCO-Infectious-or-Contagious- Diseases-Clause-for-Voyage-and-Time-Charter-Parties-2.pdf https://www.ft.com/content/9f543f48-4d96-11ea-95a0-43d18ec715f5) https://www.theguardian.com/world/2020/feb/20/coronavirus-hit-airline-shipping-industry- china-flights)
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