Crew changes during COVID-19 – a new flashpoint for charterparty disputes?

Crew changes during COVID-19 – a new flashpoint for charterparty disputes?
29/12/2020 https://www.hellenicshippingnews.com/crew-changes-during-covid-19-a-new-...

Whilst the world is adapting to the new normal, the shipping industry still struggle with the challenges and uncertainties brought on by the COVID-19 pandemic. A major hurdle facing shipowners has been crew changes. Notwithstanding global efforts to improve this situation, many obstacles remain, and unrestricted crew changes are unlikely to return in the foreseeable future.

Many crew members are working overtime due to various travel restrictions. Shipowners are forced to deviate from the contemplated voyage to land crew. In the meantime, enhanced control measures have been put into effect in some nations so that vessels which have changed crew at a port overseas within a 14-day period shall be subject to a compulsory quarantine before proceeding to load or discharge. These circumstances inevitably give rise to disputes under charterparties.

Seaworthiness and extended on-board service

The overtime service certainly has a negative impact on physical as well as mental health of crew, which brings about a risk of fatigue and failure of performance of the crew’s tasks. Questions have been asked whether the prolonged on-board stay will give rise to an issue of unseaworthiness.

As is known, the law on seaworthiness has evolved to require vessels’ compliance with regulatory requirements. The trapped crew may render a ship being unseaworthy by reason of the breach of the Maritime Labour Convention 2006 (MLC) which prescribes the maximum duration of service periods on board to be 12 months, and seafarers are given a right to repatriation after this period of time has lapsed. Flag States have shown some flexibility during the pandemic to allow the extension of crew contracts beyond 12 months. However, such extensions are not indefinite.

Any MLC violation may in the meantime create flaws in the vessel’s safety management system. While there is no reference to regulate crews’ excessive work under the International Safety Management Code (ISM Code), the compliance with MLC has in fact been a part of vessels’ SMS pursuant to ISM Code s1.2.3. Where an ISM clause is agreed in the charterparty, crews’ overtime service also puts owners at risk of breaching such ISM clause, which may further lead to a suspicion of unseaworthiness.

The obligation to provide a seaworthy ship is absolute under common law but that duty is often modified by the incorporation of Hague-Visby Rules (the Rules) via a clause paramount. Hence owners have only an obligation to exercise due diligence in ensuring that the vessel is seaworthy before or at the beginning of the voyage. It is always a matter of fact whether a shipowner has exercised their due diligence. Questions may be asked, for example, what procedures owners had to avoid the extended stay and what knowledge of the issues shipowners should have. Nowadays the pandemic, difficulties in replacing crew and new regulations from Flag States, are not new to shipowners at all. If a crew member is sent by owners to a 3-month voyage in the knowledge that he has already completed 11 months at sea, owners may be regarded as failing to exercise their due diligence.

Deviation for crew changes

Under most standard time charterparty forms, owners are granted a liberty to deviate the vessel for the purpose of saving life. It may not be possible to use this liberty in the present COVID-19 situation. Instead a reasonable deviation is expressly permitted under the Article IV Rule 4 of the Rules and available to owners if the Rules are incorporated.

Whether or not a deviation for crew changes was reasonable will also be based on a case-by-case assessment and subject to whether owners acted in due diligence in respect of the arrangements. Again, the court or the tribunal may look into timings, knowledge and the available options for swapping crew before the voyage commences. A deliberate deviation for crew changes with an intention of convenience solely (such as to save costs) would probably be unjustifiable. Unless owners could prove the reasonableness, owners are running the risk of breaching their contractual obligation to follow charterers’ orders and to sail the vessel with utmost or due dispatch. Owners are therefore recommended to make crew changes prior to commencement of the contractual voyage or to ask for charterers’ consent prior to conclusion of any fixture (particularly for short period charterparties like a TCT).

Delay at port due to vessels’ history of overseas crew changes

Difficulties exist for more than the issues of seaworthiness and deviation. Some nations have tightened port control measures by putting vessels with recent history of foreign crew changes in compulsory quarantine. Vessels are then released from quarantine upon expiration of 14 days after the last crew change. Should crew changes be unreasonable or not allowed, owners would probably be held liable to charterers for time loss as well as damages arising out of owners’ unilateral decision to crew changes and the resulting quarantine.

Under time charterparties, charterers are obliged to pay hire unless an off-hire event as defined by the off-hire provisions prevents full working of the vessel. Some forms such as Shelltime 4 make it clear that the vessel is off hire if time is lost due to delay in quarantine. But whether charterers could establish off-hire under standard NYPE forms is more complicated. An argument could be made that the compulsory quarantine would fall within “any other similar cause preventing the full working of the vessel” provision on the basis that the type of delay is close in nature to delay caused by “deficiency of officers or crew”. The outcome may however differ between cases where charterers agree to the crew change and where it is expected that the vessel will be delayed because of quarantine restrictions, and cases where the time loss results from the owner’s decision to replace the crew without permission. In the latter scenario, the immediate service of the vessel required by charterers is to berth for cargo operation which however is prevented by the unexpected quarantine.

Damages entitled to be claimed by charterers would include, but not be limited to, loss of demurrage which should have been earned by charterers under their voyage charterparty. The rationale is that compulsory quarantine on arrival will render the vessel incapable of serving a notice of readiness (NOR) since the vessel is not legally ready. While WIFPON (“whether in free pratique or not”) is commonly agreed, such clause is considered for routine formalities only and the Covid-19 restrictions linked to the owners’ decision to changes crew are unlikely to be deemed as routine formalities. The benefit of WIFPON clause will accordingly be lost and commencement of laytime cannot be triggered until the compulsory quarantine ends. A potential argument for owners rests with Article IV Rule 2(h) of the Rules, if incorporated. That rule gives owners an exception for damages arising or resulting from “quarantine restrictions”. However, the argument is probably weak considering that one may not be permitted to rely on exceptions where the effects of the exceptions could reasonably have been avoided.

BIMCO COVID-19 Crew Change Clause

In response to crew change crisis, BIMCO has produced a new clause named ‘BIMCO COVID-19 Crew Change Clause for Time Charter Parties 2020’. The clause gives shipowners the liberty to deviate for crew changes if COVID-19-related restrictions prevent crew changes from being conducted at ports or places as contemplated. The clause also aims to balance the interests between owners and charterers by conferring a notification obligation onto owners. Parties are permitted to choose how the time loss and associated costs are allocated between them under sub-clause (d) and (e). The clause can be found at https://www.bimco.org/contracts-and-clauses/bimco-clauses/current/covid-....

However, time and expense in connection with compulsory quarantine at the port called at subsequent to crew change does not seem to have been specifically dealt with in the BIMCO clause. Members may wish to have a bespoke clause for this.

Uncertainties always end with clear and specific clauses and Skuld encourages members to insert clear words so as to avoid potential disputes brought on by crew change during this difficult period. No doubt the clarity will also contribute to seafarers’ health and well-being.

Should any question arise, Skuld is available for help.
Source: Skuld