MARITIME CONTRACTS: IMPACT OF COVID-19 ON TIME ... · majeure to issues of frustration of...

INTRODUCTION

As the world currently grapples with the COVID-19 pandemic in ensuring that its transmission

globally is curbed and ultimately eradicated, attendant issues arise in different spheres of human

endeavour, inclusive of the maritime sector.1 Critical issues arise with respect to the effect of

COVID-19 on maritime contracts in the Nigerian maritime industry ranging from issues of force

majeure to issues of frustration of contracts. However, the focus of this paper is on the effect of

COVID-19 on time charterparties taking cognisance of the fact that most vessels employed in the

cabotage trade and in the oil and gas market in Nigeria are on time charterparty.

The pertinent questions that could arise with respect to the impact of COVID-19 on time

charterparties include whether COVID-19 will fall under the force majeure clauses in time

charterparties? What will be the effect of COVID-19 on late redelivery of vessels, when such late

delivery is as a result of government policies such as quarantine – will the shipowner still be entitled

to compensation for late redelivery. What will be the effect with respect to late delivery of the

vessel, will it be the basis for the charterer to cancel the charter and bring it to an end. An attempt

will be made to answer the above questions and other attendant issues taking cognizance of extant

statutes, recent government policies/guidelines on COVID-19 with respect to the maritime sector

and relevant provisions of standard time charterparty forms.

COVID-19:

APRIL 2020

MARITIME CONTRACTS: IMPACT OF

COVID-19 ON TIME CHARTERPARTIES

IN THE NIGERIAN MARITIME SECTOR

1. Recently, six COVID-19 cases were discovered on an oil rig – Siem Marlin – on the High Sea, offshore Lagos. See Eromosele Abiodun “NPAdenies contradicting NCDC over COVID-19 Case on Vessel, available at https://www.thisdaylive.com/index.php/2020/03/30/npa-denies-contradicting-ncdc-over-COVID-19-case-on-vessel/, accessed 30 March 2020.

”Critical issues arise with respect to the

effect of COVID-19 on maritime contracts in

the Nigerian maritime industry”

As prefatory remarks, the relevant statute in Nigeria on quarantine with respect to infections

diseases is the Quarantine Act 1926 (as amended)2 (the ‘Quarantine Act”). However, the

Quarantine Act does not apply to every infectious disease but only applies to dangerous infectious

disease as defined under the Act. The Quarantine Act provides that "dangerous infectious disease"

means cholera, plague, yellow fever, smallpox and typhus, and includes any disease of an infectious

or contagious nature which the President may, by notice, declare to be a dangerous infectious

disease.3 The Quarantine Act further provides that the President may, by notice, declare any place

to be an infected local area, and thereupon such place shall be an infected local area within the

meaning of this Act4 and may make Regulations to combat such diseases.5 However, where the

President fails to exercise the above stated powers, State Governors have the powers to issue such

a Notice and make regulations with respect to their State. However, since the maritime sector,

except certain inland waters,6 is under the jurisdiction of the Federal Government, such a Notice or

regulation by a State Government will only apply to maritime space under the jurisdiction of the

State.7

COVID-19: MARITIME CONTRACTS: IMPACT OF COVID-19 ON TIME

CHARTERPARTIES IN THE NIGERIAN MARITIME SECTORAPRIL 2020

2. Cap Q2, Laws of the Federation 2004.

3. Section 2 of the Quarantine Act.



6. In Lagos State Waterways Authority v Incorporated Trustees of Association of Boat Operators and Water Transportation in Nigeria & Ors [2017] 9 CLRN 1, the Court ofAppeal held that by the combined reading of items 29, 36 and 64 of the Exclusive List in Part 1, Second Schedule to the 1999 (as amended) (‘Constitution’), the Lagos StateHouse of Assembly has the exclusive legislative competence to legislate on matters relating to intra-State inland waterways in Lagos State.

7. Lagos State recently issued the Lagos State Infectious Diseases (Emergency Prevention) Regulations 2020 on 27 March 2020. Other States without issuing Regulations havetaken steps such as closing their land borders with other States. Coastal States, such as Rivers and Akwa Ibom States, have closed their borders, inclusive of their coastalborders.

