Solving the ‘possession’ problem – Law Commission publishes draft legislation for the legal recognition of electronic trade documents

In our October 2021 blog “Possession as we (don’t) know it!”, we discussed the existing position under English law in respect of electronic trade documents and the scope for reform in light of the Law Commission’s consultation paper and draft legislation “Digital assets: electronic trade documents (2021) Law Commission Consultation Paper No 254”, published on 30 April 2021.

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COVID related off-hire decisions from the LMAA

The COVID pandemic has impacted nearly every aspect of global commerce, and the shipping industry is no exception having experienced severe disruption in many different ways.

Over the past two years, most maritime lawyers will have received multiple enquiries in relation to delays caused to vessels by COVID, where there is a dispute as to whether owners or charterers are liable under the terms of the charterparty.

Against this background, two London arbitration awards have recently been published which shed some light on how Tribunals are grappling with these issues. Continue Reading

To what are “subjects” subject?

In DHL Project & Chartering Ltd v. Gemini Ocean Shipping Co Ltd [2022] EWHC 181 (Comm), DHL (“Charterers”) succeeded in an application against Gemini (“Owners”) to set aside an arbitration award pursuant to section 67 of the Arbitration Act 1996 (the “Act”).

Mr Justice Jacobs held that a “subject” provision in a putative fixture requiring “shipper/receivers approval” was of an unqualified character. The Court found that the contract would not become binding unless and until Charterers lifted the “subject”, and on the facts, this had never occurred. Accordingly, no arbitration agreement came into existence and the Tribunal did not have substantive jurisdiction when it determined that Charterers had repudiated the charterparty. Continue Reading

Expecting the unexpected – BIMCO releases force majeure clause

In light of the unprecedented challenges faced by the shipping industry in recent years, BIMCO has recently released its long-awaited model force majeure clause for inclusion in charterparties and other shipping contracts.

Reed Smith first reported on the clause in January 2021 in our article All eyes on BIMCO’s new clauses .  

Now that the clause is finally here, what does it say and how can it support the industry?

The context

BIMCO’s new clause aims to provide a comprehensive regime for parties to follow if certain circumstances arise, beyond their reasonable control, that prevent performance of a charterparty or other shipping contract. Force majeure clauses in carriage contracts are traditionally quite rare, with English law preferring to treat the issue as one of risk allocation.

A clearly drafted force majeure clause offers a party the flexibility to suspend performance, and potentially terminate a contract, without, in theory, facing a claim from the unaffected party for breach of contract.

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EEXI and CII – shipping’s next environmental challenge

Introduction

There cannot be many people left in the shipping sector unaware that the International Maritime Organisation (IMO) has set a target of reducing annual greenhouse gas emissions in shipping by at least 40% by 2030 and pursuing a 70% reduction by 2050.

As a key means of achieving this, the IMO, through the Marine Environment Protection Committee (MEPC) has adopted amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI. These changes will implement major new technical rules called the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII). The regulations are due to come into force on 1 January 2023, just over a year from now.

Put simply, EEXI is a framework for determining the efficiency of the design of in-service vessels over 400 GT falling under MARPOL Annex VI. The CII is an operational measure of how efficiently a ship transports goods or passengers measured, in essence, in grams of CO2 emitted by cargo-carrying capacity and nautical mile.

Both EEXI and CII are complex and evolving, with much of the detail still unclear. However, they need to be carefully considered and understood now so that those affected can start planning for January 2023.

In this article, we set out in an easy-to-use table the main points, and explain some of the key issues owners and charterers need to consider. Continue Reading

Exemption clauses subject to contractual interpretation

Exemption clauses, including those purporting to exclude or limit liability for deliberate and repudiatory breaches, are to be construed by reference to the normal principles of contractual construction. There is no presumption in English law that exemption clauses do not apply to fundamental breaches. Nor is there a requirement for any particular form of words or level of language to exclude liability.

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Possession as we (don’t) know it!

Possession and tangibility are closely related concepts long established under English law. Yet a change to these concepts is around the corner. The change could finally unlock the full potential of digital trade documents, while at the same time keeping English law at the forefront of global commerce.

The existing position under English law is that one cannot legally ‘possess’, or have physical control of, something intangible (not including intellectual property rights, which are governed by separate rules). This means that a purely electronic or digital trade document cannot be possessed, and so cannot fulfil the legal functions of its possessable paper equivalent. But the UK Law Commission’s recent proposals for the reform of English law regarding possession of electronic trade documents and the accompanying draft legislation (the Draft Bill) suggest that more universal digitisation of electronic bills of lading and other trade documents will soon be a reality.

Electronic trade documents, at least in the form of ‘e-bills’, have been in use for almost two decades due to their undisputed benefits and efficiency. However, they remain, as the Law Commission puts it, “workarounds” to the problem of intangible, digital documents not being capable of possession under English law. This is primarily because electronic documents are created under multi-party contracts between a closed group of parties engaged in a particular trade that agrees to recognise them as having the same qualities as a paper document.

What the Law Commission’s proposals seek to address is the “possession problem”, a timely example of English law keeping up with technological solutions (including blockchain) to give electronic trade documents the same legal function as their paper equivalents.

What does the new law say?

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Executive Order 14036 encourages competition compliance for shipping companies

President Joe Biden has issued Executive Order 14036 “Promoting Competition in the American Economy” (“the EO”) which was signed on 9 July 2021. The EO has the goal to promote competition within the U.S. economy to lower prices for families, increase wages for workers, promote innovation and foster economic growth.

The EO puts forward 72 initiatives for multiple federal agencies. While it does not establish new requirements, it is a call to action for federal agencies to establish policies in order to address the harmful trends associated with corporate consolidation, decreased competition and the ultimate harm they cause to America’s consumers, workers, farmers and small businesses.

Joe Biden is attempting to enforce competition compliance more vigorously than his predecessor. As illustrated by the EO, ship owners, carriers and airlines need to ensure that their competition compliance programmes are up to date. Some shipping companies do not have compliance programmes in place as they are advisory, rather than compulsory. As can be seen in the EO, rather than make it compulsory, Biden’s administration directs the Department of Transportation to consider issuing clear rules and encourages both the Surface Transportation Board and the Federal Maritime Commission to establish certain rules in relation to the shipping industry, air travel and rail travel. Continue Reading

New initiatives concerning sustainable transportation is published by the European Commission

Last month, the European Commission published two new proposals for EU regulations to encourage the use of sustainable fuels in aviation and shipping – namely the ReFuelEU Aviation and FuelEU Maritime initiatives, respectively. Both proposals are subject to public feedback until 5 October.

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Court of Appeal clarifies that term in trade recap stating that certificate of quality is final and binding is not qualified

BP GTCs 2007: Septo Trading Inc v Tintrade Limited [2021] EWCA Civ 718

 

Introduction

In Septo Trading Inc v Tintrade Limited ([2021] EWCA Civ 718) the Court of Appeal overturned a High Court decision ([2020] EWHC 1795 (Comm)) that a term in a trade recap which provided that an inspector’s results were “binding on the parties save for fraud or manifest error” was qualified by the BP 2007 General Terms and Conditions for FOB sales (the “BP GTCs 2007”). Our blog post on the High Court’s decision can be found here.   Continue Reading

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