War Risks: The Ukraine situation

The developing situation between Russia and Ukraine has resulted in the Joint War Committee (“JWC”) issuing its Circular JWLA-028 on 15 February 2022, adding Ukrainian and Russian waters in the Black Sea and the Sea of Asimov as a JWC Hull War, Piracy, Terrorism and Related Perils Listed Area. The JWC represents the interests of those underwriting marine hull war risks in the London insurance market.

 

Any order for a vessel to trade into a Listed Area is termed a “breach”, resulting in Owners and Charterers prejudicing their standard insurance cover. Advance notice should be given to underwriters in respect of any breach so that additional insurance can be put in place.

In this Circular we will cover some general points on War Risks issues before addressing a number of questions that may arise in respect of shipments into and out of Russian and Ukrainian waters.

 

What type of insurance cover is customarily arranged by Owners when breaching the JWC limits and what items/costs are being based onto the Charterers?

 When Owners are asked to trade in an excluded/listed area, they will normally arrange for Additional Hull and Machinery War Risk premiums (including Blocking and Trapping) and Crew War Bonus. The charter party terms will dictate whether any or all of the above costs can be passed down to the Charterers.

The customary position is that the Owners will buy basic war risk cover and, if in the course of trading the ship, she is subjected to additional exposure and the Owners’ Underwriters charge additional premiums, then these would be passed down to the Charterers. The Charterers should pay these Additional Premiums and also insist on getting the benefit of the cover (by being added to the policy as co-assured) so that they are also insured by the Owners’ Underwriters in the event of a claim. Alternatively, Owners and their Underwriters should agree a waiver in favour of the Charterers.

 

What standard clauses deal with “war risks” in a time charter?

 The NYPE 1946 form, which remains in common usage notwithstanding its subsequent revisions (particularly in 1993 and 2015) does not contain a specific war risks clause. However, the standard form is routinely amended by the parties to incorporate the BIMCO CONWARTIME War Risks Clause, in either the 1993, 2004 or 2013 version. As CONWARTIME 2013 was primarily introduced by BIMCO to protect Owners’ legal position, the Club recommends that Assureds seek to incorporate one of the earlier versions in the relevant charter party whenever possible.

NYPE 93, NYPE 2015 and Baltime 1939 (as revised in 2001) all contain express war clauses. NYPE 2015 incorporates the CONWARTIME 2013 War Risks Clause and Baltime 1939 incorporates the CONWARTIME 1993 clause.

 

What is the general effect of the CONWARTIME clauses?

 The principal premise in all three versions of the CONWARTIME clause is that the vessel shall not be obliged to proceed or required to continue to or through any port or area where it appears that the vessel, cargo or crew may, in the reasonable judgment of the Master and/or the Owners, be exposed to “war risks”, whether such risks existed at the time of entering into the relevant charter party or occurred thereafter. Should the vessel be within any such port or area, which only becomes dangerous, or may become dangerous, after entry into it, the vessel shall be at liberty to leave it.

Under all three versions of the CONWARTIME clause, Charterers are obliged to reimburse Owners in respect of any additional premiums required by Owners’ insurers.

If Owners, in exercise of their rights under the CONWARTIME clause, refuse to proceed to the relevant loading or discharge port, they must give Charterers immediate notice of their intention to do so. If the vessel is carrying cargo, Owners must advise Charterers of their intention to discharge the cargo at an alternative port and request Charterers to nominate a safe port for such discharge. If Charterers do not nominate an alternative port within 48 hours of receipt of Owners’ notice and request, Owners may discharge the cargo at any safe port of their own choice, and all costs, risk and expenses for the alternative discharge shall be for Owners’ account.

 

What standard clauses deal with “war risks” in a voyage charter?

 Gencon 76, Gencon 1994 and Norgrain 89 all contain express war risks provisions. Gencon 76 incorporates the VOYWAR 1950 clause, Gencon 1994 contains the VOYWAR 1993 clause and Norgrain has its own, but similar, provision for war risks.

 

What is the general effect of the VOYWAR and Norgrain clauses?

 Both the 1976 and 1994 forms of the Gencon charter provide Owners with an express right of cancellation in the event that it appears, before commencement of loading, that performance of the charter will subject the vessel to “war risks” (as defined). The Norgrain form does not contain such an express right of cancellation.

All three forms contain broadly similar provisions to the effect that Owners or the Master shall not be required to sign bills of lading for any port which in the judgement of Owners and/or the Master appears likely to expose the vessel, cargo and crew to war risks. In those circumstances, Owners can ask Charterers to nominate a safe port for the discharge of the cargo, and if no such nomination is received within 48 hours, Owners may discharge the cargo at any safe port of their choice.

 

How would the current situation between Russia and Ukraine trigger the war risks provisions in a charter party?

 The first point to make here is that, as always, it is essential to look carefully at the terms of the charter involved.

While many of the war risks clauses in charter parties contain broadly similar provisions, the definition of “war risks” may contain subtle differences. The Norgrain 89 War Risks clause, for example, refers to the situation where the Master considers entry into a port is dangerous “owing to war, hostilities, warlike operations, civil war, civil commotions, revolutions, or the operation of international law”. The VOYWAR 1993 clause, however, is wider as it refers to “any war (whether actual or threatened), act of war ….” The VOYWAR 2004 and 2013 clauses provide that war risks “shall include any actual, threatened or reported: war; act of war….”

