Did Putin tear up your contracts?

Things have been developing rapidly in Ukraine in recent weeks, culminating in the deployment of Russian troops in Donetsk and Luhansk on February 22, 2022.

While the conflict is not currently directly affecting the US or other Western powers, there has certainly been behind-the-scenes support and it is unknown how things might play out. A direct declaration of war by a western power against Russia is unlikely, but there are enough examples over the years of countries that have fought “undeclared” wars, ie wars without a formal declaration. Should the situation continue to deteriorate in the coming weeks, greater engagement by the UN, NATO or a coalition of Western forces operating outside the UN or NATO is entirely possible. If this should happen, what does it mean for your contracts?

war risk insurance

P&I insurance offered by the International Group of P&I Clubs and H&M’s standard insurance available on the London market exclude all war risk losses. The practice is for insureds to “buy back” additional war risk insurance for their liability and property risks. H&M policies also often include the Institute Notice of Cancellation Automatic Termination of Cover War and Nuclear, which is an automatic termination provision for the outbreak of war between Britain, America, France, Russia or China.

The surrenders available for P&I war risk covers, either from the International Group or the London Market, all contain provisions for automatic termination after the outbreak of war between Britain, America, France, Russia or China. The surrenders for property insurance have the same provisions.

charter parties

“War cancellation clauses” are also common in time charter contracts (in standard forms or by-laws), where parties have the option to cancel the charter contract in the event of the outbreak of war between certain countries, often including Russia, the US and the UK. This could be a powerful negotiating tool for owners wishing to refuse to call at Ukrainian/or Russian ports or any other ports at all, and perhaps even a “disembark” to one

If it looks like a duck and quacks like a duck

So the key question is whether a “war” (declared or not) has broken out between Russia and the US (or other major powers)? This will depend on the exact steps taken by the US, UK and other nations. There are a number of options that can be pursued by the US, not all of which are considered “war”.

  1. The US and/or other nations could attempt to use military means with the support/backing of the United Nations. However, the United Nations Security Council (“UNSC”) normally passes resolutions that are “peacekeeping missions” that are not war, and since Russia is a permanent member of the UNSC (and therefore can “veto” proposed resolutions), it is highly unlikely that the United Nations Security Council will be able to act in Ukraine.
  2. The great powers could seek the support and assistance of NATO, which has previously deployed military resources in a more conventional military role. However, when member states make personnel and material available to NATO, those resources are used as NATO forces, not as the forces of the country that provided them. NATO operations of this nature could well be “war”, but would be conducted as NATO and as such would probably not be considered a US/UK/France-Russia war. Even if the NATO operations could be viewed as a war between the US and Russia, it seems unlikely that NATO would become involved in a direct military conflict with Russia, since NATO was created as a military alliance with the aim of “collective defence”. among its members and will not automatically oblige to send troops to third countries.
  3. The US could also choose to act outside the UN or NATO, with or without a coalition of supporting partners like Britain or France. This is an option that has been chosen by the US in the past, although it is possible that its appetite for such conflicts has waned since Afghanistan and Iraq. There will almost certainly already be US forces (or forces of its allies) operating in Ukraine in support, training or in secret. Therefore, if these forces come into contact with the Russian military, there is a possibility that a conflict could arise that could escalate.

From the perspective of English law, the courts have been reluctant to adopt narrow or technical definitions of ‘war’. When the parties include “war” in their contract and provide for certain consequences, “war” takes on its normal and popular meaning. It should be distinguished from “warlike activities and hostilities on the verge of war”. The English courts have expressly rejected any formal examination or definition of ‘war’ and rejected the suggestion that a ‘war’ must be recognized by the British Foreign Office. For example, the Sino-Japanese War of 1937 (in which no declaration of war was made and in which there were ultimately around 50 battles over 8 years with 10 million dead) was considered a “war”, as was the Spanish Civil War, Korean War, Falklands War and Gulf War 1 periods, although the 9/11 Al-Queda attacks were not.

It cannot be ruled out that the situation could deteriorate over the next few weeks to such an extent that a “war” would break out between insurance contracts and charter contracts, resulting in the automatic termination of insurance contracts and giving the parties options to terminate their charter contracts.

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