Worldwide: Marine News - November 2017

Institute of Engineering and Technology Publishes "Code of Practice – Cyber Security for Ships"

Written by Chris Metcalf and Kate Cookson

Cyber-attacks and data breaches pose a serious threat to corporations. Recently, there have been a number of high profile attacks, perhaps the most notable of which for the marine industry was the cyber-attack on Maersk, which reportedly affected all business units at Maersk, including container shipping, port and tug boat operations, oil and gas production, drilling services and oil tankers1. Maersk estimated that the cyber-attack negatively impacted its third quarter results by approximately USD 200-300 million2.

Shipping companies face the same risks as any other company, e.g. data breaches, including loss of, or damage to data, software and essential IP; reputational damage; business interruption from network downtime; and financial loss due to extortion and "man in the middle" or "mandate fraud" i.e. redirection of payments.

International standards and guidelines for cyber security issues are provided by ISO/IEC 27001.

This provides an Information Security Management System (ISMS) in that it identifies a number of activities concerning the management of information risks. It provides an overarching management framework through which the organisation identifies, analyses and addresses its information risks.

The standard covers all types of organisations (e.g. commercial enterprises, government agencies, non-profits), all sizes (from micro-businesses to huge multinationals), and all industries or markets (e.g. retail, banking, defence, healthcare, education and government).

However, the ISO/IEC 27001 does not address the issues which are particular to vessels.

In order to fill this gap, a number of industry organisations have come together to produce a set of best practice guidelines: "The Guidelines on Cyber Security on Board Ships" (produced and supported by BIMCO, the International Chamber of Shipping, the Cruise Lines International Association, Intercargo and Intertanko) which seeks to assist shipping companies with their on-board cyber security by providing a step by step guide to risk assessment.

Most recently, the Institute of Engineering and Technology, with the support of the UK Government's Department for Transport (DfT) and Defence Science and Technology Laboratory (Dstl) have produced the "Code of Practice – Cyber Security for Ships".

This Code does not set out specific technical or construction standards for ship systems but provides a useful management framework that can be used to reduce the risk of cyber incidents. The Code of Practice provides actionable advice on:

  • developing a cyber security assessment and plan to manage risk;
  • handling security breaches and incidents; and
  • highlighting national and international standards used.

The Code is to be used with organisations' risk management systems and subsequent business planning, and works with the "Cyber Security for Ports and Port Systems Code of Practice".

This Code is intended to be read by board members of organisations which own vessels, as well as the senior officers on board and others responsible for the operation of maritime information and operational technology. The Code is further welcome guidance for those responsible for cyber security in the maritime sector.

Footnotes

1 Reuters, "Maersk says global IT Breakdown caused by cyberattack", 27.06.17

2 CNBC, "Shipping company Maersk says June cyberattack could cost it up to US$300m", 16.08.17

Avoiding an "ECDIS Assisted Grounding"

Written by Maurice Thompson, Andrew Gray and Joel Cockerell

A series of digital navigation articles

Following on from our article Collisions, ECDIS and "All available means", we release our second article in the series regarding "Avoiding an ECDIS Assisted Grounding".

With appropriate training, adherence to, and use of an effective Safety Management System (SMS), "ECDIS Assisted Groundings" should become a thing of the past. In this article we consider how an Electronic Chart Display Information System (ECDIS) should be used to avoid unnecessary groundings.

The phrase "ECDIS Assisted Grounding" is not new. The phrase is usually attributed to situations where a failure to use ECDIS properly has been identified as one of the causative factors of a grounding. The deficiencies typically include poor system set-up, user inexperience and poor system knowledge, failure to comply with SMS, solely relying on ECDIS or operating the system at a very low level of functionality with key safety features disabled or circumvented.

The use of ECDIS represents a significant change to the operation of a bridge and, if operated correctly and in combination with traditional mariner skills, can provide increased situational awareness and improved navigational safety. The proper use of ECDIS is critical in terms of safety at sea and the legal implications it has for all of those involved in the maritime industry, both at sea and ashore.

Core principles remain unchanged

While the tools may have changed, the principles of safe navigation remain constant. Navigation in the digital age requires the same level of precision, intellectual rigour and skill to ensure the safe navigation and employment of a vessel. As such, the principles of Appraisal, Planning, Execution and Monitoring, as defined in IMO Resolution A.893 (21), remain critical.

Voyage Planning and ECDIS Set-Up

ECDIS incorporates many additional planning features that are not available on paper charts. However, a lack of familiarisation or training can have disastrous consequences. In our experience, recurrent themes in relation to planning include:

  1. Improper ECDIS set-up, including critical safety settings being incorrectly applied such that in-built safeguards, intended to prevent casualties of this nature, are not being activated and therefore acted upon.
  2. Display settings not optimised to clearly show all relevant dangers, particularly those vessels without IHO Presentation Library edition 4.0 (an ECDIS software update to chart content and display standards).
  3. Routes not being adequately checked for navigational hazards, including through the use of automated route scans of the Cross Track Distance (XTD) (and an assessment of the impact of all automated alarms returned) and visual checks at an appropriate scale. It is also essential that masters understand how to carry out these checks, as well as being able to use all the functions of ECDIS on board so that they can properly fulfil their obligations.
  4. Each leg not having an appropriate XTD, which should be carefully planned to provide sufficient sea room for track maintenance and to manoeuvre for collision avoidance, having regard to the proximity of navigational hazards.
  5. Insufficient training in the use of the ECDIS system on board, including generic, type specific and practical assessments (in simulators or on board) in relation to those skills.

