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COVID-19 has had a massive impact on the superyacht chartering world, which is after all reliant on the unrestricted movement of guests and crew around the world. In the first of a series of articles related to this topic, we look at the issue of charterparties being cancelled due to reasons related to COVID-19, and whether the new MYBA charter addendum is sufficient to clarify and protect owners’ and charterers’ rights in such an event.

Issue 1

13 January 2021

Background

• 2020 has seen a very uncertain superyacht charter market as governments around the globe have imposed travel restrictions in response to the COVID-19 pandemic.

• Many superyacht charters are fixed under the MYBA’s standard charterparty wording (the “MYBA Standard Charter”), which is subject to English law and London arbitration unless otherwise agreed.

• Following the imposition of widespread national lockdowns and international travel restrictions from the start of 2020, many owners and charterers found themselves unable to fulfil their respective charterparty obligations. The question that invariably arose was whether they were entitled to cancel the contract under the terms of the MYBA Standard Charter and, if so, what the financial and other consequences should be.

Cancellation

• Much recent commentary has focused on the “force majeure” provisions of the MYBA Standard Charter, and how they apply to COVID-19 delays. Under English law, “force majeure” can be invoked on the basis of specific contractual terms detailing cases in which owners and charterers respectively can be excused for not performing their contractual obligations and, in some cases, can be entitled to cancel the contract.

• Other commentators have discussed the question of whether charterparties on MYBA Standard Charter terms should be considered as “frustrated” by COVID-19 difficulties and delays. Essentially, as a matter of English law, if a contract is frustrated, both parties are entitled to walk away without being liable in damages. However, it is very rare that frustration is successfully argued in the English Courts.

• Both of the above points have indeed given rise to a significant number of disputes between owners and charterers. It is generally agreed that the terms of the MYBA Standard Charter dealing with this issue are, in some respects, insufficiently clear and capable of fuelling rather than preventing disputes. This is not to criticise the drafters of the original MYBA Standard Charter in any respect; the global coronavirus pandemic has given rise to novel issues that no one could reasonably have foreseen even a few years ago.

The need for contractual clarity

• With many 2020 charters having been postponed to 2021, the industry is hoping for a return to normal service next season. However, there remains much uncertainty around how the global recovery from COVID-19 will develop, and the costs involved in chartering a superyacht are significant. It is therefore imperative that parties have as clear a contract as possible when it comes to any failure to perform their respective contractual duties due to the pandemic.

• For instance:

1. Who should pay if owners can’t get to the agreed place of delivery in time for the start of the charter, because of COVID-19 travel restrictions?

2. What happens if charterers order the yacht to cruise to an area which, in the opinion of the captain, is at high-risk of contagion for crew and guests because of a localised COVID-19 outbreak? Must the captain comply with such an order?

3. What happens if there is an outbreak of the disease onboard?

A possible solution?

• The MYBA reacted with admirable swiftness in drafting a COVID 19 Addendum to the MYBA Standard Charter which was first published in March 2020 (the “Addendum”).

• The Addendum aims to strike a fair balance between the rights of owners and charterers and define the parties’ rights of cancellation in the event of issues arising in relation to the novel coronavirus.

Potential issues

• Some in the market have raised concerns in the period since the publication of the Addendum that, at least in some respects, it could be clearer. And both owners and charterers respectively need to consider very carefully whether they are comfortable with the risk allocation achieved by the Addendum. A few non-exhaustive examples are set out below.

• Clause 3: this clause aims to deal with situations where either charterers or owners cancel the charterparty in advance because they reasonably expect that COVID 19 issues will affect their ability to deliver/take delivery of the vessel.

• It could be argued that there are a few potential problems with Clause 3. For instance, it allows either charterers or owners to give notice that they reasonably expect to experience an issue with performing the contract at any time “…before the beginning of the Charter Period”.

• Essentially, if such a notice is given, the parties are obliged to enter into good faith discussions to see if they can agree a possible solution. For example, changing the charterparty dates, or agreeing a different cruising area. If no such agreement can be reached within the designated period, either party shall be entitled to cancel the charterparty, at which time all payments made by the charterer shall be immediately repaid without deduction or penalty.

• It might be argued that this is a rather charterer–friendly provision. If an owner has already spent a proportion of the Advance Provisioning Allowance, for instance on fuel and provisions, it is rather difficult to see why it should be obliged to provide charterers with a full refund, in particular if it is charterers themselves who have cancelled the charterparty due to problems connected to COVID-19.

