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.

Parties to a contract: demurrage liability under sales contracts – lessons learned from Gunvor SA v. CruGas Yemen Ltd & CruGas Ltd [2018] EWHC 2061 (Comm)

Two Ocean Tankers’ vessels were held in Houthi-controlled Hodeidah, Yemen in 2016 due to a payment dispute. That dispute – for around US$19 million (excluding interest) – has now been decided by an interesting commercial court decision that highlights the importance of careful wording in demurrage provisions.

Background

The claimant, Gunvor SA (the Seller), entered into a contract (the Sale Contract) in April 2015 with CruGas Yemen Ltd (and/or CruGas Ltd) (the Buyer) for the sale of gasoline in 12 monthly shipments CIF Hodeidah.

In order to fulfil the Sale Contract, the Seller had entered into a long-term contract of affreightment (CoA) with one of its group companies, Clearlake Shipping Pte Ltd (Clearlake), in January 2015. The CoA stated that, when the Seller needed a vessel, Clearlake would charter-in a vessel from the open market and then sub-charter her to the Seller “at cost”. In other words, the freight and demurrage rate from each charter would be incorporated into the CoA.

Several cargoes of gasoline were delivered to the Buyer without a major issue. However, problems arose under shipments on the Chang Hang Xian Feng (sub-chartered by the Seller around 10 July 2015), Ocean Mars (sub-chartered around 22 July 2015) and Hong Ze Hu (sub-chartered around 10 September 2015 and again around 10 February 2016).

The key issue was the Buyer’s failure to make the agreed pre-delivery payments for each shipment and also to pay outstanding demurrage. The Seller therefore refused to permit the vessels to discharge the gasoline at Hodeidah. While being held, the vessels incurred substantial demurrage (for example, the Hong Ze Hu was on demurrage for 261 days) and expenses such as anchorage fees and increased AWR premiums.

Eventually the Seller terminated the Sale Contract and issued a claim for around US$19 million plus interest. This comprised demurrage which had accrued under each of the three vessels, market losses in relation to the 55,000 tonnes of gasoline remaining on-board the Hong Ze Hu, and other expenses. The key issues which arose during the hearing (which the Buyer did not attend) are summarised below.

Issues

Who was the Buyer – CruGas Yemen Ltd (the first defendant) or CruGas Ltd, the party named in the Sale Contract (the second defendant)?

Continue Reading

Mobile rig newbuildings – pre-contract checklist

After several years of very low activity in the mobile offshore rig market, green shoots of growth are starting to appear. Clients in all areas of the market, including owners, charterers and builders of both rigs and drillships have reported increased activity and appetite for investment.

While many are still evaluating the costs and benefits of re-commissioning assets that have spent long periods in stack (whether cold, warm or smart) or buying on the secondary market, we are seeing more interest in newbuildings (albeit at a very early stage) than has been the case for many years.

In view of this renewed optimism, here are some points to bear in mind when preparing your next mobile rig newbuilding contract, drawing on some of the lessons learned from the widespread litigation that flowed from the oil crash:

1) Beware the ghosts of contracts past Continue Reading

Regulation 18 and FONAR – leniency not legitimacy

There has been a tendency for reference to be made to Regulation 18 (of Annex VI of the International Convention for the Prevention of Pollution from Ships, 1973 as modified by the Protocol of 1978) as containing ‘exceptions’ to Regulation 14 (of the same), which sets out the maximum sulphur content limits for marine fuels.  While this may be a convenient short-hand description, it can lead to misunderstandings.

In drafting Annex VI, the International Maritime Organization (IMO) deliberately left it to state parties (be they flag or, more likely, port) to enforce Regulation 14 and it is for state parties to determine what consequences should flow from non-compliance.  What Regulation 18 does provide (at sub-paragraph 2) is what a state party should do if a ship is found not to be compliant with Regulation 14, and this includes factors that should be taken into account in mitigation when considering what sanction to apply.

This is clear from sub-paragraph 2.3 of Regulation 18, which holds that “if a ship provides the information set forth in paragraph 2.1 of this regulation [namely: (1) a record of its action taken to attempt compliance; and (2) evidence of its best efforts to obtain compliant fuel oil], a Party shall take into account all relevant circumstances and the evidence presented to determine the appropriate action to take, including not taking control measures”.

The closest that Regulation 18 comes to creating an exception is at sub-paragraph 2.2 of Regulation 18 where it provides that state parties should not require (or expect) a ship “to deviate from its intended voyage or to delay unduly the voyage in order to achieve compliance”.  However, how each state party, particularly port states, interpret this remains to be seen.

It is not that Regulation 18 is a new addition to Annex VI; it is just that it has only really been put to the test in the context of emission control areas (as defined in Regulation 14 paragraph 3) (ECAs), which are still relatively limited in terms of geographical scope.  States that are not within an ECA are unlikely to have been put to the test yet.

