The issues are complex. We seek to highlight some of the main issues but the position will ultimately always depend on the terms of the applicable contracts and the factual background of each case.
I am considering avoiding the Gulf of Aden and routing my ship around the Cape of Good Hope. Can I do this?
- Each case needs to be considered individually and will depend on many factors, both legal and factual. If a course of action can be agreed with charterers and other interested parties, a lengthy dispute may be avoided.
What factors do I need to take into account?
- Existing contractual obligations should be assessed. The date of the charterparty may be relevant as reflecting the extent to which the parties were aware of the risk from piracy when concluding the fixture.
- Owners should check their charterparties. INTERTANKO and BIMCO have issued model Piracy Clauses (see below). If there is no specific Piracy Clause in the charterparty, check the War Clause. The BIMCO CONWARTIME 2004 & VOYWAR 2004, which are the most commonly used war risks clauses, include acts of piracy. These Clauses are detailed and need to be read carefully. Although they give owners and the master considerable discretion, this must be exercised reasonably, in good faith and after careful consideration. Some charterparties (particularly in the tanker sector), such as Shelltime, have narrower war clauses which do not include piracy. Members using such charterparties should consider using an additional clause specifically dealing with piracy.
- Although all ships are at risk, some are more vulnerable than others, depending on freeboard, size, speed and so on.
- Each case must be looked at on its own merits. Owners should be able demonstrate that they have carefully considered all relevant factors. A refusal to follow charterers’ orders should not be taken lightly and must be based on good and reasonable grounds. Owners should bear in mind that, in the event of a dispute, they may need to justify their decision in front of an arbitrator or judge in two or three years from now.
- Owners will want to take account of financial questions, including the ability to recover hire or freight and saved costs.
- Account will need to be taken of existing commitments towards cargo interests.
- The Association should be contacted in the event of deviation in case there is a risk of P&I cover being prejudiced.
Have there been any relevant Court cases on owners acting on charterers' orders?
- Yes, there have been two recent cases.
- Firstly, in the Triton Lark (Pacific Basin IHX Limited v Bulkhandling Handymax AS) case in the English High Court in November 2011. In November 2008, the disponent owners of a bulk carrier decided to send the vessel around the Cape in the light of recent attacks on vessels transiting the Gulf of Aden. Owners relied upon the CONWARTIME as the charlerparty did not contain a piracy clause. The dispute as to who should bear the extra costs of USD 462,221 was referred to arbitration. The owners succeeded but charterers lodged an appeal to the High Court. The main issue was the requirement which owners had to meet under CONWARTIME of showing that, in the reasonable judgment of the master, the vessel “may be or is likely to be exposed to” piracy. The Judge considered that whether there was “likely to be” should be assessed by whether there was “a real likelihood”. This was something more than a possibility but could be less than an even chance. The decision had to be based upon an evaluation of the evidence. Having provided guidance on the correct approach to applying the Clause, the Judge referred the matter back to the arbitrators.
It is important to note that the case is based on events in late 2008 when there was far less information available about piracy and preventive measures and before the standard Piracy Clauses had been published. Nonetheless the case provides some guidance as to how owners should approach a possible refusal to follow charterers’ orders to proceed via Suez. It illustrates the importance of the advice contained in this website and elsewhere that owners should carry out and record a thorough examination of all available evidence before a decision is made to refuse orders.
Useful commentaries on the case by lawyers Holman Fenwick Willan and Ince & Co can be found here and here.
- Secondly, in July 2012 the High Court determined in the Paiwan Wisdom that owners were not prevented from relying on a CONWARTIME Clause in a NYPE 93 even though there had been no increase in the risk of piracy since the charterparty was entered into. In that case owners refused orders to call at Mombasa. Charterers tried unsuccessfully to challenge the owners’ refusal by relying on a case from 1993, the Product Star, where the Court decided that owners were not entitled to refuse charterers’ orders because there had not been a material increase in risk since the charterparty was entered into. The Paiwan Wisdom decision provides useful clarification that the Product Star was a case which depended very much on a specific set of circumstances and did not impose a general requirement that owners must establish that there has been an increase in risk before they can rely on a war risks clause. The decision therefore removes one potential obstacle for owners wishing to rely on CONWARTIME and similar clauses but owners should still ensure that they have a specific piracy clause and also give careful consideration to areas listed in trading exclusions clauses.
A commentary on this decision by lawyers Holman Fenwick Willan can be found here.
Are charterparty clauses available which cover piracy?
- Intertanko published two clauses in December 2008, one for time charterparties and the other for voyage. In March 2009 BIMCO published a Piracy Clause for Time Charters. An amended version was published in November 2009, together with Clauses for Single Voyage Charters and for Consecutive Voyage Charters and COAs. Whether or not these clauses are appropriate must be assessed in the context of the charterparty as a whole. An important consideration is whether the charterparty includes CONWARTIME 2004 & VOYWAR 2004 or another Clause which deals with piracy. The Intertanko Clauses are useful precedents which can be used in cases where charterparty forms do not already cover piracy but they may need to be amended to suit the particular factors affecting each ship and voyage and to fit in with other terms.
The Clauses can be found here.
Who will have to pay additional insurance costs and bonus?
- These will have to be paid in the first instance by owners but the charterparty may allow the owners to recover from charterers.
Will hire continue to be payable under a charterparty for time lost due to taking precautions such as waiting for an escort or night navigation?
- This will depend on the wording of the off-hire clause in the charterparty but the answer will generally be yes. Charterers seeking to avoid payment of hire have the burden of bringing themselves within the scope of the off-hire clause and proving that an off-hire event has occurred.
If captured, will the vessel remain on hire?
- This will depend mainly on the wording of the off-hire clause but the answer is often yes.
This view was confirmed by a decision of the English Commercial Court in June 2010 in the “Saldanah” case when the Judge upheld the finding of an arbitration tribunal that charterers under a NYPE charterparty were not able to satisfy the burden of proof on them to bring themselves within the scope of the off-hire clause. The outcome may have been different if the clause had been amended to refer to “any other cause whatsoever” and the Judge pointed out that it would be a straightforward matter to amend the standard wording in order to place the vessel off-hire in the event of seizure by pirates. The case provides a useful clarification but it must be borne in mind that a differently worded off-hire clause may produce a different outcome.
This has been clearly illustrated in a second decision of the Commercial Court in March 2012 in the “Captain Stefanos” case, where the Court reached the opposite conclusion on the basis of the wording of an additional off-hire clause (in contrast to the Saldanah which depended on interpretation of Clause 15 of NYPE). Charterers were therefore able to place the vessel off-hire during the period of detention.
The BIMCO and INTERTANKO Piracy Clauses stipulate that the vessel shall remain on hire, although these are sometimes modified by reducing the rate of hire or adding a limit.in terms of time or amount.
The revised BIMCO Time Charter Clause published in November 2009 introduced a cap of 90 days' hire. This reflected the period for which owners were often covered by loss of hire insurance but it should be noted that vessels are commonly held for periods in excess of 90 days.
If captured, can the charterparty be terminated by frustration?
- Probably not, unless the charterparty is for a short period or single trip.