We’re three weeks into the Persian Gulf crisis and we thought we’d share some of the most common questions to the BDM team so far. Note that these are general questions and much will depend on specific facts and the terms of the relevant charter.
Q. Is the vessel off hire if operations are disrupted due to the conflict?
A. Probably not because most charters will contain CONWARTIME or an equivalent war risks clause. That permits the Master to refuse to proceed if in his reasonable judgement the vessel may be exposed to war risks and the ship remains on hire. If there is no CONWARTIME or similar war risk clause then the issue is whether the conflict is extraneous to the physical condition of the ship. It probably would be regarded as extraneous such that standard off hire clauses would not be applicable. That said, it may be arguable that the vessel is off hire if the words “any other causes whatsoever preventing the full working of the vessel” are included, although in such circumstances the owners may seek to claim back hire under the implied indemnity on the grounds that they did not agree to run the risk of the conflict when they entered into the charter.
Q. What constitutes “war risk”?
A. It depends but most common war risk clauses in charters will define it in wide terms. War does not need to be declared. Warlike operations are generally included. The present status in the Persian Gulf is generally considered to be within the accepted definitions of “war risk”.
Q. What does “reasonable judgement” mean?
A. There is case law on this. The term appears in most CONWARTIME clauses (1993, 2013 and 2025 versions). The leading case is The Triton Lark [2012] 1 Lloyds Rep 151. In short, there must be a genuine appreciable danger which puts the vessel, her crew and cargo at substantial risk. A mere hesitancy is not enough. Whilst a proper risk assessment should be carried out, the failure to make certain enquires does not necessarily render the judgement unreasonable. In short, the assessment is fact specific and any owner or Master who has time to consult and take legal advice should do so.
Q. What if the risks already exist and owners are asked to go to ports in the Persian Gulf? Do they accept that risk?
A. It depends on the war risk clause. CONWARTIME clauses make it clear that the liberty to refuse to continue towards an area exposed to war risks and/or divert to land cargo elsewhere applies whether or not such risks existed at the time of entering into the charter. In other words, the Owner is not regarded as having accepted the risk by proceeding towards the port in question. Contrast this however with VOYWAR clauses where, having issued a bill of lading for a port within a war risk area, the Owner may be required to proceed there and may incur a liability if they later divert under CONWARTIME, albeit that Charterers indemnify Owners for any liability they may incur for such deviation.
Q. What about existing commitments to discharge at ports inside the PG? Can the owner refuse to discharge and land the cargo elsewhere? Are they exposed to cargo claims if they do so?
A. It depends on whether VOYWAR is incorporated into the contract of carriage. If it is then the owner/ carrier can land the cargo elsewhere and still earn the full freight. They also have a lien over the cargo for any unpaid freight and charges. They can even demand extra freight should they need to divert by more than 100 miles. Many ship owners are exercising this right to discharge at ports “as near as they can safely get” to PG ports but without entering the Straits. If there is no VOYWAR or similar war risk clause and/or there are local issues as to whether the VCP terms are incorporated by via the bill of lading then problems can arise. It may be necessary to argue that the contract of carriage has become frustrated. Carriers have duties of care as regards cargo in their possession and can be liable if they fail to properly and carefully discharge it and store it ashore pending collection by the shipper/ receiver. Legal advice should be obtained in all such situations. Carriers should be careful about issuing bills of lading in the knowledge of the risks as it may be said that they have agreed to run the risk by issuing the bill in exchange for premium freights. That can create difficulties if it becomes impossible for the ship owner/ carrier to find a way to transit the Straits and/or the insurance costs spike to levels where they are performing the voyage at a loss.
Q. What happens if the charterer nominates an unsafe port?
A. This is a common question as some flag states now categorise all ports within the PG as ISPS level 3 i.e. at serious risk of attack. In any case, proceeding to a port in the PG from outside the PG involves passing the Straits which is presently regarded as unsafe even though some insurance cover is now becoming available. The short answer is to check the war risk clause in the charter as CONWARTIME does not oblige an owner to proceed to an unsafe port and they can simply request another lawful voyage order and the vessel remains on hire. Problems can arise if there is a debate over whether a port is safe or not. A refusal to follow a legitimate order is a breach of charter and potentially a repudiatory breach if the owner continues to refuse. The charterer could therefore terminate and claim damages. If a charterer repeatedly insists that the vessels should proceed to an unsafe port (i.e. an illegitimate order) then that is also likely a repudiatory breach enabling the owner to terminate the charter and claim damages. If this situation arises you should take legal advice.
