The outbreak of hostilities in the Middle East and the continuing tensions in the Red Sea and Indian Ocean have led to significantly enhanced risk in the region. In this article we look at key contractual considerations for shipowners in light of these developments.
My charterparty includes BIMCO's Conwartime 2013 Clause. Can I rely on it?
Every case will turn on its own facts so both the charterparty as a whole, and the individual circumstances of each vessel and voyage, will need to be carefully considered.
In general terms, however, the clause defines "war risks" as including any actual, threatened or reported war, rebellion, warlike operations, acts of hostility or malicious damage, by any body, terrorist or political groups, or the government of any state or territory whether recognised or not, which, in the reasonable judgment of the master and/or Owners, may be dangerous or become dangerous to the Vessel, cargo or crew.
It is widely reported that the current attacks against commercial shipping are emanating from Houthi rebels in Yemen, and it may well be said that they fall within the definition of a body or political group carrying out actual, threatened and/or reported acts of hostility or malicious damage. For Owners to rely upon the clause, however, they must also show that the said acts of hostility may be or may become dangerous, in their reasonable judgment or that of the master. It is as well for Owners to document the evidence upon which they base this judgment in order to demonstrate the necessary reasonable belief.
Can I refuse Charterers' orders?
As a general rule, the master of a time chartered vessel must follow the charterer's orders as to employment, unless doing so would endanger the safety of the ship and/or cargo. An order to call at a particular port constitutes an employment order, as does an order to follow a general route for the voyage in question.
In exercising their authority to order the vessel to a given port, a charterer may only nominate a port which, at the time the order is given, is prospectively safe. A "safe port" was defined in The Eastern City [1958] [1] , as follows:
" a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship…”
The question whether a nominated port is unsafe very much depends on the particular circumstances in which the orders were given. As a general principle, however, political unsafety can render a port unsafe, as can the risk of attack en route to a port, in so far as that risk can be said to be a characteristic of the port itself.
Following receipt of the charterer's orders, the master has a reasonable time within which to assess the situation and make enquiries, though the definition of a "reasonable time" depends on the circumstances of each case. A refusal to obey a legitimate order could amount to a repudiation of the charterparty, and so any refusal must be considered very carefully, and a decision communicated as promptly as possible.
As to routing, the master is usually under an obligation to proceed with utmost despatch and/or via the "usual and customary route" for the nominated voyage, though again subject to maintaining the safety of the ship, her crew and her cargo [ The Hill Harmony [2001] [2] ]. If the Vessel unjustifiably follows a route other than the shortest and quickest route, and there is no clause granting Owners a liberty to deviate, Owners could find themselves in breach of the obligation.
What about my obligations as carrier under bills of lading issued for the voyage?
Again, the position will depend on the specific terms of the bill of lading, including any terms which may have been incorporated from a charterparty. Generally, however, a carrier will be under an obligation to proceed to the discharge port by the usual and customary route, subject to any liberty clauses. Taking another route, such as proceeding via the Cape of Good Hope rather than via the Red Sea, could amount to a deviation, which in turn could prejudice P&I cover.
If the bill of lading incorporates the Hague or Hague Visby Rules the Owner may have a defence to any claim from cargo interests. Article IV rule 4 of the Rules provides:
" Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of these Rules or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom . "
In Stag Line Ltd v. Foscolo Mango Co. Ltd [1931] [3] the House of Lords held that the carrier could rely upon the clause to excuse deviation where the deviation was one which would be made by a " prudent person controlling the voyage at the time…having in mind all the relevant circumstances existing at the time, including the terms of the contract and the interests of all parties concerned, but without obligation to consider the interests of any one as conclusive ". Again, it is advisable for Owners to record the decision contemporaneously and to preserve the evidence upon they based the decision to deviate.
Can I claim additional costs from charterers?
