Novel Coronavirus (COVID-19)－Some Key Charterparty Issues
The spread of Novel Coronavirus (COVID-19) over recent months has led to severe economic disruption with travel restrictions being imposed all over the world. On 11 March 2020, the World Health Organisation (WHO) have declared it to be a global pandemic and there are no immediate signs of it being brought under control.
The effect on the shipping industry has been especially acute with a range of issues arising including quarantine restrictions being placed on vessels, concerns about infections amongst crew and delays by port authorities in granting clearance to vessels to enter port.
In this circular we will deal with some of the common charterparty issues that have arisen as a result of this new infectious disease.
If a vessel is quarantined or otherwise delayed as a result of calling at port where there has been an outbreak of COVID-19 then the vessel may well be off-hire for the time lost although this will of course depend on the specific wording of any off-hire clause.
Clause 15 of NYPE provides that a vessel will be off-hire "In the event of loss of time from deficiency of men … or by any other cause preventing the full working of a vessel".
If the crew of a vessel were so sick as to be unable to perform their duties, then that would likely be a “deficiency of men” that would be sufficient to place the vessel off-hire for any time lost as a result.
A delay due to quarantine necessary as a result of calling at a port where the virus was present could also be off-hire under an unamended NYPE Charter. In The Laconian Confidence  it was found that legal or administrative restrictions on a vessel could qualify as “any other cause” if they related to the efficiency or condition of the vessel or crew.
Clause 15 of the NYPE is often amended with the inclusion of the additional words "or any other cause whatsoever". This widens the scope of the clause significantly and will mean that delays due to a fortuitous cause such as quarantine of the vessel as a result of concerns about exposure to COVID-19 would likely place the vessel off-hire.
Notwithstanding the above, in many cases, owners may be able to successfully argue that any period of quarantine or other COVID-19 related delay was a natural consequence of the way that charterers have chosen to employ the vessel meaning that the vessel will remain on-hire.
Seaworthiness of the vessel
Most Charters will provide that Owners are responsible for exercising due diligence to ensure ship is seaworthy “before and at the beginning of each voyage” by virtue of the incorporation of the Hague Rules or the US COGSA.
Owner Members should review the procedures they have in place to prevent infection of the crew with COVID-19 and control its spread on board should an infection on board occur. Such steps could include ensuring thorough health checks are performed on the crew upon boarding the vessel and that proper procedures are in place setting out how contact is to be made with shore-based personnel. There should also be procedures in place in case there is an outbreak of COVID-19 on board including proper isolation of those effected.
Failure to exercise due diligence and put in place measures to prevent the spread of COVID-19 on the vessel may be a breach of contract allowing charterers or cargo receivers to claims for losses arising as result. These losses could be very substantial.
Validity of Notice of readiness and Free Pratique
In order for laytime to run under a voyage charter a valid notice of readiness will normally need to be tendered. Failure to do so before the cancelling date may also give the Charterers the right to cancel the Charter.
The position under common law is that a vessel may tender a valid NOR before free pratique has been granted. However, if the vessel has sailed from a port where there has been an outbreak of serious infectious disease such as COVID-19 then the granting of free pratique may no longer be considered a formality.
In such case an NOR tendered before free pratique has been granted may not be considered valid. The position will, as ever, depend on the specific terms of the charter in question but in many cases the risk of delay due to failure on the port authorities to grant free pratique will rest with owners.
Infectious Disease Clauses
When faced with a COVID-19 related issues Members should first check the Charter to see whether special wording has been agreed which allocates risk and responsibilities in the event of the vessel calling at ports where there have been cases of serious infectious disease.
The wording of clauses included to deal with the outbreak of SARS and Ebola should be studied carefully as they may well also be applicable in the case of problems arising as a result of the spread of COVID-19.
Finally, BIMCO has produced Infectious Disease Clauses for both Time and Voyage Charterparties which are comprehensive and clearly allocate the parties rights and responsibilities in the event of an outbreak of infectious disease. The Club recommends the inclusion of such clauses as they serve to clarify the responsibilities of the parties and make it less likely that costly disputes will arise at a later stage.
Please note that this document is a circular and does not provide legal advice. Whilst every care has been taken in the preparation of this note we cannot accept liability for any loss or damage to any person relying on the information/views set out in this document.
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