Ebola and its effect on shipping contracts. Calling or not calling at African ports.

Calling or not calling at African ports.

The Ebola outbreak in Africa is critical for Aluminium companies. These companies operate key assets all along the African Atlantic coast.
Rusal is also dealing with supply problems with the ongoing turmoil in Ukraine.
Aluminum Corporation of China Limited must deal with the restricted flow from Indonesian bauxite because of the ores ban decree.
In Canada and in the U.S,  Alcoa and Rio Tinto are dependent on reliable imported bauxite & alumina and timely deliveries from foreign countries.
Port Kamsar, Guinea is some 8 to 10 days away from the Eastern-Canadian seaboard and USAC  seaboard, about the same goes for Trombetas, Brazil.
It’s not just about distance: it’s about grading, some of the best grades are from Guinea for Aluminium smelters.
There is also a considerable bauxite & alumina trade between Jamaica  and Corpus Christi, Texas.
Commercially it is very hard to operate an aluminium smelter without having the right raw materials arriving just in time.
rusal frigua
 In the Republic of Guinea, the government cash-receipts depends on Bauxite and minerals exports (several sources say by more than 80%-90%). Their official version on the Ebola outbreak could not be bettered: yes it is true that Ebola is epidemic in the country everywhere except at loading ports and mining sites.
port kamsar2
Problems can arise from both at loading and discharge ports: Health security certificates, detention, Quarantine and even worse… Without wanting to lessen human and health impacts, this is what is making the situation in Guinea so critical for the Aluminium market.
Echoes from the ground might differ from emails I got from Alcoa Canada and Rio Tinto’s media relations saying that everything is under control on both side of the Atlantic.
No official delays in Guinea or either at key bauxite dropout points on the St-Lawrence river.
Sources are providing varied figures for Ebola. Some take into account other suspected cases and some just confirmed cases.
Ebola is spreaded along the West-African coast. Sources  working in the Geneva NGOs sector and unauthorized to talk  have also told me that 40 new cases have been just notified in DRC, some 3600 miles away from Guinea.
They say that ebola cases are still increasing but not exponentially.
Shipping companies and Traders must also choose calling or not calling at these ports.
Because of the Ebola outbreak, anybody engaged in the African minerals shipping trade will undertake unwanted contractual risk.
The hidden part of the iceberg located below the surface represents the tail-risk for Traders, Shipowners and Charterers. (click to enlarge)
Tail risk at african port
This contractual risk might exceed by several times the premium (bonus) offered to operate.

Ebola and its effect on shipping contracts.

21 August 2014

Reed Smith Client Alerts

Introduction More than 1000 people have died in West Africa following the current outbreak of Ebola which began in March 2014. Guinea, Sierra Leone and Liberia are the worst affected countries but deaths have now also been reported in Nigeria, a major port for oil export.

Tradewinds has reported that two bulker bookings for Guinea have been cancelled and there have also been reports of international shipping lines suspending shore leave and crew changes in affected countries. The Argentine Chamber of Pilotage has said that from 15 August its members are not to board any vessel arriving from Ebola infected countries unless the vessel has obtained free pratique and clearance by the Argentinian Sanitary authorities; and other countries, such as Brazil, have issued guidelines for procedures to be adopted in their ports.

This alert briefly examines the effect of quarantine measure taken in response to the Ebola outbreak on the obligations of owners and charterers under time and voyage charterparties, and the liability of owners to third party cargo claimants.

Part A: the effect of the law relating to quarantine measures on the obligations of owners and charterers

a) The position under time charters

The charterer’s primary obligation is to pay hire continuously throughout the charter period.

i) NYPE 46/NYPE 93

Off-hire A charterer may seek to apply the “deficiency of men” off-hire event in Clause 15 of the NYPE 46 Form (“deficiency…of officers or crew” in Clause 17 of NYPE 93), to a situation in which a large number of the crew are ill.

A charterer may also argue that quarantine measures constitute “any other cause” preventing the proper working of the vessel, although there are no authorities stating that quarantine measures do constitute “any other cause”.

If an off-hire event is held to have occurred, it must then be established that the event prevented the full working of the vessel.

