SHIPPING
NEWSLETTER – DECEMBER 2008, ISSUE 25
IN THIS ISSUE:
• Piracy risks in the Gulf of Aden
• The Front Comor: an end to anti-suit injunctions?
• Rule B attachments – can they be kept confidential?
• DRI cargoes – what you need to know
• California air resources board adopts proposed
regulations for ocean-going vessel diesel fuel
content
• US Supreme Court cuts punitive damages against
Exxon in Valdez case
• Employment Law Update
• High Court considers construction of standard
form LOI for delivery of cargo without production of
original Bills of Lading
2
Shipping Newsletter – DECEMBER 2008
Piracy risks in the Gulf of Aden
David Semark, a Partner in our Dry
Shipping Group, considers some of the
issues facing shipowners in light of the
recent spate of piracy attacks.
6. We have also tried to identify the factors owners ought to take
into account when assessing the risks posed by a voyage via Suez
and/or through the Gulf of Aden. In doing so, we will examine two
commonly used “War Risks” clauses: clause 35 of Shelltime 4; and
the Conwartime clause.
Shelltime 4
Can a shipowner currently refuse his
charterer’s orders to travel via the Gulf of
Aden because of the risk of pirate attack?
Alternatively, can he avoid this route on his
David Semark
[email protected]
own initiative? This is a constantly evolving
issue as it is very fact dependent. We set
out below the issues for consideration.
However, the recent capture by pirates of
the Sirius Star means that by the time of publication, things may have
moved on. The principles set out herein remain the same.
Background
1. The transit route via the Suez Canal and the Gulf of Aden is one of the
world’s principal waterways. There are in excess of 20,000 transits
each year.
2. As is well known, the Somali coast and Gulf of Aden have been plagued
by pirates for some years. The Joint War Committee (made up of
underwriting representatives from both the Lloyd’s and IUA company
markets) estimates that there are currently 5 major pirate groups
operating in Somalia – Gulf of Aden Update, JW 2008/001 dd 27th
August 2008. As has been widely reported, there has been a recent
spike in piracy attacks and, in particular, vessel seizures and crew
kidnappings. Between January – August this year, some 17 vessels
were seized. More have been attacked. The current figure is over thirty.
3. Grey Page has calculated that since July, 1 out of every 330 ships
transiting the Gulf of Aden has been hijacked – Lloyd’s List 29th
September 2008 p. 4. Both Somalia and the Gulf of Aden have been
designated by the Joint War Committee as Additional Premium Areas.
4. On 30th September, BIMCO, ICS/ISF, INTERCARGO, INTERTANKO and
the ITF issued a joint statement calling on national governments to do
more to combat the pirates. This included the following passage:
“There should be no doubt that the situation is now so serious
that major shipping companies, who are currently negotiating with
charterers to avoid transiting the Gulf of Aden and the Red Sea/Suez
Canal altogether, will decide to redirect their ships via the Cape of
Good Hope.”
7. War Risks are dealt with in clause 35 of Shelltime 4:
(a) They are defined as “any blockade, war, hostilities, warlike operation,
civil war, civil commotions or revolutions” (sub-clause 35 (a)).
(b) The Master or owners have the right to refuse to go to any “place of
peril” when, in their reasonable opinion, it is dangerous for the vessel
to “reach, or enter or to load or discharge cargo” at such a place
because of the existence of War Risks as defined in sub-clause 35 (a).
Conwartime 1993 / 2004
8. Most dry-cargo fixtures now incorporate Conwartime 1993/2004.
Conwartime contains two pertinent features:
(a) First, the term “War Risks” is defined in sub-clause (1) (b) of
Conwartime 1993 and sub-clause (1) (a) (ii) of Conwartime 2004 as
including“acts of piracy, acts of terrorists, acts of hostility … by any
person, body, terrorist or political group” which “in the reasonable
judgment of the Master and/or the owners, may be dangerous or are
likely to become dangerous to the Vessel, her cargo, crew or other
persons on board the vessel”.
(b) Secondly, sub-clause 2 of Conwartime 1993 and sub-clause 1(b)
of Conwartime 2004 provide that the vessel “shall not be ordered
to or required to continue to or through, any ... place, area or zone
(whether of land or sea) or any waterway or canal, where it appears
that the vessel, her cargo, crew or other persons on board the vessel,
in the reasonable judgment of the Master and/or the owners may be,
or are likely to be, exposed to War Risks.”
Can owners refuse, or elect not to, transit the Gulf of Aden?
9. At the heart of the question is the conflict between:
(a) An owner’s obligation to both (1) his charterers and (2) the bill of
lading holders to prosecute voyages with “due” or even “utmost”
despatch (by the usual and most direct route); and
(b) An owner’s right to refuse to enter, or avoid, areas where there is a
genuine and real risk of attack.
5. This article examines whether shipowners can:
Not an “unsafe port” question
(a) safely refuse orders to transit via the Gulf of Aden; or
10. As a starting point, the express safe port provisions in any charter
(b) deviate via the Cape of Good Hope on their own initiative; and/or
(c) bring a claim against their charterers in the event of losses suffered
as a result of pirate action in the Gulf.
are unlikely to provide an answer. While under Shelltime 4 this is only
an undertaking to exercise due diligence in any event, the maximum
scope of any warranty is that the approaches to a port will be safe.
