http://www.simsl.com

Sea Venture newsletter Issue 4

Introduction........................................3

Conduct ofParties in Arbitration ..........................4

Belgium Honours Capt. Wei Jiafu and COSCO GROUP ........................4

Hurricane and Natural Disaster - Carrier Liability for Damage to Cargo in the U.S.................................5

Cargo Interests - The Right To Be Sued..........................................6

No Emergency “Laundry List” For Charterers ....................................7

“Red in Tooth and Claw” ..................8

Charterers’ CQD Obligations ............9

“Supplytime 05”: BIMCO Finalises Its Revision of “Supplytime 89” ........9

Future events and the Impact on Damages ....................................10

An Alternative Unsafe Port Claim....10

When Does Laytime Commence? ..11

South Africa - Club LOU AdequateSecurity For Release Of Vessel ........12

U.S. - Foreign Arbitration Clause in Crew Contract Enforced ..............14

Industrial Action v Free Movement of Workers & Services ......................14

China - Emerging trends in

Maritime Litigation ..........................15

Shipping Rice to West Africa -

Beware! ............................................16

EU Directive on Ship-Source

Pollution - Open to Challenge? ......16

Developments in the

CLC/Fund Conventions ....................17

Suspected MARPOL Violations

in the U.S. - The Human Cost ........18

Panama - First Judgments In

Claims Involving The Panama

Canal Authority ................................20

Trip Time Charter - A Guarantee of

Income or Merely Duration? ............21

Maritime Pollution in Canada -

Extending the Reach and

Power of Prosecutors ......................21

U.S. - Developments in

Rule B Attachment ..........................22

Recent Publications ..........................23

Articles Published on the Steamship

Mutual Website................................23

Contents

2

Editorial TeamNaomi Cohen Malcolm Shelmerdine

Feedback and suggestions for future topics should be sent toseaventure@simsl.com

The fourth edition of Sea Venture marks the firstanniversary of the revised format of the Steamship Mutualnewsletter. The feedback we have received during theyear from members, brokers and correspondents hasbeen overwhelmingly complimentary. In particular, theincreased frequency of publication has been welcomed.

2005 was another good year for Steamship Mutual. Theyear opened with the Club’s ratio of free reserves toentered tonnage above the International Group average.During the year there has been solid growth in bothmeasures, with owned entered tonnage passing the 40mGT mark and free reserves forecast to be over US$147m at20th February 2006. The significant improvements in thepure underwriting surpluses for both 2003/04 and 2004/05and the early prospect of a positive outcome for 2005/06form the foundations of a sound financial position for theClub going into 2006. These developments, which are alldiscussed in the Mid Year Review published in November

(www.simsl.com/Publications/MidYearReview/MYR.asp),

have enabled the Club’s Board to take the view that a5% standard increase would be sufficient to form aprudent basis for the forthcoming renewal.

The New Year inevitably will bring fresh challenges. Thereare indications of an increase in the average cost of claimsin the attritional layer up to US$200,000 which mayincrease further if commodity prices continue to rise.Uncertainty continues to beset the financial markets asU.S. interest rates rise. There are concerns as to whetherthe future supply/demand balance will remain positive forall areas of shipping and if current freight rates aresustainable. While the Club is not immune to thesebroader concerns, the combination of a conservativeapproach to risk management and a sound financialposition enables Steamship Mutual to look forward to2006 and beyond with confidence.

This edition of Sea Venture includes articles discussing the recent Court of Appeal decision in Golden StraightCorporation v Nippon Yusen Kubishiki, a case dealingwith the influence of a future event on the assessment ofdamages, as well as other English High Court decisions onlaytime, the identity of the lawful holder of a bill of ladingand notices of withdrawal. There are articles from lawyersin New York, Durban and Panama, together with a reporton recent developments in the CLC/Fund conventions.The editorial team is grateful to all the contributors to this edition of Sea Venture, and continues to welcomecomment both on the content of Sea Venture andsuggestions for the future.

Malcolm Shelmerdine

1st January 2006

Introduction

“the combination of a

conservative approach to

risk management and a

sound financial position

enables Steamship Mutual

to look forward to 2006

and beyond with

confidence”

Sea Venture newsletter Issue 4 3

Sea Venture newsletter Issue 4

Conduct of Parties in Arbitration

4

Parties are often quick to criticisearbitrators for the way they handlearbitrations but rarely look at their ownconduct, or that of their advisors, duringthe course of an arbitration. In thesecond of two articles written forSteamship Mutual by Clive Aston, anLMAA Arbitrator, he offers an arbitrator’s

view of some of the ways in whichparties may get more out of arbitrationat less cost.

The article can be found on theSteamship Mutual website at:

Clive’s first article “An Arbitrator'sPerspective - Balancing The Interests OfThe Parties” can be also be found on thewebsite at:

Belgium Honours Capt. Wei Jiafu and COSCO GROUP

In a ceremony held in Hong Kong on15th November Capt. Wei Jiafu, GroupPresident & CEO of the COSCO GROUP,and a Director of Steamship Mutual, wasawarded the Belgian honour of theCommander of the Order of KingLeopold II. The honour was bestowedupon Capt. Wei by the Consulate Generalof Belgium in recognition of thesignificant contribution made by theCOSCO GROUP to the Belgian economy.

The COSCO GROUP is China's leadingmarine transportation company. Thegroup also encompasses logistics,shipbuilding, ship repairing, terminaloperation, financing, I.T. services and realestate development.

