Considering the current position under English law regarding the position under charter-parties in the context of the recent hostilities in Israel and Lebanon.
Following the recent hostilities between Israel, Lebanon and especially Hezbollah, Skuld has received many questions regarding owners’ and charterers’ legal position under various charter-parties.
In a short article like this one, it is very difficult to give firm advice in connection with war and war-like situations primarily due to the fact that the factual situation is always very unclear and the future generally unpredictable.
Furthermore, in the various charter parties there are many different clauses, some of which are printed clauses in well-known charter-parties, where others are specifically drafted and agreed clauses.
Thus, in order to evaluate an inquiry, the particular wording of the relevant clauses will have to be considered carefully and as much factual information as possible needs to be obtained.
Additionally, many aspects need to be considered and in this context we shall especially deal with and outline some general guidelines regarding definition of war, right of cancellation, frustration and port safety.
Regarding definition of war, unlike the law governing relations between sovereign states in the context of international commercial contracts, English law does not require the delivery of a declaration of war by one state against another in order to assess the parties’ rights or obligations.
In KKKK v Bantham [1939] 2 KB 54 a time charter-party contained the clause “charterers and owners to have the liberty of cancelling the charter-party if war breaks out involving Japan”.
The court advised that “war”, “hostile act” or “belligerent power” are to be given their ordinary non-technical meanings and summarised the position as follows:
“… we are concerned, and concerned only, with the question whether upon the true construction of a particular private document the owners were entitled to cancel the charter-party, which they are only entitled to do if war breaks out involving Japan… I am unable to accept the suggestion that there is any technical meaning of the word “war” for the purpose of the construction of this clause…”
This was again adopted in the House of Lords’ Judgement Pesquerias y Secaderos de Bacalao de Espana S.A. v Beer (1949) 82 Ll.L.Rep. 501 where the court was asked to consider the meaning of “war” in the phrase “excluding war risk”. It was inter alia stated:
“… the word “war” in a policy of insurance includes civil war unless the context makes it clear that a different meaning should be given to the word… I can see no good reason for giving to the word “war” a meaning which excludes one type of “war”.”
Regarding war-like operations/hostilities, it was considered in Spinney’s (1948) Limited v Royal Insurance Co [1980] 1 Lloyds Rep 406 and it was stated that the guiding factors as to whether a state of war exists are:
- Whether one can identify a conflict between opposing “sides”.
- The existence of objectives of the “sides” and the means of pursuing them (as for the objective, it can be enough if the aim is to force changes in the way in which power is exercised without fundamentally changing the existing political structure) and
- The scale of the conflict, its effect on public order and the life of the inhabitants. This factor can include the number of combatants, the amount of territory occupied, the amount and nature of the armaments employed, the scale of the casualties, the degree to which the population is involved, the degree of interruption to public services and private life and the duration. None of these are essential, it is a question of assessing the scale of the conflict.
Re: Right of cancellation
In a charter-party context such rights are given to owners and charterers if there is an outbreak of war, or in some cases hostilities, but only if this aspect is dealt with in one of the charter-party clauses.
Careful examination of the wording in each case is required to ascertain whether it covers the specific facts applicable and in particular for example whether the requirement that there should be an outbreak of war or hostilities between two or more named countries has actually occurred.
If the factual position should fall within the provisions of the relevant clause, the option to cancel must be exercised within a reasonable time of war breaking out, but the application of the principle is likely to prove very difficult in view of the diffuse nature of modern conflict. Generally speaking, it is very difficult to establish a precise inception date for hostilities and thus as a consequence it may be difficult to identify a particular date when it can be said that war has broken out so as to allow the parties to establish from when a reasonable time is to run.
Re: Frustration
If there is no provision in the contract of carriage for war or hostilities, the parties may still be discharged from further performance if the effects of war or hostilities “frustrate” the contract by creating a fundamentally different situation or rendering performance as intended by the parties impossible.
There is a distinction to be drawn between performance, which becomes “wholly different to that intended”, as opposed to a situation where one party’s obligations simply become more onerous or expensive. The latter does not frustrate the contract.
It should be emphasised that it is not the mere existence of hostilities that potentially frustrate a contract, it is the actual impact of the acts done in furtherance of the hostilities on performance of the contract that may frustrate it.
A definition of frustration was made in Davis Contractors v Fareham U.D.C. [1956] A.C. 696 as follows:
“Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed, because the circumstance in which performance is called for would render it a thing radically different from that which was undertaken by the contract…. It was not this that I promised to do.”
Re: Safe port
As mentioned above, possible safe port clauses of the contract should also be considered together with any war risk clause.
The classic definition of safe port was stated in The Eastern City [1958] 2 Lloyd’s Rep. 127:
“… a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship…”
In a time charter, there is in effect a three stage warranty which is given by the charterers in relation to the safety of the port, confer The Evia (No.2.) [1983] 1 A.C. 736 (H.L.). The first warranty is that at the time of the order of the vessel to proceed to a particular port the port is prospectively safe for the time when the vessel will be due to use it.
However, the House of Lords also indicated that even if the charterers nominate somewhere that is prospectively safe at the time of nomination they may nevertheless come under a subsequent or secondary obligation to cancel that order if events occur which render the port unsafe whilst the vessel is en route and furthermore, the same principles will apply whilst the vessel is at the port. However, this did not assist the owners in The Evia because by the time the event occurred there was nothing that anybody could have done to enable the vessel to leave as she was one of the victims of the closure of the Shatt-al-Arab.
Considering all the above principles regarding the present situation in Israel andLebanon following the air and sea blockade of Lebanon by Israel, and the launching of rockets in the area from 12 July 2006, it seems to be the position that at least until the United Nations Security Council’s Resolution 1701 (2006) of 11 August 2006 there was a war and/or war-like situation, which pursuant to many (if not all) of the war clauses (naturally depending on the exact wording) would have enabled the parties to invoke the said clauses.
Furthermore, it also seems to be the position that in the same period of time the ports at Lebanon and Israel were considered to be unsafe.
However, following the issuance of Resolution 1701 (2006) of 11 August 2006 and importantly, the parties’ apparent acceptance of the same (so far only very, very few instances have been reported that the cease-fire has been broken) the situation may have changed. However, depending upon the actual development in a specific area where a vessel may be ordered to load or discharge, it may be necessary to differentiate between various ports in Lebanon, where some may be considered safe, while others still are considered unsafe. And the same may apply to Israeli ports.
Thus once again, the specific wording of the particular clause and the factual position at the relevant place are of paramount importance.
Finally, as a specific example in connection with an inquiry from a member concerning a fixture under a clean ASBATANKVOY Form, with loading Haifa port, which at that time was closed for operations due to the conflict, we became aware of the following potential problem:
If no range of loading ports is agreed in part I of the ASBATANKVOY Form, but merely one specific port is mentioned, the charterers do not have the possibility – which they otherwise would have had – to nominate an alternative loading port (clause 20 (vi)). Neither is there a mentioning of the right to cancel the charter-party by either party, as is the case in e.g. the VOYWAR clause.
In such cases, unless a separate agreement can be reached between owners and charterers in respect of an alternative loading port, there is no other option than to await developments and the agreed port to resume operations. Alternatively, the rules of frustration may apply if the requirements are fulfilled, confer the comments above.
This is only one example, even regarding a printed clause, where the analysis of the clause may not be as the parties thought when they entered into the charter-party.
Although we hope that this article will shed some light on this difficult legal area, it should once more be emphasised that each case will have to be decided on its own facts. Thus, it is recommended that legal advice should always be sought on any particular set of circumstances.