Realistically, an international transit route such as the Gulf of Aden
3
Shipping Newsletter – DECEMBER 2008
cannot be characterised as an “approach” to any port, save, perhaps,
apply to the Gulf of Aden. Sub-clause 2 of Conwartime 1993 and sub-
to those situated in littoral states. Where a vessel is fixed for
clause 1 (b) of Conwartime 2004 give the Master and/or owners the
worldwide trading, a charterer does not guarantee the safety of any
right to avoid “continuing to or through” any “area or zone (whether
ocean route or sea passage the vessel may have to take.
of land or sea), or any waterway” exposed to War Risks.
Clause 35 of Shelltime 4 does not respond to piracy risks
11. It is often a surprise to owners who fix on the unamended Shelltime
4 form to find that clause 35 does not respond to piracy risks.
12. First, the reference in clause 35 to excluded areas being places which
the vessel can “reach or enter, or to load or discharge cargo” and the
reference to the Master being allowed to refuse to sign bills of lading
for voyages to such places, strongly suggests that the clause only
covers dangerous ports as opposed to dangerous sea passages or
18. In order to invoke Conwartime in the Gulf of Aden, two requirements
must be met:
19. First, and easiest, the incidents in the Gulf of Aden must fall within
“War Risks”. These are defined in sub-clause (1)(b) of Conwartime
1993 and sub-clause 1 (a) (ii) of Conwartime 2004 as events which
may, in the owners’ and/or Master’s reasonable judgement, pose
a danger to the vessel (to distinguish them from actions which
fall within the definition of War Risks but which pose no danger to
shipping: for example riots against a local authority).
routes between ports.
20. By any definition the attacks on and seizure of vessels passing
13. More fundamentally however, clause 35 refers to a very narrow range
of War Risks. In particular, there is no express mention of “piracy”.
Definition of Piracy
14. For the purposes of English marine insurance law the following
characteristics have to be present before an event can be classed as
one of piracy:
(a) the event must take place at sea, but not necessarily in international
waters,
(b) violence or the threat of violence must be present in the commission
of the seizure as opposed to the escape of the assailants, and
(c) the objective must be that of personal gain, not the advancement of a
particular cause (typically political).
15. The pirates’ motive is the key issue. While precise intelligence on why the
recent surge of attacks has occurred is not available, the consensus view
through the Gulf of Aden must fall within “acts of piracy” or (if there
is an Al-Qaeda link as some have speculated), “acts of terrorists”
or, if linked to the wider civil war in Somalia, “acts of hostility”. The
pirates must also be one or more of “…any person, body, terrorist or
political group”. By their nature, an armed attack on, or seizure of, a
ship is a “danger” to shipping.
21. The second criterion, set out in sub-clause 2 of Conwartime 1993
and sub-clause 1 (b) of Conwartime 2004, is that the Master and/or
owners must form:
(a) a “reasonable judgement” that the vessel;
(b) “may be”; or
(c) “is likely to be”
exposed to War Risks, as defined.
22. Conwartime does not therefore give an owner an unfettered
is that the primary goal of the pirates is to secure the payment of ransoms.
discretion to decide whether to proceed into the Gulf of Aden or not.
The gangs concerned appear to be criminal enterprises, although linked in
The use of the word “reasonable” imports an objective standard. It
some cases to local warlords. There is no real indication that the attacks
is not enough that any judgment be honestly and genuinely held, if a
are being carried out for any larger political purpose.
reasonable and prudent Master or owner would not have reached the
16. As such, they are clearly not “blockades,” “war,” “civil war,”
“civil commotions,” or “revolutions” within the scope of clause
same conclusion.
23. However, using the reasonable Master or owner as a yardstick is not
35. Similarly, both “hostilities” and “warlike operations” have
the same as taking a cross-section of the opinions of reasonable
technical meanings in the War Risks context. “Hostilities” are acts
Masters or owners. The fact that some would consider the situation
or operations of war committed by a party to an existing conflict,
dangerous and others would not, does not mean that more cautious
“warlike operations” are similar actions taken by a belligerent, but
before a formal state of war exists. All of the named events have this
common denominator: they are acts carried out by groups with some
sort of political or military agenda. Acts by organisations whose only
goal is criminal, fall outside clause 35 of Shelltime 4.
Conwartime 1993 / 2004
17. Unlike clause 35 of Shelltime, Conwartime 1993 and 2004 clearly
owners cannot take the benefit of the clause. If there was sufficient
evidence available at the time the decision was taken, which would
justify a conclusion by a notional reasonable Master that his vessel
was genuinely exposed to significant risk, then his judgment will be
held to have been reasonable – notwithstanding the fact that others
might have had, and did have, a different view.
24. In practical terms, it will be very difficult to justify a deviation
from the Gulf of Aden in circumstances where the overwhelming
4
Shipping Newsletter – DECEMBER 2008
of the crew, vessel and/or cargoes, any additional costs for bunkers,
heating, nitrogen, inhibitor, war risk premiums, insurance costs shall
be paid by Charterers.
majority of vessels are still prepared to use the route, although now
that Odfjell, Svitzer and an unnamed LPG operator have ordered
their vessels to go round the Cape of Good Hope, this may be the
beginning of new trading patterns.
25. Secondly, the judgment which the Master or owners must reach, is
that there is “likely to be” or “may be” danger if the vessel proceeds.
