The outbreak of Novel Coronavirus Pneumonia (COVID-19) took place in Wuhan at the end of 2019. With total confirmed cases growing every day, the World Health Organization (WHO) declared the COVID-19 outbreak originated in China a public health emergency of international concern (PHEIC). This is the sixth time WHO has declared PHEIC since 2009, and the first time China is declared as the country where the PHEIC occurred. Given that the epidemic itself and anti-epidemic campaigns conducted by the government have brought significant impact on shipping market and shipping enterprises, several legal issues are addressed and analyzed in this article to facilitate readers better dealing with their problems under current situation.

 1. Safe Port

 Generally, a charterer is entitled to designate the area where the vessel shall sail subject to the charter party, especially under time charter party. Both common law and Maritime Law of the People’s Republic of China required that the area nominated by the charterer shall be a safe port. Hence it is a vital question that whether ports in China can now still be considered as safe ports due to the outbreak of COVID-19.

 Article 134 of Maritime Law of the People’s Republic of China provided that “the charterer shall guarantee that the vessel shall be employed in the agreed maritime transport between the safe ports or places within sailing area agreed upon”. Sellers LJ defined “safe port” in the case The Eastern City〔1〕 that “a port will not be safe unless, in the relevant period of time, the particular vessel can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanvessel”.

 Thus, a port with severe epidemic situation could be regarded as unsafe port. Nevertheless, the standards of proving an unsafe port is rather strict in practice. There are no reports on spread of the epidemic among Chinese ports while the government has taken strong measures to ensure the safety of ports. WHO also pointed out that it is not recommended to take measures which unnecessarily interfere with international travel and commerce, or restrict trade and movement of people. Consequently, it is insufficient to claim the outbreak has rendered Chinese ports unsafe on legal basis.

 However, if the epidemic is continually escalating which leads to other countries take stronger actions against China, Chinese ports would be much more likely to be considered as unsafe ports. For instance, in the case of Ciampa v British India Steam Navigation Co., Ltd〔2〕, the vessel was departed from the area suffering from plague and was required to be fumigated at the next port. The courts therefore held that the vessel was not seaworthy. In other words, if the vessel called at the port that has epidemic, the vessel will not be seaworthy at any other ports, and the port in the epidemic area may be determined as unsafe port〔3〕. Therefore, shipping enterprises should pay close attention to the issue.

 Furthermore, unlike the time charter party, voyage charter party signed after the outbreak, unless there are specific terms, no implied warranty of safety will arise on nomination since the owner, having agreed to the port being identified in the charter, may reasonably be assumed to have accepted any risk as to its safety〔4〕. As for the voyage charter signed before the outbreak, the parties should refer to the terms included in the charter party (whether there are terms with regards to epidemic, deviation clause or discretionary clause, for example, if the vessel owner/master perceived that unloading at the port would be unsafe, reckless and illegal, the he/she can nominate an alternative port to unload), and impact on the performance of the contract brought by the outbreak.

 2. Tender of Notice of Readiness（NOR）

 Another impact of the outbreak is a significant increase in loading and discharging time. Due to the need of epidemic prevention and control, the time required for inspection and quarantine procedures of vessels during loading and discharging and even when entering or leaving a port has increased significantly, also, due to the measures taken by the government such as postponing the resumption time of work, the port’s insufficient loading and discharging capacity has also increased the loading and discharging time, and these issues may cause disputes between the parties to the charter party.

 Each version of the voyage charter party usually stipulates that the loading and unloading time will commence at a certain time after the “Notice of Readiness” (NOR) has been tendered by the master or the owner’s agent to the charterer or its agent, provided that two conditions has been fully satisfied, that is: (1) the vessel arrives at the port or the berth provided in the charter and (2) the vessel is in all respects in fact ready to load or discharge〔5〕.

 Under normal circumstances, free pratique is mere formalities〔6〕 but not a prerequisite for the tender of NOR, however, during the outbreak of COVID-19, it is possible for ports to require the vessels and its crew to obtain free pratique before the cargo can be loaded and discharged, in which case, if the master still tenders the NOR before obtaining free pratique based on previous experience, especially if the owner ultimately fails to obtain free pratique after tendering the NOR, it may eventually lead to the NOR to be deemed invalid〔7〕.