Execution of the Passage

The responsibilities of deck officers, when navigating with ECDIS, do not change. Safe navigation has always required, and continues to require, the continuous monitoring and cross verification of the vessel's position and other critical navigation information.

In our experience, key areas of concern in relation to the monitoring and execution of passages while using ECDIS include:

  1. Lack of familiarity with the specific ECDIS on board and knowledge regarding the availability, activation and use of critical safety functions, which can differ between ECDIS systems (there are currently over 30 type approved ECDIS systems) which can have disastrous impacts, especially when inputs fail during highly stressful and critical situations.
  2. Over-reliance on ECDIS without utilising traditional navigation techniques to monitor the integrity of the information displayed, including positional information not being verified through the use of the radar image overlay function, visual bearings, transits, radar ranges, radar parallel indices and echo sounder depths.
  3. Failing to capitalise on the gains in situational awareness afforded by ECDIS, by not using this new technology in combination with traditional navigation skills. Routinely, junior mariners need to be encouraged to take a step back from the computer, and look out of the window, to expand their situational awareness and make more informed decisions about navigational safety.
  4. Failing to interrogate ECDIS alarms. While issues associated with "alarm fatigue" have, to an extent, been remedied by IHO Presentation Library Edition 4.0, particular care needs to be taken on vessels without the update, as the alarms generated by ECDIS can be excessive.
  5. Handover between deck officers who must deal with the status and operation of ECDIS, including the configuration and safety settings currently being utilised on both the primary and back-up ECDIS.

Another significant area of concern is the worrying trend where officers, whose vessel's primary means of navigation is paper charts, are utilising ECDIS or unofficial electronic charts, as the primary means of avoiding navigational dangers.

Overcoming through effective SMS

Routinely, where ECDIS is identified as causative of the loss, similar deficiencies are identified with the vessel's SMS (or adherence to that SMS) relating to the use and management of ECDIS. The vessel's SMS must contain guidance relating to the use of ECDIS on board, to ensure the safe navigation and utilisation of the vessel. There is significant guidance available to seafarers, owners and operators covering the appropriate procedures for the utilisation and set up of ECDIS.

Those procedures must address issues relating to training, updating, passage planning, emergency procedures, and the navigation with ECDIS, to ensure that the utilisation of ECDIS, to the extent possible, is no longer proffered as one of the causes of a grounding.

Comments

ECDIS, when used by a competent operator, in combination with their traditional mariner skills, can provide seafarers with a much clearer understanding of the navigational picture and allow them to make more informed decisions regarding navigational safety.

However, the transition from paper charts to ECDIS has been challenging for some masters and operators. Procedures need to be put in place not only for the safe operation and utilisation of ECDIS, but also in relation to the transition to ECDIS, to ensure that the phrase "ECDIS Assisted Grounding" becomes a thing of the past. There will also be a transition period, over the next few years, in which navigators will alternatively use ECDIS or paper charts on different ships, and, therefore, need to ensure that they are fully conversant with both systems.

In this, the second in a series of articles entitled "All Available Means", our Asia Pacific casualty team has partnered to provide you with an insight into some emerging issues and developing trends with ECDIS. Our team has significant command and navigation experience utilising ECDIS as the primary means of navigation, as well as instructing navigators of the Royal Australian Navy in the use of ECDIS.

In our next article, we will consider how ECDIS can be utilised in casualty investigations.

"PACIFIC VOYAGER" - The obligation to proceed with utmost despatch: Extending Monroe v Ryan

Written by David Bennet and Harriet Defreyne Kelk

CSSA Chartering and Shipping Services SA v Mitsui O.S.K Lines Ltd - "PACIFIC VOYAGER"

In a welcome decision1 for charterers, the Commercial Court has clarified an as-yet unresolved point of law concerning the parameters of a shipowner's obligation to proceed to the loadport with utmost despatch. Clyde & Co represented the successful claimant charterers in this landmark result.

The case of Monroe Brothers Limited v Ryan (1935) 2 KB 28 established that where a voyage charterparty contains an obligation on an owner to proceed with all convenient speed to the loading port, and gives a date when the vessel is expected to load, there is an absolute obligation on the owner to commence the approach voyage by a date when it is reasonably certain that the vessel will arrive at the loading port, on or around the expected readiness to load date (ERTL). The usual charterparty exceptions, thus, only apply once the approach voyage is commenced, and cannot avail an owner prior to this point. Later authorities make clear that the same obligation arises with regard to an ETA in the charter.

Extending existing principles – the Commercial Court proceedings

Since the Monroe Brothers Limited v Ryan decision, it has, however, been unclear whether a similar obligation arises where there is no provision as to ERTL or ETA, but merely a cancelling date. On 18 October 2017, Popplewell J, in the Commercial Court, answered this question: the duty does still apply, by reference to the cancelling date, and indeed more widely.

