Web Alert: Tanker attacks in Fujairah and Gulf of Oman

In light of the recent attacks on tankers in Fujairah and the Gulf of Oman, and rising tensions in the area generally, the club has issued the following guidance which discusses club cover, risk mitigation and legal implications on contractual issues that members may face.

In light of the recent attacks on tankers in Fujairah and the Gulf of Oman, and rising tensions in the area generally, the club has issued the following guidance which discusses club cover, risk mitigation and legal implications on contractual issues that members may face. This follows our web alert of 17 June (which can be viewed in the link on the right).

Club cover

The club’s rules contain no definition of (or exclusion for) piracy and armed robbery. Therefore, the third-party liabilities insured by the club remain covered when they arise out of incidents of piracy and armed robbery.

Third-party liabilities, however, are excluded from club cover if caused by the use/engagement of certain 'weapons of war' that are specifically named in the club’s rules or any 'other similar weapons of war'. 'Weapons of war' are identified as being mines, torpedoes, bombs, rockets, shells and explosives. While the club’s rules do not define 'similar weapons of war', the specifically identified weapons of war indicate that something more than guns/rifles/conventional ammunition would be needed to trigger the operation of the exclusion. Also, P&I liabilities arising from terrorism are excluded. P&I liabilities arising from the use/engagement of weapons of war, terrorism and other war risks would fall to be covered under a shipowner’s P&I war risks cover.

Before vessels enter the region, it is recommended that members review their H&M, war risk and P&I policies to ensure that continuous cover is maintained throughout. In this respect, members are reminded that the club provides all members with excess P&I war risks cover of $500m excess of the ship’s value (deemed not to exceed $100m). In addition, the club can provide competitive primary hull and P&I war risks cover under the club’s War Risks class.

Private Maritime Security Contractors (PMSC)

There is no cover restriction or prohibition regarding the engagement of armed or unarmed PMSCs or the use of convoy escort protection. The decision as to whether to engage PMSCs is an operational one for members, which should be based on a voyage-specific risk assessment. The club expects its members to exercise due diligence in the selection of a PMSC, including following the latest version of the IMO’s guidelines. The club also recommends that members obtain positive confirmation that the chosen PMSC holds the applicable international standard – ISO/PAS 28007 – and that it also complies with the IMO’s guidelines.

The industry has published recent guidance on the use of Privately Contracted Armed Security Personnel (PCASP) in the Arabian Sea, Gulf of Oman and Strait of Hormuz. Of the advice provided, it is noted that the use of PCASP should not be used as a risk mitigation measure in these waters. The reason for this is that the use of force against threats recently encountered in the Gulf of Oman carries significant risk and has the potential to escalate security situations to the detriment of the safety of ship and crew.

The industry instead believes that personnel intended to be deployed as PCASP in the Somali Piracy HRA could be used as advisors in an unarmed capacity when operating in Arabian Gulf, Strait of Hormuz and Gulf of Oman.

Mitigation Measures

Members are recommended to review BMP5, in particular Section 2, which outlines threats posed to vessels.

INTERTANKO and OCIMF recommend companies consider sending the following guidance to vessels making calls in the region:

Undertake a new ship and voyage-specific threat risk assessment before entering any region where there has been an incident, or the threat has changed
Where transit includes passage through a confined strait, if navigationally safe to do so, consider unmanned machinery spaces (UMS) for the duration
Consider transiting at full speed whilst ensuring this is only done where it is commensurate with safe speed, safe navigation and manoeuvring permits
Consider if a day/night transit is appropriate to the threat posed
After the risk assessment, review the ship’s security plan and vessel hardening plan
Conduct security training/exercises prior to entering areas of increased risk
In addition to maintaining a full and vigilant bridge watch for safe navigation, place additional lookouts to the navigation team and bridge wings with a specific remit to maintain visual watch for small craft approaching
Ensuring the lookouts are briefed on maintaining a clear watch astern and over the side
Maintain use of night vision binoculars and consider carrying more onboard
Maintain a strict communications watch and establish communication with all vessels coming close and strictly observe any promulgated exclusion zones or guidance issued by coastal states
Ensuring ISPS control levels are strictly in place
Consideration of extra unarmed lookout to be carried in addition to any contracted security for HRA transits, (note the northern part of the Gulf of Oman is not part of the industry designated High Risk Area for piracy)
Ensure water-tight integrity underway or at anchorage
Ensure watch officers save Voyage Data Recorder (VDR / SVDR) data in the event of an attack or suspicious event in the vicinity of the vessel
If during transit, a threat from mines is announced, move all crew to above the waterline
Rig outboard lighting where possible provided they do not interfere with keeping a safe lookout, particularly over the stern and rig/use searchlights if available
Report any suspicious activity immediately to both the port and UKMTO +442392222060. Monitor relevant VHF and other communication channels
Check all fire-fighting equipment is available for immediate use. Make sure the emergency fire pump is available if any maintenance is being undertaken
Keep the Automatic Information System (AIS) on. There is no need to complete the field stating the last or next port of call