 It is worth mention that, unless otherwise agreed in the charter party, an invalid NOR normally will be deemed to have never been tendered. Affected by the outbreak of COVID-19, as stated above, if the vessel fails to obtain free pratique, it may be considered as unready for loading and discharging. In this situation, the master has no right to tender the NOR, even if the NOR is tendered, it still should be deemed invalid, and the NOR tendered should be legally considered never tendered. Thus, the loading and discharging time can only be counted after the second valid NOR is tendered. In the famous case The Happy Day〔8〕, an invalid NOR would not become valid, even if it was accepted by the charterer.

 In view of the above, it is suggested that the parties may consider to add the WIFPON (whether in free pratique or not) clause in the charter party, that is, whether or not free pratique is obtained, the master or owner’s agent can tender the NOR so as to balance the interests and risks of both parties. However, the WIFPON clause does not mean that there is no need for the vessel to obtain free pratique, but only means obtaining free pratique is no longer a prerequisite for tendering of NOR, however, in the end, if the vessel fails to obtain free pratique, the NOR will most likely be deemed invalid.

 3. Force Majeure and Change of Circumstances

 Another vital issue for shipping enterprises at present is whether this outbreak of COVID-19 constitutes a force majeure event or whether a party to the charter party has the right to terminate the charter party on the grounds that the outbreak has caused the failure to realize the purpose of the contract. It should be noted that force majeure is a statutory reason for exemption from liability or even termination of contract in some countries only. Therefore, for determination of whether a situation constitutes a force majeure event, if the contract is a Chinese domestic contract without any foreign elements, it can be determined directly in accordance with the laws of the People’s Republic of China; However, if a contract is a foreign-related contract, it can be determined in accordance with the laws of such country, once the governing law of the contract has been determined in accordance with the rules of private international law (conflict of laws). However, when the governing law of the contract is a law of a country which has no written regulations on the force majeure such as English Law, then the parties shall focus on that whether there is any force majeure clause in the contract, and the specific matters provided in such clauses and corresponding legal consequences.

 In the public Q&A session on the website of the Beijing People’s Court〔9〕, the reply to the question concerning “whether the “outbreak of COVID-19 constitutes a force majeure event” is given as follows: both the General Rules of the Civil Law of the People’s Republic of China (“General Rules of the Civil Law”) and Contract Law of the People’s Republic of China (“Contract Law”) stipulate that a force majeure event refers to a situation which, on an objective view, is unforeseeable, unavoidable and is not able to be overcome. If the failure to perform civil obligations is caused by a force majeure event, no civil liability shall be borne, unless otherwise provided in the law. The outbreak, as a sudden and unusual event, is a nationwide and even a worldwide outbreak of the epidemic, let alone the parties to the contract, even the government agencies and relevant experts can not foresee it. Since the occurrence of the outbreak of COVID-19, there has been no direct and effective treatment, nor direct and effective methods to completely prevent the spread of the epidemic, therefore, on an objective view, it is unforeseeable, unavoidable and is not able to be overcome, which meets the requirements of a force majeure event prescribed by law.

 Pursuant to paragraph 1 of article 180 of the General Rules of the Civil Law and paragraph 1 of article 117 of the Contract Law, where it is not possible to perform a contract due to a force majeure event, then, depending on the impact of the force majeure event, the performing party shall be partially or wholly exempted from liability. Paragraph 1 of article 94 of the Contract Law further provides that, if a force majeure event caused the failure to realize the purpose of contract, either party may terminate the contract.

 Based on the above provisions, if the charter party becomes, wholly or in part, unable to be performed due to the occurrence of this outbreak, with respect to the part which is unable to be performed, the party which is unable to perform may be exempted from liability, after it has timely notified the other party in accordance with article 118 of the Contract Law to mitigate the possible losses caused to the other party and provided evidence within a reasonable period. Either party may terminate the contract, if the purpose of the contract cannot be fulfilled due to the force majeure event.

 It must be emphasized that, although the majority holds that this outbreak constitutes a force majeure event, not all the consequences arising from this outbreak can be defended by force majeure. Force majeure applies only to the circumstance that the outbreak does cause that the contract is unable to be performed or the purpose of contract is unable to be realized. In this regard, reference may be made to the provisions in the Notice of the Supreme People’s Court on Doing a Good Job in the Trial and Enforcement of People’s Courts during the Period of Preventing and Treating Severe Acute Respiratory Syndrome (SARS), “Disputes arising directly from failure of performance of contracts due to administrative measures taken by the government and relevant authorities for epidemic prevention and control, or from the impossibility of performing by the contracting parties due to the impact of the epidemic, shall be handled properly in accordance with the article 117 and article 118 of the Contract Law.”

