The COVID-19 global pandemic has thrown up a ton of problems for shipowners and operators. There are serious quarantine or disease control measures targeting inbound vessels and crew taken in countries and ports. Some may be subject to travel restrictions even weeks or months after leaving ports of affected areas. BIMCO published Infectious or Contagious Diseases Clauses (IOCD) for time and voyage charter parties in 2015 to help clearly address risks in the case of a virulent disease outbreak. This article consists of a detailed interpretation of IOCD clauses for voyage charter parties and a Q&A by Grant Hunter, BIMCO.

I. Interpreting BIMCO Infectious or Contagious Diseases Clause for Voyage Charter Parties 2015

(a) For the purposes 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.

Interpretation: pursuant to the definition of “disease”, the clauses are designed to respond to diseases that are “highly contagious” or “seriously harmful”, not just everyday illness like a flu. The “seriousness” of the disease that could invoke the clauses is described as “virulent” according to BIMCO. In addition, the “Affected Area” means not only a place where the ship calls where a risk of crew infection exists, but also subsequent ports of call away from the infection risk area which may quarantine or otherwise restrict the ship.

(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 an Affected Area after the date of this Charter Party.

Interpretation: even though whether a place shall be considered as an Affected Area is determined by Master/Owners, the article highlights the reasonability of their judgement. They are required to make rational decisions with considerations on interests of all parties related (The “Ixia” (1931) 41 Lloyd’s Rep.165). Whether an area is truly affected and how serious the outbreak is in the Affected Area both need to be considered when making judgements. Also, the Master/Owners can make such judgements only after the charter party becomes validated.

(c) In accordance with Sub-clause (b):

(i) at any time before loading commences, the Owners may give notice to the Charterers cancelling this contract of carriage or may refuse to perform such part of it as will require the Vessel to enter or remain at an Affected Area;

(ii) if loading has commenced, the Owners may notify the Charterers that the Vessel will leave with or without cargo on board,

provided always that if the Charter Party provides that loading or discharging is to take place within a range of ports, the Owners shall first request the Charterers to nominate any other safe port which lies within the range for loading and discharging and may only cancel this Charter Party or leave the loading port if the Charterers fail to nominate such alternative safe port within forty-eight (48) hours of receipt of notice of such request. If part cargo has been loaded, the Vessel may complete with cargo for the Owners’ account at any other port or ports whether or not on the customary route for the chartered voyage.

Interpretation: this particular article allows Owners to cancel or partly cancel the contract either before loading or after loading has commended. However, Owners may not be able to claim the loss arising from the cancellation of contract against the charterer as the right of cancellation is expressly stated in the clause, not implied by the common law (The “Tropwind” (No.2) (1981) 1 Lloyd’s Rep.45; The “Kos” (2010) 1 Lloyd’s Rep.87).

It should be noted that if cargoes are to be discharged in a nominated safe port, Owners shall notify the charterer beforehand and still proceed to the agreed port as provided in the charter party within the 48 hours before receipt of any reply. This means that additional cost may be incurred. If the vessel has reached a certain port waiting for charterer’s reply, it shall remain berthed for 48 hours, which will put it under greater risks of contamination.

The Club suggest that Owners include a without prejudice clause when delivering NOR as provided in the charter party in case of any future disputes.

(d) If prior to or after arrival and in accordance with Sub-clause (b) the discharging port is determined to be in an Affected Area, the Owners may request the Charterers to nominate an alternative safe port which lies within the Charter Party range. If the Charterers fail to make such nomination within forty-eight (48) hours of receipt of the Owners’ request, the Owners may discharge the cargo, or such cargo remaining on board if discharging has not been completed, at any safe port of their choice (including the port of loading) in complete fulfilment of the contract of carriage. If discharge takes place at any port other than the loading port or at a port that lies outside the range of ports in the Charter Party, the Owners shall be entitled to recover from the Charterers the extra expenses of such discharge, to receive full freight as if the cargo had been carried to the discharging port and, if the extra distance exceeds 100 miles, to additional freight which shall be the same percentage of the freight contracted for as the percentage which the extra distance represents to the distance of the normal and customary route. The Owners shall have a lien on the cargo for such extra expenses and freight.

