Nigeria: COVID-19 And Its Impact On Charterparty Contracts In Nigeria

INTRODUCTION

The COVID-19 pandemic has taken over headlines across the globe since the first case was recorded in Wuhan, China in December 2019¹. Since being declared a pandemic² by the World Health Organization (''W.H.O'') on March 11, 2020, this outbreak has brought the world's economy to its knees and affected numerous industries from aviation to hospitality, tourism, sports, as well as the global shipping industry.

As a result of the cascading effect of this pandemic³, it has prompted governments and its agencies to issue directives which have resulted in quarantine, docking restrictions etc. in line with W.H.O guidelines, the International Maritime Organization (''I.M.O'') and the Nigerian Centre for Disease Control (''N.C.D.C''). However, despite the importance of these restrictions, it can put a strain on the shipping industry, particularly on the obligations of parties on time charterparties. One burning issue about COVID-19 and its impact on charterparty agreements is whether this pandemic will constitute a force majeure, thereby relieving parties from their contractual obligations under shipping contracts.

This article will address the issue above amongst other salient points while taking into consideration government regulations and directives on COVID-19, relevant statutes, case law, and charterparty forms.

THE FEDERAL GOVERNMENT OF NIGERIA

The Federal Government of Nigeria (''the Government''), like several other countries across the globe, issued a lockdown of major cities which were hard hit by COVID-19 (Lagos, Ogun and Abuja) which was extended by a further 2 (two) weeks by the President to contain the pandemic. To do this, the Government issued two regulations. In the first regulation,⁴ COVID-19 was declared a dangerous infectious disease in line with the provisions of the extant laws⁵ to trace contacts of index cases. However, some sectors were exempt, particularly those which provide essential services. Apart from health care workers, other sectors which the Government deemed essential were petroleum distribution and retail entities, power generation, transmission and distribution entities, as well as the Seaports in Lagos, which has remained operational for the duration of the lockdown.

Furthermore, to curb the spread of the disease through our sea borders, the Government also issued directives for cargo vessels in Nigeria on March 26, 2020. This directive placed restrictions and only allowed cargo ships which were at sea for more than a fortnight to dock in Nigerian ports. However, this was subject to the screening of these cargo vessels and tests conducted by the Port Health Authorities on the COVID-19 status of the crew on board⁶. Nonetheless, this order and timeline didn't have any significant bearing on cargo vessels laden with oil and gas products because of the negligible human contact required on these vessels. In line with the Government's regulation, several government agencies also considered it expedient to issue guidelines as it pertained to their various industries.

Department of Petroleum Resources (DPR)

The Department of Petroleum Resources (the ''DPR'') in its response to the COVID-19 pandemic also issued an industry circular (the ''Circular'')⁷ to all Oil & Gas Operators on March 30, 2020, in line with the Government's directive. In this Circular, the DPR resolved as follows:

1. Declared that COVID-19 is a ''force majeure'' event and clamoured for the health and safety of its personnel;
2. Mandated strict compliance with the directives of the Government; and
3. Compliance with the Government's policy on social distancing, lockdown order, curfew etc.

The Nigerian Maritime Administration and Safety Agency (NIMASA)

The Nigerian Maritime Administration and Safety Agency (''NIMASA'') issued a guidance⁸ to Shipowners and several maritime stakeholders in Nigeria to ensure compliance with the directives of the W.H.O, I.M.O, I.L.O and N.C.D.C. This guidance is broad in scope as it applies to offshore operations such as the change of crew, supply and maintenance, mandatory pre-departure tests for COVID-19 for scheduled offshore operation regarding the change of crew. Furthermore, this guidance also covers international marine vessels, stipulating docking requirements at Nigerian ports such as the possession of thermal screening facilities, the prohibition of international vessels which recently called at ports of COVID-19 plagued countries from docking at Nigeria, master of vessels having a mandatory duty to provide Nigerian port officials with the crew's travel history to or from COVID-19 infested countries amongst others.

COVID-19 AND ITS IMPACT ON SHIPPING CONTRACTS

The contracts which govern the transportation of goods by vessels are usually made by bills of lading or charterparties. In Nigeria, time charterparty is the most common type of charterparty agreement used for vessels engaged in cabotage trade and the oil and gas industry⁹. As a result of this, it can have a telling impact on the business on vessel charterers who need to redeliver the vessels on time charter back to the owners.

Time Charterparty

A time charterparty is an agreement whereby a vessel owner agrees to hire out his vessel to a charterer for a specified period from the port of delivery to the port of redelivery.¹⁰ In time charterparty agreements, the charter commences once the charterer hires the vessel and ends once the vessel has been redelivered to the shipowner at the end of the charter period. Time charter agreements, unlike the voyage charter, is for a specified time which can be for a fixed or flat period, without any qualifications. In such instances, a reasonable allowance for the charterer in redelivering the vessel can be given.

However, what will be the effect of time charter agreements upon the declaration by the Government that COVID-19 is a dangerous infectious disease? Will this avail an unscrupulous party seeking to rely on this as a force majeure, thereby rendering performance impossible? The answer to this question will be on a case to case basis and also taking into consideration to directives of the Government, the obligations of charterers and the force majeure clause in the charterparty agreement.