 Where the outbreak does not result in the impossibility of performing the charter party, but will have a material adverse effect on the rights and interests of the party, if those who continues to perform its obligations, then the principle of fairness, that is, the rule of change of circumstances, shall be applied, as the case may be. According to the Minutes of the National Economic Trial Work Meeting in 1993, the Supreme People’s Court held that, due to reasons not attributable to the parties, if the basis of the contract has undergone fundamental changes that could not be foreseen by the parties, resulting in that the continual performance of contract would be obviously unfair, the contract may be modified or terminated at the request of the parties in accordance with the rule of change of circumstances. Article 26 of the Interpretation of the Supreme People’s Court on Several Issues Concerning Application of the Contract Law of the People’s Republic of China (2), which came into effect as of May 13, 2009, provides, “Where any significant change in the objective environment has taken place after the formation of a contract which could not have been foreseen by the relevant parties at the time of entering into the contract, and does not belong to any commercial risk occasioned by any force majeure cause, rendering the continual performance of the contract manifestly unfair to the relevant party or rendering it impossible to realize the goal of the contract, the People’s Court shall confirm whether the contract shall be modified or terminated in accordance with the principle of fairness taking into account the actual circumstance, where the concerning party apply to the People’s Court for modifying or terminating the contract.” Additionally, reference may be made to the provisions of the Notice of the Supreme People’s Court on Doing a Good Job in the Trial and Enforcement of People’s Courts during the Period of Preventing and Treating Severe Acute Respiratory Syndrome (SARS), “for those contract disputes, if the continual performance of the original contract would have a material adverse effect on the rights and interests of a party due to the epidemic, such disputes may be handled in accordance with the principle of fairness, as the case may be.”

 The final judgement of the dispute over the charter party between J.PI TRAVEL U.S.A., INC. and Yangtze River Shipping Overseas Tourism Corporation regarding five cruises, can well explain the application of the above-mentioned provision. In this case, the outbreak of SARS occurred in China during the performance of the charter party, and according to the charter party involved, neither party has the right to terminate the charter party due to a force majeure event, therefore, the charterer, on the grounds that the number of tourists decreased sharply as a result of the outbreak of SARS and paragraph 1 of article 94 of the Contract Law apply to the court for terminating the charter party. However, according to this article, either party shall have the statutory right of termination only if the charter party cannot be performed or the purpose of the charter party cannot be achieved due to a force majeure event. In this case, the outbreak of SARS did, in fact, lead to a sharp decrease in the number of tourists and thus the charterer’s profits were reduced. Nevertheless, after giving full consideration to the duration of the outbreak, the recovery period of the cruise industry after the end of the outbreak, and the minimum number of chartered days per year for the calculation of the charter money of the cruise, the court held that although the outbreak of SARS had a great impact on the performance of the charter party, but the impact had not reached the extent that the charter party cannot be performed or the purpose of the charter party cannot be achieved. In view of this, the charterer shall not have the right to terminate the charter party; however, considering that the charterer’s obligation of full performance under the charter party had been affected by the outbreak of SARS, in accordance with paragraph 1 of article 117 of the Contract Law, the charterer was entitled to request for partial exemption from its liability for non-performance.

 Above all, it is our view that if a charter party is indeed affected by a force majeure event, the affected party may seek to protect its interests through force majeure clauses or by relevant laws. Nevertheless, the key point is to prove a causal connection between the force majeure event and the impossibility of performance of the contract. Therefore, when claiming exemption from liability or termination of a contract based on a force majeure event, special attention should be paid to the following two points: (1) Whether there is a causal connection between this outbreak and the impossibility of performance of the contract, wholly or in part; (2) Whether the party affected by the outbreak has taken reasonable measures to mitigate or avoid the adverse effect of this outbreak on the performance of the contract. Meanwhile, we have noticed that the China Council for the Promotion of International Trade has indicated that, with respect to the enterprises that are unable to perform international trade contracts or to perform international trade contracts on schedule, due to the impact of this outbreak, such enterprises may apply to the Council for issuance of a certificate in connection with the force majeure event. However, in practice, unless it is explicitly agreed in the contract that the force majeure certificate issued by the relevant organization is sufficient to prove the causal relationship, such certificate alone should not be sufficient to prove the causal relationship between the force majeure event and the impossibility of performance of the contract nor the reasonable measures has been taken by the party which is unable to perform its obligations.

