Ship Law Log

Comment and analysis by Reed Smith lawyers on the latest developments in the shipping industry

Iran: limited sanctions relief extended to 24 November 2014

Posted in Sanctions

In January 2014, both the EU and U.S. brought into force measures which temporarily suspended and relaxed (for a period of six months, to end on 20 July 2014) some of the sanctions in place against Iran. This reflected the Joint Plan of Action (JPoA) agreed between the E3+3 and Iran in November 2013. Those measures were discussed in our alert of 23 January 2014.

In light of continuing negotiations between the E3+3 and Iran, an agreement has been reached to extend all of these measures to 24 November 2014. The extension came into force on 21 July 2014, i.e. the day after the original six month period was due to end.

The suspension and relaxation of sanctions remains in place in identical form. No additional sanctions have been suspended.

The UK HM Treasury and U.S. Department of Treasury (OFAC) have both published guidance on their respective websites in respect of these latest developments:

HM Treasury guidance:

OFAC guidance:

Health Warning!  As previously, there are two key points to be aware of in respect of the extension of the JPoA measures:

  1. The EU and U.S. positions are not entirely in line. Caution must be exercised, as although the intended business may be clear from an EU perspective, it may remain subject to U.S. sanctions, e.g. if payments are made in U.S. dollars.
  2. U.S. guidance states that transactions under the eased restrictions must be “completed” by 24 November 2014. The EU legislation states that all relevant contracts must be “executed” within 24 November 2014. Prudence dictates that “executed” should be read to mean “completed”, i.e. all obligations under a contract falling within the eased restrictions must have been fully carried out by 24 November 2014.

OFAC Targets Russia’s Financial and Energy Sectors in New Sectoral Sanctions

Posted in Sanctions

As a result of the ongoing Crimea conflict, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) has issued new sanctions targeting Russian banks and energy companies. For further details, please see the recent post on Reed Smith’s Global Regulatory Enforcement Law Blog by Leigh Hansson and Hena Schommer.

July Sanctions Update: Ukraine and Iran

Posted in Sanctions

Since March 2014, we have been closely monitoring the developments relating to the situation in the Ukraine and reporting them as Client Alerts and blog updates.

For a summary of the recent changes in respect of the Ukraine as well as an update on the position regarding the “Joint Plan of Action” in respect of Iran, please see the recent Reed Smith Client Alert by Sian Fellows, Lisa Mason, David Myers, Alexandra Allan, Alexandra Gordon and Laith Najjar.


Consortia block exemption extended by a further five years

Posted in Antitrust and Competition, European Law

Following a public consultation held earlier this year, the EU Commission has announced the extension of the block exemption providing antitrust immunity to certain cooperative agreements between shipping lines until 2020.

For further details, please see the recent Reed Smith Client Alert by Marjorie Holmes, Angela Gregson and Catherine Johnson.

English Law and London Arbitration clause not sufficient to allow application of Late Payment of Commercial Debt (Interest) Act 1998 to Charterparties

Posted in Case Law

Written by Sally-Ann Underhill and Alexandra Allan.

In a robust judgment of 12 June 2014 in Martrade Shipping & Transport GmbH v. United Enterprises Corporation [2014] EWHC 1884 (Comm), the Commercial Court has held that the Late Payment of Commercial Debt (Interest) Act 1998 (the “Act”) does not apply to charterparties simply on the grounds that they provide for English law and London arbitration, and has clarified what is meant by Section 12(1) of the Act which provides that the Act does not have effect in relation to a contract governed by, for example English law, if (a) there is no significant connection between the contract and England; and (b) but for that choice, the applicable law would be a foreign law.

The underlying Tribunal had awarded interest under the Act following an arbitration award in favour of the Marshall Island owners of a vessel registered in Panama and managed by a Liberian company registered in Greece. The vessel was time chartered to German charterers on the basis of a charter made in Antwerp, which incorporated an additional typed clause providing for English law and arbitration.

