The Ukraine Conflict – Charterparty Considerations

Owners whose vessels are to transit through the Black Sea and the Sea of Azov will be considering whether the War Risk clauses in their charterparties are triggered by the current conflict in Ukraine. We would, therefore, like to thank Alexander Bramwell and Jack Redrup of Hill Dickinson LLP in London for kindly providing this very timely and instructive article on War Risk clauses for our assureds.

The article discusses the War Risk clauses for voyage charterparties (VOYWAR) and time charterparties (CONWARTIME), drafted by the Baltic and International Maritime Counsel (BIMCO) with the intention of protecting the safety of crew, cargoes and vessels at sea in situations of conflict.

VOYWAR

Voyage charterparties will often adopt either the 1993, 2004 or 2013 versions of the VOYWAR clause. The three versions define “War Risks” very similarly. VOYWAR 2013 defines War Risks as:

"[…] any actual, threatened or reported:

War, act of war, civil war or hostilities; revolution; rebellion; civil commotion; warlike operations; laying of mines; acts of piracy and/or violent robbery and/or capture/seizure (hereinafter “Piracy”); 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) […]”

In circumstances where loading is yet to commence, and the owners or master “reasonably” (see “Reasonable Judgement” section below) believe that the performance of the charter will expose the vessel, cargo or crew to War Risks, then sub-clause (2) of VOYWAR 1993, (b) of VOYWAR 2004 and (b) of VOYWAR 2013 entitle the owners to cancel the charterparty by giving notice to the charterers. Alternatively, the owners have the option to refuse to perform such part of the charter as may expose the vessel to war risks.

Further, if there is exposure to war risks at one of the nominated ports, the owner must first require the charterer to nominate an alternative, safe port within the specified range within 48 hours. Only if the charterer fails to nominate an alternative port within that period can an owner cancel the charterparty.

In circumstances where loading has already begun, then sub-clauses (3) of VOYWAR 1993, (c) of VOYWAR 2004 and (c) of VOYWAR 2013 govern the period after commencement of loading up to completion of discharge. If the master or owners establish (exercising “reasonable judgement”) that there may be an exposure to War Risks, then they shall not be required to continue and may request the charterers to nominate a safe port for discharge within 48 hours – failing which the owners may discharge the cargo at any safe port of their choice.

CONWARTIME

In contrast to the VOYWAR clauses, the CONWARTIME clauses are not “war cancellation” clauses – that is to say, they do not entitle the parties to cancel the charterparty upon the vessel’s exposure (or anticipated exposure) to the “War Risks” as defined in the clause.

What they do entitle the master or owners of a vessel to do is to refuse to proceed through an area or port where it appears that the vessel, cargo or crew may, in the “reasonable judgment” of the owners and/or the master of the vessel, be exposed to “War Risks”.

It is important to note that owners’ refusal to attend at a port will not be a breach of charterers’ orders. The vessel will remain on hire until an alternate port is nominated.

“REASONABLE JUDGEMENT”

You will have noticed that both the VOYWAR and CONWARTIME clauses refer to the “reasonable judgement” of the master and / or owners of a vessel.

As to what constitutes “reasonable judgement”, Teare J stated in the Triton Lark [2012] EWHC 70 (Comm) that the judgement:

“[…] must be made in good faith; otherwise it would not be a judgment but a device to obtain a financial gain. Further, the judgment reached must be objectively reasonable. An owner who wishes to ensure that his judgment is objectively reasonable will make all necessary enquiries. If he makes no enquiries at all it may be concluded that he did not reach a judgment in good faith. But if he makes those enquiries which he considers sufficient but fails to make all necessary enquiries before reaching his judgment I do not consider that his judgment will on that account be judged unreasonable if in fact it was an objectively reasonable judgment and would have been shown to be so had all necessary enquiries been made.”

Accordingly, a “reasonable judgement” should be objective and the product of necessary enquiries to ensure that it is made in good faith. This will be a mixed question of fact and law that requires careful consideration on the part of the owners and / or master of a vessel who will need to show that they have made necessary enquiries.