Owners sought to argue that the absolute obligation recognised in Monroe only arose where there was a combination of an ETA/ERTL date with an obligation to proceed with all convenient speed/utmost despatch. In the event that there was no loadport ETA/ERTL, it was submitted that the obligation to proceed was merely one of due diligence.

The charterparty clause in question provided that "... the vessel shall perform her service with utmost despatch and shall proceed to [Rotterdam or STS off Rotterdam] ... and there ... load a full cargo". Popplewell J found this clause to impose an absolute obligation, which did not provide for any consideration of due diligence.

Significantly, Popplewell J found that a due diligence obligation in these circumstances would give rise to unacceptable commercial uncertainty. For example, if a vessel were delayed owing to suspected deficient maintenance, it would be undesirable for charterers' right to have the vessel proceed to loadport, be dependent upon an investigation into the cause of any delay.

In reaching his decision, Popplewell J drew heavily on the authority of Devlin J in The North Anglia [1956] 2 Lloyd's Rep 367. Here, Devlin J held that the obligation to proceed to the loading port must arise at a particular identifiable time. Where there is no express term as to the date by which the approach voyage must commence, the process must start immediately or, at least, within a reasonable period from the date of the charter. The question of what is "a reasonable period of time" depends on the expectations of the parties as to when loading will commence. This is how Devlin J reached the conclusion that the obligation to proceed arises at a time when it is reasonably certain that the vessel will arrive at the loading port on or around the expected readiness to load or arrival date. Popplewell J incrementally extended the logic of this reasoning, so as to find that the duty to proceed arises at a reasonable period of time, determined as a matter of construction of the charterparty terms.

Popplewell J was also influenced by policy considerations, and recognised the need to determine the correct allocation of risk between charterers and owners. In particular, it was noted that, if an owner enters into a charterparty but decides to embark on intermediate voyages before commencement of the chartered service, the risk of any delay ought to fall on the owner's shoulders. This is particularly so when one considers that owners earn freight for intermediate voyages, combined with the fact that charterers will have little control or insight into the terms of the intermediate charterparty (for example, how risky the intermediate voyage is, the likely weather conditions, etc.).

The decision: an overview

It was held that, where there is a clause requiring a vessel to proceed with all convenience/utmost despatch, this gives rise to an absolute duty on owners to commence the approach voyage. This duty attaches at a particular point of time, which is within a reasonable period of time, to be determined in light of the other charterparty terms (in the absence of an ETA/ERTL).

Taking this as the starting point, Popplewell J found that on the particular wording of this charter, the cancelling date was not the term which best informed the question of what a reasonable time is, at which the duty to proceed attaches. This was because the charterparty in question also contained ETAs in relation to the intermediate ports for the cargo operations on the previous voyage, including her ETA for final discharge at Antifer, France. It was found that this ETA could be used to derive the time at which the vessel could be expected to commence her approach voyage (namely, following anticipated discharge at Antifer).

However, significantly, Popplewell J recorded his view of what the position would be in the event that no ETAs had been given for the intermediate voyage. In those circumstances, he found that the laycan would still respond to the question when the reasonable time was, so there would still be an absolute obligation to commence the approach voyage by a date when it was reasonably certain that the vessel would arrive at the loading port by the cancelling date.

The decision is clearly correct as an obligation to proceed with despatch, by necessity, requires a start time to set off. By reinforcing the Devlin J guidance on reasonable time, Popplewell J has, in effect, left open laycans, itineraries, and/or intermediate ETAs, or indeed any relevant term speaking to what was anticipated by the parties, as pointers to framing the date on which the absolute obligation attaches. It is of course also possible that points of fact might become relevant to the question of what a reasonable period is.

What the decision does not decide, as it was not necessary, is whether the absolute obligation is a condition or an innominate term.

Practical Point for Charterers

Whilst the judgment gave a clear indication that a cancelling date is sufficient to attach to the obligation to proceed with utmost despatch, charterers should still take care to ensure that ETAs or ERTL dates are provided in all charterparties, as this decision is likely to be subject to appeal.

Footnotes

1 CSSA Chartering & Shipping Services SA v Mitsui O.S.K Lines Ltd sub nom "PACIFIC VOYAGER"

The "MOSCOW STARS" – Charterers challenge court's power to sell cargo in arbitration dispute

Written by Simon Jackson and Elliot Boler

In a recent case1, the High Court was asked to determine the scope of the court's jurisdiction to sell cargo, an issue which was pertinent to an arbitration dispute over unpaid hire and other outstanding sums. In the process, the Court had to examine the wording of section 44(2)(d) of the Arbitration Act 1996 which sets out the Court's power to make an order for sale, and reviewed both the jurisdictional requirement of "good reason" for a sale under CPR 25.1 and the discretionary considerations.

Background

On 14 October 2016, the crude oil tanker "MOSCOW STARS" (the Vessel) was loaded in Puerto La Cruz, Venezuela, under a time charter between the claimant, owner of the Vessel, and the respondent charterer. The Vessel was ordered to discharge the cargo in Freeport, Bahamas.

Owing to repeated historic failures by the charterer to make payment of hire fees, the owner served notice of its exercise of a lien over the cargo, in October 2016, and again in November 2016, after which, at the order of the charterer, the laden Vessel sailed to Bullen Bay, Curaçao,.

