The deadly novel coronavirus outbreak (2019-CoV) has resulted in passenger and cargo ships being quarantined around the world, partial and complete travel bans to parts of China and shipping and airlines being unable or unwilling to deliver cargo to the contractual destination.

Malcolm Hartwell, head of Transport at Norton Rose Fulbright says that, “Non-delivery of cargo will affect traders, banks, shipping and airlines, freight forwarders and everybody else involved in the logistics chain.  Carriers will need to assess their obligations to deliver cargo, and their exposure to claims, by reference to their contracts of carriage – which may need to be amended to protect them from future liability. Cargo interests will also need to review their sales contracts, explore the possibility of recovering losses from carriers and assess to what extent they have cover under their insurance arrangements.

The most pertinent problems will be as follows: non-delivery of cargo due to ships and planes being placed into quarantine (and storage) at an intermediate final place of delivery and consignments being returned to the original place of loading.  Each of these cases will affect the parties to the sales contract and carriage contracts and have them looking to each other and their insurers for the resultant losses.”

Although much of the world’s trade, particularly in commodities, is governed by comprehensive sales contracts, the rest often consists simply of a telephonic call, an exchange of emails or a written order followed by an invoice.  Buyers and sellers need to examine their sales contracts to ascertain whether they either have a claim under that contract for non-delivery or delivery to the wrong destination or a defence to such a claim.

Where comprehensive contracts have been concluded, the majority of them will include a force majeure or similar clause which will prevent the aggrieved party from recovering from the seller in the event that the cause of the loss is, broadly speaking, outside the reasonable control of the seller.  Where there is no such clause or no contract at all, whether or not the aggrieved party can recover will depend on the law of the country where the claim is pursued. In most common law countries such as South Africa, the seller would not be liable to the buyer for late or non-delivery caused by the coronavirus. This is not always the case in common law countries and will depend on the circumstances and the applicable law.

That said, sorting out what should be done with the cargo will take careful consideration.

“Insofar as the carriage contracts are concerned, the majority of these will be in the form of bills of lading, charter parties or air waybills.  Those contracts may be governed by national legislation and by carriage regimes such as the Hague-Visby Rules in the case of bills of lading or the Montreal Rules in the case of air waybills,” says Hartwell.

Whether or not claims lie against the contractual or actual carriers will depend on the terms of the contract with that carrier.  In the vast majority of cases, carriers contract out of liability for consequential losses and also for losses that arise due to circumstances outside their control.  Fortunately for carriers and unfortunately for cargo owners, in most cases the burden of dealing with non-delivery will fall on cargo owners.

Cargo owners may wonder what insurance cover they may have.  Most of the word’s trade is insured on terms similar to those contained in Institute Cargo Clauses A (ICC(A)) which is a standard form developed in London market. 

Although it is described as all risks insurance, the ICC (A) clauses are only designed to indemnify the insured in the event that there is physical loss or damage to the cargo.  As a general principle, unless there is physical loss or damage, a policy will not respond to a claim unless one of the supplementary clauses specifically allows for it. 

The policy excludes underwriters’ liability to indemnify the insured in the event that the loss or damage is proximately caused by a delay.

In circumstances where a cargo has not been delivered to its final destination due to quarantine, earlier delivery to another port, or return to the original port, and this caused the loss, then underwriters would argue that this is a loss caused by a delay and accordingly not covered.  Generally, this argument would be upheld, but it will depend on the law of the country where the dispute under the policy is heard. 

The ICC clauses include a clause which requires underwriters to pay for the costs of forwarding cargo to its final destination if it is discharged at an earlier port.  This cover however only arises in the event that it is caused by a risk covered by the policy.  The policy covers loss or damage to the cargo only.  It does not cover consequential losses caused by the coronavirus outbreak and accordingly this extension would not wholly apply. 

If cargo is insured under terms similar to the ICC(A) and the cargo is not delivered to final destination, cargo owners must immediately advise their insurers.  This is because the insurance terminates at the place of delivery even if it is not the original place of delivery but gives cargo owners this option of asking insurers to extend the insurance for a further period either while they make other arrangements to deliver it or while it is in storage.

“For international trade then the message is clear. All of the parties involved need to assess their existing contracts and determine their right to claim or their exposure to claims for non-delivery or delayed delivery.  They also need to adjust their contractual arrangements going forward to protect their position.  All those parties also need to assess their insurance arrangements to determine whether a claim will lie under the policy, whether they held a cargo insurance policy or any liability insurance carriers and logistics companies,” concludes Hartwell.