The Red Sea, due to its strategic location, is an invaluable channel with an ever-increasing importance for maintaining economic stability and global trade. It is one of the world’s busiest shipping lanes, and currently the most unsafe route. The Red Sea serves a crucial role in International Trade by linking the Indian Ocean with the Mediterranean Sea through the Suez Canal. About 12% of global trade and 40% of Asia-Europe trade travels through this channel every year, which totals to more than $1 Trillion. The current geopolitical scenario has caused logistical nightmares and numerous disruptions in the maritime and trade sector. 

The article argues that Houthi attacks in the Red Sea disrupt global trade and pose significant legal challenges, necessitating robust maritime frameworks and a reevaluation of war risk clauses to ensure navigational safety, uphold international law, and effectively manage the contractual disputes arising from these new geopolitical risks.

Current Red Sea Crisis

Since the beginning of Israel – Hamas war, a Yemen-based armed political and religious group, termed the Houthis, pledged to support Palestine by launching several attacks through drones and missiles against cargo ships, primarily targeting the Bab-El-Mandeb Strait, a critical point of travel through which around 10% of global crude oil and petroleum products transit. Described as acts of solidarity with Palestinians, they claim to target ships that are delivering goods to Israel, or that are Israeli-owned, which consequently, led to the hijack of a commercial ship, namely the Galaxy Leader along with the crew. However, there have also been attacks on commercial ships that have established no connections with Israel.

Despite a series of retaliated strikes by the USA, UK, and the French, the Houthis, very recently – on 6 March 2024, attacked a Barbados-flagged, Liberian-owned Bulk Carrier MV True Confidence causing severe damages and critical injuries to the crew members. The Indian Navy (INS Kolkata) evacuated the crew members to a hospital in Djibouti. But due to the extremely fatal attack, this marks the first case where casualties are reported.

These attacks have disrupted global shipping routes by pushing some of the world’s biggest shipping companies, including Mediterranean Shipping Company and Maersk towards longer routes of transit around Africa’s Cape of Good Hope and then up the west side of the continent, thereafter, potentially triggering further delays, additional costs, and insurance hikes, causing various economic implications, affecting world trade, rise in inflation, and legal trouble.

The Maritime Arena Amidst Conflict

This current development has turned the maritime realm into an arena of conflict, impacting logistics, the shipping and trade industry, maritime security, and International Law. The Combined Maritime Forces (CMF) which includes 39 member nations including the US, NATO, EU, India, and Japan under the command of the US Naval Forces coordinated from Bahrain has advised ships to avoid the Bab al Mandeb Strait.

The United Nations (UN) along with The International Maritime Organisation (IMO) which is a UN-specialized agency with responsibility for the safety and security of shipping, has unequivocally expressed disapproval of the series of attacks targeting international shipping. The Secretary-General of the IMO expressed unacceptability towards the attacks, disruption towards established routes, and solid commitment to mitigate risk and ensure safety for seafarers, ships, and cargo that bear crucial responsibility of global supply chains.

The use of unmanned aerial vehicles, missiles, and small boats in these illegal and unjustified attacks poses a direct threat to the freedom of navigation—a fundamental right protected by international law. Hence, the significance of upholding the United Nations Convention on the Law of the Sea 1982 (UNCLOS 1982), which emphasizes the importance of adhering to international law governing maritime navigation.

Current Matters of Maritime Trade

While we look at the trade aspects, the issues that come up are regarding the protection of each party from insufferable losses, risk management, freight costs rising intensively, insufficient regulations protecting logistics operators (also witnessed with Clause 10 of CMA CGM Bill of Lading) and rules regarding deviation of routes. In the realm of maritime trade, the contractual relationship between owners and charterers is governed by a framework of standard terms, often rooted in English law. As the recent complexities arise, it becomes imperative for stakeholders to navigate these arrangements with precision and foresight. This may include the establishment of robust risk management clauses and protocols, the adoption of innovative technologies, and the cultivation of collaborative partnerships aimed at enhancing operational efficiency and resilience.

Understanding War Risk Clauses

The terms of war risk clauses vary considerably, reflecting a spectrum of provisions that have evolved. From the more contemporary “Baltic and International Maritime Council (BIMCO)” clauses to the venerable “Chamber of Shipping War Risk” clauses dating back to the 1930s, members of this industry encounter a diverse array of contractual frameworks governing their engagements.

The landmark case of Pacific Basin IHX Limited v Bulkhandling Handymax [2011] EWHC 2862 (Comm) offers invaluable insights into the nuanced interpretation of war risk clauses under English law. The court assesses whether a vessel is exposed to war risks by examining relevant facts on a case-by-case basis. According to English law, the threshold for risk exposure is met if there is substantial evidence of a real likelihood of an attack, rather than mere speculation.

