shipping e-brief july 2017 · 3 ince & co shipping e-brief, july 2017 shipping the new flamenco...

SHIPPING E-BRIEF JULY 2017

2 INCE & COSHIPPING E-BRIEF, JULY 2017

ContentsContents

sHIPPInG The New Flamenco – supreme Court guidance on damages following early termination of a charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4

supreme Court explains meaning of “abnormal occurrence” in the context of a safe port warranty and tackles co-insurance questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-9

electronic release system leaves carrier exposed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10-11

Construction of charterparty terms: choose your words carefully! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12-13

three ships, two collisions and one judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14-15

BIMCO SUPPLYTIME 2017 - what’s new? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16-17

Narrow construction of privilege entitles SFO to disclosure of corporation’s internal documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-21

sanctions update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Singapore’s role in China’s Belt and Road Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23-24

Firm news and events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Key Global Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26


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The New Flamenco – supreme Court guidance on damages following early termination of a charterFulton Shipping Inc of Panama v. Globalia Business Travel S.A.U. (New Flamenco) [2017] UKSC 43

When claiming damages for early termination of a time charter, the Owners were not required to give the Charterers credit for the difference between the sale value of the vessel at the time of repudiation in 2007 and the diminished value at the contractual end of the charterparty in 2009.

The long-awaited Supreme Court decision in the New Flamenco was handed down on 28 June 2017, in a significant judgment on the measure of damages following a repudiatory breach and applicable principles of mitigation .

the background facts The Charterers repudiated a time charter by redelivering the vessel early, in October 2007, rather than in November 2009. There was no available market for a replacement charterparty in October 2007 and the Owners sold the vessel for US$23.8m. The Owners claimed damages from the Charterers for loss of profit on time charter earnings across the remaining charter period of almost two years in the amount of €7,558,375.

The Charterers argued that the Owners had avoided a drop in the capital value of the vessel, because if there had been no early termination and the charterparty had continued until 2009, the vessel would in 2009 only have been worth US$7m. Accordingly, the Charterers

said that the Owners had made a windfall of US$16.8m by selling the vessel in 2007 rather than 2009.

The Charterers said that they should be given credit for the benefit obtained by the Owners against any liability to pay damages . This credit would wipe out the Owners’ claim for loss of profits. Accordingly, the Charterers argued that the Owners had in fact suffered no loss.

the path to the supreme CourtThe matter was initially referred to arbitration, where the Tribunal held in favour of the Charterers on the quantum issue, on the basis that the sale of the vessel was caused by the Charterers’ breach and there was therefore no reason why capital savings could not be taken into account when assessing the Owners’ loss.

The Owners succeeded on appeal in the Commercial Court, which held that no credit should be given to the Charterers, because the benefit obtained by the Owners in realising the capital value of the vessel was not legally caused by the Charterers’ breach.

The Charterers were then successful in the Court of Appeal, which held that, where a claimant acquires a benefit as a result of doing something by way of mitigation arising out of the consequences of the breach and which is in the ordinary course of business,

that benefit should normally be brought into account when assessing the claimant’s loss .

the supreme Court decisionIn giving the lead judgment, Lord Clarke (with whom all the other judges agreed) preferred the approach in the Commercial Court to that in the Court of Appeal, and allowed the Owners’ appeal on the basis that the alleged benefit was legally irrelevant: the fall in value of the vessel was not caused by the Charterers’ breach, or by a successful act of mitigation.

If a benefit is to be brought into account, it must have been caused by a breach of charterparty or by a successful act of mitigation . That was not the case here. The difference in value of the vessel was caused by the financial crash in 2008, rather than by the Charterers’ breach.

The ship sale was a type of transaction that the Owners were able to enter into irrespective of the Charterers’ breach of the charterparty. That breach may have provided an occasion which enabled the Owners to sell the vessel, but the decision to sell the vessel was legally independent of the Charterers’ breach. If the Charterers had not repudiated the charterparty, the Owners could have chosen to sell the vessel on terms which enabled the new owner to perform the


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remainder of the charterparty . In fact, the Owners had themselves purchased the vessel during the currency of the charterparty .

There was no reason to assume that a sale would have followed from the lawful delivery at the end of the charterparty and, had the value of the vessel risen between 2007 and 2009, the Owners would not have been able to claim that positive difference in value as an additional head of claim .

The sale of the vessel was also not an act of mitigation, because it was incapable of reducing the loss of the Owners’ income stream . The only relevant loss was a loss of income, not a loss of capital .

CommentThis decision brings a welcome degree of clarity to the law on the measure of loss and mitigation of damages in the context of repudiatory breach and termination of contracts .

In focusing on the causal link between the breach and the alleged benefit as being the key legal test, the Supreme Court appears to have put to one side the relevance of asking whether the alleged benefit is of the same kind as the loss caused by the breach.

This suggests that, if an innocent party obtains a windfall that is sufficiently caused by a breach, the innocent party would have to account for the benefit obtained even if the benefit was of a different kind to the loss caused by the breach, in determining the net loss

suffered. Fluctuations in the sale and purchase market value of a vessel ought not be relevant to claims for loss of income under a time charter, so long as the decision to sell the vessel was not caused by the breach of the charterparty .

The Supreme Court has also outlined the boundaries of the law on mitigation . In indicating that the sale of the vessel was not an act of mitigation, the Supreme Court has arguably placed a limit on the ability of a party in repudiatory breach to point to post-termination actions taken by the innocent party to reduce the quantum of claims .

David RichardsPartner, Londondavid .richards@incelaw .com

Ajay AhluwaliaSenior Associate , [email protected]


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supreme Court explains meaning of “abnormal occurrence” in the context of a safe port warranty and tackles co-insurance questionsGard Marine and Energy Limited v. China National Chartering Company Limited and others (Ocean Victory) [2017] UKSC 35

In an important judgment handed down on 10 May 2017, the Supreme Court has unanimously upheld the Court of Appeal’s decision of 22 January 2015 that there was no breach of the safe port undertaking in this case. In doing so, the Supreme Court agreed with the Court of Appeal that the phrase “abnormal occurrence” in the context of a safe port undertaking should be given its “ordinary meaning” . Their Lordships endorsed the Court of Appeal’s view that this meant an event that was something well removed from the normal, out of the ordinary course and unexpected: “it is something which the notional charterer or owner would not have in mind” .

The Supreme Court, by a majority of 3:2, also found that, had there been a breach of the safe port undertaking, the provisions for joint insurance in clause 12 of the Barecon 89 form precluded rights of subrogation of hull insurers and the right of Owners to recover in respect of losses covered by hull insurers against the Demise Charterers for breach of an express safe port undertaking.

Finally, the Supreme Court unanimously dismissed the Charterers’ cross-appeal challenging the 2004 decision of the Court of Appeal in The CMA Djakarta in relation to limitation of liability. If there had been a breach of the

safe port warranty, the Time Charterers would not have been entitled to limit their liability.

This decision is very significant for owners, charterers and their respective insurers . In moving away from the description of an “abnormal occurrence” as one which is unrelated to the prevailing characteristics and set-up of the port, and in confirming the Court of Appeal’s approach to that phrase, the decision arguably narrows the circumstances in which a port will be regarded as unsafe .

the background factsAt the time of the casualty, on 24 October 2006, Ocean Victory, a Capesize bulk carrier, was on demise charter on the Barecon 89 form, from the owners to a related company. The Demise Charterers had in turn time chartered the vessel and Time Charterers had sub-chartered her for a time charter trip .