Interpretation: this particular article is meant for situations after departure. Similarly, if cargoes are to be discharged in a nominated safe port, Owners shall notify the charterer beforehand and still proceed to the agreed port as provided in the charter party within the 48 hours before receipt of any reply. A without prejudice clause should be included when delivering NOR.

In addition, as Owners are entitled to reimburse the extra expense for discharging in ports outside the range of ports in the charter party, charterers may alter the original contract and arrange discharge in a port away from the course, which may affect the performance of the next voyage charter party.

(e) The Owners shall not be obliged to sign, and the Charterers shall not allow or authorise the signing of, bills of lading, waybills or other documents evidencing contracts of carriage for any Affected Area.

Interpretation: It is the Owners’ responsibility, as carrier under the B/L or other contract of carriage with similar title (Carriage of Goods by Sea Act 1992, Section 2(1)), to deliver goods to specified consignee in specified port. This particular article is designed to free Owners from its obligations under the contract apart from charter parties when the agreed discharge port is affected by the disease outbreak. Also, if the loading port is affected, B/L and other similar document shall not be signed neither.

(f) If, notwithstanding Sub-clauses (b) to (e), the Vessel does proceed to or continue to or remain at an Affected Area:

(i) The Owners shall notify the Charterers of their decision but the Owners shall not be deemed to have waived any of their rights under this Charter Party.

(ii) The Owners shall endeavour to take such reasonable measures in relation to the Disease as may from time to time be recommended by the World Health Organisation.

(iii) Any additional costs, expenses or liabilities whatsoever arising out of 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, shall be for the Charterers’ account and any time lost shall count as laytime or time on demurrage.

Interpretation: the word “notwithstanding” indicates the independency and precedence of this article. Even without the charterer’s order, the Owner may still proceed to or remain in ports that are known as an Affected Area. To preserve its right under this clause, the Owner shall clearly notify the charterer of its decision within a certain period of time. Since the time lost will be count as laytime or time on demurrage, the Owner shall tender NOR in time without taking into account quarantine measures in the area, or redeliver the NOR afterwards on a without prejudice basis (The “Timma” (1970) 2 Lloyd’s Rep.409).

(g) The Vessel shall have liberty to comply with all orders, directions, recommendations or advice of competent authorities and/or the Flag State of the Vessel in respect of arrival, routes, ports of call, destinations, discharge of cargo, delivery or in any other respect whatsoever relating to issues arising as a result of the Vessel being or having been ordered to an Affected Area.

Interpretation: contrary to article (f) (ii) where Owners are required to “endeavored to” take WHO-recommended measures, this particular article emphasizes Owners’ liberty in following “orders, directions, recommendations and advice” of the authorities. Pursuant to article (f) (iii), Owners may claim for additional costs, expenses or liabilities arising from complying with mandatory requirements.

(h) If in compliance with this Clause anything is done or not done, such shall not be deemed a deviation but shall be considered as due fulfilment of this Charter Party. In the event of a conflict between the provisions of this Clause and any implied or express provision of this Charter Party, this Clause shall prevail to the extent of such conflict, but no further.

Interpretation: this article clarifies that compliance with the IOCD clause will not result in breach of the charter party, and the effect of this article shall take precedence over all other express or implied articles.

(i) The Charterers shall indemnify the Owners for claims arising out of the Vessel proceeding in accordance with any of the provisions of Sub-clauses (b) to (h) which are made under any bills of lading, waybills or other documents evidencing contracts of carriage.

Interpretation: Owners may claim losses against charterers if unfavorable consequence is incurred in performing contract of carriage including B/L and other document of similar title due to compliance with the clause.

(j) The Charterers shall procure that this Clause shall be incorporated into all bills of lading, waybills or other documents evidencing contracts of carriage issued pursuant to this Charter Party.

Interpretation: recognition on the force of the incorporated clause may differ in different countries, and hence it is advisable to specify this Clause on the back of the B/L for voyages during the pandemic.

II. COVID-19 Q&A on the IOCD Clauses

Q1. Under what circumstances can the IOCD clause be triggered?

A1: The voyage charter party clause can only be triggered when the two interdependent definitions of “Disease” and “Affected Area” are fulfilled. There should be no argument that COVID-19 falls within the definition. In terms of the “Affected Area” it should be noted that the clause can only be invoked if the risk of exposure to Disease and/or a risk of quarantine arose after the date of the charter party. The “Affected Area” can be two distinct places – where the ship calls at a place where there is a risk of infection to the crew and, secondly, where the ship calls subsequently where there is a risk that the ship will be quarantined or subject to other measures that may delay the ship as a result of a previous port call.

