ICLG · 2019-08-23 · ICLG A practical cross-border insight into shipping law 7th Edition....

ICLG

A practical cross-border insight into shipping law7th Edition

Shipping Law 2019The International Comparative Legal Guide to:

Published by Global Legal Group, with contributions from:

A. KARITZIS & ASSOCIATES L.L.C Advokatfirmaet Selmer AS Ana Cristina Pimentel & Associados, Sociedade de Advogados, SP RL Arias, Fábrega & Fábrega Banwo & Ighodalo BLACK SEA LAW COMPANY Clyde & Co LLP D. L. & F. DE SARAM DANIOLOS LAW FIRM Dardani Studio Legale DELVISO-AVOCATS Dingli & Dingli Emirates Maritime Arbitration Centre (EMAC) Esenyel|Partners Lawyers & Consultants Estudio Arca & Paoli Abogados Fernandes Hearn LLP Foley Gardere, Foley & Lardner LLP

FRANCO & ABOGADOS ASOCIADOS FRANCO DUARTE MURILLO ARREDONDO LÓPEZ RANGEL Harris & Co. HFW Australia Hill Dickinson LLP Ince Jensen Neugebauer Jipyong LLC Kegels & Co KOCH DUKEN BOËS Lee and Li, Attorneys-at-Law Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados Meana Green Maura y Asociados SLP (MGM&CO.) Morais Leitão, Galvão Teles, Soares da Silva & Associados (Morais Leitão) Mulla & Mulla & Craigie Blunt & Caroe NAVICUS

Noble Shipping Law Q.E.D INTERLEX CONSULTING SRL Rolmax Law Office Rosicki, Grudziński & Co. Sabatino Pizzolante Abogados Marítimos & Comerciales Shepstone & Wylie Attorneys SSEK Indonesian Legal Consultants ThomannFischer Tomasello & Weitz Van Traa Advocaten N.V. VdA VUKIĆ & PARTNERS Yoshida & Partners

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The International Comparative Legal Guide to: Shipping Law 2019

General Chapters:

Country Question and Answer Chapters:

1 Key Recent Shipping Cases in the English Courts – Andrew Bicknell & Hatty Sumption,

Clyde & Co LLP 1

2 The Changing Face of Maritime Law and Risk – Cyber, E-Commerce, Automation of Vessels –

Julian Clark, Hill Dickinson LLP 7

3 The (Likely) Execution of the United States-Mexico-Canada Agreement (USMCA) –

Alejandro N. Gómez-Strozzi, Foley Gardere, Foley & Lardner LLP 13

4 Portuguese Tonnage Tax – Enhancing Shipping in Portugal – Cátia Henriques Fernandes,

Morais Leitão, Galvão Teles, Soares da Silva & Associados (Morais Leitão) 15

5 EMAC and the Development of Maritime Arbitration in the UAE – Jyothi Mani,

Emirates Maritime Arbitration Centre (EMAC) 19

6 BIMCO on 2020 – Charter Parties and Bunker Contracts – Mads Wacher Kjærgaard & Nina Stuhrmann,

BIMCO 23

7 Ensuring Competitive and Fair Shipping Markets – Mark Jackson, The Baltic Exchange 28

8 Angola VdA: João Afonso Fialho & José Miguel Oliveira 30

9 Australia HFW Australia: Nic van der Reyden & Hazel Brewer 36

10 Belgium Kegels & Co: André Kegels 43

11 Brazil Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados: Nilton Mattos &

Flávio Spaccaquerche 51

12 Canada Fernandes Hearn LLP: James Manson 57

13 Chile Tomasello & Weitz: Leslie Tomasello Weitz 63

14 China Rolmax Law Office: Hector Fan & Captain Guimin Qiao 68

15 Colombia FRANCO & ABOGADOS ASOCIADOS: Javier Franco 75

16 Croatia VUKIĆ & PARTNERS: Gordan Stanković 80

17 Cyprus A. KARITZIS & ASSOCIATES L.L.C: Antonis J. Karitzis &

Zacharias L. Kapsis 85

18 Denmark Jensen Neugebauer: Mads Poulsen 92

19 Dominican Republic Q.E.D INTERLEX CONSULTING SRL: Luis Lucas Rodríguez Pérez 98

20 France DELVISO-AVOCATS: Henri Najjar 104

21 Germany KOCH DUKEN BOËS: Dr. Axel Boës & Henrike Koch 110

22 Greece DANIOLOS LAW FIRM: John Markianos-Daniolos 116

23 India Mulla & Mulla & Craigie Blunt & Caroe: Shardul Thacker 122

24 Indonesia SSEK Indonesian Legal Consultants: Dyah Soewito & Stephen Igor Warokka 130

25 Ireland Noble Shipping Law: Helen Noble 136

26 Israel Harris & Co.: John Harris & Yoav Harris 142

27 Italy Dardani Studio Legale: Marco Manzone & Lawrence Dardani 147

28 Japan Yoshida & Partners: Norio Nakamura & Taichi Hironaka 153

29 Korea Jipyong LLC: Choon-Won Lee & Dahee Kim 158

30 Malta Dingli & Dingli: Dr. Tonio Grech & Dr. Fleur Delia 164

31 Mexico FRANCO DUARTE MURILLO ARREDONDO LÓPEZ RANGEL:

Rafael Murillo 169

32 Mozambique VdA: João Afonso Fialho & José Miguel Oliveira 173

33 Netherlands Van Traa Advocaten N.V.: Vincent Pool & Jolien Kruit 179

Contributing Editor

Andrew Bicknell, Clyde & Co LLP

Sales Director

Florjan Osmani

Account Director

Oliver Smith

Sales Support Manager

Toni Hayward

Sub Editor

Jane Simmons

Senior Editors

Caroline Collingwood Rachel Williams

CEO

Dror Levy

Group Consulting Editor

Alan Falach

Publisher

Rory Smith

Published by

Global Legal Group Ltd. 59 Tanner Street London SE1 3PL, UK Tel: +44 20 7367 0720 Fax: +44 20 7407 5255 Email: [email protected] URL: www.glgroup.co.uk

