New BIMCO clauses welcomed, but raise some further questions: Quadrant briefing

In a Quadrant Chambers breakfast forum on BIMCO’s recently introduced clauses on cyber security laws, “just in time” fuel efficiencies and crew changes, legal experts said that, while all of the clauses were welcome, in places they also raised further questions.

As a part of London International Shipping Week 2021 Simon Rainey QC, Gemma Morgan and Peter Stevenson of Quadrant Chambers were joined by Andrew Preston from Preston Turnbull to shed further legal light on the BIMCO cyber security clause 2019, the AIS switch-off clause 2021, the Just In Time Arrival Clause 2021, and the Crew Change Clause of 2020.

Summarizing the cyber-security clause from 2019, Gemma Morgan said that its benefits were that it was straightforward, consisting of broad language that made it suitable to include in different types of charter. She noted that, while existing regulation imposed duties on owners that were broadly in line with the new clause, there was no such existing canon for charterers. She felt that the clause should be welcomed because it might result in both parties being encouraged to work harder on their levels of cyber security. However, while owners did not take on much additional obligation by including the clause, charterers did. Therefore charterers might need to “think carefully about including the clause in their charterparty”.

However, fuzzy areas remained. Morgan observed that BIMCO defined the phrase “appropriate cyber security measures” as concomitant with the size of the company and its business. However, she felt that the phrase was more applicable to the ability of the party to prevent such an incident.

One sub-clause, which provides for a default cap in liability of $100,000, would, thought Morgan, be the driving force for owners when it came to including the clause. She thought that this would make it less difficult for owners to obtain insurance. Morgan also noted that BIMCO had considered inserting a requirement for insurance, but decided that such a requirement would be premature, because many underwriters currently did not have the appetite to write such risks. While larger companies were pressing ahead with obtaining cover, for smaller shipowning companies it was difficult to obtain cover at a realistic price.

The $100,000 cap clause served to highlight a potential difference among lawyers as to when it applied. The hypothetical scenario was that the same event might cause a cyber breach, but also a breach elsewhere (e.g., seaworthiness). Would the cap apply to this breach. Some felt that the current construction might make it read that the cap did apply, while others felt that the claimant could say that there was no claim under the capped part of the contract, only under the uncapped part.

Simon Rainey QC then discussed the AIS switch off clause, which was introduced only this July. He observed that at first sight  this was a curious clause as AIS can only be switched off for specific reasons, and it was not designed as a sanctions tool or a policing device, but as a means to avoid collisions. Why, therefore, had BIMCO felt the need to introduce it?

The answer was the US Office of Foreign Assets Control (OFAC). Last year OFAC issued an advisory on the matter, which effectively mandated the entire sector to address sanctions risks and to implement compliance controls. At number one on its list was “deceptive shipping practices” and at number one of the deceptive shipping practices list was disabling or manipulating AIS. In other words, disabling or manipulating AIS was brought into the spotlight as a means of avoiding sanctions; its initial collision avoidance role had been subsumed.

OFAC recommended that vessels with suspicious behaviour in the past two years be noted by flag states, insurers, charterers, and so on. “When OFAC speaks, the world trembles”, said Rainey, and the immediate consequence was charterers inserting blunt instrument clauses. These often gave the right to charterers to terminate contracts even if the cause of the AIS failure was technical, short-term, or one of error on the part of crew (rather than deliberate concealment).

It was clear that something needed to be done, and BIMCO promptly set up a working committee and this July introduced the AIS switch-off clause.

The clause needs to be read in conjunction with the existing IMO Guidelines. It imposes obligations on the part of owners and charterers. For owners there is both a future and a historic warranty (although it goes back only six months, rather than the two years mentioned by OFAC). It also only deals with deliberate actions – turn-offs as a result of a technical fault, error, or negligence are excluded.

Rainey noted that BIMCO said that the aim was to strike “a fair balance”, but he felt that in certain areas on the charterers’ side (not least the sanctions available to the charterer if an owner fails to come up with what the charterer perceives as a reasonable explanation) could be looked at.

Andrew Preston of Preston Turnbull then gave a talk on the Just In Time Arrival clause, noting that this was really but a small part of an overall greening strategy on the part of the shipping industry. Its general aim is to “smooth out” the passage of ships so that the currently fuel-inefficient “hurry and wait” system could be eliminated.

Preston said that a straw poll that he had conducted had found that the response was “we are not using the clause, but we might”. The fundamental problem was that we were not going through ordinary times. The cash savings on fuel at the moment were small compared to demurrage rates. In addition, there was so much uncertainty about how long one might have to wait outside a port, and uncertainty within ports about when a ship might find a berth, that the aims of the clause would be hard to achieve. It was felt that when more certainty surrounded the time a berth might become available, and when the system returned to more smooth running, then the Just In Time Arrival clause might gain more traction.

Finally, Peter Stevenson spoke on the scope of the BIMCO crew change clause 2020. His main point was that the clause was introduced to cope with the events of the early stages of the pandemic, when some ports effectively shut up shop when it came to crew changes. This led to crew having to stay on board for far longer than their contract stipulated, breaches of MARPOL, legal disputes and human suffering.

However, Stevenson observed that the situation in place now dilutes some of the conditions included. That did not, however, make the clause ineffective. One point where ambiguity had been introduced was how long a delay would need to ensue in a port before a change of destination was not termed a deviation. The binary situation of “shut/open” no longer applied, but in several cases, particularly in the far east, there were problems associated with crew changes that meant one could claim that the port was effectively shut to a crew change.

He highlighted several scenarios that the clause did not specifically deal with (because the scenarios did not exist when the clause was brought in).

A further interesting point was raised in the Q&A (and one with which the clause does not treat) as to what constituted a crew change. Did it have to be the entire crew? What if there had to be a partial crew change?

Stevenson concluded that, while the 2020 clause was suitable for a time of crisis, it did not really cover the situation as existed at the moment. He noted that BIMCO was looking at this at the moment with its planned infectious diseases clause.