The Sub-Charterers had given the vessel instructions to load a cargo of iron ore at Saldanha Bay in South Africa and to discharge at Kashima port, Japan. Kashima port is entered from the sea through the North facing Kashima Fairway (a specially constructed channel), which is the only route in and out of the port . The Kashima Fairway is bounded on one side by the South Breakwater and on the other by land.

After discharging operations had been partly completed but had stopped due to bad weather, the Sub-Time Charterers’ representative at Kashima advised the Master of Ocean Victory on 24 October 2006 to leave port for safety reasons – advice that he expected the Master to follow. Similar advice to leave was given the same day to another Capesize vessel, the Ellida Ace, in an adjacent berth. Ocean Victory and Ellida Ace both unsuccessfully attempted to leave port that day, in a storm . Ocean Victory allided with the northern end of the South Breakwater and grounded. Ellida Ace grounded before reaching the end of the Kashima Fairway. Salvors were engaged to assist both vessels, but the Ocean Victory could not be refloated and eventually broke in two. Subsequently, the Ocean Victory’s hull insurers, in their capacity as assignees of the rights of the Owners and Demise Charterers in respect of the grounding and total loss of the vessel, sought to recover damages from the Time Charterers for breach of the Charterers’ undertaking to trade only between safe ports. The Time Charterers sought to pass any liability down the chain to the Sub-Charterers.

the classic test for an unsafe portAll three charterparties contained an undertaking on materially identical terms to trade the vessel between safe ports.


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In The Eastern City, Sellers LJ stated as follows:

“If it were said that a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship, it would probably meet all circumstances as a broad statement of the law.”

the Commercial Court decisionThe Commercial Court held that the casualty was caused by the unsafety of the port in breach of the safe port undertaking in the time charters and awarded the hull insurers substantial damages.

The Charterers’ case before the Commercial Court was fought by them on several bases, principally by criticising the navigation and decisions of the Master.

Teare J found that Ocean Victory could not have remained safely alongside her berth on 24 October. The Master’s decision to follow the Sub-Time Charterers’ local representative’s advice to leave port was not negligent. Further, the Kashima Fairway lacked sufficient searoom to manoeuvre a Capesize ship safely in the weather conditions . Ordinary seamanship and navigation could not ensure a safe exit on 24 October 2006 - good luck was also required. He held that the port had no system to ensure that Capesize vessels, if they had to leave the berth, only left in weather conditions with which they could cope. No risk assessment had been


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carried out by the port as to the limiting conditions for vessels to remain alongside the berth. The port should have carried out such an assessment and introduced appropriate systems .

The port was thus unsafe . Dismissing the Time Charterers’ contention that this accident was due to an

“abnormal occurrence” (so not within the scope of the safe port warranty), the Judge found that the danger facing the vessel flowed from two characteristics of the port: the vulnerability of the Raw Materials Quay to long swell and the vulnerability of the Kashima Fairway to northerly gales caused by a local depression. While, as submitted by the Time Charterers, it might be a rare event for these two events to occur at the same time, the Judge considered there was no meteorological reason why they should not do so . The Judge found that long waves were clearly a feature of the port . Low pressure systems could not, in his view, be regarded as abnormal and gale force winds from the North were a feature of the port . The Judge commented that the storm that affected the port on the relevant day may have been one of the most severe storms experienced at Kashima, but he held that neither long waves nor northerly gales could be described as rare and: “Even if the concurrent occurrence of those events is a rare event in the history of the port such an event flows from characteristics or features of the port” . The Judge held that no one at the port could be surprised if the two events occurred at the same time .

the Court of Appeal decisionThe Court of Appeal overturned this decision, finding that the conditions that affected Kashima were an

“abnormal occurrence” and that there was no breach of the safe port undertaking on the part of the Charterers. The Court of Appeal concluded that Teare J had taken the wrong approach in considering the two components of the danger threatening the vessel separately and deciding that, viewed on their own, they could not be said to be rare and that both were attributes or characteristics of the port . It was incorrect to hold that, even if the critical combination was rare, it was nonetheless a characteristic of the port .

Rather, what mattered was not the nature of the individual component dangers that gave rise to the grounding, but the nature of the event, namely the critical combination of the dangers, that gave rise to the vessel being effectively trapped in port. The fact that an event was theoretically foreseeable as possibly occurring at the relevant port, because of the port’s location, was not enough to qualify a rare event in the history of the port as a characteristic or attribute of the port. A rare event could not be an attribute of a port. An abnormal occurrence was out of the ordinary course of things and unexpected and so outside the safe port undertaking. The Court of Appeal also held that, even if there had been a breach of the undertaking, in the light of the insurance provisions in the demise charterparty, the Claimants would not have been entitled to claim in respect of losses covered by the hull insurers.

the supreme Court decisionThe Supreme Court (Lords Mance, Clarke, Sumption, Hodge and Toulson) addressed three principal issues:

Was there a breach of the safe port undertaking?The Court considered whether the port was unsafe within the meaning of the safe port undertaking, so that the Charterers were in breach. Alternatively, was there an abnormal occurrence within the context of the safe port undertaking, so that there was no breach?

The Supreme Court endorsed the Court of Appeal’s findings. Lord Clarke, giving the lead judgment, stated that:

“safe port disputes should be reasonably straightforward. Was the danger alleged an abnormal occurrence, that is something rare and unexpected, or was it something which was normal for the particular port for the particular ship’s visit at the particular time of the year?

…The owners are responsible for loss caused by a danger which is avoidable by ordinary good navigation and seamanship by their master and crew. The charterers are responsible for loss caused by a danger which was or should have been predictable as normal for the particular ship at the particular time when the ship would be at the nominated port and was not avoidable by ordinary good seamanship. The owners (and ultimately their hull insurers) are


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responsible for loss caused by a danger due to ‘an abnormal occurrence’ ” .

His Lordship confirmed that the date for judging breach of the safe port undertaking was the date of nomination of the port . It was not a continuing warranty . The undertaking was effectively a prediction about safety when the ship arrives in the future. The undertaking necessarily assumed normality: given all of the characteristics, features, systems and states of affairs which are normal at the port at the particular time when the vessel should arrive. Lord Clarke cited with approval Robert Goff J’s words in The Evia (No 2) [1981] Lloyd’s Rep 613 that “the formulation of a test whether the port is unsafe must assume normality, and must therefore exclude danger caused by some abnormal occurrence” .

Lord Clarke held that the test is not whether the events which caused the loss were reasonably foreseeable; an examination of the past history of the port is necessary and of whether, in that evidential context, the event was unexpected .

Were subrogated hull insurers precluded from recovering against Demise Charterers?This issue was decided by a majority of 3:2 (Lords Clarke and Sumption dissenting). It was strictly unnecessary to decide this point because of the finding that there had been no breach of the safe port undertaking. Nonetheless, this was a question of general importance because the Barecon 89 is a commonly used standard form .

In summary, the Time Charterers contended that the Demise Charterers could not sue the Time Charterers for loss of a ship caused by breach of a safe port warranty in the time charter, as a result of the co-insurance provisions in the demise charter (to which insurance arrangements the Time Charterers were not a party).