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Disclaimer

This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

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The International Comparative Legal Guide to: Shipping Law 2019

Country Question and Answer Chapters: 34 Nigeria Banwo & Ighodalo: Kashimana Tsumba & Tenilola Olowu 185

35 Norway Advokatfirmaet Selmer AS: Norman Hansen Meyer & Nils Bugge 190

36 Panama Arias, Fábrega & Fábrega: Jorge Loaiza III 196

37 Peru Estudio Arca & Paoli Abogados: Francisco Arca Patiño &

Carla Paoli Consigliere 208

38 Poland Rosicki, Grudziński & Co.: Maciej Grudziński & Piotr Rosicki 214

39 Portugal Ana Cristina Pimentel & Associados, Sociedade de Advogados, SP RL:

Ana Cristina Pimentel 221

40 Russia NAVICUS: Konstantin Krasnokutskiy 226

41 South Africa Shepstone & Wylie Attorneys: Edmund Christian Greiner &

Pauline Helen Kumlehn 232

42 Spain Meana Green Maura y Asociados SLP (MGM&CO.): Jaime Soroa &

Edmund Sweetman 238

43 Sri Lanka D. L. & F. DE SARAM: Jivan Goonetilleke & Savantha De Saram 244

44 Switzerland ThomannFischer: Stephan Erbe 251

45 Taiwan Lee and Li, Attorneys-at-Law: Daniel T.H. Tsai 255

46 Turkey Esenyel|Partners Lawyers & Consultants: Selcuk S. Esenyel 260

47 Ukraine BLACK SEA LAW COMPANY: Evgeniy Sukachev & Anastasiya Sukacheva 265

48 United Arab Emirates Ince: Mohamed El Hawawy 271

49 United Kingdom Clyde & Co LLP: Andrew Bicknell & Hatty Sumption 277

50 USA Foley Gardere, Foley & Lardner LLP: Peter A. McLauchlan &

Anacarolina Estaba 283

51 Venezuela Sabatino Pizzolante Abogados Marítimos & Comerciales:

José Alfredo Sabatino Pizzolante & Iván Darío Sabatino Pizzolante 293

EDITORIAL

Welcome to the seventh edition of The International Comparative Legal Guide to: Shipping Law. This guide provides corporate counsel and international practitioners with a comprehensive worldwide legal analysis of shipping laws and regulations.

It is divided into two main sections:

Seven general chapters, which explore topical issues affecting shipping law from a cross-border perspective.

Country question and answer chapters. These provide a broad overview of common issues in shipping laws and regulations in 44 jurisdictions.

All chapters are written by leading shipping lawyers and industry specialists, and we are extremely grateful for their excellent contributions.

Special thanks are reserved for the contributing editor Andrew Bicknell of Clyde & Co LLP for his invaluable assistance.

Global Legal Group hopes that you find this guide practical and interesting.

The International Comparative Legal Guide series is also available online at www.iclg.com.

Alan Falach LL.M.

Group Consulting Editor

Global Legal Group

[email protected]

1

Chapter 1

Clyde & Co LLP Hatty Sumption

Key Recent Shipping Cases in the English Courts

Of the shipping cases decided in the English Courts during the last

year, three decisions in particular have attracted significant interest

both from commentators and those in the industry. This article

summarises the findings in those cases, comprising decisions of the

Supreme Court, the Court of Appeal and the Admiralty Court. In

addition to the importance of each of the cases from a legal and

commercial perspective, a further connecting factor is that in each

of the three disputes Clyde & Co acted for the successful party.

The three decisions are:

■ Volcafe Ltd v CSAV [2018] UKSC 61 This highly significant decision of the Supreme Court

provides important clarification of the law regarding the

burden of proof in cargo claims. The case considers the

scope of the Hague Rules, the extent of the carrier’s duties

and the importance of burdens of proof, with particular

reference to containerised cargoes – in this case involving

coffee. The central issue in the case is what must cargo

interests prove in order to set up a sustainable claim against a

carrier for damage to cargo under the Hague Rules, and what

the carrier must then prove in order to establish a defence

(particularly with respect to the inherent vice defence).

■ The “PACIFIC VOYAGER” [2018] EWCA Civ 2413 This decision of the Court of Appeal considers the allocation of

risk for delay in the commencement of an approach voyage

before a vessel enters into its chartered service, particularly

where owners have agreed to take on, or are already engaged in,

a preceding fixture. It is established law that, where a voyage

charterparty contains an obligation on an owner to proceed with

‘utmost despatch’ (occasionally framed in terms of proceeding

‘with all convenient speed’), there is an absolute obligation on

the owner to commence the approach voyage by a date when it

is reasonably certain that the vessel will arrive at the loading port

on or around the ETRL or the ETA. However, until now, it has

been unclear as to whether similar obligations arise where there

is no provision as to ETRL or ETA at the loading port. The Court

of Appeal has now confirmed that the general principle remains

the same, irrespective of whether the charterparty contains an

ETRL, ETA or other provision: the duty arises either ‘forthwith’

or within a ‘reasonable period’ of the date of the charter.

■ The ‘CMA CGM LIBRA’ [2019] EWHC 481 In a recent case before the English Admiralty Court, cargo insurers

successfully defended a shipowner’s claims for contributions in

General Average by establishing the unseaworthiness of the

vessel. The usual test of unseaworthiness is whether a prudent

owner would have required the relevant defect, had he known

of it, to be made good before sending his ship to sea. The

question that arose in this case was whether a prudent owner

would have required defects in the vessel’s passage plan to be

corrected before the vessel sets out to sea. The case is

particularly notable for the fact that prior to this decision,

there had been no case in which a defective passage plan had

been held to render a vessel unseaworthy.

