COVID-19 Q&A on BIMCO’s Infectious or Contagious Diseases Clauses

COVID-19 Q&A on BIMCO’s Infectious or Contagious Diseases Clauses

Overview

The outbreak of COVID-19 and its impact on business and society is unprecedented. We are learning day by day how we must adapt to these new circumstances. Ports around the world are handling the situation in different ways and it is difficult to provide a one-size-fits-all contractual solution. What one port in one country of the world is doing, restricting or prohibiting, is not necessarily the same as a port in a neighbouring country does. BIMCO urges the industry to be pragmatic and work together to find solutions. Not every answer will be found in the contract and parties should do their best to communicate openly about the issues they face and identify compromise solutions to find a way through these difficult times.

This Q&A is a list of commonly asked questions together with our answers. We will update this Q&A on a regular basis to share the guidance we provide on BIMCO’s Infectious or Contagious Diseases (IOCD) Clauses.

IOCD Clause -  Focus on voyage charter parties

Q1. Under what circumstances can the IOCD clause be triggered?

A1: The voyage charter party clause can only be triggered when the two interdependent definitions of “Disease” and “Affected Area” are fulfilled. There should be no argument that COVID-19 falls within the definition. In terms of the “Affected Area” it should be noted that the clause can only be invoked if the risk of exposure to Disease and/or a risk of quarantine arose after the date of the charter party. The “Affected Area” can be two distinct places – where the ship calls at a place where there is a risk of infection to the crew and, secondly, where the ship calls subsequently where there is a risk that the ship will be quarantined or subject to other measures that may delay the ship as a result of a previous port call.

Q2. BIMCO’s Infections or Contagious Diseases Clause talks about “Affected Area”. As the World Health Organisation (WHO) already declared this a pandemic (a global scale epidemic), does the “Affected Area” definition not lose its value as this epidemic affects the entire world?

A2: The definition of “Affected Area” does not refer to areas declared by the WHO but to ports and places where there is a “risk of exposure” to the Disease. It is not an arbitrary decision for the owner or master to decide what constitutes a “safe port” in this context. It is a matter of fact and sound judgement. If a port has not been declared by a public health authority as a risk to visiting ships, then we believe it would be difficult to define it as an “Affected Area”. Provided the crew and shoreside personnel follow recommended protective measures then the risk to the crew should be minimal (and evidence suggests that ship’s crew are presently one of the lowest risk groups).

Q3. What rights do the parties have if owners invoke the IOCD Clause and cancel the voyage charter party before loading commences?

A3: If the owners cancel the voyage charter party before loading has commenced the clause is only intended to let the owners “walk away” from the contract without any further financial liabilities towards the charterers, and vice versa.

If the loading port was already a known "Affected Area" when the charter party was concluded, the owners would not be entitled to cancel the charter party and charterers would have a claim against the owners for breach of contract. If the loading port becomes an “Affected Area” only after the date of the charter party, then the owners’ cancellation would be in accordance with the clause and the charterers would not have a basis for a claim against the owners.

Q4. Can the owners cancel the voyage charter party if there is a risk that the vessel will be quarantined at the load port?

A4: Under the voyage charter party clause, subclause (c)(i) allows the owners to cancel the charter party before loading has commenced if the vessel is at risk of being quarantined at the load port only if this risk did not exist at the date of the charter party. However, if the charter party provides for a range of load and discharge ports, the owners can only cancel if the charterers have failed to nominate alternative safe ports within the range.

Q5. If the owners agree to let the ship proceed to a load port which is an “affected area” due to the risk of quarantine, who will be responsible for the time lost during the quarantine?

A5: The charterers will be responsible because under subclause (f)(iii), any time lost will count as laytime (or demurrage).

Q6. If a ship arrives at an “affected area”, when can it tender a valid notice of readiness (NOR)?

A6: The normal charter party requirements for tendering a valid NOR apply – the ship must have arrived and be physically and legally ready. In respect of the readiness requirement, the ship will not be ready if it is quarantined because of an infection among the crew. However, if the crew is free of the virus then many ports will give the ship health clearance which in most cases will permit a NOR to be given.

Q7. If a ship arrives at the load port and is quarantined because of a previous port call, can the charterers cancel the charter party if the owners are unable to tender a valid NOR by the cancelling date in the charter party?

A7: The charterers’ right to cancel under the charter party is an absolute right if the cancellation date is missed. However, we have not seen any cases where this has occurred as many ports have imposed 14 day “self-isolation” requirements that can often be absorbed during the voyage from the previous port to reduce delays on arrival.

Q8. Which party pays for the waiting time during quarantine?

A8: Subclause (f)(iii) provides that any time lost will count as laytime or time on demurrage. The intention is that time will be counted from the point at which the ship would have tendered NOR but for the quarantine restriction until such time the quarantine ends. At this point the terms of the charter relating to where and when the notice can be tendered will come into effect, NOR will be given, notice time (if any) will run, following which laytime will commence.

IODC Clause – Focus on time charter parties

Q1. The coronavirus is a pandemic that has spread to over 213 countries and territories around the world. How is the definition of an “Affected Area” in the IOCD Clause for time charter parties meant to apply when almost everywhere is affected by coronavirus?

A1. First, it is important to note that the definition of “Affected Area” can be two distinct places: 1. a place the ship calls at where there is a risk of infection to the crew; and 2. A place where the ship and crew are at risk of being quarantined or subject to other measures due to a previous port call. The two distinctions must be considered separately when applying the clause.

Risk to the crew: We are not aware of any crew members being infected as a direct consequence of a ship calling a port. On the contrary, it could be argued that being on a ship is a form of social distancing which keeps the crew separate from the main population. Any risk of infection from pilots, inspectors, surveyors and similar coming on board can be managed and mitigated through proper procedures and the use of personal protection equipment. So, under these circumstances it might be difficult, at present, to classify any ports as “Affected Areas”.

Risk of quarantine or other restrictive measures: This part of the definition is intended to apply to ports the ship subsequently calls at where restrictions may be applied due to its previous trading. However, some ports have introduced the concept of “floating quarantine”, where a ship’s voyage time from a listed port counts as quarantine days. For shorter legs this may require either for the ship to wait on arrival or slow steam.

Other restrictive measures include “deep cleaning” where port authorities will require the ship to be sanitised before it can berth. In such a scenario, owners can invoke the clause and require charterers to reimburse the cleaning costs.

Q2. Under the present circumstances, what are the benefits from including the clause in your time charters?

A2. There are still some benefits to including it in your time charters, such as a clear allocation of costs. Under the clause, owners will be entitled to require charterers to cover any costs, expenses and liabilities resulting from the ship visiting a port where there are restrictions imposed due to COVID-19. This would include the costs for cleaning the ship as well as personal protective equipment for the crew. In addition, and most importantly, the clause provides that the ship will remain on hire under subclause (h)(iii). Subclause (k) covers the same type of costs but deals with costs that may arise after redelivery of the ship, including delays.

Unfortunately it is not unlikely that the world will see similar outbreaks in the future. The clause is generically worded and is not specific to COVID-19 which means that it will also cover future outbreaks and is therefore worthwhile keeping in mind for future time charters.

Q3. What should owners be aware of when considering invoking the clause?

A3. Owners need to be careful when considering whether or not to reject voyage orders under the clause. There has to be strong arguments for why a particular port or place poses a higher risk than any other port or place during this pandemic and it has to be a risk that cannot be minimised or eliminated through mitigating measures. It is important to stress that owners cannot frivolously invoke the clause to avoid going to certain ports.

 

Grant Hunter
in London,

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