Exceptions A charterer under NYPE 46 may seek instead to claim that it is entitled to deduct or not to pay hire by virtue of the second sentence of Clause 16 (the “exceptions” clause), (cf Clause 21 of NYPE 93) as quarantine measures can be an example of a “restraint of Princes, Rulers and People”. As we have mentioned in previous alerts, the charterer would have to show that the event prevented him from discharging his obligation (ie to pay hire) which may be difficult to do.

The words “always mutually excepted” mean that the exceptions in the clause are equally available to both owners and charterers.

ii) Shelltime 4

Off-hire Shelltime 4, (unlike NYPE 46) specifically refers to “quarantine restrictions”.

It also differs in that it provides that where there is a “delay” in quarantine because of “communication” the owner’s agents have had with the shore in an affected area, and the charterers did not provide written consent to this “communication”, the vessel is to be off-hire for the period of the delay. In other words, the charterers will be compensated (through not having to pay hire in respect of such period) for the delay caused by the actions of the owner’s agents, where the charterers have not provided written consent to the same.

b) The position under voyage charters

The position under voyage charters differs in that, whether or not there is a specific “quarantine” clause, there is, in a number of voyage charters, a “free pratique” clause. Looking at each in turn:

i) Quarantine

Where a ship is placed under quarantine, it will not be considered ready because the quarantine will prevent loading and discharge and the charterers will not have unrestricted access to it.

Clause 17(a) of the Asbatankvoy charter differentiates between orders given to owners to proceed to quarantined ports depending on the time when the state of quarantine is declared:

If the charterers order the vessel to a port which is already quarantined when the order is given, delay “thereby caused” counts against the charterer’s laytime.

If the state of quarantine is declared when the vessel is en route to it, delay does not count as laytime. The owner will receive no demurrage or damages in respect of the delay.

ii) “Free pratique”

“Pratique” is a permission granted by the port medical authorities to a vessel, on its arrival from a foreign port, for her crew to go ashore and visitors to come onboard.

A voyage charter may provide that laytime commences “whether in free pratique or not” (WIFPON). Where this is the case, the granting of free pratique will be irrelevant to the question of the notice of readiness.

When entering into new voyage charters, charterers may wish to include express clauses requiring free pratique to be obtained before the tendering of a notice of readiness. Where this is the case, any such requirement must be clearly expressed.

c) Safe Ports: the position under time and voyage charters

Obligations on the charterer to order the vessel to a “safe” port are contained in many forms of charterparty.

It is arguable whether a port could be said to be unsafe due to an Ebola outbreak at the port. There do not appear to be any authorities on whether a disease ridden port can be considered ‘unsafe’: the vast majority of authorities on this question relate to the safety of the port being determined by either its physical or political characteristics. Commentaries which suggest that the fact that Ebola cases have been found at a particular port necessarily mean that the port is not “safe” need to be considered with some caution – this is especially so for the tanker trade, where the occasion for locals to come on board the vessel may be limited to just agents, Customs officials and mooring masters, and so forth, as opposed to the greater risk faced by dry bulk operators who may have large numbers of local stevedores coming on board.

If a port is held to be unsafe by reason of an Ebola outbreak, charterers must consider their safe port obligations.

At the time of entering into new charters, owners may seek additional protection by restricting trading limits to exclude (named) countries affected by Ebola. Owners may also include a “fever and epidemic clause” which would entitle a ship owner to refuse to comply with voyage instructions to proceed to a place where such fever and/or epidemic is present. Assessing whether a given situation amounts to an “epidemic” is likely to be difficult. It is therefore advisable to proceed with caution when seeking to apply such clauses.

Part B: the effect of the law relating to quarantine measures on the liability of the owner to third parties under the Hague/Hague Visby Rules

Where a voyage charterer is not responsible for time lost as a result of quarantine restrictions, the owner will not receive any demurrage or damages for detention for the delay. The owner may also be subject to separate obligations to any bill of lading holders in respect of any cargo on board.