Under Conwartime 1993 or Conwartime 2004, the Master or owners
need not prove that actual physical danger exists at the time the
decision is made or that the danger is “imminent”. The test is merely
one of probability. The question is, what degree of probability does
the test require?
26. The sub-clause introduces two alternative “screens” through which
owners and the Master will have to sift the available information.
First, that danger is “likely”, secondly that it “may” occur. As to these:
(a)
Both words are capable of various shades of meaning and
it would be wrong to try to give them a spurious degree of
precision. What can be said though is this:
This clause takes effect irrespective of whether the area is classified
as a “war risk zone” by insurers, hence it is within owners’ and/
or the Master’s sole discretion to impose the measures they deem
necessary in order to ensure the safety and integrity of the crew,
vessel and cargoes.”
29. The other drafting solution is to define “any additional war risks
premium area” as an excluded area when fixing – provided, once
again, that charterers can be persuaded to accept this.
Relevant considerations
30. Any decision taken by the Master or owners to avoid an area
rendered dangerous by pirates must be an objectively reasonable
one. That remains equally true under most War Risks clauses,
even those which purport to confer a discretion on the Master and
owners. Accordingly, below is a “checklist” of the facts which should
(i) Giving the word “likely” its ordinary and natural meaning
(as being synonymous with “probably,” or “with
considerable certainty” or “without much doubt”), it must
connote more than a mere possibility. The risk must be
be considered in the event owners find themselves confronted by
this situation.
31. As a starting point, we would note that “danger” is a strong word.
more likely than not – i.e. there must be a greater than
A mere vague apprehension would not qualify to activate any War
50% chance of exposure to pirate attack.
Risks clause. So in between the very remote and merely fanciful on
(ii) Clearly, worrying though the situation in the Gulf is, we
are not there yet. Indeed, were the risks to reach this level,
underwriters would be sure to declare it a prohibited area
and the vessel could not be compelled to go there in any
event.
(b) If the danger is not “likely” a refusal is still justified if a
reasonable Master or owner would consider that it “may” be
present. This second screen is further down on the scale of
probability. In other contexts, the Courts have said that the
phrase “may be”:
(i) excludes the contingent and very remote; and
(ii) cannot include the purely fanciful.
27. If shipowners wish to obtain further contractual protection, then,
provided their charterers are prepared to accept such a clause at
the time of fixing, an additional “Piracy Clause” could be added to
supplement the rights conferred by Conwartime.
28. We have, for example, seen the following wording tucked away in
proposed protective clauses in recent tanker charter negotiations:
the one hand and a degree of likelihood less than 50% on the other,
there is a wide margin within which owners and the Master have to
exercise their judgment.
32. While it is impossible to produce a definitive list, in our view,
shipowners should consider the following factors when assessing
whether the risks of exposure to pirate attack in the Gulf of Aden
have moved away from the “fanciful”, “contingent” or “very remote”
and further towards “less than 50%”.
(a)
While the Master or owners do not have to assess the risks
with the precision of a political or military analyst, the
statistical likelihood of attack should be considered. At present
the risks of seizure are ⅓ of 1%. While even in a worst case
scenario, the number of vessels affected is likely to be a
fraction of the total using the passage, any increase in the
number of incidents is a relevant consideration.
(b) Information should be gathered from all publicly available
sources, including:
(i) The websites of the International Maritime Bureau, the
Piracy Reporting Centre and the Joint War Committee;
“Piracy Clause
(ii) The shipping press;
If piracy activity or the threat thereof requires that owners deviate,
slow steam and/or change port rotation in order to ensure the safety
(iii) Circulars and Alerts from Hull Underwriters and P&I Clubs;
and
5
Shipping Newsletter – DECEMBER 2008
(iv) Flag State and other governmental warnings.
(c)
In this regard, headlines do not tell the whole story. For
example, the Joint War Committee reports that while more
vessels have been hi-jacked, there have been fewer incidents of
ships being fired upon – JW 2008/001 27th August 2008.
(d) Similarly, any increase in the additional premium charged
by War Risk underwriters for transit through the Gulf of
Aden would point to a general acceptance that there was an
enhanced level of risk.
(e)
Likewise, any restrictions imposed by flag states, or countries
which are traditionally a source of crew, on their vessels or
nationals being sent through the Gulf of Aden would support a
claim that a refusal or deviation was reasonable.
(f)
Also, inquiries should be made of other owners, or relevant
Associations of owners (or indeed P&I Clubs) as to whether
they consider the Gulf of Aden safe.
(g) Both the availability and effectiveness of efforts to combat the
pirates should be taken into account.
(h) In this regard, on 22nd August, the US Naval Central Command
established a Maritime Security Patrol Area (MSPA) in the Gulf
of Aden.
(i)
(j)
On a related note, owners would also have to show that they
had taken all necessary precautions to minimise the risks
of attack. For example, charterers might well have cause for
complaint if anti-boarding equipment has not been fitted.
(k) Lastly, before an owner takes any decision not to proceed,
he should consult the Master. Failure to do so may lead to a
finding that the rejection was a pretext.
33. Regardless of which way the decision goes, owners and the Master
are allowed a reasonable time to consider and evaluate the risk.
While this has yet to prove itself, owners will now have to
The obligation is not one of instant obedience to the charterers’
differentiate between the risks inside the coalition-patrolled
directions, but of reasonable conduct. Only unreasonable delay
channel and elsewhere in the Gulf. At the time of writing, only
constitutes a refusal to obey an order. Owners and the Master have
one vessel had been seized inside the patrolled channel.
the right to perform the investigations listed above.
