Disruption now, disputes later: the Red Sea legal fallout

Since November 2023, Houthi rebels from Yemen have been launching attacks on commercial shipping in the Red Sea. Initially the attacks were a direct response to the ongoing Israel-Gaza conflict and primarily focused on Israeli-linked vessels. The pattern of targets has grown more unpredictable. Since 12 January 2024, the US and UK have responded to the attacks through a series of targeted air strikes with the aim of securing transit through the waterway. Despite these efforts, an end point for the attacks remains elusive.   

Around 12% of global trade, including 30% of global container volume, passes through the Red Sea. The waterway is still open for business, but many major shipping companies – including Maersk and several large Japanese players – have announced that they are suspending transit through the route and diverting around the Cape of Good Hope. This diversion adds over 6,000km to transits.

The disruption has not yet led to a major upswing in disputes, as most vessels have continued using the Red Sea route. However, in the coming months and years – and following advisories from shipping associations such as BIMCO and INTERTANKO – we expect an increase in diversions across ship types and a corresponding rise in legal disputes stemming from the higher costs of these diversions. 

Owner v. charterer 

Disputes will most likely arise between vessel owners and charterers. Actions could have their origins in a range of issues: imposition of additional chartering rates, choice of route, or compensation for damage to vessels or cargo. Key to these disputes will be the terms of war risk clauses in contracts, including Bills of Lading and the Charterparty. War risks are defined broadly as an“act of war, civil war, hostilities; warlike operations; … acts of piracy and/or violent robbery and/or capture/seizure … blockades (whether imposed against all vessels or imposed selectively against vessels or certain flags or ownership…) by any person, body, terrorist or political group, or the Government of any state”. This definition appears applicable to much of what we have seen in the Red Sea to date. 

More recent versions of standard contractual terms have tended to favour vessel owners. For example, the War Risks Clause for Voyage Chartering 2013 (VOYWAR 2013) provides that if at any stage of a voyage it appears that in the reasonable judgement of the master and/or owners the vessel may be exposed to war risks on any part of the route, the owners are entitled to order another route to be taken. Ship owners are also entitled to charge extra fees if the alternative route is more than 100 miles longer than the original route. However, if VOYWAR 2013 or other standard clauses are not used, then the Hill Harmony decision may be relevant. This decision states that charterers can direct the route a vessel takes unless the route compromises the safety of the ship.¹

Another decision that may be of relevance here is the recent UK Supreme Court judgment in Herculito Maritime Ltd v. Gunvor International BV.  This case emanated from a piratical seizure of a vessel in the Gulf of Aden on 30 October 2010. The Herculito decision holds that shipowners cannot exercise general liberties to deviate from their original route and go around the Cape of Good Hope to avoid war risks unless there has been a qualitative change in circumstances.² The regional proximity and timing of this judgment adds to its significance. 

Another potential area of disagreement relates to who is responsible for the extra bunkering costs associated with longer journeys. Southern African bunkering ports will likely see increased demand. It is not clear whether these ports have the capacity and sufficient infrastructure to meet this demand, however. Disputes and additional risks to vessels could follow should vessels have to wait a significant length of time before bunkering – or worse still –  if they are unable to refuel.

Third-party dominoes 

It is likely that many disputes will involve knock-on effects stemming from third party issues. For example, claims may be brought by consignees or receivers whose products have been delayed by the extra journey time. In the case of just-in-time manufacturing, delays to key supplies could lead to production line shutdowns and cancelled orders, which could in turn lead to claims for large sums in lost revenue. Perishable cargo may be unfit for use after spending extra weeks at sea, which could lead to claims for damages.  

Whether they go through the Suez Canal or around Africa, vessels may employ additional specialised security contractors during this period to try to ensure the safety of their cargo. Should these contractors fail to prevent losses of vessels or cargo, or to prevent lengthy delays, claims of negligence or failure to fulfil contractual obligations could be brought. The Houthi rebels’ use of missiles and drones suggests that assistance from security contractors may only be of limited use, however. Shipping companies transiting the Red Sea could decide to forgo any additional protection whatsoever, reducing the likelihood that claims of this nature will be brought. 

In the short period since the start of the disruption, insurance premiums have risen significantly and are expected to rise further. These claims may lead to a large volume of disputes, should insurers refuse to pay out for lost or delayed cargos or damage to vessels. Claims will depend on the terms of each individual policy, but insurers may refuse to pay out in the absence of a war risks exclusion or on grounds that owners or charterers wilfully disregarded their safety by continuing to sail through the Red Sea. 

The coming wave: preparing for action 

The above is just a fraction of the range of disputes likely to arise from current and prolonged disruption to shipping routes in the Middle East. While in some cases ship owners, charterers, consignees, and other third parties can take measures to ensure safe passage and delivery of cargos, many disputes will simply be unavoidable. Each should be assessed on a case-by-case basis. Legal strategy should be informed by actionable intelligence.    
Control Risks has been supporting clients in disputes worldwide. Some examples of how we can help include: 

We expect the disruption in the Red Sea to continue for the foreseeable future. Companies should equip themselves for the coming wave of disputes with robust intelligence and strategies. 

¹ [2001] UKHL 68  
² [2024] UKSC 2