Editor’s note: The ongoing coronavirus outbreak is impacting yachting in unforeseen ways. We therefore asked Christopher Anderson and Stephanie Parra, attorneys with Robert Allen Law, to explain potential impacts. This is an overview of force majeure clauses in yacht charter contracts. Note, however, that it does not constitute legal advice. Consult your own attorney to discuss your specific circumstances.
Prior to the coronavirus pandemic, many brokers, owners, and charterers had charters under contract. They are now uncertain as to what will happen as government restrictions grow more severe. Your agreement’s force majeure clause is the key provision to understanding risk allocation due to a delay or cancellation caused by COVID-19. Both the Mediterranean Yacht Brokers Association (MYBA) Standard Charter Agreement and the American Yacht Charter Association (AYCA) Recreational Bareboat Charter Agreement have force majeure provisions.
The force majeure provisions in the two agreements are similar, as are the contractual consequences should a force majeure event occur. Both roughly define a force majeure event to include “any cause directly attributable to acts, events, non-happenings, omissions, accidents, or Acts of God beyond the reasonable control” of the owner, crew, or charterer, provided they are not caused by the owner’s or crew’s negligence.
Events that stem from an unforeseen pandemic (like COVID-19) that might prevent a party from performing a contractual obligation would fall within this definition. That would mean that under both agreements:
- If the owner is unable to deliver the boat to the delivery location within 48 hours or one-tenth of the charter period, whichever is less, from the beginning of the charter period, then the charterer may cancel and receive back all monies paid.
- In such a situation, the owner is still responsible for paying a commission to the brokers.
- If a charterer terminates a charter as a result of COVID-19 (i.e., due to a quarantine or flight cancellation), the owner has a right to claim all of the installments paid and due from the charterer.
- In such a situation, the charter brokers are still due a commission (and could retain it from any deposits held).
- The owner/captain has a duty to mitigate its losses, which include trying to re-let the vessel and obtain a refund on any provisions obtained in anticipation of the charter.
- If the vessel is restricted to port or otherwise unable to sail due to the outbreak, then the charterer could argue that the vessel was effectively disabled so as to “prevent reasonable use.” This is, likely, an uphill battle.
- The charterer may try to argue the doctrine of “frustration of purpose” (under UK law, with respect to the MYBA agreement) or the doctrine of “impossibility” (under Florida law, with respect to the AYCA agreement), excusing the charterer from performance. Asserting either doctrine successfully is legally tricky.
Owners and charterers should review their insurance policies to see if any insurance coverage is available.
If you have pending charter agreements, carefully review your agreement and insurance to determine if they provide for any recourse during this time.
(special thanks to Lois Henderson)
Robert Allen Law robertallenlaw.com