The “Front Comor”
: an end to anti-suit
injunctions?
Alan Curran, an Associate in our Dry
Shipping Group, considers the implications
of the Advocate General’s opinion on
Alan Curran
[email protected]
The background
The facts of the “Front Comor” are straightforward. The Vessel was
chartered by West Tankers (“Owners”) to Erg Petroli SpA (“Erg”) and
during that charter she struck a jetty at a Syracuse oil terminal owned by
Erg. The charterparty was governed by English law and was subject to
arbitration in London. Erg claimed on its insurance up to the limit of the
arbitration and anti-suit injunctions
policies and proceeded in London arbitration against Owners for the balance
The Advocate General of the European
subrogation under Italian law and began proceedings on a claim against
Court of Justice (“ECJ”) has now
Owners in the Tribunale di Syracuse to recover the payments made to Erg.
delivered her opinion on a question
of the damage suffered. Erg’s insurers subsequently asserted a right of
referred to the ECJ by the House of Lords earlier this year in the case
The Tribunale di Syracuse had jurisdiction over the claim under the
of the “Front Comor” concerning the use of anti-suit injunctions by
provisions of the Brussels Regulation (Regulation 44/2001) that governs
the English Courts. The implications of this opinion, if it is accepted
jurisdiction between member states of the EU. This was not in dispute.
by the ECJ as is widely expected, are far reaching and have potentially
However, Owners applied to the English court for various declarations
serious consequences. The effects of a decision in line with the
and an injunction to restrain the Italian proceedings. Owners argued
Advocate General’s opinion would be widely felt, particularly in sectors
before the Court that the dispute arose out of the charterparty, which
where parties regularly agree to arbitrate their disputes in a chosen
contained an arbitration agreement, and that the insurers were therefore
country.
bound by that arbitration agreement in the exercise of their subrogated
6
Shipping Newsletter – DECEMBER 2008
rights. At first instance Colman J. held that the proceedings in Italy
In the Advocate General’s opinion, the Brussels Regulation does prevent
did arise out of the charterparty, the insurers were bound to refer their
a court in a Member State from making orders that seek to restrain
dispute to arbitration and that the Owners were entitled to an injunction
proceedings in the courts of another Member State on the basis that, in
restraining the Italian proceedings.
the opinion of the court making the order, the proceedings are in breach
On appeal directly to the House of Lords, their Lordships agreed with
of an arbitration agreement.
Colman J.’s decision, but, referred the question as to whether the anti-
What now?
suit injunction could be granted to the ECJ for a ruling.
Although the ECJ has not yet ruled on the question referred to them in
Their Lordships asked the ECJ:
this case, it is likely that it will follow the views of the Advocate General.
“Is it consistent with EC Regulation 44/2001 for a court of a Member
The decision of the Advocate General is perhaps not surprising given the
State to make an order to restrain a person from commencing or
historical tension over this subject between the systems of law on either
continuing proceedings in another Member State on the ground that
side of the channel. It is, however, disappointing and appears to ignore
such proceedings are in breach of an arbitration agreement?”
the practical reality of commerce where arbitration clauses are routinely
The position thus far
to cause severe disruption to the resolution of commercial disputes.
Although they referred this question to the ECJ, the view of the House
The “Front Comor” decision means that a party to an arbitration
of Lords was expressed (unanimously) by way of assistance to the ECJ.
agreement, where the seat is to be in a Member State of the EU, is at
That view was that the proceedings fell outside the Brussels Regulation
risk where his contractual counter-party is bringing an action before
and were not inconsistent with it. Their Lordships’ opinion was that
the courts of another Member State. Although that action would be in
the exclusion of arbitration from the Brussels Regulation extended to
breach of the arbitration agreement, the aggrieved party would need
court proceedings whose subject matter was arbitration and, from
to appear before the court to ask that they decline jurisdiction, with
the perspective of English law (which governed the charterparty), this
uncertain results. An application would likely be made under the New
includes actions that are aimed at protecting the right to have a dispute
York Convention on the Recognition and Enforcement of Foreign Arbitral
determined by arbitration.
Awards, which mandates a court seized of an action where there is an
Simply put, the action by Owners was to protect a right to have disputes
referred to arbitration: the subject matter of those proceedings was
arbitration and therefore outside the scope of the Brussels Regulation.
The European perspective
The ECJ has previously held that, as a consequence of the provisions
of the Brussels Regulation, anti-suit injunctions cannot be made in
used. Assuming the opinion is followed by the ECJ, this has the potential
arbitration agreement to refer the parties to arbitration. However, that
requirement is conditional and does not apply if the court finds the
arbitration agreement “null and void, inoperative or incapable of being
performed”. In deciding this question the relevant national court would
apply its own procedures and national law; a circumstance that the
parties may have sought to avoid by choosing the law of their contract
and the agreement to arbitrate.
relation to court proceedings ( Turner v Grovit Case C-159/02 [2004] 2
The parties to an arbitration agreement are likely to have chosen to
Lloyd’s Rep. 169). The key question for decision in the “Front Comor”
arbitrate for any one or more of a variety of reasons such as privacy,
was whether that restriction extended to injunctions that were in support
speed, cost or to allow a more commercial approach to dispute
of arbitration proceedings. As noted above, arbitration proceedings are
resolution than a court could offer. Perhaps most importantly the
outside the scope of the Brussels Regulation.
