Red Sea calls under Charterparties following the Supreme Court decision in The Polar

February 2, 2024

These are dangerous times. With war/hostilities raging in the Ukraine, Russia, the Middle East and the Red Sea, shipping parties need to know what their positions are under charterparties pursuant to which ships carry cargoes between Asia and Europe.

The Suez Canal provides an invaluable shortcut for ships making this trade through the Red Sea and the Gulf of Aden. But recent hostilities in the Red Sea have led numerous parties to choose the alternative, longer, route around the Cape of Good Hope. Longer means more expensive, but to what extent that remains the case depends on the amount of the premia insurers charge for Red Sea calls.

Time charterparties usually include BIMCO’s 2013 Conwartime clause and Piracy Clause allocating contractual risks, rights and obligations between the owner and charterer for calls though areas subjected to actual or potential war, hostilities, or piracy. They also tend to include safe port/place warranties.

Voyage charterparties contain BIMCO’s equivalent 2013 clauses for voyage charterparties. Whilst the decided authorities have related to BIMCO time charterparty clauses, the commentary on them below applies to BIMCO’s equivalent voyage charterparty clauses.

Conwartime’s sub-clause (a) defines the ‘War Risks’ it covers as (i) “any actual, threatened or reported … hostilities; … warlike operations … acts of terrorists; acts of hostility or malicious damage; blockades (whether imposed against all vessels or imposed selectively against vessels of certain flags or ownership, or against certain cargoes or crews or otherwise howsoever), by any person, body, terrorist or political group” which (ii) “in the reasonable judgement of the Master and/or the Owners, may be dangerous or may become dangerous” to the vessel, cargo or crew.

Its sub-clause (b) then says that if in the master’s or owner’s ‘reasonable judgement’ the vessel, cargo or crew may be exposed to a War Risk at a port, place, area, zone, waterway, or canal then the vessel shall not be required to proceed/continue to or remain there.

Applying this in the context of the recent Red Sea attacks as an example:

[1] Is it a ‘War Risk’?

Whilst any assessment is fact-specific, there seems a strong argument that the Red Sea hostilities for example qualify as a War Risk under (i) above, given the Houthis’ recent attacks on vessels passing through the Red Sea.

[2] Reasonable judgment of the Master or Owner

According to the two High Court decisions in The Triton Lark1 (in the context of the BIMCO Piracy Clause), on appeal from an arbitration Award, this requires a judgment to be made in good faith (not for financial gain2) and to be objectively reasonable (by reference to the necessary enquiries a reasonable person would make).

So one would expect an owner, before deciding whether or not to agree the time charterer’s orders, to (i) ask the master and/or the crew for their views; (ii) monitor alerts; (iii) gather evidence of the local conditions; and/or (iv) see what other vessels in the area are doing.

[3] That the Vessel/Cargo/Crew may be Exposed to a War Risk

According to The Triton Lark, the words ‘’may be dangerous or likely to be” under the 2004 version of the Piracy Clause referred to a ‘real likelihood’ of exposure to a War Risk (i.e. real danger) and (i) included an event less than 50% likely to happen; but (ii) required more than just a ‘bare possibility’. To illustrate the difficulty of that assessment, the parties debated whether the 1/300 chance of being hijacked satisfied that requirement and returned to the High Court on this decision. But the judge refused to decide this question based on this statistic and remitted it to the tribunal in the arbitration from which the parties had appealed. That said, he did comment that determining whether a situation was ‘dangerous’ on account of piracy should not be too complex for an owner or master to apply, suggesting it was not down to complex statistics (which in any event needed to be related to the facts of the case).

Conwartime and Piracy Clause 2013’s new words “may be exposed” to War Risks aim at the simpler, non-statistical analysis the judge was envisaging, as the notes to the clauses make clear.

