BIMCO Infectious or contagious diseases clause for time charter parties 2022
In anticipation of possible cases of future pandemics and epidemics, BIMCO redrafted its 2015 Infectious or Contagious Disease Clause for Time Charter Parties, providing more clarity for shipowners and charters when it comes to risk and costs obligations as a consequence of disruption and delay.
Infectious diseases can have significant implications on shipping operations. Those of us in the industry can easily think of vessels that have been quarantined, refused admission at a port or otherwise delayed, and the practical effect this has on the dealings between owners, charterers and others in the supply chain.
Covid-19 has been the latest outbreak in a list of contagious diseases that includes the Ebola virus in 2015 and SARS in 2003. The likelihood is that equally serious strains of disease will occur from time to time going forward.
BIMCO 2015 Contagious Diseases Clause
BIMCO published its first set of clauses for time and voyage charterparties in 2015 following the Ebola endemic in West Africa. However, the time charter clause version 2015 proved inadequate to address the severe practical and commercial realities of the global COVID-19 pandemic. A key issue was that the owners' obligations under the charterparty were overlooked. The clause also did not address the situation where a vessel had to wait to enter a port. Due to these types of shortcomings, the clause was not readily accepted in the market, and often led to disputes about on/off-hire quarantine situations and stand-offs where counterparties would refuse to proceed unless compensated.
The 2022 updates
The industry therefore welcome BIMCO's initiative in publishing an updated clause for time charterparties in 2022 which recognises the commercial reality that trade needs to continue during a pandemic, albeit with disruptions and delays. The clause accordingly provides a more balanced risk and costs allocation between owners and charterers, better reflecting the parties' respective obligations under the charterparty. The focus lies on preventative measures and ensuring that the contract continues to run.
Owners' measures to protect the crew
Appropriate measures have been introduced which oblige the owner to take all reasonable measures to prevent the vessel and crew from being exposed to infectious disease during the course of the charterparty. While this should go without saying, the issue of crew safety remains an ongoing issue which it is right to address explicitly.
The BIMCO Guidance Notes specify that these "measures" should include equipment such as Personal Protective Equipment ("PPE"). Additionally, the master should have the right to refuse to board people who might infect the crew. The owners' obligation is limited to taking all reasonable measures that are "applicable and available". It follows that if certain PPE equipment cannot be delivered to the ship, the owners are not under an obligation to provide the PPE. As with all such limitations, what is reasonable will depend on the circumstances and it is unlikely that a failure in planning prior to undertaking a voyage would be an acceptable excuse.
A good practical measure is for the parties to agree on a threshold for the owners' obligations in situations where the appropriate PPE is very expensive. This should help with balancing costs in, for example, scenarios where charterers' may order the vessel to riskier countries, or where charterers' plans for the vessel change at short notice. The clause envisages that the parties note the agreed level that will be borne by owners, after which the charterers shall bear the costs.
Off-hire and the allocation of liability for delays
In the 2022 clause, the on/off-hire quarantine situations are now clearly spelled out. This removes the need to fall back to other clauses in the charterparty which may not be well suited to accommodate for Covid-type circumstances.
The basic position is that when a vessel is quarantined, refused admission at a port or otherwise delayed, the vessel remains on hire during such time. Thus, the charterers must continue to pay hire and will also be liable for any direct losses incurred by the owners. However, if the quarantine, refused admission or delays are caused by the owners' acts or omissions or arise due to the vessel's activity prior to the charterparty, the vessel will be off-hire for the time lost. Thus, the charterers are not required to pay hire for such time and the owners will also be liable for any direct losses the charterers incur as a result.
This better reflects the nature of the parties' respective obligations under time charterparties, in particular, that the risk of port calls that place the crew at risk of infectious diseases is largely driven by charterers' orders, whereas risks associated more generally with the running of the vessel are driven by owners. For a time charter trip, the liabilities and responsibilities can naturally be amended by the parties to recognise that the owners will usually know in advance the ports at which the ship will call.
The owners' right to refuse the charterers' orders
This clause provides a sensible framework for managing orders that may place the vessel and crew at risk of infectious diseases.
The starting position is that a vessel is not obliged to proceed to, continue to, or to remain at a place where in the owners' reasonable judgment there is a risk from a disease to the crew which cannot be prevented by taking preventative measures. The owners will need to make an assessment whether the risk of exposure can be avoided by taking preventative measures. This assessment should be made in their "reasonable judgment".
What is reasonable will always require objective analysis of the relevant circumstances. In this case, that may include factors such as the availability of PPE, reports about the infection levels at the relevant port, the specific vulnerability of any individuals on board, and the level of expected ship/shore interaction during the port call. The owner should not exercise its judgment capriciously or arbitrarily, for example, a blanket refusal due to additional administration, but it is entitled to have regard to its own interests when considering what is reasonable.
If the owners decide to reject the employment orders, the following scenario ensues:
- The owners must issue a written notice to the charterers on the risk of exposure with supporting evidence. The clause defines the "risk of exposure" as a risk of exposure to a disease which arises or substantially increases at a port or place nominated by the charterers. It is important to note that the risk could exist prior to entering into the charterparty, it does not necessarily need to be a new or worse risk.
- The owners must request new voyage orders, which the charterers must issue within a reasonable time.
- Pending receipt of the new voyage orders, the vessel may proceed to the nearest safe waiting place.
- During this period, the vessel shall remain on hire and the charterers must indemnify the owners for any costs, expenses or liabilities incurred by the owners in relation to claims from holders of bill of ladings as a consequence of the vessel waiting for and/or complying with the alternative voyage orders.
In longer term charterparties, the parties may wish to add bespoke provisions. For example, charterers may wish to obtain pre-approval for certain ports absent a change in circumstances to provide them with comfort that they can trade the vessel with some certainty.
The clauses stipulate that any acts done/not done in accordance with its provisions shall not be deemed a deviation, but considered due fulfilment of the charterparty. This in particular supports the related provisions above regarding charterers' orders.
The charterers are under an obligation to incorporate the clause into all sub-charters, bills of lading, waybills or other documents evidencing contracts of carriage that are issued in relation to this charterparty. That is to ensure consistency through the chain of charterparties and bills of lading.
The 2022 clause significantly limits the owners' rights to refuse the charterers' orders to call at ports compared with the 2015 version. However, in return, the liability for the risk of delay will in most instances fall on the charterers, barring any actions/omissions attributable to the owners.
As noted in BIMCO's Guidance Notes, before agreeing the standard clause (or making substantive amendments), the parties should check with their P&I Club that the indemnity contained in the clause will not prejudice P&I cover, and before any contractual deviation takes place, they should check that Club cover will continue uninterruptedly, especially if bills of lading have been issued.