BIMCO Sanctions Clause for Container Vessel Time Charter Parties 2021

The new clause is “intended to cater for the specific characteristics of the container industry” by targeting the two key sanctions risks for those engaging in container trade, namely: (1) transactions with a “Sanctioned Party”; and (2) voyages involving a “Sanctioned Cargo”.

We outline the principal features of the new clause and highlight the important differences from the Time and Voyage Clauses below:

1. While the definitions of Sanctioning Authority and Sanctioned Party are broadly in line with the Time and Voyage Clauses, the Container Clause contains a definition of Sanctioned Cargo which BIMCO considers is “widely cast.”
2. As with the Time and Voyage Clauses, under the Container Clause, owners warrant that neither they nor the registered, bareboat or disponent owners (or the vessel itself) are Sanctioned Parties. Charterers give an ostensibly narrower warranty than under the Time and Voyage Clauses, limited to themselves and any sub-charterers.
3. An express right of termination is linked to the warranties outlined above. As a result, termination rights are slightly narrower than under the Time and Voyage Clauses, so far as owners are concerned.
4. There is a separate, express obligation on charterers not to carry a Sanctioned Cargo which they know or should know is a Sanctioned Cargo.
5. The Container Clause also contains an indemnity from charterers in owners’ favor where charterers have carried a Sanctioned Cargo, unless owners (via the master, officers and/or crew) were involved without charterers’ knowledge.

Analysis

Definition of Sanctioned Cargo

For those engaged in the container industry, where both owners and charterers are one step removed from the cargo being carried, the carriage of Sanctioned Cargo is of obvious concern. As a result, BIMCO has opted for a definition of Sanctioned Cargo that is “widely cast.”

There are two limbs to the BIMCO definition of Sanctioned Cargo:

a)    any cargo in which a Sanctioned Party has an interest. In this scenario, the Sanctioned Party would include banks, insurers, receivers, terminals and other persons involved in or benefiting from the transport of the cargo; and/or

b)    any cargo that is “sanctioned or prohibited.”

With regard to the second limb, in the guidance accompanying the Container Clause, BIMCO states that the intention is for “Sanctioned Cargo” to cover scenarios whereby “the cargo is not itself ‘prohibited’ but where carriage of that cargo is ‘sanctioned’, insofar as the act of carrying the cargo could render one of more parties subject to a credible risk of being subject to sanctions.”

BIMCO suggests this would cover the risk of U.S. sanctions against those carrying cargoes in certain sectors from certain countries. Oil from Venezuela and cargoes to or from Iran are given as examples. The risk of UN Security Council action against parties carrying unauthorized Libyan oil is also cited. It is of note that these examples are not obviously applicable to container cargoes.

It remains to be seen how this will be interpreted in practice. While the supporting guidance refers to the concept of “sanctions risk,” the definition and the operative provisions of the Container Clause do not. The distinction between matters giving rise to a sanctions risk and those actually in violation of sanctions is often a contentious issue, particularly in the case of extra-territorial U.S. sanctions. In light of this definition, there would appear scope for further arguments of this kind.

Warranties and termination rights

As is noted above, while owners warrant that neither they nor other ownership interests are a Sanctioned Party, charterers do not offer the same warranty for receivers, shippers or cargo interests. Instead, the warranty is confined to charterers and any sub-charterers. That, of course, reflects the exclusion of charterers from underlying sale contracts and practical difficulties that come with shipping cargo for hundreds of receivers. Nevertheless, given the potential for multiple charterers in the contractual chain, some charterers will doubtless feel uncomfortable in providing the potentially broadly cast warranty.

The termination right set out in the new clause applies in the event of a breach of the warranties regarding the involvement of a Sanctioned Party. In the guidance accompanying the Container Clause, BIMCO states it felt it was appropriate to provide a termination right to the innocent party in this situation. It is worth noting, however, that there is no immediate indemnity provision in this situation, so the innocent party is left to pursue a claim in damages for any loss arising out of a breach of warranty save where an owner can avail itself of the indemnity at sub-clause (f).

Position where Sanctioned Cargo carried

Charterers’ obligation under sub-clause (e) to avoid carrying Sanctioned Cargo is not a strict liability provision. Instead, the obligation is limited to where charterers know or should have known the cargo is a Sanctioned Cargo. Again, this reflects the nature of container trade and the fact that charterers often have limited information about the goods to be carried in containers.

However, sub-clause (f) goes on to provide that charterers shall indemnify owners against all claims, costs, losses, and fines or penalties arising out of the carriage of Sanctioned Cargo – without reference to any knowledge qualification. While it is suggested in the general Background section of the guidance, that the indemnity is subject to the same knowledge qualification, this is somewhat at odds with other aspects of the guidance and the wording of the sub-clause itself. We therefore suggest charterers who are considering incorporating the new clause into charterparties give careful thought to the scope of the indemnity they are willing to provide.

What is clear from sub-clause (e), as well as the accompanying guidance, is the expectation that charterers maintain a risk-based compliance approach to identifying and preventing Sanctioned Cargo. BIMCO suggests this may include carrying out appropriate screening of counterparties, and being alert to sanctions risks and taking suitable steps to mitigate those risks. While the introduction of the new clause provides a long-awaited market standard for those operating in the container industry, as is the case for those involved in non-container trade, the sanctions clause is no substitute for due diligence.

Client Alert 2021-037