Benjamin Maltby, partner at international firm Keystone Law, looks at whether parties can cancel a charter in the wake of the COVID-19 pandemic...
The emergence of COVID-19 raises issues which are novel yet serious. This leads to complicated answers to simple questions, so Keystone Law’s flowchart should help you to get a handle on the basics.
For owners, there’s no need to overthink matters. Clauses 9 and 18 of the MYBA Charter Agreement make it clear that owners should be able to cancel a charter, as long as COVID-19 was unlikely to have been an issue when the agreement was made. As a matter of general English law, the owner must prove that the facts in question fall within that scope of force majeure, and there must therefore have been no reasonable steps which the owner could have been taken to avoid or mitigate the impact that the pandemic would have had on the charter.
Even if the parties took a chance on events which were confined to China in the beginning of the year spreading (the original SARS and Ebola never affected Mediterranean charters, after all) the owner can still cancel and pay the charterer according to the scale in Clause 9(e).
Charterers, by contrast, need to look beyond the charter agreement. This is where it becomes more complicated. Perhaps future revisions of the MYBA Charter Agreement will make matters clearer, but for the moment, we must look beyond the agreement completely.
In any English law-governed contract, a contract is discharged if doing what’s been agreed becomes illegal under English law. Illegality must prohibit performance. Hindering performance, or making it more inconvenient, is not good enough. At present, it isn’t easy to find testing for COVID-19 viruses or antibodies. So one would have to assume that crew and guests alike pose a risk to each other unless they can prove otherwise. This could be mitigated by everyone wearing personal protective equipment, distancing and undertaking continual disinfecting of surfaces, etc – but this would hardly make for an enjoyable or relaxing charter, which is arguably is the essence of the experience.
Under Article 9 of the ‘Rome 1’ regulation on the law applicable to contractual obligations (EC 593/2008) the law(s) of the place(s) where the charter is due to take place will be paramount in considering illegality. Some ports have closed completely. Information about local restrictions can be found at www.covid19superyachts.com.
Beyond illegality or impossibility, a charter might have been frustrated – most likely where the charter was for a particular event itself cancelled thanks to COVID-19. Frustration means that it is impossible to perform the charter because the new circumstances are such that the charter would have been radically different from that which contemplated in the agreement. Frustrating events are not the same as one which are merely unforeseeable or unforeseen.
English law draws on previous judgments for guidance. In spite of devastating events such as the ‘Spanish’ Influenza of 1918, there are no cases on frustration by pandemic. This will no doubt change. But for now let’s look beyond the legalities. Marketing charters is an expensive business. With ports closed and events cancelled, charters aren’t exactly going to be most people’s idea of fun right now. Let’s let cool heads prevail, and agree delays whenever possible. The good times will be here again before we know it.