UK: Parties Should Proceed Warily Over War Clauses

Last Updated: 1 October 2008
Article by Julian Clark and Maria Borg Barthet

Recent tensions in the Caucasus have dominated shipping headlines. With Georgia and Russia both bordering the busy waters of the Black Sea and a significant amount of international trade in this area, there is apprehension over physical safety and the potential effect of any trouble on contractual relations.

The naval presence of both Russian and US forces in the ports of Poti and Batumi has reinforced that trepidation in various sectors of the market.

Cargo interests, owners and charterers are considering the damage that hostilities may inflict on their immediate and future obligations. Oil exports have already been affected (Georgia war hits Azeri oil exports, Lloyds List, August 12), leading maritime unions to request, albeit unsuccessfully, that the Black Sea ports and coastal waters be declared an "area of warlike operations" (Georgia war area plea rejected, Lloyd's List, August 15).

But despite the references to war in the media, do the hostilities legally constitute war? To what extent can the operation of get-out/cancellation provisions in various shipping contracts be triggered?

Perhaps surprisingly, the law in this area is limited.

In Kawasaki KKK v Bantham Steamship ([1938] 61 Ll.L.Rep. 131), the Court of Appeal held that the term war is to be interpreted in accordance with the manner in which the term "would be construed commercially".

Charterers alleged that the owners' cancellation of a charterparty in 1937 on the grounds of war involving Japan was wrong. Agreed facts included: 50,000 soldiers in the Shanghai area, supported by the Japanese fleet and airforce, engaged in battle with Chinese forces of more than 1.5m, on a front stretching 30 miles.

In North China, three Japanese armies numbering more than 100,000 fully- equipped men, advanced against a Chinese force numbering 300,000. More than 50 battles were fought between August and September 1937, and from August 25 onwards, the Japanese maintained a naval blockade stretching over 1,000 miles of Chinese coastline, and also occupied certain islands.

However, no declaration of war was made and diplomatic relations were not broken off.

In evidence that was presented to the court, the British government was not prepared to say whether, in its view, a state of war existed.

A two-man tribunal was unable to agree whether the situation constituted a war and it was left to the umpire to decide that war had broken out.

The matter went to the Court of Appeal which upheld the decisions of the umpire and lower court that on a true construction of the charterparty, whether war had broken out could not be conclusively determined by the British government; the word war in the charterparty was not to be given a technical meaning based on international law principles but its ordinary common sense meaning; it was open to the umpire to find on the facts that war had broken out, even though diplomatic relations had not been severed.

The later case of Spinneys (1948) Limited v the Royal Insurance Company Limited ([1980] 1 Lloyd's Rep. 406) dealing with whether there was civil war in Lebanon, developed a three-stage testthat remains the legal benchmark when considering whether a situation properly gives rise to war as a matter of English law:

(a) Can it be said that the conflict was between opposing sides?

(b) What were the objectives of the sides and how did they set about pursuing them?

(c) What was the scale of the conflict and its effect on public order and on the lives of the inhabitants?

Leaving aside the cases that have considered to what extent acts of terrorism such as 9/11 can be considered to be acts of war (which is beyond the scope of this article), the most recent judicial consideration of the topic is to be found in the 2003 Court of Appeal decision in the Northern Pioneer ([2003] 1 Lloyd's Rep. 212).

This case considered the effect of a war cancellation clause where there was a charter of vessels under the German flag and Germany had sent warplanes to assist NATO in its operations in the Kosovo conflict. Charterers cancelled the charterparty on the basis of the following clause: "in the event of the nation under whose flag the vessel sails becoming involved in war... either... may cancel this charter".

A tribunal was unable to reach a unanimous decision on the question of whether there was a war and, if so, whether Germany was involved in it.

The majority decided that the Kosovo conflict did not constitute a war and that Germany was not involved. The tribunal unanimously decided that, in any event, the charterers had failed to exercise their right to cancel in time.

The charterers appealed against this ruling. But the court avoided any need to consider the key war issue by rejecting the charterers' application, on the basis that the tribunal's decision on whether they had delayed too long before cancelling did not need to be reviewed.

Given the number of countries that are involved in active military campaigns in Afghanistan, Iraq and potentially in the Caucasus, it is likely that similar disputes over this fairly standard wording will arise in the future.

While certain aspects of the initial conflict between Georgia and Russia may have constituted war applying the Spinney's test, in the prevailing circumstances under which Russian troops are (apparently) engaged in withdrawing from Georgia and there is a de-escalation of the conflict, this is no longer the case.

While stage one of the Spinneys test appears to be satisfied, stage two and three present difficulties.

Russia maintains that it has no specific objective and that its military presence in the area is merely to maintain peace and to protect its Russian citizens.

Regarding stage three, while the effects of the outbreak are catastrophic in the particular areas where fighting is taking place, is the broader impact large enough to satisfy this criterion?

Outside the strict definition of war, the events in the Caucasus may have other contractual implications over port safety, force majeure and/or frustration.

The situation requires careful monitoring in light of specific contractual obligations.

The latest indications promise a de-escalation but tensions have far from eased and there appears to be little expectation that they will do so any time soon.

It is possible that a state of war will develop. The circumstances make it difficult to prepare for possible eventualities, until there is clearer guidance from the courts over what constitutes war.

At present, the right approach appears to be to consider every situation on an individual basis, with the Russia/Georgia outbreak being no exception.

The Spinneys test is a useful guide but with the constant evolution of the concept of war, and the impact of terrorism on world security, contractual parties are advised to step carefully before attempting to rely on a war clause or deciding whether a particular situation falls within the legal definition of war.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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