Time charter parties and war clauses

The ongoing and tragic war in Ukraine serves as a reminder that war clauses can be activated at short notice. The war continues, with both sides stepping up their efforts to achieve, either partially or completely, a military solution to the conflict. According to General Mark Milley, the Chairman of the Joint Chiefs of Staff, the war is likely to be protracted.

Consequently, there is a risk of escalation that could impact the scope of war risks and even lead to the involvement of nations other than Russia and Ukraine. Recent developments on both sides regarding military supplies and trade represent an escalation involving factors that were unthinkable just 12 months ago. For example, we can point to the latest change in Ukrainian grain shipments, which have shifted from Ukrainian territory to the ports of Sulina and Constanta in NATO member Romania. Ukraine is seeking alternative routes for 33 million tons of grain shipped under the previous grain deal that expired on July 17, 2023. In an effort to make its blockade effective, Russia has recently attacked the towns of Izmail and Reni on the Ukrainian border with Romania, where the grain is transported by rail. Future developments remain uncertain and represent one of many potential escalation scenarios.

The BIMCO War Risk Clause CONWARTIME 2013

Most time charter parties include a war risks clause. The purpose of these clauses is twofold: to allow Owners to avoid areas and ports exposed to war risks, and, to the extent that the Owners agree to proceed into an affected area, to allow the Owners to claim the cost of additional insurance, crew bonuses, and wages. The clause alone does not allow any of the parties to cancel a charter party. The clause merely exempts the Owners and the Vessel from the obligation to follow the Charterers’ instructions, which would otherwise prevail. The description of war risk in the CONWARTIME clause is broad and drafted to include almost any war-like situation:

“War Risks” shall include any actual, threatened, or reported:

War, acts of war, civil war, or hostilities; revolution; rebellion; civil commotion; military operations; the laying of mines; acts of piracy and/or violent robbery and/or capture/seizure (hereinafter “Piracy”); acts of terrorism; acts of hostility or malicious damage; blockades (whether imposed against all vessels or imposed selectively against vessels of certain flags or ownership, or against cargoes or crews or otherwise howsoever), by any person, body, terrorist or political group, or the government of any state or territory whether recognized or not, which, in the reasonable judgment of the Master and/or the Owners, may be dangerous or may become dangerous to the Vessel, cargo, crew, or other persons on board the Vessel.

The wording has been refined based on past legal cases and is highly recommended as part of any charter party. It provides a reasonable option for an owner to protect the crew, the vessel, and the cargo.

Looking back, the decision made by the Joint War Committee (Lloyd’s Market Association) (“JWC”) prior to the Russian invasion in February 2022 serves as an example. On February 15, 2022, the JWC issued a circular designating Ukrainian and Russian ports—from the Russia-Georgia border to the Ukraine-Romania border—as a war and related perils area. Immediately, any trading in the area required additional war risk insurance. The terms of any affected charter party determined the extent to which the owners could pass on such additional costs to the charterers. The circular also implied the existence of warlike operations that , in the reasonable judgment of the Master and/or the Owners, ( …) may become dangerous …

Please note that the 2013 clause is currently under review, and BIMCO plans to introduce a revised clause.

War cancellation clauses

A war cancellation clause gives both Owners and Charterers the option to cancel the Charter Party under the relevant circumstances. It should be noted that, while war risk clauses of the CONWARTIME type do not require any specific nations to be named, a war cancellation clause does, and is normally limited to the nations listed in the specific clause.

The potential loss to both parties in the event of a cancellation calls for a rather strict definition of "War," as exemplified by the BIMCO Supplytime 2017 war cancellation clause:

“Either party may terminate this Charter Party upon the outbreak of war (whether or not a declaration of war has been made) between any two or more of the countries listed in box 30.”

Nevertheless, the term“war”still leaves much to be determined. An“outbreak of war”does not necessarily imply a warlike situation. However, in the absence of“a declaration of war”(the new normal), a court or arbitrators would need to determine whether the hostilities in question constitute a war. Likely criteria for such a determination would include the scale, intensity, and severity of the hostilities. Other factors could include the seizure of enemy property, the withdrawal of diplomatic representation, blockades, etc.

Unfortunately, war cancellation clauses are often overlooked or listed only in relation to the flag state and major powers such as the United States, Russia, and China. This may cover scenarios involving a world war, but such an outcome is hopefully unlikely. We recommend that both owners and charterers assess their risks and exposure in certain trading areas and consider including other nations that could cause serious disruptions to the performance of a charter party. An example: Unless Ukraine, at the time of the invasion, was listed among the potential belligerent states in the cancellation clause, the inclusion of Russia alone would not trigger the standard war cancellation clause.

It should be noted that, in the event of war, a cancellation clause must be invoked without undue delay. Otherwise, the right to cancel may be forfeited.

War cancellation clauses are common, but are not always included in a charter party. If not, the governing law of the charter party will determine whether any of the parties has the right to cancel in the event of war. According to the Norwegian Maritime Code, Section 394, paragraph 3, the parties to a charter party may have the right to cancel under circumstances similar to those covered by a war cancellation clause. The major difference, however, is that, unlike a war cancellation clause, a requirement under the NMC would be that a war materially affects the ability of the Owners and/or the Charterers to perform their respective obligations. It should also be noted that the mere absence of a war cancellation clause is not likely to be deemed a waiver of the right to cancel under the law.

If you have any questions or inquiries, please contact Svend A. Lerring at +47 920 11 363 or sal@rblaw.no