Q2. BIMCO’s Infections or Contagious Diseases Clause talks about “Affected Area”. As the World Health Organisation (WHO) already declared this a pandemic (a global scale epidemic), does the “Affected Area” definition not lose its value as this epidemic affects the entire world?

A2: The definition of “Affected Area” does not refer to areas declared by the WHO but to ports and places where there is a “risk of exposure” to the Disease. It is not an arbitrary decision for the owner or master to decide what constitutes a “safe port” in this context. It is a matter of fact and sound judgement. If a port has not been declared by a public health authority as a risk to visiting ships, then we believe it would be difficult to define it as an “Affected Area”. Provided the crew and shoreside personnel follow recommended protective measures then the risk to the crew should be minimal (and evidence suggests that ship’s crew are presently one of the lowest risk groups).

Q3. What rights do the parties have if owners invoke the IOCD Clause and cancel the voyage charter party before loading commences?

A3: If the owners cancel the voyage charter party before loading has commenced the clause is only intended to let the owners “walk away” from the contract without any further financial liabilities towards the charterers, and vice versa.

If the loading port was already a known "Affected Area" when the charter party was concluded, the owners would not be entitled to cancel the charter party and charterers would have a claim against the owners for breach of contract. If the loading port becomes an “Affected Area” only after the date of the charter party, then the owners’ cancellation would be in accordance with the clause and the charterers would not have a basis for a claim against the owners.

Q4. Can the owners cancel the voyage charter party if there is a risk that the vessel will be quarantined at the load port?

A4: Under the voyage charter party clause, subclause (c)(i) allows the owners to cancel the charter party before loading has commenced if the vessel is at risk of being quarantined at the load port only if this risk did not exist at the date of the charter party. However, if the charter party provides for a range of load and discharge ports, the owners can only cancel if the charterers have failed to nominate alternative safe ports within the range.

Q5. If the owners agree to let the ship proceed to a load port which is an “affected area” due to the risk of quarantine, who will be responsible for the time lost during the quarantine?

A5: The charterers will be responsible because under subclause (f)(iii), any time lost will count as laytime (or demurrage).

Q6. If a ship arrives at an “affected area”, when can it tender a valid notice of readiness (NOR)?

A6: The normal charter party requirements for tendering a valid NOR apply – the ship must have arrived and be physically and legally ready. In respect of the readiness requirement, the ship will not be ready if it is quarantined because of an infection among the crew. However, if the crew is free of the virus then many ports will give the ship health clearance which in most cases will permit a NOR to be given.

Q7. If a ship arrives at the load port and is quarantined because of a previous port call, can the charterers cancel the charter party if the owners are unable to tender a valid NOR by the cancelling date in the charter party?

A7: The charterers’ right to cancel under the charter party is an absolute right if the cancellation date is missed. However, we have not seen any cases where this has occurred as many ports have imposed 14 day “self-isolation” requirements that can often be absorbed during the voyage from the previous port to reduce delays on arrival.

Q8. Which party pays for the waiting time during quarantine?

A8: Subclause (f)(iii) provides that any time lost will count as laytime or time on demurrage. The intention is that time will be counted from the point at which the ship would have tendered NOR but for the quarantine restriction until such time the quarantine ends. At this point the terms of the charter relating to where and when the notice can be tendered will come into effect, NOR will be given, notice time (if any) will run, following which laytime will commence.

III. Conclusion

The ongoing COVID-19 situation has had a profound influence on international trade and the entire shipping industry. Forming a charter party that can safeguard the interests of both parties is especially important at this point. Incorporating the BIMCO IOCD Clause in the contract, as introduced above, is one of the ways of protecting owners’ rights – only if the preconditions are practiced as provided and relative document are well preserved.

The Club understands that it’s extremely difficult for seafarers to get medical care ashore based on some recent cases. Members are advised to enhance safety management and see to the execution of SMS requirements. Medical supplies and medicines shall be in full stock in case of any emergency.

This article is composed on the basis of BIMCO issuance and for further consultation, please contact your manager at the Club.