Law specialists Tatham & Co partner Simon Tatham and senior associate David High explain why TOWCON contracts are better for tug operators when towage projects are disrupted due to coronavirus affects
TOWCON 2008 contracts are better crafted for the impact from a pandemic, such as Covid-19, than other towage contracts, such as the UK Standard Conditions for Towage.
It is regarded in this respect as tug-owner friendly and, by necessity, is a detailed contract with clauses covering towage disruption.
Notwithstanding, thought should be given in any context to whether the contractual terms being negotiated offer appropriate levels of protection in these uncertain times we are all living through.
It is not just the immediate effect of the coronavirus pandemic that must be considered but also potential disruption caused by the after effects.
Consideration might sensibly be given to including appropriate force majeure terms in any contract under negotiation, as to the actual scope of the terms and whether they work for you. Remember, most general force majeure clauses provide rights to both parties and, where the likely impact of the pandemic on the voyage is foreseeable, any off-the-shelf clause will likely require modification to be suitable.
The devil lurks in the detail and so care as ever is needed when applying detailed contractual terms to the actual facts of any case.
Here we set ourselves the premise that a tug and tow have been prevented from reaching the agreed destination, in particular because of disruption caused by Covid-19.
We consider the potential effects of this delay in the context of The UK Standard Conditions for Towage, of ad hoc terms that contain a force majeure clause, and TOWCON 2008.
The UK Standard Conditions for Towage 1986 conditions typically apply to short-term harbour engagements, where it is difficult to envisage a situation where an operation will be disrupted on account of the pandemic.
But for the sake of comparison, we make these few short points. Clauses 4 (d) and 7 do both excuse the tug owner from liability for delay to the tow reaching its destination, should that become an issue.
On the flip side there is no mechanism in the conditions to bring the contract to an early end where performance is prevented by external factors, say for example the tug crew and all back up were unexpectedly testing positive.
Clause 7 of the conditions amounts to a force majeure clause but where it is engaged it acts to excuse liability and does not provide a right to terminate and, for example, abandon the tow.
In the absence of an express right to terminate in a contract, then usually the only recourse is if it can be shown the contract has become “frustrated”.
For a tugowner or hirer to engage this doctrine where the conditions apply would however be to sail into legally dangerous waters.
It would need to be shown that the delay would be of an extremely long duration (probably months).
As that is of course unlikely in a harbour context we can only hope that there will be more practical ways of dealing with problems that might arise.
Force majeure considerations
More generally, the application of any force majeure clause will turn entirely on its specific terms. Although there is no implied doctrine of force majeure in English law.
There is no-one-size-fits-all analysis, but a party considering a force majeure clause may wish to ask themselves the following questions.
Does the cause of the delay or impediment amount to one of the events listed in the clause? Some of the clauses we have seen specifically list ’pandemic’ as a force majeure event. Even if this is not listed, it could, for example, be said that a port closure due to Covid-19 amounts to ’administrative action’, which may be a listed event and applicable.
Does the clause require that the event had to have been ’unforeseen’? Contracts that predated Covid-19 being declared a pandemic on 11 March 2020 may be held to not have foreseen the effects of the virus. Contracts entered into after 11 March are likely to be held to have had Covid-19 firmly in the parties’ minds.
Does the clause respond only to events that prevent contractual performance or does it respond to events that merely hinder or delay it? The later formulation is obviously more generous to the party trying to rely on the clause.
To show that an event had prevented performance may be no easy task, especially where there are other ways to complete the contract, for example an alternative longer route to the destination.
Many standard boiler plate force majeure clauses, for example in BargeHire 2008, among other BIMCO contracts, include situations where performance is merely hindered while providing only limited remedies to the parties.
Are there any formalities required to engage the clause? It is common for force majeure clauses to require notice to be given in a certain way and at a certain time.
If the clause is engaged, what remedy does it provide? Some clauses only suspend performance whereas other clauses may provide a right to (or even may automatically) terminate the contract. Termination may well be on a drop-hands basis and so could be unattractive if the tug owner is only paid on delivery at the agreed destination.
Whereas, TOWCON 2008 provides the tug owner with potentially multiple helpful rights.
If the tug is delayed awaiting to enter the place of destination or for a canal to open then the tug owner may have a right to charge delay payments per clauses 6 and 7.
To do so the tug must have reached the pilot station or be waiting at ’the usual waiting area’. This is a term that is more usually found in the laytime context in a voyage charterparty and often attracts fierce argument in arbitration.
In summary, care is required to ensure the tug is waiting at the right place and if a long delay is envisaged it may be prudent to engage a local agent to assist with this.
Tug owners are provided with the right per clause 23 to terminate the contract and abandon the tow if there is a delay of 14 days or more at a port or place of call.
In which case, the tug owner is to be paid the entire agreed lump sum ’less expenses saved’ by the early termination.
This will inevitably lead to arguments over what it would have cost the tug owner to complete the tow bearing also in mind that the tug may suffer the inconvenience of demobilising or repositioning for further employment.
With offshore projects today being quickly mothballed, mainly because of the oil price collapse (itself a side-effect of Covid 19), this scenario is suddenly a reality.
Most sensible hirers will try to come to terms, and brokers will be hard at work putting together a mutually acceptable solution.
The TOWCON’s equivalent of a force majeure clause is found in clause 27, which is stated to respond specifically to ’epidemics’, or local pandemics.
If the tug owner can show the effects of the epidemic make it dangerous or ’commercially impracticable’ to continue then there is a right to terminate the contract and leave the tow at a place where the hirer may retake possession.
The tug owner will be paid all outstanding sums under the contract; this may or may not be attractive to the tug owner depending on how the lump sum payments have been staged.
Clause 27 (f) (iii) and (iv) provides the right to claim delay payments if the tug is blocked or passage restricted by the effects of a pandemic. For example, this right may dovetail with the right per clause 7 to delay payments where a canal is closed, but with the added advantage that there is no need for enquiry as to the ’usual waiting area’.
This demonstrates TOWCON is more tug owner friendly, more detailed and better written for towage projects with provisions for disruption due to Covid-19. But, care is still required when applying detailed contractual terms to actual facts of any case.
Tatham & Co marine solicitors incorporate TugAdvise.com, a service dedicated to the tug and offshore vessel sectors.
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