Rania Tadros Managing Partner
Qatar: potential legal implications of the Gulf diplomatic crisis on the shipping industry
The recent decision on 5 June 2017 of the UAE, Saudi Arabia, Bahrain, Yemen, the eastern based government in Libya, the Maldives and Egypt to cut ties with Qatar is a major concern for the shipping industry in the region. The severing of ties includes the request for all Qatari nationals to leave the UAE, Saudi Arabia and Bahrain within 14 days. The UAE, Saudi Arabia, Bahrain and Egypt have also announced their intention to cut land, air and sea transport links with Qatar. This is an unprecedented move in the history of the Gulf States. In this update, we consider the ramifications of this on shipping and those trading in the region.
The UAE is reported to be Qatar’s sixth largest trading partner and the consequences of the decision to suspend sea transport between the UAE and Qatar are enough to cause panic in shipping circles on both sides. At the time of writing, on 6 June 2017, there are limited details available as to how the decision to cut the maritime link between the two countries will be implemented in practice and the announcement is in stark contrast to the detailed economic sanctions regimes that the shipping industry is accustomed to (e.g. sanctions against Iran, Syria, Libya, etc).
The UAE’s Port of Fujairah has issued a notice prohibiting all Qatari flag vessels or vessels destined to or arriving from Qatari ports (regardless of their flag) from calling at the Port of Fujairah or Fujairah Offshore Anchorage regardless of the nature of their call. Given that Fujairah is the main bunkering point in the region, this decision is likely to cause increased costs and delays for the shipping operators.
On 6 June 2017, DP World issued a notice prohibiting the following vessels from calling at any DP World port or anchorage in the UAE region:
- all Qatari flagged/owned vessels;
- all vessels going to/coming from Qatar as last/next port of call, irrespective of flag;
- vessels loading/discharging cargo destined to/from Qatar.
The measures announced by DP World, therefore, seem to go further than those of the Port of Fujairah in that they also affect the cargo shipped to and from Qatar.
In relation to other countries, it has been reported that Saudi Arabia has said that Qatari flagged/owned vessels will not be allowed to enter Saudi waters and that Bahrain has also banned vessels moving from and to Qatar from calling at its ports. The position in relation to Egypt remains unclear.
Impact on shipping contracts
We consider below some of the contractual issues that the shipping industry will be faced with in light of the above developments.
Charterparties often include specific provisions covering “blockade”, although it may be necessary for other criteria in the clause to be satisfied before the clause can be relied upon, for example, that it may be dangerous or become dangerous to the vessel, her owners or the crew (Conwartime and Conwarvoy 2013).
Safe Port Warranties
Charterparties often include safe port/berth warranties, either express or implied. It is well established in English law that a port will not be safe where, at the relevant time, the vessel is unable to reach it, use it and leave it without, in the absence of some abnormal occurrence, being exposed to danger that cannot be avoided by good navigation and seamanship. Safety includes both physical and political safety. A port may, therefore, be unsafe if there is a risk of seizure , or if the vessel may be detained, impounded, blacklisted or confiscated.
Where charterers nominate an unsafe port, owners are entitled to reject that nomination on the basis that it is invalid. In the event that a valid nomination is made but, prior to the arrival of the vessel the port becomes unsafe, a time charterer will be obliged to nominate a new port. Under a voyage charter, the position is less clear and, unless the charterparty specifically provides for it, the charterer may not be able to change its nomination without the express consent of the owner. That is why voyage charters will often provide for a vessel to proceed to the nominated port “…or so near thereto as she may safely get...”.
Considerations as to whether a charterparty is frustrated may arise if a vessel cannot get close to the nominated port at all, which seems to be the effect of the measures announced by the UAE, Saudi Arabia and Bahrain.
