Ship Law Log

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

Special Update: Overview of the US and EU Sanctions on Russia

Posted in Sanctions

Over the past six months, the United States and the European Union have coordinated efforts through sanctions and trade controls to respond to Russian activity in Crimea and Ukraine. There has been a long series of incremental changes to the sanctions and trade controls by the respective government authorities.

For a summary of the state of US and EU sanctions on Russia as of 24 September 2014, please see the recent Reed Smith Client Alert by Leigh Hansson, Michael Lowell, Sian Fellows, David Myers, Alexandra Allan, Alexandra Gordon, Hena Schommer, Laith Najjar, Michael Grant, Paula Salamoun and Tom Evans.

Tribunal rules on incorporation of arbitration agreement into a charterparty and Owners’ entitlement to demurrage

Posted in Arbitration, Case Law, Contractual Issues, Laytime and Demurrage, Time Charters

London Arbitration 14/14

The vessel in question was chartered by way of a fixture recap. Owners brought a claim for demurrage against Charterers. Charterers argued that the charter did not contain a valid arbitration agreement/clause, and that although they had agreed to pay freight, they had not agreed to be liable for demurrage.

Incorporation of arbitration agreement

The fixture recap stated, inter alia: “Attached chrts’s rider clauses with owner’s amendments to apply”. Charterers argued that the parties had not agreed an arbitration clause, although the rider clauses provided for English law and arbitration in London. Charterers did not dispute that they were a party to the charter, or the accuracy of the fixture recap. As such, the Tribunal was satisfied that the charterparty contained a valid arbitration agreement.

Charterers had also argued that for there to be a valid arbitration agreement, the charterparty had to be signed by both parties. This was incorrect. Under English law, contracts and arbitration agreements do not need to be signed (s.5 Arbitration Act 1996, which states that an agreement in writing falls within the Act “whether or not it is signed by the parties”). Further, s.6(2) of the Act states that where there is a “reference in an agreement to a written form of arbitration clause or to a document containing an arbitration clause”, then such “constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement”.

Here, the fixture recap referred to the rider clauses, which provided for English law and London arbitration. The Tribunal was satisfied that the parties had agreed to refer disputes to arbitration in London in accordance with English law.

Charterers’ liability for demurrage

The fixture recap stated, inter alia: “Demurrage: USD 13,500 pdpr”. The rider clauses, incorporated into the recap as per the wording above, also made clear provision for demurrage. As such, Charterers’ argument that they were not liable for demurrage failed.

Owners’ entitlement to demurrage

The vessel tendered NOR at 18:20 on 9 January, and hoses were connected at 19:40. Charterers loaded a cargo of straight phenol, instead of hydrated phenol as provided in the fixture recap. The cargo had to be hydrated once fully loaded. This was carried out under the supervision of Charterers’ and Shippers’ surveyors, who disembarked at 18:00 on 10 January.

The fixture recap allowed Charterers to hydrate the cargo at their risk and expense. Further, Charterers had sent Owners an email stating that “all shifting costs and shifting time to anchorage will be for our account, as hydration is being done at anchorage. Time will count in charterers account till the time ullaging sampling of the hydrated phenol is completed by surveyor. We request you to complete hydration process asap”.

On the basis of these two points, the Tribunal held that laytime ran from when the hoses were connected (19:40 on 9 January) to when the surveyors disembarked (18:00 on 10 January). Taking into account the time used at both the loading and discharge ports, this entitled Owners to demurrage. Owners were also entitled to recover additional expenses incurred.

Comment

This case highlights one of the fundamental points in the contractual interpretation of charterparties: if a charterparty is concluded primarily by a fixture recap, any rider clauses or other clauses referred to in the recap will be incorporated into the charterparty.

Court of Appeal upholds finding of breach of typhoon warranty in reinsurance policy

Posted in Case Law, Insurance

Amlin Corporate Member Ltd v Oriental Assurance Corp (The Princess of the Stars) [2014] EWCA Civ 1135

The Appellant Insurer had insured the owner of certain vessels. The policy contained a typhoon warranty, which contained two limbs:

(1) that “the vessel shall not sail or put out of Sheltered Port when there is a typhoon or storm warning at that port…”; and

(2) that “the vessel shall not sail or put out of Sheltered Port … when her destination or intended route may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point”.

A breach of this clause rendered the policy void.

The Appellant reinsured the policy with the Respondent Reinsurers. There was no material difference in the wording of the typhoon warranty clause.

The Vessel set sail from Manila, in the Philippines, when a number of storm and typhoon warnings had been issued by the relevant Philippine agency. The vessel sailed into the eye of the tropical depression which was the subject of those warnings. She was subsequently abandoned and capsized, with severe loss of life and all cargo.

First Instance

The Reinsurers pre-empted a claim by the Insurers to be indemnified in respect of any liability under their original policy with the owners. The Reinsurers obtained a declaration that the insured had breached both limbs of the typhoon warranty, and the Insurers appealed.

Appeal

The first instance decision was upheld. The Court considered both limbs of the warranty.

The words used by the parties in limb 1 of the warranty were clear. There was no ambiguity as to the type or level of warning. The warranty had to be construed in such a way as to prevent the vessel from sailing when there was any possibility of an encounter with a typhoon or storm. Limb 1 had clearly been breached when the vessel set sail from Manila while a storm warning was in place.

In respect of limb 2, the relevant intention was the Master’s intention as to the route to be taken at the time of departure. The intended route had been the usual route, which would take the vessel into the possible path of the typhoon, with a back up plan to change to an alternative route if the weather deteriorated. This amounted to a breach of limb 2.

Comment

In construing the typhoon warranty, the Court considered the parties’ intentions and the plain meaning of the words used, which did not provide any basis for the application of conditions or provisos. When construing such a clause, no assumptions should be made which seek to limit or extend the application of the clause beyond its plain meaning.

Ebola fears impact on vessels travelling from West Africa

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

Ebola continues to spread in West Africa with the latest reports indicating that over 2,630 people have died since the outbreak began.

Yesterday, Malta turned away a vessel travelling from Guinea to Ukraine over fears that a crew member may have been infected with Ebola. Fears were also raised in New Orleans in connection with a vessel whose crew fell ill after calling at the port of Matadi in the Democratic Republic of Congo. The symptoms were later diagnosed as malaria.

This morning marked the beginning of a three day curfew in Sierra Leone which will see ports shut down until 22 September, indicating that the outbreak has reached a critical point in the country.

A recent Reed Smith Client Alert by Nick Shaw, Sally-Ann Underhill and Jessica Sullivan examines the effect of Ebola on shipping contracts. Reed Smith are able to advise on the legal implications of the Ebola outbreak, including the drafting of Ebola clauses. If you have any questions, please contact Nick Shaw, Sally-Ann Underhill, or your usual Reed Smith contact.

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.