The relevant clause in the Barecon 89 is clause 12, which requires the demise charterers to take out insurance in their name and the name of owners. Clause 13 is an alternative provision, which applies in place of clause 12 if the parties so choose. Clause 13 differs from clause 12 in relation to marine and war risks, because it puts the responsibility for maintaining cover on the owners. In clause 12, that obligation is on the demise charterers. Clause 13 (similarly to clause 12) provides for such insurance cover to be in the joint names of the owners and the demise charterers, but expressly excludes owners and/or insurers’ rights of recovery or subrogation against the demise charterers in respect of the liabilities covered by the insurance. Clause 12 does not contain any equivalent express exclusion of the owners’ right of recovery, or the insurers’ right of subrogation, against the demise charterers.

In this case, the parties had opted not to use clause 13 (which was deleted), and clause 12 applied. Furthermore, the Barecon 89 demise charterparty contained an additional rider clause (clause 29), by which the vessel

was only to be employed between safe ports: a safe port warranty .

Lords Clarke and Sumption agreed with Teare J at first instance that clause 12 did not expressly remove the right to damages for breach of the express safe port warranty . It merely gave the demise charterer certain rights with regard to proceeds of the insurance policy for which they had paid. In deleting clause 13, the parties had chosen not to be bound by it and its express provision excluding rights of recovery .

Lord Sumption referred to the well-established rule that where insurance inures to the benefit of both parties to a contract, they cannot claim against each other for an insured loss. This case was different to other reported cases as:

“In all of the English cases before this one the question arose between the co-insureds and their insurer. None of them raised the question how the principle about co-insurance affects claims against a third party wrongdoer who is not himself a co-insured and is not party to the arrangements between them. There is no necessity to exclude a claim against him and indeed no reason why either of the co-insureds or their insurer should wish to do so. It is impossible to identify any contract whose business efficacy depends on that result being achieved.”


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The majority, however, agreed with the Court of Appeal that the introduction of the safe port undertaking in rider clause 29 did not alter the way in which clause 12 was to operate . On its proper construction, the clause provided for an insurance funded result in the event of loss or damage to the vessel by marine risks. If the Demise Charterers had been in breach of the safe port clause, they would have been under no liability to the Owners for the amount of the insured loss because they had made provision for looking to the insurance proceeds for compensation . In the words of Lord Toulson:

“The risk existed that the vessel might be directed to an unsafe port, not necessarily by negligence on anyone’s part, so causing peril to the vessel, but the risk of consequential damage to the vessel was catered for by the insurance required to be maintained by the demise charterer in the joint names of itself and the owners. The commercial purpose of maintaining joint insurance in such circumstances is not only to provide a fund to make good the loss but to avoid litigation between them, or the bringing of a subrogation claim in the name of one against the other.”

Their Lordships indicated that the Demise Charterers or their subrogated insurers might have sought to pursue the claim on two alternative bases: bailment or “transferred loss”. As they had heard no argument, the Supreme Court did not express any view as to

the likelihood of success, or otherwise, of these possible alternatives.

Could Charterers limit their liability if they had breached the safe port warranty?The Supreme Court found unanimously in favour of the hull insurers on this point. Although the issue did not arise in the light of the decision on the safe port issue, it raised a point of importance . The lower courts had not considered it because they were bound by the Court of Appeal decision in The CMA Djakarta [2004] 1 Lloyd’s Rep 460.

The Supreme Court confirmed the decision in The CMA Djakarta and held that, if there were a breach of the safe port warranty, the Charterers would not be entitled to limit their liability under the Convention on Limitation of Liability for Maritime Claims 1976. The expression in the 1976 Convention “loss of or damage to property…in direct connection with the operation of the ship” was not intended to include loss of or damage to the very vessel on the basis of whose tonnage limitation was calculated.

CommentThis is a disappointing decision for hull underwriters and owners who may now find that a safe port undertaking by charterers may not afford them the protection they might otherwise have envisaged. The Supreme Court has taken the view that, in terms of risk allocation in similar circumstances, the risk should fall on owners and the hull insurers. The decision in relation to the co-

insurance issue, and the preclusion of a claim against a wrongdoing time charterer, may lead to a change to the Barecon insurance provisions .

Ian ChetwoodPartner, London ian .chetwood@incelaw .com

Amanda UrwinManaging Associate, London amanda .urwin@incelaw .com

Charles O’ConnorSenior Associate, London charles .oconnor@incelaw .com


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electronic release system leaves carrier exposedMSC Mediterranean Shipping Company SA v. Glencore International AG (MSC Eugenia) [2017] EWCA Civ 365

The Court of Appeal has upheld the first instance decision that a release note containing a PIN code and issued via an electronic release system (“ERS”) did not constitute a “delivery order” either as required by the bill of lading or within the definition of a “ship’s delivery order” under the Carriage of Goods by Sea Act 1992. The stand-alone release note containing the PIN code served as no more than an instruction to the terminal to permit delivery rather than constituting delivery as required .

The decision is of interest because ERS is being increasingly used in ports, especially large container ports . This case, therefore, serves as a warning to carriers using the ERS system that they may be exposed to liability if cargo in their possession is misappropriated by the unauthorised use of a PIN code that they have issued .

the background factsThe Shipper claimed against the Carrier in relation to two containers of cobalt briquettes that were effectively stolen at Antwerp Port. The cargo was to be delivered via the ERS that Antwerp Port had introduced at the start of 2011. Prior to this dispute, the Carrier had used the ERS in respect of 69 shipments for the same

Shipper, via the Shipper’s local agents, and no problem was encountered. The Shipper itself was, however, unaware that the ERS was being used.

The ERS was designed to replace the need for a carrier to issue paper delivery orders or to release cargo in return for bills. Instead, on receipt of a bill of lading from the Shipper, the Carrier would email the Shipper’s agents a release note containing a computer-generated four digit PIN. The agents would then be able to use the PIN to take delivery of the cargo from the Carrier at the port terminal during a set timeframe .

In respect of this, the 70th, shipment, the Shipper sent its agents the relevant bills of lading in the normal way. The bills expressly stated that they were to be exchanged “for the Goods or a Delivery Order” . The agents lodged one of the bills of lading with the Carrier and the Carrier subsequently emailed the agents a release note for three containers . When the agents attempted to collect the containers, however, two of the containers had already been collected by an unidentified third party and had effectively been stolen.

The Commercial Court found in favour of the Shipper that the Carrier had mis-delivered the goods. The Carrier appealed.

the Court of Appeal decisionThe Court of Appeal upheld the first instance decision. It agreed with the Commercial Court’s finding that neither the release note, nor the release note and electronic PIN together, constituted a “delivery order” as required by the bill of lading. They also did not amount to a

“ship’s delivery order” as defined by section 1(4) Carriage of Goods by Sea Act (COGSA) 1992, namely as an undertaking that:

“(a) is given under or for the purposes of a contract for the carriage by sea of the goods to which the document relates, or of goods which include those goods; and

(b) is an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person.”

The release note in this case did not amount to a delivery order because it did not contain an undertaking by the Carrier to deliver the goods to the party identified in the order, which should have been the Shipper or its agents. At best, the Carrier had undertaken to deliver to the first person who presented the correct PIN, which was insufficient.