Frustration is an English law concept which, in certain circumstances, allows parties to walk away from a contract if it has effectively become impossible to perform. A party claiming that a contract has been frustrated must show that the circumstances relied on have fundamentally changed the performance obligations originally contemplated by the parties such that further performance under the charterparty is impossible, illegal or radically different from that which was originally contemplated by the parties. Whether or not frustration can be relied upon will depend on the nature of the contract. For example, when dealing with a charterparty, the length of the delay as against the period of the charter and the extent of the permitted trading as against the areas affected by subsequent events would be relevant.
The political situation and the resulting response of the Gulf states may change rapidly and this will also have a bearing on whether frustration can be established or not. Typically, the charterparty may not be frustrated if another route would be available, i.e. delivery to another port and onward transportation by road/rail to the original destination port but, in this case, the total transport blockade of Qatar by the Gulf states can make alternative means of transport to Qatar difficult to achieve.
The fact that contractual obligations become more onerous or expensive to perform is unlikely in itself to frustrate the contract. So if, for example, the vessel is unable to call in Fujairah for bunkering and this results in a delay or additional expense, it is unlikely to be enough to argue frustration of the charterparty. Those entering into charterparties that might be affected by the closure of UAE ports for Qatari trade should consider incorporating terms that allocate the risks associated with such occurrence e.g. for delays, extra expenses etc.
In relation to vessels ultimately destined for Qatari ports but calling at UAE or other affected ports en route, contracts of carriage should be reviewed to consider whether they may allow deviation to a different port to avoid a possible risk of detention or delay in the UAE. This will depend on the terms of the relevant contracts of carriage, the proper law and jurisdiction applicable to them and will also require consideration of the impact, for example, of a bill of lading identifying a named port as the place of discharge. Identifying the proper law and jurisdiction may not be straightforward, in particular with bills of lading that may appear to incorporate the provisions of a charterparty but which incorporation may be viewed as ineffective before certain jurisdictions.
Where the opportunity arises and parties are able to do so, they may wish to agree that discharge will take place at alternative ports, bearing in mind the number of countries that have implemented the ban.
As a matter of English law, a party can also rely on a force majeure event if it is expressly entitled to so under the contract. Some standard forms (e.g. Sugar Charterparty 1999) contain force majeure provisions or a bespoke clause may be negotiated by the parties. Whether a party can rely on a force majeure clause in these circumstances will depend on the wording of the clause.
Under UAE law (the position is similar in other Gulf countries), the doctrine of force majeure may be relied upon by a party to a contract as a matter of law, i.e. even if it is not expressly referred to in the contract (similar to the English law doctrine of frustration). Whilst no actual definition of a ‘force majeure event’ exists within the UAE Civil Code, it is generally accepted to mean events that are unforeseeable and impossible to avoid.
In recent years, the inclusion of sanctions clauses in charterparties has become commonplace. Although originally prompted by the Iranian sanctions regime, some of these clauses may be wide enough to embrace the prohibition imposed by the UAE in relation to Qatari vessels. Parties should consider the specific wording of the sanctions clauses in their charterparties to establish whether they address the current political crisis.
Potential further developments
At the present time, it is impossible to predict how the situation will develop; for how long the Qatar maritime ban will remain in place and whether any further restrictions will be implemented. There have already been reports of mediated talks taking place in Kuwait. At the time of writing, there are no signs that a wider sanctions regime against Qatar is being contemplated by the GCC states, but it would be prudent to review contractual arrangements and, where practical, make provision for dealing with potential payment problems, cargo restrictions, illegality, sanctions, etc.
As at 6 June 2017, there is still access to Qatari territorial waters via the Strait of Hormuz. Concerns have been expressed over the potential unilateral closure of the Strait of Hormuz by the UAE and the resulting impact on Qatar's LNG exports. Although it may seem an unlikely scenario at the moment, the risk of such closure or detention of vessels carrying cargo to/from Qatar if they enter the territorial waters of one of the blockading states should be borne in mind when considering potential rights and protective provisions under affected charterparties.
This article is intended to provide only a general overview of the types of legal issues that may arise as a result of the developing situation in relation to Qatar. For further information, please contact your usual contact at Ince & Co.
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