Sanctions Clause for box lines takes pragmatic approach

Sanctions Clause for box lines takes pragmatic approach

Overview

Many container operators use charter party trade limits as a sanctions management tool when operating liner services between non-sanctioned countries. To provide an alternative contractual solution and to proactively address the current trend to impose sanctions on the shipping industry, BIMCO is currently developing a sanctions clause specifically designed for time chartering container ships.

“Our objective is to draft a clause which meets the commercial and practical reality of the liner trade. I am confident that we have achieved this with how we allocated the risks and liabilities under the new clause,” says Mark Church, director FD&D, The North of England P&I.

Unlike bulk shipping, where cargoes are often carried for a single cargo interests on a conventional voyage basis, box line operators carry thousands of containers for thousands of cargo interests along a scheduled route. This requires a different approach to sanctions compared with the bulk trades.

Container operator in control

This different approach needs to reflect the commercial and practical reality in the liner trade when sanctions problems arise. Container operators - generally - have well established procedures in place to deal with containers that may need to be taken off a ship for various reasons. This includes handling sanctioned containers when the goods in the container are owned by a designated person or the transport violates sanctions. Most often they have the better network in the ports to arrange for the smooth removal of the container without creating undue delays.

The new clause reflects that container ship owners are aware of the potential risk that unknowingly a few sanctioned containers can get on board. They accept this risk, as it is unlikely that an owner would become sanctioned simply because a few containers on board a container ship are sanctioned. However, depending on the individual case, carrying a sanctioned container could jeopardize the insurance cover and result in unpleasant discussions with the sanctioning authority. The new clause addresses this exposure with an indemnity from charterers.

In the liner trades, ships generally operate on a fixed schedule along a route of known ports between non-sanctioned countries. Because of this, the clause is only intended to work for routes between non-sanctioned countries.

Container ship time charter parties commonly apply trade limits to exclude countries which are sanctioned or are at risk of becoming sanctioned. In this low sanction risk environment, if one port became subject to sanctions, the ship would simply omit that port from its schedule and drop the container off elsewhere– this avoids the need to oblige charterers to provide “alternative voyage orders” as would be the case in the bulk trades.

Limited warranties

Similarly, the warranties provided by the charterers on behalf of shippers, receivers and cargo interests are limited in contrast to the bulk trades. 
A container operator cannot possibly warrant for thousands of containers, but the clause requires them to exercise due diligence and have established procedures in place to detect sanctioned cargoes. Owner’s risks are protected because the charterers must not knowingly carry sanctioned cargoes. The charterers indemnify owners for any liability, fine or penalty if they breach their sanctioned cargo warranty.

A right to terminate a long-term time charter for a container vessel due to a few containers being sanctioned would be far too draconian and unnecessary.

“The new clause needs to be balanced and not allow for the termination of a long-time charter party if a few containers out of tens of thousands are subject to sanctions,” says Ewelina  Andrzejewska, senior legal counsel at Maersk. So, the clause only provides termination rights when either of the parties is sanctioned.

The team drafting the container ship sanctions clause includes senior representatives from Maersk, MSC, the North of England P&I, the UK P&I Club and London and Washington based law firm Crowell & Moring. The new clause is due for publication in May 2020.

Nina Stuhrmann
in Copenhagen, DK

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