- A bulletin has been issued on novel Coronavirus (COVID-19) by Shipowners Club.
- It highlights the origins and prevention measures to be taken by vessels.
- It considers two key clauses that may alter the rights and obligations of shipowners and charterers.
- BIMCO has also issued an ‘Infectious or Contagious Disease’ clause into future charter parties.
- Concerned parties may invoke ‘force majeure’ to relieve itself of its obligations where there is a clause in the contract.
The Shipowners Club has issued a bulletin on Novel Coronavirus (COVID-19), its origins and prevention measures for vessels.
Analyzation of key clauses
According to Mr. Chen Zhida, Associate Director, Helmsman LLC law firm, analyzes two key clauses that may alter the rights and obligations of shipowners and charterers amid the coronavirus outbreak which has significantly disrupted global trade.
He has also discussed the threats of significant delays to shipments around the world and in particular, Asia. Moreover, he provides advice for shipowners and charterers who may be concerned about the impact that COVID-19 may have on charter parties.
BIMCO Infectious or Contagious Disease clause
- In 2015, after the Ebola virus outbreak, BIMCO issued a clause of BIMCO Infectious or Contagious Disease clause (with different versions for time and voyage charter parties).
- Sets out the parties’ rights and obligations in the event that an infectious or contagious disease affects certain areas such as the load port or discharge port.
- All parties are advised to check if their charter parties (including the shipping terms incorporated into their charter parties) contain the BIMCO Infectious or Contagious Disease clause.
Facts to be highlighted
In the clause, the three points are worth highlighting:
- The clause covers only “highly infectious or contagious disease that is seriously harmful to humans”.
- Sub-clause (b) restricts coverage to a risk of exposure (to the vessel, crew or other persons on board) to the disease and/or to a risk of quarantine or other restrictions being imposed in connection with the disease affecting any port or place after the date of the charter party.
- Sub-clause (d) provides that, “If discharge takes place at any port other than the loading port or at a port that lies outside the range of ports in the charter party, the Owners shall be entitled to recover from the Charterers the extra expenses of such discharge, to receive full freight as if the cargo had been carried to the discharging port and, if the extra distance exceeds 100 miles, to additional freight which shall be the same percentage of the freight contracted for as the percentage which the extra distance represents to the distance of the normal and customary route.”
Shipowners and charterers must keep these points in mind when including the standard BIMCO Infectious or Contagious Disease clause into future charter parties to deal with COVID-19.
Force Majeure clause
A party may invoke ‘force majeure’ to relieve itself of its obligations where there is a force majeure clause in the contract. Whether a party can rely on the force majeure clause in respect of COVID-19, depends on the circumstances as well as the wording of the clause in the contract.
However, as a general rule (but subject to the precise wording of the clause):
- The force majeure event would usually have to be the effective cause of the non-performance or the delayed performance of the obligation under the contract. In some cases, the party relying on the force majeure clause may find it challenging to prove that the effective cause is COVID-19 outbreak – for instance, delays due to congestion at the port and in-land transport.
- The party relying on the force majeure clause would usually have to show that it has used reasonable endeavors to prevent or mitigate the effects of the force majeure event. In the context of a charter party, which allows the vessel to call at a range of ports, this gives rise to the question of whether the shipowner or the charterer can invoke force majeure if there it is entitled (but not obliged) to re-nominate an alternative port within the range which is not affected by COVID-19.
Accordingly, while it may be attractive to immediately invoke the force majeure clause when the performance of the charter party appears to be adversely affected by COVID-19, shipowners and charterers are reminded to exercise caution when doing so.
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Source: ShipOwnersClub
