Time charter parties and war clauses

The ongoing and tragic war in Ukraine is a reminder that war clauses can be brought alive on short notice. The war is ongoing with increased efforts on both sides to achieve, in part or in full, a military solution to the conflict. According to from General Mark Milley, the US Joint Chief of Staff, the war is likely to be long lasting.

Subsequently there is a risk of escalation which may affect the area of war risks and even that other nations besides Russia and Ukraine may get involved. The recent developments on both sides involving military supplies and trade, represents an escalation with ingredients that were out of thought just 12 months ago. As an example, we may mention the latest change in the Ukraine grain shipments shifting from Ukraine territory to the ports of Sulina and Constanta in the NATO member Romania. Ukraine is seeking alternative routes for 33 million tons of grain shipped under the previous grain deal that expired on the 17. of July 2023. In an effort to make its blockade effective, Russia has recently attacked the towns of Izmail and Reni on the Ukraine border with Romania where the grain is transported by rail. Future developments remain uncertain and represents one among many potential escalation scenarios.

The BIMCO war risk clause CONWARTIME 2013

Most time charter parties include a war risks clause. The purpose of these clauses is twofold; to allow Owners to avoid areas and ports exposed to war risks and to the extent the Owners accept to proceed into an affected area; allow the Owners to claim the cost of additional insurance, crew bonuses and wages. The clause alone does not allow any of the parties to cancel a Charter Party. The clause merely exempts Owners and the Vessel from the obligation to follow the Charterers’ instructions, which otherwise would prevail. The description of war risk in the CONWARTIME clause is broad and drafted to include almost any war like situation:

“War Risks” shall include any actual, threatened or reported:

War, act of war, civil war or hostilities; revolution; rebellion; civil commotion; warlike operations; laying of mines; acts of piracy and/or violent robbery and/or capture/seizure (hereinafter “Piracy”; acts of terrorists; acts of hostility or malicious damage; blockades (whether imposed against all vessels or imposed selectively against vessels of certain flags or ownership, or against cargoes or crews or otherwise howsoever), by any person, body, terrorist or political group, or the government of any state or territory whether recognized or not, which, in the reasonable judgement of the Master and/or the Owners, may be dangerous or may become dangerous to the Vessel, cargo, crew or other persons on board the Vessel.

The wording is fine tuned for past legal cases and is highly recommended to form part of any Charter Party. It provides a reasonable option for an Owner to safeguard the crew, vessel and cargo.

Looking back, the Joint War Committee (Lloyds Market Association) (“JWC”) decision prior to the Russian invasion in February 2022 can serve as an example. On the 15. of February 2022, JWC issued a circular that included the Ukrainian and Russian ports from the Russia-Georgia border to the Ukraine-Romania border to war and related perils area. Instantly, any trading in the area required additional war risk insurances. The terms of any charter party affected determined to which extent the owners could pass on such additional costs to the charterers. The circular also implied the existence of  warlike operations that in the reasonable judgement of the Master and/or the Owners, (…) may become dangerous …

Please note that the 2013 clause is under revision and the BIMCO is planned to introduce a revised clause.

War cancellation clauses

A war cancellation clause gives both Owners and Charterers the option of cancelling the Charter Party under the relevant circumstances. It should be noted that whilst any war risk clause of the CONWARTIME type do not require any named nations, a war cancellation clause does and is normally limited to the listed nations of the specific clause.

The potential loss for both parties, in the event of a cancellation, calls for a rather strict definition of War as exemplified by the BIMCO Supplytime 2017 war cancellation clause:

“Either party may cancel this Charter Party on the outbreak of war (Whether there be a declaration of war or not) between any two or more of the countries stated in box 30.”

Nevertheless, the term “war” still can leave much to be decided. An “outbreak of war” does not necessarily include a warlike situation. However, in the possible absence of “a declaration of war” (the new normality) will require a court or possible arbitrators to decide whether the hostilities in question amount to a war or not. Likely guidelines for a judgement would be the scale, intensity and severity of the hostilities. Other factors could be seizure of enemy property, withdrawal of diplomatic representation, blockades etc.

Unfortunately, war cancellation clauses is quite often neglected or listed only with the flag state together with super powers like USA, Russia and China. That possibly caters for the world war scenarios, but hopefully not very likely. We recommend both Owners and Charterers to assess their risks and the exposure towards certain trading areas and possibly include other nations that could cause severe disturbances to the performance of a Charter Party. An example: Unless Ukraine, at the time of the invasion, was listed among the potential warfare states in the cancellation clause, the inclusion of Russia alone would not invoke the usual type of a war cancellation clause.

It should be noted that, following an outbreak of war, a cancellation clause needs to be invoked without undue delay. Otherwise the option to cancel may be lost.

War cancellation clauses are common, but not always included in a Charter Party. If not, the law of the Charter Party will determine if any of the parties the right to cancel in cases of  war. According to the Norwegian Maritime Code, section 394, 3. paragraph, the parties to a Charter Party may have the right to cancel under circumstances similar to those qualifying under a war cancellation clause. The major difference is however that, opposite to a war cancellation clause, a requirement under the NMC would be that a war, materially affects the ability of the Owners and/or the Charterers to perform their respective obligations.  It should also be noted that the mere absence of a war cancellation clause is not likely to be deemed as a waiver of the rights of cancelation according to law.

For possible questions and enquiries, please contact Svend A. Lerring at  +47 920 11 363 or sal@rblaw.no