The widely used Conwartime 1993 clause has at last had judicial consideration. As Conwartime 1993 and Conwartime 2004 are identical in respect of allocation of risk, responsibility and cost, the decision is of interest to parties incorporating the 2004 version of the Conwartime clause as well.
On 8 November 2011, the High Court gave judgment in relation to an appeal against an arbitration award dated 14 December 2010. The application for leave to appeal had been granted under Section 69 of the Arbitration Act, namely that the decision of the Tribunal was wrong in law.
The Relevant Clauses in the Charter
Clause 8:
“The Captain shall prosecute his voyages with due despatch and…shall be under the orders and directions of the Charterers as regards employment and agency…”
Clause 75:
“BIMCO Standard War Risk Clause for Time Charters, 1993
Code Name: ‘CONWARTIME 1993’
[The CONWARTIME 1993 wording can found at the end of this article]
Details of the Case
The ‘TRITON LARK’, a geared bulk carrier built in 2005, had been chartered on an amended New York Produce Exchange form incorporating the Conwartime 1993 clause. The vessel was ordered to load a cargo of bulk potash in Hamburg for carriage to China via Suez and the Gulf of Aden.
The Master expressed the view that proceeding via Suez would involve exposing the vessel and the crew to physical danger from pirates. Concerns were heightened due to the fact that a few days before Charterers’ instructed the Master to proceed via Suez and the Gulf of Aden, four piracy attacks had taken place, one of which had been successful. Despite Owners concerns, Charterers insisted that the vessel should proceed via Suez through “the safe MSPA channel” as opposed to the “high risk” area, on the basis that no vessels had been high jacked at night time, that the vessels most susceptible to hijacking were those proceeding with a speed of less than 20 knots and that there was an increased naval presence in the Gulf.
Owners would only agree to proceed via the Suez on five conditions of which the fourth entailed having a second master on board the vessel, the expenses of which were to be borne by Charterers, and the fifth condition being that if the vessel was seized by pirates, compensation for loss of hire would be payable by Charterers. The fourth and fifth conditions were rejected by Charterers and negotiations continued.
The vessel proceeded to Gibraltar for bunkers and Charterers maintained their orders to the vessel to proceed via Suez and the Gulf. Owners, after informing Charterers of an International Maritime Bureau warning reporting that a bulk carrier and a fishing vessel had been hijacked by pirates, insisted that the vessel should proceed via the “safe route”, namely, via the Cape of Good Hope. Ultimately, it was decided by Owners to proceed via the Cape of Good Hope and in doing so Owners relied on Clause 75(2) (being sub-paragraph (2) of Conwartime 1993):
“(2) The Vessel, unless the written consent of the Owners be first obtained, shall not be ordered to or required to continue to or through, any port, place, area or zone (whether of land or sea) or any waterway or canal, where it appears that the Vessel, her cargo, crew or other persons on board the Vessel, in the reasonable judgement of the Master and/or the Owners, may be, or are likely to be, exposed to War Risks. Should the Vessel be within any such place as aforesaid, which only become dangerous, or is likely to be or to become dangerous, after her entry into it, she shall be at liberty to leave it.”
As a consequence of this decision, additional costs amounting to US$462,221.40 were incurred by Charterers, which they deducted from hire. The dispute was referred to arbitration.
The Arbitration Award
The Tribunal said it was important to acknowledge that from the date the parties had entered into the charter party, which was on 29th August 2008, till the time within which the parties negotiated and considered passage through the Suez and the Gulf of Aden, the risk of hijacking had escalated and both the insurance market and Owners had perceived a greater risk of attack by pirates.
The Tribunal preferred the master’s “no risk” approach towards the safety of the vessel and her crew which was to proceed via the Cape of Good Hope.
It was concluded by the Tribunal that the information available to Owners enabled them to conclude that there was a serious risk of hijacking and that they had made an objectively reasonable decision.
The High Court
The Court considered a number of issues arising from the wording of Clause 75 (2) of Conwartime 1993:
the meaning of the words “may be, or are likely to be”;
the reasonable judgment of the Owners;
whether the clause gives the Owners a discretion and if so whether they are obliged to make proper enquiries before exercising it;
1. The meaning of the words “may be, or are likely to be”
Teare J noted that the words “maybe, or are likely to be, exposed to War Risks” do not clearly state the degree of risk that must exist. However, he decided these words were intended to express a “single degree of possibility or probability” which should be understood as “likely to be”, and that given the need to balance a charterers right to give directions as to employment as against the masters responsibility for the safety of the vessel, her crew and cargo, the test was whether there was a “real likelihood”, in the sense of real danger, that the vessel would be exposed to acts of piracy.
Teare J noted that while the Tribunal had adopted the test of a “serious risk” with respect to the words “may be or are likely to be” (a test that it was difficult to conclude was wrong), because they had “focussed on the quality or nature of the event of which there was a risk rather than on the likelihood of the risk materialising” the Tribunal had incorrectly understood a “serious risk” to be a risk of an important event demanding consideration. In contrast Teare J concluded that the clause required a real likelihood or real danger that the vessel would be exposed to acts of piracy; the distinction being whether there is a risk that a serious event will occur as opposed to a serious risk that an event will occur (ie Teare J’s view). As such the Tribunal had erred in law.
2. Was the Owners judgement reasonable?
As to the duty to make a reasonable judgment Teare J took the view where the Tribunal had wrongly applied the test as to “may be, or are likely to be, exposed to War Risks” it followed that their conclusion, that a reasonable judgment had been formed, must also be wrong in law.
