The COVID pandemic has wreaked havoc on economies of the world, on a global scale as economists and fiscal policy experts associate its effect as the worst global economic crisis of the century in comparison with the global economic recession of 2008 and the economic depression of the 1930s. The impact of the pandemic has reverberated across several sectors particularly the maritime, aviation and transport industry as a whole as the demand and supply level in these industries continue to thin due to countrywide border restrictions. However, whilst the extent of governmental intervention to stabilize the economy could be a source of concern, laudably most governments have cushioned the impact of the pandemic through the introduction of stimulus and palliatives.1.
The Australian Government for instance, is backing a $110 million freight service to enable Australia’s agricultural and fisheries sector to export their high-quality produce and reconnect with their international customers. The International Freight Assistance Mechanism (IFAM) will help Australian agricultural and fisheries producers who have been heavily impacted by pandemic containment measures around the world.2 Nigeria as a developing nation has suffered major losses across board as the economy cannot afford the requisite support to ensure sustenance of these industries.
Impact of the Maritime Sector on the Economy
The maritime sector has greatly contributed to fostering trade, promoting globalization and has aided the Nigerian economy in terms of seamless export of locally made/source products. Due to the nature of business, major operations have been suspended as a response to curb the spread of the virus globally. The shipping sector has long been tied to China, which has a matter of fact, has made it prosperous as a major trade partner for several countries and a key leader in shipbuilding. Since the virus started spreading from China to its neighboring countries, the shipping sector only seemed to experience marginal impact – initially witnessing only a minor fall in demand as ports in China and nearby countries started operating at limited capacity.
The maritime sector globally has experienced setbacks and reduced revenue. For instance, the Maritime and Port Authority of Singapore (MPA) provided financial support to the maritime industry against the surge of the Covid-19 pandemic. To help vessel owners and operators of cargo vessels, MPA will provide a 30% reduction in port dues for cargo vessels during the period. MPA will also grant a 30% concession on port dues for all non-passenger carrying harbor craft in the Port of Singapore over the same period. In addition, regional ferry operators will be offered a 50% rebate to offset their monthly rental fees for overnight vessel berthing.3 In the United Kingdom (UK) Chamber of Shipping has placed an immediate demand for a multi-million-pound government support package to ensure the shipping industry can continue to bring in the food, goods and medicines the country will need to fight the corona virus.4
Currently, as highlighted above about 50 cargoes of Nigeria’s crude oil were yet to find buyers. This is a general problem with shipping and maritime. There has been a sharp decline in the volume of import and export cargoes and some retailers and manufacturers have failed to claim their cargoes and containers leaving the warehouses congested. In addition, thousands of dock workers have been laid off as employers in the industry are seeking cheaper labour as a means to cut costs5. This is a trend similar to the 2016 depression where thousands of dock workers were laid off to tide companies through economic strife. This would be a double impact considering that the Nigerian maritime sector has been on a steady decline since the last quarter of 2016. The Lagos Chamber of Commerce and Industry published an analysis highlighting that trillions of Naira is lost as revenue annually due to the shortcomings of the ports in Nigeria.
In recognition of the pressure the pandemic would impose on the maritime and shipping sector, the Federal government should intervene and ensure the ideal objective of the Ease of Doing Business. This can be achieved by offsetting certain obligations and giving reliefs. Reliefs that could alleviate the colossal losses of players in this industry range from storage fee reliefs on consignments and demurrage6 as already directed by the Nigerian Ports Authority.7
Contractual Obligations amidst the Pandemic
Since, the advert of the pandemic COVID 19 in Wuhan, China in December 2019 has taken over headlines across the globe and as greatly affected a lot of industries including the global shipping industry, it has decreased and forced a stop to international travels. Border closure has disrupted different contracts and many parties can no longer meet up with contractual obligations. The implication of this has resulted to parties not being able to fulfill and proceed with their obligations. In other cases, the contract becomes impossible to perform or, where the performance is time sensitive, the delay is such that the contract can no longer serve the purpose for which it was entered into.
A party may be able to plead force majeure or hardship if there are specific clauses in the contract. Common examples of what might constitute force majeure include labor disputes, acts of God, casualty, war, riots, strikes, terrorism, natural disasters, delays in obtaining or an inability to obtain labor, utilities or materials, and essentially any event beyond the control of the relevant party.8
Conditions that arguably may give rise to a claim of force majeure, the claim must satisfy the following conditions:
• the event must be beyond the reasonable control of the applicable party;
• the applicable party must have been prevented from performing its obligation; and
• the applicable party must have taken all reasonable steps to avoid its non-performance and have satisfied its duty to mitigate damages as a result thereof;
Absence of A Force Majeure Clause
Force majeure is a clause that must be included in a contract for it to take effect. In the absence of this clause in a charter9, the common law principle of frustration entitles parties to suspend obligations or performance pending the resolution of the event hindering the acting of either party and be extension, to determine the contract at first instance.