COSCO is a long standing SteamshipMutual member. Capt Wei has been amember of the main Club board sinceMarch 2000, while COSCO has beenrepresented on the board from 1988

Capt. Wei receiving the honour

from Mr.Patrick Nijs, Consul

General of Belgium

www.simsl.com/Articles/Arbitration0905.asp

www.simsl.com/Articles/Arbitrator0405.asp

When vessels encounter violent storms at sea, it iscommonly thought that the carrier is exonerated fromliability for damage to the cargo on board by either “Actof God” or “Peril of the Sea” defences. However, alongwith these defenses, certain provisions of the UnitedStates Carriage of Goods by Sea Act impose on the carriera non-delegable duty to provide the necessary care thatcarrying that cargo requires. The carrier must satisfy thiscontinuing duty of care or risk being held liable for thedamage caused to cargo during the Force Majeure event.

The unforseeability of the “Act of God” to the carrier isabsolutely essential to absolve him of liability for damageto the cargo due to a storm. Where a carrier hassufficient warning and reasonable means to take properaction to guard against, prevent, or mitigate the dangersposed by a hurricane, or other Act of God, but fails todo so, then he is responsible for the loss. What mustalways be remembered is that the carrier’s duty tosafeguard cargo, as far as reasonably possible, remains ineffect until delivery to a fit and customary wharf. Wherethe prevailing weather and other conditions, includingthe condition of the cargo itself, allows, this includes aduty to deliver the cargo to a safe location where it maynot be damaged further or stolen, and to provide it withthe level of care it reasonably requires in the interim.

In short, the carrier who exonerates itself from liabilitywill have borne successfully the not insignificant burdenof proving that there was no human negligence involvedbefore, during or after the event giving rise to thedefence on which he seeks to rely.

Thomas L. Tisdale, of Tisdale & Lennon, has prepared anarticle for the Steamship Mutual website in which hediscusses these issues in greater detail. The article can befound at:

Hurricaneand NaturalDisaster -CarrierLiability forDamage toCargo in the U.S.

Sea Venture newsletter Issue 4 5

www.simsl.com/Articles/USCarrierLiability1205.asp

“a non-delegable duty to

provide the necessary

care that carrying that

cargo requires”

Sea Venture newsletter Issue 4

In the recent case of Primetrade AG vYthan Limited the English High Courtwas asked to consider two previouslyundecided issues in relation to theCarriage of Goods by Sea Act 1992(“COGSA”).

In February 2004 the ”Ythan” explodedwith the consequent loss of the vessel, her cargo and six crew members. Theexplosion was in the cargo, a consignmentof 3,760 mt of Metallic HBI Fines.Although security was sought andprovided to cargo the owner alleged thatthe cargo was dangerous and startedarbitration to recover the losses arisingfrom the casualty. However, there was achain of sale contracts, the respondents inthe arbitration were not named on the billsof lading and at the time of the explosionthe bills of lading where held to the orderof the shipper, albeit subsequently sent tothe respondents’ cargo underwriter.

The two issues before the Court were (i)whether the respondent was the lawfulholder of the bills of lading at anyrelevant time with rights of suit under s2(1) of COGSA and (ii) if the demandfor security amounted to a “claim” unders3(1)(b) of COGSA which, if so, wouldmake the respondents subject to thesame liabilities under the contract ofcarriage as if they had been a party tothe contract. Both issues are discussed ina Steamship Mutual website article byJanet Ching (janet.ching@simsl.com) at:

Cargo Interests -The Right To Be Sued

6

www.simsl.com/Articles/Primetrade1205.asp

The Connecticut District Court has recently denied acharterer’s application* seeking emergency depositionsof crew members and production of documents froma vessel in Houston which was next calling at NewOrleans. The charterer used the vessel on a regularliner service which included regular port calls atHouston/NOLA. Discovery was sought in respect ofdamage to the ‘tween deck in the No. 4 hold,apparently as a result of overstowage of cargo. Thecharterer sought depositions of 9 crew members andproduction of a “laundry list” of documents.

The ostensible reason for the request was to collect andperpetuate evidence in order to defend potential cargoclaims at a later date. However, whereas the ownerhad already commenced suit against the charterer fordamage to the vessel resulting from the incident in theHigh Court in London (pursuant to the charterpartyforum selection clause) there had, as yet, been noevidence to indicate that any cargo had, in fact, beendamaged. Moreover, the relevant bills of lading hadEnglish forum selection and choice of law clauses.

The court denied the petition from the bench (i.e. without a written ruling), finding that the chartererhad failed to comply with the rule’s proceduralrequirements, namely, that the petitioner list allpotentially adverse parties (the cargo interests) andserve notice of the application on each such namedparty at least 20 days before the hearing. The courtfurther found that there were no “exceptionalcircumstances” present to warrant granting therequested relief. As the court noted, “[h]ere, thecharter party petitioner has control over the vessel andthat certainly was not the case in the decisions that Ilooked at where the concern was that the vessel wouldleave, the crew members would disperse and therewould be no future opportunity to obtain the testimonythat was requested.” Finally, the court found that thepending litigation in London, coupled with the fact thatthe owner had represented that it would producerelevant witnesses and documents if ordered to do soby the London court, “gives me greater assurance thatthe need to preserve this testimony by way of expeditedpetition is not significant.”

With thanks to Thomas H. Belknap, Jr. of Healy &Baillie, New York, for preparing this article. LeRoyLambert and Thomas H. Belknap, Jr. of Healy & Baillieacted for the successful owner in this application.

*Rule 27 of the Federal Rules of Civil Procedure

No Emergency“LaundryList” ForCharterers

Sea Venture newsletter Issue 4 7

“The charterer sought

depositions of 9 crew

members and production

of a “laundry list” of

documents.”

