The Admiralty Court’s judgment in Bunge S.A. v Pan Ocean Co, Ltd, provided welcome analysis of the BIMCO Infectious Diseases Clause 2015, offering assistance to any live disputes still remaining involving Covid-19 or any future disputes regarding this clause. CJC Associate, Francesca Koenders, provides the summary.
In the recent judgment of Bunge S.A. v Pan Ocean Co, Ltd, the Admiralty Court dismissed the Owners appeal from an award given by an LMAA Tribunal. Permission to appeal was granted pursuant to Owners' submission that the BIMCO Clause was a widely used standard clause in charterparties and clarification of its terms would be of public importance. The industry benefits from the detailed analysis of this clause in the Court's judgment.
Factual background
Bunge S.A., ("Owners") let the vessel 'Sagar Ratan' to Pan Ocean Co Ltd ("Charterers") for a one time charter trip from the Philippines via Australia to China, carrying a cargo of alumina in bulk.
The vessel was delivered to Charterers at Cebu, Philippines on 28 February 2022 and sailed to Gladstone, Australia, arriving for loading on 11 March. Seven crew members were changed at Gladstone. The vessel then sailed on to Bayuquan, China. After arriving in China on 31 March, five crew members, including the Master, tested positive for Covid-19. Four crew members who had continued to test positive were replaced at Ulsan, South Korea. On 10 April, the vessel returned to Bayuquan and re-tendered NOR. Discharge was completed by 25 April and the vessel was redelivered on 26 April.
Charterers deducted hire for the period beginning from when the crew first returned positive tests until after the vessel has returned to Bayuquan, claiming the vessel was off-hire during this time under Additional Clauses 38 and 50 of the charterparty. Broadly, the first of these clauses provided that quarantine time caused by sickness of the Master, officers or crew would be for Owners' account; the second provided that loss of time or deviation caused by sickness to the Master, officers or crew would be for Owners' account.
The Owners claimed for the deducted hire in arbitration, relying upon the BIMCO Infectious or Contagious Diseases Clause for Time Charterparties 2015, incorporated at Clause 129 of the charterparty.
The Arbitration Proceedings
There were a number of different issues in the arbitration. Ultimately, the Tribunal held in favour of Charterers, finding that the vessel was off-hire under both Additional Clause 38 (the quarantine clause) and Clause 50 (the deviation clause).
The Owners appealed on three grounds, as set out below.
The decision of the Admiralty Court
The Court dismissed Owners' appeal in full, concluding that the arbitration tribunal had made no error of law on any of the three issues raised.
- Clause 129 – an amended BIMCO Infectious or Contagious Diseases Clause
Owners relied upon the following provisions of Clause 129:
"(h) If, notwithstanding Sub-clauses (b) to (f), the Vessel does proceed to or continue to remain at an Affected Area:
...
(iii) Any additional costs, expenses or liabilities whatsoever arising out of the Vessel visiting or having visited an Affected Area, including but not limited to screening, cleaning, fumigating and/or quarantining the Vessel and its crew, shall be for the Charterers' account and the Vessel shall remain on hire throughout".
Owners submitted that they had only to demonstrate that Banyuquan was an Affected Area within the meaning of the clause, because it carried "a risk of quarantine or other restrictions" in connection with Covid-19. If this was done, the vessel remained on-hire for the whole duration of the delay period.
The Court first considered whether Bayuquan qualified as an "Affected Area" under Clause 129, which incorporated (in amended form) the BIMCO Infectious or Contagious Diseases Clause 2015. Mr Justice Henshaw held that it did not.
Court considered there were two limbs to the test. A place was an Affected Area where there was a risk of exposure to the Vessel, crew or other persons on board:
1. To the disease (Limb 1); or
2. To a risk or quarantine / restrictions being imposed in connection with the disease (Limb 2).
This case was concerned solely with how to interpret Limb 2.
The Judge held that a place was an Affected Area where "the risk of quarantine or other restrictions is one of general application arising from the Disease". This would include a situation where a vessel is placed in quarantine because it previously visited a port affected by the relevant disease.
Viewed this way, Banyuquan was not an Affected Area. The vessel was quarantined because of the actual infected status of the crew, and not because of a policy of quarantining vessels in general or which had traded to particular ports or places.
The second question was whether there was any necessary causal link between the vessel entering an Affected Area and a delay period for Clause 129(h)(iii) to apply, and a vessel to be on-hire. Owners had argued there was none; in other words, if a vessel entered an Affected Area, it would remain on-hire for the entire duration it remained in that area, regardless of whether an event occurred that would otherwise make the vessel off-hire.
Having held that Banyuquan was not an Affected Area, the Judge did not strictly need to decide this point. Nevertheless, he did anyway and rejected Owners' argument. The clause was to protect Owners from delays or costs resulting from Charterers' decision to visit an Affected Area. It was not to protect Owners from all delay encountered in an Affected Area, regardless of cause or any other provisions of the charterparty.
- Clause 38 – Detention for quarantine
On the issue of whether there was a "detention for quarantine" (relevant to Clause 38). Owners argued that although there may have been a detention, there was no quarantine, and therefore Clause 38 did not apply.
The Court accepted that the vessel’s movement was restricted due to the crew's infection and the risk of transmission. Although the Owners had avoided a formal quarantine by diverting to Ulsan for a crew change, this did not negate the existence of a de facto detention related to quarantine.
The Court applied well-established case law on the interpretation of “detention” and “quarantine". It concluded that a vessel need not be forcibly immobilised; if a health-related restriction prevented it from performing the chartered service at the nominated port, it was still detained for quarantine purposes within the meaning of Clause 38.
Clause 50 – Service Immediately Required
Clause 50 suspended hire where a vessel deviated due to crew illness and became "inefficient" such that it could not perform the service “immediately required.” Charterers argued that it followed that the vessel was off-hire during the deviation from Banyuquan to Ulsan to change the crew. The Owners contended that the deviation to Ulsan was itself the service required.
The Court found that for Owners to succeed, they would need to show that the activity the vessel was engaged in was "in the ordinary way an activity required by a time charterer". If the activity did not meet this test, it was not the service immediately required. The deviation to Ulsan due to crew illness resulting in quarantine restrictions was not "in the ordinary way" of the charterparty. Accordingly, it was held that the vessel was off-hire under Clause 50 as well.
Conclusion
This case has provided much welcomed analysis of the BIMCO Infectious Diseases Clause 2015. This will be of assistance not merely in relation to any live disputes still remaining involving Covid-19 or regarding this clause, but also for future disputes.
While it is helpful to both owners and charterers to have guidance on the meaning of the clause, Charterers in particular will likely welcome the Court's rejection of the broad meaning Owners sought to give to the clause. Any owners seeking additional protection will no doubt be considering what amendments they should be seeking to make to any such clauses agreed in the future.