Volcafe Ltd v CSAV [2018] UKSC 61

The claims in this case arose from damage to nine consignments of

coffee beans transported by the defendant’s container line operator

(the carrier) from Buenaventura, Colombia, to Northern Germany.

The cargo was shipped on LCL/FCL terms, meaning the containers

were provided and stuffed by the carrier. This is one of the unusual

features of this case given that it is not usual for the carrier to stuff

containers. To prepare the containers, stevedores lined the corrugated

steel walls with Kraft paper prior to stuffing.

Clean bills of lading were issued by the carrier which recorded

receipt of the consignments in good order and condition. Given that

the carrier packed the container, the issue of a clean bill of lading

was of particular significance as this provided good evidence of the

undamaged nature of the cargo at the time of loading.

On arrival at the destination, each consignment had suffered damage

from condensation which had resulted from internal warm moist air

coming into contact with the cold container roof. The condensation

then dripped from the roof and ran down the container walls,

wetting the top and sides of the cargo. A significant part of the

claims was not for the damaged beans themselves, but for ancillary

costs of inspection and sorting of bags containing damaged beans or

showing external signs of wetting. The total value of the claims was

agreed by the parties as $62,500.

In the proceedings that followed, the Courts were well aware that

the fact that such a relatively small claim was contested by cargo

underwriters and the carrier’s P&I club was due to the possible

wider implications of its result as much as any monetary recovery.

With this in mind, the Judge, at first instance, noted that the

proceedings ‘were prepared and fought as if the claims were ten times higher in value’. Condition 2 of the bills of lading contained a standard Clause

Paramount which made the carriage subject to the Hague Rules as

regards the carriage by sea. Such carriage is defined by Article I (e)

of those Rules as ‘the period from the time when the goods are loaded on to the time they are discharged from the ship’.

The alleged failure of the carrier

Where the carrier stuffs the container, it was argued by the cargo

interests that they should have sufficient knowledge of the

characteristics of the cargo to prepare it for carriage. In this case

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Andrew Bicknell

they ‘dressed’ the container using Kraft paper to absorb the moisture

that would be released from the coffee beans.

The survey report and photographs taken on arrival at the

destination showed that there had been extensive wetting of the

bagged coffee beans and the Kraft paper soaked with condensation.

The cargo interests argued that the cargo was:

■ loaded in good order and condition (as evidenced by the clean

bill of lading);

■ discharged in wet/deteriorated condition as shown in the

survey report and photographs; and

■ that the carrier failed to ‘properly care’ for the cargo due to

inadequate dressing of the container with insufficient or

inferior Kraft paper.

The carrier argued that the dressing was adequate and that the

damage was caused by inherent vice of the cargo on the basis that

the moisture originated from the cargo itself.

Why the burden of proof mattered

The High Court (first instance) is responsible for making findings of

fact. The Deputy Judge’s conclusions were that the evidence did not

establish what weight of paper was used for these shipments, nor did

it establish how many layers were used.

The importance of the factual findings was that it was not clear on

the evidence whether adequate dressing and loading of the container

had taken place. These findings were therefore important in placing

the legal effect of the burden of proof at the very centre of the case:

was it the claimant which had failed to discharge the burden of proof

in establishing its claim or the defendant which had failed to

establish its defence?

In other words, the Court had to determine:

1. whether the carrier failed to prove they had taken adequate

steps to care for the cargo; or

2. whether the claimant failed to prove the carrier had been

negligent.

At first instance, the cargo interests clearly satisfied stage 1 of the

burden of proof by showing that the goods were loaded in good

order and condition and delivered in damaged condition.

However, at stage 2 the Judge held that the burden of proof on the

carrier had not been met; the obligation was on the carrier to

properly and carefully carry the cargo and this meant the correct

implementation of a sound system for doing so. In a case such as

this where the carrier sought to rely on inherent vice, the obligation

was also on them to disprove their negligence. The Judge held that

the carrier had not been able to do so and that the claim therefore

succeeded.

The first instance decision was reversed by the Court of Appeal

which took what might be described as a ‘back and forth’ approach

regarding the burden of proof. The Court held that the first stage

was for the claimant to show that the cargo had been shipped in

good order and condition and delivered in damaged condition. At

the second stage, it fell to the carrier to explain what happened to the

goods and to establish a prima facie defence based on an Article IV R2 ‘excepted peril’ – in this case, inherent vice. The Court then

identified a third stage whereby the burden of proof reverted back to

the claimant who would then have to establish that the Article IV R2

exception did not apply because of the carrier’s negligence.

The Supreme Court

Given the importance of the issue, cargo interests therefore appealed

to the Supreme Court and the decision of that Court was to overrule

the Court of Appeal and to confirm that the correct approach to the

issue of the burden of proof in cargo claims under the Hague Rules is

– as the first instance Judge had held – to follow a two-stage process:

■ First, cargo interests must show that the goods were loaded in

good order and condition and delivered in damaged

condition.

■ Once that has been established, the second stage places the

burden on the carrier of disproving negligence under both

Article III.2 and, where relevant, Article IV.2 of the Hague

Rules.

In the present case, it followed that the carrier had failed to

discharge this burden of proving the exercise of reasonable care for

the cargo in respect of the preparation of the containers to prevent

condensation damage and the carrier was therefore held liable to the

cargo claimants.

The clarification found in this important ruling should be a welcome

development for cargo insurers and P&I Clubs alike, given the

increased certainty it provides for future Hague Rules cases, with

cargo interests likely to be placed in the more advantageous position

going forward. It also reflects both common sense and the commercial

realities of the carriage of goods by sea that the legal burden of proof

should be placed on carriers to have to account for the

circumstances of cargo damage when they are the best-placed, and

often only, party in a position to account for – and prevent – what

happens during the carriage.

