Recent and ongoing attacks by Houthi rebels in Yemen on commercial vessels transiting the Red Sea in response to the situation in Gaza have resulted in UK and US forces launching air strikes on the rebels. This is one of the world’s busiest shipping routes, because any vessel transiting through the Suez Canal to or from the Indian Ocean must pass via the strait of Bab al-Mandab and the Red Sea. The Suez Canal is the shortest and the fastest sea route between Asia and Europe.
However, the escalating and increasingly dangerous situation has led shipowners to avoid the area, diverting their vessels by the longer Cape of Good Hope route. It has been estimated that the alternative shipping route avoiding the Red Sea could take an additional 14-25 days approximately (for example an additional 24 days for a cargo going from the Black Sea to the ports in the Indian Ocean).
The situation is rapidly evolving from one where the original stated intention was to disrupt shipping linked to Israeli interests, and has recently widened to include targeting UK and US interests. There is little guarantee that the disruption will continue to focus only on disrupting those interests, and there is no certainty whether a vessel, crew or cargo may be targeted.
The Red Sea attacks have serious political and commercial considerations. The press has repeatedly reported on the disruption to global supply chains and the impact on consumers. There are also a number of legal implications for the shipping industry, some of which are highlighted below in this article, including deviation, frustration, force majeure and the effect of War Risks clauses.
Deviation
Article IV, rule 4 of the Hague/Hague-Visby Rules allows the carrier to make a deviation from the agreed route to save life or property at sea or any reasonable deviation. The charterparty may also incorporate an express liberty clause, giving the carrier the right to deviate from the contractual voyage on various listed grounds. Even where there is no express provision, the shipowner/master has an implied right to deviate if it is necessary to avoid danger to the vessel.
The terms of the relevant charterparty should be checked to determine whether they permit deviation and the scope of the contractual liberty to deviate. In general terms, however, a deviation must be reasonable if the carrier is to avoid liability for any losses that result. In the context of the Red Sea attacks, the carrier will have to demonstrate that it was necessary for the safety of the vessel or cargo. Factual assessment of flag, vessel and cargo in relation to safety needs to be undertaken; given the evolving risk situation, the outcome of that assessment can change rapidly. Furthermore, a charterparty term granting liberty to deviate is not automatically incorporated into the bills of lading such that there would be an equivalent right to do so under the bills. It may not, therefore, bind cargo interests although the carrier could rely on Article IV, rule 4.
Force majeure/frustration
Since November 2023, a number of international carriers have invoked force majeure (FM) provisions in their applicable terms and conditions or other contracts with their customers in order to either terminate voyages on the Suez Canal/Red Sea route or to reroute them via the Cape of Good Hope. Intermittently, some of them have resumed or suspended voyages on the Red Sea route, depending on how the situation has developed.
The extent to which these carriers can legitimately rely on the relevant FM clauses will depend on the wording and scope of the applicable clause. Whether or not the FM clause will be held to apply to the Red Sea attacks will also depend on the applicable law and jurisdiction of the contract. Different jurisdictions have different attitudes to and interpretations of FM clauses.
FM as a civil law concept does not form part of English common law, but an exceptions clause in the charterparty may specify the events which will qualify as exceptions to the carrier’s obligation to proceed by a route which is not the usual and customary course. The closest English law equivalent to FM is frustration. A party claiming frustration of the contract of carriage will have to show that the Red Sea attacks and situation in that area have fundamentally changed the parties’ performance obligations under the contract of carriage and have made further performance impossible, illegal or radically different from that which was originally contemplated.
The fact that contractual obligations have become more burdensome or expensive to perform is unlikely to frustrate the contract of carriage. A charterparty may not be frustrated where another route is available via the Cape of Good Hope unless the nature of the charterparty and the length of any delay means that the contemplated performance has been substantially affected. In practice, in most circumstances the contracts are unlikely to be frustrated.
In The Eugenia [1964] 2 Q.B. 226, the English Court of Appeal held that proceeding via the Cape would not frustrate a voyage from Genoa/Black Sea to India via the Suez/Red Sea in circumstances where the Suez Canal was impassable due to the Suez War. The deviation would have increased the voyage from about 108 days to 138 days. The cargo was not perishable or required urgently and deviation made no difference to the charterers other than in incurring higher expenses.
Safe port
The charterparty may incorporate an express or implied safe port warranty. This encompasses both physical and political safety and safety of approach. A safe port warranty has a carve-out for ‘abnormal occurrence’. Whether the Red Sea attacks amount to an abnormal occurrence for these purposes may depend on whether they are foreseeable. Given the current situation, they are arguably to be deemed foreseeable.
If the charterer nominates a port that is deemed unsafe, the owner will be entitled to reject that nomination as invalid. Where a time charterer makes a valid nomination but the port becomes unsafe before the vessel arrives, the time charterer must nominate a new port. By contrast, a voyage charterer may not be able to do so without the owner’s consent. Instead, the voyage charterparty will normally provide for the vessel to proceed to the nominated port or as near to that port as she ‘may safely get’. Where the alternative port is very far from the nominated port, then there may potentially be an argument that the charterparty is frustrated because performance is radically different to that which was originally contemplated by the parties.