The owner, subsequently, commenced arbitration in London against the charterer in respect of overdue hire fees, and other outstanding sums, totalling approximately USD7.7 million. In December 2016 and January 2017, whilst the cargo was subject to the contractual lien, it also became subject to arrest by the owner and other companies in the same corporate group (Sovcomflot) as security, following leave from the Curaçao Court

The owner then applied for an order to sell the cargo pursuant to section 44 of the Arbitration Act 1996, having received prior permission from the arbitral tribunal. The application was considered in the High Court before Mr Justice Males. The principal money claim had previously been heard by the arbitral tribunal and it was undisputed that any award, if granted, would likely take many months to enforce.

The issues

The three reasons submitted by the charterer for the dismissal of the application for an order to sell the cargo, were as follows:

  1. the Court did not have jurisdiction to order the sale of the cargo under section 44(2)(d) of the Arbitration Act 1996 (the Act);
  2. even if that power existed, it must be exercised within the scope of CPR 25.1(c)(v), the requirements of which were not met in the present case; and
  3. in any event, the Court should not grant the order in the circumstances.

Court jurisdiction

Section 44 of the Act sets out that the Court has, for the purposes of, and in relation to arbitral hearings, the power to make an order for "the sale of any goods the subject of proceedings" (section 44(2)(d)).

In the present case, the issue concerned whether the cargo was the "subject" of the arbitration proceedings. Males J agreed with the owner that, in the circumstances, for the Court to have no power to order the sale would be unsatisfactory, but held that this argument should not be the determining factor. The charterer submitted that the Court's jurisdiction was limited to circumstances in which the underlying proceedings were "about" the goods2 and where, in advance of a resolution of that dispute, there was no way of knowing which party was entitled to them, to sell or otherwise.

Males J held that, in the present case, until the underlying arbitration was resolved and entitlement to the hire claim established, it was not possible to say what should happen to the cargo. Put simply, a final decision would be required by the arbitral tribunal before either the owner could enforce its lien against the cargo, or the charterer would find itself in a position to obtain delivery. Thus, effectively, an impasse existed which required the assistance of the Court.

Males J noted that, even though the arbitration concerned unpaid hire fees and was not "about" the cargo, the outcome would determine what would ultimately happen to it. In dismissing the charterer's submission, he determined that there was sufficient nexus between both the cargo and the arbitral proceedings in circumstances where a contractual lien was being exercised over a charterer's goods as security, for a claim being advanced in arbitration.

Males J held that there was power for the Court to order a sale of the liened cargo pursuant to section 44 of the Act.

Scope of CPR 25.1(c)(v) and discretion of the Court

The power for making orders the court has in an arbitration case is the same power it has for the purposes of legal proceedings (as expressed in section 44(1) of the Act). In this case, the relevant power is found in CPR 25.1. This is the power to make an order "for the sale of relevant property which is of a perishable nature or which for any other good reason it is desirable to sell quickly" (CPR 25.1(c)(v)); the latter part being relevant in this case.

In considering whether there was good reason to order the sale, the Judge pointed to a number of factors raised by the owner which included: the length of time the cargo had been on the Vessel; the likelihood it would remain there for many more months during which the owner would not be receiving hire fees; the owner's operational costs during this period; the Vessel's forthcoming deadlines in order to meet SOLAS and Class requirements; the fact that the sale of the cargo would be for the benefit of both parties and would leave the owner free to engage its vessel in other operations; the lack of a viable alternative (for example, discharge into storage).

The Judge rejected the charterer's submission that the situation was of the owner's own making, and did not accept it as being a material factor against making the order applied for. Males J stated that neither party could have contemplated in October 2016 that the cargo was going to remain on board for over nine months, nor could the owner have contemplated that the charterer would fail to pay hire for that length of time.

The charterer also relied upon the delay of the owner in issuing its application. Males J deemed this criticism to be outweighed by other factors, noting the significant activity taking place in other arbitrations by Sovcomflot companies against PDVSA over the same period.

Lastly, the charterer made an open offer, just prior to the hearing, to carry out the sale of cargo itself, and hold the sale proceeds in escrow in London. Males J noted the risk that if no order for sale was made at this juncture, then it could drag out the position indefinitely. Additionally, Males J used this open offer as evidence of recognition, on the part of the charterer, that sale of the cargo was the "only viable course". Consequently, he deemed any further consideration of the charterer's submissions that a sale would be prejudicial to its position, unnecessary.

Comment

In giving his fully reasoned judgment, Males J reiterated that section 44(2)(d) of the Act did not provide power to the Court to make a free-standing order for sale as a form of independent relief, and that there had to be a sufficiently close nexus between the goods and the arbitration proceedings. This was held to be satisfied on the facts. Accordingly, the Court made an order for the sale of the cargo, the proceeds of which were to be held to the order of the Court pending the outcome in the underlying arbitration.

Also, it should be noted that since the Respondent charterer was the owner of the cargo, Males J emphasised that the decision did not extend to consider the position of the cargo being owned by a third party not involved in the underlying proceedings.

