Georgia - War Risks

August 2008

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In light of the conflict in recent days between Georgia and Russia, and as with the Iraq conflict in 2003 and the Israeli blockade of Lebanon in 2006, consideration needs to be given to a number of issues in the context of contracts of carriage:   

War Risk Clauses 

Typical war risk clauses cover "acts of war, civil hostilities, revolution, rebellion, civil commotion, warlike operations, laying of mines, acts of piracy, acts of terrorists, acts of hostility, malicious damage and blockades".   

It seems clear that the current conflict, being a full scale military operation between 2 independent democratic states, will trigger certain consequences for the parties to the contract of carriage.  importantly a contract of carriage can be cancelled or automatically terminated by the outbreak of war if the conditions imposed by the contract are met.  The right to cancel is usually triggered by (a) war involving the flag state (b) war between one or more specified countries or (c) war at the port of loading, destination or other specified place.  In the context of Georgia (c) is likely to be the most relevant in contracts not involving Russian flagged vessels (where (a) applies).

Where such a clause is triggered there is usually a provision for discharge of cargo at another port/country and/or provision of substitute orders by charterers as well as the payment of additional insurance premium. 

Additional War Risk Premia 

An owner usually bears the cost of insurance in a charter and a specific clause is needed to enable an owner to allocate any additional premia for trading to war risks to a charterer.  After the Iraq conflict in 2003, the BIMCO Conwartime and Voywar clauses were revised to include a provision that charterers reimburse owners for additional premia in these circumstances so the latest versions of these clauses should be used in charters wherever possible.  In practice most insurance policies allow the insurer to cancel the insurance on notice in the event of war, subject to reinstatement within the notice period at a new and invariably higher rate so owners need to consult their war risk underwriters to ensure that the policy will respond in the event of a claim. 

Unsafety of Ports Due to War

While the categories of war and the triggers in war clauses are well known in the market, it is important to also consider the impact that the war will have on a charterer's obligation under a charterparty to nominate a safe port.   It is widely accepted that a nominated port can be, or become, unsafe if a state of war exists, or arises, that puts the vessel at risk of loss or damage.   

The classic definition of safety is that, in the relevant period of time the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to unavoidable danger.   

A safety warranty is usually spelt out in the charter by the use of standard provisions such as "one safe port, berth Poti" but it can also be implied where charterers have the right to nominate a specific port within a range with words such as " one safe port/berth Black Sea".  The warranty is prospective so that, when nominated, the port will be safe for the vessel to approach, use and depart from so that there is no breach by the charterer if the unsafety arose from causes which could not reasonably have been anticipated at the time of the nomination.  However if subsequent events occur while the vessel is on the way to the port which render the port unsafe an owner can refuse to go there and can ask the charterer to nominate an alternative safe port.  If an owner, having evaluated a charterer's nomination of a prospectively unsafe port, allows the vessel to proceed to the port without making an express reservation, the right to reject the nomination is waived but this does not mean that a charterer may not be liable to owner for damages and losses suffered by an owner owing to the danger. 

Most contracts of carriage contain both a war clause and a safety warranty and in these circumstances the provisions of the war clause will prevail and will displace the safety warranty.  Members should therefore check the war clauses in their contracts of carriage carefully in time of war or conflict similar to that existing currently in Georgia. 

Cargo Interests 

The conflict will also have a similar impact on shippers, receivers and other cargo interests as, where war risks are included in cargo insurance policies there is usually a cancellation provision similar to that mentioned above in vessel war risk policies.  Additionally alternative on carriage operations will need to be put in place at short notice where cargo is discharged at a safe port not named in the original contract of carriage. 

Conclusion 

Despite news reports of a truce, until the situation in Georgia returns to normal the Club's members who trade to Georgia may still be affected by the issues raised in this article and they are encouraged to contact the Managers if they require further guidance and advice.