The Court held that the Tribunal had acted in error  in construing, inter alia, the use of the English language in the contract, and the vessel’s logs, the fact that GA was to be adjusted in London and that the vessel was entered in the London P&I Club, as meaning that there was a significant connection between the contract and England.

In a short Judgment, the Court considered the policy underlying the Act. It has a domestic purpose (the protection of vulnerable commercial suppliers and to act as a deterrent to the late payment of commercial debts in the United Kingdom) which it is not appropriate to apply to international contracts unless there is a real domestic connection.  The Court held that what is meant by “significant connection” in Section 12(1)(a) of the Act, is a connection between the substantive transaction itself and England: the factors relied upon “must provide a real connection between the contract and the effect of prompt payment of debts on the economic life of the United Kingdom”.

This will be a relief to all those who have London arbitration clauses in their contracts: the effect of the application of the Act, which currently awards penal interest at a level of 8% over base rate, would have been a strong disincentive for the application of English law and reference to London arbitration in shipping contracts.

The Court also held that a trip time charter, as any other time charter, is a contract for the use of the vessel and her crew, as a means for the charterer to transport goods, rather a contract with its main purpose being the carriage of the goods by the owners, and is therefore not a “contract of carriage” within the meaning of Article 4(4) of the Rome Convention.  Reference in this regard was made to the decision of the European Court of Justice in Intercontainer Interfrigo SC (ICF) v. Balkenende Oosthuizen BV [2010] QB 24.

Owners found to have unreasonably withheld approval of Charterers’ proposed discharge vessels

Posted in Case Law

In a previous post, we reported on the decision in Falkonera Shipping Co v Arcadia Energy Pte Ltd (The “Falkonera”), in which Owners were found to have unreasonably withheld their approval to discharge from the chartered VLCC to two other VLCCs by STS transfer. The key facts and charter clauses are set out in that previous post.

Owners’ appeal of this decision has recently been dismissed by the Court of Appeal ([2014] EWCA Civ 713).

Charterers had the right under the charter to transfer cargo to any vessel, including a VLCC. VLCC-VLCC transfers were permitted under the charter terms, and Owners were taken to have accepted the risks inevitably attendant on any VLCC-VLCC transfer. Although transfer to a VLCC could in a sense be regarded as “non-standard”, as submitted by Owners, this was not in itself a reasonable ground for Owners’ refusal.

In that context, the Court considered the precise nature of Owners’ right of approval under the charter terms. This was in respect of the vessel to be used, not in respect of the STS transfer operation as a whole.  Arguments based on the logistics of the transfer operation, such as uncertainty as to whether a suitable plan for the STS operation could be devised, or whether there was time to plan an STS operation, were not justifiable bases for withholding approval. The charter terms gave Owners no right of approval over such matters.

Charterers did not have to seek Owners’ approval of the plans for the STS operation and there was no allowance in the terms for Owners to vet the plans for the STS operation before deciding whether to approve the transferee vessel. The question was whether there was some characteristic of the receiving vessel which meant that the proposed STS transfer would give rise to a degree of risk which Owners who had agreed to allow VLCC-VLCC transfers would, or could, not reasonably be prepared to accept.


The Court of Appeal’s judgment highlights the importance of carefully considering any charter terms which give a party a right to provide or withhold approval. That party must consider precisely what they are entitled to approve. Here, Owners’ right of approval was in respect of the vessel to be used for the STS transfer, not the transfer itself.

This case also provides guidance as to the approach the courts will take when considering whether a party has unreasonably withheld approval. They will consider the charter terms in conjunction with the specific facts, and will consider the risks which the parties could be said to have accepted at the date of the charter. Parties must consider whether there are any specific risks which they wish to exclude when the charter is negotiated. If they do not, and then later seek to object or withhold approval to a specific operation, they run the risk of being found in breach of charter.

Court construes the terms of and obligations under a LOU provided by Time Charterers as security for Cargo Interests’ liability in General Average

Posted in Case Law

In St Maximus Shipping Co Ltd v AP Moller-Maersk A/S [2014] EWHC 1643 (Comm), the court construed a LOU provided by Time Charterers as obliging them to pay sums ascertained to be due from cargo interests in general average.