Footnotes

1 Dainford Navigation Inc. v PDVSA Petroleo SA (The " MOSCOW STARS") (2017) - EWHC 2150 (Comm) (02 August 2017)

2 Judgment of Lord Millett in On Demand Information Plc v Michael Gerson Finance Plc [2002] UKHL 13, [2003] 1 AC 368

Update on changes to GAFTA Contracts

Written by Robert Trower and Eurof Lloyd-Lewis

It is estimated that about 80% of the world's trade in grains, rice and pulses is traded on Grain and Feed Trade Association (GAFTA) standard form contract terms. It is, therefore, essential to monitor closely any updates and amendments, as these can have significant impact on those persons trading these commodities. GAFTA has recently published new amendments to its standard form contracts, which relate to the provision of phytosanitary certificates and nomination clauses. These amendments became effective from 1 and 7 September 2017, respectively.

Phytosanitary certificates

This amendment, made to GAFTA FOB contracts 18, 49, 64, 82, 89, 106, 119 and 120, is effective from 1 September 2017. The full clause reads:

"Phytosanitary Certificate": Where the provision of a phytosanitary certificate has been agreed between the parties, Sellers shall use their reasonable endeavours to supply, at their own cost, a phytosanitary certificate in circumstances where: (a) After the date on which the contract has been entered into, the named country of import changes its phytosanitary requirements or (b) As at the date on which the contract has been entered into, Sellers are not aware of the named country of import.

A phytosanitary certificate is an official document issued by the national plant protection organisation of the exporting country where the goods have been grown or processed. It certifies that the products covered by the certificate have been inspected according to appropriate procedures, and are considered to be free from quarantine pests and meet specified phytosanitary import requirements, and are in conformity with the certifying statement of the appropriate model certificate. The phytosanitary certificate facilitates trade, but it is not a trade document. Most buyers require their sellers to procure a phytosanitary certificate, and it regularly features in "house" terms and/or documentary instructions.

The Phytosanitary Certificate Clause is a new clause introduced by GAFTA in response to their members' specific request. This new clause has been introduced in an effort to mitigate the burden placed on sellers with no knowledge of the goods' final destination, which can result in their failure to provide contractually compliant phytosanitary certificate, thereby putting them in breach of their obligations under the sales contract. This clause will help to protect sellers who must use "reasonable endeavours" to obtain a certificate in circumstances where either the country of import changes its requirements or, at the time the contract is agreed, they are not aware of the named country of import.

Vessel nomination

This amendment, made to GAFTA FOB contracts 18, 23, 49, 64, 118, 119 and 202, is effective from 7 September 2017. The full clause reads:

"Nomination of Vessel": Buyers shall serve not less than ... consecutive days' notice of the name and probable readiness date of the vessel and the estimated tonnage required. (The sellers shall have the goods ready to be delivered to the buyers at any time within the contract period of delivery.)* The buyer has the right to substitute any nominated vessel. Buyer's obligations regarding pre-advice shall only apply to the original vessel nominated. No new pre-advice is required to be given in respect of any substitute vessel, provided that the substitute vessel arrives no earlier than the estimated time of arrival of the original vessel nominated and always within the delivery period. Provided the vessel is presented at the loading port in readiness to load within the delivery period. Sellers shall if necessary complete loading after the delivery period and carrying charges shall not apply. Notice of substitution to be given as soon as possible but in any event no later than one business day before the estimated time of arrival of the original vessel. In case of re-sales a provisional notice shall be passed on without delay, where possible, by telephone and confirmed on the same day in accordance with the Notices Clause. In any month containing an odd number of days the middle day shall be accepted as being in both halves of the month, except for pricing purposes the middle day shall be considered to be in the first half of the month.'

* the words in brackets are contained only in GAFTA contract 49.

Unlike the Phytosanitary Certificate Clause, which is new, the Nomination Clause has been amended. Changes to the Nomination Clause were made in the light of the Commercial Court decision in Ramburs Inc. v Agrifert SA (2015) EWHC 3548 (see our March 2016 Shipping Newsletter by linking here).

In this case, the sellers under an FOB contract for the sale of maize, appealed against a decision of the GAFTA Board of Appeal holding that the buyers had validly nominated a substitute vessel to take delivery of the cargo. The contract, which incorporated GAFTA 49, and which, pursuant to the "period of delivery" clause, expressly granted the buyers the right of substitution, stipulated the delivery period as 15 to 31 March 2013. The buyers were required to give the sellers not less than 10 days' "pre-advice" of, among other things, the carrying vessel's name, dimensions and ETA. On 20 March 2013, the buyers nominated a vessel with an ETA of 26/27 March. On 26 March, the buyers purported to make a substitution, and nominated a vessel with an ETA of 28 March. That day, the sellers rejected both nominations as false, and held the buyers in repudiatory breach of contract. The buyers disagreed, bought a substitute cargo, and claimed circa $800,000 as the market price difference.

The issues were: (i) whether the buyers were obliged to comply with the terms of the contract of sale as to nomination and pre-advice in respect of the substitute vessel; and (ii) whether, on a true construction of the contract of sale, the buyers' nomination of the substitute vessel was valid. The Court answered both questions in the sellers' favour. It held that on a true construction of the contract, where an FOB buyer nominates a substitute vessel pursuant to its right under GAFTA 49, that nomination had to comply with the terms of the contract of sale, including those as to nomination and pre-advice. The Court therefore concluded that the nomination of the vessel was not made in accordance with the contract because it did not comply with the contractual requirements for the original nomination.

