Web Alert: Hurricane Irma – issues arising under contracts of carriage

The disruption to cargo vessels recently caused by Hurricane Irma has raised a number of legal issues. The following is intended as general guidance to members on some of the issues commonly encountered.

Given the number of charterparties and bills of lading that are governed by English law, the guidance is given from an English law perspective.

Deviations from route

Where cargo-carrying vessels have deviated from their planned route to avoid and/or shelter from hurricane conditions, this will give rise to the late delivery of cargo and to potential losses to cargo receivers.

Cargo receivers who have incurred such losses, however, will not be entitled to recover where their cargo has been carried under bills of lading that incorporate the Hague or Hague Visby Rules, both of which state in Article IV Rule 4:

'Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of this convention or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom'.

The above provision may also protect the owners of vessels from claims from their charterers for losses arising from deviation where, as often happens, the Hague or Hague Visby Rules have been incorporated into the charter terms.

Bills of lading – changing the place of discharge

If it is not possible for cargo to be discharged at the place of discharge named in a bill of lading, the terms of the bill of lading may entitle the carrier to discharge the cargo elsewhere.

If the terms of the bill of lading do not entitle the carrier to discharge elsewhere, it may nonetheless be possible for the carrier to agree with the holder of the bill of lading that the cargo is to be discharged at a substitute place of discharge.

If such an agreement is entered into, the carrier will need to engage with its P&I club to ensure that the carrier has P&I cover for carriage to the substitute place of discharge.

Also, if such an agreement is entered into, all bills of lading naming the original place of discharge will need to be surrendered by the bill of lading holder and destroyed. If they are not, the carrier will run the risk of an original bill of lading being used to sell the cargo, the carrier being liable to the buyer for non-delivery of the cargo at original place of discharge, and the carrier not being insured for that liability under the terms of the carrier’s P&I cover.​

Voyage charters -​ named load and discharge ports

Where the terms of a voyage charter name a port and/or berth at which cargo is to be loaded, or at which cargo is to be discharged, and it is not possible for cargo to be loaded (or discharged) at that place, further terms in the charter may give a right to the owners of the vessel to load or discharge cargo at a substitute place.

For example the very commonly used Gencon 1994 voyage charter form states at Clause 1:

'The said vessel shall proceed to the loading port or place stated in Box 10 or so near thereto as she can safely get and lie always afloat, and there load a full and complete cargo...and being so loaded...the vessel shall proceed to the discharging port or place stated in Box 11...or so near thereto as she may safely get and lie always afloat...'

Similar 'or so near thereto as she can safely get' clauses are also sometimes found in bills of lading (see above).

Such clauses should, however, be viewed cautiously and legal advice taken before they are acted upon. The best practical approach, where loading or discharge of cargo at a contractually specified place is not possible, is likely to be an agreement between the owner and charterer of the vessel as to where and how cargo is to be loaded (or discharged as the case may be).

Frustration of contracts

If it is not possible to load or discharge cargo at an agreed place of loading or discharge specified in a contract of carriage (eg a bill of lading or a charterparty) and there is no term in the contract permitting a substitute place to be used, the contract may be viewed as frustrated.

If a contract is frustrated, the parties will no longer be obliged to perform it, and neither party will be able to recover from the other for any losses arising from non-performance.

However, identifying whether or not a contract of carriage is frustrated as a result of prevailing circumstances, can be a very difficult exercise. It may depend upon how long the circumstances have prevailed, how long they are likely to prevail, whether the cargo being carried is perishable, and various other factors.

Force majeure

Under English law there is no general concept of force majeure, or general right to declare force majeure as a way of avoiding or limiting contractual obligations. However, where terms in a charterparty or bill of lading specify what is to be considered force majeure (including perhaps various weather conditions), and set out what rights and obligations the parties are to have if force majeure occurs, those terms will be effective.

Time charters – unsafe ports and berths

Time charterers of vessels are under an implied obligation to order the vessel only to ports and berths that are safe, and not to ports and berths that are unsafe.

A port or berth is unsafe for a vessel if, in the course of reaching or using or returning from it, the vessel is exposed to dangers which good seamanship cannot avoid. If a vessel is damaged at a port or berth due to an abnormal occurrence, however, this will not place the time charterer in breach of its implied obligation.

However, what dangers can be avoided by good seamanship, and what will constitute an abnormal occurrence in any given circumstances, may be open to debate.

Where the time charterer of a vessel has ordered the vessel to a port or berth that is unsafe, there is an obligation upon the time charterer to name a substitute port that is safe.

If the time charterer refuses to order the vessel to a substitute place of discharge that is safe, the owner of the vessel may treat the charter as repudiated and claim damages from the charterer for any losses that the owner has suffered.

Again, however, the owner of the vessel should approach the situation cautiously. The wrongful repudiation of charters can cause huge losses, recoverable in damages from the party that has wrongfully repudiated the charter.

Time charters – payment of hire

Under time charters, hire continues to be payable for a vessel unless circumstances have arisen which bring the vessel 'off hire' as defined in the charterparty terms.

Whether or not delays caused to vessels by Hurricane Irma will have brought time chartered vessels off hire will therefore depend upon the charter terms agreed for each vessel, which may need to be scrutinised closely by the owners and charterers concerned.

Cargo damage

If cargo-carrying vessels have been unable to avoid the effects of Hurricane Irma, with the result that cargo on board has become damaged, the carriers of the cargo may have a defence to claims for that cargo damage under Article IV Rule 2 of the Hague and Hague Visby Rules which states:

“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from:

...... (c) Perils, dangers, and accidents of the sea and other navigable waters..”

The above defence will only be available, however, to carriers who have exercised due diligence to make their vessel seaworthy before and at the beginning of the voyage (as required by Article III Rule 1 of the Hague and Hague Visby Rules).

Further guidance

The above notes are intended only for the general guidance of members. If members have disputes connected with damage or delays caused by Hurricane Irma they are advised to take legal advice, not least because the wording of contracts of carriage (bills of lading, charterparties and other contractual arrangements) will vary widely.

The club would like to thank Jon Boaden of shipping lawyers Mills & Co Solicitors for his help in preparing the above guidance.