On Thursday 30 January, the China Council for the Promotion of International Trade released a statement confirming that China was offering force majeure certificates to local companies unable to fulfil their international contractual obligations due to the coronavirus outbreak. The relevant directives and certificates do not, for the time being, apply to Hong Kong law contracts where the counterparty is a non-Chinese entity.

The widening quarantine restrictions in China, together with airlines suspending and reducing flights to and from China and the closure of ports in Hubei province, indicate disruption to import and export of crude, iron ore, soybean and steel, to name but a few. Given the importance of China, in addition to the human cost of novel coronavirus, the financial impact and disruption to global trade look set to continue.

Where parties are trading with Chinese entities, it appears that the Chinese state is endeavoring to facilitate the exercise of force majeure clauses in international sale contracts for local companies. The validity of claiming force majeure will be subject to the scope of the specific contractual provisions and evidence that alternative means of contractual performance were not available. As the conditions keep getting worse globally, it keeps effecting the business market and thus bring the question of whether the coronavirus outbreak can be considered as force majeure to the minds. 

The force majeure clause according to Turkish law

This Article will be examining the force majeure clause in terms of its applicability due to the recent coronavirus outbreak in accordance with Turkish Law and the related legislation. Therefore, the scope of this Article will be limited with the contracts of which Turkish law is chosen as the governing law. 

The measures and legal changes made following the spread of the COVID-19 pandemic in Turkey have affected contractual relationships in terms of the performance obligations of parties. The changes to commercial life consequent to the various mandatory measures, government advisory decisions, and general health measures implemented to prevent the spread of the outbreak have made the continuation of contractual relationships and the performance of obligations difficult for certain legal transactions and impossible for others. The outbreak’s effect on delays to contractual performance or the inability to perform obligations must be evaluated under the notions of;

• excessive difficulty of performance, 
• partial impossibility of performance, and 
• impossibility of performance 

regulated under the Turkish Code of Obligations numbered 6098 ("TCO"), and must be examined in light of the concepts of force majeure and unexpected state (extraordinary state) as discussed in both Turkish Court of Appeal precedents and the legal doctrine. 

Impossibility of Performance 

The basic principle of a contractual relationship is that the parties should perform their obligations in accordance with the conditions envisaged in their legal relationship. For this reason, Article 112 of the TCO requires the obligor who has defaulted in the performance of its obligations to prove that no fault can be attributed to itself for the non-performance or improper performance of its obligations. 

Otherwise, the party who is unable to fulfil its obligation to perform is required to compensate damages incurred by the other contracting party resulting from its default. In order to determine whether non-performance or improper performance of the obligation occurred for reasons unrelated to the obligor, the subject of the obligation must be impossible due to external factors and this impossibility should not have occurred due to a reason attributable to the obligor. 

Article 136 of the TCO stipulates that if it is impossible to perform the obligation under the contract due to the reasons that are not attributable to the obligor, the obligor shall be released from performing the related obligation. 

For each contract, a specific assessment should be made as to whether an "impossibility" exists. Impossibility means an obligation cannot be enforced even through legal enforcement channels, so therefore, “impossibility” is not applicable to obligations such as payment obligations. In civil law perspective the impossibility may either be “legal” or “factual”. The legal impossibility may be caused due to an unexpected legislative amendment or an act of relevant authority which would result with impossibility of the performance of the contractual obligations; whereas factual impossibility may be caused by natural incidents or conditions which would also lead to the impossibility of performance. Even the reason behind the impossibility may differ, its consequences are identical.

However, in contracts such as construction contracts or counselling contracts concluded with specific persons due to their expertise, etc., "impossibility" may be in question. In addition, for contracts (e.g., rent, employment contracts) where extraordinary circumstances have been regulated under special provisions of law, a separate evaluation should be made to determine whether “impossibility” exists.

What is Force Majeure?

Although the term of force majeure is not defined under the applicable Turkish legislations, Article 136 of TCO covers rules and principles applicable to supervening impossibility. In the case that performance of obligations becomes impossible due to occurrence of a force majeure event after the conclusion of the contract, the debtor will be discharged from its obligations under such contract. Notwithstanding such article, contracting parties generally insert a force majeure clause into the contract, enabling the debtor to refrain from its contractual obligations and granting right to both parties to terminate the contract unilaterally.

