The Covid-19 pandemic is a worldwide phenomenon that has caused significant disruption to our everyday lives. To a coal trader, apart from remembering to wash his hands frequently, maintaining adequate social distancing and adapting to working remotely, the pandemic has raised other concerns in the course of his trade. 

Validity of NOR and Laycan

Since the onset of Covid-19, ports around the world have imposed additional requirements that crewmen be tested before the vessel is granted free pratique.  Reports have also surfaced where vessels were ordered to be quarantined because one or more members of the crew are tested positive for Covid-19. These naturally result in delays before the vessel is finally able to load.

One issue that arises is if the vessel arrives at the load port and tenders NOR during the agreed laycan, but is thereafter quarantined until after the expiration of the laycan, whether it is possible for the FOB seller to terminate the contract because the vessel was not made available for loading during laycan.

The answer will probably lie in the wordings of the sale and purchase agreement - when would a vessel be regarded as an arrived ship, and whether NOR that was tendered was valid.  If the terms in the contract are read such that the vessel being quarantined renders the NOR void, then it is likely that the FOB seller would be entitled to terminate the contract on account of the vessel not being ready for loading within laycan.

Force majeure

If the FOB seller terminates the contract on account of the vessel not being ready for loading within laycan, ordinarily it means the FOB buyer would be regarded as being in breach of contract. From the FOB buyer’s perspective, the next issue to consider is whether the situation is properly covered by the force majeure clause or other exception clauses in the contract.

The effect of a force majeure clause depends on the wordings of the clause itself. Some force majeure clauses suspend the parties’ performance of the contract for the duration of the force majeure event. Others may provide for a defence to any claims for non-performance arising from a force majeure event. But the most important thing to note is to consider whether the event being relied on falls within the ambit of the force majeure clause.

Our comments

The Covid-19 outbreak is not expected to end in the coming weeks or months. The above are just two of the issues that may arise and are not exhaustive. What has become evident is that potential disputes will arise from the delays in shipments due to the implementation of testing and quarantine measures taken out by countries keen to keep the Covid-19 virus at bay or under control. It would be wise to review your contract documents to ascertain your rights and obligations in the event of any Covid-19 disruptions.

 

If you have any queries arising from the above, please feel free to get in touch with Joseph at joseph.tan@jlex.com.sg.