The “PACIFIC VOYAGER” [2018] EWCA Civ 2413

It is established law that, where a voyage charterparty contains an

obligation for an owner to proceed with ‘utmost despatch’ (occasionally framed in terms of proceeding ‘with all convenient speed’), there is an absolute obligation on the owner to commence the approach voyage by a date when it is reasonably certain that the vessel

will arrive at the loading port on or around the ETRL or the ETA. The

usual charterparty exceptions, thus, only apply once the approach

voyage is commenced and cannot avail an owner prior to this point.

The fundamental principles underlying this body of case law

originated with the case of Monroe v Ryan, in which the Court of Appeal held that:

‘where a voyage charterparty contains an obligation on an owner to proceed with all convenient speed to a loading port and gives a date when the vessel is expected to load, there is an absolute obligation on the owner to commence the approach voyage by a date when it is reasonably certain that the vessel will arrive at the loading port on or around the expected readiness to load date.’

An absolute obligation would mean that owners have no defence if

the vessel does not reach the load port in time, even if they had made

all reasonable efforts to do so.

In subsequent cases, the Monroe obligation has been held to arise where:

■ The owner’s obligation is simply to proceed to the loading port

without any reference to speed or despatch, it being implied

that such obligation is to do so with all convenient speed or

utmost despatch (Louis Dreyfus & Co v Lauro [1938]).

Clyde & Co LLP Key Recent Shipping Cases in the English Courts

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■ What is given is an estimated time of arrival at the loading

port rather than of expected readiness to load (The

“MYRTOS”) [1984]).

■ The vessel is, at the time of charter, still performing her

previous service to the knowledge of the parties (The

“NORTH ANGLIA”) [1956]).

Until now, it has been unclear as to whether similar obligations arise

where there is no provision as to ETRL or ETA at the loading port.

Prior to the “PACIFIC VOYAGER”, the leading textbooks had acknowledged this area of uncertainty but suggested that the

obligation for timely commencement of the approach voyage

probably did arise even in the absence of specified ETRL/ETA.

Voyage Charters at paragraph 4.12 states:

“It is unclear whether, under those charters which do not contain any ‘expected ready’ date or ‘estimated time of arrival’ but merely a cancelling clause, the owner is under an obligation to commence the approach voyage in such time that the ship, if proceeding normally, will be able to meet the cancelling date. The reasoning in the decisions on the ‘expected ready’ provision suggests that such an obligation probably does arise, and this view has been adopted by London arbitrators.”

Facts

The “PACIFIC VOYAGER” was chartered for a voyage from

Rotterdam, or ship-to-ship transfers off Rotterdam to the Far East.

At the time of the fixture, the vessel was carrying cargo under a

previous charter under which she was shortly to discharge part of

her cargo in Egypt, thereafter go to Alexandria to reload a part cargo

and thence proceed to Antifer, Le Havre for final discharge.

The charterparty terms were contained in a fixture recap which

adopted the Shellvoy 5 form, subject to amendments. The relevant

terms of the charterparty included:

(i) clause 3, which provided that ‘…the vessel shall perform her service with utmost despatch and shall proceed to [loadport]…and there…load a full cargo’; and

(ii) clause 11, which was a cancelling clause entitling the

charterers to cancel the charterparty at 23.59 on 4 February

2015 if the vessel failed to meet the laycan.

Of particular note was that the charterparty contained no provisions

relating to ETRL/ETA dates, although the terms in the fixture recap

gave ETAs at the intermediate ports on the previous voyage with 25

January 2015 provisioned for final discharge of previous cargo at

Antifer.

On her way to discharge this cargo, she hit a submerged object in the

Suez Canal and suffered rapid water ingress into a no 1 starboard

ballast tank. This incident was attributed to contact with an

underwater obstruction connected with dredging operations being

undertaken nearby.

There was no suggestion that the vessel or the owner was in any way

at fault or could have avoided the incident. An underwater survey

confirmed that the vessel had to discharge her cargo and enter

drydock for repairs, which owners anticipated would take in the

order of ‘months’.

Charterers terminated the charterparty and claimed damages

accordingly. Quantum for charterers’ claim was agreed in the

amount of US$1,202,812.50 and the issue in the proceedings was

whether, in these circumstances, the owners’ failure to commence

the approach voyage by a specific date was a breach of the

charterparty.

Arguments

The charterers submitted that the laycan window identified the time

at which the parties expected the vessel to arrive at the loading port

and was therefore equivalent to an ETA for the purposes of the

Monroe obligation. The cancelling date therefore provided the date by reference to which there was an absolute obligation on the

owners to commence the approach voyage. The owners were

accordingly in breach of charter in failing to commence the

approach voyage by the cancelling date.

The owners accepted that if the charter had contained an ETA at the

loading port, they would have been under an implied absolute

obligation to commence the approach voyage by a date when it was

reasonably certain that the vessel would arrive at the loading port on

or around the expected readiness to load date. However, no such

implication fell to be made in the present charter because no such

estimate had been given by the owners.

The owners asserted that a cancelling date was not, and was not

equivalent to, an estimate on their part of an arrival date at the load

port. It was merely a contractual option afforded to the charterers if

the vessel should not arrive by that date. Where, as here, no ETA

had been contracted it followed that the only relevant obligation on

owners was an implied term that they would exercise due diligence

to get the vessel to the loading port by the cancelling date.

High Court

At first instance in the High Court, Popplewell J found that the duty

to proceed to loadport arises at a particular point in time, which is

within a reasonable period of time, to be determined as a matter of

construction of the charterparty terms. Taking this as a starting

point, Popplewell J found that on the particular wording of the

charter, the ETA which provided for the vessel’s final discharge at

Antifer under the previous charter could be used to derive the time

at which the vessel could be expected to commence her approach

voyage (namely, following anticipated discharge at Antifer). As

owners did not commence the voyage on or around that date, they

were in breach and the charterers were entitled to damages

accordingly.

