Legal Ramifications in Shipping & Trade Due to COVID-19

By  //  July 29, 2020

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Victor Restis Highlights Contractual Issues Caused by a Global Pandemic.

Victor Restis Highlights Contractual Issues Caused by a Global Pandemic.

The Novel Coronavirus (COVID-19) disrupted every industry across the globe and placed an unusual strain on global shipping and trade.

Victor Restis, president of Enterprises Shipping & Trade S.A., pointed out that overnight disruptions were reported, and many manufacturers and distributors halted operations to contain the spread of the virus.

Many countries closed borders ceasing import and export of goods, and entire facilities were shut down due to staying at home orders for millions within the global workforce. 

Global supply chains suffered in some areas but were able to maintain the integrity it was built on, said Restis. However, the events of COVID-19 caused many legal quagmires that the shipping and trade industry is still reeling from today.

The main issue being which entity bears responsibility for disruptions caused by a global pandemic and how contractual matters are resolved.

Port safety was one of the leading concerns for global shipping companies. Restis points out that under normal circumstances of a time charter, the “owner” is obligated to comply with the orders of a charter unless compliance of those orders subjects the ship and its crew to safety risks.

How does a pandemic like COVID-19 affect this contractual obligation? In the early days of the virus, it was unclear whether a port was deemed ‘safe’ for incoming crew and product transfer, and many vessels were turned away due to closure or determined it was unsafe to continue through.

The product(s) aboard the vessel were then returned to the port of origin or simply left aboard the vessel until continuance was deemed safe, which in the case of COVID-19, meant an undetermined amount of time. 

As it was difficult to determine the ‘safety’ of an affected port, legal ramifications swirled, and each party defended decisions based on contractual obligations vs. facing an unprecedented global health event.

If an owner refuses to follow a charterer’s order without sufficient grounds, the charterer may be entitled to terminate the contract and/or claim damages.

On the other hand, if an owner does follow a charterer’s order(s) and suffers the loss. As a result, it would most likely be entitled to an indemnity from the charterer. 

The legal questions continue when facing crew members who become infected with COVID-19. Who bears responsibility? Restis comments that under a time charter, the owner is generally responsible for matters relating to the crew.

If a crew member becomes infected, the owners ensure that the crew member is quarantined and arrange for the treatment and repatriation.

Where the illness results from a charterer’s order, the owner may be able to claim any costs of repatriation, medical expenses, etc., from the charterer depending on the terms.

With the pandemic spreading like wildfire, this particular scenario was likely played out across all shipping companies and in every port. 

With both the scenarios mentioned above, the maritime industry many invoke Force Majeure. Given the WHO declaration of COVID-19 being a global pandemic, Force Majeure will likely be invoked by parties where contracts – under normal circumstances – would find them bearing the liability of the issue.

Generally, a party who seeks to rely on a Force Majeure bears the burden of proof to demonstrate that it could not perform its obligations due to a relevant event; show that the inability to perform its contractual obligation was beyond its control; and that there were no reasonable steps the party could have taken to avoid the event or the consequences thereof.

The events of COVID-19 seem to cover this burden of proof, but parties are urged to review Force Majeure provisions carefully to ensure the proper legal protocols.