The GAFTA Board of Appeal's reasoning was clear: if the initial nomination was a valid one and there was no material difference between the original nomination and the substitute, then it would be "bizarre" for the right to substitute to be subject to the same requirement for 10 days' pre-advice as the original nomination. However, in the Judge's opinion "it would be more bizarre" to interpret the contract as requiring the buyers to give detailed pre-advice information for a vessel that was never used. The Judge chose to apply the GAFTA 49 wording to the letter. As a consequence GAFTA has now amended the nomination clause to confirm that pre-advice terms for an original nomination do not apply to a substitute vessel provided that the substitute vessel arrives no earlier than the estimated time of arrival of the original vessel nominated and within the delivery period. This change clearly brings clarity and favours FOB buyers giving them greater flexibility in nominating substitute vessels.

UK collective redundancy rights for crew working outside the UK

Written by Heidi Watson and Ruth Bonino

In the latest case to consider offshore or maritime workers, the Employment Appeal Tribunal has for the first time considered the territorial scope of UK collective redundancy consultation rights.

If 20 or more crew members working on a single oil rig or a ship are dismissed as redundant, it is possible that the UK's collective redundancy rules will be triggered provided the crew members themselves have a sufficiently close connection to the UK for the UK tribunals to have jurisdiction. The UK collective redundancy rules require an employer to inform and consult employee representatives when proposing to dismiss 20 or more employees as redundant at an "establishment" within a 90 day period. Breach of these rules can lead to a protective award of up to 13 weeks' pay per employee. This can be very expensive for employers. The affected employees or their unions or representatives can bring a claim in an Employment Tribunal.

But what if a number of ships are to be taken out of action, and there are fewer than 20 crew members to be dismissed on each ship? Their employer won't need to inform and consult under the collective redundancy rules if each ship is an "establishment" in its own right. However, if all the ships taken together are deemed to be one establishment, and 20 or more employees are to be dismissed, the collective redundancy rules will apply.

For the first time in the UK tribunals, the case of Seahorse Maritime Limited v Nautilus International (a trade union) (2017)1 considered whether crew members in this situation had the right to bring claims in a UK employment tribunal.

What happened in this case?

Seahorse, a Guernsey registered company, employed crew which it supplied to specialist ships owned and operated by other companies. A UK company dealt with employee administration. The crew were stationed all over the world (mainly at a fixed location, such as static oil rigs) for 4-6 weeks at a time. The crew who were UK domiciled would return home at the end of each trip, but then tended to return to the same vessels in the same locations. Nautilus was the trade union that had collective bargaining rights in respect of the employees.

Four ships were taken out of service, meaning that the crew working on those ships would no longer be needed. More than 20 crew members were made redundant without following collective consultation rules, so Nautilus, the union, brought claims in the employment tribunal for protective awards for failure to inform and consult with the UK domiciled employees.

Could the employees claim protection from UK law?

Although the employees' place of work was not in Great Britain, the tribunal found that the UK domiciled employees had a strong enough connection with Great Britain so, therefore, did have the right to be informed and consulted about the redundancies.

On appeal, the Employment Appeal Tribunal (EAT) agreed in principle with the tribunal on this point although the judge was less convinced about the tribunal's conclusion that the employees were "peripatetic" i.e. moved location from time to time, as the employees were mostly working on static platforms, which they returned to each time they worked at sea. Instead, the EAT thought that the employees were more like "international commuters". Factors that the EAT found relevant included:

  • the employees were domiciled in the UK
  • their employment contracts were stated to be governed by English law
  • Seahorse used a UK registered company to manage the employees.

The establishment point

The redundancies were over four different ships, and less than 20 crew members would be lost on each ship. This raised the next question: whether each ship was a separate "establishment", so that the obligation to inform and consult could be avoided. The tribunal concluded that all of the ships in the fleet had to be considered together, forming one establishment, as although generically, individual ships are capable of being establishments, in this case, each ship could not be said to be a distinct part of Seahorse's undertaking. The tribunal also took into consideration the fact that:

  • some employees were not attached to a particular vessel and transferred between them; and
  • the UK administrator treated the employees as a group rather than in relation to each ship.

On appeal, the EAT agreed that the tribunal had taken the correct approach in deciding the appropriate establishment.

What this means in practice

This case clarifies that, depending on the facts, individual employees working outside the UK who have a sufficiently strong connection with the UK, may have the right to be consulted if their employer proposes to dismiss as redundant 20 or more employees at any one establishment, anywhere in the world, within a 90 day period.

Where, despite working outside Great Britain, an employee is domiciled in the UK, and works for the benefit of a UK company governed by English law, it appears likely that the employee will be able to show that sufficient connection, and benefit from UK employment laws. But the issue can be highly fact dependent and difficult to predict: the law is constantly developing, and it is understood that Seahorse has again appealed, and the case will be heard before the Court of Appeal in June 2018.

Employers should consider this risk factor when planning their operations initially or making workforce changes, and take appropriate advice.