Owners declared GA after the vessel grounded. The parties agreed that the grounding was a GA event. Time Charterers provided permanent security in respect of cargo interests’ potential liability in GA in the form of a LOU which provided, inter alia, as follows:

“In consideration of the delivery to Cargo Interests or to their order on payment of the freight due of the cargo carried onboard the m.v. MAERSK NEUCHATEL at the time of the above mentioned casualty, we hereby undertake and agree as follows:

1. To pay the proper proportion of any General Average and/or Special Charges which may hereafter be ascertained to be due from the Cargo or the Shippers or Owners thereof under an Adjustment prepared by the appointed Average Adjusters in accordance with the Charterparty, dated 16th August 2004, and/or the Bills of Lading issued by us or SCL.”

The Average Adjustment was issued. Owners argued that point 1 of the LOU, above, was a clear and unequivocal undertaking to pay such amount as may be “ascertained to be due” under the Adjustment. Charterers submitted that the undertaking was only to pay a “proper proportion” of the sum ascertained to be due, which meant a sum which was properly and legally due. On Charterers’ case this was less than the full sum ascertained to be due under the Adjustment.


The court preferred Owners’ construction of the language of the LOU. It contained a clear undertaking to pay, and said nothing about the sum being either legally or properly due. The specific use of the word “ascertained” connoted a determination of the amount to be paid. There was also no suggestion that the sum as ascertained to be due under the Adjustment was only conditionally due, or that some further procedure had to be gone through before it became unconditional.

The word “proper” was used only in relation to “proportion”. That provided a particular context, which related to one aspect of GA (pro-rating) rather than the amount or sum due by way of GA. Charterers’ argument might had had more force if the words used had been “proper amount” or “proper sum”.

By way of authority supporting Owners’ case, the court referred to The Jute Express [1991] 2 Lloyd’s Rep 55. In that case, the agreement to pay the proper proportion of the GA which had been ascertained was qualified by the words “and which is payable in respect of the goods by the owners thereof”. The words “and which is payable” were determined to mean “and which is legally due”. They preserved the right of the cargo owners to challenge the amount said to be due to the vessel owners, and would have achieved the effect contended for by Charterers in this case. However, in the present case, there was no such wording.

It was held that the LOU did oblige Charterers to pay the sum ascertained to be due under the Adjustment. If it turned out to be an overpayment, they would have recourse against Owners. If it was an underpayment, Charterers would be free of further liability and Owners would have unsecured claims against cargo interests for the balance.


The court noted that the parties’ agreement exemplified by the terms of the LOU reflected a bargain between two commercial parties, with benefits and drawbacks for both sides. When interpreting a commercial bargain, the courts will generally give effect to the plain meaning of the words of the agreement, on the basis that those are the words which the parties agreed.

The court also made clear that the effect argued by Charterers could have been achieved, had additional wording been added to the LOU.

This exemplifies the importance of considering the precise effect which the wording of a LOU, or any agreement, will have, and the liabilities that wording will impose.

Tribunal finds that time bar does not apply in circumstances where no cargo was loaded

Posted in Arbitration, Case Law, Voyage Charters

Written by Alexander Sandiforth and Alexandra Allan.

London Arbitration 10/14

The vessel was the subject of a voyage charter containing the following at clause 11:

“Any dispute arising from and in respect of this Charter Party shall be referred to and settled by arbitration in London … Any claims must be made in writing within 3 (three) months of final discharge and where this is not complied with, the claim shall be deemed to be waived and absolutely barred.”

Because Charterers took the view that the vessel was not in every way fitted for the voyage, they terminated the charterparty on 24 November 2009 before any cargo was loaded.  Owners alleged that Charterers’ termination was wrongful and purported to accept Charterers’ alleged repudiation on 27 November.  Thus no cargo was ever loaded and therefore there was no discharge.

