It has recently been widely opined that a charterer would continue to be liable to pay hire if a vessel is seized by pirates, because such an event would not fall within the commonly encountered NYPE clause 15.
NYPE clause 15 causes
We should consider briefly the causes of delay covered by the familiar clause 15, which might include seizure by pirates.
It might be tempting to argue that seizure by pirates constitutes an 'average accidents to ship or cargo'. However, on closer consideration, it is unlikely that attack by pirates could be considered an 'accident' in the natural sense of the word. Also, there is authority1, albeit obiter, to suggest that 'average accidents' means accidents causing physical damage, which would not necessarily apply to seizures.
At first blush, a failure by the crew to take adequate precautions against piracy could be considered a 'default and/or deficiency of men' (as clause 15 is commonly amended to say). However, 'deficiency' in this context has been found to mean 'numerical insufficiency'2. Historically the word 'default' has been added to clause 15 to circumvent the effect of a judgment in which 'deficiency' was found not to cover a refusal by the crew to work3. There does not seem to be a reported case yet in which a default in the negligent sense has triggered the operation of clause 15. However, 'default' might naturally mean a failure to do something, as well as a refusal: the Oxford English dictionary definition includes "Failure to act; neglect; failure to perform some legal requirement or obligation; to fail or be overlooked by reason of negligence, lack of exposition, etc", which indicates that a failure by the crew to perform their duties properly could trigger clause 15.
Also, following the Laconian Confidence4, the words 'any other cause' after the list of causes in clause 15 should be construed ejusdem generis or at least in a limited way to do with the vessel's efficiency, crew, cargo, trading history or the perception of these by an outside body, which is not "extremely extraneous". Such an interpretation is very unlikely to include piracy. However, what if the clause was amended to read 'any other cause whatsoever'? It is conceivable that a seizure by pirates would then be deemed a cause triggering the operation of clause 15.
Full working of the vessel
Here it should be noted that in order for the familiar NYPE clause 15 to operate, the 'full working of the vessel' must be prevented. The cases show that this concept is wider than simply the vessel's physical condition. In the Laconian Confidence, the lack of class certificates prevented the full working of the vessel, prompting Rix J to note that "a vessel's working may be prevented by legal as well as physical means, and by outside as well as internal causes".
It could be said that a seized vessel is not able to perform the service required of her, for example, if the crew were required to deviate from her intended route. Further, the cause interfering with the working of the vessel would be on board the vessel itself – therefore seeming more direct than, for example, an order by local legal authorities (which can legally prevent the 'full working of the vessel'). Therefore it is possible that the 'full working of the vessel' would be prevented and that the off-hire clause would be triggered.
However, it could also be said that, even though pirates may board the vessel, they do not become 'part' of it, and therefore may remain an extraneous restraint. Further, it is relevant to consider what service might be being required by the vessel in the circumstances of the seizure. In the familiar Court Line case5 involving the boom placed over the river Yangtze during wartime, the charterers' orders had been that the master should use his discretion when to leave the port given the wartime hazards. In waiting for the boom to be lifted, the master was probably performing the service required.
An argument along these lines was rejected in The Clipper Sao Luis6, where it was held that the service required by the charterers of a vessel prevented from leaving berth due to a fire was not that the fire be put out. However, it could be said that the risk of a fire caused by stevedores is very different from the risk of a pirate attack (being the main hazard faced by shipping in certain areas), and that dealing with a pirate attack may be carrying out the duties required by the charterers, considering their chosen route through areas with a high risk of encounter with pirates.
On balance it would appear that a seized vessel may be off-hire under an amended clause 15. However, it would seem unjust that owners should bear the risk of loss of earnings due to seizure by pirates and it is submitted that courts and tribunals lean heavily against such a finding.
Other off-hire clauses
Efficiency
Time charters often include additional 'loss of time clauses' under which a vessel may be off-hire in case of seizure by pirates.
If the relevant clause refers to the loss of time as being the time between the vessel becoming inefficient and then becoming efficient again, or generally by reference to a period of 'inefficiency', it is reasonably unlikely that a vessel seized by pirates could be considered 'inefficient'. Following The Manhattan Prince7, 'efficiency' will generally be interpreted as a reference to the physical condition or suspected physical condition of the vessel.
