1. Interpreting see-to-it and on-demand guarantees
2. Can a party’s silence alone result in an enforceable contract?
3. Record low water levels in Parana River lead to groundings and draught restrictions
4. Why do containership stacks collapse and who is liable?
5. Role of an Owner’s Superintendent or Naval Architect – Walking the line
6. Piracy on the rise
7. Fall from ladder
8. Oil and water don’t mix
9. European transport ministers meet
10. TT Club warns of persistent ‘stowaway’ risk
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1. Interpreting see-to-it and on-demand guarantees.
Andrew Hutcheon and Jemma Dhillon of Watson Farley & Williams analyse the significance of parent companies in the giving of guarantees.
Guarantees are a significant feature in almost all transactions involving international trade. They may be given by banks, parent companies or other third parties. Whether these instruments should be “see-to-it” or “on-demand” guarantees ought to be given careful consideration when negotiating a transaction. This is particularly important where a business depends upon good cash flow, where a party is taking on sizeable credit exposure and/or contracting with a special purpose company. As set out below, while these considerations are especially relevant in a shipbuilding context, they also apply to many other businesses.
On-demand guarantees arguably provide more effective security for taking on risk, as access to the funds guaranteed is, in theory, relatively straightforward. The reason for this is that on-demand guarantees are autonomous of the underlying contract and impose a primary liability upon the guarantor to make payment when a demand is made that complies with the formalities under the guarantee. By contrast, see-to-it guarantees impose only a secondary liability contingent upon the extent to which the principal is liable under the underlying contract.
The principal issue in this case was whether the guarantee was characterised as an on-demand or a see-to-it guarantee. Shanghai Shipyard Co. Ltd, as Builder, was the beneficiary of a “guarantee” provided to it by Reignwood International Investment (Group) Company Limited (“the Guarantor”) dated 17 November 2011. The guarantee was provided in relation to a shipbuilding contract entered between the Builder and the Buyer, an indirect subsidiary of the Guarantor, who was an SPV. The purpose of the guarantee was to secure payment of the final instalment for the vessel due from the Buyer to the Builder of US$170m.
The guarantee provided that in the event of such default, the Builder could demand the sum from the Guarantor, who was obliged to pay it immediately on receipt of the demand. However, the guarantee also provided that if there was a dispute between the Buyer and Builder as to the Buyer’s liability to pay the final instalment, and the dispute was referred to arbitration, the Guarantor could withhold payment of the guarantee until the outcome of the arbitration.
The Buyer refused to take delivery of the vessel or to pay the final instalment. A dispute ensued between the Builder and the Buyer over whether the final instalment was payable, and the Builder proceeded to make a demand under the guarantee. The Guarantor refused payment pending the outcome of arbitration between the Builder and the Buyer.
2. Can a party’s silence alone result in an enforceable contract?
Simon Rainey QC of Quadrant Chambers, reviews a successful challenge to an arbitration award on jurisdiction under S67 of the Arbitration Act. In a rare example of an arbitration award being successfully challenged in the Courts, HHJ Pelling QC’s judgment in MVV Environment Ltd v NTO Shipping, has been handed down.
Simon Rainey QC, instructed by Jonathan Spencer and Rebecca King at Simmons & Simmons, represented the claimant, MVV, and successfully persuaded the court that a final award on jurisdiction issued in an LMAA arbitration was incorrect; MVV was not a party to the arbitration agreement evidenced by a bill of lading.
MVV is a company specialising in the conversion of waste products into energy. A waste management company in turn collected a waste product from MVV known as “unprocessed incinerator bottom ash” (UIBA). For transport to a recycling plant in the Netherlands.
Each shipment of UIBA from MVV’s Plymouth facility to the Netherlands was evidenced by shipping documents, including a bill of lading for each shipment naming MVV as ‘shipper’. Two on board explosions in January 2017 caused damage to the ship and injury to a member of the crew, and were alleged to have been caused by the UIBA.
