Red Sea issues – Can a ship owner deviate if there is a clause in the charter that requires him to go via Suez?

This question has come up recently and it’s important to read the very recent decision of the Supreme Court in The Polar [2024] UKSC 2.

We’ve reported before on The Polar. This case has wide implications when it comes to the circumstances in which there can be an implied insurance code. For present purposes however, the issue is how the case affects the current problems faced by ship owners and charterers due to the escalating attacks on shipping by Houthi rebels operating out of Yemen.

We are often asked how certain clauses in charters operate alongside each other. For example, if there is a clause that, on its face, covers what is to happen when the vessel trades through the Gulf of Aden/ Red Sea, does that mean that the shipowner cannot refuse to transit or can they rely on their extensive rights under a war risk clause such as CONWARTIME?

Perhaps unhelpfully, the answer is that it depends on the clauses. However, the Supreme Court reviewed and approved the decision of the Court of Appeal in a case called The Product Star [1993] 1 Lloyds Rep 397 and the decision of Teare J in a later case called The Paiwan Wisdom [2012] EWHC 1888.The Supreme Court held that where “special terms” are agreed for transiting the Gulf of Aden in the light of existing known risks, it would be inconsistent for a ship owner to be permitted to rely on more extensive rights to refuse transit on the basis of those same risks. To put it another way, if there is a “special clause” in the charter, the wide ranging rights available under CONWARTIME and some other war risk clauses that depend on the Master’s perception of risks need to be considered in that context.

When it comes to existing known risks, piracy has always been a risk for vessels transiting the Gulf of Aden. The Polar is one of the earlier of the Somali hijack cases. Those hijackings continued up until around 2013 when cases began to tail off as anti-piracy measures became more effective. It’s now common for charters to deal with transit through areas prone to piracy and to outline the various measures that must be taken to deal with vessel protection and additional insurance requirements. It follows that those “piracy” risks are to a large extent covered by the terms of charters and it is difficult for a Master to refuse to transit the Gulf of Aden.

The recent situation in the Red Sea however goes beyond piracy. The established anti-piracy measures e.g. armed guards, vessel hardening and adoption of Best Management Practices (BMP5) are unlikely to be effective against missile/ drone attacks from Houthi rebels intent on seeking retribution from those they determine are in collusion with or supportive of Israel’s ongoing campaign in Gaza. It follows that many of the existing piracy clauses or, to use the terminology of the Supreme Court, “special terms” were not intended to cover the risks that ships now face. However, that does not prevent charterers, who stand to lose considerably from a longer voyage around the CGH, from arguing that the vessel should proceed through the Red Sea under the terms of these clauses. Whilst each case needs to be considered on its own particular wording, it is perhaps helpful that the Supreme Court reiterated that even where these special clauses may be present in charters, there is still a right on the ship owner to refuse to transit and/or deviate in certain circumstances, albeit that the war risk clause needs to be considered in the context of the special clause. The issue therefore is whether there has been a qualitative change in circumstances between the situation when the charter was concluded and the time when the vessel is due to transit through the Red Sea.

Ship owners are now under pressure from charterers to proceed through the Red Sea and, in each case, the terms of the charter need to be considered carefully. Where ship owners do decide to proceed, it is advisable that they do so under a reservation of rights so as not to create a precedent that might oblige them to transit again in the future.

This situation may of course regulate over time as ship owners renew their time charter arrangements and the market adapts. It’s possible that we may see new “special clauses” which attempt to head off perceived risks of transit e.g. broadcasting “no support of Israel, no UK/US links” via AIS signals and/or following designated safer routes (protected by military convoys) to the extent that these can be established. The payment of additional freight as well as enhanced insurance costs may also be a factor. Of course, traditional anti-piracy measures are also important but they are, of themselves, insufficient to head off the risk of missile attacks.

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Nick Burgess
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