Manager, Contracts & Clauses
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At times of port restrictions and situations where a crew may be infected or fall ill with COVID-19, it has become apparent that the obligations and rights of contracting parties need to be clarified. The main takeaway from the situation is that parties to a contract should communicate and cooperate when problems arise. Pandemic restrictions are a reality and must be complied with.
The most important factor making the trading of ships difficult is that each country, and even each port, has its own crew change restrictions which can often change at short notice. This means that owners must constantly monitor the COVID-19 restrictions in all countries and ports at which they may potentially call.
Charterers often do not want to have any crew changes at all during a voyage. They ask for warranties to this effect in order to avoid delays caused by crew change difficulties and the potential impact on the underlying sales contract. As a result, they may even be willing to pay a bonus if no crew changes are made.
In addition, the fact that many common ports for crew changes have been classified as extremely high-risk by several countries has exacerbated the challenges for crew changes. This has often led to the use of “floating quarantine” for ships where such quarantine is part of the actual voyage. Where a voyage from one port to another is shorter than the imposed quarantine at the destination port when coming from a high-risk country, then if the crew has changed in one of those places, the ship has to wait before being allowed into the next port – which can result in significant time losses.
Furthermore, bans on crew changes were imposed on some ship managers’ fleets after a number of COVID-19 cases were discovered on ships under their management. This shows the nature of the enforcement actions some governments are willing to take.
So at first glance, it could appear that a charterer not wanting crew changes and a ship manager being prevented from making crew changes are two needs which are very well aligned.
This is, however, not the case, as crew changes are needed sooner or later.
“No crew change” warranties thus make things extremely difficult, as not only has the number of ports allowing crew change reduced, but an insistence by a charterer on no crew changes during a voyage combine to make the options for when and where a crew change can take place extremely limited.
So what does this mean in practice for those operating and trading a ship? The crew has to be changed at some point. One potential way to do this (if not possible at the ports of call ordered by the charterers) is to deviate to another port where crew changes are possible, which may of course extend the voyage to the ship’s intended destination. The problem with this is that the ship might be quarantined or delayed at subsequent ports of call as a result of this deviation. Any such deviation risks resulting in higher costs and time losses and will often not be accepted by the charterers.
The allocation of liability in each case will depend on the factual circumstances and the individual charter party wording. In response to the industry’s needs, BIMCO has published the COVID-19 Crew Change Clause for Time Charter Parties 2020 and also the BIMCO Liberty and Deviation Clause for Contracts of Carriage 2010.
These clauses give owners additional rights to deal with situations which may arise during an epidemic or a pandemic. For more guidance, please see https://www.bimco.org/covid19. These clauses do not address crew changes.
What they do state, however, is that additional costs, expenses or liabilities resulting from the ship having visited an Affected Area, including quarantine of the ship and the crew, have to be borne by the charterers – who have to continue to pay hire.
This clause significantly strengthens an owner’s position. It confers on owners a right to deviate for crew changes which would otherwise be prohibited due to COVID-19 restrictions. It further provides an option for time charterers to contribute to crew changes by way of reduced daily hire for the duration of the deviation plus an equal share of bunker costs.
However, the commercial reality may often be different, and charterers may request warranties that there will be no crew changes during a voyage charter party and be prepared to pay a bonus to ensure this is the case. Their aim is to ensure that the goods will be delivered on time without any delays or potential problems which may put their sales contract at risk.
The BIMCO Liberty and Deviation Clause gives owners the right to deviate for crew changes. This clause is intended to be used for voyage charter parties only.
It is apparent that off-hire is one of the main areas of dispute, as it is mentioned by both owners and charterers when talking about the current situation and its challenges.
The main scenarios we have seen which give rise to disputes are the following:
Whether a ship is off-hire in these situations will depend on the terms of the charter party and the individual facts of the case.
If a ship is quarantined for crew-related matters such as calling at certain ports, waiting for PCR tests results or an incorrect PCR test, but the crew is not actually infected, the charter party should be looked closely.
To be off-hire under NYPE 46 and 93, it has to be a “deficiency (and/or default) of men” or “any other (similar) cause preventing the full working of the vessel”. If the crew is physically able to work and not ill, there will not be a “deficiency of men” and therefore no off-hire. Arguably, where positive COVID-19 test results are proven wrong, this would also not constitute a “deficiency of men”.
This might change where quarantine restrictions are imposed on the ship due to crew-related issues and the off-hire clause is referring to “any other cause”. A quarantine or other legal or administrative restraint on a ship may qualify as an “other cause” where it relates to the physical efficiency or condition of the crew and the ship could thus be off-hire.
To make it even more complicated, if the ship is quarantined for crew illness or positive test results, the ship could be off-hire if the quarantine applies only to that ship. If all arriving ships at a particular port are quarantined, the owners could argue that it is not the condition of their ship which is causing the quarantine but instead, a general order applicable to all ships wanting to enter the port regardless of any other factor.
Where the off-hire clause refers to “any reason whatsoever”, it is likely that the ship will be off-hire in all the described circumstances for general quarantine, actual or suspected crew illness and wrong test results.
Most charter parties contain an express port/berth warranty. Such a safety warranty would include health risks to the crew and an exposure of the crew or the ship to restrictions at later ports. Most delays due to restrictions at a later port of call are unlikely to make the previous port unsafe, as the duration of the quarantine would arguably not be long enough to be significant (The Hermine  1 Lloyd’s Rep. 212).
There are two potential scenarios here.
Scenario 1 – two separate charter parties, where the orders of the first charterer impact on the second charterer
For example, this is where the ship called at a high-risk port under a previous charter party and is then quarantined or delayed in a later port on a subsequent charter party.
This means that the second charterer will most likely declare off-hire.
Would the previous charterer therefore be liable to pay for the off-hire claim and the additional costs incurred by the owner?
The owner could arguably claim under the implied indemnity arising out of, for example, Clause 8 NYPE that they should be indemnified against the direct consequences of complying with the charterers' orders for employment of the vessel. It is important to note that this has not been tested by any court in the context of COVID-19.
Scenario 2 – one ongoing charter party
For example, this is where a charterer ordered a port call which then causes the authorities at a subsequent port under the same charter party to quarantine the ship. The charterer in this case cannot declare off-hire, as the previous port call, which was the reason for the quarantine at the subsequent port, was the charterer’s own order. The charterer must therefore bear the costs of the quarantine delay.
When these costs are caused by a ship’s employment under a previous charter, most likely the owners will bear the costs and may claim a recovery from the previous charterer.
Under a voyage charter party, these costs have to be borne by the owners unless the BIMCO IOCD clause is incorporated.
Again, it depends on the agreed terms whether an NOR can be validly tendered in the event of quarantine being imposed on the ship. However, in general, a ship cannot tender a valid NOR as long as quarantine restrictions prevent it from loading or discharging.