‘First published on Shipping and Trade Law (2017) 17 STL 5, p.4.”
There have been numerous articles in circulation since seven countries (Saudi Arabia, United Arab Emirates, Bahrain, Egypt, Yemen, Libya and the Maldives) decided on 5th June to cut all diplomatic ties with Qatar and impose an economic blockade against the tiny emirate accusing Qatar of supporting and funding extremists’ ideology and terrorist groups in the region. This article examines the legal implications of the Qatari blockade, which carries neither a UN mandate nor an Arab League one, on your charterparties.
The impact of this blockade is catastrophic since these nations have also banned Qatar from the use of their airspace, waters and land – a country that only shares borders with Saudi Arabia and is submerged in the warmth of the Persian Gulf. Qatar relies heavily on all transport modes to meet its demands and needs, and shipping is undoubtedly the main contributor to its artery of life.
Why should the carrier be concerned?
The reason why the Qatari nightmare might affect charterparties is that the blockade does not only ban Qatari-flagged/owned vessels from trading with these countries, but some of these nations also extend the ban to any other vessels coming from or destined for Qatar. Most recently, the Port of Fujairah appears to have eased restrictions for non-Qatari flagged vessels wishing to bunker at the port, as the Port Authority has reduced its ban to prevent vessels from loading or unloading any Qatari-origin cargoes or allowing ships to load UAE cargo destined for Qatar. The latest UAE Federal Transport Authority circular omits any reference to bunkering, and thus if the ban on foreign ships to bunker at Fujairah is lifted, then such a move will certainly relieve foreign shipping companies from the inconvenience and extra cost of having to bunker elsewhere.
The non-uniformity among the allied nations with their interpretation of the blockade has left the shipping world in a dilemma, trying to figure out what each individual State and port requires. The situation must be closely monitored for any changes, seeking regular assistance and clarification from local correspondents.
The vessel is destined for Qatar – can the carrier terminate?
Certain provisions in the charterparty must be carefully considered, most importantly the jurisdiction and applicable law clause, to identify the correct interpretation of the charter and thus the rights and liabilities of the parties
1. Safe port
Generally, a port is safe if the ship can reach it, use it and return from it without, in the absence of abnormal occurrence, being exposed to danger which cannot be avoided by good seamanship and navigation. Ports must also be ‘politically’ safe, whereby a port could be deemed unsafe if the vessel would be subject to confiscation by a State for reason of calling at a particular port. However, the port must be ‘prospectively safe’ at the time charterers nominate the port. If the nominated port becomes unsafe at a later stage, then charterers are under a secondary duty to order the ship to an alternative port. Nevertheless, Qatari ports cannot be said to be ‘unsafe’ by reason of the current blockade because, at present, the effect of the embargo is akin to a ‘travel ban’ imposed by the allied nations. This ban does not make it illegal to call at any Qatari ports as the vessels that call there will not be subject to confiscation by any government, but they will be denied entry into other regional ports. This however is very restrictive to the trading pattern in the region, since most Qatari imports are usually transited through Dubai via feeder services, or through Saudi ports where cargoes are loaded on trucks destined for the tiny emirate.
However, if a war breaks out between Qatar and any other nation, then Qatari ports could be deemed ‘unsafe’. If that happens, the carrier is then entitled to refuse to call Qatar, and request charterers to make a substitute nomination. If a war breaks out while the ship is already in Qatar, then charterers are unlikely to be in breach of the ‘safe port warranty’ because the port was prospectively safe when the nomination was made.
2. Force majeure
Force majeure is the parties’ go-to clause whenever “out of control” events arise, and the Qatari embargo is no exception. The type of events are usually defined within the clause, most commonly covering war, riots, fire, flood, hurricane, earthquake, explosion and strikes. Some force majeure clauses cover acts of State or governments which prohibit any party from performing its obligations under the contract. In order to succeed, the party must ensure that the event in question falls within the parameters of the force majeure clause. Given that vessels will not be allowed to discharge or load Qatari-origin or Qatari-bound cargoes in certain ports by virtue of the Qatar blockade, or will simply be denied entry to these ports by reason of the vessel’s earlier call at Qatar, this is a governmental action preventing the carrier from performing his obligations. Therefore, it could be a force majeure event in this instance, and the consequences therefrom are usually stipulated in the clause i.e. the contract is mutually excepted, cancelled, or time so lost to be for charterers’ account. Particular attention should be drawn to what should happen in case the force majeure event runs for a long period of time, whereby frustration of the contract may be considered in the absence of any other agreement.
However, the force majeure clause can be of assistance to the shipowner when calling the Gulf ports that are enforcing the blockade, but it will not apply if the voyage charter is restricted to calling Qatari ports, since Qatar announced that it will not take reciprocal measures against the allied nations. Thus vessels calling the applicable Gulf ports can still call Qatar, provided they are not sailing directly to that destination.
When calling Qatar is permitted under the trading limits clause under a time charter, but the vessel cannot now call various ports due to the blockade, then arguably the force majeure clause will operate in favour of the shipowner, permitting the Master to refuse to call prohibited ports. Subject to the wording of the clause, charterers may have to make alternative arrangements for the Qatar-destined cargo in order to minimise the interruption to the vessel’s ports rotation.