Popplewell J noted, obiter, that if there had been no ETA for the previous port, owners would have been obliged to commence the

approach voyage by a date when it was reasonably certain that the

vessel would arrive at the loading port by the cancelling date.

Court of Appeal

The Court of Appeal unanimously upheld Popplewell J’s decision at

first instance. Longmore LJ acknowledged that every charterparty

must be construed on its own terms, but noted that the shipping

world required authoritative guidance in the interests of business

certainty. As such, the general principles of policy which underpin

the previous decisions (such as Monroe v Ryan) should be regarded as ‘helpful guides’ against which the contractual terms ought to be construed.

It was noted that the obligation of utmost despatch was an important

one and was intended to give comfort to charterers. Such an

obligation would be meaningless if some time for sailing was not

put in. This meant that the vessel must either proceed ‘forthwith’ at

the date of the charter or ‘within a reasonable time’. In this instance,

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the inclusion of the itinerary in the form of ETAs from the previous

charter meant that ‘forthwith’ could not have been meant. Instead,

one had to look at the terms of the charterparty to ascertain what a

reasonable time would be. Whilst in some charters this could be

ascertained by reference to the ETRL, Longmore LJ held that ‘there is no particular magic in the concept of a date of expected readiness to load ’ and that this was simply a guide to working out what a reasonable time would be. In this case, the itinerary was the best

guide.

In other words, the general principle remains the same, irrespective

of whether the charterparty contains an ETRL, ETA or other

provision: the duty arises either ‘forthwith’ or within a ‘reasonable

period’ of the date of the charter. If a charter contains an ETA/ETRL

for the loadport, then a ‘reasonable period’ will be the date the vessel

must leave to allow her to arrive at the loading port on or around the

ETRL or ETA. If a charter contains an ETA for the previous

discharge port or an itinerary for the previous charter (as was the

case for the ‘Pacific Voyager’), the reasonable time would be such

time as it is reasonable to suppose the vessel would leave for the

loadport once a reasonable time for discharging had elapsed at the

previous port.

The ‘CMA CGM LIBRA’ [2019] EWHC 481

The usual test of unseaworthiness is whether a prudent owner would

have required the relevant defect, had he known of it, to be made

good before sending his ship to sea. The question that arose in this

case was whether a prudent owner would have required defects in

the vessel’s passage plan to be corrected before the vessel set out to

sea.

The owners argued that a defective passage plan did not itself make

a ship unseaworthy. They suggested that whereas a ship may be

unseaworthy because the vessel lacked the necessary means and

material for a proper passage plan to be drawn up, by contrast the

negligent preparation by the crew of a defective passage plan was

not an element of seaworthiness.

The cargo interests argued that the vessel was unseaworthy by

reason of the fact that she had an inadequate passage plan. They

argued that this inadequacy was a cause of the casualty, that due

diligence was not exercised to make the vessel seaworthy and that

on this basis the casualty was caused by the owners’ actionable fault

(a breach of Article III R1 of the Hague Rules) and so cargo interests

were not liable to contribute in GA pursuant to the York Antwerp

Rules.

The case is particularly notable for the fact that prior to this decision

there had been no case in which a defective passage plan had been

held to render a vessel unseaworthy. Part of the reason for this may

well be – as the Judge identified – that there have been significant

recent developments designed to improve the safety of navigation

that impacted on the nature of the obligations of seaworthiness in

relation to passage planning:

■ The first such development is the recognition by IMO in 1999

that voyage or passage planning should apply to all ships

engaged on international voyages – it followed that the

practice of passage planning was therefore well-established

by the time of this casualty in 2011.

■ The second factor is the use by ships of electronic charts

displayed on an ECDIS, that is, an Electronic Chart Display

and Information System.

It followed that the established principles with regard to

seaworthiness and the duty of due diligence pursuant to Article III

R1 of the Hague Rules had to be applied in this case in the context

of these developments.

Facts

On the night of 17/18 May 2011 the large container vessel ‘CMA

CGM LIBRA’ departed from the Chinese port of Xiamen bound for

Hong Kong and Europe laden with 8,950 TEU of containerised

cargo with a value in excess of US$500 million. She also had on

board almost 8,000 tons of bunkers.

Shortly after dropping the pilot, the vessel’s master sailed out of the

recognised dredged channel marked by lit buoys, resulting in the

vessel grounding at a speed of around 12 knots on a shoal that the

vessel’s owners (CMA CGM) alleged was uncharted.

The vessel was subsequently refloated by professional salvors

operating under a Lloyd’s Open Form salvage contract and following

an underwater inspection was found to have suffered little or no

damage. She proceeded on her voyage to Hong Kong and then Europe.

CMA CGM funded the salvage operation in the first instance and

declared General Average to recover the amount of the salvors’

remuneration (together with other elements of General Average

expenditure said to have been incurred) that would otherwise be

paid by cargo interests. The total amount of General Average

expenditure was in excess of US$13 million, of which US$9.5

million was the amount paid to the salvors by CMA CGM.

Approximately 92% of the owners/insurers of cargo on board at the

time agreed to pay General Average in full, alternatively with a very

small discount of 1.5%. The remaining (approximately) 8% chose

not to pay, alleging there was actionable fault (Rule D of the York-

Antwerp Rules) on the part of CMA CGM, which would give them

a complete defence to the General Average claim. Clyde & Co

advised and acted for these cargo interests.

CMA CGM refused to accept that they were responsible for the

casualty and commenced legal proceedings in the London

Admiralty Court to recover approximately US$800,000 from the

non-paying cargo interests.

