We refer to our previous circulars regarding the developments surrounding the Corona pandemic. The speed at which the virus has spread and the international community has responded has been unprecedented in its scale and impact. The international transport sector has been particularly affected with growing uncertainty about the demand for and availability of cargoes, the logistical arrangements within ports and the impact of measures taken by authorities.
We have in recent weeks provided members with advice relating to existing contracts and the measures which can be taken to protect their interests going forward. We expect that the crisis will continue for some time and therefore, for the benefit of all members, wish to provide a general circular dedicated to the legal implications of the Corona pandemic.
When assessing a request for advice, it is important to draw a distinction between existing and future contracts.
Existing Contracts: The performance of existing contracts may be made more difficult and in some cases impossible, by the developments surrounding the pandemic. In the case of time charters, the market may result in time-charterers operating at a loss, whilst in the case of voyage charters and liner contracts, the conditions in specific ports may delay or prevent the loading and discharge of goods. In the case of existing contracts it is necessary to:
- identify the relevant provisions which apply;
- identify which provisions affect obligations, apportion responsibility or allow termination of the contract;
- investigate the implications of any difference between contracts within the charter party chain and then apply those terms to the facts and circumstances.
Future contracts: For future contracts it is crucial to balance the need to include appropriate clauses addressing pandemics and quarantines (see our Corona Update of 12 March 2020) and the commercial and practical realities of the current market. In addition, it is crucial to attempt to identify and address particular risks in advance and where possible, for example what will be agreed in the event that the intended discharge port is rendered inaccessible due to the measures taken in response to the Coronavirus. Contracts and clauses which were perfectly fine just weeks ago may be completely inadequate to address the current market. We recommend including specific reference to COVID-19 and identifying any particular risks which arise in the trade or in the specific ports.
Legal disputes due to corona: We have already received and assisted in a number of cases in which legal disputes have arisen or threaten to do so as a result of the Corona pandemic. Based on these cases we are able, at least in a general sense, to provide some guidance on the potential legal position in relation to the following:
– Quarantine: In general terms the position in relation to quarantines is that any quarantine which is imposed due to the condition of the vessel and her crew (an ill seafarer or infection risks on board) shall be for the risk of the owners whereas any quarantine which is imposed by the port as a general measure (such as all vessels being forced to wait five days before proceeding into port) shall be for the risk of the charterers.
– Force Majeure: We have seen repeated attempts to rely on Force Majeure as a basis to (threaten to) terminate a contract. We note that Force Majeure under English law is in principle a protection afforded to a party in the event that the performance of a contract has become impossible (or it would be unreasonable to require performance) due to something unforeseeable which was beyond their control at the time of contracting. For example, it is not sufficient that the performance of the contract has become slightly more expensive. A contract concluded 6 months is more likely to allow an appeal to Force Majeure than one concluded 1 month ago.
Needless to say any legal dispute will need to be assessed on a case by case basis against the terms and conditions of the relevant charter party. We nevertheless trust that the above provides some guidance. We invite our members to contact us with any particular issues or disputes which may arise. We also wish to refer you to the two detailed circulars of the Club’s English solicitors Reed Smith of 18 March 2020: Circulair Reed Smith “The impact of COVID-19 and of 25 March 2020:
Circulair Reed Smith “COVID-19 – Shipping update 2 – Emerging themes as well as the free Corona service of our correspondent GAC which provides worldwide updates by country regarding measures imposed to address the Corona pandemic https://www.gac.com/news–media/read-hot-port-news/.