Sea Venture newsletter Issue 4

The stakes are high for both owners andcharterers when the decision is taken towithdraw a vessel from charterers’ serviceand a Withdrawal Notice is served.Substantial claims and expensive disputeswill inevitably follow if either owners orcharterers wrongly refuse to performtheir obligations under the charter on themistaken assumption that a notice ofwithdrawal is or is not defective orwrongly served. The English High Courthas recently considered these issues andhighlighted the need for clarity whereOwners purport to tender a WithdrawalNotice pursuant to an anti-technicalityclause in a charterparty.

In the “Li Hai”*, after receipt of notice ofwithdrawal hire was paid save for adeduction of U$500. As a result of thatdeduction owners withdrew their vesselfrom charterers’ service. However, theCourt decided that the WithdrawalNotice was ambiguous as to what sumswere to be remitted and awardedcharterers damages marginally in excessof US$2 million.

When giving his decision Hirst J took theopportunity to consolidate previous caselaw which considered the form andeffect of Withdrawal Notices (the“Pamela”, the “Afovos”, the “Nanfri”)and set out the requirements of suchnotices in order that owners andcharterers alike might benefit from acomprehensive understanding of what isarguably one of the most importantclauses in the charterparty.

In an article written for the SteamshipMutual website Sarah McGuire(sarah.mcguire@simsl.com) discussesthe “Li Hai” and the related issue ofdeductions for anticipatory off hire as wellas potential estoppel issues based on theparties’ past conduct. Anti-technicalityclauses are also featured. The article canbe found at:

*Western Bulk Carriers K/S v Li HaiMaritime Inc

“Red in Tooth and Claw”

8

www.simsl.com/Articles/LiHai1205.asp

“The vessel owner

alleged breach of

charterers’ obligation of

CQD and claimed

damages for the delay”

Charterers’CQDObligations

“Supplytime05”: BIMCOFinalises ItsRevision of“Supplytime89”

Sea Venture newsletter Issue 4 9

Where a voyage charter provides for loading/dischargingwith “customary quick despatch” (CQD), charterers areobliged to perform cargo operations as fast as possiblein the circumstances prevailing at the time.

In a recent dispute concerning CQDcharterers/receivers paid import duties on cargo butrefused to pay additional duty imposed retrospectivelyafter the discharge had started. Instead theychallenged the additional duty in the local courts andeventually established that that duty was invalid.Discharge was, however, delayed as a consequence ofthe local authorities’ refusal to allow discharge tocontinue whilst the court action went on.

The vessel owner alleged breach of charterers’obligation of CQD and claimed damages for the delay.The charterers denied there was any breach becauseCQD only required them to discharge the cargo asquickly as was reasonable in the actual circumstancesprevailing in the port.

Should the charterers have paid the additional duty toavoid any delay to the vessel, or was the fact of theirsuccess in challenging the validity of that dutyevidence of the reasonableness of that decision andconsequent delay to the vessel? These issues arediscussed in an article by Joe Mays of Mays BrownSolicitors on the Steamship Mutual website:

In November 2005 BIMCO released its revision of theSupplytime 89 Uniform Time Charter Party forOffshore Services Vessels. Since it replaced its 1975predecessor the Supplytime 89 has become the mostwidely used standard form contract in the offshoreindustry. However, despite its widespread use the formhas not been free of criticism. In particular, the Clause26 Early Termination mechanism has lead toconsiderable litigation.

Whilst the latest iteration includes a number ofamendments to the 89 Form, two key provisionswhich merit close examination are its “knock-for-knock” clause, and the Early Termination clausealready mentioned.

An article by Rajeev Phillip (rajeev.philip@simsl.com)looking at the amendments to these clauses, and theirimpact can be found at:

www.simsl.com/Articles/Supplytime1205.asp

www.simsl.com/Articles/CQD1205.asp

When assessing damages should accountbe taken of an option to cancel in thecontract if the event giving rise to theexercise of that option had not arisen atthe time the contract was repudiated butdid subsequently arise? Shouldcommercial certainly or the likelihood ofa future event prevail when assessingdamages? This novel and difficult pointwas addressed the case of Golden StraitCorporation v Nippon Yusen Kubishikiwhich was recently decided by theEnglish Court of Appeal. These issues are discussed by Sian Morris(sian.morris@simsl.com) in a SteamshipMutual website article at:

Future events and the Impact on Damages

Sea Venture newsletter Issue 410

www.simsl.com/Articles/Golden1205.asp

While port authorities are not directlyinvolved in safe port disputes they mayoften become indirectly involved; acharterer that is liable to an owner inrespect of such a claim may seek torecover any sums paid to the owner fromthe port authority. The success of anysuch action will depend on the facts andon any statutory or contractualimmunities or exemptions. However, it isnot only the charterer who shouldconsider such actions. It may be that theowner does not have a claim against thecharterer, for example, where there is noexpress warranty of safety in the

charterparty, or a warranty cannot beimplied, or any warranty is restricted.Alternatively, the owner may have aclaim but it is valueless because thecharterer becomes insolvent. In thesecircumstances can an owner claimdirectly against the port authority?

A direct claim of this type arose in therecent case of The “Charlotte C”, adiscussion of which can be found in anarticle on the Steamship Mutual websiteby Robert Melvin of Richards Butler at:

An Alternative Unsafe Port Claim

www.simsl.com/Articles/CharlotteC1205.asp

Sea Venture newsletter Issue 4 11

The High Court has recently given some guidance on theimportant question of when laytime should be regardedas having commenced when a vessel arrives at theloadport and starts loading before the start of the laydays.