Central to the discourse surrounding deviation due to war risks, lies the question of whether shipowners can recover the costs of deviation due to war risks. Some liner bills address the issue, while others require negotiations between operators and customers. The absence of clear contractual provisions has engendered contentious debates, underscoring the imperative of amicable agreements to mitigate potential disputes. The complexity is further compounded in the context of longer-term charters, where the legitimacy of voyage orders to proceed through the Red Sea and Suez Canal is subject to intense scrutiny.

Typically, several charter war risk clauses empower owners to decline charterer route instructions if the vessel faces potential exposure to hostilities. This had been decided by Lord Roskill in the case Kodros Shipping Corp of Monrovia v. Empress Cubana de Fletes (The Evia (No 2)) [1983] 1 AC 736 [HL]. However, in a recent promising decision placed by the Supreme Court of UK in the case of Herculito Maritime Ltd v Gunvor International BV [2024] UKSC 2, the Court ruled that charter agreements that mentions the voyage to be via Red Sea, ship owners are not permitted to freely rely on war risk clauses and deviate to opt for the Cape of Good Hope route to evade war risks unless there is a substantial alteration in circumstances compared to those at the charter’s inception. This ruling holds immediate importance in light of attacks by the Houthi movement on commercial ships in the Red Sea.

In present terms, the majority of ship charter agreements currently active in the Red Sea were established before the onset of the ongoing hostilities. This implies that shipowners will be justified if the routes are altered to avoid possible Houthi attacks, as a shift in risk occurred since the charter was finalized. However, the specifics of each charter must be assessed independently, considering the language and context of relevant clauses.

To reconcile such divergent interests, BIMCO’s War Risk Clauses for Time Chartering  (CONWARTIME) and War Risk Clauses for Voyage Chartering (VOYWAR) should represent a mechanism to resolve conflicts between charterer directives and owner obligations on war risk exposure, being able to balance charterers’ entitlements with owners’ duty to protect the vessel, cargo, and crew from war perils, including piracy. Beyond the military or diplomatic resolution and potential remedies arising out of contracts and agreements, affected companies could also turn to protection provided by international law.

Probable Legal Resolutions

In the Corfu Channel case (United Kingdom v. Albania), a landmark dispute adjudicated by the International Court of Justice (1949), remains a pivotal precedent in international maritime law, underscoring the complex interplay of state responsibility, territorial sovereignty, and navigational safety in international waters. Central to the case was the question of Albania’s responsibility for failing to warn ships of the minefield, despite not being directly involved in its placement. The ICJ, in its judgment, articulated principles governing state responsibility and navigational safety in territorial waters. Despite acknowledging Albania’s non-involvement in laying the mines, the court held that Albanian authorities had a duty to warn ships of the imminent danger posed by the minefield. By failing to discharge this obligation, Albania breached its international legal obligations, thereby incurring responsibility for the resultant damages suffered by British warships.

Similarly, an analogous claim can be applicable in the present scenario, where Yemen possibly should attempt its best to prevent such challenges that could harm foreign trade. Along with that, the ongoing attacks in Yemen could prompt states to pursue claims under Article 87 of UNCLOS, commencing a dispute against Yemen, for freedom of navigation on high seas, acts of piracy, and related violence.

Foreign investment law, Law No. 15 of 2010 of Yemen, guarantees protection for foreign investors and provides fair compensation for expropriation. Hence, investors covered by the law and treaties could also argue for compensation for losses resulting from the current situation. In pursuant to Article 26(1) and (2) of UNCLOS, Yemen undertook not to levy any charges “upon foreign ships by reason only of their passage through the territorial sea.” The attacks by the Houthis may violate this provision by effectively levying unlawful charges on foreign ships. The US is not a party to UNCLOS, but it can claim that Yemen’s de facto collection of duties on ships passing the Suez Canal has breached the U.S. FCN, as Yemen is still a party to friendship, commerce, and navigation (FCN) treaties which has been arguably breached due to Yemen’s failure to prevent attacks in the Red Sea.

Conclusion

While the trajectory towards a diplomatic or military resolution regarding the Red Sea attacks remains uncertain, we see the significance of war risk clauses during such a period in the maritime realm. The contemporary landscape of maritime trade is fraught with challenges, particularly those related to war and conflict. As evidenced by recent legal precedents and industry practices, navigating these challenges arising from conflicts and geopolitical tensions requires a multifaceted approach. Moreover, the evolving interpretation of war risk clauses underscores the need for clear contractual frameworks and amicable agreements to mitigate disputes.

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Keerti Nair is a fourth year law student at Symbiosis Law School, Pune.

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The image is AI generated using ChatGPT 4 with the prompt “Maritime scene of carriage ships in red sea”.