• Clause 4/5: there is clear scope for disagreement if those onboard contract COVID-19 during the charter period. If a charter is cancelled whilst guests are on board due to the charterer and/or guests being infected by COVID-19, the charterer is still liable to pay the charter fee in full.

• However, if the charter termination is due as a result of a crew member being infected by COVID-19, the charter fees shall be reimbursed to the charterer on a pro rata basis according to the charterer’s period of use of the yacht.

• At first glance, Clause 4 seems to be a sensible, if rough and ready, way in which to deal with the issue in question. However, it is easy to see disputes arising. For instance, what happens if both crew members and guests are infected at the same time? Under Clause 5 this might give rise to difficult questions of what the effective cause of the termination of the charter was.

• Another example might be a situation where the charterparty has to be cut short because of a guest being infected. Under Clause 5 the charter fee would remain due and payable. But would this be seen as reasonable if it were to be proven that the infection was transmitted by an asymptomatic crewmember?

• Clause 9: this clause entitles either party to make reasonable requests for “useful information” from its counterparty in relation to the virus. The example given is the travel movements of guests and crew members respectively during the 14 day period prior to the start of the charterparty period.

• It might be argued that this clause is already starting to show its age. In circumstances where the novel coronavirus is endemic to almost every country, it might be argued that knowing individuals’ travel movements is of limited use, especially in circumstances where infection rates are known to vary massively even within particular countries.

• The clause is also silent as to a party’s rights if its counterparty fails to promptly respond to any such requests for information as to travel movements. Arguably, it would be sensible to set out a party’s rights in such circumstances. For instance, should a charterer be entitled to cancel an upcoming charter if an owner fails to promptly provide information as to crewmembers’ movements?

• Precautions: since the publication of the Addendum, the world has learned a lot about the COVID 19 virus. For instance, quarantine of individuals who have potentially been exposed is considered to be an effective way to minimise transmission. And various vaccines are already starting to be rolled out in various countries such as the UK.

• Arguably the situation is now quite different to that in March 2020 when the Addendum was first published. This raises the interesting question of whether either owners or charterers might wish to consider insisting that the Addendum is amended so as to provide for various additional precautions.

• For instance, charterers that have particular health concerns about the consequences were they to be exposed to the virus might wish to request that the crew members self-isolate for a set number of days prior to the commencement of the cruising period. This is a measure that has been adopted in large parts of the commercial shipping world in relation to crew changes, and is arguably reasonable of itself. However, whilst owners might be prepared to agree to the same, they might want to insist that charterers should pay the crew wages and self-isolation expenses. Crew contracts would also potentially need to be amended, of course.

• Similar questions are likely to start arising soon in relation to vaccination. Should charterers be entitled to insist that all crew members have been vaccinated against COVID 19 before the start of the charterparty period, for instance?

• Issues such as those touched on above should all be perfectly capable of being easily dealt with by way of simple amendments to the MYBA Standard Charter and Addendum. However, unless this is done at the negotiation stage, well in advance of the charterparty dates, it is easy to foresee disputes arising between owners and charterers on such points.

Looking Forward

• Given the considerable liabilities involved and the potential consequences should things not go to plan, many owners and charterers alike are taking independent legal advice in relation to their rights under existing and future MYBA and other yacht charters. There is also a large degree of consensus in the market that, before agreeing to adopt the Addendum, it is sensible for both owners and charterers to consider amending it to offer further clarity and protection for both sides.

• Many charterers are also considering taking out appropriate cancellation insurance for additional peace of mind.

• CJC regularly advises both owners and charterers on the issues discussed above. In the event of any queries, please contact your usual contact at CJC or the authors of this note.

Filippo Lorenzon, Consultant, Richard Hickey, Senior Associate and Gabriella Richardson, Trainee Solicitor, Campbell Johnston Clark, London

The information and commentary in this note does and is not intended to amount to legal advice to any person on any specific matter. It is furnished for information purposes only and free of charge. Every reasonable effort is made to ensure that the information herein is accurate and up-to-date, but no responsibility for its accuracy or correctness, nor for any consequences of reliance on it, is assumed by the firm. Readers are firmly advised to obtain specific legal advice about any matter affecting them, and are welcome to speak to their usual contact at CJC.