This article provides an overview of the legal issues related to the maritime recovery of reusable rockets, which is an emerging practice in the commercial space industry. It summarizes the current state of the space economy, the sources of space law in the U.S., and the regulations affecting the waters and the vessels involved in the recovery operations.
Continue Reading Recovering rockets at sea: the intersection of space law and maritime lawFrench Tonnage Tax Regime: a prime target in the midst of legislative elections
Following the recent dissolution of the French National Assembly, the country is preparing for early legislative elections. The political climate is tense for shipping companies with the two leading political parties in the polls considering abolishing the French tonnage tax regime.
Continue Reading French Tonnage Tax Regime: a prime target in the midst of legislative electionsThe Ever Given Court of Appeal decision unveils contractual complexities in salvage agreements
Richard Gunn, the leading partner in Reed Smith’s Casualty and Admiralty team, sheds light on the intricacies of salvage operations amidst the recent Court of Appeal decision in Smit Salvage BV & Ors v Luster Maritime SA & Anr (The ‘Ever Given’). The case vividly illustrates the challenges of negotiating contracts in rapidly changing environments, particularly within the maritime domain. As the judgment delves into the blurred lines between offer and acceptance in contract law, it underscores the significance of clear communication and the unique nature of salvage operations.
Continue Reading The Ever Given Court of Appeal decision unveils contractual complexities in salvage agreementsOffshore wind farms: Climate commitments and challenges in the U.S.
International obligations: climate change
At a United Nations climate conference in late 2023, participants championed the successes of climate commitments in previous years. Nevertheless, there was consensus that not enough action has occurred to enable participants to meet the goals of the Paris Agreement in 20151. This agreement set ambitious goals relating to climate change mitigation, including the goal to keep the rise in mean global temperature to below two degrees Celsius (above pre-industrial levels).The use of renewable energy sources, such as offshore wind, has generated significant traction as a fuel source of the future to help meet such goals.
Focus on offshore wind
The United States, a signatory to the Paris Agreement, has iterated ambitious climate goals, including through offshore wind projects. Specifically, President Biden aspires to power over 10 million homes using wind turbines by 20302. Moreover, offshore wind projects provide value beyond the environment alone—they also offer opportunities for job creation, economic growth, and valuable investments.
Challenges to offshore wind farms
Nevertheless, establishing offshore wind projects poses several challenges. Offshore wind farms largely depend on massive turbines that are assembled offshore. Their installation necessitates the use of foundation-laying vessels equipped with large cranes. Therefore, a significant challenge lies in the design and construction of suitable ships that can withstand harsh marine environments, navigate narrow channels, handle heavy loads, and still remain cost-effective and efficient. Due to their complexity, there are only a handful of wind turbine installation vessels in the world. Currently, existing vessels are being contracted and relocated globally, causing delays due to weather conditions and leading to supply shortages.
An examination of the functions of offshore services vessels sheds light on their complexity, and subsequent challenges in building them. The vessels are enormous to support large cranes that can lower massive offshore wind foundations into the water. These foundations need to be set in place, which the vessels accomplish by pounding foundational pieces into the seabed. After setting is complete, the work above water begins. The vessels place a tower on the foundation, and then situate a power generator on top of the tower. To accomplish these myriad tasks, the vessels drop stilts onto the seabed to lift the vessel above the ocean waves to create stability for construction.
U.S.-specific challenges
In the United States, the availability of offshore services vessels is conflated by the Jones Act, which is at the root of every U.S. offshore wind project. Generally speaking, the Jones Act requires that only US‐built, U.S.-owned and US‐registered vessels with a U.S. coastwise trade endorsement transport goods or passengers by water in the United States. Since no wind turbine installation vessels currently comply with these requirements, workarounds need to be employed, such as using a foreign-flagged installation vessel that brings the wind turbine components from a foreign port, for example in Canada. Clearly, workarounds pose challenges, like the prospect of a Canadian port being hundreds of miles away from an offshore site, increasing voyage and installation time. Smaller vessels that are Jones Act compliant are often used to bring equipment as well as offshore workers from a closer U.S. port to the offshore project site, relying on the so-called feeder solution. Challenges remain, such as completing the vessel-to-vessel transfers of large equipment at the offshore site, in sea and weather conditions that can be very difficult.
While the Jones Act creates a need for Jones Act compliant wind turbine installation vessels, it also places high barriers to entry into the construction market for such specialized assets. To qualify as a U.S. citizen owner, as required under the Jones Act, the entity that makes the investment must be controlled by U.S. citizens and be at least 75% U.S. owned at each tier in its corporate chain, up to its ultimate beneficial owners. Alternatively, the owner may be able to rely on the lease-financing exception to the Jones Act’s U.S. ownership requirements, but this requires bareboat chartering the vessel out at all times to a third party, which qualifies as a U.S. citizen, and acts as the owner of the vessel for the purposes of the project. Another barrier to entry is that the owner must use a U.S. shipyard, which increases significantly the cost of construction.