THE SEVERITY OF RISK

Sub-clause (2) of VOYWAR 1993 and (b) of VOYWAR 2004 contain the words “may expose, or is likely to expose” to “War Risks”, whereas VOYWAR 2013 simply states “may expose”.

Similarly, sub-clause (b) of CONWARTIME 2013 refers to “may be exposed” to “War Risks”.

It was held in the second hearing of the Triton Lark that these words require there to be a “real likelihood”, or “real danger” or a “serious possibility” of exposure to one or more of the listed “War Risks”. This “danger” must be premised upon evidence rather than mere speculation – indeed speculation and a bare possibility will not be sufficient.

However, the Judge in the Triton Lark case suggested that a “1 in 300” risk might satisfy the test. The risk therefore does not necessarily have to be high.

THE CURRENT SITUATION IN UKRAINE

Ukrainian ports have been closed since 24 February 2022 and the Ukrainian Maritime Administration said they will remain closed until the conflict ends. In the unlikely event that the charterers of a vessel order that the vessel must call at Ukrainian ports, then the VOYWAR and CONWARTIME clauses would of course be triggered.

Since the beginning of the conflict there have been recorded instances of merchant vessels being attacked in the Black Sea, including (at the time of writing this article):

· Helt – which was struck by a mine and sunk off Odessa port.

· Banglar Sanriddhi – which was struck by a missile at Olvia, Ukraine.

· Namura Queen was struck by a missile whilst transiting the Ukrainian port of Pivdenny (Yuzhny), east of Odessa.

· Azburg was struck by a missile whilst at a berth in Mariupol.

At the time of writing, it appears that the risk is focused in the northwestern region of the Black Sea, within the Ukrainian territorial waters.

Of course, the further away from the conflict a port is, the more difficult it will be for owners to argue that the vessel in question could be exposed to sea-bound war risks.

For vessels that are required to load / discharge at non-Ukrainian ports (i.e. Russian, Georgia, Turkish, Bulgarian or Romanian), it may be difficult for owners to argue that the VOYWAR or CONWARTIME clauses will have been triggered. Whilst this is a developing situation, these ports are often hundreds of miles away from the conflict and there is no suggestion that these ports are under attack or will be in the near future.

Of course, if it is necessary for a vessel to travel anywhere near the northwestern region of the Black Sea then there would be an increased likelihood that VOYWAR or CONWARTIME clauses will be triggered.

When considering a voyage to a Black Sea or Sea of Azov region, owners should consider contacting local correspondents and agents in order to ascertain the true risk of war. It will be necessary for each case to be considered carefully on a case-by-case basis.

ADDITIONAL PREMIUMS

VOYWAR 1993 is silent on war risk premiums and therefore if this version of the clause has been incorporated into a charterparty owners will not be able to claim additional war risks premiums from charterers. This will also be the position in circumstances where a charterparty does not include a war risk clause at all. The usual allocation for the insurance of the vessel (i.e. for owners) will therefore apply, subject to any clause to the contrary.

The position is different if a charterparty has incorporated either the 2004 or 2013 version of the VOYWAR clause. These owner-friendly clauses enable owners to claim any additional premiums for exposure to war risks from charterers. If additional insurance is obtained and therefore the risk is essentially accepted, this might then mitigate owners’ right to try to cancel the charterparty at a later stage due to a war risk, unless the position has worsened, and the risk has increased.

Under CONWARTIME 2013, charterers are also required to reimburse the owners for any additional premium and insurances that the owners reasonably require related to War Risks and which is beyond owners’ normal war risk insurance cover.

SUMMARY

Bearing in mind the potentially dire consequences for crew, cargo and vessels, owners should carefully consider each voyage on a case-by-case basis when transiting via the Black Sea and Sea of Azov region. Owners should conduct proper due diligence and carry out all necessary enquiries in order to ascertain the true position at their planned ports of call. The need to obtain up-to-date information is of crucial importance in this continually changing situation.

If you would like further guidance in respect of the issues raised in this article, please feel free to contact Hydor’s claims team (claims@hydor.no) or this article’s authors:

Alexander Bramwell (alexander.bramwell@hilldickinson.com) is a Partner in Hill Dickinson’s Shipping team and Jack Redrup jack.redrup@hilldickinson.com is an Associate