Shipping Update 2 – COVID-19: Emerging Themes

On 11 March 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic. Two days later, the WHO stated that Europe showed more reported cases and deaths than the rest of the world combined, apart from China. Italy now has more reported deaths from COVID-19 than China and, as COVID-19 continues to spread, governments across the globe are implementing ever stricter measures in an attempt to contain or delay the spread of the disease. Those measures are causing significant disruption to seaborne trade.

Reed Smith is fielding a substantial number of enquiries relating to COVID-19. In this briefing, we set out some guidance on the most common issues we are seeing.

To read more please see our client alert here.

Passage Planning and Unseaworthiness – The Court of Appeal decision – CMA CGM LIBRA

The Court of Appeal upheld the decision of the Admiralty Judge in ‘The CMA CGM LIBRA’ in that a defective Passage Plan can render a vessel unseaworthy notwithstanding that the defect stemmed from navigational decisions. Any such error is attributable to the carrier or owner and constitutes a failure by the carrier or owner to exercise ‘due diligence’ before and at the commencement of the voyage to make the vessel seaworthy under the Hague/Hague-Visby Rules. This ruling represents a significant shift of the risk of loss caused by navigational mistakes away from cargo interests and onto owners’ mutuals.

Read the rest of the article here.

BIMCO releases fresh sanctions clauses for time and voyage charter parties – Managing sanctions risk in 2020

In response to the evolving challenges facing the shipping industry in 2019, BIMCO has released new standard sanctions clauses for time and voyage charter parties. The release attempts to respond, in particular, to the United States’ more aggressive sanctions regimes for Iran and Venezuela, which have strained the previous BIMCO language. BIMCO states that the updates are designed to address the high risk of violation, incidental to the “complex, imprecisely drafted, often changing” sanctions rules.

Read the rest of this article here.

Novel coronavirus and charterparty issues

On 30 January 2020, the World Health Organization declared the outbreak of the novel coronavirus (2019-nCoV) (the Virus) to be a Public Health Emergency of International Concern. It seems clear that the Virus is also having an impact on economic activities not only in China, but also in the 23[1] countries outside of China where it has been recorded at the time of writing.

The implications for shipowners and charterers could be substantial if there is no mechanism to deal with potential issues arising out of the spread of the Virus. Owners and charterers alike will need to consider, inter alia, whether a port will be deemed safe, validity of notices of readiness if tendered before free pratique is obtained, any implications of quarantine restrictions and delays, the effect of clauses such as force majeure or epidemics clauses and whether the doctrine of frustration could be invoked.

To read more about the ways in which charterparties are likely to be affected by the Virus’ impact on the economic activity, please see our client alert here.

If you have any questions, please contact one of the authors or your usual Reed Smith contact.

[1] World Health Organization – Novel Coronavirus (2019-nCoV) situation reports

The JCPOA: is it the end?

On 14 January 2020, the UK, France and Germany (the “E3”) triggered the dispute resolution mechanism under the JCPOA by referring assertions of Iranian non-compliance to the Joint Commission.

The triggering of the dispute resolution mechanism could (but not necessarily will) lead to the re-imposition of UN and EU sanctions on Iran, though the statement released by the E3 reiterates their “sincere hope of finding a way forward to resolve the impasse”.

To read more about the implications of the E3’s triggering of the dispute resolution mechanism, please see our client alert here.

Demurrage claims

There seem to be endless variations of the clauses in voyage charterparties requiring owners to provide copies of the relevant or supporting documentation with demurrage claims. We receive a surprising number of queries relating to what is required.

In Amalie Essberger, a Commercial Court decision of 11 December 2019, the charter was on an amended ASBATANKVOY form, and there were two rider clauses dealing with documentation. Continue Reading

Blog post on the Consortia block exemption regulation

On 20 November 2019, the European Commission (EC) published a further consultation on the proposal to extend the Consortia Block Exemption Regulation (BER).

The shipping and motor vehicles’ industries remain the only two sectors to benefit from a sector-specific block exemption. In recent years, the EC has been moving away from sector-specific exemptions. In 2018, the EU Insurance Block Exemption Regulation expired without the EC seeking to extend it.

The EC’s proposal is for an extension of the BER for another four years, although in previous years it has been extended for five years. The EC has indicated that an extension to the BER is justified based on the current market conditions and a number of other factors, including:

  • The BER facilitates the conclusion of consortia agreements by making the competition law assessment easier and providing greater legal certainty, thereby reducing risk.
  • The BER reduces the costs associated with competition compliance; without it, competition rules would become more complex and would involve a more detailed self-assessment.
  • The BER is consistent with other EU policies such as environmental protection (via a reduction in fuel consumption per TEU) and technological developments (via more modern liners), and it contributes to the global competitiveness of the EU’s shipping sector.

There has been one response to the current consultation so far from an anonymous source in China, which suggests that the BER could influence the approach that national competition authorities adopt toward consortia agreements:

“Consortia Block Exemption Regulation (CBER) can not only provide legal certainty for the shipping industry, it may also strongly cause marked changes in many national authorities’ attitudes and policies towards ‘consortia’ agreements. Therefore, the CBER application period should be prolonged.”

