Letters of indemnity

Welcome back to our new series of ‘back to basics’ blogs in which we will provide blogs focused on common legal issues. This blog post looks at letters of indemnity, a sometimes unreliable but commonplace feature of the shipping industry.

When might an LOI be required:

Letters of indemnity act as an unofficial form of insurance in instances where a party is requested to step out of the bounds of its contracted obligations. Continue Reading

Remote casualty investigations

2020 has presented a number of challenges to the shipping industry, certainly none more so than the global pandemic which has significantly disrupted international trade and profoundly affected crew welfare.  The closure of national borders and the curtailment of commercial flights has introduced other limitations, including the ability of lawyers to travel to vessels following a marine casualty.  While this is certainly less of a concern than the plight of many seafarers, who have been stranded on board vessels without any immediate prospect of returning home to their families, it nevertheless presents another unwelcome headache for ship owners.

Evidence collection

Following any significant marine casualty, whether a collision, grounding, fire, or other significant event, it is essential that evidence is properly preserved.  This will be relied upon as the subsequent legal ramifications of the incident play out, which can often take many years.  The early preservation of evidence prevents electronic data being lost, or crew witnesses leaving the employment of the ship owners and subsequently being unavailable or unwilling to provide witness statements. Continue Reading

Force majeure and frustration

Welcome to our new series of ‘back to basics’ blogs in which we will provide blogs focused on common legal issues. This blog post will address force majeure and frustration, two concepts which charterers have regularly relied on since the presence of COVID-19, often with varying degrees of success.

General Rule

English law generally holds parties who have contracted to do something accountable even where subsequent events make performance challenging or expensive. Nevertheless, two exceptions can often be invoked, frustration and force majeure. It is important to note that under English law force majeure only applies if there is a specific clause within a contract that provides for it, while frustration is a common law doctrine. There has been renewed interest on force majeure, in particular, because of the COVID-19 pandemic. Continue Reading

A new world of ship leasing and sale and leaseback transactions

Traditionally, the most common way of financing ships has been through debt and equity financing.  However, over the past decade, ship leasing has become a very significant competitor and alternative for the provision of finance for the acquisition of ships.  Recent market studies are expecting the global ship lease market to grow at a significant pace over the next five years – and that is already taking into account the expansion of Chinese leasing companies into the market over more recent years as well as the potential impact of Covid-19.

Recognising this growth and appetite for ship leasing transactions, the world’s largest international shipping association, BIMCO, set its sights on developing the industry’s first ship sale and leaseback standardised term sheet.  The sale and leaseback term sheet ‘SHIPLEASE’ was released last month and will be rolled out to support shipowners, leasing companies, financial brokers and lawyers when negotiating and drawing up sale and leaseback agreements.

But what is ship leasing and why is it such a strong trend in shipping? We explore this growing market and look at what is in store for market players in these new and challenging times. Continue Reading

EU takes action over violations of the UN’s Arms Embargo on Libya

On Monday, 21 September, the EU designated three companies involved in the transportation of goods for violating the UN arms embargo in place for Libya: Sigma Airlines, Avrasya Shipping and Med Wave Shipping. The three entities, who are alleged to have transported military material to Libya, are now subject to an asset freeze under the EU restrictive measures.

Tensions over non-compliance with the UN arms embargo have escalated over recent weeks following the interim UN envoy for Libya, Stephanie Williams, criticising the “blatant” ongoing violations. In the press release which followed the designations, the EU reiterated its commitment to ensuring that the UN arms embargo in Libya is fully respected and stated that these “new listings show the EU’s strategic use of its sanctions regime and ability to react to developments on the ground in support of the political process and to deter past and present perpetrators from further violations”.

Those involved in Libya trade should continue to monitor developments, as further restrictive measures may follow. In the meantime, effective sanctions specific due diligence and compliance policies remain key to ensuring compliance, particularly in light of the guidance issued earlier this year by the sanctions enforcement bodies in the U.S. and the UK: OFAC client alert and the OFSI client alert.

If you have any queries, please contact a member of the Reed Smith sanctions team.

More transparency needed in shipping industry to tackle the impact of COVID-19

Early results from our 2020 shipping survey – Navigating a post-COVID world indicate that industry participants believe more transparency is needed to tackle the impact and challenges caused by the pandemic.