There have been several attempts at building Jones Act compliant offshore wind turbine installation vessels. To our knowledge, only one such project remains underway, with the goal of taking delivery of the first Jones Act compliant vessel of this kind at the end of this year.
Conclusion
Given the complexity of the Jones Act, as well as offshore wind farm construction generally, it is no surprise that legal challenges and disputes in such projects abound. This highlights the need for a robust legal framework and skilled representation for players in the market, at every stage of their offshore wind projects, from structuring to implementation. Ultimately, for a cleaner, more sustainable energy landscape that empowers communities and fosters economic growth, the success of offshore wind in the United States is pivotal.
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[1] United Nations Climate Change Conference (COP 28) (30 November-12 December, 2023).
New U.S. Supreme Court decision recognizing enforceability of choice-of-law clauses in maritime contracts, subject to narrow exceptions
The U.S. Supreme Court held on February 21, 2024 that “choice-of-law provisions in maritime contracts are presumptively enforceable as a matter of federal maritime law, with certain narrow exceptions.” Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 217 L.Ed.2d 401, 413 (U.S. 2024). The Supreme Court’s decision promotes uniformity and predictability in the interpretation and implementation of maritime contracts.
The Supreme Court recognized two exceptions. First, choice-of-law provisions are not enforceable in maritime contracts “when the chosen law would contravene a controlling federal statute,” id. at 411, for example because the chosen law allows the carrier to avoid liability for negligence in violation of U.S. federal maritime law. Second, choice-of-law provisions are also not enforceable “when parties can furnish no reasonable basis for the chosen jurisdiction.” Id. at 412. The Supreme Court recognized that the choice of a law that is “well developed, well known, and well regarded”, such as New York law, provides a sufficient basis to avoid falling under the second exception, even if the contract has no connection to the law chosen. Id.
The choice of New York law was therefore upheld as a “well-known and highly elaborated commercial law,” in the Great Lakes case. Id. at 412. The contract at issue was a marine insurance contract between a Pennsylvania vessel owner and an underwriter organized in Germany and having its headquarters in the United Kingdom. The underwriter denied coverage after the vessel ran aground in Florida, and rejected the claims that the vessel owner had asserted under Pennsylvania law, on the basis that the contract was governed by New York law. The district court agreed with the underwriter, but its judgment was vacated by the U.S. Court of Appeals for the Third Circuit, on the basis that there is a public policy exception to the enforceability of a choice-of-law clause that may apply in that case. The Supreme Court has now reversed that decision unanimously in an opinion written by Justice Kavanaugh.
The Supreme Court decision is significant. It resolves a split among the U.S. federal appellate courts on the enforceability of choice-of-law provisions in maritime contracts. It expands the scope of the Supreme Court’s landmark The Bremen decision, which held that “forum-selection clauses in maritime contracts are ‘prima facie valid’ under federal maritime law and ‘should be enforced unless’ doing so would be ‘unreasonable’ under the circumstances.” Id. at 408 (citing The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 10, 92 S. Ct. 1907 (1972)). The Supreme Court reasoned that this precedent “dictate[s] the same conclusion for choice-of-law provisions.” Id. at 409. The Supreme Court did not decline to create a new rule of federal maritime law on the issue that was presented to it, as it had done in Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 75 S. Ct. 368 (1955), when faced with a novel maritime insurance warranty issue, resulting in the application of state law as a gap-filler. As Justice Thomas noted in a concurring opinion, “Wilburn Boat has been met with universal criticism over the past 70 years.” Great Lakes, 217 L.Ed.2d at 416 (Thomas, J., concurring). The Supreme Court also did not limit its decision to maritime insurance contracts only; the Supreme Court’s holding applies to all types of maritime contracts.
The Supreme Court’s decision on the enforceability of choice-of-law clauses will help promote uniformity and predictability, two fundamental precepts of U.S. maritime law. It may also encourage U.S. and foreign parties to choose New York law to govern their maritime contracts, knowing that this choice will be upheld absent special circumstances making it unreasonable or contrary to U.S. federal statutes, even if they have no connection to New York.
Big waves: global autonomous ships market on the rise
International shipping has the potential to undergo an evolution with developments in autonomy—these developments present opportunities to both increase safety and reduce risk to vessel operations. Zulu Associates, a Belgian company which describes itself as an innovator in marine logistics and focusses on smaller vessels, expects to put small autonomous container ships into the English Channel or Southern North Sea by 2026. In an interview with TradeWinds, the CEO of Zulu Associates, Antoon Van Coillie, indicated that shipping insurance markets are cognizant of autonomous systems and ships. He asserted that financing would not be an unsurmountable barrier, since financial institutions are especially interested in vessel sustainability.
In 2021, the global autonomous ships market had a revenue share of over 89 million USD, and is projected to grow at a compound annual growth rate of 6.81% through 20311.