At the trial the cargo interests submitted that: (1) the vessel was

unseaworthy before and at the beginning of the voyage because it

carried a defective passage plan; (2) due diligence to make the

vessel seaworthy was not exercised by the owners because the

master and second officer failed to exercise reasonable skill and care

when preparing the passage plan; and (3) that the defective passage

plan was causative of the grounding of the vessel.

The passage plan

The Court held that the vessel’s passage plan was inadequate. In

addition to a number of arguably minor errors and inconsistencies that

demonstrated a lack of attention to detail that were perhaps not causative

of the grounding, it did not refer to the existence of a crucial Preliminary

Notice to Mariners (NM6274/P10). This Preliminary Notice had been

issued by the UKHO approximately five months before the grounding,

alerting mariners to the presence of numerous depths less than charted in

the approaches to Xiamen and confirming that the charted depths within

the dredged channel were sufficient for the vessel.

Moreover, contrary to CMA CGM’s requirements (and those of the

industry) the passage plan did not refer to any ‘no-go areas’ which

had not been marked or identified on the chart. During his evidence

given at trial, the vessel’s master confirmed that had the chart been

marked up with the appropriate ‘no-go areas’ he would not have left

the channel and attempted to execute the manoeuvre that ultimately

led to the stranding of the vessel.

The vessel’s passage plans for a number of previous voyages to and

from Xiamen also contained similar failings.



Unseaworthiness

Teare J confirmed that the usual test of unseaworthiness is whether

a prudent owner would have required the relevant defect, had he

known of it, to be made good before sending his ship to sea.

Applying that test in the context of considering a passage plan, the

Judge referred to the IMO Resolution of 1999, which stated that a

‘well planned voyage’ is of ‘essential importance for safety of life at

sea, safety of navigation and protection of the marine environment’.

On this basis, the Judge took the view that one would expect that the

prudent owner – if he had known that his vessel was about to

commence a voyage with a defective passage plan – would have

required the defect to be made good before the vessel set out to sea.

CMA CGM submitted that the preparation of a defective passage plan is

an ‘error of navigation’ (which is relevant only to the carrier’s exemption

at Article IV R2(a) of the Hague (or Hague-Visby) Rules) and is not an

aspect of seaworthiness under Article III R1. However, the court did not

accept CMA CGM’s argument and noted that seaworthiness includes

having on board appropriate documentation, including the appropriate

chart. Like an up-to-date chart, an adequate passage plan is a crucial

document which is required at the commencement of the voyage

(particularly in light of developments designed to improve the safety of

navigation, including IMO Guidelines for Voyage Planning) and is

therefore a key aspect of seaworthiness.

Causation and due diligence

The final questions for the Court to consider were whether the

unseaworthiness was causative of the grounding and whether the

owners had been able to establish the exercise of due diligence to

make the vessel seaworthy. On both points the Court held in favour

of cargo interests.

On causation, the Judge held that the absence of an adequate

passage plan was causative of the grounding on the basis that if there

had been a warning on the working chart about charted depths being

unreliable, the master would not have attempted the manoeuvre that

he did outside the buoyed fairway.

Regarding due diligence, the Court reviewed the relevant authorities

and noted that it has long been recognised that in order to comply

with Article III R1 it is not sufficient that the owner has itself

exercised due diligence to make the ship seaworthy. It must be

shown that those servants or agents relied upon by the owner to

make the ship seaworthy have done so, as the duty is non-delegable.

The provision of a proper passage plan is necessary to ensure, so far

as reasonably possible, that the vessel will be safely navigated. The

master and second officer could, by the exercise of reasonable care

and skill, have prepared a proper passage plan and as such due

diligence was not exercised.

Accordingly, there was actionable fault on the part of CMA CGM

and the cargo interests were not liable to contribute in General

Average, resulting in a considerable saving for the cargo insurers

concerned. This is particularly important in an environment where

cargo insurance rates are under pressure.

Following this judgment, shipowners will have to ensure that,

through its agents and servants, due diligence is exercised to

produce a non-defective passage plan that clearly contains the

necessary warnings. Failure to do so, if causative of a casualty, will

not be excused by the negligent navigation exception under Article

IV R2(a) of the Hague Rules, which cannot be applied where a

shipowner has failed to exercise due diligence to make the vessel

seaworthy.

ICLG TO: SHIPPING LAW 2019 5WWW.ICLG.COM



Andrew Bicknell Clyde & Co LLP The St Botolph Building 138 Houndsditch London, EC3A 7AR United Kingdom Tel: +44 20 7876 5000 Email: [email protected] URL: www.clydeco.com

Hatty Sumption Clyde & Co LLP The St Botolph Building 138 Houndsditch London, EC3A 7AR United Kingdom Tel: +44 20 7876 5000 Email: [email protected] URL: www.clydeco.com

Andrew is a Partner in the Marine International Trade group specialising in shipping and insurance litigation. He has broad experience of marine disputes, acting principally for insurers, charterers, shipowners and traders. He has been involved in a number of high-profile casualty cases, including collisions, groundings and ship fires. He has also been involved in construction disputes including those involving the building of FPSOs and platforms.

Hatty is a Partner in the Marine International Trade group. Her core areas of practice are shipping and commodity trading disputes (predominantly oil, coal and metals trading, although she also has experience of biofuels, grains and fertilisers) and related charterparty, bill of lading, letter of credit and ship sale and purchase matters. Hatty has extensive experience of high court and arbitration proceedings, acting for clients in mediations and in multi-jurisdictional cases involving working closely with foreign lawyers and overseeing proceedings in other jurisdictions.



Clyde & Co has one of the world’s largest shipping practices with over 150 specialist marine lawyers based in trading hubs around the globe, on call and serving clients’ requirements in all time-zones at any time of day.

We act for the heart of the maritime industry – shipbuilders, owners, charterers, salvors, financiers, port authorities and government, P&I clubs and insurers – and clients across the broader trade commodities and energy sector.

