Time-limited parties and war clauses

The ongoing and tragic war in Ukraine reminds us that war clauses can be invoked at short notice. The war is ongoing with increased efforts from both sides to achieve a full or partial military solution to the conflict. According to General Mark Milley, the US top military commander, the war will likely be protracted.

There is thus a risk of escalation that could affect the war risk picture, and that other nations than Russia and Ukraine will also be involved. The developments on both sides in terms of military supplies and trade represent an escalation with elements that were unthinkable just twelve months ago. One example is that Ukrainian grain shipments have now been moved from Ukrainian territory to the ports of Sulina and Constanța in NATO country Romania. Ukraine is seeking alternative routes for the 33 million tons of grain that were shipped under the previous grain agreement, which expired on July 17, 2023. To make the blockade effective, Russia has recently attacked the cities of Izmail and Reni on the border with Romania, where the grain is transported by rail. The further development is uncertain, and this is only one of many possible escalation scenarios.

BIMCO's War Risk Clause CONWARTIME 2013

Most time charter parties contain a war risk clause. The purpose of such clauses is twofold: Shipowners should be able to avoid areas and ports that are exposed to war risk, and – to the extent that shipowners agree to enter an affected area – to claim coverage for additional insurance costs, bonuses and crew wages. The clause itself does not give either party the right to terminate the charter party. It only exempts the shipowner and the vessel from the obligation to follow the charterer’s instructions, which would otherwise take precedence. The definition of war risk in the CONWARTIME clause is broad and designed to cover almost any war-like situation:

"War Risks" shall include any actual, threatened or reported: War, act of war, civil war or hostilities; revolution; rebellion; civil commotion; warlike operations; laying of mines; acts of piracy and/or violent robbery and/or capture/seizure (hereinafter “Piracy”); acts of terrorists; 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 fine-tuned in light of previous court cases, and we strongly recommend that it be included in any charterparty. It gives shipowners a reasonable opportunity to protect their crew, vessel and cargo.

The decision of the Joint War Committee (Lloyd's Market Association) ("JWC") prior to the Russian invasion in February 2022 can serve as an example. On 15 February 2022, the JWC issued a circular that took Ukrainian and Russian ports from the border between Russia and Georgia to the border between Ukraine and Romania into the area of ​​war and related perils ("war and related perils area"). As a result, all traffic in the area immediately required additional insurance for war risks. The terms of the individual charterparty determined the extent to which shipowners could pass on such additional costs to charterers. The circular also implied that there were warlike operations which in the reasonable judgment of the Master and/or the Owners (…) may become dangerous …

Note that the 2013 clause is under revision, and BIMCO plans to launch a revised clause.

War cancellation clauses

A war termination clause gives both the shipowner and the charterer the right to terminate the charterparty under specified circumstances. While a CONWARTIME type war risk clause does not require named nations, a war termination clause does, and is normally limited to the nations listed in the clause in question.

The potential loss to both parties in the event of a breach requires a fairly strict definition of war, as in the breach of war clause in BIMCO Supplytime 2017:

"Either party may cancel this Charter Party on the outbreak of war (whether there be a declaration of war or not) between any two or more of the countries stated in Box 30."

Nevertheless, the concept of war can leave much to be desired. An outbreak of war does not necessarily encompass every war-like situation. Without a formal declaration of war – which has become the new normal – a court or possibly an arbitration tribunal must decide whether the hostilities in question constitute war. Central elements in such an assessment will likely be the scope, intensity and severity of the hostilities. Other elements may include the seizure of enemy property, the withdrawal of diplomatic representation, blockades, etc.

Unfortunately, war abatement clauses are quite often overlooked, or they simply list the flag state along with major powers such as the US, Russia and China. This may cover a world war scenario, which is hopefully unlikely. We recommend that both shipowners and charterers assess their risk and exposure to specific trade areas, and possibly include other nations that could cause serious disruption to the fulfillment of the charter party. For example: Unless Ukraine was listed among the potential belligerent states in the abatement clause at the time of the invasion, simply listing Russia would not trigger a regular abatement clause.

War termination clauses are common, but not always included in the charterparty. If they are not, the underlying law of the charterparty will determine whether the parties have the right to terminate in the event of war. According to Section 394, third paragraph, of the Norwegian Maritime Act, the parties to a charterparty may have the right to terminate in circumstances similar to those that qualify for a war termination clause. The essential difference is that the Norwegian Maritime Act, in contrast to a war termination clause, requires that the war substantially affects the shipowner's and/or charterer's ability to fulfill their obligations. The fact that the charterparty lacks a war termination clause is unlikely to be considered a waiver of the right to terminate under the Act.

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