agreement to arbitrate, as their Lordships observed, is an agreement to
The English view, which was expressed by the House of Lords in this
take the parties outside the procedures of any national court.
case, is that the exclusion of arbitration should be looked at widely and
A consequence of the Advocate General’s opinion will be that parties
be interpreted as covering all disputes connected with the arbitration.
who had sought to avoid national courts may be forced to appear before
The Advocate General has taken the view that the exclusion of arbitration
a court first seized in order to argue that that court should stay its own
proceedings in the Brussels Regulation should be construed narrowly.
process and refer the parties to arbitration. This is very far from what the
Following this view, the subject matter of the proceedings before the
parties are likely to have bargained for and could see contracting parties
Tribunale di Syracuse was a claim in tort for damages and not arbitration.
seeking to take alternative non-arbitral measures to protect their right to
It was therefore not excluded from the Brussels Regulation.
arbitrate.
7
Shipping Newsletter – DECEMBER 2008
rule b attachments – can they be kept
confidential?
Amy Dominguez, an Associate in our Dry
Shipping Group, comments on recent
developments in the world of Rule B
attachments
Given that obtaining a Rule B Attachment
Order is a fast and reasonably cost-effective
tactic to obtain security for a maritime
claim, it is perhaps surprising that its very
Amy Dominguez
[email protected]
Previously it has been possible for the Order to be made under seal.
However, in recent months, the New York Court has been cutting down
on the number of Rule B Attachment Orders made under seal, taking
the view that the sealing of orders violates the public’s right to access
court records, and is not appropriate in commercial matters (sealing is
generally limited to family cases and proceedings involving children).
In one recent application made by this firm, even though the Judge
rejected the Order being made under seal, he issued a separate Order in
which it was ordered that electronic access to the Court file and to the
names of the parties be restricted so that Pacer (the system used for
existence has to be immediately publicised
Rule B alerts) would not reveal the parties’ names. This should prevent
on the New York Court’s website. This of
the Respondents against whom the Attachment is sought from being put
course permits any party to find out about
on notice, as any searches on the public database system should now not
its existence and is most commonly used by
reveal the name of the parties to the Rule B.
reporters in order to get a good story. But when the security claim is for a
significant sum and the party applying for the Attachment Order does not
This means that it is now possible to seek a separate Order from the New
want the commercial dispute to appear as headline news, is there anything
York Court to prevent premature disclosure of the names of the parties
that can be done to keep the Rule B Attachment Order confidential?
involved in the dispute.
DRI CARGOES – WHAT YOU NEED TO KNOW
Marcus Dodds is a Solicitor / Master
Mariner in our Shipping Group. He
comments briefly on amendments to the
BC Code relating to DRI cargoes
We have received some information
through the London P & I Clubs on
intended amendments to the BC Code
Marcus Dodds
[email protected]
briquettes; and (B) cold moulded briquettes, pellets and lumps. The new
category (C) is for Fines arising from either of the former processes.
DRI(C) should meet three conditions before it is shipped:
1. Moisture content < 0.3%
2. Inert gas blanket to be maintained
3. Aged for 30 days before shipment
regarding DRI cargoes that should be of
We are not yet sure when a New Edition of the BC Code is to be introduced
interest to those of you with bulk fleets
or whether it will be for Flag States to promulgate an amendment in the
without UK P & I Club cover.
meantime. However, as the BC Code is advisory in nature (at least for
Essentially it seems that the IMO’s working
the present), then the fact that there appears to have been agreement on
group has agreed to re-categorise DRI so that there are now categories (A),
the need for such amendment should assist in dealing with issues where
(B) and (C). The first two are the old categories, namely (A) hot moulded
cargoes of Fines, or of high Fines content, are presented.
California Air Resources Board Adopts
Proposed Regulations for Ocean-Going
Vessel Diesel Fuel Content
On July 24, 2008, the California Air Resources Board
(“CARB”) adopted Proposed Regulations requiring use
of lower sulfur marine distillate fuel in ocean-going
vessels’ main and auxiliary engines and auxiliary boilers.
The Proposed Regulations will be implemented in two
stages, in 2009 and in 2012. U.S.-flagged and foreignflagged vessels will be subject to the Regulations
when operating within 24 nautical miles of California’s
coastline. The Proposed Regulations are not yet final and
will likely face legal challenges similar to the suit filed by
the Pacific Merchant Shipping Association in respect of
CARB’s 2007 Ocean-Going Vessel Auxiliary Diesel Engine
Regulations, which imposed emissions limits based on
emission rates that would result if the engines had used
specified lower sulfur fuels. The U.S. District Court for
the Eastern District of California enjoined enforcement of
those regulations on preemption grounds, and the Ninth
Circuit affirmed.
Contact Randy Morrison at [email protected] to
be provided with regular updates on this issue.
8
Shipping Newsletter – DECEMBER 2008
U.S. Supreme Court Cuts Punitive
Damages against Exxon in Valdez Case
unpredictability, lacking the fairness of consistency. According to the
court, penalties should be reasonably predictable in severity and not
Oliver Beiersdorf, an Associate in our New
York office, comments on the Supreme
Court’s decision in the Exxon Valdez
excessive in light of the harm caused.