If the Hague or Hague Visby Rules apply, the owner’s own liability to third parties for deterioration of the cargo or late delivery, as a result of the delay, may be excluded by the “restraint of princes” exception in Art. IV rule 2(g). Interference by a government or state by closing a port or quarantining a vessel can be an example of “restraint of princes”. Indeed, many of the cases on “restraint of princes” concern quarantine restrictions.

The alternative may be to rely on Art. IV rule 2(h) “quarantine restrictions”, in relation to which it has been suggested that there is less need for the ‘present threat of executive force’ than with the “restraint of princes” exception.

Conclusion It is unclear how the current outbreak of Ebola will develop and therefore the extent of its effect on the shipping industry. However it is clear that should the virus escalate and lead to stringent quarantine measures being enforced, the impact on the global shipping industry could be considerable.

Client Alert 2014-221

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What 1995′s “outbreak” has to do with ebola, aluminum shipping and supply chains

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3 thoughts on “Ebola and its effect on shipping contracts. Calling or not calling at African ports.

  1. WIFPON clause is pretty straightforward: laytime will commence whether in free pratique or not. It is a customary term in the Tanker Trade I witnessed it during live communications between the agent and chief, it was pretty interesting.

    Good point on Schofield and thanks Phil for taking the time to find the quote. It is very likely WIFPON may conflict with other terms and clauses: Safe port, Quarantine…

    The article also said:

    “when entering into new voyage charters, charterers may wish to include express clauses requiring free pratique to be obtained before the tendering of a notice of readiness”.

    In case the vessel is delivered to a West-African port and Free pratique is not granted, then how can the Vessel can tender the NOR and how laytime can start…

    In my view it’s not in your best interest as a charterer to accept WIFPON
    in the NOR and Commencement of Laytime clauses because it will transfer the risk of a non-clean bill of health (Ebola Risk) from the owner to the charterer.

    Kind Regards,
    Simon Jacques

    Like

  2. The Ebola stuff has been picked up by Reuters !
    Reuters uses the Oil Angle.

    Thu Aug 28, 2014 12:45pm

    http://www.reuters.com/article/2014/08/28/us-health-ebola-nigeria-idUSKBN0GS0S120140828

    Doctor dies of Ebola in Nigeria’s oil hub Port Harcourt

    Port Harcourt lies at the heart of Nigeria’s two million barrels per day oil industry, Africa’s biggest, and is a hub for expatriate workers in major international oil companies, including Royal Dutch Shell, ENI, Total and Exxonmobil.

    OIL OPERATIONS IMPACT

    It was not immediately clear what impact the arrival of Ebola would have on oil operations. The majors have historically been comfortable with a fair degree of risk in the oil producing Niger Delta, including attacks on oil installations and kidnappings of expatriates.

    A spokesman for leading operator Royal Dutch Shell in London said the firm was “monitoring the Ebola outbreak very closely, and liaising with health authorities on the steps being taken to contain the disease.”

    The only actions he wished to make public were a “health education campaign for staff and contractors.”

    Shell also said it had advised against non-essential travel to Nigeria.

    Two oil traders in Europe said there were some government restrictions on shippers bound for some of the countries in the region and insurance risk premiums had gone up slightly, but otherwise business was continuing as normal.

    A shipping source and an oil trader in London both said there were no restrictions on vessels carrying oil from Nigeria, but that some tankers have instructions relating to crews. A Nigeria-based oil trader from a major international trading house also said nothing had changed.

    I also recommend Shipping issues arising out of the ebola outbreak in West Africa by
    Stephen Askins Partner at Ince & Co

    The Ebola outbreak in West Africa has seen a number of advisories from P&I Clubs and industry bodies. Its virulence has created an atmosphere of fear. There are examples of crews refusing to enter ports in countries where outbreak of the disease has been reported. Owners and ports have grappled with these sorts of health issues for centuries. By way of example the first UK Quarantine Act was passed in 1712 mandating a 40 day period before a vessel could enter port (deriving from the Italian word quarante). Public health authorities are often called on to contain or investigate outbreaks of Norovirus or Legionella particularly on cruise ships and most countries have legislation in place to detain ships that threaten the health of those on board or ashore. The advice currently being sent out mirrors that for SARS (Severe Acute Respiratory Syndrome) which broke out in Hong Kong in 2002-2003 and is aimed primarily at keeping the crew safe and highlighting an owner’s duty of care.