The owners let their vessel “Front Commander” to thecharterers on an amended Asbatankvoy charter. Thevessel was to load a cargo of oil at Escravos, Nigeria,and the agreed laycan was 9/10 January 2004. A fewdays before the vessel’s arrival, charterers managed tosecure an earlier stem and were therefore happy for thevessel to arrive at the loadport port early. After ownershad received several emails from charterers giving noticeof their intention to berth the vessel and start loadingas soon as possible after the vessel’s arrival, the vesselarrived and tendered Notice of Readiness at 00.01 on 8January. Loading started the same day and wascompleted 2 days later.

Two clauses in the charter sought to address thesituation – one printed clause which stated that laytimewas only to commence before the start of the laydayswith “charterers’ sanction” and an additional clausewhich required “charterers’ consent in writing” beforelaytime would commence before the start of the laydays.

It was agreed that demurrage was payable but thedispute turned on if or when the NOR given by ownersbecame effective for the commencement of laytime andwhether the email exchange prior to berthing satisfied thecharter clauses referred to in the preceding paragraph.

Despite argument from owners to the contrary, the Courtfound that the emails exchanged did not amount either toexpress or implied consent to the early commencement oflaytime and merely confirmed that NOR was to betendered on arrival and that charterers wanted the vesselto commence loading as soon as possible on arrival.

Laytime therefore did not commence until the first dayof the laycan on 9 January.

Interestingly the Court decided that the Court of Appealdecision in the “Happy Day” on which owners soughtto rely, was irrelevant as the only issue in this disputewas whether or not the requisite consent had beengiven by charterers during the email exchange referredto in the preceding paragraphs.

The Court’s decision is rather unsatisfactory from acommercial point of view and gives charterers a windfallprofit. It also serves as a harsh lesson to owners toensure that there is express compliance with anycharterparty provisions dealing with earlycommencement of laytime before agreeing to startloading prior to the contractual laydays.

It is understood that the owners have been grantedleave to appeal. With other pending cases possiblyturning on this decision, it will be interesting to see ifthe decision of the High Court is reversed.

Article by Duncan Howard (duncan.howard@simsl.com)

When DoesLaytimeCommence?

“Despite argument from

owners to the contrary,

the Court found that the

emails exchanged did not

amount either to express or

implied consent to the

early commencement of

laytime.”

Finally there is a definitive answer from aHigh Court of South Africa as to whethera P&I Club letter of undertakingconstitutes adequate security within theambit of the Admiralty JurisdictionRegulation Act. Earlier this year, in thecase of the “Bow Neptun”* the Durbanand Coast Local Division of the HighCourt of South Africa answered thequestion in the affirmative.

From the time the Act commenced in1983, Club letters were frequentlyaccepted as security to obtain the releaseof a vessel from arrest in South Africa. It was commonly believed that this couldonly be done by agreement with thearresting party. There were occasionalinstances where the release of a vessel wasordered by the courts against the provisionof security by way of a P&I Club letter, butno written judgment was handed down,or the letter was to be substituted with abank guarantee in due course.

On 26 May 2005, the Durban courtgranted an order for the arrest of the mv“Bow Neptun” as security forproceedings to be pursued by cargo

interests by way of arbitration in Londonor an action before the CommercialCourt in Antwerp, Belgium, and furtherstipulated that the vessel was to bereleased from arrest on the provision ofsecurity to the satisfaction of theclaimants or the Registrar.

Prior to the arrest the security had beentendered for the claim on behalf of theowners in the form of a Club letter. Thistender was rejected by the claimants.Following the arrest of the vessel anamended letter was tendered, which wasalso rejected. Although the letterresponded to an arbitration award orjudgment of a court of competentjurisdiction, cargo interests insisted that,in exchange for them agreeing to acceptthe Club letter, the owners and the Clubshould submit to Belgian law andjurisdiction in respect of the claims. Theparties could not reach agreement andthe owners and the Club sought an orderfor the urgent release of the vesselagainst the furnishing of the Club letter.

The Durban court, following thereasoning of the Supreme Court of

Sea Venture newsletter Issue 4

South Africa - Club LOU AdequateSecurity For Release Of Vessel

12

Appeal which had held, in a differentcontext that “security” under the Actincluded a bank guarantee, stated that:

“…… both the bank guarantee as wellas the P&I Club Letter of Undertaking arecouched in similar terms. They are bothprivate contractual undertakings given byeither the bank or Club/insurancecompany to secure an Applicant’s claimagainst a Respondent either before orafter arrest.”

Cargo interests in the “Bow Neptun”submitted that the letter could notconstitute security under the Act becauseit was not enforceable in South Africa.The Club did not have any assets situatedwithin South Africa. Therefore, if theClub failed to meet its undertakings interms of the letter, claimants would haveto institute proceedings outside SouthAfrica in order to enforce them.

The Durban court was not persuadedand pointed out that in the unlikely eventthat a foreign bank does not honour itsguarantee or undertaking, the cargointerests would also be obliged to

proceed against the bank in that foreigncountry. Whilst it was conceded thatthere is indeed a certain amount of riskinvolved the court found that it is anacceptable risk in line with moderncommercial practice.

In conclusion, the court was satisfied thatthe letter of undertaking tendered by theClub constituted sufficient security withinthe ambit of the Act.

We thanks to Victoria Hobson and JennyMcIntosh, Garlicke & Bousfield Inc,Durban, for preparing this article.