The vessel’s owner (NTO) commenced an LMAA arbitration against MVV claiming damages caused by the two explosions. The bill of lading for the shipment incorporated a law and jurisdiction clause from a charterparty which provided for a London seated arbitration. MVV immediately challenged the jurisdiction …
3. Record low water levels in Parana River lead to groundings and draught restrictions.
This report from North P&I and their Correspondent highlights both the risks and lost opportunities presented by dry weather which has resulted in record low water levels of the Parana River in Argentina. Not only has this resulted in several groundings, it has also led to draught restrictions at the river ports which in turn is impacting the amount of cargo that vessels can load.
Local correspondents Pandi Liquidadores S.R.L advise that the Parana River is going through the worst low water levels for 50 years. Over the last month there has been a reported increase in the number of groundings, not only in the Parana River main navigation channel but also in some of the terminals along the river, notably the Rosario / San Nicolas area.
In addition to the grounding risk, the low water levels have led to draught restrictions, resulting in vessels loading less cargo. Correspondents estimate that a Panamax bulk carrier is short loading around 2,000 mt per foot of draught and tankers (vegetable oil cargo) are loading 6,000 mt less in total.
4. Why do containership stacks collapse and who is liable?
Are Solum of Gard P&I stresses that the collapse of on-deck container stacks represents a grave threat to crew and ship safety, and to the environment. The shipping community and their insurers have suffered substantial financial losses during in recent years as the number of container stack collapse cases resulting in loss of containers at sea has increased both in terms of frequency and severity.
This article is an overview of the typical causes of stack collapse as well as the legal implications when dealing with the resulting liability claims. Understanding causation is key to preventing incidents, but also to determine liability in individual cases.
Heavy weather has been one of the fundamental challenges for carriers since the dawn of shipping. Advanced technology for voyage planning and weather routing helps the Master, but his judgment will be questioned if an incident occurs. Containers, the securing mechanisms and container stacks are exposed to great forces when container ships move in heavy weather. Parametric- and synchronous roll resonance phenomena have caused several serious accidents to container ships during the last years.
Parametric rolling describes large spontaneous rolling motions occurring in head or stern seas and has to do with the dynamics of length of ship and waves as well as the vessel’s wave encounter period. A vessel’s roll angle can increase from comfortable rolling motions to over 30 degrees in only a few cycles causing excessive acceleration on the container stacks. Synchronous rolling is caused by the ship’s rolling period becoming synchronous with the wave period. The waves may then cause resonance, meaning that the ship may lose control over the roll angles as the action of the wave rolls the vessel increasingly over.
Size matters as bigger vessels move differently in the sea compared with smaller vessels. For example, investigations following the APL China incident in 1998 revealed that large box ships with large bow flares are particularly exposed to parametric rolling. Furthermore, the containers on board the largest container vessels are stowed up to 40 meters above the waterline and 60 meters wide across the deck. When ships and container stacks of these dimensions start rolling, you do not have to be a physicist to understand that container stacks will be subject to great forces when the vessel starts to move with the motions of the sea.
Ship stowage plays an important factor because weight distribution on-board also influences the vessel’s motions at sea. The GM is a measurement of the initial static stability of the vessel. It is of the utmost importance to get the GM within the right range before the voyage. This represents challenges in terms of correct cargo planning both ashore and on-board. In practice, advanced software will do most of the job, but computer programs depend on correct software development, correct data entered as well as human interaction and, ultimately, human decisions.
There are two main areas of particular peril for an in-house ship’s superintendent or naval architect when involved with a new shipbuilding project. The first is the design responsibility, and the second is the responsibilities surrounding the inspection regime.
1) Design responsibilities
When the design of a vessel is defective, the consequences can be severe. In September 1980, the 4-year-old bulk carrier the Derbyshire sank with the loss of all 44 lives onboard. The sinking of the vessel was so quick that no distress signal was sent. The cause was the failure of a small hatch, and then the cargo hold ventilation covers. In 1994, the MS Estonia, a ro-ro ferry sank in the Baltic Sea with the loss of 852 lives when the locks on the bow door failed, and in June 2013, the containership MOL Comfort split in two, due to a suspected design failure. The claims arising out of that one incident were between USD 300 – 400 million.
