COVID-19: NEW CHALLENGES FOR
CHARTERERS AND TRADERS Kunbi Sowunmi `
Senior Claims Advisor/Lawyer
Charterers & Traders Webinar, The Americas 23 June 2020
SCENARIO THE MV PERFORMANCE
3
• 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
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?
This Photo by Unknown Author is licensed under CC BY-NC-ND
8
• 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
This Photo by Unknown Author is licensed under CC BY-SA-NC
9
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?
10
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
11
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
12
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
13
Owners
Third parties
Charterers
MORE INFO AVAILABLE
14
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