“The maritime sector, except certain inland

waters, is under the jurisdiction of the Federal

Government, such a Notice or regulation by a State

Government will only apply to maritime space under

the jurisdiction of the State”

Pursuant to the Quarantine Act, the President issued COVID-19 Regulations 20208 (“Federal

Regulations”) wherein he declared COVID-19 a dangerous infectious disease and consequently

made certain guidelines to combat the former. In summary, the Federal Regulations, inter alia, (a)

restricts the movement in Lagos state, Federal Capital Territory (FCT) and Ogun state; (b) directs

that citizens in aforementioned states should stay home; (c) directs that seaports in Nigeria should

be fully operational and movement of cargoes will be screened by the Ports Health authorities; and

(d) redeployment of Port health personnel at the airports in Lagos state and FCT to the key roads

that serve as entry and exit points in afore-mentioned states. However, the Federal Regulations did

not declare the Nigerian maritime domain as an ‘infected area’.

Prior to the Federal Regulation, the Governor of Lagos state issued Lagos state Infectious Diseases

(Emergency Prevention) Regulations 20209 (the “state Regulation”), wherein he declared COVID-

19 a dangerous infectious disease which threatens the health of the people in the local area.10 Also,

the various maritime agencies in Nigeria, such as Nigerian Maritime Administration and Safety

Agency (NIMASA) has issued Marine Notices to maritime stakeholders on guidelines to be taken with

respect to COVID-19.11 Further to the Federal Regulations, the President declared, vide his twitter

handle, that only vessels that have been on the sea for more than fourteen (14) days will be

allowed to dock in Nigerian ports, after the crew have been tested and confirmed disease free by the

Port health authorities.12 It should be understood that the fourteen days shall commence from the

last port call.

Having stated the relevant legislation in relation to dangerous infectious disease in Nigeria and

current government policies with respect to COVID-19, we would, in subsequent paragraphs,

examine the likely impact of COVID-19 on time charterparties in the Nigerian maritime sector, with

respect to force majeure, late delivery and re-delivery of vessels as a result of the pandemic.13



8. Federal Regulation was issued by the President on 30.03.2020.

9. The State Regulation was issued on 27.03.2020.

10. By clause 4 of the State Regulation, local area is defined as all local government areas in Lagos state including the ports, sea and river and any entry point into Lagos State.

11. See NIMASA Marine Notice available at https://nimasa.gov.ng/COVID-19-guidance/, accessed 27 March 2017. The NPA has further banned all vessels without thermalscreening facilities from operating in Nigerian waters. See “NIMASA Bars Vessels without Thermal Screening Facilities’, available at https://punchng.com/nimasa-bars-vessels-without-thermal-screening-facilities/, accesed 30 March 2020.

12. This is available on https://gcaptain.com/nigeria-imposes-port-restrictions-to-prevent-covid-19-spread/, accessed 31 March 2020.

13. It should be understood that Nigerian admiralty law is largely based on English admiralty law and international conventions. See American International Insurance Co. v.Ceekay traders [1981] 2 NSC 65. Hence, references will be made to English admiralty law where necessary.

TIME CHARTERPARTY

A time charterparty is an agreement to hire a vessel from the shipowner, by the charterer, for a

stated period of time.14 This agreement embodies clauses including but not limited to the delivery

of the vessel, redelivery of the vessel, force majeure, infectious and contagious disease.

Force Majeure event

Force majeure is described as an unexpected and unforeseen happening, making nonsense of the

real situation envisaged by parties15. A force majeure event is an intervening event which affects

the capacity of a contracting party or parties to fulfil their obligations under a charterparty. It is

noteworthy that it is not every extraordinary event that qualifies as a force majeure event, even if

such an event impacts on the performance of obligations under the charterparty. For such an event

to qualify as a force majeure event, it must clearly be defined in the charterparty as a force

majeure event.

Force Majeure events include ‘acts of God’ such as natural disasters and cases of human

intervention such as strikes. In the latter case, a specific force majeure clause will specifically

define events that qualify as force majeure events and the consequence of the occurrence of those

events. It is critical to note that force majeure does not typically relieve a party from performing his

obligations under a contract, but merely suspends the performance of such obligations until such

time that the obligations can be performed.

