Year 2000 - Charterparty clauses (December 1998)

Circular No. 11/98

December 1998

TO THE MEMBERS

Dear Sirs,

YEAR 2000 ? CHARTERPARTY CLAUSES

The Association has over the last weeks received an increasing number of enquiries from Members asking for the Association?s comments on Year 2000 Millennium Charterparty clauses which they are being asked to agree by their Charterers.

Frequently, these clauses require Owners to "guarantee" or "warrant" that their vessel is Year 2000 compliant or are drafted in terms whereby Owners are placed under a continuing obligation to "exercise due diligence" to ensure that Year 2000 critical dates are passed without incident.

In some cases, these clauses specifically provide that in the event of the happening of a "Year 2000 incident" Charterer's obligation to pay hire is suspended; that Charterers are entitled to claim damages in respect of all losses incurred as a result of a Year 2000 incident; and that Owners will be precluded from declaring General Average in respect of the Year 2000 incident.

Members must be aware that if cargo is carried subject to such a clause (for example where the Bill of Lading incorporates the Charterparty terms) they may prejudice their P & I cover.

In the event that Members are pressed to agree such clauses, the Association recommends that:

Members revert to their Charterers pointing out that strictly speaking there is no need for a specific clause dealing with Year 2000 compliance. The point may legitimately be made that whether a vessel is Year 2000 compliant is essentially an issue of seaworthiness ? and an Owner?s obligation to ensure the seaworthiness of his vessel (and the consequences of a vessel not being seaworthy ? most notably in relation to off-hire) will expressly or implicitly be covered by existing charterparty terms.

In the event Charterers nonetheless insist on a specific Year 2000 clause, Members are recommended to make use of the BIMCO drafted Year 2000 clause wherever possible. For Members? benefit this clause is reproduced below. The clause is drafted on the premise that Owners will exercise due diligence in relation to the Year 2000 problem but significantly it preserves any defences that may be available to Owners under the applicable contract of carriage, including where applicable the Hague or Hague-Visby Rule defences. The clause also recognises that the so-called Millennium Bug is not solely an Owner?s problem. It affects Charterers as well; most significantly in relation to a Charterer?s obligation to nominate a safe port or berth. Use of the BIMCO clause will not prejudice a Member?s P & I cover. It reads as follows:

BIMCO Standard Year 2000 Clause

for Voyage and Time Charter Parties

Year 2000 conformity shall mean that neither performance nor functionality of computer systems, electronic and electro-mechanical or similar equipment will be affected by dates prior to or during the year 2000.

Without prejudice to their other rights, obligations and defences under this Charter Party including, where applicable, those of the Hague or Hague-Visby Rules, the Owners and the Charterers, and in particular the Owners in respect of the Vessel, shall exercise due diligence in ensuring Year 2000 conformity in so far as this has a bearing on the performance of this Charter Party."

The Association shall of course be pleased to advise specifically on any Year 2000 Charterparty clauses that Members are asked to agree.

Yours faithfully,

ASSURANCEFORENINGEN GARD

-gjensidig-

John G. Bernander

Managing Director