Service of Arbitration Notice

Sino Channel Asia Ltd v Dana Shipping & Trading Pte Singapore Ltd & Anr [2017] EWCA Civ 1703


The case looks at the question of when notices of arbitration passed to a counterparty’s agent can be considered effective service on the counterparty in circumstances where that the agent is not authorised to receive the notice. It was held by the Court of Appeal that in this case, the agent possessed both implied actual and ostensible authority to receive the notice; however, this “rare case” was decided very much on its facts.

Dana (as Owner) had a claim against Sino (as Charterer) under a Contract of Affreightment (“COA”) dated 9 April 2013. Sino’s role in the negotiation was restricted to its director signing his name – it was fronting for a Chinese company, BX, which was to handle the day to day operation of the COA.

All but one of the communications following signature of the COA were between Dana and a Mr Cai of BX, though Dana believed they were in contact with employees of Sino and were completely unaware of BX’s involvement. Indeed, Sino’s broker informed Dana’s broker that Mr Cai was Sino’s representative or employee. Continue Reading

Getting the arbitrator right

This week the Commercial Court handed down judgment in Tonicstar Limited v (1) Allianz Insurance PLC; (2) Sirius International Insurance Corporation ( PUBL) (London Branch) [2017] EWHC 2753, a matter where the question was whether a barrister was a person “with not less than 10 years’ experience of insurance or reinsurance” for the purposes of a standard form arbitration clause in a reinsurance contract.

It was argued that the clause required experience in the business of insurance or reinsurance itself, and not experience of insurance or reinsurance law

The Judge considered himself bound by the decision of Mr Justice Morison in Company X v Company Y, an unreported decision of July 2000, having found that it was not obviously wrong.  He indicated however, that unless he had been so bound, he may well have decided that the ordinary and natural construction of the phrase did not limit the fields in which experience of insurance or reinsurance could be acquired.  

The case shows how important it is to consider carefully any particular skill sets required of an appointed arbitrator. In the context of general shipping disputes, this is often in the context of the arbitrators being required to be “commercial men”, a concept which has been held to exclude those whose experience is solely as practising members of the legal profession. But, in a case where a solicitor had practiced ‘for many years’ as a full-time maritime arbitrator, and was a director of companies concerned with the carriage of goods by sea, he was regarded as a “commercial man”.


The Approach Voyage

The Pacific Voyager [2017] EWHC 2579 is a Commercial Court decision about which a number of articles have been written over the last week. It considers the often neglected approach voyage;  identifying the moment when the duty to proceed with utmost despatch to the loadport arises under a voyage charter; and whether that obligation is an absolute one or one to exercise due diligence. Continue Reading

Recoverability of Operating Expenses under Rule F of the York-Antwerp Rules 1974

On 25 October 2017, the English Supreme Court handed down judgment in Mitsui & Co Ltd and Others v Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG and Another (The “Longchamp”). The case provided the Supreme Court a rare opportunity to consider and interpret the York Antwerp Rules 1974 (in particular Rule F), which are more commonly applied in accordance with the practices of General Average adjusters – practices which, as the court was quick to point out, do not constitute law.

The Longchamp was commandeered by pirates off Somalia in 2009, who demanded a US$6 million ransom. After a 51 day negotiation, the vessel was released against a payment of US$1.85 million. The owners of the vessel sought to recover both the US$1.85 million ransom payment (under Rule A) and certain vessel operating expenses incurred during the period of negotiation (some US$160,000), under Rule F. The Advisory Committee of the Association of Average Adjusters, in line with the views of leading commentaries on the subject, was of the opinion that these latter expenses were irrecoverable under Rule F.

The Supreme Court disagreed that the operating expenses were irrecoverable under GA, a decision with potentially broader implications than that of piracy negotiations. Where an owner negotiates with a third party to reduce expenses allowable in general average, it now appears likely that operating expenses incurred during that period will be included in the adjustment under Rule F, provided the expenses do not exceed the amount of the general average expense avoided.  This may equally hold true where an owner negotiates repair costs with a yard or salvage expenditure with salvors.

The decision is likely to be welcomed by owners, allowing them to approach post casualty negotiations from a position of greater strength. Conversely, however, the decision may also give rise to uncertainty surrounding previously accepted orthodoxy, and heightened scrutiny of adjustments made under the York Antwerp 1974 Rules.

U.S. to terminate vast majority of economic sanctions on Sudan

Following a 16-month diplomatic effort, on October 6, 2017, the U.S. government announced that it will terminate the vast majority of economic sanctions against Sudan. The revocation will be effective on October 12, 2017. Sanctions against South Sudan will remain in place as will sanctions in response to the situation in Darfur.

The EU position regarding Sudan and South Sudan remains the same as it has been since 2014 and 2015 respectively.

As a result, it remains necessary to keep in mind the differences between the U.S. and EU regimes when assessing the propriety of transactions involving both Sudan and South Sudan.

You can read more about the changes in our client alert here.


Be Prepared: Advice for the Shipping Industry on the cyber threat

“Take the time to prepare and focus on prevention” was the message from the panellists in our webinar on cyber attacks in the shipping industry last week. Mark Johnson, Counsel in our shipping group, led a discussion with John Boles, Director of Navigant, Griff James, Director of DAMROD and Philip Thomas, Counsel in our IP, Tech & Data team.

John Boles emphasised the importance of “identifying your crown jewels” to ensure that resources are allocated to protecting your most essential assets. Once you have identified the ‘crown jewels’ it is equally important to identify the flow of data to and from these systems, according to Griff James, as it is these access points in and out of the system that are the weak points which could enable someone with malicious intent to enter the system.

