Ship Management International column - May the force majeure be with you
The following is an article, written by Robert Hodge, for the upcoming edition of Ship Management International magazine. We have been granted permission by the magazine to share this column with you before it goes to print.
In the February edition of Ship Management International, ITIC wrote the article titled “Can you deliver on your crew”, in which we discussed the duties of a ship or crew manager to properly man a ship. That article was written prior to the effects of COVID-19 becoming more visible, for instance the various port restrictions we now see. There are well publicised situations of crew being unable to clear through port immigration. ITIC is now often asked what a manager’s liability is in such situations and in particular, if such circumstances form a force majeure event. We shall therefore revisit the topic of delivering on your crew against the backdrop of COVID-19.
Under English law, whether COVID-19 is a force majeure event or not would depend on the wording of the contract.
Unlike countries such as Netherlands or Germany where there is a statutory definition of force majeure, there is no such definition in English law and it is therefore left to the contracting parties to agree that the concept should apply and if so, what it should mean. ITIC insures ship and crew managers on terms no more onerous than BIMCO Shipman or BIMCO Crewman. Those agreements contain a force majeure clause which specifically names “epidemics” as a force majeure event. It seems likely therefore that if either party is unable to perform due to an “epidemic” they will not be liable for the consequences. On the face of it, it would appear COVID-19 falls within the clause, but it is always possible for a party to challenge this.
It should be remembered that force majeure events are when the parties cannot perform their contractual duties, not simply that they have become more difficult or costly to perform.
The clause clarifies that parties must use reasonable efforts to avoid, minimise or prevent the effects of such an event. In other words, the manager cannot just sit back and do nothing when circumstances such as COVID-19 prevent them from manning a ship. The manager will need to show they took reasonable steps to avoid, minimise or prevent the effects of COVID-19 if they are to avoid liability. If for example, a crew manager is unable to carry out a crew change in a port due to quarantine restrictions and the ship is subsequently arrested by Port State Control, the manager should be able to defend a claim brought by the owner. However, the owner may have an argument that the manager should have considered the crew change at an earlier opportunity in a port without restrictions or perhaps they could have sourced a crew locally.
A force majeure clause is in effect a type of exclusion clause and therefore any ambiguity will be construed against the party seeking to rely on it.
It is therefore imperative that the manager keeps detailed records to evidence why they were unable to perform and if relevant, why they were unable to mitigate. Furthermore, the event must be the only cause of the failure to effectively man the ship, if there are competing causes it may not be enforceable.
Another question asked is can the management agreement be terminated due to a force majeure event?
Surprisingly, there is no specific clause in a BIMCO Shipman or Crewman contract that allows termination due a persisting force majeure event. If the management of the ship becomes unviable managers will have to consider terminating using the usual process of giving notice to the owner as per the termination clause. The manager has a contractual right to terminate where owners continue to employ the ship “…on a voyage which in the reasonable opinion of the [manager] is unduly hazardous or improper” after being put on notice by the manager. If managers are considering any termination option legal advice should be sought.
A force majeure event does not change the position that the manager should manage the ship with reasonable skill and care. If a COVID-19 situation causes a loss, the manager must be prepared and ready to defend a claim from the owner. Keeping full and detailed records will help you to do so.