SHIPPING & COMMODITIES: An Introduction

The shipping and commodities communities, like everyone else, are currently living through extraordinary times as a result of the COVID-19 pandemic. While the pandemic has caused untold suffering and economic damage, international trade continues and there has by no means been a let-up in the number and range of disputes coming through to practitioners, the Courts and Tribunals. There has also been a wholesale shift to remote working and remote hearings (including the Admiralty Court hearing oral evidence from a witness on a vessel in the middle of the South Atlantic), as the legal profession attempts to uphold previous levels of client service as much as possible.

The pandemic itself is currently giving rise to a significant volume of disputes. As is predictable, there are many force majeure and frustration disputes under contracts ranging from charterparties to sale contracts to shipbuilding agreements. Similarly, there are disputes concerning COVID-related delays that fall short of frustration, such as demurrage and off-hire claims. There are also lots of contractual counterparties struggling to make timely payments or even going into insolvency procedures. In response to COVID-19 Parliament has passed the Corporate Insolvency and Governance Act 2020. The Act includes both temporary and permanent measures including a new standalone moratorium regime and a new procedure for companies in financial difficulty to agree on restructuring with their creditors. In the commodities context there will be relief, given that they form a core pillar of the master agreement structure on which trading is based, that set-off and netting arrangements are unaffected by the Act. There will be further relief that in most circumstances businesses in the commodities sector will continue to be able to exercise termination clauses on the grounds of counterparty insolvency.

In the shipping context, lockdowns and international travel restrictions have also given rise to some more specialised issues, including crew rights to repatriation under the Maritime Labour Convention 2006. On the regulatory side, as well as the need to implement policies to minimise the risk of COVID-19 both on shore and on board vessels, the sulphur cap under IMO 2020 is now in force. The industry is also looking ahead to the implementation of IMO 2021, imposing new ISM Code requirements as to cybersecurity. From a UK perspective, Brexit negotiations remain ongoing and there is much related uncertainty as to how commercial parties can plan for the end of the transition period which finishes at the end of December 2020.

2019/2020 has seen the English courts consider a wide range of shipping and commodities issues. The Supreme Court has again decided some interesting cases, most recently Shagang Shipping v HNA Group [2020] UKSC 34, a claim under a guarantee of charterparty obligations on the (thankfully) unusual issue of the proper approach to assessing evidence alleged to have been obtained by torture. A jurisdictional challenge made by a bank which had received insurance proceeds for a vessel which the High Court later found had been scuttled was upheld in The Atlantik Confidence [2020] 2 WLR 919. However, judgment is still awaited in the appeal in The Alexandra 1 and the Ever Smart [2018] EWCA Civ 2173, the first collision claim to reach the Supreme Court.

Noteworthy among Court of Appeal decisions this year is The CMA CGM LIBRA [2020] EWCA Civ 293, where it was held that defective passage planning is capable of rendering a vessel unseaworthy. This is a significant decision on the interrelationship between seaworthiness and the negligent navigation defence and on issues of due diligence. Permission to appeal to the Supreme Court has been granted so it is a case of watch this space. In Classic Maritime Inc v Limbungan Makmur SDN BHD [2020] 1 Lloyd’s Rep. 179, a case arising out of the Samarco dam burst in November 2015, the Court of Appeal considered, among other things, whether it was necessary when a party seeks to rely on a force majeure or exceptions clause in a commodities contract to show that it would have performed “but for” the force majeure or excepted event, and held that the clause did so require. It will be interesting to see whether this test is adopted in force majeure cases arising out of COVID-19.

The Commercial and Admiralty Courts have also had a busy year hearing shipping and commodities disputes. Most recently, in The Eternal Bliss [2020] EWHC 2373 Andrew Baker J held that, in addition to demurrage, a shipowner could recover damages in relation to cargo damage suffered due to a charterers’ failure to discharge a ship within laytime. Earlier this year Teare J handed down an important judgment in two claims relating to the vessel The Miracle Hope [2020] EWHC 995. The case decides a number of issues concerning chains of Letters of Indemnity on International Group standard wording put up to secure release of a vessel from arrest, namely who has to put up security, and the amount and timing of that security.

The diversity of the disputes decided this year is illustrated by cases such as The Brillante Virtuoso [2019] EWHC 2599, concerning the construction of perils such as “piracy,” “malicious mischief,” “vandalism” and “sabotage” in a war risks policy, and The BSLE Sunrise [2019] EWHC 2860, where the Court held that the actionable fault defence under Rule D of the York-Antwerp rules was available to insurers under general average guarantees.

On the Admiralty side of things, a rare example of a salvage case coming before the Courts was The Kuzma Minin [2019] EWHC 3557, where interesting observations were made in terms of the level of award and valuation. The interpretation of the term “operator” in the Limitation Convention 1976 was considered in Splitt Chartering APS v SAGA Shipholding Norway AS [2020] EWHC 1294.