3. Was there a duty on the Owner to make reasonable enquiries before exercising their discretion to refuse to proceed if the vessel, her cargo , … “maybe, or are likely to be, exposed to War Risks?
Teare J noted that the Tribunal had satisfied itself that “reasonable enquiries” had been made, and that the clause required owners to make any decision based on those enquiries in good faith; that is any judgment reached must be objectively reasonably.
However, what constituted necessary enquiries depends on the words “may be, or are likely to be, exposed to War Risks” and since the Tribunal had understood and applied that test wrongly their conclusion that sufficient enquiries had been made was also wrong in law.
Accordingly, subject to further submissions as to the appropriate order Teare J indicated that the dispute should be remitted back to the Tribunal to decide on the basis of his decision as to the appropriate test and on the facts to determine whether, in the reasonable judgment of Owners, there was a “real likelihood”, in the sense of a real danger, that the vessel would be exposed to acts of piracy.
Concluding Remark
While the decision in this case provides useful guidance to both Owners and to Charterers when contemplating a transit of the Gulf of Aden it is almost certainly not the last judicial word on this subject.
Tony Swinnerton of Swinnerton Moore LLP represented the charterers of ‘TRITON LARK’ in this matter. We are grateful to him for this article.
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BIMCO Standard War Risk Clause for Time Charters, 1993
Code Name: ‘CONWARTIME 1993’
(1) For the purpose of this Clause, the words:
(a) “Owners” shall include the shipowners, bareboat charterers, disponent owners, managers or other operators who are charged with the management of the Vessel, and the Master; and
(b) ‘War Risks’ shall include any war (whether actual or threatened), act of war, civil war, hostilities, revolution, rebellion, civil commotion, warlike operations, the laying of mines (whether actual or reported), acts of 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 certain cargoes or crews or otherwise howsoever), by any person, body, terrorist or political group, or the Government of any state whatsoever, which, in the reasonable judgement of the Master and/or the Owners, may be dangerous or are likely to be or to become dangerous to the Vessel, her cargo, crew or other persons on board the Vessel.
(2) The Vessel, unless the written consent of the Owners be first obtained, shall not be ordered to or required to continue to or through, any port, place, area or zone (whether of land or sea) or any waterway or canal, where it appears that the Vessel, her cargo, crew or other persons on board the Vessel, in the reasonable judgement of the Master and/or the Owners, may be, or are likely to be, exposed to War Risks. Should the Vessel be within any such place as aforesaid, which only become dangerous, or is likely to be or to become dangerous, after her entry into it, she shall be at liberty to leave it.
(3) The Vessel shall not be required to load contraband cargo, or to pass through any blockade, whether such blockade be imposed on all vessels, or is imposed selectively in any way whatsoever against vessels of certain flags or ownership, or against certain cargoes or crews or otherwise howsoever, or to proceed to an area where she shall be subject, or is likely to be subject to a belligerent right of search and/or confiscation.
(4)(a) The Owners may effect war risks insurance in respect of the Hull and Machinery of the Vessel and their other interests (including, but not limited to, loss of earnings and detention, the crew and their Protection and Indemnity Risks), and the premiums and/or calls thereof shall be for their account.
(b) If the Underwriters of such insurance should require payment of premiums and/or calls because, pursuant to the Charterers’ orders, the Vessel is within, or is due to enter and remain within, any area or areas which are specified by such Underwriters as being subject to additional premiums because of War Risks, then such premiums and/or calls shall be reimbursed by the Charterers to the Owners at the same time as the next payment of hire is due.
(5) If the Owners become liable under the terms of employment to pay to the crew any bonus or additional wages in respect of sailing into an area which is dangerous in the manner defined by the said terms, then such bonus or additional wages shall be reimbursed to the Owners by the Charterers at the same time as the next payment of hire is due.
(6) The Vessel shall have liberty : -
(a) to comply with all orders, directions, recommendations, or advice as to departure, arrival, routes, sailing in convoy, ports of call, stoppages, destinations, discharge of cargo, delivery, or in any other way whatsoever, which are given by the Government of the Nation under whose flag the Vessel sails, or other Government to whose laws the Owners are subject, or any other Government, body or group whatsoever acting with the power to compel compliance with their orders or directions;
(b) to comply with the order, directions or recommendations of any war risks underwriters who have the authority to give the same under the terms of the war risks insurance;
(c) to comply with the terms of any resolution of the Security Council of the United Nations, any directives of the European Community, the effective orders of any other Supranational body which has the right to issue and give the same, and with national laws aimed at enforcing the same to which the Owners are subject, and to obey the orders and directions of those who are charged with their enforcement;
(d) to divert and discharge at any other port any cargo or part thereof which may render the Vessel liable to confiscation as a contraband carrier;
(e) to divert and call at any other port to change the crew or any part thereof or other persons on board the Vessel when there is reason to believe that they may be subject to internment, imprisonment or other sanctions.
(7) If in accordance with their rights under the foregoing provisions of this Clause, the Owners shall refuse to proceed to the loading or discharging ports, or anyone or more of them, they shall immediately inform the Charterers. No cargo shall be discharged at any alternative port without first giving the Charterers notice of the Owners’ intention to do so and requesting them to nominate a safe port for such discharge. Failing such nomination by the Charterers within 48 hours of the receipt of such notice and request, the Owners may discharge the cargo at any safe port of their own choice.
(8) If in compliance with any of the provisions of sub-clauses (2) to (7) of this Clause anything is done or not done, such shall not be deemed a deviation, but shall be considered as due fulfilment of this Charter Party.
