War risks - Charterers' perspective

Skuld Charterer

Published: 12 September 2019

Credit to: lavizzara / Shutterstock.com

The ongoing threat to shipping around the Persian Gulf and Gulf of Oman is a concern to all in the industry, not least the crew who are at risk in the event of an attack. In this article we look at the issue from the charterers’ perspective.

Recent developments

Most readers will be aware that four tankers were attacked off Fujairah and two further tankers in the Gulf of Oman in May and June this year, apparently with limpet mines attached to the side of the vessels’ hull. In July, a British-flagged tanker (Stena Impero) was seized by Iran in the Straits of Hormuz, ostensibly as retaliation for the earlier detention of Iranian tanker Adrian Darya 1 (formerly Grace 1) in Gibraltar in connection with allegations that the vessel was carrying oil to Syria in breach of EU (and US) sanctions. While the Gibraltar authorities have since released the Adrian Darya 1, this has done little to ease tensions. The US have blacklisted the vessel, and the Stena Impero currently remains detained in Iran. The UK and US have deployed naval assets to the Persian Gulf as part of a US-led maritime security mission to protect commercial shipping.

P&I cover

Skuld’s charterers’ P&I cover remains in place when trading to the Persian Gulf and surrounding areas. Charterers’ liabilities for war risks are excluded in narrow circumstances which do not apply to the current situation. Unlike owners’ cover, there is no general exclusion of war risks liabilities, costs and expenses in the charterers’ cover. The cover is only subject to standard war risks exclusions for nuclear and bio-chem risks and for losses arising from war between any of the five major powers. In addition, Skuld has the right to declare Listed Areas for charterers as any area declared by Skuld to be an area of perceived enhanced risk for the purposes of the insurance as notified to members and listed on the Skuld website. There are currently no such areas.

Legal issues

Disputes surrounding the escalating situation in the Persian Gulf are likely to be discussed in the context of standard form war risk clauses although there may also be specific clauses in the charter recap which are relevant. 

War risk clauses broadly speaking have three main purposes: 1) to define “war risks”, 2) to set out the circumstances in which owners may refuse to sail through war risk areas, and 3) to allocate responsibility for additional costs.

  1. Defining “war risks”
    The definition of “war” can vary significantly between clauses. For example, the BIMCO Conwartime and Voywar 2013 clauses (for time and voyage charters respectively) are rather broad and include actual, threatened or reported “acts of hostility or malicious damage” which would certainly include the recent events outlined above. Previous versions of these clauses (which may still appear in charterparties) are somewhat narrower, as are the Shelltime 4 and Shellvoy 5 war risk clauses. A time charterer in the middle of a chain should be careful to ensure that their war risk provisions are back-to-back as far as possible, and consideration should be given to any amendments to standard form clauses.
  2. When can Owners refuse?
    War risk clauses generally give the owners the liberty to refuse to continue through any area which the Master or owners reasonably consider will expose the vessel to war risks, and in certain circumstances to discharge any cargo on board at a safe place of their choice. Whether or not an owner can rely on these rights when ordered to sail to the Persian Gulf will depend on various factors such as the prevailing frequency of attacks/incidents, the perceived level of threat at the relevant time and the type of vessel (the attacks to date have been on tankers rather than, for example, bulk carriers).
  3. Allocation of additional costs
    Since the entire Persian Gulf and adjacent waters were added to the Joint War Committee’s Listed Areas, if the owners do agree to sail to the region then they will generally incur additional premiums and may often be able to claim these from charterers, as is the case in the Conwartime and Voywar 2013 clauses. Such additional premiums have become substantial, and charterers may wish to consider amending their charter terms to require their prior approval of any additional premiums or that quotes are obtained from several providers (although the practicality of switching war insurers to obtain a better price may not be straightforward). Some charterers may even wish to take out war risks cover for the owners and discuss suitable amendment of their charter terms accordingly.
    Again, charterers in the middle of a chain will need to take care that they can pass down such additional premiums under their sub-charter and to consider any obligations they may be undertaking as disponent owner – for example clause 34 of Shelltime 4 requires the owners to obtain from their war risk insurers a waiver of subrogation in favour of sub-charterers. 

An incident in the Persian Gulf or an order to sail there may also give rise to disputes with owners under a safe port or berth warranty or based on an indemnity for the consequences of complying with charterers’ orders. A full discussion of these topics is outside of the scope of this article, but a charterer’s position is likely to be improved if the charterparty terms acknowledge that the vessel will be trading to the region - whether by naming the relevant port in the recap or expressly including the region as a permitted trading area - although the allocation of risk will depend on the terms of the contract as a whole.

Skuld claims team ready to assist

We continue to monitor the situation closely and our claims and underwriting team will be happy to assist our members and clients with advice and recommendations in the context of a specific dispute or query.

Should you have any comments or questions, then please do not hesitate to contact us at any time. 

On behalf of your Skuld team of underwriters and claims handlers who serve our charterers and traders 24/7/365.