Continue Reading Big waves: global autonomous ships market on the riseNew CBP Jones Act Ruling Prevents Release of Vapor from LNG Loaded at 1st U.S. Port during Loading at 2nd U.S. Port
The Jones Act is a challenge for the LNG industry in the United States. The Jones Act requires that all vessels used to transport merchandise between points in the United States satisfy certain requirements: to be Jones Act compliant, vessels must be U.S.-built, U.S.-owned, U.S.-flagged, U.S.-operated and U.S.-crewed, subject to certain limited exceptions.
No Jones Act Compliant LNG Tanker
There is currently no Jones Act compliant LNG tanker, and therefore, no LNG tanker can move LNG between U.S. terminals—for example from the Gulf region, where many LNG plants are located, to regions where there is a need for LNG, such as Puerto Rico or New England. As a result, the vessels that pick LNG up from U.S. terminals are all directed to non-U.S. terminals, and the vessels that deliver LNG to U.S. terminals all come from non-U.S. terminals. There are some Jones Act compliant barges that can handle minor operations, such as moving a small quantity of LNG from the shore to a tanker that is waiting at a U.S. anchorage point in order to cool its tanks down. These barges cannot move large quantities of LNG between the regions of the United States that export LNG, and those that need it.
This situation is unlikely to change in the near future. From a commercial perspective, there is probably no business case to invest in building the first Jones Act compliant LNG tanker, because such a vessel will be too expensive to be competitive in the international market, and there is currently not enough domestic need to keep such a vessel employed in the United States only. And from a legal perspective, the federal agency in charge of enforcing the Jones Act’s requirements on the coastwise transportation of merchandise, Customs and Border Protection (“CBP”), has not given any indication that it intends to relax these requirements for the LNG industry.
New CBP Ruling on Two-Part-Loads Scenario
CBP issued on November 14, 2023 a Jones Act ruling (HQ H335463) that further limits the types of operations that foreign LNG tankers can undertake in the United States. As a result of this new ruling, in addition to being precluded from loading U.S.-bound LNG, foreign tankers will be precluded from loading several part cargoes of foreign-bound LNG at several U.S. terminals.
This is because, when an LNG tanker loads a first part cargo at a first U.S. terminal, and then loads another part cargo at another U.S. terminal, a small portion of the LNG loaded at the first terminal must be released through the vapor return lines at the second terminal, in the form of vaporized LNG or boil-off gas, in order to control pressure levels in the tanks of the LNG tanker during the second loading operation. CBP has held that this is not permissible because the vaporized LNG is transported from the first to the second terminal on a vessel that is not Jones Act compliant in violation of the Jones Act.
CBP noted in the ruling that the release of vapor at the second terminal is necessary for safety reasons, but emphasized that the Jones Act does not contain any exception for safety considerations. CBP has also previously refused to recognize any de minimis exception to the Jones Act, such that the minimal quantity and value of the product—in this case, the boil-off gas—does not avoid the need to use a Jones Act compliant vessel for any intra-U.S. movement.
Implications for the U.S. LNG Industry
The new CBP ruling effectively prevents the loading of two part cargoes of LNG at two different U.S. terminals, and it can have broader implications as well. For example, even the transfer of a small quantity of LNG to a tanker for gas-up or cool-down purposes at a location in the United States, prior to a loading operation at a different location in the United States, could be found to violate the Jones Act in view of CBP’s reasoning in the recent ruling: a small part of the LNG transferred for gas-up or cool-down purposes will also be returned to the shore through the vapor lines during the loading operation, and that LNG will arguably have been transported between two points in the United States on a vessel that is not Jones Act compliant.
It remains possible that the ruling will be revoked, or that CBP will reach a different conclusion when considering a different scenario, given that each of its rulings is very fact specific. We expect to see more CBP rulings on the Jones Act compliance of LNG operations as LNG production and export activities are intensifying in the United States. Players in the industry will likely seek rulings from CBP to optimize the use of foreign LNG tankers in compliance with the Jones Act.
Assessing the risk factor
Originally published By Superyacht News in ‘The Superyacht Owner Report’.
Superyacht construction has always been a laboratory for innovation, pursuing the highest standards of comfort, luxury and safety – from the use of fibreglass hulls to the general use of stabilisation systems.
Continue Reading Assessing the risk factorFrench Tonnage Tax regime saved by Government’s 49.3 move in Parliament
Threatened with abrogation by numerous amendments submitted by opposition MPs during the examination of the Finance Bill for 2024, the French tonnage tax regime has finally been saved. Indeed, the Government decided to rely on its power under Paragraph 3 of Article 49 of the Constitution, to force through the contested bill without a vote and without any of the contemplated amendments.
Continue Reading French Tonnage Tax regime saved by Government’s 49.3 move in ParliamentNavigating Storms: Some legal strategies for contingency planning in shipping supply chains
The global shipping industry is the backbone of international trade, connecting economies and facilitating the movement of goods. However, it comes with pronounced risks. From adverse weather conditions to regulatory complexities, managing risks in shipping supply chains requires meticulous planning and legal foresight. This article explores three areas in which legal strategies can help the shipping industry meet the challenges can be developed.
Continue Reading Navigating Storms: Some legal strategies for contingency planning in shipping supply chains