Although lists of force majeure events can be seen generally in force majeure clauses of the contracts, such clauses are not drafted under the principle of numerus clausus. In other words force majeure clauses exemplify the major force majeure events, such as natural disasters, acts of god, acts of governments, strikes, but do not set a limit for the events, which can be defined as force majeure incidents.

Conditions of Force Majeure

In the light of the foregoing explanations, an event can be defined as a force majeure incident provided that;

(a) it took place due to an external event,

(b) consequences of such external event is unforeseeable,

(c) it is impossible to hinder occurrence of such external event, preventing performance of the obligations,

(d) a causal link exists between the non-performance of the obligation and such external event.

In case the situations which may be accepted as “force majeure” events are exhaustively listed in the contract, it is accepted in the legal doctrine that the obligor may not benefit from the legal repercussions of events other than those included in the limited list of “force majeure” events in the contract; however, it can be claimed that it is possible to benefit from the “no fault” principle set out under Article 112 of the TCO. 

Therefore, in cases where force majeure conditions are not regulated in the contract, or even if such conditions are regulated, if a force majeure event not specified in the contract occurs, the balance of contractual obligations should be revaluated within the framework of good faith and no-fault liability principles. 

The COVID-19 Outbreak and the Force Majeure Effect 

A force majeure event will not have absolute consequences for every legal relationship and the same event will be considered differently for each circumstance, the special terms of the legal relationship, and the field of activity of the obligor concerned. Therefore, judicial precedents will shed light on for which legal relationships the COVID-19 pandemic lifts the fault of the obligor and for which legal relationships it will be considered “unpreventable”. 

In this context, the effects of the COVID-19 pandemic and the measures taken to prevent the spread of this pandemic have different effects on each business and legal relationship. Measures taken by businesses in the context of the COVID-19 in outbreak in Turkey can be generally classified as i) mandatory measures and ii) measures taken in accordance with advisory decisions/general health measures.

(i) Mandatorily Closed Businesses

Pursuant to a circular issued by the Ministry of the Interior, the activities of many businesses such as theatres, cinemas, concerts, gyms, beauty salons, and hairdressers are temporarily suspended. Generally, it is accepted that measures implemented through government decisions are external situations that cannot be prevented and may result in force majeure if they hinder the performance of contractual obligations. While considering the State imposed measures as force majeure, the relativity of the force majeure principle–that is, whether an event in which performance is expected from a certain person exists- for the assessment on the legal relationship and performance between the parties should be taken into account. However, considering that the measures taken will remain in place for only a temporary period, the temporary impossibility of performance should be considered and, it may be possible to delay the performance of obligations until the impossibility ceases. 

(ii) Businesses which have limited or suspended their activities within the scope of government advisory decisions and/or general health measures 

It may be possible, subject to the conditions of each material event, for businesses that have limited or suspended their activities within the scope of the government advisory decisions or general health measures to claim that their performance has been rendered temporarily impossible and should be deferred due to force majeure if the contracts they have concluded include "epidemic disease" within the scope of force majeure events. However, as closing businesses and suspension of activities due to mandatory measures is not in question, businesses that have not included "epidemics" as a force majeure event in their contracts may consider whether the requirements for “excessive difficulty of performance” are met for their contractual obligations, even if they are unable to cite a force majeure event.

The Supreme Court of Assembly of Civil Chambers defines force majeure as an extraordinary event that occurs outside of the activity and operation of the responsible or debtor, which leads to the violation of a general behavior norm or debt in an absolute and inevitable manner, which cannot be foreseen and resisted. And also expressly provides that natural disasters such as earthquake, flood, fire and epidemic and/or pandemics are considered as force majeure. (In particular the decision under file number E. 2017-11-90 K. 2018-1259 dated 27.6.2018)

The Revenue Administration’s announcement, dated 19.03.2020 set out the taxpayers whose payments in question have been deferred for 6 months by specifying their fields of activity under the heading “Disclosure for 6 Month Deferral of Concise and Value Added Tax Payments” and classified such persons as “taxpayer groups that will benefit from the force majeure event.” Similarly, in accordance with the Presidential Decree No. 2279 (“President Decree”), published in the Official Gazette numbered 31076 dated 22.03.2020, within the scope of the measures taken to prevent the spread of the COVID-19 pandemic, all execution and bankruptcy proceedings, save for enforcement proceedings for alimony payments carried out throughout the country, were suspended from 22nd March 2020 to 30th April 2020, and in this context, it was decided that no party or follow-up procedures shall be performed, requests for new enforcement and bankruptcy proceedings shall not be processed, and no provisional seizure decisions shall be enforced or executed. The Presidential Decree is based on Article 330 of the Enforcement and Bankruptcy Law No. 2004 (“EBL”) and the top heading of Article 330 of the HRC is "II – Suspension under Extraordinary States.” 