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The Court of Appeal also rejected the argument that, in this case, providing the Shipper with the PIN code was a symbolic delivery of the goods and amounted to delivering the keys to the warehouse where the containers were stored. Rather, the Carrier retained the right to physically deal with the goods that remained at its own terminal within the port and could, if it so chose, cancel the PIN code provided to the Shipper before the goods were collected. In the context of bills of lading, delivery must amount to physical delivery, not delivery of a means of access .

Finally, the Court of Appeal rejected the argument that the Shipper was estopped from questioning the use of the ERS system because their agents had consented to its use numerous times before. The Shipper was not itself aware that the ERS system was being used and its agents did not have the authority to waive the delivery requirements under the bill of lading. Furthermore, the fact that the Shipper had not previously objected to the use of PIN codes did not prevent it from objecting when its goods were not delivered to it or its agents and it suffered loss as a result.

CommentThe Court of Appeal’s decision has been described by some as uncommercial and out of step with 21st century technological advances in the shipping industry . Those using the ERS system going forward may consider incorporating into their contracts specific provisions dealing with the status of release notes and PINs and

whether they should be treated as the equivalent of a delivery order by the parties. The allocation of risk for the misuse of PINs should also be considered.

ted GrahamPartner, Londonted .graham@incelaw .com

Charlotte evendenAssociate, Londoncharlotte .evenden@incelaw .com


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Construction of charterparty terms: choose your words carefully!Gard Shipping AS v. Clearlake Shipping Pte Ltd (MV Zaliv Baikal) [2017] EWHC 1091 (Comm)

The Commercial Court has recently considered the meaning of various demurrage regimes in a voyage charterparty in order to determine whether the Owners were entitled to earn demurrage at an escalated rate . The Court held that the charterparty contained different demurrage regimes, each with different triggering events . In the circumstances, the only triggering event was the tendering of a notice of readiness and, as such, the Owners were not allowed to recover demurrage at an escalated rate .

the background factsThe parties entered into a voyage charterparty based on BPVOY4 terms. A formal charterparty was not drawn up, but a fixture recap made a number of amendments to the terms of a previous fixture between the parties. The charterparty contained the standard laytime and demurrage provisions but also incorporated specifically agreed terms, pursuant to which the Charterers had the liberty to order the vessel to stop and wait for orders. If they did so, the time spent by the vessel waiting for the Charterers’ orders was to count as laytime and demurrage and was payable at an enhanced rate. In some of the instances contemplated in the charterparty, bunkers had to be paid in addition to demurrage.

It was common ground between the parties that the vessel departed from the loading port on 31 December 2015, stopped at various ports en route (any delay arising being paid for pursuant to the charterparty), arrived at Rotterdam on 26 January 2016 and there tendered notice of readiness on the same day . The vessel then waited for instructions from the Charterers for 64.708 days. The parties agreed that demurrage should be paid during this period, but they disagreed as to the actual level of demurrage payable.

The Owners claimed that they were entitled to an escalated rate of demurrage pursuant to additional clause (AC) 11 of the Gard/Clearlake terms, which formed part of the charterparty. Specifically, they contended that the terms of the charterparty meant that the Charterers were not permitted to instruct the vessel to stop and wait for orders for longer than three days, were not entitled to use the vessel as a floating storage unit and that the vessel was to be considered as being used for floating storage if stopped for more than five days over the course of the voyage, whether before or after reaching the discharge port or giving notice of readiness . The Owners argued that the clear commercial purpose of the charterparty was to make the Charterers pay at the enhanced rate if the vessel

was being used as a floating storage unit. In the Owners’ view, it did not matter that the Charterers did not give an order to the vessel after the notice of readiness was tendered, as opposed to giving a “stop and wait” order . From a commercial point of view, they were both the same thing and the Charterers’ failure to give orders should not absolve them from liability to pay demurrage at the enhanced rate .

In the alternative, the Owners argued that it was commercially necessary to imply into the charterparty a term that meant that if the vessel was waiting for longer than five days then she was considered to be used as a floating storage unit.

The Charterers argued instead that the charterparty provided for a series of different situations where payments in the form of demurrage and/or payment for bunkers used, or other costs, were imposed. Each constituted a separate regime and the question was which regime was the operative one for the situation at the discharge port. The Charterers submitted that the relevant regime was the one applying the standard rate of demurrage and nothing over and above that. As the contractual wording was clear, the Charterers argued that there was no need to imply a term into the charterparty .


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Both parties relied on the well-known Supreme Court decisions (Rainy Sky SA v. Kookmin Bank [2011] 1 WLR 2900, Arnold v. Britton [2015] AC 619 and Wood v. Capita Insurance Services Ltd [2017] 2 WLR 1099), which are authorities for the proposition that, when faced with issues of construction, the Court’s task is to balance the language used by the parties with the commercial consequences of competing constructions .

the Commercial Court decisionThe Court rejected the Owners’ arguments. It agreed with the Charterers that the charterparty provided for a series of different regimes, the existence of which meant that the key to working out what the contract provided in respect of any given situation or event was to identify under which regime the event or situation fell. That in turn required the identification of the trigger for each regime, as provided for by the terms of the charterparty .

The Court concluded that the charterparty wording required a “stop and wait” order to be given for the enhanced demurrage rates to be triggered. As no such order had been given by the Charterers, the enhanced rates were not triggered and the ordinary demurrage rate applied .

The Court also rejected the Owners’ alternative argument based on the existence of an implied term on the grounds that it lacked commercial necessity.

CommentThe decision illustrates that even where a party’s contentions as to what was intended are supported by commercial common sense, the Court will give more weight to the written words and will not imply terms to achieve the more “commercial” result . Those entering into charterparty and other shipping contracts should ensure that they use clear wording in their contracts . This is particularly important when departing from assumed standard positions, such as the number of different demurrage regimes provided for in the charterparty in this case .

Ian CranstonPartner, Monacoian .cranston@incelaw .com

Marco CrusafioSenior Associate, [email protected]


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three ships, two collisions and one judgmentThe Owners and/or Demise Charterers of the ship or vessel MCC Jakarta v. the Owners and/or Demise Charterers of the ship or vessel Xin Nan Tai 77 [2017] HKCFI 981

On 2 June 2017, the Hong Kong Admiralty Court handed down judgment in a case involving two collisions that happened within three minutes of each other .

The two collisions occurred in the early morning of 14 May 2011, in Chinese waters in the precautionary area between the East Lamma Traffic Separation Scheme (TSS) and the Dangan Shuidao TSS, and involved two outbound container ships from Hong Kong - the MCC JAKARTA and the TS SINGAPORE - and a west bound container ship -the XIN NAN TAI 77 - heading for the Pearl River Delta. The first collision was between the MCC JAKARTA and the XIN NAN TAI 77, and the second collision was between the MCC JAKARTA and the TS SINGAPORE .

This is thought to be only the second time a civil case involving collisions at sea has progressed to a full liability trial in Hong Kong, the last time being in 2011 (The He Da 98 [2011] 5 HKLRD 126). This case raised some interesting issues, both on the law and on matters of procedure .

The interesting issues on the law included whether, as the two collisions were so close together in time, they should be treated as one collision or as two separate collisions for the purposes of apportioning liability;

the application, in particular, of the overtaking rule (MCC JAKARTA was overtaking the TS SINGAPORE at the time), the crossing rules (XIN NAN TAI 77 was on a crossing course with both MCC JAKARTA and TS SINGAPORE), and Rule 10 (the three ships were all navigating in or near the terminations of a TSS); and, of course, the degree to which each ship was at fault for the collisions and how liability should be apportioned between them.

