Explanatory notes to Infectious or Contagious Diseases Clause for Time Charter Parties

Background

The revision of the BIMCO IOCD Clause for Time Charter Parties was prompted by the COVID-19 pandemic. The clause is not intended to be a “COVID-19 clause” - it is designed with future epidemics and pandemics in mind.

The BIMCO IOCD Clause 2022 is appropriate for outbreaks of diseases on a pandemic scale like COVID-19, and outbreaks at a regional level, such as the Ebola virus epidemic in West Africa in 2014-2016. What we learned from the COVID-19 pandemic is that although mortality rates from the virus were relatively low per head of population, the social impact on the movement of people was significant. What is unknown is whether future pandemics will be of a similar nature or if it will be more life threatening, like Ebola.

The clause is therefore drafted on the premise that not every disease will be life threatening and the risk of crew infection can, in many cases, be avoided by taking measures to protect the crew and avoid the spread of the disease. It is based on three key principles:

(1) the owners’ measures to protect the crew;

(2) the allocation of liability for delays; and

(3) the owners’ right to refuse the charterers’ orders.

The clause assumes that the charterers have control over the ship and determine which ports to go to, with the owners under the obligation to follow the orders. This means that for a trip time charter party, the liabilities and responsibilities could be amended by the parties recognising that the owners will know the ports at which the ship will call.

The clause adopts a balanced approach to risk allocation with the focus on ensuring the contract continues. The reason for this is to help avoid potentially costly disputes and further supply-chain disruptions.

There is a focus on preventative measures which is appropriate to the contracting parties’ interests.

Drafting team

The BIMCO IOCD Clause for Time Charter Parties 2022 has been developed by a team comprised of owners, charterers, P&I clubs and legal experts. BIMCO is grateful to the following individuals for assisting us with this important project:

• Natalya Adamantia Skjelmose, Norden (Chairperson)

• Julius Posselt, Oldendorff Carriers

• Michelle Gonzalez/Joao Evangelista, Vale

• Anna Volokhova, ENI

• Nicola Cox, West

• Martyn Hughes, the Swedish Club

BIMCO secretariat support was provided by Grant Hunter, Nina Stuhrmann and Merete Greisen

Guidance Notes

The following guidance notes are intended to provide some background to the thinking behind the BIMCOIOCD Clause for Time Charter Parties 2022. These notes explain the scope of the clause; clarify how it is intended to operate; and sets out the allocation of risk between the parties. If you have any questions about the clause that we have not answered in these notes, please contact us at contracts@bimco.org and we will be happy to assist.

Subclause (a) sets out the definitions of terms used throughout the clause.

“Disease” – This is one of the core definitions used in the clause. It does not provide for a more detailed definition of the used terms, such as “serious illness”. This is because the clause is also designed to be used for future diseases which are unknown. Defining certain symptoms or risks would be too limiting. The common rules of interpretation apply, and each situation should be assessed on a case-by-case basis.

“Preventive Measures” – “Measures” are meant to be equipment such as Personal Protective Equipment (PPE) but also the master’s/owners’ right to reject access on board to people who might infect the crew. The scope of the owners’ obligation is limited under this definition to “reasonable, applicable and available”. This means that nothing extraordinary can be required from the owners. The reference to “available” is intended to mean that the measures, in this case especially PPE, can be provided to the ship. In the COVID-19 context this would mean for example that the owners are not obliged to provide certain masks if they cannot be delivered or are sold out.

“Risk of Exposure” – this definition informs the Exposure Risk Notice and is used in the context of owners’ right to refuse to call a port under subclause (d). It is important to note that the reference to risks emphasises that if the risk pre-existed the charter party, then it is a significant increase in that risk which triggers the clause. The owners must make an assessment whether the risk of exposure can be avoided by taking Preventive Measures. This assessment should be made in their “reasonable judgment”.

English law lays down two main elements when considering whether a party has acted “reasonably”. Firstly, the judgment or decision made by the party must be made “in good faith”; secondly, it must be “reasonable”, when viewed objectively.

