Novel Coronavirus Outbreak: Implications For International Trade And Shipping.
Legal News & Analysis - Asia Pacific - Shipping Maritime & Aviation
4 February, 2020
The recent outbreak of a novel coronavirus in Wuhan, China has received worldwide attention and is increasingly putting a strain on businesses.
Part of the same family as Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), the virus is known to transmit from animals to humans and causes, amongst other things, pneumonia. Presently, available antiviral drugs are no use against it. The virus is believed to have originated in the Huanan seafood wholesale market in Wuhan, China and has now spread to other parts of Asia, Europe and North America. On 30 January 2020, the World Health Organization declared the outbreak a Public Health Emergency of International Concern.
The outbreak of any virulent disease poses the trading and shipping industries with various challenges, as was the case with SARS, MERS and Ebola previously.
In this article, we consider some of the pertinent issues that are likely to arise and be faced in the shipping and trading industries.
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.
With regards to the new coronavirus, strong evidence would be needed to demonstrate the substance of the risk and the unsafety of the port. If appropriate protective measures are in place, a port may still be considered safe, despite the presence of the virus there.
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.
If a port becomes unsafe after nomination, charterers are under an obligation to nominate an alternative port. Similarly, if the vessel is at a port which becomes unsafe while the vessel is there but the danger may be avoided by leaving, the charterers may be obliged to order the vessel to depart.
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.
If a member of the crew is unwell or is suspected of carrying the virus, this could lead to deviation and/or quarantine.
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. The position under a voyage charter is likely to be similar as most voyage charters allow the vessel to deviate for the purpose of saving life but no additional freight will be payable. It should be stressed, however, that the "saving life" element must be firmly established to justify the deviation. This would likely mean that the crew member must be seriously unwell and requires immediate onshore treatment.
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. A time charter may also contain an express exception for restraint of princes, rulers or people which charterers (as opposed to owners) may rely on.
Since quarantine may itself not be an off-hire event (assuming no deviation), in certain circumstances, charterers may seek to rely on this exception to excuse themselves from paying hire.
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 so, the clause may be triggered if the relevant circumstances exist, for example, if a port is closed or cargo cannot reach the load port due to transport restrictions or disruptions, or if there is the existence of an epidemic.
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). The crux will lie in whether such businesses have been truly and seriously affected by the virus outbreak and have had to face the possibility of halting their business operations / unable to fulfil their contractual obligations due to the virus outbreak.
If the contract or charter does not contain a force majeure clause, the doctrine of frustration may come into play. Frustration occurs where there is an event which makes the contract or charter either impossible to perform or its performance radically different, through no fault of either party. In those circumstances, the contract or charter is automatically terminated. Generally, frustration will be less straightforward to establish and will require very serious and significant events to be triggered, for example, a lengthy, indefinite delay.
If entering a new contract or fixture, it is suggested that care be taken to ensure that an appropriately worded force majeure clause is included.
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.
Minor events / issues
Less serious events / issues and the delays they cause are perhaps the most difficult to deal with. For example, a vessel may face delays due to immigration or health checks because it employs a Chinese crew but no quarantine restriction is imposed. Such an incident is unlikely to trigger any of the above provisions or principles but could nonetheless lead to disputes between owners and charterers over off-hire or the running of laytime or demurrage. Resolving such matters will invariably involve a detailed analysis of the charter and the relevant facts.
The new novel coronavirus is likely to lead to operational difficulties big and small for businesses in the shipping and trading industry. Negotiating and resolving these matters successfully will involve careful consideration of the relevant contractual terms and all the surrounding background facts.
For further information, please contact
Nicholas Lum, Partner, Clyde & Co