A ship cannot be infected, but the performance of shipping contracts can. Our shipping and trade clients contact us frequently on the potential legal issues raised by the coronavirus for the maritime industry.
On 30 January 2020, the World Health Organization (WHO) declared the coronavirus outbreak a "Public Health Emergency of International Concern". The outbreak of the coronavirus has so far been an issue mainly concentrated within China. However, the outbreak is reported to have affected the global shipping industry to some extent and the situation requires maritime industry actors to pay close attention to the development of the outbreak and potential legal issues that may arise.
In this newsletter, we will give a short overview of the implications thus far observed as a consequence of the outbreak within the shipping industry, and briefly address which legal issues that may arise from the maritime industry's point of view.
Reported implications for the maritime industry
Until now, it is e.g. reported that Chinese shipyards have invoked force majeure clauses under shipbuilding contracts and that ship-repairs have been delayed due to the shutdown of several shipyards. Companies dependant on delivery of components or spare parts from Chinese suppliers are also reported to be affected by the virus outbreak.
Moreover, the outbreak has caused delays in general cargo trade, due to Chinese ports having implemented strict prevention and control measures, as well as quarantines. In addition, several ports around the world have introduced screening of crew and quarantines on vessels arriving from Chinese ports.
Potential implications for the maritime industry
From a legal point of view, the outbreak of the coronavirus may have certain implications for the performance of e.g. shipbuilding contracts, shiprepairs, charterparties, contracts of sale of goods and marine insurance policies.
Most contracts used in the maritime industry include clauses addressing force majeure situations. These clauses typically provide that a party may be relieved from its contractual liability for non-performance if certain circumstances beyond its control prevent it from fulfilling its obligations under the contract.
The coronavirus outbreak contains in essence two components that each may be seen as a force majeure event:
- The virus itself; and
- Actions taken by governments in response to the outbreak (such as restrictions/quarantines).
Whether a circumstance constitutes a relevant force majeure event, depends on the wording of the specific contract. If the performance is affected by governmental actions directly related to the outbreak, such actions will typically constitute a force majeure event regardless of which country's government has taken the action and regardless of the place of performance. Furthermore, the existence of the virus itself may be considered a force majeure event in China due to its widespread existence (as long as it can be demonstrated that the performance is affected).
In contrast, our view is that the existence of the virus itself– as of today – is unlikely to be considered a force majeure event in other countries than China. However, this may change quickly depending on the spread of the virus, and needs to be monitored on a day-by-day and case-by-case basis. Many contracts also impose an obligation to notify the other party of a force majeure event in order to obtain relief.
If not covered by the contract's force majeure provision(s), governmental actions may be covered by clauses concerning change in laws or regulations as well as authoritative interpretation of such laws and regulations, which may provide for the allocation of risk and responsibility between the parties.
Charterparties and contractual provisions
The outbreak may also have implications on charterparties, in particular the charterers' obligation to nominate a safe port under a time charter. If the port the vessel is ordered to call at is considered unsafe, the charterers may be obliged to nominate an alternative port. It may be discussed whether a risk to the crew in legal terms can be said to make a port unsafe, although there is no risk of physical damage to the vessel. More practical is a situation where local authorities have ordered the vessel not to call at a port.
The charterparty may contain explicit provisions governing these issues. An example of a standard clause is the BIMCO Supplytime 2017 form, which in clause 25 includes the BIMCO Infectious of Contagious Diseases Clause for time charter parties. If this clause is included in the charterparty, the charterers may be obliged to issue alternative voyage orders to avoid areas affected by an infectious and contagious disease, whilst the vessel remains on hire and the charterers being responsible for all additional costs and liabilities incurred.
Another question that may arise is how time is to be allocated under a time charter if the performance is affected by the coronavirus, in particular whether the vessel is off-hire. Again, this will depend on the wording of the relevant clause in question.
Consequences for the marine insurance market?
For hull insurances, the coronavirus may have some indirect consequences related to choice of repair yards and supply of spare parts from China. The limitations imposed by the virus outbreak may lead to temporary increase in prices for repairs, but should not imply any particular legal issues for the cover under hull policies.
For P&I insurances, the outbreak may cause more stir, as the coronavirus is impacting shipping operations. Crewmembers and passengers may be infected, cargo deliveries may be delayed, voyages may be disrupted and ships may need to deviate. P&I insurers keep a close eye on the situation, and have issued recommendations to their members on how to manage the risks imposed by the outbreak.
Particular issues may be raised for Loss of Hire policies, in cases where ships are currently in for repairs at Chinese yards. Repair periods will be extended, maybe beyond the number of days covered by the policies. Other types of trade or business interruption policies may also be triggered. The virus cause no physical damages to ships, but may cause severe interruptions to shipping operations.
Maritime law is prepared for the risk the coronavirus implies to shipping operations
Although it is clear that the outbreak of coronavirus causes disruptions for the shipping industry, the maritime law is prepared to regulate claims and disputes arising out of such disruptions. For ship-owners and other stakeholders it is important to deal with this risk with caution, and to consult with other parties and insurers whenever a disruption occurs or may be foreseen.
Please do not hesitate to contact us should you have any questions relating to this newsletter or the topics addressed.