Ship Law Log

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

Ebola and its effect on shipping contracts

Posted in Bills of Lading, Contractual Issues, Time Charters, Voyage Charters

More than 1000 people have died in West Africa following the current outbreak of Ebola which began in March 2014. Guinea, Sierra Leone and Liberia are the worst affected countries but deaths have now also been reported in Nigeria, a major port for oil export.

Tradewinds has reported that two bulker bookings for Guinea have been cancelled and there have also been reports of international shipping lines suspending shore leave and crew changes in affected countries. The Argentine Chamber of Pilotage has said that from 15 August its members are not to board any vessel arriving from Ebola infected countries unless the vessel has obtained free pratique and clearance by the Argentinian Sanitary authorities; and other countries, such as Brazil, have issued guidelines for procedures to be adopted in their ports.

A recent Reed Smith Client Alert by Nick Shaw, Sally-Ann Underhill and Jessica Sullivan briefly examines the effect of quarantine measures taken in response to the Ebola outbreak on the obligations of owners and charterers under time and voyage charterparties, and the liability of owners to third party cargo claimants.

 

Disclosure order made against individual and companies controlled by him in respect of marine insurance claim

Posted in Case Law

Suez Fortune Investments Ltd v Talbot Underwriting Ltd (unreported)

The First Claimant, owners of a vessel, claimed against the Defendant Insurers for an indemnity in respect of damage to their vessel.

The Defendant argued that an individual was the ultimate beneficial owner of both the First Claimant and of the corporate group of which the First Claimant was a part. Neither the individual nor the group were parties to the proceedings. However, there were connections between the three parties in respect of the claim which was the subject of the proceedings. There was evidence that the individual was regarded as the client as far as the Second Claimant Bank was concerned. He had signed a personal guarantee, and the group had given a corporate guarantee. The First Claimant admitted that it was the individual who provided instructions to its solicitors. An employee of the corporate group had signed a disclosure statement.

The Defendant applied for an order disclosing documents under the control of the individual and the corporate group, on the basis that because of the relationship between the parties those documents were under the control of the First Claimant.

The application was granted.

CPR 31.8 limits a party’s duty of disclosure to documents that are, or have been, in its control. “Control” involves a legal right of access by a party to litigation to obtain documents. Here, there was no reason to suppose that the First Claimant did not have a right to documents held by either the individual or the corporate group.

It was clear that the individual exercised control over the First Claimant and the corporate group for the purposes of the matters which were the subject of the claim. He had, to a large extent, had conduct of the dispute from an early stage and did not need to take instructions from any other party as to any issues which may arise. For the purposes of the claim, the individual and the corporate group were acting for the First Claimant.

This case emphasises the fact that a party’s duty of disclosure may well extend to documents held by individuals or entities who are not party to the proceedings. If the party to the proceedings has the right to access those documents, then they may be disclosable. This should be considered at an early stage of the proceedings. Not only may such documents be relevant to the issues in dispute, but this will avoid the costs of dealing with specific disclosure applications.

Arbitration clause in LOU held to replace charterparty arbitration clause

Posted in Arbitration, Case Law, Jurisdiction

Viscous Global Investment Ltd v Palladium Navigation Corp [2014] EWHC 2654 (Comm)

The Claimants had claims for cargo damage against the vessel Owners arising under four bills of lading. The vessel was the subject of a chain of three charterparties. The head and sub-charter provided for London Arbitration (two arbitrators unless a sole could be agreed), and the LMAA Small Claims Procedure for claims under US$100,000. The sub-sub-charter provided for Singapore Arbitration.

Owners’ P&I Club provided an LOU to the Claimants as security for their claims. The LOU provided for London Arbitration before a three-man Tribunal, stating in part: “we confirm that the Ship Owners agree that the above mentioned claims shall be subject to London Arbitration … and English Law to apply … and for each party to nominate its own arbitrator and the two so appointed may appoint a third”.

The Claimants commenced arbitration under the terms of the LOU, and Owners challenged the Tribunal’s jurisdiction. Owners argued that the arbitration clause in the head charter was incorporated into the bills of lading and that this remained intact, despite the provisions of the LOU. This included the use of the Small Claims Procedure. Owners said that the appointed Tribunal had no jurisdiction over claims which would inevitably be less than US$100,000.

The Court held that the arbitration provision in the LOU replaced the charterparty arbitration clauses. The Claimants had validly commenced arbitration and the Tribunal as appointed had jurisdiction.

The key question was whether the parties had intended the provisions of the LOU to replace the original arbitration provisions wholesale, or merely to vary them in limited respects but leaving them in force. The arbitration clause in the LOU was comprehensive and able to operate as a free standing agreement. Further, there was no reason in principle why the terms of the LOU should not operate as a complete replacement.

The Court identified “compelling reasons” supporting the parties’ intention that this should be the outcome. A particular focus was placed on certainty. Having an arbitration agreement located partly in an LOU and partly in a charterparty would be a “recipe for confusion”, especially where, as here, there was scope for disagreement as to which of the charterparty arbitration clauses would apply. The possibility of such disagreement was removed by the LOU.

This case highlights the importance of considering carefully whether the provisions of any binding documents, such as LOUs, will vary or even supersede the provisions of existing contracts. The court will consider all such documents in context, and in the light of common business sense. The parties’ intentions do not have to be explicitly set down in documents or correspondence for the court to make findings, in light of all the circumstances, as to what those intentions were.