The consultation on the proposed regulation and the EC’s road map is currently open for responses.

 

Shipment of waste regulations breach leads to £590,000 in fines and costs

Biffa Waste Services Ltd (Biffa) has been fined for breaching Regulation 23 of the Transfrontier Shipment of Waste Regulations 2007 after containers of paper for recycling were found to be contaminated with household waste. The fine was £350,000 plus an additional £240,000 in costs.

In 2015, Biffa had arranged for shipments of waste paper to be transported to delivery sites in Shenzhen and Guangdong. When the containers were inspected by the Environment Agency (EA) at the port of Felixstowe, UK, they were found to be heavily contaminated with a variety of household waste, including shoes, plastic bags, videotape, electric cable, latex gloves and laminate flooring.

The export of unsorted household recycling waste from the UK to China is prohibited.

Biffa pleaded not guilty and strongly contested the case, stating that the materials had been inspected by a Chinese Inspectorate regime prior to being finalised for shipment to establish a purity level of 98.5 per cent. The paper mills to which the waste was destined had been accredited by the EA as being of an equal or higher environmental standard as European paper mills.

It has long been a point of contention for the domestic waste industry that the EA has not issued guidance on the acceptable levels of purity for exports of waste paper from the UK. The UK and Europe do not have sufficient reprocessing capacity for recycled paper and cardboard, and so large quantities are exported for recycling.

The EA continues to take the issue of illegal waste shipments seriously, as is demonstrated by the level of fine imposed on Biffa. A single national team focuses on waste shipments and procedure responsibility with increasing resources being given to the issue. The EA and Biffa agreed that Biffa would also pay £9,912 as proceeds of crime.

The EA press release is available here https://www.gov.uk/government/news/waste-giant-guilty-of-exporting-banned-waste

Biffa has made an application for leave to appeal.

Read more posts like this on our environment blog EHS Law Insights.

New opportunities for financiers: Decarbonisation

If the shipping industry were a country on its own, it would be the sixth largest greenhouse gas emitter worldwide. Economic and regulatory pressures, including the much-discussed IMO 2020, have been building up and there is no question that it is time for all maritime stakeholders to start preparing for new decarbonisation challenges. In this blog we explore an internal pricing mechanism and an external collaboration, which each provide new opportunities for financiers to aid and profit from decarbornisation initiatives.

The main obstacle to industry-wide decarbonisation lies with the industry’s composition; it is largely privately owned, and both shipowners and charterers are driven by short-term cyclical patterns. So far, public environmental concerns have not effectively been translated into any tangible pressure.

Incentivising shipowners is further complicated by the fact that they are responsible for investing in fuel-efficient technologies whereas it is the charterers who, in most cases, pay for fuel. As a result, only a small part of the fuel savings are passed back to the shipowners.

Nevertheless, financiers have an important role to play in helping the industry move towards effective decarbonisation. There has been an increasing desire to hold greener portfolios, which stems from a practical need to mitigate against the risk of future (and more stringent) environmental regulations that could directly impact the value and liquidity of vessels, as well as the profitability of potential loans. The two strategies we explore below, could be the first steps towards financiers incentivising shipowners to invest in cleaner technologies.

Read the full article on our asset finance blog Asset Finance in Brief.

Rubicon Vantage International PTE Ltd v. Krisenergy Ltd [2019] EWHC 2012 (Comm)

Summary

This case provides useful guidance on the application of rules of construction in relation to guarantees that display characteristics of both an “on-demand” guarantee and a “true guarantee,” and where obligations are undertaken by a non-bank entity. In such cases, there is no requirement for a narrow construction of the guarantor’s obligations. For information on the payment instruments under English law in light of this case, please read our client alert.

Case update

Background

The claimant, Rubicon Vantage International Pte Ltd (Rubicon), owns a floating storage and offloading facility called Rubicon Vantage (the Vessel), and by a bareboat charter dated October 13, 2014 (the Charter), chartered the Vessel to Kris Energy (Gulf of Thailand) Limited (Kegot), a wholly owned subsidiary of the defendant (Krisenergy).

By clause 22.2 of the Charter, Kegot was obliged to procure for Rubicon a “Charterer Guarantee,” the terms of which were set out in Exhibit E to the Charter. Krisenergy provided a guarantee to Rubicon, which was not exactly in the terms of Exhibit E, on or about October 13, 2014 (the Guarantee).

By the terms of the Charter, Rubicon was required to organise various works on the Vessel before the charter term commenced.

Rubicon carried out the works, and later sent a series of invoices to Kegot in June 2015, four of which were the subject of the dispute.

In September 2018, Rubicon made a demand on Krisenergy under the Guarantee for the total sum outstanding under the four invoices. Krisenergy declined to pay. Rubicon commenced proceedings in November 2018.

Terms of the Guarantee Continue Reading

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