Currently, the facts are that over 100,000 Russian troops have been deployed in positions close to the Ukrainian border and there is intense media speculation as to whether a Russian invasion of Ukraine is imminent. Meanwhile, Russia denies any intention to invade Ukraine and alleged that it is merely conducting military exercises. For the purposes of the Norgrain clause, it presumably cannot be said that there is a “war”, although it is arguable that Russia’s conduct amounts either to “hostilities” or “warlike operations”. Similarly, under the VOYWAR clauses, there does not yet appear to be an “actual war” or “actual act of war”, but presumably it might be possible to allege that there exists a “threatened war” or a “threatened act of war”.

 

Are Owners currently entitled to refuse to follow orders to proceed to a Ukrainian port?

This is likely to depend on the type of war risk clause in the Charterparty, and on how events unfold over the next few days and weeks. We will be providing a further update in due course.

In the meantime Owners might well be entitled to refuse if the Charterparty contains a standard war risk provision such as one of the Conwartime clauses or Voywar clauses. At present, the risk of war is (already) probably sufficient to justify Owners exercising their discretion not to proceed provided Owners have genuine safety concerns. If hostilities break out it should become clearer whether Owners will be entitled to rely on standard war risk provisions, whereas if tensions de-escalate, Owners may well lose any right to do so.

Owners should be advised that a decision to refuse to proceed should not be taken lightly, particularly if there is cargo on board bound for the Ukraine. That would likely result in complications and potential liabilities under any Bill of Lading, unless the Bill itself effectively incorporates an applicable war risk clause.

 

Are ports in the Ukraine (already) legally unsafe?

This is a more difficult question because it is currently unclear whether the risk of prospective danger was sufficient to make ports legally “unsafe”, bearing in mind that hostilities have not yet broken out and that, even if there was an outbreak of hostilities, that might not affect the safety of ships.

A relevant question would be “whether a reasonable shipowner in the position of the particular shipowner trading the ship for its own account and knowing the relevant facts would proceed to the nominated port”.  This is obviously a very difficult question to answer, and the situation remains very fluid. Some Owners may already be concerned about sending a vessel to Ukraine when hostilities could be imminent. The more so potentially given the JWC’s elevation of the danger level for the area. However, it appears doubtful whether all Ukrainian ports would, at present, be treated as legally unsafe.  We would recommend that the situation be monitored carefully on a case-by-case basis. It might also be the position that certain Ukrainian ports (for example those in the Sea of Azov) are more exposed to potential imminent danger than others. However, if ports were deemed to be prospectively unsafe, then Owners would be entitled to refuse to follow orders to proceed to such ports, even if there was no applicable war risk clause in the Charterparty.

 

What about Russian Ports?

It might also be arguable that Owners would be entitled to refuse to proceed to Russian ports in the Sea of Azov under standard war risk clauses and/or that such ports are legally unsafe. Currently these arguments would appear weaker than those applicable to Ukrainian ports (as the threat of invasion only applies to the Ukraine).

 

Implications on cancellation or termination of the charter party?

 As regards time charters, the Baltime 39 form contains no provision dealing with cancellation or termination in the event of war. NYPE 93 does contain such a provision, which applies in the event of war between two or more countries which the parties are left to declare in the space provided in the clause. NYPE 2015 contains no such provision. BIMCO has produced a specific clause (BIMCO War Cancellation Clause 2004) which provides that either party may cancel the charter party on the outbreak of war (a) between any two or more of the following countries: the USA, Russia, the UK, France and China or (b) between……… (the space is left blank for the parties to insert the relevant countries).

In the absence of an express right of termination in the charter party, regard must be had to the possibility that the charter party has been frustrated. The law of frustration is complex, but essentially a party seeking to rely upon frustration must be able to show that performance of the charter as originally intended has become impossible, as opposed to merely more onerous.

In the context of voyage charterers, mention has already been made of Owners’ rights of cancellation in certain circumstances. There is no specific right of cancellation bestowed upon Charterers in a war situation in the Gencon and Norgrain forms discussed above, although should the vessel not be ready to load within the designated period Charterers may be able to exercise their right of cancellation under the standard laydays/cancelling clause which is included in the Gencon and Norgrain forms.

Frustration may also provide an alternative means of bringing a voyage charter to an end, with the same considerations applying as for time charters.

 

Can the parties rely upon “force majeure” to bring the charter to an end?

 Under English law there is no doctrine of “force majeure” under the common law which can be implied into a charter. Apart from events falling within the relatively narrow ambit of “frustration”, a party will only be able to rely upon force majeure if there is an express clause in the charter. Even if there is such a clause, it will often merely suspend a party’s obligations while the specific force majeure event operates.

 

If a vessel under a voyage charter calls at a Ukrainian port within the listed area, how would laytime be affected?

 The Voywar and Norgrain war risk clauses do not cater for running of laytime and demurrage and the charter will need to be read carefully to see if other clauses could act to exclude the running of laytime and demurrage. Any force majeure clause might make clear that laytime does not run for periods while that clause is triggered. However express wording will be needed to trigger the clause and we sometimes see the running of laytime excepted but not periods during which the vessel is already on demurrage.

 In general, laytime will run continuously unless the charter expressly provides for its suspension in certain specified circumstances. It should be remembered that such a clause is regarded as an exclusion clause and will be construed against the party seeking to rely upon it.

 

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