Effects of Covid-19 on the Yacht Charter Market
The global outbreak of the Coronavirus (COVID-19) disease has had a profound effect on the travel industry and superyacht industry, in particular the yacht charter market which has been brought to a halt by the spread of COVID-19. While the summer yacht charter season may still be a few months away, yacht owners and charterers will have already entered into their charter agreements prior to the rise of the COVID-19 pandemic.
This epidemic has created vast uncertainty within the industry and has left all parties involved in a state of panic as one cannot forecast when charters shall once again take place. Thus, industry players are doing their utmost to counter the uncertainty sown through the inclusion of provisions within yacht charter agreements still being entered into by providing alternatives if the situation does not improve by the date of charter.
Notably, considering the nature of the industry, there is optimism that once the coronavirus situation improves, the charter market will be quick to bounce back; however, the longevity of this pandemic is impossible to anticipate.
The vast majority of yacht charters that take place within the European Union do so under the well-known Mediterranean Yacht Brokers Association Charter Agreement (MYBA Charter Agreement). The MYBA Charter Agreement, similar to many other commercial agreements, incorporates a force majeure clause which, if engaged, excuses the owner’s failure to deliver their yacht to the charterer.
For force majeure to apply, the MYBA Charter Agreement requires the cause of the cancellation to be directly attributable to an act, event, non-happening, omission, accident or Act of God and for the same to be beyond the reasonable control of the owner, crew or charterer. In such a case the owner is obliged to provide the charterer with a full refund. Through Clause 9 of the MYBA Charter Agreement, it is important to note that from the outset, the force majeure provisions are only applicable to the owner, meaning only the owner may elect to use the grounds of force majeure to excuse a failure to deliver the yacht, whether on time or at all.
Where the owner’s need to cancel is not based on force majeure reasons, the charterer shall be entitled to immediate repayment without interest of the full amount of all payments made by him under the terms of the agreement. In this case, the charterer is entitled to liquidated damages from the owner based on a percentage of the charter fee and calculated on a sliding scale which increases depending upon how close to the commencement of the charter period the notice of cancellation is given. Conversely, the charterer has no protection equivalent to the owners’ protection unless they have negotiated specific amendments to the MYBA Charter Agreement to protect themselves.
The MYBA Charter Agreement does not afford the charterer any grounds upon which such charterer may cancel the charter without having to forfeit any fees already paid to the owner. In fact, the only remedy available to the charterer is to contest the agreement on the basis that the existence/outbreak of COVID-19 renders the further performance of the MYBA Charter Agreement impossible, illegal or somewhat different from what was contemplated by the owner and the charterer when they signed the contract.
Therefore, in order to counter the aforementioned issues encountered by the charterer, many brokerage firms are offering greater reassurances to clients booking charters, by providing an addendum to the standard charter agreement, outlining either a change to the charter area, a rescheduling of the charter or, failing agreement on these two points, a no-penalty cancellation of the charter.
In addition to such addendum, it is important for clients to ensure that their charter travel/cancellation insurance covers any prepaid and non-refundable costs incurred. Inopportunely, in the eventuality that there is no addendum in place to safeguard owners’ and charterers’ rights and interest in case of cancellation due to effects of Covid-19, one must refer to the clauses provided for in the MYBA Charter Agreement.
As developments in the current situation are quite fluid and constant, one would expect that certain measures are put in place, including legislation and governmental directives, which would give some certainty to the industry in a very uncertain and unprecedented situation.
Get in touch with our team of lawyers at DF Advocates who may provide further advice and assistance. For information or any specific Maritime law enquiries, please contact us on firstname.lastname@example.org.