* mv “Bow Neptun”: Star Tankers AS andthe American Steamship Owners MutualProtection & Indemnity Association Inc /Methyl Company Limited and LojitCorporation, Case No. A62/2005 (DCLD).Details of the other cases referred to inthis article can be found on the SteamshipMutual website at:

Sea Venture newsletter Issue 4 13

www.simsl.com/Articles/BowNeptun1205.asp

The approach of the U.S. Courts to foreign arbitration clauses in seamen’semployment contracts was summarisedin Sea Venture issue 2 in the context ofthe Eleventh Circuit Court of Appealsdecision in Bautista et al v NorwegianCruise Lines.

This landmark decision has paved theway for shipowners to arbitrate injuryand other employment claims where aforeign crew member signs anagreement to arbitrate in a countrywhich is party to one of the two treaties

which enforce arbitration - the New Yorkand Panama Conventions.

In an article written for the Steamshipmutual website, Curtis J. Mase andBeverly D. Eisenstadt of Mase & Lara,who represented Norwegian Cruise Lines,discuss the case in greater detail andexplain the conditions which must besatisfied to ensure that such arbitrationclauses can be enforced. The article canbe found at:

Sea Venture newsletter Issue 4

U.S. - Foreign Arbitration Clause inCrew Contract Enforced

Industrial Action v Free Movement of Workers & Services

14

www.simsl.com/Articles/Bautista1205.asp

An attempt by the ITWF and the FinnishSeamen’s Union to take industrial action(including a strike by the latter and aconcerted multi-jurisdictional boycott bythe former and its affiliates) in order toprevent a Finnish Ferry operator from re-flagging its vessel under an Estonian flagwas initially blocked by the English Courts.Granting an injunction to prevent industrialaction by the Federation and the UnionMr. Justice Gloster held, in Viking Line ABPv ITWF and Finnish Seaman’s Union, thatthe threatened action was against EU freemovement of workers and services rules,citing the ECJ’s ruling in the Bosman casewhich held that these rules applied notonly to the actions of public authorities butalso to “rules of any other nature aimed atregulating gainful employment in acollective manner”, and “obstaclesresulting from the exercise of their legal

autonomy by associations or organisationsnot governed by public law”.

The Unions appealed against this decisionarguing that the right of trade unions totake action to preserve jobs was afundamental right recognised by Art. 136of the EC Treaty (Nice). If, as wascontended, the threatened activities fellwithin Art 136 they would not be caughtby the rules relating to the freemovement of workers and services.

The Court of Appeal set aside theinjunction on the basis that the answersunder EC law were not clear andconcerned issues of fundamentalimportance which needed to beaddressed by the ECJ. The Court ofAppeal questioned whether thethreatened union activities actually fellfoul of the free movement provisions inthe EC Treaty, but did not rule on thepoint. The appeal was adjourned pendingreference to the ECJ.

A more detailed report of this case byRajeev Philip (rajeev.philip@simsl.com)can be found on the Steamship Mutualwebsite at

www.simsl.com/Articles/Viking1205.asp

The economic boom in China over the past two yearshas been the main driving force behind the upturn inshipping markets. Increased demand for imported rawmaterials and for the means of exporting finishedproducts have meant that ships of all types are callingat Chinese ports far more frequently than ever before.A by-product of this is that increasing numbers ofdisputes are being litigated in the Chinese courtsaccording to Chinese law.

Except for Hong Kong (which still maintains thecommon law system that was in existence prior to the1997 handover) China’s laws are codified; Chinesemaritime law is found in the Maritime Code and theMaritime Procedure Law which came into force in1993 and 2000 respectively. Even though there is nostrict doctrine of precedence a number of decisionsfrom the more important Maritime Courts are nowbeing reported, either by the Courts themselves or bylawyers practising in those Courts. It is likely that thesedecisions will be referred to in future, similar, casesand should have some persuasive value.

In the first of a series of articles Rohan Bray(rohan.bray@simsl.com) of Steamship Mutual’s HongKong office comments on the report of a decision ofthe Shanghai Maritime Court in the case of SekwangShipping v Shanhai Maritime Bureau & ors. The issuein dispute was the vessel owner’s right to limit liabilityfor pollution, clean up costs and compensation arisingfrom a collision with another vessel. Rohan’s firstarticle can be found at:

China -Emergingtrends inMaritimeLitigation

Sea Venture newsletter Issue 4 15

“Even though there is

no strict doctrine of

precedence a number of

decisions from the more

important Maritime

Courts are now being

reported....”

www.simsl.com/Articles/ChinaCases1205.asp

Sea Venture newsletter Issue 4

Shipping Rice toWest Africa -Beware!

EU Directive onShip-sourcePollution - Opento Challenge?

16

The trade in rice to West Africa is longestablished. At any one time there areprobably hundreds of thousands of tonnesof rice in transit to or being discharged atvarious West African ports. However,discharge operations are rarely withoutincident. Stevedore mishandling, withconsequent loss of rice from torn bags orthe rejection of bags, mis-tallying, and

pilferage are not uncommon at many WestAfrican ports. Advantage is frequently takenof these problems by the cargo receivers andthe cargo underwriters to bring inflatedclaims for loss or damage or shortages ofcargo. Inevitably there are threats to arrestvessels unless security is provided, and vesselowners and their Clubs are faced with theunsatisfactory dilemma of agreeing that thegoverning law and jurisdiction of any claimsis not the contractual law and jurisdictionbut either that of the place of discharge or some other jurisdiction and law(frequently French).