Under Nigerian law, the onus is on the party that asserts force majeure to prove that the event

relied on constitutes force majeure under the terms of the charterparty16. To trigger the force

majeure clause in the charterparty, the party alleging force majeure must show that: (x) there has

been a force majeure event which falls within the meaning of the clause in the charterparty; (y) the

inability to perform is due to the force majeure event; and (z) notice requirement in the

charterparty has been satisfied17. These conditions will be considered below. In doing this, it is

important to consider a typical force majeure clause in a time charterparty.

Although there is no ‘one size fits all’ force majeure clause, as parties are free to negotiate the

contents of the clause in their respective charterpaties, nonetheless, a good example can be found

in the New York Produce Exchange Sample Form 2015 on time charter (“NYPE 2015 Time

Charter”), which provides that force majeure events are “the act of God, enemies, fire, restraint of

princes, rulers and people, and all dangers and accidents of the seas, rivers, machinery, boilers and



14. Hyundai Merchant Marine Co. Ltd v. Gesui Chartering Co. Ltd (The Peonia) [1991] 1 Lloyd’s Rep. 100.

15. Globe Spinning Mills (Nig) Plc v Reliance Textile Industries Ltd [2017] LPELR-41433 (CA), 27, para. E.

16. See section 135 Evidence Act, 2011.

17. Classic Maritime Inc. v. Limbungan Makmur SDN BHD [2019] EWCA Civ 1102.

navigation, errors of navigation throughout this Charterparty, always mutually excepted”18.

Typically, this clause can be amended by parties to include “epidemic” or “pandemic” or

“government action”.

Where it is amended, it can be said, depending on the facts and circumstances, that the COVID-19

will fall under the event of “epidemic” or “pandemic”. In the event that the clause is retained as

presently worded in the NYPE 2015 Time Charter, it has to be considered whether COVID-19 or its

impact on parties’ performance of obligation under the charterparty can be properly classified under

any of the identified force majeure events within the clause. It is important to note that this is fact

sensitive and depending on the facts and circumstances, an argument could be made that it can be

classified as an “act of God”. “Acts of God” have been judicially defined as “circumstances which no

human foresight can provide against and of which human prudence is not bound to recognise the

possibility, and which when they do occur, they are calamities that do not involve the obligation of

paying for the consequences that may result from them”19.

The question that arises is whether COVID-19, in the maritime domain, will qualify as an ‘act of

God’. Put differently, would COVID-19 qualify as an “act of God” event in the Nigerian maritime

industry because it has been declared a ‘dangerous infectious disease by the federal legislation

taking cognisance of the fact that the maritime domain has not been declared as an infected area

and ports in Nigeria are to remain operational during this pandemic? In other words, is it imperative

for the President to declare the Nigerian maritime domain as an infected area, with restrictions

placed on maritime activities, for COVID-19 (a dangerous infectious disease) to qualify as a force

majeure event in existing time charterparties in Nigeria?



18. Clause 21 of the NYPE 2015 Time Charter.

19. Globe Spinning Mills (Nig) Plc v. Reliance Textile Industries Ltd (2017) LPELR-41433(CA); Tenant v. Earl Glasgow [1864] 2M(HL) 22; and Transco Plc v. Stockport Metropolitan Borough Council [2003] UKHL 61.

We take the view that the declaration of the Nigerian maritime domain as an infected with attendant

restrictions on maritime activities within the domain, is not a sine qua non for COVID-19 to qualify

as an act of God, and thus a force majeure event in relation to time charterparties in the Nigerian

maritime industry. It is axiomatic that COVID-19 is ravaging the globe and impacting adversely on

the performance of contractual obligations. The performance of obligations under maritime contract

is not excluded. To trigger the force majeure clause by parties to time charterparties in Nigeria will

depend on the facts and circumstances of each case, as there is no quarantine/curfew within the

Nigerian maritime space and maritime activities are expected to continue, subject to guidelines by

government agencies on measures to be taken by maritime stakeholders with respect to COVID-19.