    The current Ebola outbreak is concentrated predominantly in West Africa, including Guinea, Liberia, Sierra Leone and Nigeria, and is the largest Ebola outbreak ever reported. Suspected cases have very recently been identified in Saudi Arabia, India and Rwanda. It is predicted that the outbreak will continue to spread.

    The situation is evolving and we outline below some of the legal issues that the shipping industry may face if the outbreak escalates.

    Port safety

    Some airlines, including British Airways, have suspended flights on some routes to countries affected by the virus. No ports in affected areas are currently reported to be closed due to Ebola, but port authorities are implementing procedures to screen vessels prior to arrival and are reviewing safety precautions in port. They are being hampered by the very basic level of amenities in some of those ports. Some shipping lines are considering suspending services to Nigeria in particular and most are being urged to cancel shore leave and crew changes in the affected areas.

    Under a time charter, the Master will generally be obliged to follow charterers’ orders without undue question, subject to his responsibility for the safety of the vessel. Most time charters also contain either express or implied safe port warranties, whereby charterers promise to send the vessel only to ports that are safe.

    The classic definition of a “safe port” is that 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. In most scenarios, the risk associated with unsafety at a port is principally to the ship and cargo, as opposed to the crew and is normally related to a recognised characteristic or feature of a port. There are also those instances where there is “political unsafety” where the onus on the master is to avoid the problem using common sense.

    It is suggested by leading practitioners that risks to the crew can render a port unsafe even where there is no risk of damage to the ship.

    The time for assessing the safety of the port is the time at which the charterer nominates the port; charterers have a primary obligation to nominate a port that is “prospectively” safe. Under a time charter, if the port becomes unsafe after charterers’ original nomination, charterers have a new obligation to cancel the original order and nominate a different port that is prospectively safe. The position under a voyage charter is less clear; it is thought that there is no general duty or right to re-nominate in the event of supervening unsafety. It is of course always open to the parties to agree a variation of the charter to provide for an alternative port. [ bonus for deviation ??]

    Whether considering a time or voyage charter, each case would depend upon its facts and the terms of the particular charterparty. In particular, some charterparties contain liberty clauses, which may give the owner the right to refuse to proceed to or enter a particular port in certain circumstances (e.g. “which in the judgment of the owner or Master is likely to… make it unsafe, imprudent, or unlawful for any reason… to enter or discharge the cargo at the port of discharge, or to give rise to delay or difficulty in arriving, discharging at or leaving the port of discharge…”). A common example is wording which provides that the owner is obliged to proceed only “so near thereto as she can safely get”.

    At the time of entering into new fixtures, owners may seek to negotiate a bespoke clause to prevent the ship trading to ports in countries affected by Ebola, or otherwise to restrict trading limits to exclude named countries including those currently known to be affected by Ebola.

    The question of whether a particular port in an affected area is safe, in the legal sense, will depend upon an assessment of the facts of the alleged unsafety, i.e. the possibility of the crew being exposed to Ebola.

    Whether an Owner or Master can refuse to go to a port will depend on the charterparty. The position would be clearer if a country closed a port but at the moment all remain open for trade. This may change.

    Stevedores and stowaways

    Cargoes handled at affected West African ports, such as Conakry, Freetown and Monrovia, are predominantly break bulk and must be loaded and discharged by stevedores who come on board the vessel. There is very little control that the Master can exert over what labour is used. Similarly, it is well known that there exists a stowaway problem in West African ports and vessels and the Ship Security Officers will need to be sure that there is a robust implementation of the ISPS Code and ship’s security planning may need to be reconsidered. As we discuss below, delays to vessels calling at ports where they have previously called at West African ports are likely to increase. If such a vessel has stowaways aboard the situation will be worse as authorities try and determine identities and any health problems. Determining who has responsibility for those stowaways is a potential area of contention between owners and charterers.