In The Triton Lark [2011], Teare J explained how “in the reasonable judgement of” is to be interpreted, and stated: ”Assuming that CONWARTIME 1993 conferred a discretion or power on the owners to make a decision which could affect both parties there was no necessity to imply any term as to how that discretion or power must be exercised because the clause said expressly that the owner’s judgement must be "reasonable". The effect of that clause is that the Owners must make a judgement. It must be made in good faith; otherwise it would not be a judgement but a device to obtain a financial gain. Further, the judgement reached must be objectively reasonable. An owner who wishes to ensure that his judgement is objectively reasonable will make all necessary enquiries. If he makes no enquiries at all it may be concluded that he did not reach a judgement in good faith. But if he makes those enquiries which he considers sufficient but fails to make all necessary enquiries before reaching his judgement I do not consider that his judgment will on that account be judged unreasonable if in fact it was an objectively reasonable judgement and would have been shown to be so had all necessary enquiries been made.”

For the IOCD clauses this means that the owners cannot simply reject calling at a port just because there appears to be an outbreak. They must make necessary enquiries on (1) whether there is an outbreak of a “Disease” at the port, and gauge the severity of the outbreak, (2) whether the crew is at danger from an infection and (3) whether Preventive Measures would protect the crew. This can be done by obtaining information from local authorities, agents or the media.

Subclause (b) Preventive Measures - An essential feature of the IOCD Clause is a requirement for the owners to take steps to protect the ship. If the owners do not take protective steps then they are not entitled to give notice to the charterers to trigger the clause.

This reflects the commercial practise of responsible owners who equip their ships with protective material to prevent crew infection. There is no corresponding obligation on the charterers because, in practice, they would not be directly involved and often have no control over stevedores, etc in the ports because they are appointed by shippers or receivers. The obligation to take Preventive Measures includes the owners’ and masters’ right to refuse access to the ship. The reason for this is that experience has shown that the main risk to the crew comes from people coming on board the ship.

The subclause does not address the consequences of a breach and owners’ non-compliance with this obligation. This means that in case of a breach the principles of the governing law of the charter party will apply to the situation.

To ensure that the owners’ obligation is not too extensive and to provide balance, the parties should agree on a threshold for the owners’ obligations in situations where the appropriate protective equipment is very expensive. In practice this means that the owners bear the costs up to the stated amount and thereafter the charterers bear the costs. It is important that the parties fill in an agreed amount because otherwise the owners will be solely responsible for the costs.

Subclause (c) Delays – This subclause reflects the nature of the time charter party where the charterers have the control over the ship and will therefore be liable for delays. Because of this, there can be situations where the charterers are liable without being in breach of the clause or charter party.

The owners are responsible for delays in situations where they have caused the delay or when the ship is delayed due to a prior “activity”. This is meant to include previous employment but also events like dry-docking. The ship will be off-hire for the net time lost.

The reference to “direct” losses means that the party would be responsible for reasonable and foreseeable damages.

Subclause (d) Right to reject orders – The owners have the right to reject employment orders and require charterers to issue alternative voyage orders provided the conditions have been met to trigger the clause. To avoid the risk of prejudicing P&I cover, owners and charterers should contact their P&I clubs before any contractual deviation takes place – especially if bills of lading have already been issued.

The focus under this subclause is on the risk to the crew when calling a port.

The owners’ assessment of whether there is a high risk from a Disease to the crew is in their “reasonable judgement”. This reference is often deleted because people believe that it is a carte blanche for owners to refuse an order. However, deleting the reference would make it unclear who has to make the assessment. The term might appear to be uncertain but there is abundant legal guidance on its meaning and how any decision would be examined in arbitration and by the courts. The burden of proof is on the owners to establish that there is no high risk. The owners cannot easily reject the orders leaving it to the charterers to prove that there is no risk to the crew.

To understand the clause, it is important to note that there is a distinction between a) the likelihood/chances of contracting a Disease and b) the severity of the Disease. For the common cold the chances of catching the Disease is high but the severity of the Disease is low. This clause is not intended to cater for common cold-type situations; therefore the clause needs to refer not (or not just) to there being a high Risk of Exposure but to the severity of the Disease itself.

Subclause (d)(iii) includes the charterers’ indemnity for costs, expenses or liabilities incurred by the Owners in relation to claims from holders of bills of lading due to the Vessel waiting for and/or complying with alternative voyage orders. It is important for charterers to check with their P&I Club that this indemnity is covered by their P&I insurance before agreeing the clause with owners.

Subclause (f) incorporation provision – It is common in many standard BIMCO clauses to include words of incorporation to ensure that the provision is carried through any chain of charter parties and into bills of lading. For the consequences of non-compliance with it, see subclause (d) above.