The Supreme Court of the United States in
would be inherent in a damages cap scheme), and leave the result to
Exxon Shipping Co. v. Baker, No. 07-2007
(2008), recently reduced punitive damages
assessment of the value of actual loss by the judge or jury. As a 1:1 ratio
against Exxon from U.S. $2.5 billion to U.S.
Oliver Beiersdorf
[email protected]
court went on to explain that the problem with punitive awards is their
The court settled on the ratio of punitive to compensatory damages
formula, noting that it would eliminate questions of inflation, (as
is above the median award, the court considered this the fair upper limit.
The result here was to limit punitive damages to $507.5 million, the
$507.5 million in a case stemming from the
amount of relevant compensatory damages in the case.
massive oil spill of the supertanker Exxon
Prior to this case, the court had addressed punitive damages in the
Valdez in 1989. This is the latest chapter of
a consolidated case of more than 32,000
plaintiffs that has circulated through
constitutional context, determining that due process generally requires
a punitive to compensatory damages ratio of no more than 9:1. As this
decision is in the context of federal maritime common law, it remains
various courts since the Exxon Valdez grounded and spilled 11 million
to be seen what effect its reasoning will have in future cases regarding
gallons of oil off the Alaskan coast after the ship’s captain, Joseph J.
punitive damages in the constitutional context.
Hazelwood, allegedly an alcoholic, left the bridge at a crucial moment.
Initially, the jury awarded $5 billion in punitive damages against Exxon,
which the Court of Appeals for the Ninth Circuit later reduced to
$2.5 billion.
The court also found that the water pollution penalties imposed by the
Clean Water Act do not foreclose the possibility of punitive damages
in maritime spill cases. The court noted a lack of clear congressional
intent that the Act cover all remedies for pollution, and pointed out that
Punitive damages in the torts context are generally limited to cases
punitive damages were unlikely to frustrate the remedial scheme of the
where the conduct is outrageous, grossly negligent, willful, wanton,
Act. Additionally, the court split on the question of whether there was
and committed with reckless indifference to the rights of others. The
corporate liability for acts of subordinates in regards to punitive damages
court noted that in cases where punitive damages are awarded, the
in maritime cases, leaving intact the Ninth Circuit’s opinion supporting
median ratio of punitive to compensatory awards is less than 1:1. The
such liability.
Employment law update
Laurence Rees
[email protected]
Moves may be afoot to allow seafarers on UK ships access to employment tribunals on hours of work issues,
according to an article published this autumn by Lloydslist.com . Currently, seafarers on sea-going ships are
covered by the EC Seafarers’ Directive 1999/83 which has been implemented into British law by the Merchant
Shipping (Hours of Work) Regulations SI 2002/2125. Provisions in these regulations require employers to ensure
that seafarers have at least the specified minimum hours of rest but seafarers on UK ships are currently unable
to enforce these rights before Employment Tribunals. The article states that Jim Fitzpatrick, shipping minister,
has pledged to rectify this situation, and that draft regulations amending the Merchant Shipping (Hours of Work)
Regulations will be published later this year. UK law also excludes seafarers on UK ships from the rights to claim
for unlawful deduction of wages and to be supplied with a statement of their terms and conditions of employment.
The article reports that the RMT union is currently lobbying the Government to change this so as to give such
seafarers rights equivalent to other UK employees. There is likely to be a public consultation before any changes
will be made. We will keep you posted on any developments.
Meanwhile in Europe, the European Commission has put forward a proposal to improve working conditions
for the estimated 300,000 maritime workers across the EU. The new proposed legislation in the form of a draft EU Directive, is based on
an EU-level agreement reached in May 2008 by employers and trade unions in the sector and would incorporate internationally-agreed
standards. The new standards will in particular improve the working conditions of seafarers in terms of employment agreements, hours of
work, repatriation, careers and skill development, accommodation and recreation facilities, food and catering, health and safety protection
and medical care, and complaint procedures.
http://ec.europa.eu/social/main.jsp?catId=329&langId=en&newsId=381&furtherNews=yes
9
Shipping Newsletter – DECEMBER 2008
Q&As with Wole Olufunwa
Wole Olufunwa is an associate in the Shipping Group,
which he joined in October of this year.
What is your full name:
Where do you live in London?
Wole Olufunwa
Golders Green
Mother/father’s nationality?
How do you get into work?
Nigerian
Tube: Northen Line (sigh)
Where were you born?
Most played song on your i-pod?
Hammersmith, London
Don’t have one….I prefer to read.
Any lawyers in family before?
Last concert you went to?
Mother / Uncle
Roy Ayers (Jazz)
What jobs, other than the law, did you consider?
Last item of clothing you bought?
Professional Rugby
Dark Blue Jeans
T-shirt and Sweater
What other jobs did you do in your summer hols etc?
Rugby Coaching, Legal Internships, Retail, Charity work
How does working at Reed Smith compare to them?
Don’t know. Just got here but everyone tells me this is a great place to
be!
Last five things on credit card?
Hotel Bills
Last film you went to see?
There Will Be Blood
What has been your favourite holiday destination to date?
Favourite actor / actress?
Barcelona
Kehinde Fadipe (actress)
Have you been anywhere of particular interest on business?
Favourite sport?
No, not yet
Rugby
If you could go to one place in the world where would it be?
How do you relax?
Israel
Dining out, watching Arsenal (when we decide to turn up), movie going.
Why?
