Gregory DL Morris highlights some of the main reasons for disputes as the Covid-19 pandemic winds on, how to keep abreast of changing compliance standards in the USA, and why e-bill uptake continues to lag.
The Committee of the London Maritime Arbitrators Association (LMAA) elected David Steward, independent arbitrator and mediator, as its new president to succeed Bruce Harris at its annual meeting on May 19.
Steward practised for over 30 years with international law firm Ince, handling a wide range of maritime and offshore energy disputes. In April 2011 he became wholly independent of his former firm and is now a full-time arbitrator and CEDR-accredited mediator with Arbitrators at 10 Fleet Street.
Following the annual meeting LMAA’s spring seminar, hosted by Quadrant Chambers, focused on issues raised by the apparent diminution of the pandemic. Andrea Skeoch, of North P&I Club, suggested that the main sources of dispute likely to arise from Covid-19 include: refusal to call at port, crew changes, quarantine and crew illness, force majeure and laytime.
Those are likely to include many complex and contentious issues, often related to the BIMCO Infectious or Contagious Disease Clause incorporated in charter parties or bespoke variations thereof, “some of which are charterer friendly and some owner friendly”, Skeoch said.
Separately, Darryl Kennard of Penningtons Manches Cooper delivered a presentation on the recent arbitration in the case of the Tai Prize where the dispute hinged on the definition of the cargo as in “apparent good order and condition” in the bill of lading that the ship master had signed without “clausing”, and whether a charterer’s presentation of a clean bill of lading to the master for signature amounted to a representation that the goods were not subject to inherent vice.
“It is the master’s eye that counts,” said Kennard. The Court of Appeal had held that no such representation was made by the charterer or shipper in such circumstances. It remains to be seen whether the Supreme Court will agree to hear an appeal in the case.
Emmet Coldrick of Quadrant Chambers spoke about the dispute concerning the C Challenger, where the ship’s speed and consumption data was allegedly misrepresented in pre-contractual discussions, and which raised the question of whether the charterer’s subsequent attempt to rescind the contract was justified and lawful.
The [US duplicitous shipping practices] guidance sent shockwaves through the maritime community and frankly caused chaos because it was so broad. – Alexander Brandt, Reed Smith
The dispute involved several technical issues surrounding the precise wording of charter parties and grounds for their rescission, but an overriding “lesson for owners is that factual statements that you make about the performance of your vessel could come back to bite you even if the relevant statement as to the performance of the vessel was not incorporated in the fixture recap or charter party”, Coldrick concluded.
US duplicitous shipping guidance
In the year since the USA roiled freight markets with its unilateral duplicitous shipping practices declarations, international shippers, forwarders and carriers have adapted rapidly to the mandates.
The rules were intended to interdict trade and finance with certain regimes, such as North Korea and Iran and therefore focus more on certain traffic, notably tanker operations, rather than project cargo. Nevertheless, the rules are broadly written and cover owners, operators, masters and crew.
PIC: The main sources of dispute likely to arise from Covid-19 include: refusal to call at port, crew changes, quarantine and crew illness, force majeure and laytime
“The guidance sent shockwaves through the maritime community and frankly caused chaos because it was so broad,” said Alexander Brandt, an associate in London with the global law firm Reed Smith. “The wide-ranging due-diligence requirements look back 24 months at counterparties and vessel activities. But industry has risen to the challenge, and there is now software available,” to help with the reporting, he added.
Brandt spoke at a late-May Reed Smith webcast review of diligence and compliance. The red flags of the reporting, such as falsifying vessel identification or location, do not bear directly on heavy lift or project cargo vessels that are so highly differentiated, relatively few and well known. But they do apply to owners and counterparties, so an otherwise innocent vessel, forwarder or master could get snagged by association with previous operations.
In a few high-profile investigations, the penalties have been severe. In the case of paper company Bukit Muria Jaya, and separately Eagle Shipping, the negotiated fines have been more than USD1 million.
“This is an area of high enforcement priority and high penalties against non-US persons,” said Brandt. In one case, a company deposited US dollars into a foreign account, thereby “causing US financial institutions to violate sanctions against a USembargoed country”, he explained.
Again, project cargo operators that usually deal with major international shippers, forwarders and carriers are not likely targets of investigation. However, through successor liability, purchasers of vessels can be liable for previous activities of a vessel or operator.
“There can also be a lag time in enforcement,” Brandt cautioned. “The provisions extend to the general business of a seller.”
He urged shippers, forwarders and carriers to add screening against the list promulgated by the international organisation United Against Nuclear Iran to their standard screening of counterparties and transactions, as well as strengthening overall compliance procedures.
Challenges in e-billing
As regulatory reporting requirements become deeper and broader, carriers, forwarders and service providers are increasingly driven to using electronic invoices and billing. While the automation of the process promises a clearer path for tracing, it also opens new vulnerabilities to cyber fraud and other challenges.
“Adoption of digital technology is uneven and there is evidence of a growing divergence in standards,” said Nick Austin, a shipping partner in Reed Smith’s Transportation Industry Group. That presents a significant barrier to widespread and effective adoption.
One of the most significant is how to replicate the law and regulations behind a traditional paper bill of lading in electronic form, so as to give the e-bill functional equivalence. And not just in one jurisdiction, but uniformly across legal systems so that e-bills can be truly effective in international trade.
Adoption of the UNCITRAL Model Law on Electronic Transferable Records is one tangible way of achieving that,” said Austin, but uptake is low. “Instead, most maritime law systems, including the Englishbased common law system, have barely got to grips with the legal implications of e-bills, despite their being around since the 1990s.”
Until more countries adopt suitable legislation, “then e-bills, and the technology behind them, cannot become a commercial and legal norm”, Austin noted. “And in turn, the shipping laws that underpin the resolution of disputes in the leading maritime arbitration centres cannot develop.”