They also refer to the situation being ‘dangerous’ to the vessel/cargo/crew, echoing the judge’s comments in The Triton Lark. What is ‘dangerous’ will always depend on the specific ship and the facts, such as the degree of likelihood, the gravity, and the consequences to the vessel, the crew and the cargo. For example, American or Israeli ship operators have been said by the Houthi rebels to be the focus of their attacks (even if other ships have also been the subject of attacks); and the consequences of a missile attack may be far more grave for a laden ship than one sailing in ballast.

[4] Whether or Not the War Risk existed at the Charterparty Date – the 17 January 2024 Supreme Court decision in The Polar

As the BIMCO notes accompanying the Conwartime and Piracy clauses say, these words aim to override the decision in The Product Star (No 2) (where an increased risk since the charterparty date had been required) and to apply the High Court decision in The Paiwan Wisdom4 where the High Court held in the context of a Conwartime 2004 clause that when deciding whether the owner had the right to refuse to call through the Gulf of Aden on account of the risk of piracy such an increased risk did not need to be shown and what mattered were the specific charterparty terms.

However, as the new Supreme Court decision in The Polar5 makes clear among other things, the main terms of the recap that attaches/incorporates/amend the pro-forma NYPE form and rider clauses must be taken into account when read with the BIMCO clauses. If the recap’s main terms set out the owner’s agreement to transit particular waters, then (i) subsequent reliance on the Conwartime Clause or the Piracy Clause may well bring into play The Product Star (No 2)’s analysis despite what those two clauses say (echoing the judge’s cautionary comments in The Paiwan Wisdom about the specific charterparty terms always prevailing); and (ii) the charterparty’s safe port/place warranties will need to be read in light of that.

Conclusions

The following practical conclusions may be drawn from this:

  1. First, one must look at the whole charterparty, including the main terms recap (see The Polar), to determine what risks the owner has accepted including what trading areas have been agreed to and under what circumstances specific calls may be refused. This may also affect the construction of the charterparty’s safe port/place warranties.
  2. Secondly, in applying BIMCO’s Conwartime and Piracy clauses, a complex statistical analysis is unlikely to determine how they are applied. A commonsense, easy-to-apply application is what a master or owner should be able to apply.
  3. Thirdly, an owner would be well-advised to document the following things: (i) what flag the ship is flying (for example a US/UK/Israeli-flagged ship may be at particular risk of attack by Houthi rebels in the Red Sea); (ii) if the ship is affiliated to Israel, the US or the UK (the same comment applies); (iii) if the ship is trading to or from Israel (the same comment applies); (iv) is the cargo being carried particularly volatile so as to make a missile or drone attack particularly dangerous; (v) what the master and/or crew think about the proposed call; (vi) what up-to-date advice is being given (including by P&I Clubs); and (vii) what other ships/operators in the area are doing (though bearing in mind similar considerations with regards to those ships).

But in every case, it will be a fact-specific analysis that will not necessarily be straightforward.

LCI Law regularly assist their clients with these sorts of queries, aiming to prevent problems from arising before they result in litigation.


1 [2012] 1 Lloyds Rep 457 and [2012] Lloyd’s Rep. 151.1

2 See the Court of Appeal decision in The Product Star (No 2) [1993] 1 Lloyd’s Rep 397] as an example of an owner refusing a call for financial gain, knowing of the risks when agreeing the time charterparty which had not materially increased since then, and not being allowed to rely on the charterparty’s war risks rider clause because of that.

3 Which can be referred to when construing a BIMCO clause – see The Dimitris L [2012] 1 Lloyd’s Rep. 493 by way of example.

4 [2012] 2 Lloyd’s Rep. 416.

5 [2024] UKSC 2. The full judgment can be downloaded here: Herculito Maritime Ltd & Ors v Gunvor International BV & Ors [2024] UKSC 2 (17 January 2024) (bailii.org).

This article has been written in conjunction with Anson Cheung, of Outer Temple, on secondment to LCI Law as a consultant barrister.
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