Wai Yue Loh, Kimarie Cheang, and Cindy Wang, of international law firm Ince on Friday (31 January) published an article reviewing potential contractual issues for the maritime sector due to Novel Coronavirus (nCOV) outbreak:
The novel coronavirus was first reported in late December 2019. The outbreak of the virus originated from the inland city of Wuhan, the capital of the Hubei province, PRC, but has quickly spread to coastal cities within China such as Shanghai, Guangzhou, Shenzhen, Tianjin, etc. Additional cases are identified in a growing number of countries internationally.
By 30 January 2020, the World Health Organisation (WHO) has declared the outbreak as a Public Health Emergency of International Concern (PHEIC) and has proposed certain Temporary Recommendations be issued.
We highlight below some potential contractual issues for consideration.
Safety of the port – Can an Owner refuse to go to an affected port?
Generally, under a time charter, an Owner is obliged to comply with a Charterer’s legitimate employment orders, unless compliance with the Charterer’s order exposes the ship to a safety risk. It is currently unclear whether the virus is at a stage where it may render a port ‘unsafe’. Although the WHO has declared the outbreak as a PHEIC, it has at the same time recommended that no travel or trade restriction be imposed. However some countries are already implementing a ‘No travel’ policy to China. Various shipping ports have imposed additional checks and quarantine measures on vessels arriving from China, or those with Chinese crew on board.
It is accordingly difficult to determine the ‘unsafety’ of an affected port. This will depend on the facts bearing in mind the evolving situation. If an Owner refuses to follow a Charterer’s order without sufficient grounds, the Charterer may well be entitled to terminate the contract and/or claim damages (depending on whether such conduct can be said to be repudiatory or renunciatory) so an Owner should carefully review its contractual position. Equally, if an Owner does follow a Charterer’s order(s) and suffers loss as a result, it would most likely be entitled to an indemnity from the Charterer (depending on the terms of the contract).
Quarantine, Off Hire, and Laytime & Demurrage – What happens if a crew member becomes infected?
Under a time charter, an Owner will generally be responsible for matters relating to the crew. If a crew member becomes infected, the Owners should ensure that the crew member is quarantined and arrange for the treatment and repatriation of the crew member. Where the illness results from a Charterer’s order, the Owner may be able to claim any costs of repatriation, medical expenses, etc., from the Charterer depending on the terms of the charter.
Where the ship is in port at the time the symptoms of the virus are discovered on board, it is unlikely that a valid NOR could be tendered. Laytime & demurrage will therefore not run until a valid NOR can be tendered.
Further, where a vessel has to deviate to obtain medical assistance for its crew member, would the Charterer be entitled to place the ship off hire? This depends. If the crew member becomes infected as a result of a Charterer’s order, then the deviation may not give rise to off hire unless the Owner is deemed to have accepted the risks of going to an affected port.
Of course the legal regime is dependent upon individual Charterparty wordings and it would be prudent for all new fixtures to incorporate the BIMCO Infectious or Contagious Diseases Clause. The provisions were developed following the outbreak of the Ebola virus a few years ago, and are intended for use in response to extreme illness as opposed to more commonly encountered widespread diseases and are based on the principles in BIMCO’s war and piracy clauses.
Force Majeure – Can an affected party rely on FM?
Given the recent declaration by the WHO, force majeure provisions are likely to be increasingly relied upon and invoked by an affected party. The China Council for the Promotion of International Trade (CCPIT) announced that it would be offering “force majeure certificates” to businesses in China affected by the outbreak of the Coronavirus in Wuhan.
Whether a party can successfully invoke FM and/or rely on the CCPIT certificates to do so, will depend on the governing law of the contract and the terms of the relevant clause.
As a matter of English law, force majeure is a creature of contract. Generally a party who seeks to rely on a FM clause bears the burden of showing:
Our initial view is that where the outbreak escalates and has real implications on the operation of businesses (such as the shutting down of business operations as a direct result of the outbreak), this could well fall within the scope of a FM clause.
Parties are therefore urged to review their FM provisions carefully to ensure that any notification and/or mitigation requirements are complied with, and to gather as much documentary evidence as possible to evidence any relevant FM event.
There is potentially a high degree of business interruption that will ensue, bearing in mind for example that Singapore has now closed its borders to all who have been in China for the last 14 days, the recent British Airways’ suspension of direct flights to and from mainland China, and Hong Kong’s plans to slash cross-border travel between the city and mainland China. This would all have a significant impact on enterprises, in particular those with staff and management who may have been in China over the festive period. We are already starting to see declarations of force majeure from Chinese entities involved in the shipping and trading spheres.
We reiterate that for your existing contracts, it would be important to identify the risks and exposures arising from the developing situation. Some of these potential issues have been identified above. To reduce the potential for disputes, parties can consider inserting provisions to deal specifically with these issues. As for your new contracts – if the intention is to insert a clause to deal specifically with the risks of the Coronavirus, it would be important to be clear as to what you are seeking to achieve and to draft the clause(s) accordingly.
This above is not a complete list of issues to be aware of arising from the Coronavirus, and should you have any queries, please do not hesitate to contact the authors of this article.
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