The interesting issues on matters of procedure included how the parties’ various collision actions should be consolidated and, with two separate collisions, to ensure the liability trials were heard concurrently; and the appointment and role of the Nautical Assessor in collision cases in Hong Kong.

Most of these issues were resolved by the parties with the assistance of the Court before the actual trial. By the time of the trial, it had been agreed that the two collisions should be considered separately; and that the TS SINGAPORE was not at fault in any way for the first collision, but was 5% to blame for the second collision. At the trial, the Court was required to determine, therefore, how the liability of the MCC JAKARTA and the XIN NAN TAI 77 should be apportioned for both the


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first and second collisions. In doing so, the Court was greatly assisted by the provision of “real time” evidence in the form of electronic replays of the Hong Kong Marine Department’s Vessel Traffic Service port radar and radio systems, and the vessels’ own voyage data recorders; the witness evidence from the Masters of these two ships; and by the Nautical Assessor.

In a carefully reasoned and clearly written judgment, the Court concluded that the MCC JAKARTA was 20% and the XIN NAN TAI 77 was 80% to blame for the first collision; and that their collective liability (95%) for the second collision should be apportioned as between them in the same (80/20) proportions. Very helpfully, the Court added a postscript to the judgment on the role of the Nautical Assessor and the usual directions the Court will make in this regard for the benefit of parties involved in future collision cases in Hong Kong.

Ince & Co represented the MCC JAKARTA .

Harry HirstPartner and Master Mariner, Singapore harry .hirst@incelaw .com

Rory MacfarlanePartner, Hong Kong rory .macfarlane@incelaw .com

Richard OakleySenior Registered Foreign Lawyer (England & Wales) and Master Mariner, Hong Kong [email protected]

16 InCe & CoSHIPPING E-BRIEF, JULY 2017

BIMCO SUPPLYTIME 2017 - what’s new?BIMCO has just released the new SUPPLYTIME 2017 as an updated version of its hugely successful standard form charterparty for offshore service vessels, SUPPLYTIME 2005. The new edition aims to balance out the interests of owners and charterers, modernise the charterparty’s content and tackle some of the shortcomings that have become apparent over the course of the last 12 years. The BIMCO revision committee has also taken into account recent case law on issues relevant to the SUPPLYTIME standard form.Whilst there are certainly many smaller changes of interest, the committee’s main focus for the revision of SUPPLYTIME 2005 has been the knock-for-knock liability regime and its carve-outs. SUPPLYTIME 2005 had a reputation for being owner-friendly, particularly due to the set-up of the liability regime and certain exceptions only applying to the owners’ liability. By contrast, SUPPLYTIME 2017, with only very few exceptions, aims to level the playing field by introducing an almost “pure” knock-for-knock with very few carve-outs and a widening of the definition of the Charterers’ Group. The consequential loss clause has also been amended to make it clearer in light of recent court decisions . The charterers also have to name the owners as co-insureds under their insurance policies if they choose to take out insurance, just as the owners have to include the charterers under their policies .

Apart from the changes to the overall liability regime, various other amendments have been introduced to SUPPLYTIME 2017 to modernise the standard form and take account of day-to-day practice in the industry. As an example, the term “bunkers” has been replaced

by “fuel”, together with changes to the provisions on payment for fuel at delivery and redelivery reflecting what more usually happens in practice. Also, in line with a purer knock-for-knock regime, risk of damage to the engine caused by the use of unsuitable fuel now lies with the owners . This was thought fairer, since the owners exercise control over the risks associated with fuelling operations through more developed sampling and testing provisions . In return, however, the owners are now given more time whilst the vessel remains on-hire to check the fuel for compliance and to stop fuelling operations, if necessary .

In addition, a new clause dealing with the lay-up of the vessel has been included. The clause recognises the fact that, currently, cold lay-ups are rare and warm lay-ups need a more sophisticated provision than was previously included in SUPPLYTIME 2005.

There are expanded provisions dealing with on- and off-hire surveys, audits, inspections and assessments, including condition of liquid mud and brine tanks to reflect what charterers have, for some time now, increasingly demanded .

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The wording regarding the right to suspend and/or terminate the contract for non-payment of hire and other sums due has been clarified to remove ambiguity. The owners can suspend performance of their obligations at any time after payment falls due and whilst it remains unpaid . During such suspension, the ship will remain on-hire. There is no requirement on the owners to give notice to the charterers before exercising their right to suspend performance . The owners retain the right to terminate the charterparty if the charterers have still not paid five days after the required notice of failure to pay has been given. It should be noted, however, that if the charterers pay after the five days’ grace period has elapsed, but before the owners have sent the written termination notice, the owners lose the right to terminate .

The charterers’ right to terminate for convenience (against the payment of an agreed fee) remains unchanged. However, the charterers’ right to terminate for cause, which was criticised in the previous edition, has now been clarified. Whilst the right to terminate for cause remains, breakdown, which was previously a termination event, has been removed. Breakdown now falls within the wider term ‘off-hire’ for which there is a right to terminate if the off-hire exceeds defined periods.

Maintenance days are a unique feature of offshore support vessel time charters. Under SUPPLYTIME 2017, they are still earned and accumulated as previously, but

their use is more clearly defined. Days not used may no longer be “cashed in” on redelivery of the vessel except where the charterers have specifically asked the owners not to use them .

Various issues surrounding how, where and when a vessel shall be dry-docked during the period of the charterparty have been clarified including when control of the vessel passes between the owners and the charterers. Unless being carried out using accumulated Maintenance Days, the ship will be off-hire during such dry-dockings and, in the 2017 revision, the opportunity has been taken to clarify where and when the ship goes off-hire and comes back on-hire again.

The 2017 edition now states that the owners’ choice of dry-dock location should always be reasonable, to both parties, when it comes to time and cost . To promote collaboration between the parties, the owners must provide the charterers with the ship’s scheduled dry-docking programme for the entire charter period.

With regard to the handful of standard BIMCO clauses that have always been included within SUPPLYTIME, the latest versions have been incorporated and three more have been added: Sanctions, Designated Entities and the MLC (Maritime Labour Convention) clause. At the same time, the Both-to-Blame collision clause and the General Average clauses have been removed as they are not relevant in an offshore support vessel context because they deal with cargo-related matters and are inconsistent with a purer knock-for-knock. Vessels

operating in the U.S. may however want to consider reinstating the Both-to-Blame collision clause.

Whilst SUPPLYTIME 2017 has just been published and the industry will take some time to familiarize itself with the revised conditions, it is hoped that the new form will be embraced as the updated, modern and fair standard form charterparty it was designed to be.

Chris Kidd was a member of the SUPPLYTIME 2017 drafting committee.

Chris Kidd Head of Shipbuilding and Offshore Construction, Partner, [email protected]

Anna-sophie spießAssociate, [email protected]


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Narrow construction of privilege entitles SFO to disclosure of corporation’s internal documentsThe Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB)

The English Court has recently ruled in favour of the Serious Fraud Office (the “SFO”) that it was entitled to disclosure of certain documents from a multinational corporation that was subject to an ongoing SFO criminal investigation resulting from allegations of international fraud, bribery and corruption. The documents in question had been generated by the corporation’s solicitors and forensic accountants during a period of internal investigation into the allegations . The corporation had been in negotiations with the SFO and was co-operating to uncover any wrongdoing within the organisation, in particular by its foreign subsidiaries.