Ships transiting the Red Sea will need to ensure they have appropriate war risk cover, particularly in light of the Joint War Committee's recent extension of the listed area. Transiting the Red Sea may well now attract additional war risk premium, as well as crew bonuses. Whether such costs are recoverable from the charterer will depend upon the terms of the charterparty and/or any commercial agreement which may have been reached regarding the particular voyage in question. For time charters incorporating the BIMCO Conwartime 2013, the likelihood is that Owners can indeed seek reimbursement of such costs from charterers.
What if my Vessel is attacked and damaged?
Depending on the terms of the charterparty as a whole, losses arising as a result of following charterers' orders to transit the Red Sea may be recoverable under the implied indemnity or express clauses. Generally, Owners will need to prove that they took all reasonable steps to protect the Vessel from attack, including following the latest guidance from industry bodies such as BIMCO, the US military alliance operating in the region and any advice issued by their flag state or P&I Club. The steps taken should be well documented.
I am entering into a new charterparty now – what should I consider?
As the situation in the Red Sea remains volatile, Owners may wish to exclude Red Sea ports and transits expressly from the trading areas permitted in the charterparty. Alternatively, if the Red Sea is to remain within the permitted trading area, careful consideration should be given and clear wording included in the charterparty preserving Owners' rights to refuse orders on a case-by-case basis, setting out who will bear the additional costs involved, and stipulating express indemnities for any delays and/or damage suffered to the Vessel and her cargo as a result. In the same way, careful consideration should be given to contractual liberties to deviate, and appropriate off-hire provisions. We would also strongly recommend that Owners take advice from their P&I Club and flag state before agreeing to any terms that bind them to call at Red Sea ports or transit through the Red Sea.
The very recent Supreme Court decision in Herculito Maritime Ltd v. Gunvor International BV ( The Polar ) [2024] provides a timely reminder of the careful drafting required by an Owner who wishes to retain the right to refuse orders.
The Court in that case was asked to consider the meaning of "war risks" in the context of clause 39 of an amended BPVOY 4, whereby the definition of "war risks" expressly extends to piracy. The clause gave Owners the right to cancel the charter, " if, at any time before the vessel commences loading, it is considered that performance of the contract of carriage may expose the vessel to war risks ". The Court rejected the argument that clause 39 gave Owners an absolute veto on passing through the area, in the face of the threat of piratical attacks. The Court noted that the voyage charter had been entered into at a time when the prevalence of piracy in the Gulf of Aden was already well-known, and a detailed agreement had been reached between the parties as to the sharing of the attendant costs and risk. Moreover, the contractual voyage was stipulated to be "via Suez", a route which would necessarily take the vessel through the Gulf of Aden. Lord Hamblen put it this way:
"Having agreed the vessel’s route and the terms upon which the Gulf of Aden would be transited neither the shipowner nor the master could then turn round and say that they had changed their mind and were no longer willing to take on the known piracy risk of transiting the Gulf of Aden on the terms agreed. If different war risks materialised in the Gulf of Aden or there was a change in the nature of the piracy risk, or a change in its degree sufficient to make it qualitatively different, then it may be that clause 39 could be relied upon, but not if there was no change in risk. In the present case there is no suggestion or finding that the piracy risk changed at any time from that known and contemplated at the time that the charter was agreed."
Conclusions
With a fast-changing situation such as that in the Red Sea, it is important that Owners make use of all of the available and credible sources of information to enable an accurate assessment of the risk to be taken, each such assessment being specific to the particular ship and voyage in question. Blanket embargoes across an entire fleet, without regard to the case-by-case circumstances, are unlikely to be looked upon favourably, and so decisions in each case should be justified and recorded. That said, an Owner's contractual rights and liabilities will ultimately depend on the precise wording of each charterparty, with clauses construed in light of the charterparty as a whole. Given that the risks associated with trading in the Red Sea are now plain for all to see, charterparties entered into now should be very carefully drafted to ensure the Owner's position is protected.
[1] [1958] 2 Lloyd’s Rep. 127
[2] [2001] 1 Lloyd’s Rep. 147 (H.L.)
[3] [1931] 41 LLR 165
