The P&I Clubs and marine lawyers are beginning to issue detailed advice on legal issues that could arise as a result of the outbreak of 2019-nCoV.
Julien Rabeux, Senior Claims Manager at West of England Club, has provided a comprehensive analysis of the issues that might arise.
Duty of care towards to crew
Employers owe a duty of care towards their crew and precautions should be taken to minimize any potential spread to crew members. (Article on West of England site, January 24th).
Notice of Readiness
When the notice of readiness (NOR) is given, the vessel must be not just physically ready, but also legally ready. Rabeux noted that it was common to provide for the commencement of laytime “whether in free pratique or not”, and in the majority of cases such matters were irrelevant to the giving of NOR.
Even where there is no such express provision, if those matters are reasonably believed to be “mere formalities” and routine, NOR might be given without having obtained the necessary clearances.
However, where there was a known or even perhaps just a suspected infection problem, the “mere formalities” exception would not apply. Owners should ensure that they have the necessary clearances before a valid Notice can be issued.
If a member of crew becomes ill after visiting a port affected by the outbreak, a deviation for the purpose of saving life is permissible. Rabeux said that many standard charters would give the owner the right to deviate in such circumstances (Gencon 1994 clause 3 and NYPE 1946 clause 16).
Unless the charter states otherwise, the vessel will not be off hire if the ship has to deviate in order to save the life of an infected crew member. Charterers would not be able to claim for the additional bunkers used.
Members might be able to make a claim against the Club for the net cost to the Member (over and above the expenses that would have been incurred but for the diversion or delay) of fuel, insurance, wages, stores, provisions and port charges.
For owners under a voyage charter, although the deviation would be permissible, owners would not be able to claim additional freight. Labeux advised that owners might want to add a clause providing for additional freight if the vessel was forced to deviate to save the life of a crew member who was infected as a result of visiting a port.
Under a bill of lading contract, a similar deviation would most likely be permissible if the Hague Visby Rules were incorporated (article IV rule 4).
Under most standard charter party forms charterers are generally obliged to nominate a safe port. The owners must generally comply with the order to proceed to a port unless there is an unacceptable risk that the port is unsafe. The Master does not have to instantly obey charterers’ orders if in doubt about the prospective safety of the port. He will have reasonable time to make enquiries.
Labeux said that it was arguable whether a port could be said to be unsafe due to the coronavirus outbreak at a port. There did not appear to be any authorities on whether a port impacted by an epidemic could be considered unsafe, as the vast majority of authorities on the matter relate to the physical or political characteristics of the port. However, he said that “it is suggested that risks to the crew can render a port unsafe even where there is no risk of damage to the ship”.
Charterers have an obligation to nominate a safe port. Under time charter parties, if the port becomes unsafe after the first nomination, charterers then have an obligation to nominate another (safe) port. If the port becomes unsafe during the stay, charterers may order the ship to leave.
In the case of a voyage charter party, where the port has already been nominated, the general view is that charterers have no general duty or right to re-nominate. If the charter (and the bill of lading) have a liberty clause then the owner may discharge the cargo at some other port.
If the owners accept charterers’ orders in full knowledge of the unsafety of the port, owners may have waived their right to refuse to obey charterers’ orders but this would not necessarily mean that owners have waived their rights to damages.
If a large number of crew/officers fall ill, preventing the full working of the ship, this might be considered to be an off hire event . If the charter also includes the words “or any other cause” (in conjunction with “deficiency of men”) or the words “any other cause whatsoever” it would be arguable that quarantine measures taken due to the sickness of crew would be an off hire event (some charters specifically refer to “quarantine restrictions”). However, Labeux said that charterers should bear in mind that, if the contagion onboard the vessel was the natural result of compliance with the charterer’s orders, this would not give rise to off-hire.
Bill of lading considerations
Whilst owners might be entitled to deviate to save life at sea or refuse to proceed to a port under the terms of the charter party, the carrier should also consider their position under the bill of lading. Carriers will still have an obligation to deliver the cargo under the bill of lading to the designated port with utmost due despatch, and to take care of the cargo.
If the bill of lading terms do not permit to deviate (whether to save life at sea or discharge the cargo at a different port), the carrier might be liable towards cargo interests for damages resulting from deviation and or delay.
With regards to discharging the cargo at a different port, the carrier might be entitled to do so if the bill of lading incorporates a liberty clause or the BIMCO clauses for infectious or contagious diseases, and the cargo can be safely delivered to the party entitled to take delivery at that alternative port.
If, as a result of quarantine and/or deviation due to the epidemic, delivery of the cargo is delayed and deteriorates, carriers may be able to rely on the exception of “restraint of princes” in Art. IV rule 2(g) of the Hague Visby Rules. Alternatively, the carrier maybe able to rely on the exception in Art. IV rule 2(h) “quarantine restrictions”.
Frustration and force majeure
The outbreak of the virus could leave to substantial delays due to quarantine. A charter may be frustrated if the performance of the charter is sufficiently delayed. The main factor is whether the interruption will be, (or likely to be) substantial in relation to the remainder of the charter period. The length and effect of the interruption must be assessed at the time that the cause of the delay operates and without the benefit of hindsight. If at the outset of an event, the delay appears likely to be of short duration, the contract will be frustrated when it subsequently appears that the delay will be inordinately lengthy.
The virus may not necessarily render the charter frustrated, depending on the terms of the charter. The coronavirus may frustrate a voyage charter whilst it may not have any effect on a time charter with a wider trading limit. In effect, if the charter permits the ship to trade between other places then the charter will not be frustrated, even though the charterer may find it hard to find an employment for the ship.
Whether or not nCoV would be a force majeure event would depend greatly on the wording of the clause.
Owners may also have an implied indemnity if they can show that the loss arose out of a risk which they had not agreed to bear. Labeux warned that the scope of the indemnity was narrow as owners would have to show that the risk was one which was not reasonably foreseeable. It was arguable whether there was even any implied indemnity when there is a specific protective clause relating to the present outbreak.
BIMCO has previously issued specific clauses for infectious or contagious diseases for both voyage and time charter parties. Pursuant to these clauses owners may refuse to trade to an area or zone of danger. If, nevertheless, that option is waived and the vessel proceeds, charterers will be responsible for resulting liabilities and any additional costs of preventative measures taken by owners to protect the vessel and crew. It is important to note that whether an area presents the degree of danger justifying a refusal to proceed is a subjective decision to be taken by owners in the light of available evidence and information.
Under the time charter party clause, and recognizing charterers’ commercial control over the vessel, charterers’ obligations are expressly stated to include post-contractual costs such as cleaning, quarantine or fumigation arising from the vessel’s previous trading pattern.
In this respect and in order to secure their interests, Labeux said that owners would need to consider the most effective means of obtaining appropriate financial guarantees either at the time of fixing or when agreeing to allow the vessel to proceed to an area considered to be at risk.
The voyage charter version expressly limits application of the clause to situations arising after the date of the charter party. Events arising post-fixture might be more problematic and so the clause sets out a regime to address such changed circumstances. Any delay due to the outbreak would count as laytime and/or demurrage. With regards to additional freight relating to a deviation due to the outbreak, Labeux advised that members might want to have a bespoke clause as to how the additional freight would be calculated.
The provisions in the clauses might result in contractual or geographic deviation. Accordingly, when considering incorporating the clause, owners and charterers should consult the Managers to ensure that inclusion will be compatible with their cover and also to discuss any special considerations or requirements that might be applied.