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

Force majeure clauses: what matters is not the label but the content of the tin!

The Court of Appeal in Classic Maritime Inc. v Limbungan Makmur SDN BHD and Another [2019] EWCA Civ 1102 contrasted the circumstances in which an exceptions clause and a contract frustration clause would operate.

The appeal concerned the charterer’s failure to ship five cargos of iron ore from Brazil to Malaysia in the period following the Fundao dam disaster, which had the effect of preventing iron ore cargos from being shipped from Ponta Ubu but not from Tubarao.  The court of first instance had found that the charterer did not intend to ship cargo due to a collapse of demand in Malaysia but, had it wanted to, it would have been unable to source alternative cargo from Tubarao. Continue Reading

The “Atlantic Tonjer” – the first glimpse of the judicial approach to interpreting SupplyTime 2017

Summary

The “Atlantic Tonjer” [2019] EWHC 1213 (Comm) is thought to be the first reported judgment on SupplyTime 2017. The decision clarifies the meaning of clause 12(e) of the standard form, which requires Charterers to notify Owners by no later than the due date of an invoice, if they reasonably believe that the invoice is incorrect. The Court construed clause 12(e) in its commercial setting, highlighting the equal bargaining power of the parties and the importance of cash flow to Owners as key features. It found that, on its proper construction, clause 12(e) means that Charterers cannot later raise a defence to payment of an invoice of which Charterers have failed to notify Owners by way of a valid notice prior to its due date. Whilst this does not impact on Charterers’ right under 12(g) or their right to raise a counterclaim, it serves as a reminder that courts have little sympathy for commercial parties that have misunderstood the letter of their bargain. It provides a valuable insight into the judicial approach to SupplyTime 2017 and standard form charterparties negotiated between commercial parties generally. Parties are advised to negotiate standard form charterparties cautiously and know exactly what their contracts say.

The “Atlantic Tonjer” – the first glimpse of the judicial approach to interpreting SupplyTime 2017

On 14 May 2019, the High Court handed down its judgment in Boskalis Offshore Marine Contracting BV v Atlantic Marine and Aviation LLP (the “Atlantic Tonjer”) [2019] EWHC 1213 (Comm). This is thought to be the first reported judgment on the BIMCO SupplyTime 2017 standard form.

“SupplyTime” was first published in 1975 and, now in its third revision, is one of BIMCO’s most widely used forms.  It is considered to be the industry standard form for the chartering of offshore vessels. The 2017 revision included amendments to the payments provision at clause 12(e), and this dispute gave the Court (Sir Ross Cranston sitting as Deputy Judge) the opportunity to clarify the effect of the revised clause 12(e), as well as to consider SupplyTime2017 generally.

Background Continue Reading

MV “ARCTIC” – Obligation to “keep vessel in class” is an innominate term

Summary

The Court of Appeal’s decision in Ark Shipping Co LLC v. Silverburn Shipping (IOM) Ltd, “ARCTIC”  [2019] EWCA Civ 1161, provides a clear statement of the principles of construction, and how they are applied in ascertaining whether a term is a condition or an innominate term.

This decision provides guidance on the proper interpretation of parties’ continuing obligations during the life of a bareboat charterparty in relation to matters such as classification status, and the consequences if a charterer fails to fulfil such obligations. It also demonstrates the Court’s reluctance to classify contractual terms as conditions, where the risk of disproportionate consequences outweighs the advantages of commercial certainty.

While this case is particularly relevant to bareboat charterers, it is also anticipated to have implications for the interpretation of similar obligations in a time charter context.

Ark Shipping Company LLC v. Silverburn Shipping (IoM) Ltd [2019] EWCA Civ 1161

In a judgment of 10 July 2019, the Court of Appeal heard an appeal of a High Court decision dated 22 February 2019, where an appeal from an LMAA arbitration award was brought pursuant to s. 69 of the Arbitration Act 1996.

Facts

Continue Reading

Ebola outbreak in the Democratic Republic of Congo

The outbreak of Ebola in the Democratic Republic of Congo is getting worse. The World Health Organisation reports that 1,396 have already lost their lives in this latest outbreak with a total 2,071 reported cases as of 10 June 2019. Perhaps more worryingly, Ugandan authorities confirmed the deaths of two people yesterday, only two days after the first incidence on 11 June 2019.

During previous outbreaks there were numerous instances of vessels considered to be at risk of carrying the disease being refused entry to ports to mitigate the spread of the disease. The risk of disruption to the normal flow of sea going traffic and trade can be indirect and unpredictable as shown by the 2014 instance of a cruise ship turned away from Mexico and Belize because it had aboard a Texas based health worker who had handled the blood of a Liberian man who died of the disease in the US.

Efforts to mitigate the spread have been initiated in Uganda with a cancellation of mass gatherings including market days. While no port closures have been announced in either country and WHO reports the outbreak to be confined to the inner provinces of the DRC for now, port closures are likely to be announced should the disease threaten to spread further.

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 Sally-Ann Underhill, Stephen Kirkpatrick or your usual Reed Smith contact.

Singapore to implement 1996 Protocol to the Convention on Limitation of Liability for Maritime Claims of 1976

Singapore will soon be implementing the 1996 Protocol to the Convention on Limitation of Liability for Maritime Claims of 1976 (as amended in 2012 and effective from 2015), following the passing of the Merchant Shipping (Miscellaneous Amendments) Bill.

With the passing of the Bill, Singapore’s limitation of liability regime for maritime claims will be aligned with leading maritime jurisdictions such as England and Hong Kong, which have acceded to the 1996 Protocol as revised with the higher limits effective from 2015. Significantly, the amendments will mean that Singapore’s limitation of liability regime will be more favourable to maritime claimants as compared to that of its closest neighbour, Malaysia, where the applicable limitation of liability regime is that of the 1996 Protocol but without reference to the 2015 limits.

In addition, the Bill also enacts the International Convention on Salvage 1989 as part of Singapore law.

The Bill has recently received assent of the President of Singapore and will become law on a date to be gazetted.  A further update will follow thereafter.

Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, “Reed Smith”). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith’s Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

U.S. updates guidance for the shipping industry on tactics used to illegally procure Iranian oil for Syria

On Monday, March 25, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) updated the advisory document it published in November 2018 on the risks for parties involved in petroleum shipments to Syria. The update adds to the list of deceptive shipping practices used to obfuscate the destination of petroleum bound for Syria and the measures that members of the petroleum shipping community can take to mitigate these risks. This guidance follows the United States’ continuing efforts to isolate the Assad regime and its supporters from the global financial and trade system and cut supplies of Iranian oil into Syria.

You can read more here.

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