Y2K Clauses: Don't Promise Too Much
Monday, September 20, 1999
While charterparties are, to a large extent based on standard forms, they are also subject to the inclusion of many amendments and additional clauses. These clauses need to be scrutinized with care, as their implications may be more far reaching than initially envisaged. The additional clauses and their effect are also often less well known than the provisions in the standard forms.
For some time clauses dealing with possible Y2K problems have been appearing in the market. INTERTANKO is concerned that some clauses require guarantees that an operation is Y2K-compliant. The problem is that in practice it is nearly impossible for any business to know that they are indeed 100 percent Y2K-compliant. In an article in INTERTANKO's September 1999 Tanker Charter Party Circular the Association has highlighted the dangers of giving guarantees that cannot be fulfilled when it comes to Y2K conformity clauses. The Association wrote:
The Y2K problem embraces several date problems and also the functioning of many products and machines that depend on programmed electronics for their correct operation. The critical dates include 1 January 2000 and 29 February 2000. Charterparty clauses started appearing in the market more than a year ago. Y2K is another example of an issue that is given special treatment in charterparties as opposed to reliance on the more general clauses that already cover this issue. We have seen the same approach taken with ISM.
Typically, owners will have to exercise due diligence to keep their vessel seaworthy and be in every respect fitted for the voyage. This obligation clearly encompasses taking reasonable steps to ensure that the vessel will not suffer any Y2K-related problems. Taking such steps is an important safety measure, which applies to all sectors of the maritime business, whether it is from the vessel's or from the shore's side. To combat the Y2K problem businesses have had to implement Y2K programs to ascertain which systems are likely to be affected and to take remedial steps to ensure that neither the performance nor the functionality of the equipment will be affected by the problem.
It is generally recognized that no one can state confidently that their operation is one hundred per cent Y2K-compliant yet there are clauses that require owners to warrant or guarantee compliance as opposed to exercising due diligence or taking reasonable steps to ensure compliance. Since the Y2K problem affects both vessels and shore facilities alike, it is not unreasonable for a clause to include obligations on both sides to therefore ensure that the clause is balanced. For some time now INTERTANKO has supported the use of the BIMCO Y2K clause where a form of Y2K compliance, clause is required. This clause requires both owners and charterers to exercise due diligence in ensuring year 2000 conformity. BIMCO's clause is supported by the International Group of P&I Clubs. Where owners agree to the more onerous clauses warranting full Y2K compliance they run the risk of incurring very substantial liabilities even though they may have exercised due diligence to ensure Y2K compliance. In addition, owners may not have P&I cover for liabilities arising under such clauses.
Many of the other Y2K clauses in the market are onerous and all such clauses need careful evaluation to consider the obligations they impose on owners and whether they prejudice owners' rights and P&I cover.