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'. Whereas the outbreak of the coronavirus so far has been an issue mainly concentrated within China, it has now started to spread rapidly to more than 60 countries worldwide and has become an issue of global concern. The outbreak has hit the shipping industry 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 so 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 have been affected by the virus outbreak, resulting in implications for international supply chains.
Moreover, the outbreak has caused delays in general cargo trade, due to Chinese ports having implemented strict prevention and control measures. In addition, several ports around the world have introduced screening of crew and quarantines on vessels arriving from Chinese ports. In order to avoid the implications caused by the corona outbreak, the number of ship calls at or through Chinese ports have been decreasing since January and bookings for container ships, tankers and dry bulk vessels are reported to have fallen rapidly.
The cruise ship industry has also been affected and several cruise ships have been placed in quarantines due to reported cases of infected passengers or in order to avoid an outbreak on board the ship if calling at ports in affected areas. However, governments have been criticised for placing cruise ships in such quarantines as it e.g. on board the 'Diamond Princess', which was placed in quarantine outside the coast of Japan due to one passenger being infected, led to a massive outbreak of the virus among the other passengers.
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.
Whether a circumstance constitutes a force majeure event, depends on the wording of the specific contract. With regard to contracts concluded before the outbreak of the corona virus, disruption of contractual performance due to governmental actions that are directly related to the outbreak, will in our view typically constitute a force majeure event. However, due to the increased awareness of the virus outbreak, any risk of contractual disruption caused by the virus cannot be said to constitute a force majeure event for contracts recently concluded, as the outbreak must now be considered as a reasonable foreseeable event.
It can also be argued that any disruption caused by the outbreak of the virus itself (regardless of any governmental actions imposed) may constitute a force majeure event, at least in severely affected geographical areas, e.g. China, South Korea, Singapore, Iran and Northern Italy.
However, the particular assessment of any force majeure situation must 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 charterparty. 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 the risk of infection of the crew can be said to make a port unsafe in legal terms, if 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/voyage 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, with 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 due to e.g. 'deficiency of men'. 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 have been, and may still be infected, cargo deliveries may be delayed, voyages will 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.
Accordingly, claims will arise under insurance policies in the aftermaths of the virus outbreak, but the liability issues may be difficult to assess, and depending on the particular circumstances of each case.
Maritime law is prepared for the risk the coronavirus implies to shipping operations
Although it is clear that the outbreak of the 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.
This newsletter was updated on 3 March 2020, according to the current development.