Within this framework, for disputes that may be subject to judicial evaluation, the existence of a force majeure event that causes temporary impossibility of performance will be evaluated but the relevant evaluation will vary according to the contract type. 

Finally, on 25th March 2020, the Ministry of Treasury and Finance issued the Communiqué No. 518 will be published within the framework of Article 13 (Force Majeure) and Article 15 (Delay of Force Majeure) of the Tax Procedure Law in which taxpayer groups who will benefit from “force majeure conditions” for tax processes will be determined. The sectors that will benefit from the scope of the communiqué have been designated as retail trade and shopping centres, iron, steel, and metal, automotive, logistics-transportation, cinema and theatre activities, accommodation, food and beverage services, textile and apparel activities, event and organization, health services, furniture manufacturing, mining and quarrying, construction, industrial kitchen equipment, car rental, and printed publication and printing.

Excessive Difficulty of Performance

In cases where performance is not impossible but becomes significantly more difficult, whether excessive difficulty of performance has occurred should be examined under Article 138 of the TCO. In order to benefit from excessive difficulty of performance, which allows contracts to be adapted to the new conditions, and where this is not possible, to terminate the contractual relationship, the performance should be extremely difficult for an obligor to fulfil its obligations due to an unforeseen reason and the economic balance of obligations in the contract must have changed to the detriment of the obligor to the point where expecting the obligor to perform its obligations would violate the principle of good faith. Even in such cases, the characteristics of the existing situation should be taken into account.

Upon the detection of excessive difficulty of performance, the obligor is granted two basic rights under Article 138 of the TCO:

(a) The right to request adaptation of the contract to the new conditions. This right may be used primarily through an amicable agreement between the parties, and if this is not possible, by filing a lawsuit before the court. The judge will automatically investigate the facts of the event, and if adaptation is possible, will freely determine the method and amount.

(b) If adaptation is not possible, the right to terminate or rescind the contract. In accordance with Article 137/1 of the TCO, if the contract in question creates a continuous contractual relationship, the contract will be terminated, and in contracts that do not create a continuous relationship, if adaptation is not possible, the contract may be terminated.

The disruption to international trade and shipping

As the situation globally keeps changing minute-by-minute, countries, states, provinces, and local governments implement shipping industry restrictions. Such restrictions, both official and unofficial, can include preventing crew from embarking or disembarking (thereby preventing crew changes), delayed port clearance, and the imposition of quarantine. Authorities in most jurisdictions require that they be informed when there is an illness aboard the vessel.

Upon reporting an illness, there have been instances where the following has taken place:

1. pilots refusing to board, resulting in a vessel being ordered to anchorage;
2. land transport companies refusing to take ill crew members to hospital (even when the symptoms did not match COVID-19), necessitating an ambulance;
3. stevedores, upon noting an ambulance, refusing to work on a vessel; and
4. port authorities refusing to permit a vessel to berth.

The foregoing can result in delay, deviation, detention, and difficulty obtaining necessaries. All of this can give rise to charterparty disputes as owners and charterers seek to deal with the repercussions. While the language of the particular charterparty in question and the facts of each case will be determinative, there are nevertheless a number of issues that should be highlighted.

BIMCO Infectious or Contagious Diseases Clause

While this clause was drafted during the Ebola outbreak in 2015, it is intended to address equally serious strains of existing, or newly identified, diseases that can occur from time to time. The clause has been modelled on the BIMCO War and Piracy Clauses and thus enables owners to refuse to trade in an area of danger. If that option is waived, then charterers will nevertheless be responsible for the resulting liabilities and additional costs incurred by owners taken to protect the vessel and her crew.

