Reed Smith Client Alerts

On 30 January 2020, the World Health Organization declared the outbreak of the novel coronavirus (2019-nCoV) (the Virus) to be a Public Health Emergency of International Concern. It seems clear that the Virus is also having an impact on economic activities not only in China, but also in the 231 countries outside of China where it has been recorded at the time of writing.

This briefing note will discuss a number of the ways in which charterparties are likely to be affected by the Virus’ impact on economic activity, as a matter of English law. The below seeks only to highlight the issues, and the precise terms of each charter and the factual circumstances will need to be considered in each individual case.

Unsafe port

The starting point for many operators will be whether a port affected by the Virus is a “safe port”. The test for an unsafe port is well known. A “port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship” (The Eastern City [1958] 2 Lloyd’s Rep. 127, approved by the Supreme Court in The Ocean Victory [2017] UKSC 35). Notably, the Supreme Court in The Ocean Victory said of The Eastern City: “It is important to note that it was not submitted that the relevant test could or should be other than that described by Sellers LJ in The Eastern City. In any event that test has stood the test of time.”

In Ciampa v British India Steam Navigation Co Ltd [1915] 2 K.B. 774 a vessel was held to be unseaworthy as it had come from a port contaminated by plague, necessitating fumigation of the vessel at her next port. By extension, a port infected by the Virus could arguably be construed as causing actual damage to a vessel if it led to restrictions at a future port, rendering it unseaworthy. If the vessel could not avoid exposure to such danger, this may lead to an unsafe port argument.

Charterers’ responsibilities relating to the safety of the port

While much of the immediate focus will be on the performance of existing voyages, time charterers must nonetheless be alert to their primary obligation to nominate a port that is, at the time of nomination, prospectively safe. This primary obligation is followed by a secondary obligation for the charterers to cancel the original order and to issue new orders to another port that is prospectively safe at that time if the original port is no longer safe. The charterers’ primary obligation is an absolute obligation, whereas the secondary obligation is one of “due diligence”. 

This position may be amended by specific charterparty clauses such as Shelltime 4 clause 4(c), which states:

“Charterers shall use due diligence to ensure that the vessel is only employed between and at safe places (which expression when used in this charter shall include ports, berths, wharves, docks, anchorages, submarine lines, alongside vessels or lighters, and other locations including locations at sea) where she can safely lie always afloat. …”

The effect of this clause is to displace the absolute obligation with one to exercise due diligence. The charterers will only breach this due diligence obligation if they fail to take reasonable care to establish that the port is safe.

Charterers will therefore need to monitor the factual landscape closely with a view to ensuring that they are capable of discharging their primary, secondary and/or due diligence obligations to ensure the nominated port is safe (The Saga Cob [1992] 2 Lloyd’s Rep. 545).