The reason for this is that, while sulphur content limits for marine fuel have been in force since 19 May 2005 and were reduced on 1 July 2010, these earlier limits (4.5 and 3.5 per cent m/m respectively) were comparatively easy to comply with in terms of availability.  Indeed, the original 4.5 per cent m/m limit was above that of almost all of the marine fuels on the market at such time.  This is not the case for the new 0.5 per cent m/m limit, since there is both an absence of compliant residual marine fuels available on the market and an (anticipated) shortage of compliant distillate marine fuels available as an alternative.

Even with the revised lower (0.1 per cent m/m) limit that has been in force since 1 January 2015 for ECAs, the demand for such fuel has still been comparatively low.  The issue for ships when required to enter into an ECA was usually whether they had sufficient compliant fuel onboard when ordered in and, if not, whether such fuel could be obtained on passage before entering into the ECA.  Aside from those ships calling into the United States (particularly in 2015 after the new limit entered into force), comparatively few ships seem to have tested whether sub-paragraph 2.2 of Regulation 18 would protect them if compliant fuel was not available on passage to an ECA.  That is why the fuel oil non-availability report (FONAR) system is still being developed, with a final template expected to be submitted to and approved by the IMO at MEPC 74 in May 2019.

Even so, FONAR may be misunderstood.  It is (as currently envisaged) nothing more than a standardised form of presenting evidence to satisfy the information that a state party is entitled to require of a ship under sub-paragraph 2.2 of Regulation 18, namely: “evidence that it attempted to purchase compliant fuel oil in accordance with its voyage plan and, if it was not made available where planned, that attempts were made to locate alternative sources for such fuel oil and that despite best efforts to obtain compliant fuel oil, no such fuel oil was made available for purchase.”

As such, FONAR is not a panacea, but it should assist in encouraging a more uniform approach to non-availability and the protection that sub-paragraph 2.2 of Regulation 18 should offer a ship.  A standard form of FONAR should also make the management and assessment of non-availability reporting easier for party states (flag and port).  For it it should be remembered that Regulation 18 is not one-sided.  It also requires state parties to “promote the availability of fuel oils” that comply with Annex VI, including the sulphur content limits, and to “inform the [IMO] of the availability of compliant fuel oils in its ports and terminals”.

Update on the impact of Brexit on English jurisdiction

On January 18, the European Commission published guidelines outlining the impact a no-deal Brexit will have on the recognition and enforcement of UK judgments in the remaining 27 EU countries (EU 27). The Commission states that where the judgment concerned requires exequatur, and the UK court has obtained exequatur before March 29 (or any extended exit date) but the judgment has not yet been enforced in an EU 27 country, then that judgment can still be enforced in the EU 27. In any other circumstances, EU rules will no longer apply to UK judgments in the EU 27 even where:

– the judgment was handed down before the exit date; or
– the enforcement proceedings were commenced before the exit date.

Instead, the Commission states that the domestic rules of each EU member state will apply to the enforcement of any such UK judgment. This is as we foreshadowed in our earlier client alert. Also, it should be noted that, on December 28, 2018, the UK deposited its instrument of accession to the Hague Convention on Choice of Court Agreements 2005. In the event of no deal, the UK will be a party to the Hague Convention (again, see our earlier client alert), and it is intended that the UK will be a party to the Hague Convention from April 1.

Blockchain Boost for the Shipping Industry

After several successful trials over the last year, Israel’s largest cargo shipping company, Zim, has implemented a blockchain platform for electronic bills of lading.  According to Zim, this technology could replace paper bills of lading and further improve other activities which rely on physical means of transfer.

Zim recently conducted several transactions in which bills of lading were transferred to the receiver less than two hours from the vessel’s departure, a process that typically takes days or can take weeks.  Following these successful trials and initial transactions, Zim will soon be entering the next phase, providing an opportunity for all of its customers to take advantage of electronic bills of lading utilizing blockchain technology.

Zim’s successful implementation of blockchain-enabled bills of lading, demonstrates the power of distributed leger technology to add efficiency and reduce costs in memorializing and settling financial transactions.

Read the full article on our Fintech blog here.

 

Update on BIMCO 2020 Fuel Transition Clause for Time Charter Parties

On 21 December 2018 we commented on the newly released BIMCO clauses intended to address the International Maritime Organization’s revised sulphur content limits with regard to the consumption and carriage of marine fuel (in accordance with Regulation 14 of Annex VI of the International Convention for the Prevention of Pollution from Ships, 1973 as modified by the Protocol of 1978, MARPOL), which enter into force on 1 January and 1 March 2020 respectively.

Continue Reading

LexBlog