Piracy and time charterparty clauses - Risk shifting or risk sharing?

Piracy and time charterparty clauses – Risk shifting or risk sharing?

Vessel owner industry groups Intertanko and BIMCO have published piracy clauses for insertion in time charterparties. 

Intertanko and BIMCO clauses
The Intertanko and BIMCO piracy clauses for time charterparties are available to Intertanko and BIMCO members on the respective websites.¹ One purpose of the clauses is to expressly allow shipowners to choose an alternative route if, in the master’s or owner’s reasonably held view, the intended route is unsafe by reason of piracy in the area.  Although arguably the master has always had this authority, the clauses make it clear that re-routing where circumstances merit it will not expose an owner to claims for breach of charter, for example a failure to prosecute the voyage with “due” or “utmost despatch”, or for deviation with respect to carriage of cargo.  It should also be borne in mind that any bill of lading issued for any voyage should be claused to give the owners and master discretion matching that of the charterparty.  Owners might have a right of indemnity against the charterer if the discretion is not available but it is clearly desirable to have the discretion provided for in the bills of lading if the piracy clauses authored by BIMCO or Intertanko are used. 

However, the clauses go well beyond making explicit the right of the owner to refuse voyage instructions that pass through pirate-prone waters.  The provisions are quite “owner-friendly” in that both provide that the vessel remains indefinitely on hire during preventive measures and actual hijackings.  Further, both provisions require the charterer to indemnify owners for liabilities, costs and expenses due to both preventive measures as well as hijackings.²   Liabilities could include crew personal injury claims, pollution, wreck removal and a host of other liabilities already insured by the owner’s entry in a P&I Club (as well as damage to the vessel and ransom payments which are not owner’s P&I risks).³

“Costs” under both clauses allow the owner to pass on the costs of security guards, additional crew expenses and costs of “additional insurance”.  In this respect, the Intertanko clause refers to “additional insurance premiums” while the BIMCO clause refers to “additional insurance”.⁴ It has been clarified in commentary by BIMCO that “additional insurance” does not include kidnap and ransom insurance.⁵ 

Charterer-friendly clauses
Charterers are understandably reluctant to agree to such sweeping indemnities and cost shifting.  There are more charterer-friendly clauses in use by some of the volume charterers.  Here is one example intended for use with the NYPE time charter:

“Charterers shall have the right to order the vessel to transit via the Suez Canal and/or the Gulf of Aden during the course of this Charterparty. Charterers shall contribute towards additional insurance premiums incurred by Owners in this respect up to an aggregate maximum amount of USD ... any one transit, subject to presentation of usual vouchers if requested by Charterers.

For the avoidance of doubt, whilst under the relevant Clause of this charterparty (NYPE Clause 8) the Captain is under the orders and directions of the Charterers as regards employment and agency, the Charterers shall not be liable for any loss, delay or expense (including but not limited to consumption of bunkers) arising from the capture/seizure or violent robbery or detention or threatened detention or any malicious act by third parties which shall always include but not be limited to acts of piracy during the performance of lawful voyages and transit via the Suez canal and/or the Gulf of Aden. The Vessel shall remain on hire during any such occurrence but for a maximum duration of 60 days, after which the obligation of the Charterers to pay hire shall cease until such time as the vessel is returned to Charterers service at an equivalent position as that at which such occurrence commenced.”

Charterers and owners have also resolved disputes commercially by agreeing to an alternative routing and sharing the additional costs when the danger to crew, vessel and cargo warranted avoiding the area.

Comment
When considering a piracy clause, owners must bear in mind the risks that they intend to pass to the charterer and be prepared for charterers’ refusal to agree or insistence on alternative and more balanced risk sharing.

Footnotes
1 At www.intertanko.com and www.bimco.dk.
2 In this respect the Intertanko time charter clause provides:
“Charterers shall indemnify Owners against all liabilities costs and expenses arising out of actual or threatened acts of piracy or any preventive or other measures taken by Owners whether pursuant to Paragraph 2 of this Clause or otherwise, including but not limited to additional insurance premiums, additional crew costs and costs of security personnel or equipment.”
3 See article “Piracy and insurance” in this issue of Gard News.
4 Pursuant to the BIMCO clause:
“If the Vessel proceeds to or through an area where due to risk of piracy additional costs will be incurred including but not limited to additional insurance, additional personnel and preventative measures to avoid piracy attacks, such costs shall be for the Charterers’ account. Any time lost waiting for convoys, following recommended routeing, timing, or reducing speed or taking measures to minimise risk, shall be for the Charterers’ account and the Vessel shall remain on hire…”
5 This clarification, however, is not binding on an arbitration panel or court which under English law will look to the language of the clause itself.