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Covid-19: Top questions 07.05.2020

In these challenging times, our teams have been receiving a high volume of queries from clients in the shipping industry about the impact of Covid-19 and key issues such as contracts, Force Majeure and the current picture around safe ports and Charters.

To help our clients in the shipping sector, both at home and overseas, Dominic Ward, senior partner and head of our shipping and international team has collated his most frequently asked questions from this week, with his responses, in the hope that this information is useful to you. Each week, we publish an article with a new set of questions from the week but if you have any queries, at any time, please talk to the team for more detailed advice that is specific to you and your business.

 

Does the Covid-19 outbreak mean I can cancel my contract because it is an event of Force majeure?

Under English law, Force majeure (FM) is a purely contractual remedy. It is up to the parties to a contract to make provision for what is to happen if an outside event, beyond either party’s control, affects the performance of contractual obligations. The starting point is to see if there is an FM clause in the contract at all. It may be that there are terms and conditions in the contractual documents so these would need to be checked to see if they contain an FM clause. Any such clause will contain a definition of what constitutes an FM event. If epidemic, pandemic and so on are not included in the definition it could well be the case that the Covid-19 outbreak will not constitute an event of FM. The BIMCO standard FM clause does contain a reference to epidemic.

If it is covered by the FM clause, it will not only define what an event of FM is, it will normally provide what effect it has on the parties’ obligations under the contract. Some clauses will provide for a suspension of obligations followed, after a prescribed period, with an option to terminate. Some clauses will require the party affected by the event of FM to demonstrate that it has made it impossible for that party to perform its obligations. Other clauses merely require the party to show that it affects the way it performs its obligations.

Does Covid -19 mean that my contract is frustrated?

The doctrine of frustration may be invoked if external events make it impossible for the contract to be performed. It does not apply if external events simply make the performance more difficult or delayed or more expensive or deprive the party of any profit. None of that is sufficient to invoke the doctrine of frustration.

Do government restrictions mean I can cancel my contract?

Under the doctrine of illegality, a contract can be discharged if its performance becomes illegal. As with frustration, the doctrine of illegality sets a high bar in terms of the necessary ingredients to engage it. In order for a contract to be discharged, the doctrine requires the illegality to prohibit performance. Hindering performance or making it more inconvenient or more expensive is not sufficient.

Does an Outbreak of Covid-19 in a particular region make ports there “unsafe ports”?

This question relates to the safe port warranty given by a charterer to an owner under a time charter. The basic answer is that it is unlikely that an outbreak of Covid-19 will make a port unsafe. This is because the authorities in that region will put measures in place to make the port safe. These measures may include the vessel having to spend some quarantine time at anchor. Delays such as this do not make a port unsafe and do not entitle the owner to claim the port is unsafe.

In charter parties, which party is responsible for delay caused by Covid-19?

Measures taken by ports to ensure the spread of the virus is reduced may cause delays to vessels. These measure can include ships being required to wait for a number of days before being allowed into port.

  • Time Charters

It is unlikely that the delays caused by the measures in place to combat the virus will put a vessel off-hire. To put the vessel off-hire the charterer must bring itself within the wording of the off-hire clause and the issue would be whether the vessel itself is unable to perform the service required because of a deficiency in its own crew, caused by the virus.

  • Voyage Charters

The charter party terms will govern the allocation of the cost of delay between owner and charterer. The starting point is the giving of a notice of readiness (NOR) by the owner. To give a valid NOR the ship must be an “arrived ship”. It must be ready to discharge or load. Often the clause will provide that NOR may be tendered “whether in free pratique or not” (WIFPON). Despite this, it is submitted that, if a vessel is quarantined by the port authority, it is not ready to discharge and a valid NOR cannot be issued.

If a valid NOR can be issued, then time will start running and delays will mean that demurrage will be incurred by the charterer.

 

And finally…some top tips for your to consider implementing

  1. Check whether there is an FM clause in your contract documents and whether it covers epidemics etc.
  2. If there is, check what the notice requirements are in the event that an FM event occurs. The notice requirements are strictly enforced by the English courts.
  3. If you are negotiating terms for future contracts, consider including an FM clause that covers epidemics or, better still, a special Covid-19 clause.
  4. Keep a detailed record of the effect of the Covid measures and what steps you have taken to mitigate their effect.

 

 

Our team is on hand to help you, your business and your family however we can, so please get in touch with us on 01482 325242 or email enquiries@andrewjackson.co.uk

Correct as of 4pm on 07.05.2020

 

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