The decision is significant for corporations who may be under investigation by a regulatory or criminal body because it indicates that the mere expectation of a future investigation or eventual prosecution will not be enough to allow them to claim litigation privilege .

More generally, the case is important to corporations who may be or become involved in litigation or arbitration proceedings because it endorses the recent trend of English courts to construe the scope of privilege narrowly . In practical terms, this can create significant problems for a corporation that wishes to take legal advice with the benefit of privilege because, as matters stand, the courts’ restricted application of privilege may reduce considerably the type and number

of communications over which a corporation can claim legal advice privilege .

Privilege under english lawThe English law rules on privilege allow an individual or a corporation to withhold disclosure of confidential and sensitive documents in the context of an arbitration, litigation or investigation . Legal professional privilege covers litigation privilege and legal advice privilege .

Litigation privilege applies to communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation and requires that, at the time of the communication in question:

> Litigation is in progress or reasonably in contemplation;

> The communications are made with the sole or dominant purpose of conducting that anticipated litigation; and

> The litigation must be adversarial, not investigative or inquisitorial .

The purpose of litigation privilege is to enable an individual or corporate entity to prepare for the conduct of reasonably anticipated litigation.

Legal advice privilege covers all confidential communications passing between the client and its lawyers, acting in their professional capacity, for the purpose of giving and receiving legal advice, even when litigation is not in contemplation . It will extend to documents that form part of these communications, even if they do not expressly request or provide legal advice: the test is whether they are part of that necessary exchange of information of which the object is the giving of legal advice as and when appropriate .

Legal advice privilege is intended to encourage full and frank communications between lawyers and their clients. However, the English Court has taken a narrow view of who or what constitutes the “client” in this context . In the case of an individual, clearly the client is the individual who instructs the lawyer. However, where a corporation seeks to assert privilege, the Court of Appeal held in Three Rivers (No. 5) [2003] QB 1556 that legal advice privilege attaches only to communications between the lawyer and those individuals who are authorised to obtain legal advice on the corporation’s behalf. Communications between the solicitors and employees or officers of the client, however senior in the corporate hierarchy, who do not fall within that description will not be subject to legal advice privilege. Authorising an employee to talk


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to the corporation’s lawyers in order to enable the lawyers to advise the corporation will not be enough. If the employee is not actively involved in instructing the lawyers, he will be in the same position as an external party .

Three Rivers (No 5) was recently applied by the Court in the RBS Rights Issue Litigation [2016] EWHC 3161 (Ch), which found that interviews conducted by a bank’s solicitors with its employees were not covered by legal advice privilege, as the employees in question did not form part of the “client” for the purposes of privilege. The Court confirmed that, where the client is a corporation, the communication with the lawyer must be to or from a person who is authorised to seek and receive legal advice on behalf of the corporation, and the communication must be for the purposes of, or in the course of that person giving or receiving legal advice . Such a communication was to be distinguished from the preparatory work of compiling information undertaken by persons with no authority to seek or receive legal advice, for the purposes of enabling the corporate client to seek and receive such advice. That was so whether the preparatory work was conducted by the client or by the lawyer. As regards lawyers’ working papers, the Court held that these would only be privileged if they betrayed the trend of the legal advice.

the regulatory backgroundThe English Bribery Act 2010 (the “Act”) came into force on 1 July 2011. Section 7 of the Act introduced

a corporate offence of failing to prevent bribery by individuals/entities associated with it . This will cover bribery by, among others, employees, subsidiaries and local agents or sub-contractors of a corporation and will apply to offences committed in the UK or abroad. In its defence and in order to avoid prosecution, a corporation must show that it had adequate procedures in place to prevent persons associated with it from bribing others.

In deciding whether to prosecute, the SFO and the Crown Prosecution Service will first evaluate whether there is sufficient evidence realistically to obtain a conviction and secondly whether a prosecution would be in the public interest. Where a company has self-reported, this may weigh against it being in the public interest to prosecute it, but self-reporting will not of itself be decisive.

The SFO’s Self-Reporting Guidelines 2009 indicate that, in return for full and frank cooperation by a corporation that discovers a problem concerning overseas corruption and reports it to the SFO, in appropriate circumstances the SFO might agree to a civil settlement in lieu of prosecution, or agree to accept a plea of guilty to a lesser charge than might otherwise be brought. The Guidelines encourage corporations to self-report on the basis that there are considerable advantages to be gained by doing so.

In February 2014, Deferred Prosecution Agreements (“DPAs”) were introduced in the UK. A DPA is an agreement reached between a prosecuting authority

(such as the SFO) and a corporation that is at risk of being prosecuted. The DPA allows a prosecution to be suspended for a defined period provided the corporation meets certain specified conditions. A DPA is intended to enable a corporation to make full reparation for fraud, bribery or another economic crime without being convicted of a criminal offence and suffering reputational or other damage. The DPA can also avoid a costly and lengthy trial. A DPA must be signed off by a judge and it is made public.

the background factsThe defendant corporation was part of a multinational group of companies with mining operations carried out through subsidiaries operating in geographic regions widely perceived as being high risk in terms of public sector bribery and corruption, including Kazakhstan and various parts of Africa. In 2010, the defendant was alerted by a whistle-blower to alleged corruption and financial wrongdoing by its Kazakhstani subsidiary and started investigating these allegations with the assistance of its lawyers. In 2011, the defendant instructed its forensic accountants to undertake a books and records review to satisfy regulatory and compliance requirements. By July 2011, the defendant was concerned there was a real risk of being investigated by the SFO, partly due to negative press about the activities of the corporation and its overseas subsidiaries. In August 2011, the SFO contacted the defendant suggesting that the corporation might wish to self-report any incidents of corruption and wrong-


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doing. At that stage, the SFO stated that it was not carrying out a criminal investigation. However, such an investigation was arguably contemplated as a prospect if the defendant did not co-operate with the SFO.

Between 2011 and 2013, there were ongoing discussions between the defendant and the SFO, whereby the defendant undertook to co-operate fully with the SFO. At the same time, internal investigations into the allegations of wrongdoing had continued . However, in August 2011, following on from personnel changes within the SFO, together with the defendant’s dismissal of its lawyers who had been representing them in the self-reporting process and who were conducting the internal investigations, the SFO began an investigation into the corporation .

The SFO sought disclosure of various documents from the corporation in relation to the investigation . The corporation asserted that the documents requested were covered by either litigation or legal advice privilege.

the High Court decisionWith the exception of one small category of documents, the Court dismissed all the defendant’s claims for privilege . The documents requested were divided into four categories and comprised:

Category 1Notes taken by the defendant’s lawyers of evidence from employees of the corporation and its subsidiaries and third parties with whom they had dealings in

relation to the events being investigated. These interviews were conducted before the SFO began its investigation .

Category 2Materials generated by the forensic accountants as part of their books and records review, again before the investigation started .

Category 3Documents containing factual evidence presented by the partner at the lawyers’ firm to the corporation’s corporate governance committee and/or board before the investigation began. These documents comprised the lawyer’s slide presentation, together with his meeting notes that were said to contain advice as to potential allegations of criminality and the steps the corporation should take in relation to those potential allegations .

