Persian Gulf Hostilities - Charterparty Issues

We are seeing a high volume of FD&D issues arising from the recent hostilities and attacks in the Persian Gulf and surrounding areas, affecting both our owner and charterer Members.

These include various issues under time and voyage charterparties, with vessels either already situated in the Gulf, or destined for the Gulf. Owners are considering whether they can refuse charterers’ orders; charterers are questioning their entitlement to place a vessel off-hire, cancel a charter or nominate an alternate discharge port.

These issues are being considered in the context of a situation that is fast evolving and unpredictable. Adding to the legal considerations are questions of availability and price of bunkers, insurance covers and crew issues. Our Members will need to consider each potential dispute as it arises and on its own merits, taking into account the applicable charterparty terms, vessel ownership, flag, and previous and intended trade, and carefully assessing security risks at the relevant time, alongside commercial considerations.

Every charterparty should be reviewed carefully to determine owners’ and charterers’ rights and responsibilities when "war risks" arise. In a market where such “war risk” clauses are often bespoke or amended, it is impossible to provide a “one size fits all” answer to the issues currently arising. However, we commonly see BIMCO’s CONWARTIME and VOYWAR clauses incorporated into time and voyage charterparties respectively.

War Risks, as defined under the BIMCO clauses, include any “actual, threatened or reported: war, act of war, civil war or hostilities… civil commotion… warlike operations… acts of hostility or malicious damage… by any person, body, terrorist or political group, or the government of any state or territory whether recognised or not”.

Under CONWARTIME 2013 and 2025, owners can refuse charterers’ orders to transit a port, place, area or zone, or any waterway or canal (collectively, an "area"), if doing so may, in the reasonable judgment of the Master and/or the owners, expose the vessel, cargo, crew or other persons on board the vessel to War Risks.

Under VOYWAR 2013 and 2025, prior to commencement of loading of cargo, owners may cancel the charterparty or refuse to perform if, in the reasonable judgment of the Master and/or owners, performance may expose the vessel, cargo, crew or other persons on board to War Risks. Owners must first allow charterers an opportunity to nominate an alternative safe loading or discharging port. If exposure to War Risks arises after commencement of loading, owners are not obliged to continue loading or remain in the relevant area.

The test under these clauses for determining whether owners should proceed, or can refuse to proceed, is based on whether an area is dangerous, or may become dangerous, for the vessel, cargo, crew or others onboard.

Owners, in order to establish that a decision has been made in the “reasonable judgment” of the Master/owners, should carry out their own appropriate and contemporaneous risk assessments ahead of making a decision to invoke charterparty provisions including CONWARTIME and VOYWAR in order to – for example – refuse to follow charterers’ orders, cancel a charter or deviate. There are a number of resources which can assist our Members in this process, for example industry association updates, correspondent updates, maritime security agency reports, and news alerts from reputable sources. Information which may be helpful in this regard is available on our dedicated Iran Conflict webpage at: Iran Conflict | NorthStandard | Marine Insurance.

When considering any specific set of circumstances and assessing risk, we would advise against simply looking at what other owners/operators have done; the particular circumstances for each vessel can be very different, and the situation (and therefore the risk profile of the region, and the relative risk to each vessel) is changing rapidly from day to day and must be continuously considered. We recommend that our Members keep clear records of the steps taken to assess risk and their decision-making process.

We understand that the nature of our Members’ business necessarily demands that decisions are made quickly, and that the commercial implications of decisions to follow or refuse orders, can be significant – potentially leading to difficult and time consuming arbitrations or court cases that can unfortunately damage relationships. In an ideal world, it is of course preferable for Members to try to achieve an acceptable commercial solution to the question of how to proceed, but that is not always going to be possible. Whatever the scenario, our FD&D lawyers are on hand to assist you with advice and guidance as to how best to protect your position, as the situation develops.

NorthStandard remains ready to assist Members and is continuing to monitor developments closely. If you have any queries or would like advice on your position, please contact your usual FD&D contact for further assistance.