3. Liberty clauses
As an alternative measure, the parties may consider transhipping the Qatari-cargoes, or cargoes destined to Qatar, to the ports of Oman, Kuwait or Iran (being mindful of any applicable UN, US or EU sanctions), and using regional feeder services. Although this option is commercially viable, it may not fall within the ambit of the liberty clause, which entitles the carrier to discharge the cargo at alternative ports, because trading to and from Qatar itself is not illegal. The option may be a sound solution among owners and charterers, but it could potentially be in breach of issued bills of lading and prejudice the carrier’s insurance cover. If a specific discharging port is named in the bill of lading, i.e Port of Doha in Qatar, then any deviation to an alternative port will be in breach of the bill’s terms and conditions. The carrier would be held liable to the holder of the bill of lading. In addition, the insurance cover may also be prejudiced if the vessel deviates from the agreed or customary route, as the deviation might deprive the owners of their rights of limitation as against cargo interests, all of course subject to the wording of the liberty clause and/or the policy terms. Maersk Line has recently resumed their Qatari-bound services using feeder ships operating from Oman.
Furthermore, carriers must be mindful of the extent of the incorporation clause used in their bills of lading which, subject to the words used and the jurisdiction where the cargo claim is brought, may not be wide enough to incorporate the liberty clause. For instance, ‘all terms and conditions of the charter are hereby incorporated’ may not be wide enough to incorporate ‘clauses’ i.e. governing law and arbitration, liberty or force majeure clauses. However, the Congenbill 2007 terms may be wide enough to incorporate such ‘clauses’.
Frustration occurs where an unforeseeable change of circumstances, not caused by a breach of either party, renders the performance of a contractual obligation impossible, illegal or radically different from what had been initially contemplated by the parties. However, if the obligation in question can still be performed, albeit being more expensive or increasingly onerous, the contract will not be frustrated. Frustration is not an easy argument to make out before English courts, since the threshold is burdensome. Courts take into account the commercial purpose of the contract and the length of the delay caused by the frustrating event, whereby the interruption of the voyage must be ‘sufficiently grave as to frustrate the adventure’.
By virtue of the Qatar embargo, vessels may sit idle for a long time because they would not be permitted to sail to Qatar from the allied countries, nor would they be permitted to call at these ports coming from Qatar. In the best case scenario, force majeure clauses may be wide enough to cover governmental action, or the liabilities for the resulting expenses and delay may be sufficiently addressed in the charter. In the absence of such clauses, turning to frustration is not necessarily straightforward, because transhipping the Qatari-related cargoes using other regional ports which are not enforcing the blockade is a possible alternative, subject to equipment, manpower and facilities. The mere additional expense and delay incurred by reason of such transhipments will not render these contracts frustrated. For example, a contract was not frustrated under English law for a vessel which could not pass through the Suez Canal, because she was able to sail around the Cape of Good Hope. This indicates how English Courts assess alternative measures in order to keep contracts alive, and only frustrate them in very rare and detrimental circumstances.
Nevertheless, if the cargo in question was perishable and transhipping would not help deliver the cargo on time and in good order, frustration would appear to be a possible solution to free the parties from further obligations, because in such circumstances the purpose of the contract would be defeated. By contrast, if the vessel was waiting to load a Qatari-origin cargo destined to one of the allied nations, then carriers could be entitled to refuse to load the cargo and charterers could be obliged to provide an alternative one, failing which the contract may be frustrated if the embargo persists for a long period of time.
5. Off hire
Since it is uncertain how long this embargo will last, time-charterers, who are bearing all the expenses of the delay caused and bunkers used by reason of waiting outside the affected ports, are likely to argue that the vessel is off-hire. However, they must be careful in interpreting the wording of the relevant off-hire clause as most of the common ones in use do not cover the eventuality of governmental action.
6. Sanction clauses
The BIMCO Sanctions Clause for Time Charter Parties would entitle shipowners to refuse compliance with any orders that could expose the vessel to any sanctions or prohibition by any State. It further holds charterers liable to indemnify shipowners for any claims howsoever raised by cargo interests, and that the ship remains on hire until charterers provide different orders. The BIMCO Sanctions clause is widely incorporated into many charterparties, but there are other sanction provisions which provide similar cover. The particular wording of any sanctions clause must be reviewed and revisited to identify the parties’ liabilities. The Qatar embargo is only an economic blockade, at the moment, imposed by a few regional countries and so any sanctions’ clause would most likely not apply here.
Although it has emerged that some ports are easing the restrictions imposed on non-Qatari flagged ships, such as at the port of Fujairah and some crude oil terminals, it remains uncertain as to how the situation will evolve. The media have reported several political motions calling for the end or easement of the blockade on the tiny State, but the commercial effects are anticipated to attract substantial costs. Some insurers have flagged up their exclusion clauses in their rules and policies that would avoid liabilities that could arise as a result of noncompliance with the Qatar blockade.
The terms of your charterparties and bills of lading must be carefully considered before shipowners or charterers prematurely withdraw their vessels, divert their ships or cancel their contracts. In addition, new contracts being entered into need to be considered with the Qatar situation and the above legal implications in mind.
Should you have any questions or comments on this article or have any queries regarding your charterparties or other matters relating to the situation in Qatar, please do not hesitate to contact us.
Elias Law Limited
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