WAR RISK CLAUSES

A SUMMARY OF CHARTERPARTY PROVISIONS

TIME CHARTERPARTIES

Shelltime 4
The Shelltime 4 form is perhaps the most used of the period charterparty forms. The
relevant clauses are 33 (Outbreak of War), 34 (Additional War Expenses) and 35 (War
Risks).

Clause 33
Both owners and charterers have a right to cancel the charter in the event of outbreak of
war between any two of the countries mentioned in the clause. The countries which
should be included in each case need careful consideration. The clause is apparently
designed to operate in the event of a major war if the charterers’ host country becomes
involved in hostilities with one of the major powers. The reference to the USSR is now
inappropriate and should be amended.

Clause 34
This clause deals with additional insurance costs, crew bonuses and other expenses.
Under this provision charterers shall reimburse owners for any additional insurance
premiums, crew bonuses and other expenses which are reasonably incurred by owners as
a consequence of charterers’ orders to the vessel to trade where there is a war or threat
of war. The clause reads:

“If the vessel is ordered to trade in areas where there is war (de facto or de jure) or
threat of war, charterers shall reimburse owners for any additional insurance premia,
crew bonuses and other expenses which are reasonably incurred by owners as a
consequence of such orders, provided that charterers are given notice of such expenses
as soon as practicable and in any event before such expenses are incurred, and provided
further that owners obtain from their insurers a waiver of any subrogated rights against
charterers in respect of any claims by owners under their war risk insurance arising out
of compliance with such orders.”

It will be seen that owners’ right to claim reimbursement of additional war risk premiums
and crew bonuses is conditional upon owners:

• giving notice to charterers of such expenses as soon as practicable and in any

event before such expenses are incurred
• and obtaining from their war risk insurers a waiver of subrogated rights in respect
of claims by owners under their war risk insurance.

In the current insurance climate owners may well find it difficult to comply with the
second of these two conditions as underwriters may not be disposed to give up such
rights. Furthermore, it is conceivable that it may be a condition of cover that the
underwriters do have such rights subrogated to them. Accordingly, owners’ ability to
recover these additional expenses from charterers may well be prejudiced. Furthermore,
owners’ right to refuse charterers’ orders under clause 35 is limited to situations where in
owners’ reasonable opinion it is dangerous or impossible to reach the place to which the
vessel has been ordered to go. At present owners would not be justified in refusing
charterers’ orders. Owners could not maintain an argument that unless additional
premiums and other expenses were paid they would refuse to follow charterers’ orders.
The current situation perhaps justifies a spirit of cooperation between owners and
charterers and a recognition of the practical difficulties in complying fully with the
conditions laid down in clause 34.
Furthermore the clause is limited to additional premiums and the recent “voluntary” mid-
term increases in additional premiums are not covered.

Clause 35
The most important aspect of this clause from an owner’s point of view- and one not
found in the forms used by some other major charterers - is that the vessel is not obliged
to proceed if the master/owner reasonably considers it unsafe so to do. The intended
charterparty trading area and the comparative conditions existing then and at the time of
the fixture will be relevant factors to be considered in this respect.

Conwartime 1993
This BIMCO clause deals comprehensively with the issues involved and includes a provision
whereby charterers will reimburse owners for any additional premiums or crew war
bonuses incurred. The full text of the clause can be viewed under “CONWARTIME 1993”
on the Legal and Documentary Section’s home page of INTERTANKO’s website at:
http://www.intertanko.com/legal/issue.asp?topic_id=48

VOYAGE CHARTERPARTIES

In the voyage charter context Voywar 1993, promulgated by BIMCO, is a modern and
comprehensive clause. The clause is a very lengthy one and a summary of its main
provisions may be of value (see “VOYWAR 1993” on the legal and Documentary Section’s
homepage of INTERTANKO’s website at:
http://www.intertanko.com/legal/issue.asp?topic_id=49 ):
VOYWAR 1993 attempts to protect everyone concerned with navigation or management
of the vessel. It also seeks to cover any events which can reasonably be considered to
expose ship and crew to danger. After these introductory matters, different solutions are
given according to whether the vessel has commenced loading.

If not, the owners have a limited right of cancellation, but they may only exercise it after
giving charterers 48 hours in which to revise their orders so as to avoid the war risks,
where this can be done within the contract.

Once loading has commenced this cancelling right is replaced by a right to call for revised
orders. If revised orders are not given within 48 hours the owners have wide liberties,
subject to a requirement to act reasonably.

It is a feature of these parts of the clause that owners are compensated for anything
they reasonably do. In other words risk falls on the charterers. The same is true in
relation to any war risk zone which the vessel would normally transit on the loaded
voyage.

Finally there is legal protection of owners’ position in the form of a comprehensive liberty
clause so that anything done because of war risks will not constitute an unlawful
deviation.

