COVID-19: NEW CHALLENGES FOR CHARTERERS AND TRADERS Kunbi Sowunmi ` Senior Claims Advisor/Lawyer Charterers & Traders Webinar, The Americas 23 June 2020 NO LONGER ASSOCIATED WITH A GOOD TIME

2 SCENARIO THE MV PERFORMANCE

• 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.

3 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

4 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 5 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.

6 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.

7 CAN CHARTERERS ORDERS BE REFUSED?

• 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.

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

8 CAN CHARTERERS ORDERS BE REFUSED? EXPRESS TERMS

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.

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

9 CHARTERPARTY ISSUES CAN CHARTERERS ORDERS BE REFUSED?

• The answer will depend on the CP • Q1. Is there a significant risk of: Express/implied Terms. - the crew catching COVID-19? - the ship being blacklisted? • If CP silent then the Safety of the Port - the ship suffering an inordinate delay? becomes a consideration.

Definition of a SAFE PORT “The Eastern City” • Q2. Can the risks be avoided by good navigation “…a port will not be safe unless, in the relevant period and seamanship? of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal • The burden is on Owners to prove that the occurrence, being exposed to danger which cannot be port is unsafe. avoided by good navigation and seamanship…”

10 WHAT KIND OF CLAIMS ARE LIKELY TO ARISE? CLAIMS BY OWNERS

• Breach of safe port warranty. • Recovery of Delay claims - Demurrage/Detention. Owners • 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 Third Charterers parties. parties − for losses arising from the prohibition or blacklisting of vessels by other ports or authorities after calls to COVID-19 affected areas.

11 WHAT KIND OF CLAIMS ARE LIKELY TO ARISE? CLAIMS BY CHARTERERS

• Insistence on performance/Countering unsafe port allegations. • Off-Hire during periods of quarantine/detention Owners 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 Third Charterers (see below). parties

12 WHAT KIND OF CLAIMS ARE LIKELY TO ARISE? CLAIMS BY THIRD PARTIES

• Claims by receivers under B/L for:

− Non delivery of the cargo. Owners − 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. Third Charterers parties

13 MORE INFO AVAILABLE

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

14