    Delay and off-hire

    Countries outside the affected areas are already responding to the threat. In the US for example a vessel will be subjected to closer scrutiny if it has visited an Ebola affected country in the past five ports. Sick crew members and the existence of stowaways will have to be declared.

    A vessel will undoubtedly be delayed if crew fall ill with suspected Ebola or the vessel is quarantined or free pratique withheld due to a recent call at a port in an Ebola-affected area. Liability for those delays will be determined by the relevant charterparty. This issue was considered in the “Apollo” [1978] 1 Lloyd’s Rep. 200 where two crew members had suffered from typhus and had been removed at the previous port. The vessel was disinfected and tested thoroughly. The Court found that the issuing of free pratique was not a formality and there was good cause for what the health authorities did. In that case it was said that the actions of the public health body did prevent the full working of the vessel.

    In terms of the exposure to cargo for delays, generally owners would expect to rely on the usual defences and a rapid escalation of the disease may amount to force majeure in any event. If an owner is held liable for cargo losses then he could expect to be covered under the P&I cover save that this will not normally respond to commercial losses; loss of hire whilst detained at a quarantine anchorage; additional running costs or any intentional breach of the quarantine. Owners and charterers should always bear in mind the separate obligations that they may have under Bills of Lading which may have been issued in respect of any cargo on board. Where a port of discharge is named, delivery at an alternative port may constitute a deviation and therefore a breach under the Bill of Lading. This will depend upon whether the Bill of Lading incorporates the terms of a charterparty, or permits discharge at an alternative port in certain circumstances. Some jurisdictions will apply local law to determine such matters, which may not accord with English law interpretation of the wording of the Bill of Lading.

    If a crew member does contract the disease is the vessel “dangerously unsafe”?

    In an interesting case involving a cruise ship (the Van Gogh [2008] EWHC 2794) the High Court in London was asked to determine whether the Maritime and Coastguard Agency had unlawfully detained the vessel where there was an outbreak of Norovirus affecting 6% of the crew. As part of that determination the Court looked at whether the vessel was dangerously unsafe, meaning that it was “unfit to go on a voyage without serious danger to human life”. That was the reason behind the issuing of a detention notice. The judge appeared to consider that it was not, but that was in circumstances where the virus was accepted as “relatively mild”. Clearly an incidence of Ebola would not be regarded in the same way. The obligation on the surveyor under UK legislation is to act reasonably. Other jurisdictions are likely to have similar regimes and already South Africa has quarantined one vessel and prevented it from sailing. The caution is understandable but the authorities must themselves act lawfully when dealing with vessels that have called at ports in West Africa.

    Duty to crew

    Employers have a duty of care to the crew under their employment contracts. Industry bodies have sent out key guidelines on this namely: to educate the crew about the risks; to check the ISPS regimes on board; to review shore leave and to avoid crew changes in the affected areas. It is understandable that the P&I Clubs are sensitive to this given their exposure to claims for illness, repatriation, fines and cargo liabilities as well as costs of deviation to seek medical care. Owners will need to keep abreast of the risks and carry out sensible risk assessments for the ports the vessel is visiting.

    Comment

    It is unclear how the current outbreak of Ebola in West Africa will develop. It has been graded as a Public Health Emergency which imposes on the various countries duties such as screening at points of exit. The situation remains very much in a watch and see phase and we recommend that interested parties stay in close contact with local correspondents who will be able to provide more accurate information about developments on the ground in affected areas.

    Like

  3. Phil Stalley

    Phil Stalley

    Marketing Director at HubSE Demurrage Software

    This is a good summary but I am not sure about this comment when it comes to a voyage charter

    “A voyage charter may provide that laytime commences “whether in free pratique or not” (WIFPON). Where this is the case, the granting of free pratique will be irrelevant to the question of the notice of readiness.”

    Schofield 6th Edition at 3.187 considers this phrase and says ‘It is doubtful whether the phrase would extend to allowing time to commence where pratique was actually refused or where there were grounds for believing that it would be at a later date.’

    on balance I would side with Schofield in this matter

    best regards
    Phil Stalley

    Check out my blog on laytime, demurrage and other issues at http://www.hubse.com

    Like

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