However, the interpretation of the 'efficiency' wording may be coloured by the types of situations contemplated by the clause in question. For example, if it deals with scenarios similar to the consequences of seizure, such as incapacitation of crew members, then restraint or incapacitation of the crew by pirates might be brought into the interpretation of 'inefficiency'. The clause may equally deal with time lost due to scenarios which would not strictly be considered 'inefficiencies', such as dealing with stowaways, in which case perhaps the use of the 'inefficiency' wording is merely a shorthand reference to the off-hire period and its meaning is not restricted to the physical condition of the vessel.
Deviation
Whether or not deviations forced on the crew by pirates will bring charterers within a particular off-hire provision may depend on the interpretation given to the phrase 'time lost through deviation'. Given its natural meaning, the phrase could be said to include changes of direction forced by pirates. However, there is case law to indicate that deviations need to be voluntary8 rather than forced by circumstances or by a third party.
Net loss of time
Where a clause refers to a 'loss of time', it is arguable that the vessel must have been prevented from working, i.e. from rendering to the charterers the service immediately required of her during the period of seizure. This raises the arguments on the 'full working of the vessel' mentioned above.
Can charterers be compelled to pay additional insurance premiums required due to piracy risks?
Where a war risks clause is drafted in such a way that charterers must reimburse premiums imposed by underwriters as being in respect of 'war', when they are in fact due to piracy risk (for example, 'If Underwriters should require payment of premiums because the vessel is due to enter... any area which is specified by such underwriters as being subject to additional premiums because of war risks...' ) then these premiums must be reimbursed by charterers. This is because the question of whether or not the piracy constitutes a 'war risk' is effectively left to underwriters.
However, if the question of whether piracy is included in the definition of 'war' is left open, it is unlikely that additional premiums due to piracy will be recoverable. Even where a definition of war in a clause includes de jure as well as de facto war, violent disorder short of the threat of war is unlikely to constitute war9. Even 'civil war', such as might arguably be occurring in Sudan would probably not encompass piracy. Following Spinney v Royal Insurance10, this would imply a conflict involving distinct "sides", rather than disparate groups all acting independently in their own interests in the manner of pirate gangs.
Could owners be precluded from claiming hire where charterers have been compelled to pay an additional 'loss of hire' insurance premium?
Where charterers are compelled by the charterparty to reimburse owners for premiums covering loss of hire/earnings due to a choice of route through areas with increased risk of piracy, does this affect their liability for hire if a vessel is seized by pirates?
A connected issue was raised in The Evia (No. 2)11 where the fact that charterers had reimbursed owners for a war risks premium (as required under a previous version of the Baltime war clause), precluded reliance by the owners on the safe port warranty where the relevant risk was covered by the policy. In that case it was successfully argued by the charterers that the Baltime war risks clause was itself a complete code on what was to occur in case of war risks and was therefore able to cut across the other provisions of the charter.
It is likely that express words to the effect that payment of hire was suspended or a reference to the off-hire clause would be required in order for the same principle to apply to a duty to pay hire, particularly given the rule that hire remains due unless a charterer can bring himself within an exception. It is worth noting that the war risks clause in The Evia (No. 2) expressly provided for the vessel to remain on hire.
Wilford argues12 that the approach taken in The Evia (No. 2) should not apply to reimbursements of additional premiums which are levied because of a charterers' choice of route. This is presumably because the entire risk of the adventure has not necessarily been covered by the additional premium. In fact in The Concordia Fjord13, the court declined to follow The Evia (No. 2) where charterers had been obliged to refund the additional rather than the full war risks premium.
BIMCO Piracy Clauses
Recent editions of the BIMCO piracy clause expressly address the issue of whether the vessel remains on-hire in the event of seizure, with the time charter clause released in March making it clear that the vessel is to remain on hire in event of seizure. The latest edition of the clause limits charterers' liability for hire to the first 90 days of detention by pirates. After 90 days, hire is not payable but the other contractual obligations and responsibilities of the charterers remain in force.
Should you have any queries on anything mentioned in this Briefing, please get in touch with Thor Maalouf or your usual contact at Reed Smith.