Finally, it is interesting to note the Court’s comments, at the beginning of the judgment that it is difficult to see that the parties’ costs were well spent, where the amounts in dispute were modest and there was no dispute that the claims ought to be arbitrated. The Court noted that, in fact, Owners appeared to be seeking to knock out the claims on a technical point, because any new arbitration would be time barred, albeit it accepted that this was something which Owners were entitled to do.

Owners fail to set aside summary judgment against them in respect of costs of additional damages proceedings in Greece

Posted in Case Law, Jurisdiction

In Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG (The Alexandros T) [2014] EWCA Civ 1010, Owners appealed against a summary judgment awarded against them in favour of the Respondent Insurers.

Owners’ vessel had been a total loss and the Insurers had disputed liability. The claims as between Owners and the Insurers were settled, and the settlement agreements contained exclusive English law and High Court jurisdiction clauses. Several years later, Owners commenced proceedings against the Insurers in Greece claiming inter alia, loss of hire and loss of opportunity. The Insurers brought claims for damages in England, and sought declarations that Owners had breached the settlement agreements.

At first instance, the Insurers were awarded summary judgment. Owners appealed.

The Court of Appeal found that the Greek proceedings fell within the settlement provisions, and the exclusive jurisdiction clauses incorporated into the settlement agreements. The Greek proceedings should have been brought in England. The Insurers had been fully entitled to bring proceedings for damages for breach of the settlement agreements.

The Insurers had incurred, and continued to incur, considerable expense as a result of the proceedings in Greece. The Court found that they were entitled to be indemnified by Owners in respect of those expenses.

This case exemplifies the fact that courts will impose costs sanctions and award damages if a party acts contrary to an exclusive English law and jurisdiction clause. A clear distinction must be drawn between exclusive and non-exclusive law and jurisdiction provisions. Parties must be aware when agreeing to the former that they will be applied strictly. It is important, therefore, to ensure that law and jurisdiction provisions are acceptable before an agreement is signed, and that they are subsequently complied with.

U.S. Expands Export Restrictions Targeting Russia’s Oil and Gas Production

Posted in Sanctions

Effective August 6, 2014, the United States Department of Commerce’s Bureau of Industry and Security (“BIS”) issued new regulations, identified as the “Russian Industry Sector Sanctions,” restricting exports and other transfers of certain items subject to the Export Administration Regulations (“EAR”) that may benefit Russia’s energy sector.

For further details, please see the recent post on Reed Smith’s Global Regulatory Enforcement Law Blog by Hena Schommer, Michael Lowell and Leigh Hansson.

Sanctions Update: Ukraine, Crimea and Sevastopol – the Ukrainian Parliament, the EU and the US impose further measures

Posted in Sanctions

July continued to be a busy time as the Verkhovna Rada (the Ukrainian Parliament), the EU and the United States intensified their responses to the situation in the Crimea and the escalating situation in eastern Ukraine.

The measures are becoming increasingly complex. They have, in addition, been developing rapidly and this trend may well continue. It is absolutely essential, therefore, that the position be continuously monitored and nothing is taken for granted.

Executive Summary

Ukraine Parliament closes Kerch, Theodosia, Sevastopol, Yalta and Yevpatoria, advice on the precise nature of which should be sought from Ukraine Counsel before agreeing any new contract without a trading-limits clause excluding Crimea calls, together with English law advice on potential ramifications. So far as existing contracts – which are subject to English law – are concerned, English law advice should be sought where orders are given to call Crimea.

EU adds (by Council Implementing Regulation (EU) No.810/2014 of 25 July) 15 individuals and nine entities to the asset freeze list. These include the Crimean ports of Sevastopol and Kerch. This is likely to make orders to call at either unlawful under an English law charterparty. Advice should be sought.

EU adds (by Council Implementing Regulation (EU) No.826/2014 of 30 July) eight individuals and three entities to the asset freeze and travel ban list. The individuals targeted include close acquaintances of President Putin.

EU imposes a ban (by Council Regulation (EU) No.825/2014 of 30 July) on investments in key sectors in Crimea and Sevastopol (transport, telecommunications, energy and the exploitation of natural resources), and an export ban on key equipment and technology related to those sectors.

EU imposes restrictions (by Council Regulation (EU) No.833/2014 of 31 July) on:

  • Exports and sales of certain dual-use goods and technology as laid down in Council Regulation (EC) No.428/2009 and on the provision of related services and on certain services related to the supply of arms and military equipment. This does not affect the exports of dual-use goods and technology, including for aeronautics and for the space industry, for non-military use or for a non-military end-user. EU flag vessels or aircraft shall not be used (by Council Decision 2014/512/CFSP of 31 July).
  • The sale, supply, transfer or export, directly or indirectly, of certain technologies for the oil industry in Russia in the form of a prior authorisation requirement.
  • Access to the capital markets for certain financial institutions.

The United States (OFAC) imposes (pursuant to Executive Order 13662) Sectoral Sanctions on additional entities operating within Russia’s financial services sector, prohibiting U.S. persons from providing new financing to three major Russian financial institutions.

The United States (OFAC) adds one entity and four individuals to the Special Designated Nationals List (“SDN List”) under Executive Orders 13661 and 13660.

For further details, please see the recent Reed Smith Client Alert by Sian Fellows, Leigh Hansson, Lisa Mason, David Myers, Alexandra Allan, Hena Schommer, Alexandra Gordon and Laith Najjar.

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: https://www.gov.uk/government/publications/financial-sanctions-iran-nuclear-proliferation

OFAC guidance: http://www.treasury.gov/resource-center/sanctions/Programs/pages/iran.aspx

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.