Footnotes

1 Seahorse Maritime Ltd v Nautilus International (A Trade Union) UKEAT/0281/16/LA

China - Purchase of vessels via online judicial auction - A foreign buyer's guide

Written by Canming Wang, Ik Wei Chong and Richard Hong

You may be aware that Taobao is a renowned online shopping website in China, like e-bay in the US, but would you ever imagine that you could purchase a cargo vessel, by way of judicial auction, on Taobao?

Following the sustained downturn of the Chinese shipbuilding market which has seen many buyers withdraw from shipbuilding contracts, and many shipyards suffer or collapse, it has become a very popular trend among Chinese courts to arrange the judicial sale of second-hand vessels (and hulls under construction) by way of auction.

Since nine of the ten maritime courts of China (excluding the Qingdao Maritime Court) have chosen Taobao as their first option for arranging the judicial auction of vessels, an increasing number of companies are aiming to make profit by acquiring ships via the site.

As we were recently involved in various judicial auctions for non-Chinese clients, we would like to share some tips on what a foreign client needs to know to successfully participate in an auction, and purchase a vessel on Taobao.

How to register as a bidder

A Chinese company or citizen who has a Taobao Account can register as a bidder after remitting the deposit of the auction to Taobao, through its Taobao Account. However, the points below should be carefully noted.

  • Only a Chinese company or citizen can apply for a Taobao Account according to current Taobao rules, and so, a foreign client has to appoint a Chinese company or citizen as its "bidding agent" to participate in the auction.
  • According to the standard auction rules authorised by the Court, the owner of the Taobao Account (i.e. the biding agent) will automatically be deemed the bidder, and obtain the title of the vessel if it wins the auction. If a foreign client wants to obtain the title of the vessel directly from the Court, it must disclose to the Court, before the auction begins, its identity and the Taobao Account used for the auction, as well as authorisation documents in favour of the bidding agent.
  • As for the deposit, it can be remitted to Taobao before the auction ends. The deposit amount, which is usually announced 30 days before the auction, varies depending on the various ship types and different courts, but will not exceed 30% of the starting auction price in our experience.
  • Taobao only accepts Renminbi (RMB) as deposit due to China's foreign exchange control policy.
  • Anyone can register as a bidder before the end of the auction, subject to the above restrictions.

A brief introduction to the standard auction rules

We set out a few key features from the standard auction rules, below; however, it should be noted that these may be varied by the different courts.

  • The auction lasts for 24 hours.
  • The auction provides for a bid time-extension feature, whereby an auction is automatically extended by five minutes if a bidder bids within the last two minutes before the end of the auction.
  • If a bidder wins the auction, the deposit is automatically remitted to the Court's account, and the bidder has to pay the balance of the auction price to the Court's account within a period appointed by the Court (usually within 10 days).
  • If a bidder loses the auction, the deposit is automatically refunded to the bidder's Taobao Account, usually within 5 days from the date of the auction.

Transferring the title of the vessel by the Court

After receiving full payment of the auction price from the winning buyer, the Court will issue documents certifying the buyer's title to the vessel.

  • The buyer is required to issue an Auction Confirmation to the Court within 3 days after the end of the auction.
  • After full payment of the auction price to the Court, the Court will issue an order declaring that the clean title of the vessel is transferred to the buyer without any encumbrance.
  • There will be no taxes for obtaining the title of the vessel from the Court by means of judicial auction, but some customs duties may arise if the vessel is to be exported outside of China.

If judicial auctions in China are an area of interest, and you would like to discuss any of the issues raised above, or if you are considering acquiring a vessel by means of judicial auction, please do not hesitate to get in touch with the authors who will be happy to assist you.

Singapore - Arrest and security for foreign court proceedings: Clearing the air on the "EUROHOPE"

Written by Ik Wei Chong, Gerald Yee and Prakash Nair

The Singapore High Court has held in the case of the "EUROHOPE" (2017) SGHC 218 that a Singapore court would not allow a ship arrest if the sole purpose of the arrest was to obtain security for foreign court proceedings, as this amounted to an "abuse of process".

The "EUROHOPE" revolved around a charterparty containing an exclusive jurisdiction clause in favour of the English High Court. The charterer was engaged in a dispute with the shipowner, and commenced court proceedings against the shipowner in England. When the vessel arrived in Singapore, the charterer commenced an action against the vessel, and arrested the vessel for the sole purpose of obtaining security for the English proceedings. The Singapore High Court set aside the warrant of arrest, and struck out the action in Singapore, on the basis that the charterer's action in Singapore was an "abuse of process".

The legal position in Singapore has been that a vessel arrest in Singapore for security in support of foreign court proceedings is not allowed. In the "EUROHOPE", the Court appears to have elevated the charterer's attempt to arrest the vessel to an abuse of process. It is telling that, on the reported facts of the case, the arresting party did not assert in the evidence supporting the arrest that they were prepared to have the substantive action determined in Singapore.

Interestingly, there was the unreported case of United Endurance Adm in Rem 108/2007 ("UNITED ENDURANCE") in which a bunker seller commenced court proceedings in Greece against a shipowner, but arrested the vessel in Singapore for the sole purpose of obtaining security for the Greek proceedings. After the arrest, the seller applied to stay the Singapore action in favour of the Greek proceedings. The Singapore High Court allowed the stay on condition that the shipowner provide security for the Greek proceedings. The Court in the "EUROHOPE", however, did not follow the "UNITED ENDURANCE" as the earlier case was an unreported decision.