On 8 February 2010 Owners appointed an arbitrator.  Charterers appointed their arbitrator on 26 February, but without prejudice to the position that they considered the claim to be time-barred.

Owners responded on 1 March 2010 accepting that no claim had been made “in writing” as required by the clause until this date (i.e. 1 March was when Owners first indicated the nature of their claim), but nevertheless contended that clause 11 had no application in circumstances where there had been no “final discharge” (as no cargo had been loaded). Alternatively, they argued that any time should run from the date on which discharge would have been completed if the charterparty had been performed.

Charterers argued that clause 11 did apply, and that the words “final discharge” had to be given some other meaning in the event that discharge of cargo never occurred. They went so far as to say that even if the clause did refer to “final discharge of the cargo”, some broader meaning, encompassing discharge of the contract, should be given to those words. Charterers contended that Owners’ argument as to the hypothetical date of discharge was inconsistent with the purpose of the clause, uncertain, and liable to generate more argument.

The Tribunal held that Owners’ claim was not time-barred.

Clause 11 was clear and unambiguous.  “[F]inal discharge” meant just that – see The Springdale [1963] 1 Lloyd’s Rep. 339.  There was no basis for implying any additional terms or wording. Since no cargo was loaded, there was no final discharge (of cargo) and the clause did not operate.

The drastic nature of the time bar meant that clause 11 had to be read strictly. Very clear wording had been used, and there was no reason to suppose that the parties had intended anything other than the result reached by applying that wording literally.

Insofar as there was any ambiguity because final discharge did not take place, that ambiguity should be resolved against the party seeking to rely on the provision, i.e. against Charterers and in favour of Owners. However, the point did not arise, as the wording of the clause was perfectly clear.

The case emphasises that although time bar clauses (which are intended to provide the parties with certainty) will be upheld, they will nevertheless be construed according to their precise wording. No words or terms will be implied to reflect the parties’ alleged intentions if the express wording does not allow such implication.

Thus care should be taken when drafting time bar clauses, for otherwise the apparent certainty they are intended to provide, may in fact prove illusory.  In this regard, it should be noted that Owners’ alternative argument that time should run from a hypothetical date of completion of discharge was also rejected.

Crisis in the Crimea: Sanctions Update

Posted in Sanctions

The European Union has made further additions to the list of sanctioned parties under the regime put in place in response to the Russian Federation’s actions in the Crimea.

For further details, please see the recent post on Reed Smith’s Global Regulatory Enforcement Law Blog by David Myers, Sian Fellows, Alexandra Allan and Alexandra Gordon.

Tribunal finds that lack of adequate mooring facilities meant that a vessel was not “in every way fitted for the voyage”

Posted in Arbitration, Voyage Charters

London Arbitration 11/14

The vessel was the subject of a voyage charter, under which the vessel was not accepted for loading. Owners argued that the rejection amounted to a repudiatory breach by Charterers and claimed damages for that breach plus damages for detention.

Charterers argued that it was Owners who were in repudiatory breach, because the vessel was not “in every way fitted for the voyage”, in that she could not moor and shift safely at the loading port, as she would be required to do, because she did not have adequate mooring facilities.

The Tribunal’s decision was based on a detailed consideration of the vessel’s equipment, the conditions at the installation where the vessel was due to load cargo and expert views as to whether and how the vessel would have been able to safely moor at the installation.

On an objective view, the Tribunal was satisfied that there would have been “serious and indeed unacceptable risks” in mooring the vessel and/or in shifting her at the installation had she been accepted by Charterers, such as to make those operations unsafe. The vessel was not, therefore, fitted for the voyage within the meaning of the charter and Owners were in repudiatory breach.

It should be noted that the charter in question did not contain a safe port/berth warranty. This meant that it was for Owners to satisfy themselves that their vessel was indeed fully fitted for the voyage. Had the charter contained a safe port/berth warranty, the position may have been different as Charterers would have warranted that the loading port/berth was prospectively safe for this particular vessel.