Whereas general deficiencies in workmanship tend to be picked up during the building process, the consequences of a design failure are often felt sometime after the vessel has been delivered.
The starting point is that, although most often a vessel will be built to the standards and requirements of Class and the relevant regulatory bodies, the actual responsibility for faulty design can rest with either the Builder or the Buyer, depending on what is agreed in the contract. Under English law, the parties are generally free to allocate their risk between themselves as they see fit. Surprisingly, some of the standard shipbuilding forms are silent as to design responsibility. For example, the commonly used SAJ Form is silent on this point.
When no express mention is made of which party is to be liable for the design, the courts will seek to decide where such risk lies by interpreting the wording of the contract as a whole, against the background known to the parties at the time of contracting.
Commonly, it will be the case that, under English law, the design risk will fall on the Builder. The rational is that the design will often be seen as part of the duty of good workmanship falling upon the Builder. In Aktiebolaget Gotaverken v Westminster Corporation of Monrovia and Another Donaldson J. held that the contract in question:
“…required good workmanship both in the design and the execution, and if there were design errors, I see no reason why these should not be characterised and attract liability as bad workmanship. The alternative view would be that [the shipbuilder] escaped all liability…which seems an improbable result for the parties to have intended.”
However, problems can arise where the vessel is to be built to a design that is provided by or on behalf of the Buyer. In those circumstances, it is possible that a court will find that the only obligation on the Builder is to build the vessel to the design provided – not that the design will be sufficient to meet the functional requirements of the vessel. This is more likely where the design is of a novel character.
6. Piracy on the Rise.
Paul Andrew, Senior Loss Prevention Officer at West P&I explains how maritime piracy continues to be a major concern in many of the global shipping lanes, but this has now shifted to the Gulf of Guinea, South East Asia and most recently, the Gulf of Mexico.
Over past years, global locations where maritime piracy has been prevalent have significantly evolved. Previously, the main areas of pirate activity were centred around the Indian Ocean/Arabian Sea, Gulf of Aden and Red Sea. However, with the implementation of the Maritime Security Transit Corridor from the Gulf of Aden to the Red Sea which is patrolled by the Combined Maritime Forces (CMF), piracy in the region has significantly decreased.
The CMF is a multinational naval partnership, which exists to promote security, stability and prosperity across approximately 3.2 million square miles of international waters, which encompass some of the world’s most important shipping lanes.
In November 2019, a US-led coalition created to secure shipping lanes in the Middle East was formally launched. The International Maritime Security Construct (IMSC) was launched in response to a series of attacks on vessels and onshore facilities that some coalition members blamed on Iran. The presence of the IMSC (formerly known as Operation Sentinel) further strengthens security and stability throughout the region protecting ships that transit the Persian Gulf, Gulf of Oman and the Bab el-Mandeb Strait.
7. Fall from ladder.
A MARS report on fatal falls from ladders, as edited from the official Transport Safety Investigation Bureau (Singapore).
A bulk carrier was underway. The vessel was in ballast and hold washing was scheduled in preparation for taking the next cargo. An officer, bosun and another deck crew conducted a risk assessment for cargo hold washing operations, as required by the shipping company’s SMS. The risk assessment was approved by the Master, and the officer conveyed the contents of the risk assessment to the other members of the washing team. The washing team completed the cleaning of holds one and two by the end of the first day without incident. The next day, washing of hold three was commenced.
A crew member standing on the first platform started climbing up the vertical ladder to reach the main deck. He slipped and fell to the bottom of the cargo hold, about 12 metres below. An emergency team was quickly mustered to help the victim, who was conscious but complained of severe abdominal pain and difficulty breathing.
The victim was evacuated from the cargo hold on a stretcher using the ship’s crane and transferred to the ship’s infirmary. He was placed under constant observation and his medical condition was monitored and recorded. About six hours later, all vital signs were absent and he was declared deceased. The investigation found that there was no securing arrangement to which to fasten a safety harness lifeline.