No other law firm can match Clyde & Co’s combined size of practice, in-depth industry knowledge, specialist shipping expertise and global reach – adding up to an unrivalled collective offering in the maritime industry. Wet or dry, contentious or non-contentious – our cradle-to-grave industry approach means that we stand alongside clients through the full corporate lifecycle; from establishment and commercial operations through to dispute resolution and corporate exit options.

7

Chapter 2

ICLG TO: SHIPPING LAW 2019 WWW.ICLG.COM

Hill Dickinson LLP Julian Clark

The Changing Face of Maritime Law and Risk – Cyber, E-Commerce, Automation of Vessels

Introduction

The global maritime industry is continuing to experience a

technological revolution that is creating significant change in the

way in which maritime trade is conducted. The sector is one which

has seen continued and dramatic change since the time when the

very first vessels put to sea. Developments in technology,

operations, safety management and the needs and requirements of

international global trade, have all had their part to play. However,

what the industry is facing today is unprecedented both in terms of

speed of development, impact, advancement and effect.

Operators in the industry are facing ever-increasing pressure to

leave behind what is perceived as the “traditional shipping

approach”, and to adopt mechanisms which (it is intended) will

improve profitability, efficiency and operations in a world where

almost everything is now managed and operated by digital means.

We are living in a time of increased and swift technological

evolution, the results of which are going to be revolutionary and will

create a whole new playing field of wealth of opportunity – both for

those involved in the established areas of the sector, and also in

areas that have not traditionally been associated with maritime

trade.

For centuries, the shipping industry has been open to change and

innovation, albeit often at a slower pace than other transport

industries. Today, however, advances in technology, and the

development of a new digitalised era, have made it impossible for

shipping to continue doing business in the traditional way. The time

has now come for the industry to catch up and adapt to the current

trends.

Although technology, digitalisation and connectivity all seem to be

positive steps forward for the marine industry and will present

plenty of opportunities, they do not come without challenges.

Relying more heavily on e-commerce, artificial intelligence (AI),

machine learning (ML) and digital control systems brings with it an

increased threat of hacking and other forms of cybercrime

increasingly prevalent in the maritime sector, with the potential

consequences being progressively more wide-ranging and

destructive.

In this chapter, we will consider what is causing the maritime

industry to change. Specifically, we will focus on: cyber-risk, what

it is and what can be done to mitigate the risks associated with it; e-

commerce and Blockchain, and their application to the shipping

world; and the automation of vessels, examining both the benefits

and risks of moving to fully autonomous ships.

We will also briefly look at the current legal framework, the

guidelines that have been issued by international bodies, and what

more needs to be done to ensure that the future of shipping is safe,

protected and keeps pace with the latest technological developments.

The Changing Face of the Maritime Industry

Digitalisation, connectivity, automation, smart contracts, cyber, AI

and ML are all words and abbreviations that are becoming more and

more common in the shipping world. Stakeholders in the industry are

becoming more familiar with these terms because they are either

catching up with the latest technologies in order, for example, to make

their fleets and operations more competitive, or they are experiencing

the challenges that are the consequence of such innovation.

This “new” face of the maritime industry presents various aspects.

The most hotly debated ones will be considered in the following

paragraphs.

Cyber

The 2018 report published by The United Nations Conference on

Trade and Development (UNCTAD) remains the most up to date

and comprehensive review of the Maritime Sector. Over 90% of

global world trade continues to be moved by sea. Currently, there

are in excess of 50,000 merchant ships trading, operated from over

150 nations worldwide, employing in excess of one million

seafarers. The combination of the value of the trading assets, the

commodities carried, the complexity of the transportation regime,

and the high number of personnel involved in the industry, all make

the marine sector an ideal target for cybercrime. Indeed, those who

both specialise in the field, and monitor trends of those engaged in

cyber activity, have found an alarming increase in the amount of

attention the sector is gaining from those intent on disruption and

causing harm by cyber means. The reasons for this heightened risk

are numerous.

Shipping has increasingly become more exposed to this type of

attack due to the increased digitalisation that it has undergone over

recent years, combined with the lack of proper regulation, legal

protection and the scope of risk, which is – even today –

underestimated. In particular, certain operational and navigational

systems that have been developed have made ships more vulnerable

to cyber-attacks, due to their reliance on digital means and

connectivity to shoreside systems.



Examples are:

■ Systems using global navigation satellites, such as GNSS and

GPS, which are able to pinpoint the vessel’s precise location

and can be accessed and altered to give incorrect position

data – and possibly cause the crew wrongly to change course.

■ Electronic Chart Display & Information Systems (ECDIS),

providing electronic charts of ocean routes that, when given

false information, can cause the crew to believe they are on a

correct course, when they are not; or to plot a wrong course.

■ Automatic Identification Systems (AIS), which allows

vessels and shoreside stations to monitor traffic, continuously

broadcast a ship’s location, and access details which can be

intercepted, thereby providing incorrect information on a

ship’s location, identity or movements.

Who carries out these attacks? This in itself is a significant problem.

Cyber-attacks can be perpetrated by a wide range of individuals

including criminals, terrorists, government organisations, hackers,

employees and ex-employees who are aggrieved or acting under

duress, or simply experimenters who usually have no malicious

intent; for example, young cyber-enthusiasts trying their hands at

infiltrating and taking control of advanced systems. Such attacks can

either be untargeted or targeted: the former are normally less

sophisticated and carried out on the assumption that by increasing the

number of attacks, the criminals will increase their chances of

success; whilst the latter require more time and research, they can be

extremely sophisticated and often occur in multiple stages.

Cyber-risks change not only every day, but every hour as new

strategies are developed by hackers and others intent on disrupting

systems.