ExxonMobil VOY2000

Clause 28 (b) of this charter provides that owners are required to proceed to an area with
increased premiums if insurance is available either commercially or under “a government
program”. In previous conflicts it has been known for one of the combatant nations to
offer war risks cover. A shipowner should not be obliged to accept insurance from an
insurer with an obvious axe to grind and a no claims payment history or experience,
although it may be said that the present international situation has few similarities to
most previous events. More importantly, the clause does not give the master/owner the
option to refuse charterers’ orders to proceed to a particular area or port if they consider
it dangerous or unsafe.
Payment of additional premiums for war risk zones
Careful consideration should also be given to the provisions on the issue of liability for
additional war risk premiums (“AP”) for entry into war risk zones. The clauses in use are
not always drafted with the clarity one would expect. In general terms, the premium for
war risk cover is payable as an annual premium together with AP as and when owners give
notice that a vessel is about to enter into an area designated by underwriters as an
additional premium area.

Many of the clauses in tanker charterparties only provide for charterers to pay for
increases in premiums after the date of the charterparty. However it is not always clear
whether the provision refers to increases in annual premiums as well as increases in AP.
Consideration should also be given to whether such a clause covers the cost of AP when
the vessel has a prolonged stay in an AP area. Not all clauses cover this aspect of
additional costs, which by there very nature are difficult to predict.

A further aspect that owners should consider is that frequently clauses exclude any
liability by charterers for premiums or any increases thereof for closure (i.e. blocking and
trapping).

The clauses refer to hull and machinery cover but it is by no means clear whether owners’
increased value cover is included within this.

As previously emp hasised, each clause much be carefully analysed to ensure that it is
known where the liability for additional insurance costs fall. The following notes on some
of the clauses may be helpful:

BP has recently revised their war risk clause dealing with additional hull and machinery war
risk insurance premiums. A new provision provides that charterers will reimburse owners
for these additional expenses. The clause reads:

“Owners shall effect war risks insurance in respect of the Hull and Machinery of the
Vessel and their other interests (including, but not limited to, loss of earnings and
detention, the crew and their Protection and Indemnity Risks), and the general premiums
and/or calls therefore shall be for their account.

War Risks Insurance additional premiums incurred as a result of the vessel entering an
excluded area (“Additional Premium”) shall be for Charterer’s account, net of all
discounts or rebates and provided always that Charterers are given notice of the
amount of such Additional Premium as soon as possible and, in any event, before such
Additional Premium is paid.

The benefits of discounts or rebates on Additional Premium received by owners from

their War Risks insurers, underwriters or brokers shall be credited to Charterers in full.
Charterers shall reimburse owners any amounts due under this Clause upon receipt of
owners’ invoice together with full supporting documentation including all associated debit
and credit notes.

For the avoidance of doubt any “blocking and trapping”, “loss of profit”, “loss of hire”,
“loss of freight”, or “loss of bunkers” insurance taken out by owners in respect of the
vessel, and any additional premium relating thereto arising from charterers’ trading of the
vessel, shall be for Owners’ account.”

Members should note the proviso contained in the last paragraph of the clause which
makes it clear that any premiums or additional premiums relating to loss of earnings cover
and blocking and trapping are for owners’ account. Difficult questions as to apportionment
of premiums may arise where an owner’s hull and machinery war risk cover includes an
element for loss or earnings and/or blocking and trapping.
Members should also note that the clause does not deal with the additional expenses of
crew war bonuses, therefore under the BP clause owners will not be able to recover these
additional costs from charterers.

Additional Clause 3 of Shellvoy 5 (taken from the February 1999 amendments and
additional clauses) provides that charterers shall only be liable for any increase in the AP
after the applicable date inserted in the clause. Also if the vessel stays in the AP area for
more than 14 days then charterers shall pay the whole AP for the period in excess of 14
days. Clause 30 of the CSSA terms has a similar provision save that clause leaves blank
the period in the AP zone that owners shall be liable for the payment of the AP.
Clause 28 of ExxonMobil VOY2000 provides that charterers shall pay “any provable
additional cost of insuring vessel against hull war risks over and above such costs in
effect on the date of this charter…” However, it is not clear whether this refers to
increases in annual premiums as well as AP. Also there is no provision dealing with the
cost of a prolonged stay in an AP area.

The Chevron clause provides that any increase in hull and machinery war risk premiums
over and above those in effect on the charter date will be for charterers’ account. The
clause also provides that surcharges which are in effect on the charter date are for
owners’ account. Again the clause could be clearer as to whether increases in AP are
borne by charterers.

Officers and crew bonuses

Whilst Conwartime 1993 provides that any officers and crew bonuses shall be for
charterers’ account, as does the provision in ExxonMobil VOY2000, other “standard”
clauses provide that they should be for owners’ account.

Incorporation of war risks clause into bills of lading

It is important that any war risk clause is effectively incorporated into all bills of lading.
The wording of the bills must expressly incorporate the charter terms, referring to the
charter at least by its date.

Provision for owners’ expenses for deviation

Some of the “standard” clauses provide a very rough and ready basis for freight payment
when the cargo is discharged at a substitute destination. By the same token loss of time
or additional bunkers consumed awaiting instructions etc. are by no means always dealt
with well. Pre-fixture reading of the clauses should be done with these questions in mind.
For example, in clause 20 (b) (vi) of Asbatankvoy there is provision for the recovery of
additional expenses of deviating but the freight rate remains the same and detention time
is not mentioned. In such a case the principle whereby the owner is generally entitled to
an indemnity for carrying out charterers’ instructions is unlikely to assist.