The previous part released on 31 January 2020 roughly introduced some legal risks in which the performance of charterparties is likely to be affected by the pandemic situation. Now with the spread of coronavirus all over the world and restrictive measures being taken at ports, the Association has seen some more specific questions in shipping practice coming up from the Members. Therefore, with an explanatory summary on some recent cases, this article is prepared as a simple guidance for the signing and execution of charterparties.

I.    Delays at port and refusal to proceed

Owners are once concerned with whether they can refuse to proceed to a port by arguing that the port is unsafe because there is a risk of exposure by the vessel to the highly contagious disease. With the situation in China getting under control and preventive measures taken in most ports globally, such questions are not asked as frequent, but may be brought up again if the pandemic keeps escalating in other countries. Now consults with the Association are more about considering the recent port congestion and lack of labor, whether owners can refuse to proceed to a port where there is or may be a risk of vessels being detained or delayed.

The Association holds a rather reserved opinion. Unless specified in the charterparty, owners can argue that vessels will be delayed at a certain port and then refuse to comply with charterers’ orders only on the basis that – 1) it is an unsafe port; or 2) the charterparty is to be frustrated. Theoretically, a port could be unsafe if ships are about to be delayed, but as the Knutsford v. Tillmanns and the Hermine case indicate, such a period of delay must be an inordinate delay that would frustrate the charter. A danger or obstruction which resulted in a delay to the ship of any shorter duration would not render the port unsafe.

In a word, a lot of factors need to be considered, like the duration of the potential delay, the duration of the charter and specific clauses with regard to delays. Based on the restoration of social order and resumption of work in different cities, delays at domestic ports are unlikely to be a long-lasting problem.

II.    Delays at port and charter hire

Another question often asked by owners and charterers is whether vessels could be off hire during the delay.

Under English law, the payment of hire is an absolute obligation of the charterer, that is, charterers need to pay the hire as agreed unless they put forward a claim on account of: 1) the off-hire provision specified in the charter or 2) the equitable set-off. Relevant to the previous question are off-hire and exception clauses.

Delays simply caused by port congestion, which has become common practice nowadays, are seldom listed in relevant off-hire clauses of time charterparties as the full working of the vessels is not prevented. Then some charterers may ask whether they can rely on force majeure or exception clauses, namely NYPE 46 clause 16, to not pay the hire during the periods of delay.

In this regard, the Association would like to point out that force majeure is not an established principle in English law and will not be implied, if not contractually incorporated. Also, exception clauses in most charterparties are very general without expressly mentioning the specific circumstances under which the obligation of paying hire can be exempted, and therefore difficult to rely upon. More detailed explanation can be found in LP 07/2020 Liabilities and Risks Regarding the Performance of Contracts during the COVID-19 Pandemic.

The Association must admit that port congestion can be a problem indeed for the practice of voyage charterparty. Owners and charterers are advised to be cautious with the tendering of NOR as well as the defining of laytime and demurrage liability.

III.    Ship detained or denied entry without justification

Quarantine measures and time limits for inbound vessels are made clear in government orders or policies of most countries, though different in details. The isolation period most widely accepted is 14 days. However, cases where ships are denied entry by port authorities without legal or reasonable justification are frequently reported. Some pilots, upon knowing that the ship is from China, have declined to pilot the ship, even if it has been sailing for more than 2 weeks. Operations are denied in some ports if the ship has previously called at a Chinese port or there is Wuhan-registered crew member on board. Loss of time and delays are inevitably caused as a result. The Association will, without doubt, help coordinate between all parties and facilitate immediate berthing, but problem is, in the context of such time losses, is the vessel off hire?

Generally, such delays are caused by the port authorities being over-cautious with epidemic prevention, not by following prescribed standards of quarantine measures, and therefore are essentially not related to the physical condition of the ship or the crew. Such events are unlikely to fall within any off-hire provisions. Besides, the ship’s calling at a Chinese port might have been based on the charterer’s order, meaning that the time loss is to be on charterer’s account. It may be a different story if the off-hire clause states “any other cause preventing the full working of the vessel ‘whatsoever’” for the ejusdem generis rule will not apply. Anyway, most of the existing clauses of charterparties address allocation of risk and liability between both parties for complying with quarantine restrictions of the authority and the situation of ship being detained for no reasons is hardly ever mentioned.

IV.   Relevant charterparty clauses and wording

Given the recent consults on charterparty wording, the Association would like to offer below advices.

1)      The Association has noticed that there is no express term targeting contagious disease in some of the charterparties, making it difficult for Members to claim their rights in the event of a dispute. The BIMCO Infectious or Contagious Diseases Clause for Time/Voyage Charter Parties 2015, which has been introduced in previous circulars, is a commonly included clause.

2)      At this stage of the pandemic with restrictive measures taken at global ports being a known fact, it is implied that owners have accepted potential delays and losses by entering into a time charterparty. Likewise, relative terms may be clarified in voyage charterparties. It may be difficult for owners to depend on the exception clauses and words like “whether such risk existed at the time of entering into this Charter Party or occurred thereafter” can be added for prudential reasons.

3)      Owners and charterers shall make sure of rigorous contract writing and not use vague expressions like “epidemic area”. Such words agreed on by both parties but without any further explanation or definition can be hard to rely on in practice. Additionally, if the charterparty clauses relate to any announcement made by an official or international organization (such as WHO), both parties shall understand the organization’s operating mechanism, otherwise the clauses may not be applicable.

V.    Conclusion

With the development of the pandemic, the Association is seeing a lot more charterparty issues arising from real cases and by analyzing how they are affected by the disease and what to be considered can facilitate negotiation on fair agreements and resolution of disputes, if there are any. The Association will keep on following such cases and more information about the COVID-19 pandemic will be prepared in subsequent circulars.

The above content is only for Members’ reference and does not mean that the Association has expressed any view on any specific case, nor can it be used in any publication. For further information, please feel free to contact the FD&D department.