U.S. Fees on Chinese Built and Operated Vessels – Guide for Members on Potential Legal Issues

This Guide has been prepared to assist Members in dealing with issues that might arise and on which Members might require Club assistance if the USTR’s recommendations are implemented.  Pending publication of the USTR’s recommendations, clarification of terms, the passing of relevant Executive Orders and development of the regulatory framework more generally, what follows is a summary and this Guide will continue to be updated as matters develop. Advice in any given situation will depend heavily on individual circumstances and the terms of the applicable contract(s).

Who Pays? 

The imposition of fees on Chinese built vessels and on the operators of vessel fleets with a Chinese element could create disputes between owners and charterers over liability for those fees and any additional costs or losses that then follow:

• Time Charter – Depending on how they are defined in the relevant Executive Order and supporting material, these fees could constitute port charges. Under English law, the term “port charges” does not have any special meaning and refers to the broad range of charges that a vessel has to pay before leaving port. Generally speaking, under a time charter the port charges will be for the charterers’ account. The fees might also be caught under a sweep up provision such as “Charterers shall provide and pay for ….all other usual expenses” and so be for charterers’ account. However, given the anticipated high value of the proposed fees, disputes might arise as to whether or not the fees do constitute a “port charge” under the relevant charterparty or something else entirely, also outside the scope of a “usual expense”. This could depend on how the fees are described in the relevant Executive Order and/or how they are invoiced, among other things.

• Parties might also need to carefully consider delivery / redelivery terms, if delivering at a U.S. port but calling to a U.S. port is not necessary for the vessel’s subsequent employment.

• Voyage Charter – Generally speaking, “dues” on the vessel are for owners’ account and “dues” on cargo or freight are for charterers’ account. Pending further developments and clarification, it is not clear if the proposed fees would constitute dues on the vessel and therefore be for the owners’ account. If the charterparty allocates responsibility for “dock dues” to charterers for instance, then as with “port charges” above, it is possible that these fees could be a “dock due” and therefore for charterers’ account.

• If the vessel puts into a U.S. port for causes for which the owners or the vessel are responsible, then the fees are likely to be for the owners’ account. Such a situation could, however, create a dispute depending on who may be classified an “operator” and where the fees are then directed.

Delay

Beyond liability for the subject fees, their imposition could also lead to delay whilst the fees are settled:

• Time Charter – Disputes might arise as to whether or not the vessel is on hire during any period of delay (and loss of time) whilst these fees are settled. If, under the relevant charterparty, liability for the fees rests with the charterers, then the vessel is likely to remain on hire to charterers.

• Voyage Charter – Disputes might arise as to whether or not laytime / time on demurrage is suspended for any period of delay whilst these fees are settled. If, under the relevant charterparty, the fees are for owners’ account then laytime / time on demurrage could be suspended for any period of delay. Conversely, if the fees are for charterers’ account, then any period of delay could fall within the laytime regime, or give rise to a separate claim for damages for detention.

Frustration and Force Majeure

Issues of Frustration and Force Majeure might also arise and will depend on the precise facts and specific contractual terms involved. Frustration is a common law concept relevant to all contracts subject to English law and might arise where, without fault on either side, the contract becomes impossible to perform or its performance would be radically different to what the parties originally contemplated. Whether or not the imposition of these fees could lead to a frustration event will very much depend on the specific facts and terms of the charterparty contract involved. 

Force Majeure is not a common law concept and will therefore only apply to charterparty contracts that are subject to English law if the charterparty includes a specific Force Majeure provision. Thereafter, whether or not the parties have the right to excuse their performance or a delay in their performance of obligations under the charterparty will depend on the wording of the Force Majeure provision and the specific facts involved.

Deviation 

It is possible that a vessel bound for a port(s) in the United States is deviated so as to avoid these fees. That deviation could constitute a breach of employment orders and obligations under a time charter, an unjustified deviation and breach of obligations under a voyage charter, and also a breach of the carrier’s obligations under bills of lading, all of which could lead to disputes. Members should also consider that such a deviation could prejudice their Club cover and are advised to discuss any proposed deviation with the Club first.

Please note that the above is intended as a general outline for guidance only.  For advice in connection with a specific issue relating to the above, Members can of course refer to their usual contacts at the Club.