On 18 December 2023, the Joint War Committee (JWC) issued an amendment to its Listed Areas, widening the area in the Red Sea that it deems high risk. Vessels must notify their insurers when sailing through such areas and pay an additional premium. Depending on how the situation develops, there may be concerns as to whether ports in the Listed Areas remain safe, whether such ports fall within the trading limits in the charterparty and whether the owners are entitled to deviate to another port.
Where the parties to the charterparty agree that the cargo should be delivered at an alternative port, it is important to check whether the bill of lading names a specific discharge port. If the bill of lading does not allow for discharge at a port other than the one specified, delivery at an alternative port may constitute a breach of the bill of lading contract.
Given that there is an alternative route available that avoids the transit of the Red Sea, it would seem that an owner would be unlikely to be able to invoke the safe port warranty if the vessel were to proceed via the Red Sea and suffer an attack as the risk could be avoided by prudent seamanship and taking the longer route.
War risks
A charterparty will usually incorporate an express provision allowing for cancellation/termination in the event of an outbreak of war or war-like situation.
Industry standard provisions include CONWARTIME and VOYWAR. War risks clauses differ in scope and effect and should be considered carefully to determine what are the owner’s liberties under the provision. Where there is a chain of charterparties, the war risks provisions may not be back-to-back and this may complicate matters.
The Red Sea attacks may fall within the scope of the ‘hostilities’ and/or ‘warlike operations’ wording in CONWARTIME 2013. Generally speaking, if a vessel is being ordered to proceed to a war risk area, the war risks provision may provide that the owner has the right to refuse the order if it is reasonable to do so. It will be for the Master, in his reasonable judgment, to decide whether the vessel, her cargo or her crew may be, or are likely to be, exposed to war risks. The test is objective rather than subjective, see the Triton Lark [2012] EWHC 70 (Comm), where the NYPE charterparty incorporated CONWARTIME 1993.
Further, some charterparties may not permit the owner to refuse orders if war risk insurance is available. Additionally, whilst some war risks clauses will result in exclusion of the charterer’s safe port warranty, others will not. Furthermore, unless the off-hire clause in the charterparty expressly provides otherwise, hire may continue to run during any periods of delay associated with war risks.
If the war risks clause is invoked and the cargo is discharged at an alternative port to the one originally nominated, the owner may be entitled to additional freight depending on whether or not the substitute port is within the range specified in the charterparty. However, some war risks cover incorporates detention or diversion expenses.
Where charterers order the vessel to, or through, an area of heightened war risk, the vessel’s standard insurance cover will not generally be sufficient and extra premia will be levied to cover the additional risk. While the owners are responsible for paying the standard insurance premia, liability for the additional cover will depend on what the charterparty provides.
In the MV Polar [2024] UKSC 2, the Supreme Court dealt with liability for a general average (GA) contribution following a piracy incident in the Gulf of Aden in 2010. It held that there was no ‘common fund’ principle exempting a charterer from liability for breach of contract or in GA merely because it reimbursed to the owner the additional costs. All would depend on the construction of the contractual war risks regime. In that case, the relevant provisions were not construed to preclude a recovery from the charterer (or from cargo interests under the bills of lading) for liability in GA.
The Supreme Court also made it clear that the owner’s right to rely on an express liberty clause in the charterparty to change route or terminate the contract of carriage was not unlimited. Where a particular voyage route had been agreed notwithstanding a well-known and foreseeable risk along that route and the parties had agreed the terms to govern that transit, the owner could not then rely on the war risks clause unless it could demonstrate a material change of risk since terms had been agreed.
The Supreme Court decision echoes the obiter view in the Paiwan Wisdom [2012] EWHC 1888 (Comm), a case in which the charterparty contained the CONWARTIME 2004 clause, which provided that the owners may refuse to proceed to a place which was dangerous on account of a war risk, and a trading limits clause which stated that “Passing Gulf of Aden always allowed with H&M insurance authorisation.” The Court emphasised that the applicable CONWARTIME 2004 provision had to be read in the context of the charterparty as a whole, including the express provision indicating owners’ agreement to pass through the Gulf of Aden. The owners could not, therefore, refuse to pass through the Gulf of Aden.
Comment
Clearly, the Red Sea attacks (and the Russia/Ukraine conflict) have presented a number of legal, commercial and practical challenges for carriers, charterers and cargo interests. Those potentially affected should keep a close eye on developments and should review their contracts closely to determine their rights and liabilities in this context.
It is a complex area and one that is likely to see legal development as new challenges arise.
Source – https://www.hilldickinson.com/insights/articles/global-shipping-considers-legal-impact-red-sea-attacks