Do you have a personal role model – either at work or for life
generally? If so, who?
It is central to world affairs both politically and geographically.
Apparently, the landscape is pretty stunning too.
Are you married?
No
Car?
Toyota
Yes, but that is a secret!
We are meant to learn from our mistakes – what will you never
forget?
A stitch in time saves nine.
10
Shipping Newsletter – DECEMBER 2008
High Court considers construction
of standard form LOI for delivery of
cargo without production of original
Bills of Lading
Halani Lloyd, an Associate in our Dry
Shipping Group, considers one of the
developments arising out of the recent
tumultuous time for the dry bulk market
and in particular the beginning of
November, with 7th November 2008 being
the FFA dry bulk market settlement date for
October 2008.
Halani Lloyd
[email protected]
possession of the cargo. Security of US$11 million was requested, failing
which Stemcor threatened arrest of the vessel. The request for security
was passed down the charterparty chain by head owners under clause
3 of the LOI, which provides: “If, in connection with the delivery of the
cargo as aforesaid, the ship… should be arrested or detained and should
the arrest or detention thereof be threatened… [Charterers] to provide on
demand such bail or other security as may be required to prevent such
arrest or detention or to secure the release of such ship or property…”
Owners’ request for security was refused by each charterer in the chain.
Charterers argued that the LOI did not oblige them to post security to the
cargo claimant but only to the addressee of the LOI, and that in any event
the LOI did not respond as, on charterers’ information, the cargo had not
in fact been delivered to Kremikovtzi at Bourgas.
Against this background, the High Court
In August 2008, the vessel was arrested by Stemcor. In order to secure
expedited the hearing of an urgent
her release, head owners posted security of US$11 million. They then
application by an intermediate charterer, for
commenced High Court proceedings against their charterers and also
relief under a Letter of Indemnity (“LOI”)
filed a Rule B attachment against them, pursuant to which funds were
given in return for delivering cargo without production of the original
Bills of Lading. The application arose out of a claim for misdelivery of the
cargo, for which security of US$11 million had been sought and which the
arrested by a New York bank.
The Claimant in the subject High Court proceedings, Farenco, was
intermediate charterer had agreed to provide directly.
an intermediate charterer. They had reached an agreement with their
Most importantly, the applications involved the High Court’s
and Stemcor, that they would post security of US$11 million in favour
determination of three questions on the construction of the subject
of Stemcor as replacement security for that already provided by head
LOI. As the LOI was based on the standard wording recommended
by the International Group of P&I Clubs, the Court’s decision on the
construction issues, handed down on 7th November 2008, will be of
interest to the industry.
immediate owners in the charterparty chain, as well as head owners
owners, and US$500,000 in favour of head owners as security for their
costs, by payment into an escrow account. They then, on 24th October
2008, commenced High Court proceedings against their immediate
charterers, Daebo, seeking a declaration that they were entitled to
Facts
indemnity under the LOI and urgent, interim relief (pending trial or
Each of the four parties was an intermediate charterer of the MV “Bremen
account. Daebo put their immediate charterers, Norden, on notice and
Max” in a long line of time charterparties. A cargo of sinter feed was
indicated that they would seek back-to-back orders against Norden at
loaded at Brazil. Prior to arrival at the discharge port (Bourgas, Bulgaria),
the hearing, which was to take place on 30th October. In the event, the
a request was made that the cargo be delivered to Kremikovtzi AD –
Court granted the urgent, interim relief sought, ordering that Norden
Bulgaria’s largest steel producer, now bankrupt – without production of
pay US$11.5 million into the escrow account by 4th November, failing
the original Bills of Lading. The shipowners agreed, subject to provision
by charterers of an LOI based on the International Group approved
wording.
Back-to-back LOIs were given by charterers up the charterparty chain.
Each of the LOIs recorded charterers’ request that the owners “deliver
the said cargo to Kremikovtzi AD, Sofia…”, at Bourgas and without
production of the Bills, and that the undertakings in the LOI were agreed
by charterers “in consideration of your complying with our above
request”. The Bills of Lading stated that the cargo was consigned to
order of a bank. The notify party was described as “G&M-5, Bourgas,
Bulgaria as agent and Kremikovtzi AD, Sofia, Botunetz”.
The vessel arrived at Bourgas in late March 2008. In late July 2008, a
third party, Stemcor UK Ltd, informed the vessel’s head owners that
they were the holders of the Bills of Lading and asked for confirmation
further order) requiring Daebo to pay US$11.5 million into the escrow
which Daebo were to pay US$11.5 million into the escrow account by 5th
November. The matter was then listed for an expedited hearing on 6th
November on the issue of the construction of the LOI.
Subsequently, ex parte orders were obtained by Norden against their
immediate charterers, Deiulemar, who were effectively at the bottom
of the charterparty chain although also intermediate charterers. As a
result, by the time of the hearing on 6th November on the construction
of the LOI, most interested parties in the charterparty chain were before
the Court, and three of the parties each had US$11.5 million sitting in
escrow, as security for a US$11 million claim, pending further order.