Q. What if the nominated port is safe but becomes unsafe later?
A. Again, check the war risk clause in the charter, but if that doesn’t assist then there is a secondary obligation on the charterer to give alternative orders for a safe port – which may be one outside the PG. See the comments of Lord Roskill in The Evia (No 2) 2 Lloyds Rep 307 and also The Lucille [1983] 1 Lloyds Rep 387.
Q. What about the losses sustained due to the need to divert to a safe port to land the cargo as a result of the nominated port becoming unsafe? Can these be recovered?
A. Again, check the war risk clause as this should cover such losses. If VOYWAR is included in the contract of carriage then any extra costs and freight are recoverable and the carriers have a lien on the cargo for this. If it’s a charterparty then CONWARTIME enables the ship owner to claim all such costs. If there is no war risk clause, or it does not cover such matters, then it may be difficult to recover under the unsafe port warranty if the port was safe when the vessel was ordered to proceed there. Also, the implied indemnity would probably not be applicable.
Q. Is the shipper obliged to change the discharge port in the bill of lading where the original port has become unsafe/ cannot be reached due to war risks?
A. If VOYWAR applies then the shipowner should give a notice inviting the charterer/ shipper to agree on a change of discharge port but if they fail to agree then the owner has a wide discretion to nominate any safe port of their choice and recover their costs. If there is no VOYWAR then the shipowner/ carrier may have to rely on getting the cargo as near to the discharge port as the vessel can safely get as due performance of the contract of carriage. There is nothing that forces a charterer or shipper to agree to change the bill of lading and/or give an LOI covering any such changes.
Q. Can I demand that the charterer/ shipper provide an LOI to cover all losses arising from delivery at a different port?
A. An LOI may not be necessary if there is a liberty clause in the relevant charter/ bill of lading. If not however, then an LOI might be useful, but the charterers/ shippers are only going to give an LOI if they are required to do so to receive their cargo. If they will receive their cargo at an alternative port anyway, then why would they give an LOI? If the ship owner is being asked to run the risks of proceeding to the original port under an LOI then the terms need very careful examination. The LOI also may be worthless if the party giving it doesn’t have the financial means to indemnify the owner if something goes wrong and the ship is lost. The war risk insurance is likely the only means of recovery and so an LOI may be meaningless. The more pertinent issue is who places the war risk cover (assuming it is available in the market) and who pays the premium.
Q. Are all ports within the Persian Gulf legally unsafe?
A. The ISPS maritime security code for Persian Gulf has been raised to level 3 which is evidence of unsafety. Safety assessments involve a proper assessment of the particular port nominated and whether its characteristics make it unsafe. If other ships or shore facilities have been attacked at the port then it may well be regarded as legally unsafe. The approach to the port is also a characteristic as the vessel must be able to reach it safely. Any vessels proceeding into the PG need to pass through the Straits of Hormuz and, as matters stand on the date we publish this update, that is very likely unsafe, so it seems likely that all ports in the PG are unsafe if vessels are being asked to proceed there from outside the PG.
Q. What happens if additional premium is needed to enter/ remain within the PG? Who pays for this?
A. Under CONWARTIME this is for the charterers’ account as it results from their voyage orders. Check the terms carefully as the clause requires the owners to pay and produce the actual underwriters’ invoices. There is also a timeframe for payment which is 15 days from receipt of the invoices or on redelivery. This can cause problems where vessels are held covered, but invoices are not produced and there are concerns that some ship owners might be seeking to make a profit on any insurances placed via brokers. Also check when the original notice of cancellation ran out as additional cover only kicks in then. Some clauses can also cap the level of additional premium at the Lloyds quoted rate which is very vague. We had an arbitration on that in the context of the Russian/ Ukraine war. Similar issues can arise on crew bonuses. Charterers are required to pay for these if they are genuine but not if the owners simply make up a figure and add it to the hire statement! There have been questions arising relating to non-payment of these additional premiums and whether the owner can suspend the service for such non-payment (in most cases they can’t but check the terms of the charter).
Questions continue to flood in so we may update this page as things develop but for now this is a rough summary of the questions we have been receiving. If you require advice tailored to a specific situation then please contact a member of the BDM team.
Nick Burgess
Partner