 4. Frustration of Contract

 As mentioned above, force majeure is not a statutory exemption and can only take effective when it is written in the contract. When the contract does not include force majeure clause and the obligations cannot be fulfilled due to the epidemic, it is worthwhile to consider claim frustration of contract. The doctrine of frustration discharges a contract where following the formation of the contract, there exists an unenforceable event beyond both parties’ control, which renders the contractual obligations either impossible to perform or deprives the contract of its purpose. The legal definition of frustration was given by Lord Radcliffe in Davis Contractors v Fareham UDC〔10〕, which held that “frustration occurs whenever the law recognizes that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”. Frustration of contract could be applied in three aspects: impossible of performing contract, performing contract becomes illegal and the purpose of contract cannot be achieved. Typical events leading up to impossibility of performance include was, rioting and civil rest; change of law; acts of god, such as natural disaster, epidemic; injunctions issued by governments. In a classic English case Krell v Henry〔11〕, the defendant rented a guest room from the claimant to watch coronation, which was canceled due to the illness of King Edwards VII, the claimant then claimed to be rewarded the rest of rent. Since watching coronation was foundation of this commercial contract and the ultimate purpose of renting the guest room, the cancellation of coronation leaded to frustration of contract and judge rejected the request.

 The outbreak of COVID-19 is an unforeseeable event that beyond both parties’ control. It is a significant change during the performance of the contract and if the parties are incapable of performing obligations, the parties may apply frustration of contract for their cases. Common law cases demonstrated that there are three main elements when assessing whether frustration applied to a contract: first, both parties have not allocated the risk of loss between themselves in the contract when particular event occurring; second, there has been a radical change in circumstances which causes impossible of performing the obligations; third, the radical change does not come from default of any party. Moreover, once frustration of contract successfully applies, the contract will terminate immediately and no damages could be sought, only the sum that has been paid by the party can be redeemed.

 It should be also noted that common law takes legally binding contract seriously, while judges tend to use discretion on frustration carefully, meaning that the doctrine has narrow application, in order to refrain one party from using frustration as excuse to avoid certain obligations. Also, it is difficult to define unenforceable events legally. The party has to prove the event is unforeseeable and has to prove direct causality between the event and performance of the contract. There is limited case law to illustrate whether frustration could be applied due to epidemic, however, a Hong Kong case Li Ching Wing v Xuan Yi Xiong〔12〕 could be mentioned. The tenant was unable to reside in the rented house for 10 days since the house has to be quarantined for SARS. The tenant claimed that the lease contract should be terminated due to frustration of contract. The judge rejected the request and held that 10 days of quarantine only constitutes very short period of 24-month lease and is not sufficient to apply frustration. Hence parties which have been suffering negative impact from the outbreak should carefully consider whether it is appropriate to claim frustration and whether the epidemic has directly affected the performance of obligations or the subject matter of the contract.

 5. Conclusion

Based on the above analysis, it is suggested that there are difficulties to claim Chinese ports are unsafe in terms of law, nonetheless strict inspection and quarantine measures taken for the epidemic will undoubtedly prolong the loading time, and may lead to disputes for demurrage charges. Even though the epidemic can be identified as force majeure event under PRC law, whether the parties can invoke such event to terminate the contract or exempt liabilities, is still comprehensively depending on the applicable law of contract, the force majeure clause stated in the contract, the nature of contract and impact to the contract brought by the outbreak. If such impact failed to directly cause the parties unable to perform their obligations, then in practice, claiming either force majeure or frustration of contract would not be supported by domestic or foreign courts and/or arbitral tribunals.

[1] [1958] 2 Lloyd’s Rep 127 at p 131

[2] [1915] 2 K.B. 774

[3] For example, the Australian Border Force announced on February 3 that vessels departing from China mainland to Australia on and after February 1 will be quarantined for 14 days. If other countries follow suit or take further measures, then it will be more likely that Chinese ports will be regarded as unsafe ports.

[4] John F Wilson, Carriage of Goods By Sea, 7th Edition, 2010, p25

 [5] Kennedy LJ in Leonis v Rank [1908] 1 KB 499 at p 518

[6] The Delian Spirit [1972] 2 QB 103

[7] The Tres Flores [1973] 2 Lloyd’s Rep 247

[8] (2002) 2 Lloyd’s Rep. 487

[9] http://bjgy.chinacourt.gov.cn/article/detail/2020/02/id/4792178.shtml

[10] Davis Contractors v Fareham UDC [1956] AC 696 at p 728

[11] Krell v Henry [1903] 2 KB 740

[12] Li Ching Wing v Xuan Yi Xiong [2004] 1 HKLRD 754