Because of this, it was common practice for the crew to climb up and down the ladder without securing the safety harness lifeline to any point and without any fall arresting device. A damp and wet cargo hold, wet gloves and a ladder slippery with seawater from the wash were probably contributing factors to the fall. The risk assessment carried out for cargo hold washing operations did not identify the risk of falling from height during climbing up or down the vertical ladder.
The Mariners’ Alerting and Reporting Scheme (MARS) is primarily a confidential reporting system run by The Nautical Institute to allow full reporting of accidents (and near misses) without fear of identification or litigation.
8. Crude and water.
Skuld P&I’s Hans Peter Martiensen follows up on an article from 2018 and studies two recent cases.
When crude oil is extracted from the reservoir it will inevitably contain a certain amount of water and suspended solids. In order to minimise the quantity that needs to be transported, most water and sediments are separated out at the production site.
As the product leaves the production site, the residual content of these unwanted impurities is measured as basic sediment and water (BS&W). Therefore, all unrefined crude oil has a percentage of water contained within it, and during the voyage, separation naturally occurs with water collecting at the bottom of the tank beneath the oil, commonly known as free water (FW).
Sales contracts for unrefined oil specify the BS&W and FW limit to ensure the cargo entering the process is within acceptable quality parameters. The relevant amounts are stated by the shippers in the quality documents issued after completion of loading. Occasionally these amounts are heavily understated, resulting in cargo claims at the discharge port.
Due to the historic oil price deterioration triggered by global lock-down-measures, high value crude oil cargo claims were recently not frequent. However, understated free water levels as an underlying mechanism, usually leading to those claims, was still observed.
And given recent announcements of production cuts, a bullish sentiment will creep back into the oil market shortly. As oil price level and claims frequency are positively correlated, greater awareness is warranted.
Two recent cases – what happened?
Remarkably both occurred on the same route per VLCC, involving cargoes of five different grades all originating from Porto do Acu in Brazil to the Far East in February and March 2020.
In the first case, 4827.42 bbls of free water were detected after loading of three different grades. The quality documentation did not provide for any free water but for a BS&W of 0.2 %. However, the free water amount increased gradually and when the vessel arrived at her Far East destination, free water finally settled at 8766.66 bbls. The BS&W parameter was thereby significantly exceeded.
In the second case, 3414.11 bbls of free water were gauged after two different grades of cargo had been loaded. During the voyage, the total free water level increased further and finally reached 4422.37 bbls at the discharge port.
As both cases were notified to Skuld already shortly after loading and upon detecting levels of abnormal free water, precautionary measures were undertaken in order to meet potential claims at the discharge port. Consequentially, the usual letters of protest were addressed to the terminal. Jointly with cargo interests we collected samples of the free water as well as from the only other conceivable source of free water during overseas voyages, namely the ballast water. Also load port sea water samples were collected.
9. European transport ministers meet.
Craig Eason, Editorial Director and Owner of Fathom World, reports.
It may have taken a few months since they met in Croatia before they issued a common statement supporting the transformation of shipping – we understand why – but the statement by European Transport Ministers underscores the bloc’s desire to transform shipping. It puts strength behind the Commission’s decarbonisation strategy, backs the IMO, but goes further. It challenges the IMO to revamp STCW, get more women to sea, calls on more work to create a Mediterranean sulphur emission limit of 0.1% (which would impact all ships heading to/from Suez) and says there needs to be more support for autonomous shipping and autonomous ships as the industry ushers itself along the digitalisation highway.
European Ministers have approved a joint document and statement concluding support of zero emission shipping and the continued use of LNG as a transition fuel to get the bloc’s shipping segment to that goal. The Council of Ministers sits alongside the Commission and Parliament to form the legislative triumvirate of the European Union. Its joint statement underscores the work of the Commission, and in particular where the European Green Deal pushes shipping and ports down a decarbonisation or carbon neutral route.
These Council conclusions stress the need for mitigation of shipping’s greenhouse gas emissions at a global level, and notes the work at the IMO in achieving 2015 emission reduction objectives, albeit they are currently stalled due to lack of IMO meetings due to the Coronavirus pandemic.
