In light of the WHO’s Declaration of COVID-19 as a pandemic, 113 countries in addition to China have been declared ashaving potential cases of coronavirus patients.However, in the midst of such an outbreak, it is impossible to stop trade amongst countries in this globalized era, especially when the shipping industry contributes to over 80% of global trade, primarily consisting of essential commodities including medical supplies and food produce. Despite records of multiple cases of coronavirus positive crew members onboard vessels, authorities have permittedships to depart from and arrive at ports to meet trade requirements and keep the supply chain functional. This decision to continue the supply of essential commodities through shipping comes after the International Chamber of Commerce urged governments to grant special concessions to facilitate distribution of goods through sea while simultaneously ensuring the safety of people.Although strict regulations have been implemented at various Ports in interest of the containing the spread of the virus, movement of vessels in international waters has not come to a standstill. Accordingly, Port State Control (‘PSC’) regimes have united to develop uniform regulations with the assistance of the International Maritime Organization (‘IMO’) to save seafarers’ lives along with promotion of trade amidst the pandemic.
In a quest to safeguard their legal and contractual obligations, signatories of individualized charter parties need to act with alacrity to avoid hefty payments on account of non-compliance with their contractual obligations. The author of this paper focuses on shipping contracts andattempts to analyze certain obligations that might be triggered because of the Virus’s impact on the maritime industry. While the paper merely highlights some of the key issues, the precise terms of each charter party(C/P) may vary and would be determined in light of the special circumstances affecting the matter at hand.
SAFE PORT AND VESSEL SEAWORTHINESS
Charterers are under an obligation to re-deliver the vessel to theOwner within the deadline specified in the C/P. This particularly holds for time C/Ps wherein time is of the essence. However, their primary obligation involves nomination of a safe port followed by a secondary obligation to annul the original order in case the original port subsequently becomes unsafe. They thenare obligated toissue a fresh order for the vessel to be re-directed to another safe port despite entailing additional expenses.
“The test of whether a port is safe in the physical sense or in the political sense is whether it is safe for the particular ship to enter and load or unload in the port in question.”Thus, in normal circumstances,unsafe portscan potentiallycause physical damage to the vessel or be affected by political imbroglio. In theory it can be conceived that COVID-19 affected ports become prospectively unsafe. However, “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”.Thus, the occurrence of COVID-19 or previous epidemics satisfies abnormal occurrence protection, arguably acting as a salvaging agent with regards the liability of the Charterer. Reasonable precautions and timely redirections have to be undertaken by the Charterer to ensure operation of a seaworthy Vessel.
AVessel was held to be unseaworthy as it came from a port contaminated by plague, necessitating fumigation of the vessel at her next port.The vessel which was declared ‘unseaworthy’ with no ruling on the safety of the port. By extension, nonetheless, a port already infected by a deadlyvirus could arguably be construed as causing actual damage to a departing or an arriving vessel if it leads to restrictions at a subsequent port, rendering it unsafe.Customary practices have concretized that ships traveling from an infected port will be quarantined by the Port authorities for inspection, before being issued a free pratique for berthing and unloading.
TheOwner of the vessel is under no obligation to comply with a Charterer’s decision to travel to a prospectively unsafe port if it can be reasonably understood that there indeed is a risk to the safety of the crew onboard the ship. The fact that the Owner allowed his vessel to travel to an already infected port indicates waiver of the right to object on grounds of implicit acceptance of the orders of the Charterer.The quarantine and fumigation related delays and expenses undoubtedly impose additional pecuniary hardship on the performance of contractual obligation without negatingit entirely.However, in compliance with common law principles, mere economic hardship does not serve as a valid ground for termination of a contract. Thus, the Chartererscannot absolve themselves of their liability to perform their contractual dues.
Initially, in cases of voyage charter parties, once a contract has been entered into, it would’ve become obligatory to perform the contract else face damages for non-compliance because in such C/Ps the destination port is the key condition precedentfor the completion of the contract. With the introduction of BIMCO Infectious or Contagious Disease Clause for Voyage Charter Party 2015, it serves to restrict the liability of the parties or clarify their positions if included in the terms of the C/P.
One of the most widely discussed clauses, which carries the potential of being a safe haven to limit damages for non-performanceis the ‘force majeure’ clause. While the application of this relief will have to be determinedfrom the text of the contractual clause, force majeure is generally attracted in those situations wherein the performance of the contractual obligation either becomes impossible or impracticable.The event should be of such nature that it renders the performance of the contract nugatory rather than merely non-profitable. The principle of pacta sunt servanda which governs voluntary agreements have to be complied with, in good faith, exercising due diligence so as to promote the interests of the parties involved.Given that the shipping industry is operational with certain pre-conditions, it looks unlikely for the pandemic to lead to an altogether impossibility of performance of a contract.
Although frustration of contract is another commonly attracted clause to safeguard against non-performance of contractual obligations, mere economic hardship does not serve as a protection for the party.Merely because the Chartererhas to bear additional costs to re-direct the vessel to a safer port would not satisfy the grounds for invoking frustration. Likewise, merely because the arrival port could and in fact quarantined the vessel on medical grounds cannot allow invocation of force majeure.
Most charter parties incorporate Hague/Hague Visby rules to absolve liability arising from reasonable deviation in an attempt to ensure the safety of the vessel and/or its crew. Article IV, rule 2 may be invoked specifically when losses or damages arising due to quarantine restrictions or in an attempt to save life or property at sea.BIMCO Infectious or Contagious Disease Clause for Time Charter parties and BIMCO Infectious or Contagious Disease Clause for Voyage Charter parties as introduced in 2015 in light of Ebola outbreaks in multiple African ports serves as another protective instrument which can be invoked to limit liability. Quarantine or epidemic clauses too can be of assistance to clarify the position of the parties with respect to outbreak of the diseases.More so because most C/Ps clearly envisage the liability of the parties in cases of vessel quarantine followed by fumigation and medical costs, which can be attributable to the Chartererif proved that his crew members were allowed to sail without the requisite medical examination oranother essential testing before setting sail.
Lastly, arbitration clauses are generally included in a C/P in order to resolve disputes between the contracting parties will be of key importance especially after the pandemic is settled. The importance of arbitration to resolve maritime disputes will be elevated post the pandemic since parties are given the opportunity to elect their own arbitrators and decide on the governing principles of law. Additionally, they desire to resolve disputes more amicably yet speedily.Whilst mediation and conciliation serve as equally feasible substitutes in resolving disputes, arbitration would implore legal implications for the parties without dynamically compromising on the relationship of the contracting parties.
*Dhanishta Mittal is a third year student at NALSAR University of Law, Hyderabad.
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Supra note 13.
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Supra note 9.
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Supra note 13.
Supra note 22.
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