More so, the Federal Regulation has directed that the Ports in Nigeria be fully operational.

It could be that the easier route for a party asserting force majeure with respect to a time

charterparty in the Nigerian maritime sector would be to rely on the impact of measures by different

states in the ‘land domain’ (such as the effect of closure of coastal border of some coastal States on

crewing, equipping and supplies to vessels under time charter in the Nigerian maritime industry) on

the performance of maritime obligations under existing time charterparties. Be that as it may, this is

highly factual and parties would have to lead cogent evidence to show an unbroken nexus between

measures in the ‘land domain’ and the inability of performance of a party’s obligation under the time

charterparty. Also, it is critical to note that even though the Lagos State Regulations declares that

the ports in Lagos State a local area which is endangered by the infectious disease, a party may not

be able to rely on the Lagos State Regulations to assert force majeure, given that Federal

Regulations (which are made pursuant to an Act and deemed to have covered the field) have stated

that all Nigerian ports are to be fully operational during this period.

Lastly, the party seeking to rely on COVID-19 as a force majeure event must also comply with the

notice requirement in the charterparty. We are of the view that some parties to a charterparty may

raise opportunistic claims of force majeure in order to avoid carrying out their obligations under the

charterparty. It is critical for any party who receives a notice of force majeure to ensure that there

is indeed a force majeure event within the contemplation of the time charterparty and that such

event has impacted on the ability of the counterparty to carry out its obligations under the time

charterparty.



LATE DELIVERY/REDELIVERY OF VESSEL

Given that time charterparty is an agreement to hire for a stated period of time, hire commences

upon the delivery of the vessel20 and terminates at the redelivery of the vessel. In simple terms,

the vessel is said to be delivered when the owner serves the charterer with a notice of delivery and

the vessel berths at the port of delivery, ready for the charterer’s employment. Redelivery, on the

other hand, is the delivery of the vessel back to the owner by the charterer at the port of

redelivery.21

Under the time charter, there are consequences of delays in delivery and redelivery of vessel.

Whilst the consequence of delivery is fairly straightforward, that of redelivery is not as

straightforward. In the event of delay in delivery of the vessel by the owner, depending on the facts

and circumstances, the charterer has the option to cancel the charter given that the hire is yet to

commence.22 Where he opts to cancel the charter, it must be done no later than the date of the

notice of delivery.

With respect to the redelivery of the vessel, it is important to note certain underlining rules which

undergird the redelivery of the vessel. First, the date for redelivery should be regarded as an

approximate date only,23 except there is an agreement to the contrary.24 Second, “a grace period”

(also called margin tolerance”) may be agreed by parties within which the delivery will not be

considered as a breach.25 If the charterparty does not contain the grace period, the Nigerian court

could be persuaded, based on the custom in the industry, not to hold the charterer to the exact

contractual date and to imply a reasonable grace period. Third, a last voyage is classified legitimate

if at the time it is commenced, the charterer could reasonably expect that redelivery will be made

within the charter period and margin tolerance if agreed.26 Also, classification of the last voyage as

illegitimate depends, if at the time of its commencement, it could not reasonably have expected

that the vessel could be redelivered within the chartered time including the margin tolerance.

Having established the underlining principles, it is imperative to consider the rules relating to

redelivery. It is critical to note that: (a) a definite redelivery date could be adjusted by an expressly

agreed margin tolerance, and if there is not agreed term in respect thereof, the court will apply one

depending on the charter period; (b) the charterer must give a legitimate order (legitimate at the

time it was made) and redeliver the vessel within the charter period (including the margin

tolerance), otherwise he will be in breach of the charterparty;