The Council also notes and encourages the work to create zero emission vessels in coastal trade around Europe, as well as supporting the need to develop alternative fuels to achieve this goal. It also notes the value of liquid natural gas, which creates greenhouse gases when used, as a fuel for shipping to transition to zero emissions fuels.
Mediterranean sulphur limit
The statement also shows Council support for the ongoing discussions to get a proposal together to designate the Mediterranean Sea a sulphur emission control area.
There has already been work undertaken to assess the viability of the Sea becoming a SECA, thus forcing vessels in the Sea to use fuels with a sulphur content of less than 0.1% rather than the global level which now stands at 0.5%. The ministerial document also suggests consideration of funding the creation of a MED SECA.
The Council statement also notes the value of digitalisation tools in enhancing multimodal transport operations across the European Union, which it says includes the development of autonomous ships, automation, digital certificates, digitalisation of marine administrative processes –including the completion of maritime single window reporting and the assessment of this on a global level. It adds that there needs to be support for work on cyber security across the industry.
Seafarers, both men and women
The Council of ministers report also delves into the issue of influencing the IMO to conduct an ambitious review of the STCW Convention, calling on the European Commission and the bloc’s individual member states that are members of the IMO to push for a review in response to the increased technological challenges, the demands made on ships crews and the changing skills required of seafarers.
It also recognises the need to ensure that the shipping and other waterborne transport related sectors need their efforts to improve the image and attractiveness of the sector supported, to attract both men and women.
10. TT Club warns of persistent ‘stowaway’ risk.
Clandestine migration has been a problem for the transport sector across Europe for some time now. While more stringent border crossing checks have been imposed due to the current COVID crisis, the risk to operators is not diminished. Furthermore, as the restrictions on movement begin to ease migration activity could be set to escalate warns international freight insurer TT Club.
The smuggling of people has unfortunately become a major issue in certain parts of the world. Political imperatives in target countries have led to stricter immigration restrictions and increased government action. International clandestine migration has become a persistent threat to the unitised supply chain.
No mode of transport can be considered exempt from clandestine movement of people. However, the risk is greatly heightened during the road modality. In Europe, BSI Supply Chain Services and Solutions statistics highlight that 86% of recorded incidents involve movement of cargo by road, which in the case of the UK also often involves a ferry crossing.
Nor has the current COVID pandemic lessened the dangers. The effect is more that enhanced border control measures and travel restrictions have merely shifted the focus or means of smuggling activities temporarily. Indeed, according to a recent report from the European Migrant Smuggling Centre (EMSC), part of Europol, migrant smugglers have been increasingly using small boats to cross river borders and the English Channel. More significantly for the freight industry, the report goes on to say there has also been a shift “to hiding of irregular migrants in concealments in freight vehicles and cargo trains that still move across the borders” during the COVID outbreak.
“Our first consideration of course must be with the well-being of the migrants themselves, who are often victims of criminal activities and whose lives are often at risk,” says TT Club’s Managing Director, Loss Prevention Mike Yarwood. “In terms of the liabilities that transport operators are exposed to, however, TT Club is warning of potential physical damage to cargoes, additional freight costs, vehicle and equipment detention, fines, penalties and reputational damage,” Yarwood states.
Criminal organisations are often the facilitators of this clandestine movement. They know that the simplest way to move people across international borders is to hide them in legitimate freight transport.
Pre-COVID there had been numerous incidents featuring the cross-channel route to the UK in the recent past, including the tragic case of 39 Vietnamese migrants found dead in a refrigerated road trailer last October. However, such events have not been limited to this type of cargo unit – as proved by the discovery in March of 10 Eritreans in a shipping container in Hull. The container was unaccompanied and was loaded onto a ferry in Zeebrugge.
Safer Waves seeks seafarer feedback on sexual assault and harassment.
Mariners past and present are being asked to share their experiences to improve understanding of their needs and shape support services.
