COVID-19: NEW CHALLENGES FOR

CHARTERERS AND TRADERS Kunbi Sowunmi `

Senior Claims Advisor/Lawyer

Charterers & Traders Webinar, Middle East and North Africa 29 June 2020

NO LONGER ASSOCIATED WITH A GOOD TIME

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SCENARIO THE MV PERFORMANCE

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• Charterer/Trader party to a Sale Contract and Voyage

Charterparty both dated 10th February 2020.

• Sale Contract requires delivery of cargo at one named port in

Yemen.

• Charterparty calls for discharge at “1 SAFE berth/port in

Charterers’ option HODEIDAH OR SALEEF YEMEN”.

• COVID-19 is present in Yemen.

• Delay at Yemen ports due to a local port authority order that all

vessels be quarantined/detained on arrival at Yemen for COVID-

19 inspection and clearance.

• Buyer declares Force Majeure based on the above situation.

• Charterers instruct Owners to proceed to disport. Issues a Force

Majeure declaration under the Charterparty.

• Owners refuse to accept FM declaration.

THE CHALLENGE

• What happens now?

• Essentially a question of performance.

- Who must perform?

- Who is excused from performance?

• Who is responsible for issues/claims that arise?

This Photo by Unknown Author is licensed under CC BY-SA

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IS COVID-19 A FORCE MAJEURE EVENT?

• Force Majeure clause - needs to be contained in the CP or

Sale Contract to be effective under English Law.

• Generally the event relied upon must:

− Fit within the definition of an FM event or the “catch all” provision;

− Be unforeseeable;

− Prevent, hinder or delay performance;

− Be beyond the reasonable control of party relying on the event;

Generally the FM clause will;

− Impose a duty to avoid/mitigate the FM event;

− Suspend and/or terminate performance;

− Contain Notice requirements.

This Photo by Unknown Author is licensed under CC BY-NC-ND

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FM PROVISION IN THE VOYAGE CHARTERPARTY

Owner shall not be liable to Charterer, nor will Charterer be liable to Owner, whether in demurrage or

in any other respect whatsoever, for any failure or delay in the performance of obligations under

this Contract, and any such delay shall neither count as laytime nor as demurrage, if such failure or

delay is due to or results from the following: act of war or the threat or anticipated imminence thereof;

restraints of rulers, governments, or people; act or threat of terrorism; legislation, decrees, orders,

regulations or the like in the country of origin or of Vessel’s flag; unrest or disturbance, sabotage,

blockade, sanctions, civil commotion, political disturbances, breakdowns, power failure, accidents, or

stoppages whether total or partial, at ports, on railways, or other means of transport to or from the ports;

epidemics; disease; quarantine; Act of God; weather (including but not limited to drought, fog, frosts,

floods, snow, storms, tidal wave, tsunami, tempest or washaways); any other event or occurrence of

any nature or kind whatsoever beyond the reasonable control of Owner and/or Charterer, whether

similar or dissimilar to the causes or circumstances mentioned above.

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FM PROVISION IN THE VOYAGE CHARTERPARTY

• Should any of the events referred to above lead to delays in excess of 25 days, for any of the

contracted cargo(es), then either Charterer or Owner, shall have the right to cancel the relevant

contracted cargo(es) without any liability under this Contract for either party including demurrage;

alternatively by mutual agreement, this Contract shall be suspended for the period so affected and

Owner and Charterer shall negotiate and so decide whether the terms of this Contract shall be

extended beyond the original term by the period of suspension hereof.

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CAN CHARTERERS ORDERS BE REFUSED?

This Photo by Unknown Author is licensed under CC BY-NC-ND

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• If the port is within the agreed range then Owners have

to proceed.

• However, Owners might be able to refuse to proceed or if

they do proceed, recover their losses based on:

− Express Charterparty Terms

OR

− An Implied Indemnity from following Charterers’

orders as to the employment of the vessel.

• An indemnity may be implied against loss or damage

suffered by an Owner as a consequence of complying

with charterers orders, unless the loss arises from a risk

which the Owners themselves agreed to bear.

CAN CHARTERERS ORDERS BE REFUSED?

Some clauses address this situation.

• BIMCO Infectious or Contagious Diseases Clauses for Time and Voyage

Charterparties.

• Intertanko Time and Voyage COVID-19 Clauses.

Owner Friendly Clauses.

• Gives the Owners the right to refuse to perform. May cancel voyage pre-loading.

• Charterers must give alternative voyage instructions if Owners request this.

• Owners can take unilateral actions if no alternative instructions forthcoming e.g. discharge

cargo elsewhere.

• Owners have a right to lien cargo for additional expenses and freight.

• Charterers bear associated/consequential costs such as screening/cleaning/quarantine.

Some other clauses exist that are more evenly balanced e.g. certain Epidemic Clauses.

EXPRESS TERMS

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CHARTERPARTY ISSUES

• The answer will depend on the CP

Express/implied Terms.

• If CP silent then the Safety of the Port

becomes a consideration.

Definition of a SAFE PORT “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…”

• Q1. Is there a significant risk of:

- the crew catching COVID-19?

- the ship being blacklisted?

- the ship suffering an inordinate delay?

• Q2. Can the risks be avoided by good navigation

and seamanship?

• The burden is on Owners to prove that the

port is unsafe.

CAN CHARTERERS ORDERS BE REFUSED?

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WHAT KIND OF CLAIMS ARE LIKELY TO ARISE?

• Breach of safe port warranty.

• Recovery of Delay claims - Demurrage/Detention.

• Recovery of unpaid sums such as hire/freight.

• Recovery of consequential losses

e.g. quarantine/detention/cleaning costs and expenses.

• Indemnity claims:

− relating to the illness or death of crew.

− for losses and claims brought against Owners by third

parties.

− for losses arising from the prohibition or blacklisting of

vessels by other ports or authorities after calls to

COVID-19 affected areas.

CLAIMS BY OWNERS

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Owners

Third parties

Charterers

WHAT KIND OF CLAIMS ARE LIKELY TO ARISE?

• Insistence on performance/Countering unsafe

port allegations.

• Off-Hire during periods of quarantine/detention

due to crew illnesses/deficiency of men.

• Claims for financial losses resulting from delay

in shipment/delivery of cargo.

• Force majeure.

• Frustration declaration to suspend/avoid

performance.

• Laytime/Demurrage exclusions.

• Indemnities for claims brought by third parties

(see below).

CLAIMS BY CHARTERERS

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Owners

Third parties

Charterers

WHAT KIND OF CLAIMS ARE LIKELY TO ARISE?

• Claims by receivers under B/L for:

− Non delivery of the cargo.

− Late delivery of the cargo.

− Damage to cargo resulting from delay in delivery.

• Claims by third parties entirely un-connected with the adventure

claiming that the Charterers or the Owners are responsible for

spreading the disease.

CLAIMS BY THIRD PARTIES

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Owners

Third parties

Charterers

MORE INFO AVAILABLE

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A compilation of links to some relevant websites and guidelines, and Gard material that may

assist ship operators, masters and crews to stay alert and prepare and respond to the COVID-19

outbreak is available here