Decision on the construction of the LOI
Three issues of construction were argued before the Court.
that owners were ready, willing and able to deliver up possession of the
The first was whether clause 3 of the LOI obliged the party giving the
cargo or otherwise advise in what circumstances they had parted with
indemnity (charterers) to provide security directly to the cargo claimant
11
Shipping Newsletter – DECEMBER 2008
rather than the addressee of the LOI. By the time of the hearing, the
possession of the cargo. Owners only need to know that the person to
parties were in agreement on that point. The LOI did so oblige charterers.
whom they are delivering the goods is the person to whom charterers
The second issue was whether the obligation in clause 3 of the LOI
to provide bail or other security was no longer a current obligation,
release of the vessel from arrest having already been secured. The
Court answered this question, “no”, effectively in favour of owners. The
Court said that the intention and commercial purpose of clause 3 would
otherwise be frustrated. If charterers had failed to provide security in
breach of their obligation in clause 3 of the LOI, and head owners had
provided security to cargo claimants in order to secure the vessel’s
release from arrest, charterers were not thereby discharged of their
obligation under clause 3. That obligation was a continuing one.
The third issue determined was whether the undertakings provided in the
LOI were conditional upon delivery having been made “to Kremikovtzi”,
in accordance with charterers’ request. Significantly, the Court answered
this question, “yes”, effectively in favour of charterers. An LOI given
have requested that delivery be made. If owners are in doubt, they may
ask charterers to identify the intended receiver.
Interim Relief
An application was made by Farenco that the relief granted on an
interim basis be made permanent notwithstanding the Court’s findings
on (in particular) the third construction issue. The Court refused their
application.
One to watch
The decision sends a warning to other intermediate charterers to be
very careful when agreeing to provide security up the charterparty chain
under a LOI without first ensuring a back-to-back position has been
adopted down the charterparty chain.
in return for delivering cargo without production of the original Bills
Permission to appeal the Court’s findings on the second and third issues
of Lading will therefore not respond unless delivery has been made to
of the LOI’s construction has been granted.
charterers’ requested receiver. The Court said that the owners need
not enquire as to whether the requested receiver is in fact entitled to
New Joiners
We welcome partner Luc Grellet and associates Agnes Damour and Antoine Bardeche, who joined our shipping group in Paris from Bouloy, Grellet &
Godin in September.
Ranked in the top-tier of shipping lawyers in
on fixture could be recovered in the event of a
Paris by Chambers and Partners, Luc focuses
vessel’s late redelivery under a time charter.
principally on mainstream dry shipping, acting
Tom Meadows qualified as a solicitor into the
on behalf of shipowners, charterers and Clubs.
Shipping Group in August having completed his
He has been involved for Owners in the leading
Luc Grellet
[email protected]
training contract with the firm, during which
“Erika” case for the last nine years and also
he spent time in the dry shipping and ship
on other highly prestigious matters. He adds
finance teams. Tom has experience handling
considerable additional strength to our thriving
Shipping Team in Paris.
Tom Meadows
[email protected]
under charterparties and shipbuilding contracts.
Wole Olufunwa has recently joined the shipping
Tom will primarily be working for Charlie Weller,
group from Bentleys, Stokes & Lowless where he
Andrew Taylor and Nick Shaw.
trained and qualified as a solicitor in September
Prior to qualifying as a solicitor in 2000, Johanah
2008. Wole read Greek and Latin at UCL before
Lewis gained unique experience working as an
converting to Law and returning to UCL to
Wole Olufunwa
[email protected]
dry shipping litigation cases, including disputes
assistant to a well known commercial maritime
complete his LLM in maritime Law.
arbitrator. Since then she has gained substantial
experience in both private practice and more
Wole’s experience encompasses dry shipping
matters including charterparty disputes, cargo
claims, and ship sale and purchase disputes.
Most notably, Wole assisted Owners on the
recently decided and well publicised House of
Lords case, the “Achilleas”, where for the first
time, it was put to the Courts the question of
whether damages arising from the loss of a follow
Johanah Lewis
[email protected]
recently, the UK P&I Club, dealing with various
Bill of Lading, Charterparty and MOA disputes for
Owners, Charterers and Managers.
The information contained in this Newsletter was compiled for its clients by
Reed Smith as a summary of the subject matter covered and is intended to be
a general guide only and not to be comprehensive, nor to provide legal advice.
Reed Smith Richards Butler LLP accepts no responsibility whatsoever for loss
which may arise on information contained in this Newsletter. This Newsletter
was compiled up to and including November 2008.
©Reed Smith 2008.
Reed Smith Richards Butler LLP is a limited liability partnership registered in
England and Wales with registered number OC303620 and registered office at
Beaufort House, Tenth Floor, 15 St Botolph Street, London EC3A 7EE, England.
The term ‘partner’ is used to refer to a member of Reed Smith Richards Butler
LLP. A list of partners of Reed Smith Richards Butler LLP, and their professional
qualifications, is available at the registered office. Reed Smith Richards Butler
LLP, or a separate but affiliated entity, has an office or an association in each
of the places listed below. Reed Smith Richards Butler is regulated by the
Solicitors Regulation Authority.
For further information on any topic in this Newsletter, please contact
Sally-Ann Underhill, ([email protected]) or your usual contact at
Reed Smith.
ReedSmith
NEW YORK
LONDON
HONG KONG
CHICAGO
WASHINGTON, D.C.
BEIJING
PARIS
LOS ANGELES
SAN FRANCISCO
PHILADELPHIA
PITTSBURGH
OAKLAND
MUNICH
ABU DHABI
PRINCETON
N. VIRGINIA
WILMINGTON
SILICON VALLEY
DUBAI
CENTURY CITY
RICHMOND
GREECE