Expert commentary: COVID-19 and ship arrest

This article by Beth Bradley, partner, and Rosie Goncare, senior associate, of Hill Dickinson’s marine team, was first published in The Arrest News, March 2020.

As the disruption to international trade and shipping caused by the outbreak of COVID-19 continues, the financial pressure on shipowners is rising as is their potential exposure to ship arrest owing to the impact of delays and quarantine measures that may be imposed on a vessel.

Delays: quarantine, deviation and other

The quarantine of the “DIAMOND PRINCESS” at anchorage off Yokahama, is an example of what could happen in circumstances where port authorities suspect that a vessel may be carrying crew or people infected by COVID-19.

The impact of a lengthy delay while port authorities investigate the health of those on board a vessel will have financial implications for the vessel, in terms of safety of both crew and cargo, interruption to contractual arrangements as well as liability for berth and port dues during a protracted stay.

Crew claims

Shipowners, as employers, have a duty of care towards crew, particularly not to expose them to risk of harm, as well as other employment obligations, such as prompt payment of wages and to cover repatriation costs and medical expenses.  

In accepting orders to an area where there may be a risk of infection passing to the crew or where the crew may be exposed to protracted periods of confinement on board (owing both to delays at the port or any quarantine measures that the port may impose) an owner may not be discharging their duty of care.  Moreover, higher wage bills, medical costs and potentially greater repatriation costs will have to be met, otherwise there is a risk of arrest for failure to pay crew wages.

Passenger claims

Recent media reports seem to suggest that there is an increased risk of respiratory and gastrointestinal diseases on ships. Some articles state that with coronavirus, which is believed to spread through droplets, such as from mucus or saliva, people could be infected without direct contact with a carrier.

Therefore, the cruise and passenger industries have to take extra measures to secure passenger and crew safety. Such measures mean that ships must be fitted with on board medical facilities, with shipboard medical professionals available around the clock, which no doubt results in higher operating costs to the owners.

If a passenger contracts a serious health condition while on board the vessel, it is very likely that the passenger can make a personal injury or even a loss of life claim against the vessel’s owner and therefore seek to arrest the vessel if compensation is refused or not paid. 

Cargo claims

The shipowners may find themselves unable to deliver goods to destination. Commercial losses may also be incurred due to cancellations of the usual shipping routes, delays in discharge and transhipment costs.  Significant delay increases owners’ exposure to claims for loss in the financial value of the cargo and / or for cargo damage, particularly if the cargo is perishable (e.g. soya beans). 

Delays due to quarantine or temporary cancellation of usual shipping routes mean that containers allocated for the Chinese markets are either stranded on board ships, off loaded in alternate locations or sitting in the various ports and terminals incurring port storage, demurrage and detention.

The carriage contracts will be governed by national legislation and by international carriage conventions such as the Hague, Hague-Visby or Hamburg Rules. While a carrier will have the ability to rely on the defences available in the Hague, Hague-Visby or Hamburg Rules in terms of cargo damage or loss claims, those defences may not protect an owner against the risk of vessel arrest by cargo interests.

Port dues

If the vessel is quarantined at a port, the berth the vessel occupies may be out of action for the duration of the quarantine with the inevitable loss of income to the port from other vessels and the port will claim berth and port dues for the duration from the quarantined vessel owner. 
The sums incurred could be considerable and will need to be paid before the vessel can leave.  Failure to pay may result in the port arresting the vessel.

Quarantined crew – will an arrest warrant be issued? 

Where financial pressure arising from the disruption and delays caused by COVID-19 concerns results in an owner being unable to meet crew wages, bunker costs, berth and port dues and other necessities or being exposed to cargo claims, the arrest jurisdiction is relatively straightforward and the risk of arrest is consequently high. 

However, there may be question marks around whether a local court would permit an arrest in circumstances where the crew is infected; local communities living nearby may wish the vessel to leave as soon as possible and lobby for release. As such, it may be possible that arrests could be refused on the basis of public policy.

Complications for the arresting party?

In the UK, the Admiralty Marshal would be in charge of the vessel and her crew after the arrest and he has an obligation to ensure the welfare of the crew. However, the arresting party must give an undertaking to the Admiralty Court that it will cover all necessary expenses (that is if the sale proceeds of the vessel is not enough to cover the expenses of the Admiralty Marshal). Therefore, the arresting party must bear in mind that the expenses of the vessel may potentially be much greater than in the usual circumstances and can require treatment and repatriation of the old crew, bringing in new crew members, cleaning (sterilising) the vessel’s accommodation and even the vessel as a whole. Subsequently, if the vessel is abandoned by its owners, it may not be easy to find a buyer of the vessel which was affected by the virus or the sale proceeds would not be sufficient to cover the expenses of the judicial sale. 

Given the delays and disruption owing to COVID-19 there is potential for ship arrests to increase in numbers, particularly for shipowners whose businesses are being adversely affected and who may struggle to honour their contractual obligations.  

Update as of 12 March: 

If you have an arrest application you wish to make or defend, a colleague in Hill Dickinson was today advised by Portuguese lawyers that: ‘The management body of the judges issued a ruling yesterday evening declaring that only urgent matters where fundamental rights are at stake shall be dealt with by the courts, i.e. not maritime claims’.