Russia - Ukraine crisis: impact on charterparties
The Russian invasion of Ukraine remains ongoing, with conflict in various parts of the country, including in port regions. Below we consider some of the immediate questions which may arise under charterparties and contracts of carriage subject to English law, following the outbreak of conflict.
Many issues may arise under the context of a charterparty, however perhaps the main concerns for shipping arise when the vessel cannot enter a port because of the crisis, or where an owner does not want to accept orders to a port which is affected by the conflict.
As with all charterparty contracts, the rights and obligations of the parties will depend on the specific contract and the specific clauses therein. However, below are some of the prominent issues which are likely to widely apply.
A time charterer is obligated to give employment orders to safe ports only. In respect of voyage charters, the charter may also imply a safe port undertaking. The ‘classic’ definition of a safe port requires that “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 Eastern City, 1958).
In the case of a voyage charter however, the owner is deemed to have assessed the port’s safety when agreeing the contract at the outset.
This also applies where a range of ports are nominated, although there is a strong argument in those circumstances that the charterers should not give instructions to a specific port within that range that subsequently becomes unsafe after the charter has been entered into. The charterers should give revised instructions if the port that they originally instruct the vessel to (which may have been legitimate at the time) becomes unsafe after the charter has been entered into.
The question being asked now is does the conflict in Ukraine render a Ukrainian port unsafe? It is important to remember that a port can be considered unsafe not only due to risks posed to the vessel but also due to risk posed to cargo and crew. Against the background of the current conflict in Ukraine, it is difficult to see how a port there could be considered safe, however this may change depending on the circumstances and the risks posed to the vessel and crew.
War Risk clauses
War Risk clauses are common in charterparties, and will need to be closely considered if the vessel is operating in affected regions. For example, the GenCon charter (at clause 17) gives the Master discretion to decide (in his reasonable judgment) whether the vessel is exposed to war risks. If he considers that it is, then the Owners may give notice to cancel or may refuse to perform the part of the voyage that exposes them to such risk.
Additionally and by way of further example, the NYPE 1993 charter contains a War Cancellation clause which, in the event of an outbreak of war (between countries stipulated in the clause), gives the Owners and the Charterers the right to cancel the charterparty, with the charterers retaining the obligation to redeliver the vessel.
Lastly, some charterparties may include the BIMCO War Risks Clause 2013. This clause states that the vessel shall not be required to call at any port where the vessel crew or cargo are exposed to war risks, again within the reasonable judgment of the Master. This clause also helpfully defines “War Risks”. The definition is a broad one which includes “war, acts of war, and warlike operations”.
Owners and charterers may also have agreed bespoke, specific clauses which relating to war risks, some with their own definitions, which would also require careful review.
2020 BIMCO sanctions clause
BIMCO produces some of the clauses most commonly adopted into charterparties. In December 2019, BIMCO published its 2020 BIMCO Sanctions Clause (the Clause), with variations for both time and voyage charterparties. The Clause was intended to be a new industry standard clause to provide a balanced allocation of the risks of sanctions to owners and charterers.
The 2020 BIMCO Sanctions Clause is broadly worded and allows the parties (depending on the circumstances) to claim for breach of contract, cancel the charterparty or request fresh employment orders where the transaction involves either a ‘Sanctioned Activity’ or ‘Sanctioned Party’.
There is no requirement that a Sanctioned Party is undertaking a Sanctioned Activity – it is sufficient for the purposes of the 2020 BIMCO Sanctions Clause that a Sanctioned Party is simply involved with a role listed in the clause.
Therefore an institution that is subject to financial sanctions, but not legally prohibited from being a shipper or consignee such that the parties would be in actual breach of international sanctions, will still be caught by the 2020 BIMCO Sanctions Clause as a Sanctioned Party. Given the pace at which Russian entities are being added to the designated sanctions lists of various countries, contracting parties should undertake due diligence on any parties that might be involved to check they are not sanctioned to ensure the clause is not triggered.
In light of the current, fast moving situation, it is important for owners and charterers to understand the implications of the provisions within their charterparties when considering whether ports are prospectively unsafe and whether the war clauses therein could permit cancellations of charterparties.
Global sanctions are constantly changing as the situation develops. This is making it extremely difficult for anyone involved in international trade to keep on top of the potential implications. Owners and charterers should, therefore, regularly review the lists of parties to whom sanctions apply in light of the 2020 BIMCO Sanctions Clause provisions.