A new organisation has launched a confidential survey to collect the experiences of seafarers who have been subject to sexual assault or harassment, enabling them to share their stories.
Founded in 2019, Safer Waves is the brainchild of a serving seafarer who created a website as a safe space for contact, information and sources of help.
The purpose of the survey is to gather information that will help Safer Waves understand the needs of seafarers and how best to develop support services, in co-ordination with mariners, employers and welfare organisations.
All merchant seafarers whether serving, ashore or retired are invited to take part in the survey, whether or not they have personally suffered from sexual harassment, gender discrimination or sexual assault.
“While we have made progress in discussing bullying and harassment within the merchant navy, it remains difficult to find a safe space to talk about assault and rape. We hope this survey will enable us to scope the problem and build a network of support,” said a spokesperson.
Seafarers in need of immediate advice on sexual harassment or assault can visit:
New UK P&I Lessons Learnt video: Enclosed space fatality.
This animated video illustrates what can go wrong when a bulkhead stool void space was due for periodical internal inspection on a loaded bulk carrier, and the lessons that can be learnt from the incident that unfortunately led to a fatality.
The latest edition of The London P&I Club’s loss prevention publication StopLoss is available now.
Thanks to Barrie Youde for his poem, “Outfoxed”
Is it preposterous to pre-suppose?
That will depend, it seems, on what you know,
For certain. Supposition comes and goes,
Where change might either rapid be, or slow.
I build a ship to hold container-boxes.
I stack them high and hold them down with string.
I think I am the wiliest of foxes.
I hope and pray that I will feel no sting.
And that the string I use will be sufficient
To meet the storms when crossing ocean wide:
And that my knots and splices are proficient,
Preventing any losses overside.
Alas, I know that sometimes this will happen
And I will sometimes lose a box or two,
Because of basic weakness in the strappen.
Please tell me, Mother, what am I to do?
“You are a naughty boy,” declares my Mother.
“It’s obvious that you will lose a lot.
And this was obvious to your Grandmother.
Your Grandfather could see you’ve lost the plot.”
No quart will fit in any mere pint bottle
And you will lose a-plenty if you try.
This principle was known to Aristotle.
And who am I today to wonder why?
Boxes, boxes, boxes, boxes, boxes.
I really should become a wiser man.
I must accept that any storm outfoxes
The best laid plans of any mortal man.
A lesson learnt from a practical joke.
Good stories are hard to come by, or once told are soon forgotten. I thank my wife for recalling this practical joke told to us on a stormy night one October as Niko was closing his bar for the season.
Niko’s bar is on a Greek island but outwith the season he’s a seafarer, nowadays a Chief Engineer. His story, which he theatrically re-enacted for us that night, goes back to when he was a watchkeeping officer on an old tanker.
As Second Engineer, he was on a night watch and due to hand over to the Fourth Engineer, a young officer who was often late to turn up for his watch. Frustrated by the young officer’s tardiness, Niko prepared a little surprise. Taking a white sheet from the cotton waste basket, he cut two holes for the eyes and draped it over his body. Engine rooms at night can be a little eerie: the subdued lighting, the hum of machinery all around… The young officer finally appeared, half asleep, bleary-eyed, proceeding along the walkway. Suddenly a shape appeared, white and hovering in the gloom ahead of him, only then to disappear. The young officer stopped in his tracks. Childhood fears and superstitions crowded his mind. Salty dogs’ tales of haunted ships suddenly seemed real. And then, the ghost appeared again from behind a bulkhead, only to disappear once more. Then yet again! White, hovering, only this time a strange cooing sound came from the ethereal figure. And now it was drawing nearer, and nearer. Heart pounding, the young officer turned to run only to be stopped, rooted to the spot by the irresistible, mooted yet clarion call. “Never, never will you be late for your watch.” Then louder: “Never, never will you be late for your watch.” And louder and yet louder. And as he collapsed to his knees he promised the Lord that he never, never would be.
And you may be interested to learn of the three maritime crimes that inspired my Angus McKinnon thrillers, Sea of Gold, Dark Ocean and Black Reef:
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