Category 4Documents sent to the SFO by the defendant’s subsequent lawyers after the investigation began, comprising the forensic accountants’ reports . There were also some emails between senior executives of the corporation, one of them the head of M & A and a qualified lawyer, requesting and giving legal advice.

With the exception of the material presented by the lawyer to the governance committee/board and related notes elaborating on his slideshow presentation (i.e. Category 3), which were appropriately described as


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confidential lawyer-client communications, all the other requested material was held to be not privileged and discloseable.

In relation to the claims for litigation privilege, the Court found that, at the time the relevant documents were generated, litigation was not in reasonable contemplation. A potential criminal investigation, as opposed to a prosecution, does not amount to litigation for these purposes. Furthermore, even if litigation were reasonably contemplated at the time, the documents in question were not prepared for the dominant purpose of that litigation. Rather, the documents were generated for the purpose of investigating the whistle-blower’s allegations and addressing the situation . In addition, the documents were produced not to assist in conducting litigation but in order to decide how best to avoid contemplated litigation. Moreover, documents that were created with the intention of showing them to the other side could not be privileged.

Regarding the books and records review by the forensic accountants, these were generated to meet regulatory and compliance requirements, not for the purposes of litigation .

As regards legal advice privilege, there was no evidence that those interviewed by the lawyers were authorised to seek and receive legal advice on behalf of the defendant and their communications with the lawyers could not be categorised as giving instructions to the lawyers on behalf of the defendant. In relation to

the lawyers’ notes, the evidence in this case did not demonstrate that those notes would betray the nature of the legal advice given to the defendant and so they were not privileged. Furthermore, the communications between the senior executives on the giving and receiving of legal advice did not attract privilege just because one of them was a qualified lawyer and had previously been the defendant’s General Counsel. In his role as head of M & A, he acted in a business rather than legal capacity. The Court suggested that the request might better have been made to the acting General Counsel if the defendant had wished to maintain privilege in those communications .

CommentThe Court highlighted that this was the first case in which it had had to consider a claim for litigation privilege against a background in which the adversarial litigation contemplated was criminal, rather than civil. However, given the increasing number of SFO investigations into and prosecutions of corporations since the Act came into force, similar issues might well arise in the context of future regulatory and criminal investigations. Corporations who co-operate with the authorities and self-report may still be compelled to disclose sensitive and confidential information down the line despite their co-operation. In this case, the Court noted that there was a public interest in the SFO being able to investigate and prosecute crime. Furthermore, the defendant had undertaken to give full and frank disclosure to the SFO at the outset of their discussions

and should not, therefore, be allowed to back out of its promise to do so .

In the context of civil litigation, as opposed to criminal prosecution, it may be easier for a party to successfully argue litigation privilege . In criminal proceedings, a prosecutor will need to be satisfied that there is enough evidence to bring a prosecution. Civil litigation, however, may be commenced by someone even if their claim is unfounded so a defendant may more easily prove that litigation was reasonably contemplated.

Nonetheless, whether or not a document is privileged will usually be fact-specific. A corporation should remain very careful in dealing with factual internal investigations and should note that it may have more limited scope to obtain confidential legal advice than it might otherwise have thought .

This decision is being appealed.

Michael VolikasPartner, [email protected]

Reema ShourProfessional Support Lawyer, Londonreema .shour@incelaw .com


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sanctions update

Russian sanctionsOn 28 June 2017, the EU extended sanctions against Russia for a further six month period, until 31 January 2018. This decision followed an update by the French President and German Chancellor on the implementation of the Minsk agreements. Anyone transacting Russian business is, therefore, advised to consider the impact of the continuing EU sanctions on these activities .

UK sanctionsThe Queen’s speech on 21 June 2017, which sets out the Government’s legislative agenda for the next two years, stated that one of the bills to be introduced in the UK will be an International Sanctions Bill. It is understood that this will support the UK’s role as a permanent member of the UN Security Council and establish a new sovereign framework for the UK to implement international sanctions, whether that be with or without other countries, as part of the ‘Brexit’ process .

It is likely that the UK and remaining 27 EU countries post-Brexit will maintain a high level of regulatory convergence, as both will continue to fulfil international obligations as UN members. Nevertheless, there exists the possibility that the UK and EU sanctions regimes might diverge and it is recommended to make appropriate contractual provision for this potential

situation, e.g. if either the UK and EU did adopt different sanctions regimes or where one party is subject to UK sanctions and the other is not .

Fionna GavinPartner, [email protected]

James RoseSenior Associate , [email protected]


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Singapore’s role in China’s Belt and Road InitiativeSince the 14th century, Chinese traders have spoken of sailing through the treacherous 龙牙门 (Dragon’s Teeth Gate), a rocky outcrop at the gateway to the port at Singapore. While the Dragon’s Teeth Gate was destroyed in 1848, some still speak of Singapore today as the gate to ‘China’s Windpipe’. Singapore – the gate to ‘China’s Windpipe’The geographical advantage Singapore enjoys in global shipping is evident: it sits at the narrow end of the Straits of Malacca, often called ‘China’s Windpipe’, through which almost all shipping between the West and China passes.

In the last 50 years, Singapore has built on its favourable geographical location by developing other areas of its maritime industry culminating, on 25 April 2017, when Singapore was crowned the 2017 overall leading maritime capital of the world by Menon Economics. Less than a month later, on 14 May 2017, China hosted a two-day Belt and Road Forum celebrating its Belt and Road Initiative (“B&R”).

This article considers the main proposed B & R projects and their potential impact on Singapore.

(1) The Peninsula Malaysia Land Bridge The B&R project nearest to Singapore is the Peninsula Malaysia Land Bridge consisting of the East Coast Rail Line (“ECRL”) linking ports in eastern Peninsula Malaysia with Kuantan Port in the west.

The ECRL is a US$13.1bn rail project partially financed and fully constructed by Chinese interests. The ECRL will connect Port Klang and the Melaka Gateway, both along the Straits of Malacca, with Kuantan Port in the South China Sea. The Melaka Gateway is a RM$43bn port development project at Melaka, jointly developed by Malaysian and Chinese interests, while Kuantan Port is 40% owned by Chinese interests.

When all these projects are completed, China will have interests in a port along the Straits of Malacca, a port in the South China Sea, and a rail network linking the two, creating a land bridge in Peninsula Malaysia.

(2) The Kyaukpyu Port and Sino-Myanmar pipelinesAnother B&R project close to Singapore is the development of the Kyaukpyu Port and Sino-Myanmar Pipelines in Myanmar.

Kyaukpyu Port, on the Bay of Bengal, was developed by a Chinese consortium who are also now negotiating the acquisition of a 70% - 85% stake in the port. A crude pipeline from Kyaukpyu to Kunming (China) began operations recently, allowing southern China to import crude directly . The crude pipeline has an annual transport capacity of 22 million tons, and runs parallel

with a natural gas pipeline with an annual transport capacity of 12 billion cubic meters.

The Kyaukpyu Port and the two pipelines give China direct access to crude and natural gas imports through the Indian Ocean rather than through the Straits of Malacca.

