LP 05/2022 Russia-Ukraine Crisis: Impact on Charterparties (I)

Russia announced a military operation in eastern Ukraine on February 24, 2022, local time.

Russia announced a military operation in eastern Ukraine on February 24, 2022, local time, leading to dramatically escalated regional tensions. The Association has learnt from the correspondents that from 0400 February 24 and until further notice, shipping in the north-western waters of the Black Sea and the entire Sea of Azov is suspended and port service is limited in Ukraine. Members that have routinely called at ports in European Russia and Ukraine are concerned about the current situation, and this article is prepared on that account to offer some general guidance on a few frequently asked questions.

I. Are Owners currently entitled to refuse to call at a Ukrainian port?

For owners and crewmembers worrying about calls at Russian and Ukrainian ports, law and charterparty issues as outlined below should be considered.

1. Safe ports

The Association has just issued a circular to war risks Members in respect of JWC Hull War, Piracy, Terrorism and Related Perils Listed Areas, adding Ukrainian and Russian waters in the Black Sea and the Sea of Azov to war risks trading exclusions. As the situation in the area develops, war risks have become imminent at some local ports. If an order is given to proceed to these ports under voyage or time charterparties, owners are entitled to decide whether to reject the order or call for new orders upon confirming that the situation has rendered the port unsafe.

2. Frustration/Force majeure

Due to navigational restrictions in the region, sailing to Russian/Ukrainian ports are at risk of being cancelled or delayed for a prolonged period. A voyage charter or bill of lading which contains expressly the load/discharge port, or a TCT may be frustrated because of the outbreak of hostilities, or force majeure clauses may be triggered.

3. The near clause

For ships that are already on the way to discharge in Ukrainian ports, or for ships on a tight schedule but for whom discharging at the destination port as per the contract of carriage is no longer possible, Members may consider discharge at a safe port or place near the port of destination referring to the near clause. However, they are recommended to consult the Association or lawyer’s opinion first before such a decision is made and the consignees should be informed early.

4. War risks clause

War risks clauses that are carefully worded have been incorporated in most charterparties, typically including BIMCO CONWARTIME 2013, VOYWAR 2013, and clause 35 of Shelltime 4. Such clauses have provided the obligations of owners so far as war risks (war, warlike operations, hostilities, etc.) are concerned, and may be applied by both parties depending on the current situation.

II. What about vessels calling at Russian/Ukrainian ports?

The Association understands that there are some already berthed vessels that cannot depart at the moment due to suspension of port service or closed sea traffic.

Where the vessels become trapped and cargo operation stops, it is improbable for charterers to change the voyage order. Owners should first ensure the safety of the crew and fulfil their duty to cargo, including confirming cargo lashing and securing or carrying out ventilation as necessary.

We can’t say for sure whether the contract may be frustrated by delay, but the party which might benefit from frustration of the charter, in view of the market level of freight rates, would usually rely on the concept to seek higher profits.

Members may also wonder whether they can make a recovery for the loss arising out of attacks while at berth or at anchor at Russian/Ukrainian Black Sea ports. Both the safe port and war risks clause should be checked. Note that it is the charterer’s primary obligation to order a ship to a prospectively safe port and his secondary obligation to give a new voyage order in the case of subsequent unsafety.

III. Do Owners have a right to cancel the contract?

This will depend on the wording of any frustration or force majeure provisions in the contract (if cancellation due to force majeure events is established), and whether a war cancellation clause is included (such as the BIMCO war cancellation clause and clause 33 outbreak of war of Shelltime 4 form).

Before such cancelling rights are triggered, the party relying on these clauses should confirm: 1) are there any terms providing that the contract can be cancelled only on the outbreak of war between certain countries (eg. between the permanent members of UN Security Council or between countries of former Soviet Union); 2) are the countries actually in a war or if it’s only sanctions and political conflicts going on.

IV. How will sanctions affect charterparties?

With regard to the recent sanctions announced by the US, UK and EU authorities, we recommend owners and charterers to carefully review sanction clauses contained in charterparties and ensure that no sanctioned individuals or entities are involved when trading or operating in Russia.

Given how quickly the situation can be changing, this article only offers a general guidance and cannot be used as basis for any judgement on the situation or as expert opinion on any specific cases. Members are encouraged to contact the Association for information updates.