Given the declaration by the World Health Organization (“WHO”) that COVID-19 is a pandemic, it is likely to fall within the definition of “Disease” (“a highly infectious or contagious disease that is seriously harmful to humans”) and although COVID-19's fatality rate is relatively low compared to other deadly virus outbreaks in recent memory for the time being, the number of people COVID-19 killed has already become more than 30,000 (according to worldometers.info/coronavirus/) and has mortality rates of around 10 percent and 35 percent, whereas Ebola has killed over 11,000 people in West Africa in 2014, which had a fatality rate between 25 percent to 90 percent depending on the outbreak, and MERS has killed 858 people during the 2012 outbreak, while 774 people died of SARS during the 2003 outbreak.

Note that for voyage charters, the clause expressly limits application of the clause to situations arising after the date of the charterparty. Given that COVID-19 is now a known factor, the clause will not protect an owner for measures already in place at a port loading or destination at the time the voyage charter was entered into. Given the rapidly evolving situation, parties should carefully consider providing for the possibility that COVID-19 measures will be put into place elsewhere.

Off-Hire

Clause 15 of the New York Produce Exchange (“NYPE”) 1946 form provides that where there is a “deficiency of men” or “any other cause preventing the full working of the vessel” the vessel shall be deemed off-hire. The NYPE 1993 form replaces “deficiency of men” with “deficiency and/or default and/or strike of officers or crew” but still maintains the general “or any other cause” sweeping up language.

Where a time charter is on the NYPE form, or contains similar sweeping up language, it is probable that an illness such as COVID-19, or even suspected COVID-19, as it impacts on the efficiency of the crew and/or prevents the full working of the vessel, would fall within this language. This is equally the case, where the vessel is held in quarantine due to an actual or suspected case of COVID-19.

Shelltime 4, alongside referencing a general deficiency of personnel, also specifically places the vessel off-hire where time is lost for (a) obtaining medical advice or treatment for or landing any sick or injured person, or (b) due to any delay in quarantine arising from the master, officers or crew having had communication with the shore at any infected area without the written consent or instructions of Charterers.

Safe Port Warranty

Charterers have varying obligations, depending on the charter, to nominate ports which are safe under time and voyage charters. While it certainly is both possible and probable that commercial ports will remain open despite the spread of COVID-19, owners will have to evaluate the risks to the crew, and therefore safety measures in place, prior to calling at a particular port. Another factor for owners to evaluate is whether calling at a particular port will then expose the crew or vessel to restrictions at later ports of call.

Free Pratique

Free pratique is the clearance given to a vessel to enter a port and berth on the assurance of her captain that the vessel and crew are free from contagious disease. While this is often a formality, given the current circumstances, owners should plan for delays depending on where the vessel has traded. A delay in obtaining free pratique is important, particularly with respect to a vessel under voyage charter. Until free pratique is obtained, an owner is generally unable to tender a valid notice of readiness so that the calculation of laytime may commence. Note, however, that it depends on the terms of the charter, as certain charters may provide that laytime can commence “whether in free pratique or not.”

Force majeure

Many charters do contain force majeure clauses, however, whether COVID-19 constitutes a force majeure event will depend on the clause in question. In general, a force majeure clause will list a number of events beyond the parties’ control, and provide for what will take place should force majeure be triggered, i.e. notice, suspension, and/or termination, and the consequences thereof. If the force majeure clause in question lists “epidemic” or “quarantine” then it is likely that COVID-19 could trigger the clause.

The impact of force majeure will also depend on the governing law. Chinese law, for example, permits parties to plead force majeure without a clause in the contract. Indeed, certain Chinese entities, notably the China Council for the Promotion of International Trade, have been reported to have issued thousands of "force majeure certificates" to Chinese companies to rely on in order to claim that they have been unable to perform by reason of COVID-19. The applicability of force majeure clause due to COVID-19 in terms of Turkish law has been explained above thus will not be explained hereby to avoid falling into repetition.

Hague and Hague-Visby Rules

If the charter at issue contains a clause paramount incorporating the Hague or Hague-Visby Rules (“Rules”), then the owner should be able to benefit from an exception for quarantine. Article IV(2)(h) of the Rules provides that neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from quarantine restrictions. As such, owners should be protected should COVID-19-related quarantine cause loss or damage to charterers.