66% of respondents so far indicate that transparency and sharing of information might be key to the shipping industry emerging stronger from the crisis.

There has been much conversation in recent years about advancements in technology allowing for more information sharing across the industry. The discussion was highlighted again at last year’s London International Shipping Week (see here). In 2020, the use of technology is illustrated by the Ship Recycling Transparency Initiative, which aims to “drive progress on responsible ship recycling by way of a one-stop shop online platform to report information on policies and practices against a set of predefined disclosure criteria.”

Despite potential liability and insurance risks caused by too much transparency, it appears that industry participants think the sharing of information on challenges, such as crewing and dealing with testing, might be the best way forward.

Have your say in our survey here.

Damages in addition to demurrage – long standing debate settled in owners’ favour

Public today: an important judgment handed down by the English High Court this morning has re-opened the door to recovering damages in addition to demurrage for losses caused by exceeding laytime in cargo operations.

In today’s 43 page judgment in K Line Pte Ltd vs Priminds Shipping (HK) Co Ltd (The Eternal Bliss) [2020] EWHC 2373 (Comm), Mr Justice Andrew Baker thoroughly surveys almost 100 years of law and commentary on a question that has never been properly resolved and which has divided the opinion of academics and practitioners alike.

In reaching the “firm and clear view” that The Bonde (1990), thought by some to have settled the issue 30 years ago, was wrongly decided the Court found that, quite apart from demurrage, damages can be also recovered for other losses caused by a failure to load or discharge within the allowable laytime. No separate breach of charter is required. Continue Reading

Navigating a post-COVID world: Take part in our survey

How will the shipping industry respond to the impact of COVID-19?

We are conducting a short anonymous survey to discover what impact participants consider COVID-19 will have on the shipping industry. Through collecting responses from companies representing the industry across different sectors and geographies, we shall analyse the impact COVID-19 may have on different segments of the market.

We want your insight – take part in our survey.

Recent Trends in U.S. Vessel Arrest Cases

As the global economic recession grows, so does the number of vessel arrests by maritime creditors.  We highlight below four trends observed in the vessel arrest cases that are multiplying in the U.S.  Some of these trends are tied to the particularities of the COVID-19 recession.  Others resurface at every economic downturn.  It is particularly important for preferred ship mortgagees to be aware, and beware, of these trends.

First, vendors may be more willing to move to arrest vessels during these uncertain times.  For example, a New York marina has arrested multiple vessels docked on its premises for non-payment of its fees.  This development is significant because the claims of some vendors may take priority over preferred mortgages.  Under U.S. law, maritime liens for necessaries provided to vessels in the U.S. take priority over foreign (i.e., non-U.S. flag) ship mortgages.  Maritime liens for necessaries provided outside the U.S. are generally subordinate to preferred mortgages, but the priority of preferred mortgage liens is subject to certain exceptions that are not always well delineated.  Whether the arrester’s claims are subordinate or not, it is critical for the mortgagee to intervene in the arrest action.  Otherwise, the mortgagee could lose its mortgage lien as a result of the action, without receiving any portion of the proceeds of the sale of the vessel.  However, timely intervention can be challenging, especially because the arrester is not always required to notify the mortgagee.  Publication of a notice of arrest in a local newspaper may constitute sufficient notice under U.S. law.  Prudent lienholders thus maintain a close watch on the trading patterns of vessels, and, if a vessel remains in a port for a longer time than usual, monitor court dockets to be ready to intervene and preserve their claims. Continue Reading

Protection for Seafarers? International Summit on Crew Changes

On 9 July, governmental representatives of the UK, Denmark, France, Germany, Georgia, Greece, Indonesia, Netherlands, Norway, Philippines, Saudi Arabia, Singapore, United Arab Emirates and USA held a virtual summit, alongside business leaders across the world, to discuss the issues faced by seafarers during the COVID-19 pandemic.

The summit was hosted by UK Transport Secretary, Grant Shapps, and UK Maritime Minister, Kelly Tolhurst.

The result of the summit was a commitment from the attendee governments to agree and introduce international measures to improve repatriation of seafarers and crew changes, during the global pandemic.

Continue Reading