The obligation of the charterer under time charterparties is the nomination of a safe port unless it is shown that the port is unsafe¹¹. If such port is deemed unsafe, another safe port has to be nominated. The Quarantine Act gives the President the power to declare any location in Nigeria an infected local area¹². The regulation of the Government guaranteed the continual operation of the seaports in Lagos State and can be also be argued that this is not an infected local area and is therefore considered a safe port.

Nevertheless, in invoking a force majeure clause, regard would be had to each case which will be decided on its merits.

Is COVID-19 a Force Majeure Event?

Force majeure events are occurrences which are not in within the control of parties such as war, strike, riot, crime or such other events described as an act of God which include hurricane, flood, earthquake, volcanic eruption etc. which are not within the reasonable control of contracting parties.

As a creation of contract, force majeure is not a concept specifically recognised under common law.¹³ However, in commercial agreements, courts have been called upon to interpret this clause when invoked by a party in the contract. On the other hand, force majeure as a concept is recognised under civil law which has resulted in the issuance of force majeure certificates in countries like China, where the China Council for the Promotion of International Trade issues force majeure certificates to businesses unable to meet their contractual obligations as a result of COVID-19.¹⁴

In Globe Spinning Mills Nigeria Plc v. Reliance Textile Industries Limited¹⁵, the Court of Appeal, in its decision, held that force majeure is an unexpected and unforeseen happening, making nonsense of the real situation envisaged by parties. A force majeure is a supervening event beyond the control of parties and can dramatically alter the cause of events. As such, it can prevent parties from fulfilling their contractual obligations under contracts such as time charterparty agreements.

In line with the foregoing considerations, can a party in a time charterparty agreement rely on COVID-19 as a force majeure since it is an event which is beyond its control? The simple answer should be yes. However, it is not straightforward. The objective of a force majeure clause is to excuse the party relying on it from fulfilling its contractual obligations as a result of the event which has made performance impossible. Therefore, for the party relying on this clause, particular attention should be given to the words used in the clause of the contract. This is important because the party must show that the event falls within the scope of the clause.

In the case of Classic Maritime Inc. v. Limbungan Makmur¹⁶ the defendant in the case relied on force majeure to preclude them from performance in the contract. The Court of Appeal applied the ''but for'' test in their decision. However, the force majeure clause relied on is used for illustrative purposes:

"Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be Responsible for loss or damage to, or failure to supply, load, discharge or deliver the cargo resulting From: Act of God, act of war, act of public enemies, pirates or assailing thieves; arrest or restraint of princes, rulers or people; embargoes; seizure under legal process, provided bond is promptly Furnished to release the Vessel or cargo; floods; frosts; fogs; fires; epidemics; quarantine; intervention of sanitary, customs or other constituted authorities; Blockades; Blockages; riots; insurrections; civil commotions; political disturbances; earthquakes; Landslips; explosions; collisions; strandings, and accidents of navigation; accidents at the mine or Production facility or to machinery or to loading equipment; accidents at the Receivers' works, Port, wharf or facility; or any other causes beyond the Owners', Charterers', Shippers' or Receivers' Control; always provided that any such events directly affect the performance of either party under This Charter Party. If any time is lost due to such events or causes such time shall not count as Laytime or demurrage (unless the Vessel is already on demurrage in which case only half time to count)¹⁷

A party in the charterparty agreement seeking to rely on this clause in the wake of COVID-19 pandemic to exclude liability for non-performance will be unsuccessful. This is because COVID-19 has been described as a pandemic and since the word ''pandemic'' does not fall within the scope of this force majeure clause, the party relying on this clause will be unsuccessful. In Nigerian jurisprudence, the evidential burden is on the party in the charterparty agreement seeking to invoke this clause in a charterparty agreement and asserting that a force majeure exists which has made nonsense of the real situation envisaged by parties.

Frustration to the rescue?

The absence of a force majeure clause in a charterparty contract or failure to include specific words in the force majeure clause doesn't spell doom for the party relying on it. On the other hand, the doctrine of frustration can avail the party which can make it possible to set aside the contract. The Supreme Court of Nigeria in a decision described frustration as thus:

Frustration occurs where the law recognises that without default of either party, a contractual               obligation has become incapable of being performed because the circumstances in which               performance is called for would render it radically different from what was undertaken by the               contract.¹⁸

However, for this common law defence to be successful, the party must show that the event which occurred, in this case, COVID-19 wasn't by the default of any of the parties and the obligation under the charterparty agreement would make performance completely different from what the parties contracted. The Court went further to outline other events which could constitute frustration such as an outbreak of war, legal changes or statutory impossibility, destruction of the subject matter, acquisition by the government and the occurrence of an unexpected event such as death, ill-health etc.

In light of the foregoing and applying this to the COVID-19 pandemic, it is unlikely for the Court to declare that COVID-19 is an event capable of frustrating the performance of a contract as it doesn't fall under the category of what the Courts have enumerated. Nevertheless, the Courts will make their decision based on the merits and peculiarities of each time charterparty agreement.

CONCLUSION

COVID-19 has impacted several sectors of the economy and the effect on the obligations of parties on time charter could be grim, with potential contractual disputes on the rise, the subject of which could be frivolous or have the potential of success.

Therefore, it is advisable for charters and owners of vessels seeking to do business in the Nigerian maritime sector to seek legal advice when reviewing their charterparty agreements to avoid unnecessary litigation as this could be detrimental to Nigeria which has an economy that is largely import based.

Footnotes