In an article written for the SteamshipMutual website Simon Boyd(simon.boyd@simsl.com) explains howcarriers can reduce their exposure toclaims by taking certain preventativesteps. The article can be found at:

As reported in Sea Venture issue 3 (“EUCriminalisation of Accidental Pollution”) therehas been much comment on thiscontroversial directive since its first draft wasreleased in 2003. Directive 2005/35 has beencriticised for its impact on the industry, itshuman rights implications, its effectiveness inpreventing further pollution incidents and itslegality in terms of international law.

The Directive came into force on 1 October2005. Despite vigorous protest fromindustry bodies since its inception in draftform, the Directive finally published includedno concessions. By way of background, theDirective was introduced because it was feltthat numerous ships were ignoring theprovisions relating to the discharge ofpolluting substances contained in MARPOL73/78. No corrective action was being takenand this needed to be changed in order toprotect EU waters. One of the key stated

purposes of the Directive was to remove thediscrepancies in the domestic legislation bywhich individual EU member states hadimplemented MARPOL 73/78 and thereby“harmonise its implementation atCommunity level” (Para. 3 of the Preambleto the Directive).

It would appear, however, that this attemptto “harmonise” the implementation ofMARPOL not only deviates from thatConvention but also contravenes the over-arching principles of UNCLOS to whichMARPOL is subject.

In an article written for the SteamshipMutual website Rajeev Philip(rajeev.philip@simsl.com) addresses thequestions of the legality of the Directiveand of who can challenge its validity, inwhat forum and on what basis. His articlecan be found at:

Also on the website: “EU Directive on Ship-Source Pollution In Force” by Emily Bourneof DLA Piper Rudnick. This article sets outand explains the provisions of Directive2005/35 and can be found at:

www.simsl.com/Articles/Rice1205.asp

www.simsl.com/Articles/EU_CrimPoll1205.asp

www.simsl.com/Articles/EU_CrimPoll1005.asp

Sea Venture newsletter Issue 4 17

The Supplementary Fund Protocol, which provides athird tier of oil pollution compensation up to SDR 750million (US$1,084 million) payable by signatory statesfrom a levy on oil imports, came into force on 3rdMarch 2005 in those 8 states that have signed theProtocol - Denmark, Finland, France, Ireland, Japan,Norway, Germany and Spain. Accordingly, STOPIA -the agreement whereby ship-owners voluntarily acceptthe first SDR 20 million (US$29 million) of anypollution liabilities irrespective of the size of the tanker- also came into force on that date. A number ofother States are expected to ratify the Protocol beforethe end of 2005.

The future of the CLC and Fund conventions wasagain considered at the IOPC Fund Assembly inOctober. A proposal by the UK and 10 other states toinstruct the Working Group to continue with a limitedrevision was supported by 23 states whereas theGreek proposal to terminate the mandate of theWorking Group was supported by 28 states. As aresult, the Assembly agreed that the Working Groupwould be shut down and revision of the regime wouldbe removed from the Assembly's agenda.

The International Group's proposal to extend STOPIAto all 1992 CLC states and to put in place amechanism to achieve an overall 50/50 sharing in thecost of all claims was accepted and was a key factor inreaching this decision. However, some statesremarked that this proposal was received too late forthe details to be considered fully at this meeting. TheInternational Group was, therefore, asked to workwith the IOPC Fund Secretariat and OCIMF to developa draft agreement or agreements to facilitate 50/50sharing overall which could be considered by theAssembly in early 2006.

In the meantime, the International Group was askedwhether it was possible to put the extended STOPIAscheme into effect as soon as possible. This work iscurrently underway, but because of the reinsuranceimplications it will not be feasible to put the entire50/50 agreement in place before 20th February 2006.

Article by Colin Williams (colin.williams@simsl.com)

Details of the Supplementary Fund and STOPIA weregiven in Sea Venture issues 1 and 2 which can beviewed on the Steamship Mutual website at:

Developmentsin theCLC/FundConventions

www.simsl.com/Sea_Venture/SeaVenture_Homepage.asp

The International Group

will be working with the

IOPC Fund and OCIMF

to facilitate 50/50 sharing

Sea Venture newsletter Issue 418

Suspected MARPOL Violations in the U.S. - The Human Cost

As a result of heightened post-September11th security measures, there has been asignificant increase in the scrutiny towhich vessels visiting the United Statesare being subjected. One result has beena rash of vessel and crew detentions aswell as criminal allegations and chargesagainst vessel owners, operators,managers, officers and crew in respect ofMARPOL violations.

The US Coast Guard and other US lawenforcement personnel are examining theuse and functionality of oily waterseparation systems and associatedrecords and logs more carefully than everbefore. The authorities have made it clearthat they will seek jail sentences formasters, chief engineers and other crewmembers accused of committingpollution offences, falsifying records,witness tampering and/or instructingcrew members to lie to the authorities.Even in the absence of a pollutionincident, the mere discovery of potentialby-passing paraphernalia, such as aflexible hose or suspicious fittings andpiping in the engine room, can trigger aGrand Jury investigation, detention ofcrew, withholding of the vessel'sCustoms Clearance and everythingpossible will be done to prosecutealleged criminal conduct. Offencescommonly charged include: Illegal by-

passing of the oily water separationsystem, "false entries" in the Oil RecordBook and related charges such asconspiracy, obstruction of justice andwitness tampering.

Following the traditional rules in maritimematters and alleged pollution incidents,criminal liability should be founded on an individual's mental status: wilful or knowing conduct and/or wilfulignorance. Regretfully, this does notappear to be the case for suspectedMARPOL violations in the U.S.; Rather, itis the authorities' position that MARPOLis a public health and welfare statutewhich obviates the need to show anycriminal intent for a company and/orindividual to be held responsible foralleged criminal conduct.