The measures taken by the Turkish government

Port Measures on COVID-19

In order to prevent the impacts of COVID-19 on the ports in Turkey, various measures have been taken and will continue to be taken by the Ministry of Transportation and Infrastructure, the Ministry of Health and the relevant local authorities and administrations. Currently such measures can be as follows;

• Foreign crew embarkation/disembarkation operations will not be allowed during the transit or uninterrupted passages through Turkish Straits of the vessels that have visited the ports of the prohibited countries within the last 14 days or having a crew member or a passenger that joined the vessel from these countries, with an exception for illness and death.
• Vessels that have visited the ports of the prohibited countries within the last 14 days or having a crew member or a passenger that joined the vessel from these countries shall apply 14 days of quarantine (depending on the result of the necessary inspections) and shall anchor outside the port area.
• An amendment has been made to the Port State Control percentage that is to be maintained in the Turkish Republic controlled ports and a new rate of %15 will be applied for 3 months starting from 17.03.2020.
• In order to achieve minimum contact with the Agency personnel, the documents and certificates produced by the Agency for entry to and departure from ports and shipyards shall be archived by the Agent, in place of Harbor Masters and will be presented upon request for inspection and investigation.
• Notifications of all national and foreign flagged vessels returning from an international voyage shall be made through the Port Single Window System 48 hours prior to entering the port area instead of 24 hours. 

Vessel Measures on COVID-19

In addition to the hygienic measures to be taken on vessels, certain amendments were also made in relation to the preliminary surveys of the Turkish and foreign flagged vessels;

• Pre-survey inspections to the Turkish Flagged vessels to be performed in two months and four months periods instead of monthly and quarterly periods,
• The extension of the vessel’s pre-survey period up to 6 months if the vessel has visited the ports of prohibited countries within 14 days or having a crew member or a passenger that joined the vessel from these countries,
• To intensify free and clean pratique procedures, 
• Any extension request for certification and survey for ships and companies will be granted up to 3 months after the review of General Directorate of Maritime. 

Port Staff and Seafarer Measures on COVID-19

The port staff and the seafarers on vessels are in the high risk group of exposing themselves to COVID-19 and it is much more likely for them to infect others. Therefore, some administrative and legal regulations are also brought for the port staff and seafarers regarding the matters as following;

• Supply of respiratory mask, disinfectant gels, safety glasses, protective overalls, nitrile gloves to the seafarers and port staff for their personal cleaning and hygiene, 
• Informing the seafarers and the port staff on the outbreak of COVID-19 as to how to protect themselves from being contaminated and the measures to be taken,
• The master and/or the health officer on board shall measure the fever of each personnel on a daily basis and keep the data,
• The seafarers are expected to take specific measures while working on board,
• Number of the seafarers and port staff shall be minimized as much as possible to minimize the risk of spread,
• Mandatory health checks shall be made for Turkish seafarers after signing off the vessel. The seafarers not having any symptoms of COVID-19, before being permitted to leave the vessel, shall sign the “Information, Consent and Home Monitoring Form on COVID-19”. The seafarers that signed the consent form will be monitored by the City Health Directorate during the 14 days of quarantine period,
• For the port staff abroad, if an imminent return is not possible, an extension shall be granted to their work permits for 3 months. If it is possible, a quarantine period of 14 days after the entry to the country under the monitor of the City Health Directorate will be mandatory and be considered as administrative leave for the corresponding working days,
• The port staff in the country that are over the age of 60, pregnant, breast-feeding, disabled and other members of the disadvantaged groups determined by the Ministry of Health will be deemed in administrative leave,
• The personnel and crew are required to put on masks when transiting through the Istanbul Straits. 
• As of 24th Marc 2020, any new application for seafarer certificates will not be accepted and all exams will be scheduled at a later stage.

Conclusion

While the global situation continues to evolve rapidly, COVID-19 is now a known factor. While we cannot predict the extent to which it will disrupt commercial shipping, we can confirm it already has and will continue to do so for the foreseeable future. In the context of charters/contracts, we urge parties to plan for this disruption by (a) reviewing the terms and conditions of your current charters/contracts in order to access your exposure, and (b) ensuring you provide for the impacts of COVID-19 in any new charters/contracts you negotiate.

For further updates and legal advice regarding the impact of the coronavirus please do not hesitate to contact us.