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Saturday, September 22, 2018

WAR RISKS CLAUSES – CHARTERPARTY PROVISIONS REVIEWED

In view of the events of 11 September 2001 it is timely to review war risk clauses as, in general, they are clauses that receive little attention until a dangerous situation has arisen or is imminent and vary considerably in the protection they afford owners.

Firstly it is worthwhile to consider what is meant by the term "war". The British courts have intentionally kept this definition vague. Formal declarations, the statements and views of statesmen or governments provide only an indication of whether a war exists. The same would be true of other words used in War Risks Clauses (e.g. hostilities, war like operations...). If a reasonably informed neutral observer (i.e. "the man in the street") would consider the words in the clause to be fulfilled, they probably are. A shipowner's refusal to enter a danger area on bona fide fears of safety are also likely to be upheld if his decision is reached after rational consideration of the situation. It is not necessary for the "war" to be between two legally constituted states or governments to justify invoking the clause. A UN type policing action or blockade could just as easily meet the requirements of a clause.

Issues regarding war risk and additional war expenses arise both in a time and voyage charter context.

Shelltime 4 in clause 33 gives both owners and charterers a right to cancel the charter if war or hostilities breaks out in two or more of the countries named. The countries which should be included in each case needs careful consideration. Clause 34 deals with additional insurance costs, crew bonuses and other expenses. Under this provision charterers shall reimburse owners for any additional insurance premiums, crew bonuses and other expenses which are reasonably incurred by owners as a consequence of charterers' orders to the vessel to trade where there is a war or threat of war. An important aspect of clause 35 and one not found in other charterparty forms is that the vessel is not obliged to proceed if the master/owner reasonably considers it to be unsafe so to do and notice is given to the charterers and no revised orders are received.

In the voyage charter context Voywar 1993 promulgated by BIMCO is a modern and comprehensive clause. The clause is a very lengthy one and a summary of its main provisions may be of value:

- VOYWAR 1993 attempts to protect everyone concerned with navigation or management of the vessel. It also seeks to cover any events which can reasonably be considered to expose ship and crew to danger. After these introductory matters, different solutions are given according to whether the vessel has commenced loading.

- If not, the owners have a limited right of cancellation, but they may only exercise it after giving charterers 48 hours in which to revise their orders so as to avoid the war risks, where this can be done within the contract.

- Once loading has commenced this cancelling right is replaced by a right to call for revised orders. If revised orders are not given within 48 hours the owners have wide liberties, subject to a requirement to act reasonably.

- It is a feature of these parts of the clause that owners are compensated for anything they reasonably do. In other words risk falls on the charterers. The same is true in relation to any war risk zone which the vessel would normally transit on the loaded voyage.

- Finally there is legal protection of owners' position in the form of a comprehensive liberty clause so that anything done because of war risks will not constitute an unlawful deviation.

Contact: Members requiring a copy of Voywar 1993 may contact John Fawcett-Ellis.

As with any similar topic it is vital that a careful review is made of any war risk clause that has been used or is proposed to be used. The provisions contained in the printed forms of tanker charterparties and in rider terms do vary considerably.

In clause 28 (b) of ExxonMobil VOY 2000 owners are required to proceed to an area with increased premiums if insurance is available "under a government program". In previous conflicts it has been known for one of the combatant nations to offer war risks cover. A shipowner should not be obliged to accept insurance from an insurer with an obvious axe to grind and no claims payment history or experience. Though it may be said that the present international situation has few similarities to most previous events.

Payment of additional premiums for war risk zones

Careful consideration should also be given to the provisions on the issue of liability for additional war risk premiums ("AP") for entry into war risk zones. The clauses in use are not always drafted with the clarity one would expect. In general terms the premium for war risk cover is payable as an annual premium together with AP as and when owners give notice that a vessel is about to enter into an area designated by underwriters as an additional premium area.

Many of the clauses in tanker charterparties only provide for charterers to pay for increases in premiums after the date of the charterparty, however it is not always clear whether the provision refers to increases in annual premiums as well as increases in AP.

Consideration should also be given as to whether such a clause covers the cost of AP when the vessel has a prolonged stay in an AP area. Not all clauses cover this aspect of additional costs which by their very nature are difficult to predict.

A further aspect that owners should consider is that frequently clauses exclude any liability by charterers for premiums or any increases thereof for closure (i.e. blocking and trapping).

The clauses sometimes refer to hull and machinery cover but it is by no means clear whether owners' increased value cover is included within this.

Where possible Owners should ensure that Charterers remain responsible for the payment of any additional premia to maintain the war risks cover on the vessel which was in place at the date of the Charterparty.

As previously emphasised each clause much be carefully analysed to ensure that it is know where the liability for additional insurance costs fall. We will not provide in this article a detailed commentary on all the major clauses in use in the market, but the following notes on some of the clauses may be helpful.

Voywar 1993 provides that any additional premiums payable as a result of charterers orders for the vessel to enter or remain in any AP zone will be reimbursed by charterers. In contrast BP's additional clause 18 to BPVOY4 provides that charterers will only be liable for any increase in the AP over and above those prevailing at the date of the charter.

Additional clause 3 of Shellvoy 5 (taken from the February 1999 amendments and additional clauses) provides that charterers shall only be liable for any increase in the AP after the applicable date inserted in the clause. Also if the vessel stays in the AP area for more than 14 days then charterers shall pay the whole AP for the period in excess of 14 days. Clause 30 of the CSSA terms has a similar provision save that clause leaves blank the period in the AP zone that owners shall be liable for the payment of the AP.

Clause 28 of ExxonMobil VOY2000 provides that charterers shall pay "any provable additional cost of insuring vessel against hull war risks over and above such costs in effect on the date of this charter..." However, it is not clear whether this refers to increases in annual premiums as well as AP also there is no provision dealing with the cost of a prolonged stay in an AP area.

The Chevron clause provides that any increase of hull and machinery war risk premiums over and above those in effect on the charter date will be for charterers' account. The clause also provides that surcharges which are in effect on the charter date are for owners account. Again the clause could be clearer as to whether increases in AP are taken by charterers.

Officers and crew bonuses

Whilst Voywar 1993 provides that any officers and crew bonuses shall be for charterers' account other "standard" clauses provide that they should be owners' account. ExxonMobil's clause provides that charterers shall be liable for these additional costs. The Chevron clause is silent on this point.

Incorporation of war risks clause into bills of lading

It is important that any war risk clause is effectively incorporated into all bills of lading. The wording of the bills must expressly incorporate the charter terms, referring to the charter at least by its date.

Provision for owners' expenses for deviation

Some of the "standard" clauses provide a very rough and ready basis for freight payment when the cargo is discharged at a substitute destination. By the same token loss of time or additional bunkers consumed awaiting instructions etc. are by no means always dealt with well. Pre-fixture reading of the clauses should be done with these questions in mind. For example in clause 20 (b) (vi) of Asbatankvoy there is provision for the recovery of additional expenses of deviating but the freight rate remains the same and detention time is not mentioned. In such a case the principle whereby the owner is generally entitled to an indemnity for carrying out charterers instructions is unlikely to assist.

Contact John Fawcett-Ellis should members require further assistance with regard to war risk clauses by e-mail:john.fawcett-ellis@intertantanko.com or telephone + 44 207 648 9681.