Few would argue that a company orindividual who intentionally pollutesshould not be punished in accordancewith the laws that they violate. However,in an increasing number of cases, theU.S. authorities have commenced full-blown investigations on the basis of littlemore than suspicion and, at times, as aresult of the findings of over-zealous ofCoast Guard investigators. Not only arethese investigations expensive, both interms of the costs of representing theowner and crew interests as well as the

Sea Venture newsletter Issue 4 19

cost of delay to the vessel, but suchactions have repeatedly resulted ininnocent crew members being arrestedas “material witnesses”, taken off thevessel in shackles and thrown into jailuntil they are released by a judge.Recently, there have been a number ofreported and confirmed instances wherecrew members have suffered seriousstress-related ailments, including heartattacks and even death, as a result ofsuch treatment. If it is, indeed, theintention of the U.S. authorities touphold public health and welfare ideals,surely the heavy-handed investigatoryand prosecutory techniques currentlybeing employed need to be revised inorder to ensure that such goals areachieved in a more humane manner.

In an article written for the SteamshipMutual website George Chalos of FowlerRodriguez Chalos considers the humancost of suspected MARPOL violations in

the U.S. and the steps which can betaken to minimise the impact on crew.George’s article can be found at:

Additional materials on Oily WaterSeparation issues the Steamship Mutualwebsite include:

Club Circular B.342 of June 2005:

“Oily Water Separation Offences - U.S.Prosecutions Continue” (article):

www.simsl.com/OWS_HumanCost1205.asp

www.simsl.com/Publications/Circulars/2005/B432.asp

www.simsl.com/Articles/OilyWater1105.asp

A shipowner whose vessel is involved inan accident due to pilot error whiletransiting the Panama Canal can claimdamages from the Panama CanalAuthority (“PCA”). The initialrequirement is for the vessel to stay inPanamanian waters during aninvestigative hearing into the causes ofthe accident by the PCA’s Board of LocalInspectors (“BLI”), which takes placewithin 24 hours of the incident andusually does not last more than a day.After an initial administrative claimprocedure within the PCA, the shipownermay pursue its claim judicially inPanama’s two maritime courts.

Administrative proceedings within thePCA must be brought within two yearsof the date of the accident. If theshipowner is not satisfied with the PCA’sfinal decision in the administrative claim,it has one year from the date suchdecision is rendered in writing tocommence judicial proceedings againstthe PCA in Panama’s maritime courts.The time taken by the PCA to resolve anadministrative claim varies according tothe circumstances of each case. It couldtake anywhere from a few months toseveral years. Factors which have abearing on the time taken include casecomplexity, claim amount and whetherthere are other pending administrative orjudicial claims arising from the sameincident; Crew, passengers, cargointerests and port operators may alsomake a claim against the PCA.

The Panamanian Maritime Courts havenow issued their first judgments in claimsinvolving the PCA. In the June 2005summary judgment in Societe Nationalede Transports Maritime (C.N.A.N.) v PCA,the Second Maritime Court found for theclaimant, the owners of the M/V “ElHadjar”. The Court declared any actionby the PCA to recover damages it hadsuffered as a result of the vessel strikinga light post at Cristobal’s breakwater inJune 2000 to be time barred. InSeptember 2005, in Zagora Ediki NaftikeEpihirisi v PCA, the Second MaritimeCourt issued a judgment finding the PCA60% at fault for an accident in January2001 involving the M/T “Neapolis” inwhich the BLI had previously determinedthe vessel to be squarely at fault and thePCA had denied all liability. A PCA pilotwas in control of the vessel when shecollided with the centerwall of PedroMiguel Locks causing damage to thelock, vessel and pollution. The PCA wasordered to pay US$479,865 plus interestbut, as a Government entity, the PCA isexempt by Panamanian law from legalcosts. Both judgments are currentlyunder appeal to the Supreme Court.

With thanks to Juan David Morgan Jr ofMorgan & Morgan, Panama City forpreparing this article.

Sea Venture newsletter Issue 4

Panama - First Judgments In ClaimsInvolving The Panama Canal Authority

20

New legislation implemented in Canada earlier thisyear is designed to catch polluters who werepreviously beyond the regulatory grasp. Vessels enroute to the USA, with its strict and punishingpollution measures, would dump oily waste off thecoast of Newfoundland. Although the dumping tookplace within Canada’s Exclusive Economic Zone or“EEZ” (the 200 mile territory off the coast) it wasoutside the Canadian territorial seas and the polluterscould not be prosecuted. Canada was seen as a “softhaven” for polluters; Discharged oily waste wouldwash up on Canadian shores where migrating birdscongregate and many of the birds died as a directresult of coming into contact with this contamination.

Bill C-15, An Act to Amend the Migratory BirdsConvention Act, 1994 and The CanadianEnvironmental Protection Act, 1999, was enacted lastMay and will allow regulators to prosecute pollutionoffences within Canada’s EEZ. The new legislation has extended not only the geographical ambit of theprevious regime but also the pool of those who can be held responsible to include agents and corporateofficers and directors, as well as implementing a system of substantially increased fines and prison sentences.

In an article written for the Steamship Mutual website,Peter Cullen of Stikeman Elliott LLP explains the natureof the new regime in greater detail. His article can befound at:

MaritimePollution inCanada -Extending theReach and Power ofProsecutors

Sea Venture newsletter Issue 4 21

www.simsl.com/Articles/CanadaPollution1205.asp

The English High Court was recently asked to decidewhether early redelivery in the case of a trip timecharter that provided “The Charterers guarantee aminimum 35 days’ duration .....” meant owners wereentitled to income equivalent to 35 days’ hire or, rather,to damages in respect of the balance of the charterperiod subject to the normal rules of mitigation.