20. See Clause 2 of the NYPE 2015 Time Charter.



23. Hyundai Merchant Marine Co. Ltd v. Gesui Chartering Co. Ltd [Supra].

24. Watson v. Merryweather [1913] 18 Comm.Cas.294.

25. The London Explorer [1972] AC 1 (HL).

26. The Gregos [1995] 1 Lloyd’s Rep 1.

(c) where the charterer gives an illegitimate last voyage order, the owner/captain has two options,

either they refuse to perform the illegitimate order27 or perform the order and reserve their rights

to claim damages for breach of charterparty by reason of late re-delivery.28 However, the damages

will be the difference between the market rate and the charter rate at the date of redelivery of the

vessel29 and (d) regardless of any liability for damages for breach of the charterparty, the charterer

must pay the hire at the contractual rate to the day of actual redelivery.30

The pertinent question is what will be the effect of COVID-19, or its impact on late redelivery of

vessels, when such late delivery is as a result of government policies/measures as a result of the

pandemic – will the shipowner still be entitled to compensation for late re-delivery? What will be the

effect with respect to late delivery of the vessel, will it be the basis for the charterer to cancel the

charter and bring it to an end? In attempting to answer these queries, it is noteworthy that the

facts and circumstances of each case will be determinative. Hypothetically, depending on the facts

and circumstances, the charterer has the option to suspend the charter where there is a force

majeure event.31 As regards late redelivery due to the impact of COVID-19, in practical terms,

dynamics change depending on the facts and circumstances. In a hypothetical circumstance, where

a vessel on a legitimate last voyage is unable to enter a port in Nigeria, given the directive of the

President of Nigeria that only vessels that have been at sea for more than fourteen (14) days will

be allowed to dock in Nigerian ports, an argument could strongly be made that the charterer may

rely on force majeure (if all the conditions stated above are met) and the owners will not be entitled

to damages for late re-delivery. However, in the circumstance where the charterer issued an

illegitimate last voyage order, depending on the facts and circumstance, the charterer could be

liable for damages for late re-delivery.32 Thus, what would be the outcome in each case would be

dependant on whether the charterer can demonstrate that the impact of COVID-19 affected the late

redelivery of the vessel and that it did not issue an illegitimate last voyage order (i.e. that it was

not reasonably foreseeable at the date of the issuance of the last voyage directive that the

measures by government would impact on the re-delivery of the vessel on the contractually agreed

date of re-delivery).

In sum, whether the owner can rely on force majeure in a case of late delivery, or the charterer is

entitled to cancel the charter, or in the case of redelivery, the charter can rely on force majeure or

the owner entitled to damages for late-redelivery will be based on the facts and circumstances of

each case.



27. Ibid.

28. Clause 4(c) of the NYPE 2015 Time Charter.

29. The Dione [1975] 1 Lloyd’s Rep 115, 117-118; The Achilleas [2008] UKHL 48.

30. The Gregos [Supra] at 10.

31. Kawasaki Kisen Kabushiki, Kisha v. Belship [1939] 63 L.I.L.R 175.

32. Torvald Klasveness A/S v Arni Maritime Corporation [1993] 2 Lloyd’s Rep. 335.

CONCLUSION

The impact of COVID-19 on time charterparties in the Nigerian maritime sector could, undoubtedly,

be adverse. The claims of force majeure events are much likely to be raised by counterparties to

time charterparties. These claims, both genuine and opportunistic, will be subject of dispute

resolution. However, each case would be decided based on its facts and circumstances and parties

are advised to critically examine the terms of their charterparty before making any claims and

putting up a defence to a claim. Parties could also explore the re-negotiation of terms of their

charterparty as unnecessary litigation is inimical to maritime business and operations.


CHARTERPARTIES IN THE NIGERIAN MARITIME SECTOR

Olaniwun Ajayi LP Olaniwun Ajayi LP @OlaniwunAjayiLPwww.olaniwunajayi.net

To read more about our publications, please visit our COVID-19 Online Resource Centre here.

For further information, please contact:

Dr K.U.K. Ekwueme

Partner

Dispute Resolution Department

+234-1-2702551 Ext 2600

[email protected]

Bisi Makanjuola

Senior Associate

+234-1-2702551 Ext 2603

[email protected]

APRIL 2020

Dr. Echefu Ukattah

Senior Associate

+234-1-2702551 Ext 2718

[email protected]

Gideon Udobong

Associate

+234-1-2702551 Ext 2733

[email protected]

http://www.olaniwunajayi.net/blog/covid-19-publications/

mailto:[email protected]



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