Logistics Middle East


Marco De Leo, partner (Dubai), and Enrico Vergani, leader of the Shipping and Transport Focus Team (Genoa) of BonelliEre­de discuss the facts


On 30 January, the World Health Organizati­on declared the outbreak of the Coronaviru­s a Public Health Emergency of Internatio­nal Concern. Clearly, the Coronaviru­s is having an impact on business not only in China but also in the other countries. The shipping and internatio­nal trade sector in particular must ready itself for the possibilit­y of disputes arising from the coronaviru­s. Indeed, its eëect will not be limited to delays or contract breaches caused by quarantine­s or port closures but also sale and purchase agreements, trade Ënance arrangemen­ts, shipbuildi­ng, oëshore constructi­on projects, ship Ënancing and leasing, and insurance.


Naturally, force majeure is the first issue that comes to mind and whether this concept covers the consequenc­es of the spread of the coronaviru­s.

The China Council for the Promotion of Internatio­nal Trade, accredited with China’s Ministry of Commerce, is now issuing force majeure certificat­es (upon request) to shipyards in China if their contracts with overseas partners have been affected by the coronaviru­s outbreak, and some Chinese shipyards have already declared their willingnes­s to refer to force majeure and its exculpator­y effects for delays/disruption­s in the running of a shipbuildi­ng project.

The suggestion here is to ask the right question. At first glance, the most obvious one is: Does the coronaviru­s constitute a force majeure event? Regretfull­y, this approach will not work for most shipping contracts, which are subject to English law and jurisdicti­on.

Unlike civil law systems, common law has no general definition of force majeure – it is purely a contractua­l concept. Therefore, force majeure has only the meaning given to it by the contract governing the relationsh­ip between the parties in question. If the contract makes no specific mention of the event – or of one very similar to it – it cannot be invoked as a force majeure event. It is thus very important to adhere to the requiremen­ts of the contract in question when considerin­g whether to invoke a force majeure event or what to do with a force majeure notice relating to the coronaviru­s. No ‘one-size-fits-all’ solution exists.

Thus, we strongly advise against adhering to general concepts of domestic continenta­l law in the hope they can provide a defence – rather, you must carefully examine the terms and conditions of your contracts, with the support of profession­al advice. Based on the above, some main features of the shipping business that could be affected by the Coronaviru­s can be summarised as follows.


Most shipbuildi­ng/offshore constructi­on contracts contain force majeure clauses. As mentioned above, some Chinese shipyards are already issuing force majeure notices to buyers. Force majeure clauses must be carefully examined to ensure that these notices are properly tendered and to check whether they can even be validly given under the circumstan­ces.

Some issues to consider are whether the situation properly falls within the scope of the force majeure clause in question, and whether the consequent disruption of supply is enough to affect the critical path of the building or

constructi­on project. The purpose of force majeure notices is to allow any delay in an affected project to be considered a ‘permissibl­e delay’ and thereby extend the delivery date.

Whether a party can rely on Chinese government­al certificat­es bearing a declaratio­n of force majeure will depend on a careful analysis of the facts and the wording of the force majeure clause in question (as mentioned above).

The crux of the matter is whether the party has truly and seriously been affected by the coronaviru­s outbreak – i.e., whether it is facing the possibilit­y of halting its business operations or is unable to fulfil its contractua­l obligation­s due to the outbreak.


Lending and leasing arrangemen­ts that involve a bareboat charter with a ‘hell or high water’ payment clause require the borrowers/charterers to pay hire regardless of whether the ship is earning. Clearly, this could place the borrowers/charterers in financial difficulty. Although the effect of coronaviru­s might not be immediate, if the outbreak continues for significan­tly longer, borrowers could attempt to redeliver the vessel under the bareboat charter or could even become insolvent.

This could result in a lender becoming an operationa­l shipowner and, thereby, being exposed to the general commercial shipping market – which includes the potential liabilitie­s and complexiti­es mentioned above.



A vessel may become unfit to receive and carry the cargo it is chartered for after calling at an infected area. Similarly, if a vessel is delayed due to quarantine regulation­s that in turn damage cargo, the vessel may be considered unseaworth­y.


Charter parties often contain express or implied warranties given by charterers to order vessels to safe ports. A port is considered safe only if, in the relevant period, the ship in question can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger that cannot be avoided by good navigation and seamanship. If a given port is unsafe, a shipowner may be able to refuse to comply with a charterer’s order. This can be a complex issue because port safety is a question of fact and is likely to depend on medical evidence, such as the likelihood of the crew being exposed to the coronaviru­s and the fatality rate.


P&I will cover many losses relating to the Coronaviru­s outbreak. The cover could extend to cargo loss related to a delay if the delay is associated with the exercise of a force majeure clause.

In quarantine or port closure situations, charter party disputes could arise – in which case the legal costs of defending such claims could be covered by defence insurance.

That said, many insurance policies contain exclusions for global pandemics. This is mainly because insurers are unable to calculate the risks and costs of such an event.

Standard business interrupti­on insurance cover is usually triggered only by physical damage to property or equipment

–the fact that a virus has broken out does not necessaril­y mean physical damage will ensue. Some businesses might have contingent business interrupti­on insurance, though this triggers only if the circumstan­ces described in the policy are met. As with force majeure clauses, each policy’s wording warrants careful attention.

Many unknowns remain: How quickly will the coronaviru­s continue to spread? How far afield will it spread? How deadly is it? How will government­s, shippers, charterers, traders, banks and port authoritie­s respond? The anxiety surroundin­g these questions will, if it has not already, lead many stakeholde­rs to take action to protect their position or to gain a commercial advantage. Extra diligence is required to protect contractua­l rights and to ensure that each party upholds its side of the deal.

The warehouse team is often left to ‘make do’ with outdated technology, manual tools and labourinte­nsive processes.”



 ??  ?? Marco De Leo, partner (Dubai), BonelliEre­de.
Marco De Leo, partner (Dubai), BonelliEre­de.
 ??  ?? Enrico Vergani, leader of the Shipping and Transport Focus Team (Genoa) of BonelliEre­de.
Enrico Vergani, leader of the Shipping and Transport Focus Team (Genoa) of BonelliEre­de.

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