Sacha Patel (sacha.patel@simsl.com) discusses thedecision in Miranos International Trading Inc v VOCSteel Services BV in an article written for theSteamship Mutual website:

Trip TimeCharter - AGuarantee ofIncome orMerelyDuration?

www.simsl.com/Articles/Miranos1205.asp

“Canada was seen as a

“soft haven” for polluters”

American Maritime attachment under“Rule B” is an extraordinary remedywhich permits pre-trial seizure of adefendant’s property on an ex partebasis. First approved by the SupremeCourt in 1825, the practice has been the subject of ongoing debate andcontroversy over the years. A Rule Battachment serves two purposes: first, it establishes “quasi in rem” jurisdictionover the defendant property owner;second, the property which is attachedprovides a fund from which a decree canbe paid after trial.

In 2002, the U.S. federal appeal court forthe Second Circuit (New York) held thatan “electronic fund” transfer (“EFT”) inthe hands of an intermediary bankconstituted attachable intangible propertyof the defendant. Such attachments can,however, generate controversy concerningwhether the actual cyber-transfer is“owned” by the defendant and within thedistrict from which the order ofattachment has issued.

In the recent case Aqua Stoli Shipping,Judge Rackoff held that various electronicfund transfers seized by the plaintiffpursuant to Rule B should be releasedfrom attachment because the “[p]laintiff’sability to collect a prospective judgmentwas remarkably secure”, given that the“defendant is a very large stablecompany with no demonstrative historyof failing to make good on judgments[and thus] attachment of EFTs will be asavailable post-judgment as it has beenpre-judgment.” The decision hasgenerated significant controversy, not the

least of which includes comparison to therecent rapid downfall of other “verylarge, stable” companies such as Enron,Worldcom and Arthur Andersen.

Roughly two months after the Aqua Stolidecision, another judge in New York’sSouthern District, Judge Crotty, decidedBlake Maritime, which also involvedattachment of electronic fund transfers.In upholding and maintaining theattachment, Judge Crotty noted, contraryto Aqua Stoli, that adding a “need” or“necessity” requirement to Rule Bconstitutes a re-writing of the law onmaritime attachments. The court notedthat the “need test” is not foundanywhere in Rule B. The Blake Maritimecase will not be appealed; however,Judge Crotty’s views are likely to beexamined by the Second Circuit on theappeal of the Aqua Stoli case. Until the“need” or “necessity” requirement isdecided there is the possibility of farmore challenges to Rule B attachments,and increased litigation of what hastraditionally been a ratherstraightforward process.

Rule B, coupled with its Supplementalcounterparts, has proved to be a dynamicremedy, whose utility only appears to begrowing, and is discussed in greaterdetail in an article on the SteamshipMutual website by Don P. Murnane, Jr. aPartner in Freehill Hogan & Mahar LLP,New York, and Michael Elliott, anAssociate in the same firm. The articlecan be found at:

U.S. - Developments in Rule B Attachment

www.simsl.com/Articles/RuleB1205.asp

Sea Venture newsletter Issue 422

Mid Year Review 2005

Members received the Mid Year Review in hard copy at the beginning of December. The Review provides anup-to-date picture of the Club’s progress in the currentfinancial year, covering developments in underwriting,investments, regulatory environment, reserves and theoutlook for 2006/07.

The Mid Year Review can be downloaded from theSteamship Mutual website at:

www.simsl.com/Publications/MidYearReview/MYR.asp

A Guide to Casualty Investigations & ClaimsHandling 2005/2006

The second version of this CD has now been produced.The 2005/2006 edition incorporates improvements basedon Members’ suggestions. The text of key conventions,contracts and indemnity forms have also been added.

This CD provides a video presentation describing howMembers and the Club should work together in the handlingof the main categories of P&I claims. Supporting text giveseasily understood explanations of key aspects of thecollection of evidence. Each claims-specific section of textgives easy access to examples of many of the documentsinvolved and is linked to the relevant Club Rule for thatparticular area of cover. In addition to the full text of theClub’s Rules and List of Correspondents, reference materialsand hyperlinks to useful internet resources are also included.

For further details about the Guide and how to obtain acopy see the Steamship Mutual website:

RecentPublications

• Measures to Counter Piracy, Armed Robbery andother Acts of Violence against Merchant Shippingwww.simsl.com/Articles/MCAGuidance1205.asp

• Piracy off Somali Coast www.simsl.com/Articles/SomaliaGuidance1105.asp

• Shift of Timber Deck Cargowww.simsl.com/Articles/TimberShift1205.asp

• Novorossiysk - Container and Ro-Ro Cargo Declarationswww.simsl.com/Articles/Novo_CargoDec1005.asp

• Hong Kong - Fluorspar www.simsl.com/Articles/Fluorspar1005.asp

• Rio de Janeiro and Niteroi Ports - Oil Operations www.simsl.com/Articles/RioDJ_OilOps1005.asp

• Turkey - Pollution Fines www.simsl.com/Articles/Pollution_Turkey0104.asp

Articles Published on the SteamshipMutualWebsite

Sea Venture newsletter Issue 4 23

www.simsl.com/Publications/ClaimsHandling/Claims_Handling.asp

For further information please contact:

Steamship Insurance Management Services LimitedAquatical House,39 Bell Lane, London E1 7LU. Telephone: +44 (0)20 7247 5490 and +44 (0)20 7895 8490 Email: seaventure@simsl.com

Website: www.simsl.com