Ik Wei Chong, Clyde + Co, Shanghai

Ed Note: the following summarizes the highlights of Clyde + Co.’s Coronavirus update for the international trade and transportation sector.

The recent outbreak of a novel coronavirus in Wuhan, China has received worldwide attention and is increasingly putting a strain on businesses. In this article, we consider some of the pertinent issues that are likely to arise and be faced in the shipping and trading industries.

Unsafe Ports: Time charters usually contain a warranty which requires the charterers to nominate a safe port for the vessel. “Safety” typically concerns the physical characteristics of the port or the prevailing weather conditions but dangers to the crew in the form of political risks or diseases may also render a port unsafe.  If a port is unsafe, owners may justifiably refuse to call at that particular port.

At the time of writing, it is unlikely that the new coronavirus has rendered any port unsafe as the risk of infection would appear to be manageable. Owners may face difficulties refusing to call at Chinese ports on the basis of unsafety. That said, the situation is moving quickly and this issue will need to be considered carefully, especially with respect to Wuhan and other nearby ports on the Yangtze River.

Deviation and quarantine: One of the latest cases of the new coronavirus identified in Singapore involved a person who had served on board a cargo vessel. The vessel was thereafter isolated at anchorage and went through the process of disinfection. Under a time charter, owners are at liberty to deviate for the purpose of saving life, excusing owners from their obligations to proceed with utmost dispatch and to comply with charterers’ employment orders. The vessel may also be off-hire for the entire period of the deviation which would include the putting back of the voyage.

Time and voyage charters commonly incorporate the Hague-Visby Rules and/or US COGSA. These both exempt owners from loss or damage caused by quarantine restrictions. Other types of restrictions may fall within the exemption for restraint of princes, rulers or people.

Force majeure: International trade contracts and charterparties commonly contain a force majeure clause which terminates the contract or excuses the parties from performance of their obligations on the occurrence of an extraordinary event beyond the control of either party. From the perspective of common law, whether a force majeure event is triggered will, of course, depend on the wording of the provision and the relevant facts. A detailed force majeure clause may declare events such as quarantine, entry and exit restrictions, restraint of princes, rulers or people, epidemics and certain disruption to inland and shore side transport as force majeure events.

If the contract or charter does not contain a force majeure clause, the doctrine of frustration may come into play.

It is noteworthy that the China Council for the Promotion of International Trade (CCPIT), accredited with China’s Ministry of Commerce, is now issuing force majeure certificates (upon request) to businesses in China if their businesses with overseas partners have been affected by the virus outbreak. Whether a party can rely on such force majeure certificates to declare force majeure will depend on a careful analysis of the facts and the wording of the force majeure clause (as mentioned above).

BIMCO Infectious or Contagious Disease Clause: Some charters may also include the BIMCO Infectious or Contagious Disease Clause. The clause was released in 2015 in response to the Ebola virus outbreak in West Africa. It comes in time and voyage charter versions.

The clause helpfully clarifies the parties’ respective rights and obligations when a vessel encounters the outbreak or aftermath of a disease. It is therefore important to check whether the charter contains such a clause. Note, however, that the clause is only intended to be triggered in the most serious of cases and a high threshold has been set – it will only take effect upon the onset of extreme illness and cannot be triggered in relation to more commonly encountered and widespread viruses.

If entering a new fixture, it is again suggested that the parties consider including the BIMCO Infectious or Contagious Disease Clause (in addition to an appropriately worded force majeure clause) as it clarifies some important matters and gives the parties additional options.

For the complete article and and other analysis see Clyde + Co.’s Coronavirus Information Hub.