It is trite law that a contract is not deemed frustrated merely because its execution becomes more difficult or more expensive than either party originally anticipated or that it has to be carried out in a manner not envisaged at the time of negotiation of the contract. In the case of Attorney General, Cross River State vs Attorney General of the Federation,10 the Respondent pleaded that it was unable to perform the contract due to intermittent strike action embarked upon by its factory workers and on appeal, the court held that the strike action did not amount to frustration.
Suspension or Termination of contract
In light of a force majeure clause, the party seeking to rely on the clause must notify the other party in writing within a reasonable time of the occurrence of such event. The force majeure can only fully come into effect when the circumstances prevent a party from acting for up to a period of time mutually agreed to by both parties. Parties may then elect to either suspend or terminate the contract. By extension, in the maritime sector, contracts guiding maintenance of vessels will continue to be in effect unless set aside by both parties.
Off- Hire Clause in Vessel Deliveries
Time charter party arrangements contain off-hire clauses. A vessel shall be deemed to be off-hire when there is a strike of officers or crew members, damage to the haul, grounding11, detention by the arrest of the vessel (unless such arrest is caused by events for which the Charterers, their sub-charterers, servants, agents or sub-contractors are responsible)12, detention by competent authority for vessel defects, dry docking for the purpose of examination and under such similar circumstances. The order of various governments to stay a vessel for 14 days13 to ensure it does not bring infected goods ashore will not amount to nor qualify as an off-hire and the ship will remain on hire. This means all contractual and financial obligations and computations will continue to run.
Expiry of Seafarer’s Contracts
Contracts binding crew workers, captain often last as long as three months to nine months. As a result of the pandemic, not only have seafarers been ordered to stay ashore, but told to continue to work long hours. Under the International Maritime Labour Law, seafarers have the right to return home at the end of their contract at no cost to themselves. The right however, has been denied seafarers as they are not allowed entry to the countries they have docked, almost as if held captive. Due to inability to rotate, crew have to remain on board – contracts, certification, “overlap” wages. Under the Maritime Labour Convention (“MLC”) seafarer’s contracts should not exceed 12 months.14 A number of Countries have declared that extensions due to the pandemic will not be challenged.
Payment of Salaries
In addition, key players in the sector have called for a subsidy for payment of workers’ salaries until the aviation sector has stabilized and a suspension of aviation related charges. Unfortunately, an owner or a cargo, vessel or ship may find himself liable for wages of both a crew member who has had to remain on board and for the intended replacement who is about to join or has joined the vessel.
Expiry Of Seafarer Certificates And Medical Certificates
Can a seafarer continue to operate with an expired certificate or medical contract? Ordinarily not, however, many countries have announced an extension of its validity for up to 6 months. This would expunge any liability that may have occurred on account of expired certificates.
In the instance that a crew member falls ill while onboard, he will be treated and compensated at the instance of the owner/manager.15 If the crew member falls ill or contacts the virus after disembarking, the owner will be liable only if said crew member is under a valid employment contract.
Contagious Disease Clause (IOCD)
This clause permits the owner of a vessel to refuse to proceed or remain at a port which is deemed an affected area. In this case, an area infected or overrun with cases of the COVID-19. This must be done in tandem with what the masters or owners would reasonably do in the same or similar circumstances. In this event, the choice to refuse to proceed or remain at a ‘safe’ area regardless of timelines in the charter or agreement will not amount to a breach of same. 16
Ship sale contracts (Memoranda Of Agreement – MOAS)
MOAS will be affected by the COVID 19 pandemic involving sales of ship where the port at which the vessel is to be delivered by the seller is in lock down or quarantined and where the contract provides for the vessels to be delivered by the specified date failing which such contract can be cancelled.
The Role of Technology in Post- Pandemic Operations
Technology plays a role in the preparation for post pandemic operations. Automation will become the new norm across the length and breadth of the maritime sector. The maritime sector will not be left behind in this innovation. Alternative telecommunications for the combination of submerged drone using underwater transmission and airborne drone using atmospheric transmission to communicate with ship navigation systems could further assist autonomous ship navigation through restricted surroundings.17 The goal is to reduce human interaction to the barest minimum.
Adaptability and innovation are the live wire of business in any given industry and these must be adopted going forward to preserve business operations as well as protect the well-being of employees and customers. Shipping and ports are essential for the continuous functioning of the economy as they fosters trade and international relations. Policies should be implemented and enforced to ensure companies in this sector abide by global best practices and adopt necessary technology to protect the interest of staff and beneficiaries. A silver lining for the economy as a whole is that businesses will surely look into diversifying their existing supply chains.18
Source: PUNUKA Attorneys & Solicitors