Ebola and its effect on shipping contracts

by Reed Smith
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Introduction

More than 1000 people have died in West Africa following the current outbreak of Ebola which began in March 2014. Guinea, Sierra Leone and Liberia are the worst affected countries but deaths have now also been reported in Nigeria, a major port for oil export.

Tradewinds has reported that two bulker bookings for Guinea have been cancelled and there have also been reports of international shipping lines suspending shore leave and crew changes in affected countries. The Argentine Chamber of Pilotage has said that from 15 August its members are not to board any vessel arriving from Ebola infected countries unless the vessel has obtained free pratique and clearance by the Argentinian Sanitary authorities; and other countries, such as Brazil, have issued guidelines for procedures to be adopted in their ports.

This alert briefly examines the effect of quarantine measure taken in response to the Ebola outbreak on the obligations of owners and charterers under time and voyage charterparties, and the liability of owners to third party cargo claimants.

Part A: the effect of the law relating to quarantine measures on the obligations of owners and charterers

a) The position under time charters

The charterer’s primary obligation is to pay hire continuously throughout the charter period.

i) NYPE 46/NYPE 93

Off-hire A charterer may seek to apply the “deficiency of men” off-hire event in Clause 15 of the NYPE 46 Form (“deficiency…of officers or crew” in Clause 17 of NYPE 93), to a situation in which a large number of the crew are ill.

A charterer may also argue that quarantine measures constitute “any other cause” preventing the proper working of the vessel, although there are no authorities stating that quarantine measures do constitute “any other cause”.

If an off-hire event is held to have occurred, it must then be established that the event prevented the full working of the vessel.

Exceptions A charterer under NYPE 46 may seek instead to claim that it is entitled to deduct or not to pay hire by virtue of the second sentence of Clause 16 (the “exceptions” clause), (cf Clause 21 of NYPE 93) as quarantine measures can be an example of a “restraint of Princes, Rulers and People”. As we have mentioned in previous alerts, the charterer would have to show that the event prevented him from discharging his obligation (ie to pay hire) which may be difficult to do.

The words “always mutually excepted” mean that the exceptions in the clause are equally available to both owners and charterers.

ii) Shelltime 4

Off-hire Shelltime 4, (unlike NYPE 46) specifically refers to “quarantine restrictions”.

It also differs in that it provides that where there is a “delay” in quarantine because of “communication” the owner’s agents have had with the shore in an affected area, and the charterers did not provide written consent to this “communication”, the vessel is to be off-hire for the period of the delay. In other words, the charterers will be compensated (through not having to pay hire in respect of such period) for the delay caused by the actions of the owner’s agents, where the charterers have not provided written consent to the same.

b) The position under voyage charters

The position under voyage charters differs in that, whether or not there is a specific “quarantine” clause, there is, in a number of voyage charters, a “free pratique” clause. Looking at each in turn:

i) Quarantine

Where a ship is placed under quarantine, it will not be considered ready because the quarantine will prevent loading and discharge and the charterers will not have unrestricted access to it.

Clause 17(a) of the Asbatankvoy charter differentiates between orders given to owners to proceed to quarantined ports depending on the time when the state of quarantine is declared:

If the charterers order the vessel to a port which is already quarantined when the order is given, delay “thereby caused” counts against the charterer’s laytime.

If the state of quarantine is declared when the vessel is en route to it, delay does not count as laytime. The owner will receive no demurrage or damages in respect of the delay.

ii) “Free pratique”

“Pratique” is a permission granted by the port medical authorities to a vessel, on its arrival from a foreign port, for her crew to go ashore and visitors to come onboard.

A voyage charter may provide that laytime commences “whether in free pratique or not” (WIFPON). Where this is the case, the granting of free pratique will be irrelevant to the question of the notice of readiness.

When entering into new voyage charters, charterers may wish to include express clauses requiring free pratique to be obtained before the tendering of a notice of readiness. Where this is the case, any such requirement must be clearly expressed.

c) Safe Ports: the position under time and voyage charters

Obligations on the charterer to order the vessel to a “safe” port are contained in many forms of charterparty.

It is arguable whether a port could be said to be unsafe due to an Ebola outbreak at the port. There do not appear to be any authorities on whether a disease ridden port can be considered ‘unsafe’: the vast majority of authorities on this question relate to the safety of the port being determined by either its physical or political characteristics. Commentaries which suggest that the fact that Ebola cases have been found at a particular port necessarily mean that the port is not “safe” need to be considered with some caution – this is especially so for the tanker trade, where the occasion for locals to come on board the vessel may be limited to just agents, Customs officials and mooring masters, and so forth, as opposed to the greater risk faced by dry bulk operators who may have large numbers of local stevedores coming on board.

If a port is held to be unsafe by reason of an Ebola outbreak, charterers must consider their safe port obligations.

At the time of entering into new charters, owners may seek additional protection by restricting trading limits to exclude (named) countries affected by Ebola. Owners may also include a “fever and epidemic clause” which would entitle a ship owner to refuse to comply with voyage instructions to proceed to a place where such fever and/or epidemic is present. Assessing whether a given situation amounts to an “epidemic” is likely to be difficult. It is therefore advisable to proceed with caution when seeking to apply such clauses.

Part B: the effect of the law relating to quarantine measures on the liability of the owner to third parties under the Hague/Hague Visby Rules

Where a voyage charterer is not responsible for time lost as a result of quarantine restrictions, the owner will not receive any demurrage or damages for detention for the delay. The owner may also be subject to separate obligations to any bill of lading holders in respect of any cargo on board.

If the Hague or Hague Visby Rules apply, the owner’s own liability to third parties for deterioration of the cargo or late delivery, as a result of the delay, may be excluded by the “restraint of princes” exception in Art. IV rule 2(g). Interference by a government or state by closing a port or quarantining a vessel can be an example of “restraint of princes”. Indeed, many of the cases on “restraint of princes” concern quarantine restrictions.

The alternative may be to rely on Art. IV rule 2(h) “quarantine restrictions”, in relation to which it has been suggested that there is less need for the ‘present threat of executive force’ than with the “restraint of princes” exception.

Conclusion

It is unclear how the current outbreak of Ebola will develop and therefore the extent of its effect on the shipping industry. However it is clear that should the virus escalate and lead to stringent quarantine measures being enforced, the impact on the global shipping industry could be considerable.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

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