Visual check of the hull, at sea or at anchor

Undertake a visual over side search from the deck, all around the vessel, to check for anything attached to the hull of the vessel. Particular attention should be paid to the hull at or near the waterline.
If a vessel detects anything unusual attached to the hull, then it should contact the UKMTO and Flag State immediately.
All crew should be evacuated from the immediate area and mustered in a safe place. Vessel should follow the advice of the military authorities.
Crew conducting visual checks should wear appropriate PPE, protective head gear, safety harness and life jackets at all times.

Additional measures operators may wish to take if alerted to suspicious activity whilst at anchor include:

Rotate the propeller continuously or at short, irregular intervals.
Operate bow and stern thrusters at zero (0) thrust.
Turn the rudder frequently.
Switch the echo sounder to transmit counter/combat swimmer/diver threat.

Legal implications

Questions are now being asked about the obligations of parties to associated shipping contracts. For example, when additional costs are incurred on a voyage by reason of the recent events, who bears those costs? Can a carrier refuse to comply with orders for a voyage through the Strait? Can either party cancel a contract which involves such a voyage?

There are plenty of pitfalls for all involved and it is essential to look closely at your contractual terms (for both existing and new fixtures).

War Risks clauses

One of the key clauses in any such contract is the War Risks clause. It is standard practice for charterparties to include a War Risks clause which is intended to deal with the obligations of the parties so far as War Risks are concerned (bills of lading rarely set out such clauses, but they often incorporate charterparty terms which include them).

It is important to keep in mind that the terms of such clauses vary widely: it is essential to examine carefully the actual wording used. The current clauses recommended by BIMCO are CONWARTIME 2013 and VOYWAR 2013, but earlier versions of these are also still in use and there are many other clauses in circulation.

Although such a clause is usually referred to as the 'War Risks' clause, its application is usually not limited to situations where there has been a formal declaration of war. For example, the BIMCO clauses define 'War Risks' very broadly. The definition includes (but is by no means limited to) 'warlike operations', 'acts of terrorists' and 'acts of hostility or malicious damage' and even (perhaps pertinently) 'laying of mines'.

So what impact does such a clause actually have? What other issues may arise?

Can the parties walk away?

Parties often want to know if they an get out of their contracts. Can they?

Frustration

One issue may be whether the particular contract of carriage has been brought to an end by the change in circumstances.

For example, we are sometimes asked whether a party can use the concept of 'frustration'. A contract is frustrated if events occurring after it was entered into make the performance of the contract impossible, illegal or radically different to what was originally envisaged. The effect of frustration (if established) is that both parties are released from their obligations.

The presence of a War Risks clause in a contract of carriage will be relevant, because a contract cannot be frustrated by changed circumstances if it makes provision for the changed circumstances in question. Even if there is not such a clause, there will still be a factual question as to whether the carriage has become impossible or radically different from that originally envisaged. If the circumstances have not changed since the time when the contract was agreed, then the contract cannot be frustrated.

Commercial parties often want to know whether a contract can be frustrated by unanticipated cost rises. However, it is very unlikely that a contract of carriage will be frustrated by such an increase. So soaring insurance costs, freight rates or bunker prices are unlikely to bring the contract to an end by way of frustration.