The maritime industry is well versed in running drills and providing training:  the addition of cyber training should be a key focus of shipping companies and their insurers going forward. “Embed cyber awareness into your company”, advises Philip Thomas:  you need to ensure not only that the right policies are in place, but also that there is sufficient ‘buy-in’ for them at all levels of the company and a proper governance framework to ensure they are followed.

It is clear that, as the industry continues to embrace technology and with the data protection landscape about to become a lot more punitive, cyber security will remain a vital aspect of any risk management plan.

For more tips you can listen to the webinar here.


Trump issues new executive order expanding sanctions on North Korea

On the heels of United Nations Security Council Resolution 2375 released on September 11, 2017, President Trump issued a new executive order on September 21 (the EO) that greatly expands U.S. sanctions against North Korea, particularly so-called secondary sanctions, which apply to non-U.S. individuals and corporations. The EO establishes the following:

  • Broad new criteria for designating non-U.S. persons for sanctions, including blocking their assets in the United States
  • A “180 Day Rule” under which vessels and aircraft are barred from entering the U.S. for a period of 180 days after any port call or landing in North Korea
  • Authority for the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) to block any funds transiting accounts linked to North Korea that come within the U.S. or possession of a U.S. Person
  • Authority for OFAC to impose sanctions on foreign financial institutions that knowingly conducted or facilitated, on or after the date of the EO: (i) any significant transaction on behalf of certain blocked persons; or (ii) any significant transaction in connection with trade with North Korea

To read more about the EO, click here.

Financing risks of vessel modification outside the United States

Recent developments

Whilst there is much in the news at the moment about the relaxing of the Jones Act in the aftermath of the recent (and on-going) hurricanes, we consider the financing risks of vessel modification outside the United States:

The United States Jones Act limits the transportation of merchandise by water between points in the United States in vessels built in the United States, documented under the U.S. laws, and owned by the U.S. citizens. Any vessel which is later rebuilt outside the United States will lose its coastwise trade endorsement.

A vessel is deemed to be built in the U.S. only if all major components of the hull and superstructure are fabricated in the U.S. and the vessel is entirely assembled in the U.S. (46 CFR 67.97). Prior to any work being performed on a U.S. flag vessel eligible for coastwise trading, a vessel owner must submit an application to the U.S. Coast Guard National Vessel Documentation Center (the “NVDC”) seeking determination whether the proposed work would jeopardize the vessel’s coastwise trade eligibility.  NVDC regulations at 46 C.F.R. § 67.177 set out a comprehensive scheme for determining whether work done abroad constitutes foreign rebuilding, namely, the two-pronged test – the “major component test” (46 C.F.R. § 67.177(a)) and the “considerable part test” (46 C.F.R. § 67.177(b)).  Under a recent Foreign Rebuild Determination Letter by the NVDC, a third element – the “cumulative effect test” – has been added to the other two tests. Continue Reading

London International Shipping Week panel: risk management is crucial to prepare the industry for tomorrow’s maritime world

On 12 September Reed Smith hosted a panel for London International Shipping Week to discuss ‘Tomorrow’s Maritime World, Today’. Representatives from a cross-section of the industry (ship managers, financiers, lawyers, insurance specialists and marine technical specialists) each brought their unique experience to the discussion, making for a lively debate on three pressing topics in the industry:

  1. Cyber risks and technical advancements, including crewless vessels;
  2. Current trends in financing; and
  3. The environmental impact of the industry.

While each topic might present a different challenge, the overwhelming advice from our panellists was that there are going to be disruptive changes ahead caused by ever more sophisticated technology and incremental regulation which will change the shipping world as we know it today.  There will also be an ever increasing focus on risk management.

You can read more about the discussion in our press release here.

Tokyo and Paris launch Concentrated Inspection Campaign on Safety of Navigation

The Maritime Authorities of the Tokyo and Paris Memoranda of Understanding (MOU) on Port State Control have launched a joint Concentrated Inspection Campaign (CIC) on Safety of Navigation. The CIC will commence on 1 September 2017 and run for three months until 30 November 2017.

The aim of the CIC is to check:

  1. compliance with the applicable requirements of the SOLAS Convention,
  2. the overall status of the vessel’s navigation safety, and
  3. the competency of crew involved in navigation operations.

Port State Control Officers will follow a questionnaire of 12 items which will be used to test the compliance of onboard navigation equipment, the qualification of officers and the proper maintenance and functionality of the equipment. A list of these questions can be found here.

The consequences of any deficiency range from a ‘record and rectify’ instruction, to detaining the ship.

Owners, managers and charterers should familiarise themselves with these requirements before the inspection period begins to ensure that they do not risk detention.

Each of the Port state authorities have announced particular emphases for their CICs:

  1. the Paris, Tokyo, Black Sea, Mediterranean, Indian Ocean, Abuja and Viña del Mar MoUs, which cover the seas in Europe, the Indian Ocean, West and Central Africa and Latin America,  will focus on safety of navigation and ships’ compliance with the applicable requirements of SOLAS Chapter V.
  2. the Caribbean MoU, which covers states and territories with coasts on the Caribbean Sea and the Gulf of Mexico, will focus on life-saving appliances and arrangements.
  3. the Riyadh MoU, which covers the six Gulf states of Oman, UAE, Qatar, Bahrain, Kuwait, and Saudi Arabia, will focus on crew familiarisation for enclosed space entry.