(3) The Gwadar Port and CPECFurther afield, the Gwadar Port and CPEC (China-Pakistan Economic Corridor) in Pakistan is another collection of infrastructure projects that will allow China to import goods and commodities without shipping through the Straits of Malacca.

The Gwadar Port, currently being expanded under the CPEC, is financed, constructed and operated by Chinese interests. Stemming from Gwadar Port is a vast network of highways, railways and pipelines designed to transport goods and commodities into western China that is similarly financed and constructed by Chinese interests.

When completed, the CPEC-related projects and the Gwadar Port will be another alternative trade route for China through the Arabian Sea rather than the Straits of Malacca.


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(4) The Kra CanalThese B&R projects, while significant, do not extend to all shipping trade routes in the region. The projects in Myanmar and Pakistan only connect to southern and western China respectively, while the more developed eastern China project still relies on sea routes through the South China Sea. While the Peninsula Malaysia Land Bridge may change these routes, it may not be a commercially viable alternative, taking into account the additional time and costs for cargo to be unloaded in Melaka, freighted on the ECRL, and reloaded at Kuantan.

In fact, the rumoured Kra Canal would be key to prominence in the region’s sea trade . This is a proposed canal across southern Thailand, connecting the Andaman Sea in the west with the Gulf of Thailand in the east, that is often linked with China’s B&R. The Kra Canal, if built, will reduce the distance of sea routes to China by approximately 1,200km by allowing vessels to bypass the Straits of Malacca altogether.

It is, however, unlikely that the Kra Canal will ever be built. Firstly, the cost of constructing the Kra Canal, an estimated US$30bn, is prohibitively high. Secondly, the construction of the Kra Canal may incur religious and political sensitivities between the predominantly Buddhist and wealthier northern Thailand and the predominantly Muslim and poorer southern Thailand. Thirdly, the existence of insurgent groups in southern Thailand gives rise to security concerns. Finally, it is doubtful that the Kra Canal would be a commercially

viable alternative to the Straits of Malacca route, taking into account waiting time, toll fees and other associated costs .

Singapore’s role in China’s B&RWithout the Kra Canal, the B&R is intended to help China be more self-sufficient in terms of its energy resources by reducing its reliance on shipping trade routes through the Straits of Malacca. The B&R is not, however, intended to be an absolute replacement to shipping through the Straits of Malacca. The B&R projects are also a means of putting China’s capacity for production and finance to use at a time when domestic appetite is reduced .

Singapore will not be a direct beneficiary of the significant funds that China is investing as China’s investments through B&R will be in countries building the infrastructure that China requires as alternatives to shipping through the Straits of Malacca. However, the B&R projects in the region will increase maritime activity in the region as a whole and this is expected to benefit Singapore as a prominent maritime centre in the region.

Furthermore, eastern China will, for the foreseeable future, continue to rely on shipping through ‘China’s Windpipe’, and Singapore will continue to be its gate. Singapore’s good relations with China and Singapore’s expressed support for the B&R are positive early indications of a mutually beneficial relationship. Indeed, Singapore’s experienced service industries have already been called upon to support the B&R: for

example, Singapore is helping to drive the development of Chongqing in southwest China as an inland international logistics hub and multimodal transport and logistics centre for southern and western China as part of the B&R.

The B&R creates an inventory of projects that calls for investments in both Singapore and elsewhere. The prosperity of Singapore is undoubtedly tied to that of China and it remains in the interests of both that Singapore should continue to be a favourable maritime capital, worthy of being the gate to the soaring dragon that is China.

edgar ChinJoint Managing Director, Incisive Law LLCedgar .chin@incisivelaw .com

Boaz ChanSenior Associate, Incisive Law [email protected]

25 InCe & CoSHIPPING E-BRIEF, JULY 2017

Firm news and events

Firm newsQatar CrisisDubai Managing Partner Rania Tadros is the lead partner keeping clients up-to-date on the ever-changing situation in Qatar. Since the crisis started in early June, Rania has delivered seminars to clients in Dubai, Shanghai, Singapore, Hong Kong and London on the escalating crisis and the potential impact on our shipping clients. To view all content on this situation click here .

Ince & Co wins Ship Finance Award at 10th Seatrade Maritime Awards AsiaInce & Co is pleased to announce that we recently won the Ship Finance Award at the 10th Seatrade Maritime Awards in Asia. The awards are recognised as one of the most prestigious industry events in the region and Ince & Co successfully competed against 43 finalists to win the highly esteemed Ship Finance Award. Read full article here .

Deal newsInce & Co Germany LLP advises Hapag-Lloyd AG on financial restructuring in US$14bn merger with United Arab Shipping Company (UASC).

Ince & Co Germany has recently advised Hapag-Lloyd AG, together with Allen & Overy, Frankfurt, in the restructuring of all ship and container financing of UASC,

including tax lease arrangements in relation to Hapag-Lloyd’s merger with UASC. Read full article here .

eventsShipping Brief seminarThe next Shipping Brief will take place on Thursday 5th October 2017 at our office in London. To register your interest please email [email protected]

sHIPPInG

http://www.incelaw.com/en/ourpeople/rania-tadros

http://www.incelaw.com/en/knowledge-bank/qatar-diplomatic-crisis

http://www.incelaw.com/en/news-and-events/news/ince-and-co-wins-ship-finance-award-at-10th-seatrade-maritime-awards-asia?event=reloadNews&currentPagePiD=58e41a06c6fe1b38205717f2&assetType=EVENT%2CNEWSENTRY&orderBy=datedesc&take=8&skip=0&branchID=58ef614fc6fe1b266450fe10

http://www.incelaw.com/en/news-and-events/news/ince-and-co-germany-llp-advised-hapag-lloyd-ag-on-financial-restructuring-in-14bn-merger-with-united-arab-shipping-company-uasc-%3Fevent%3DreloadNews%26currentPagePiD%3D58e41a06c6fe1b38205717f2%26assetType%3DEVENT%252CNEWSENTRY%26orderBy%3Ddatedesc%26take%3D8%26skip%3D0%26branchID%3D58ef614fc6fe1b266450fe10

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LONDONPaul Herring, Partner paul .herring@incelaw .com +44 (0) 20 7481 0010

PARIS/LE HAVRE/MARSEILLEJerome de sentenac, Partner [email protected] Paris: +33 (0) 1 53 76 91 00 Le Havre: +33 (0) 2 35 22 18 88

MONACOIan Cranston, Partner ian .cranston@incelaw .com +377 93 25 85 80

HAMBURG/COLOGNEJan Hungar, Partner [email protected] +49 (0) 40 380 860

PIRAEUSAntonis Lagadianos, Partner antonis .lagadianos@incelaw .com +30 210 455 1000

DUBAIRania Tadros, Partner rania .tadros@incelaw .com +971 4 307 6000

HonG KonGDavid Beaves, Partner [email protected] +852 2877 3221

sHAnGHAIPaul Ho, Partner paul .ho@incelaw .com +86 (0) 21 6157 1212

BEIJINGWai Yue Loh, Partner waiyue .loh@incelaw .com +86 (0) 10 5706 9588

SINGAPOREJohn simpson, Partner [email protected] +65 6538 6660

Ince & Co is a network of affiliated commercial law firms with offices in Beijing, Cologne, Dubai, Hamburg, Hong Kong, Le Havre, London, Marseille, Monaco, Paris, Piraeus, Shanghai and Singapore.

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