In summary, whilst each case will turn on its facts (that ever helpful lawyer’s caveat) it is unlikely that (for example) a time charter will be frustrated because of difficulties affecting one voyage: such difficulties would not radically affect the whole contract. That said, the position may well be different with a voyage charter or bill of lading.

Other cancellation rights?

If the contract is not frustrated, does either party nonetheless have a right to treat it as at an end? Again, this will depend upon the wording of any cancellation provisions in the contract, and whether such rights are triggered.

A War Risks clause for voyage charters typically includes a right to cancel in specified circumstances. For example, VOYWAR 2013 allows the carrier to cancel if, in the reasonable judgment of the master and/or owners, performance of the voyage may expose the vessel to War Risks (which, of course, are broadly defined).

In time charters a right to cancel is much less common, but War Risks clauses often provide that the vessel will not be obliged to proceed to any port (or through any area) where the master or owners reasonably judge that the vessel may be exposed to war risks. Charterers must be notified of any such refusal, which enables them to issue new voyage orders.

In other multi-voyage contracts (such as contracts of affreightment), the effect of any cancelling right must be considered carefully. Depending on the wording, it may be that cancellation applies to the entire contract and not just to a particular voyage.

What about safe port issues?

If the relevant contract is a time charter (or the relevant contract contains an express safe port warranty or includes options as to the load/discharge port), then the question of the safety of the port will arise.

It is well known that it is an implied (and often an express) term that a ship will only be ordered to a port if the ship can reach, use and return from it without being exposed to danger which cannot be avoided by good seamanship. So it is not just a matter of the port being safe, but also of the safety of the route to the port – this is of course particularly relevant in the context of the Strait of Hormuz.

If an order is given to proceed to an unsafe port, the master/owners can reject the order and call for new orders. But if the orders are complied with and a loss is suffered because of the unsafety of the port, then charterers will be liable in damages.

That all sounds simple enough, but the decision to reject orders is one which requires very careful consideration: if it turns out that the port was not unsafe, then the rejection was wrongful and owners may be liable in damages. In order for the port to be unsafe, the risk must be sufficient for a reasonable shipowner to refuse those orders.

Who pays?

Performing a voyage via the Strait may have financial consequences ranging from increased war risks premiums to damage to (or loss of) the vessel. The crucial question is: who is going to pay these costs?

Once again, the answer is likely to be found in the wording of the relevant War Risks clause. For example, VOYWAR 2013 provides that where, in order to fulfil their obligations under the voyage charter, the vessel proceeds through an area which is subject to war risks, then charterers will reimburse any additional premium required by insurers. CONWARTIME 2013 is to similar effect when incorporated into time charters.

What if there is no express provision covering the particular cost incurred? In that case, owners may be able to rely on an implied indemnity. The general principle is that where owners suffer loss or incur liability by reason of complying with charterers' orders, then charterers must indemnify owners.

However, owners will not have a right to an indemnity in every case: if the effect of the contract was that owners accepted the risk which caused the loss or liability, then owners cannot claim an indemnity. So again, it is essential to carefully read the contract to establish whether or not owners accepted that risk.

Conclusion on legal implications

The recent events in the Strait of Hormuz represent a significant increase in risk and cost for the shipping industry, and those whose ships (owned or chartered) trade in these areas should tread very carefully. It is crucial to carefully read the terms of your contracts to see what rights you have and, when fixing new deals, be sure to take extra care on War Risks, cancellation and other important clauses, to gain as much protection as you possibly can.

Recommendations

In view of the heightened tensions in the area, all members operating in the Southern Red Sea, Gulf of Aden, Gulf of Oman, Strait of Hormuz and Arabian Gulf must remain vigilant and listen for military warnings. Members are also strongly encouraged to comply with the latest version of BMP and other related guidance. Club cover remains in place for members whose vessels are trading in the area, subject to the exclusions mentioned above that fall within members War Risks policy.

The Standard Club is always on hand to assist. If members have any questions in relation to this publication they should not hesitate to contact the authors or their usual club contact.

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We thank Max Lemanski of Stephenson Harwood for his contribution to this article and the section entitled ‘Legal Implications’ in particular.Max is a well-known shipping litigator and is an expert in the issues considered above, such as War Risks, frustration and safe port. His profile is available here.