There is clear inconsistency between the "UNITED ENDURANCE" case and the "EUROHOPE". It is uncertain how the Court might decide if the cases were to be argued in their entirety before it. One possible way of avoiding a striking out is for a claimant to elect to have the substantive issues of its claim determined by the Singapore Court, and it is possible that in such instance the claimant may be allowed to arrest a vessel.

Arrest for security for foreign arbitration remains an exception. Cases such as The ICL Raja Mahendra (1998) SGHC 419 remains good law.

The "EUROHOPE" applies to cases where there is a foreign court jurisdiction clause, and it does not apply to cases where there is an arbitration clause. If there is an arbitration clause, the provisions of the Arbitration Act (Cap 10) and International Arbitration Act (Cap 143A) allow for an arresting party to arrest a vessel for the sole purpose of obtaining security for arbitration proceedings. In such instances, once security is obtained in response to the foreign arbitration, the court action may then be stayed (that is, suspended).

USA - Marina risks complicated by nature of the business

Written by Conte Cicala

Many products are marketed with the phrase "Just add water," implying simplicity. For marina operators, however, water adds significant complications to their risk profile.

It is prudent to keep an eye on voluntary compliance programs, since they can develop quickly into compulsory programs, complete with fines, penalties and potential civil liability exposure as well. An example is open ocean ballast water exchange.

Marinas have all the usual risks associated with a property owner and business operator – physical perils, third-party liability for personal injuries and other damage, regulatory compliance and more. But additional risks come with being located at water's edge – those waters and adjacent wetlands are subject to strict environmental regulation.

Many marinas operate fueling stations and waste pump-out facilities. These can lead to environmental liability exposure under statutes such as the Clean Water Act and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). To encourage marina operators to install and maintain pump-out facilities, Congress passed the Clean Vessel Act in 1992, which provides grants to public - and private - sector operators through state agencies that oversee the program. Such facilities are critically important for mariners to comply with the Clean Water Act, and, in some respects, can be seen as a public service. But as with any storage system for waste or hazardous substances, there is a risk of release into the environment and, with that, significant liability exposure.

Environmental concerns for marinas are not confined to water pollution. Thirty-six states operate a voluntary Clean Marinas program that encourages businesses to adopt practices that minimize their environmental impact. These include waste management, storm water control, spill prevention and emergency preparedness. It is prudent to keep an eye on voluntary compliance programs, since they can develop quickly into compulsory programs, complete with fines, penalties and potential civil liability exposure as well. An example is open ocean ballast water exchange.

Another risk that marina operators are beginning to see is a movement to prevent the spread of invasive species. Increasing public awareness and government actions are putting pressure on boat ramp owners and operators to inspect and prevent from launching any motorized watercraft that do not comply with inspection requirements. For example, the Tahoe Regional Planning Agency (TRPA) has implemented an Aquatic Invasive Species Ordinance, which imposes obligations on boat ramp owners and operators to inspect, decontaminate and/or prevent contaminated vessels from launching in the waters of Lake Tahoe (TRPA Code of Ordinances 63.4.2)

Invasive species are troublesome for ecological, economic and health reasons. According to the National Oceanic and Atmospheric Administration (NOAA), an estimated 50,000 non-native aquatic and terrestrial species have been introduced into the United States. The invasive species usually face few predators, reproduce quickly, alter habitats and consume native species, in some cases resulting in extinction. Zebra mussels, for example, are cited as causing more than $5 billion in economic losses in the Great Lakes region between 2000 and 2010. Zebra and Quagga mussels, also found in the Great Lakes and other waters, aggressively filter plankton, depriving native species of a natural food source, and clog water intake pipes. These mussels are among many exotic non-native aquatic species and microbes harmful to human health that ships transport in their ballast water. NOAA estimates that 10,000 marine species around the world are carried in ballast water every day. Conservationists recommend that boaters use a strategy of Clean, Drain and Dry every time they remove their vessels from a body of water, to prevent the spread of invasive species.

Environmental pollution and invasive species are not the only risks that marinas face. In addition to traditional property and liability exposures such as fires and slips and falls, a growing concern is electrocution.

Lighting, boat elevators and other waterside electricity can cause tragic incidents in swimmers, ranging from electric shock to drowning. This is especially so when an alternating current is conducted by fresh water. These horrible events are sufficiently common to have acquired their own acronym, ESD, which stands for Electric Shock Drowning.

Where federal admiralty law applies, a marina's duty as a wharfinger to provide a safe berth and safe approach can give rise to claims arising out of dangerous conditions, including those beyond the boundaries of the marina property itself. While this potential source of exposure has not yet generated headlines in the context of pleasure craft marinas, all it will take to change that is a large loss arising out of an unsafe berth or approach, coupled with an uninsured or underinsured boater.

For insurers that underwrite marina operators' property and liability exposures, risk mitigation requires a thorough understanding of the dynamics of the marine environment and appropriate use of insuring agreements. Consulting with experienced maritime counsel provides a wise way to navigate marina risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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