All of the systems referenced above can be hacked from remote

locations by relatively inexpensive and uncomplicated hardware

readily available to those wishing to infiltrate the systems. The risk,

however, is not restricted to access gained via completely external

sources, but by the increased ease of infiltrating the systems, due to

the huge range of potential access points available from which a

cyber-attack can potentially be launched. Think, for example, of

crew members, passengers or other third parties who are allowed

access to go on board vessels and who could infect systems, either

intentionally or innocently, via their own flash drives, laptops and

even mobile phones. Hackers can gain information by taking as

simple a step as plugging a phone cable into any one of the various

onboard computers or access points. Once connected to the system,

or having downloaded a form of remote access technology (RAT),

they are able to access significant amounts of potentially sensitive

information which they can then use in order to gain a criminal

advantage, be that by way of ransomware (effectively freezing

systems and sending an electronic threat that unless a ransom is

paid, data will be permanently deleted), industrial espionage (the

selling of trade secrets), criminal advantage (the obtaining of

confidential information so as to benefit from trade secrets and

trading activities), or even as a means of international terrorism.

Despite the efforts of the international maritime regulators, and the

loss prevention initiatives being introduced by the P&I Clubs and

almost all of those who regularly assist the community in making

their ships safer, the sector continues to be significantly behind other

transport sectors, such as aviation, when it comes to cyber security.

Although decreasing, there remains a culture of “it’s all fake news”

and “it will never happen to me” that needs to be changed before we

face a maritime twin towers or modern day “Achille Lauro”.

It can therefore be seen how the maritime industry is particularly

exposed, due to the high number of access points for a cyber-attack,

the wide range of potential individuals involved, and the huge

potential damage that could result.

The risks to which the shipping industry is exposed can be split into

two broad categories:

■ Data breaches or intangible damage. These are often easily quantifiable and protectable, but nonetheless damaging. An

example is “spear phishing” emails requesting payment or

goods to be sent to what appears to be a similar and/or

legitimate destination – or pirates who board ships, already

knowing where the most valuable cargo is by accessing the

container and stowage information before boarding.

■ Physical damage causing physical damage and/or bodily injury. Hacking and infiltration into systems such as GPS or ECDIS to change the ship’s position so that a vessel could be

sailing down a channel avoiding a shallow area or underwater

obstruction, but then runs aground when its crew are not

aware of its actual – much more precarious – position,

leading to physical damage or worse, personal injury.

Some examples of cyber-incidents

But are all these risks genuine? Or simply another scare story in an

industry historically littered with prophecies of Armageddon that

never actually materialise? Unfortunately, the answer is that we are

now regularly experiencing real-life examples of these risks in action.

The Port of Antwerp In 2011, the Port of Antwerp was attacked after it introduced a new

electronic release system (ERS) for containerised cargo. This was

intended to replace the system in use at that time for the

authorisation of cargo release through delivery orders or release

notes. A number of carriers using the port decided to adopt this

system, which would send computer-generated PIN codes via email

to cargo receivers or their agents, as well as the port terminal.

However, a sophisticated criminal gang managed to break into the

system and attacked the port over a two-year period, starting in

2011. Following an initial “staged” break-in, where Trojan RAT

malware was uploaded onto certain PCs, the gang accessed data that

provided them with the location and security details of containers.

This, in turn, allowed them to smuggle drugs and weapons in the

containers and extract them in Antwerp before the legitimate owners

of the remaining cargo arrived to empty the containers.

It is estimated that significant amounts of contraband were moved

through the terminal for a number of years before the authorities

became aware of the system. Indeed, it was only due to the fact that

the criminals had operated so effectively without interruption for

such a prolonged period of time that they became confident enough

to start to remove entire containers from the port. It was this loss of

the entire containers which alerted the authorities and eventually led

to the discovery of the cyber-breach.

Legal aspects of the case were reported in the Court of Appeal decision

in Glencore International AG v. MSC Mediterranean Shipping Co SA [2017] EWCA Civ 365. Antwerp is not alone with both Barcelona and San Diego (as two examples) facing significant attacks in 2018.

Maersk NotPetya In 2017, the container line AP Moller Maersk announced that it had

been hit by NotPetya, a ransomware attack that prevented people from accessing their data unless they paid $300 in Bitcoin. This

caused the company to completely shut down its booking systems,

which cost it in the region of $300 million in lost revenue.

Maersk should be congratulated by the entire industry, both for its

openness in publishing the details of the attack, which has led to a

significant increase in shipping corporations taking cyber-risk

seriously, and introducing risk-prevention measures, but also for the

speed with which it was able to deal with the incident due to its

advanced and detailed cyber-protection regimes.

Hill Dickinson LLP The Changing Face of Maritime Law and Risk

ICLG TO: SHIPPING LAW 2019 9WWW.ICLG.COM© Published and reproduced with kind permission by Global Legal Group Ltd, London

However, even with this level of sophistication and protection in

place, the attack caused Maersk to replace 45,000 PCs, 4,000

servers and 2,500 applications.

Oil Rigs In Mexico, an entire oil rig had to be shut down because its networks

had been accidentally infected with viruses that smart devices had

caught as a result of employees visiting various online sites,

together with the use of unauthorised flash drives.

Similarly, off the coast of Africa, the networks of another oil rig

were allegedly hacked by a group of individuals who were simply

testing their hacking abilities. By tampering with ballast controls,

the rig was dangerously destabilised, resulting in its being

completely shut down, with all drilling services suspended for over

a week while the incident was identified and fixed.

AIS and Spoofing There has been a considerable increase in evidence to suggest

significant infiltration of vessel-navigation systems with criminal

intent. In 2016, over 280 vessels were forced to return to port,

reporting significant navigational errors, largely thought to be as a

result of action taken by the North Korean government.

In 2017, 20 ships in the Black Sea region were affected by AIS

spoofing from land-based towers, resulting in them charting their

position some 32 kilometres inland of their actual position. Jamming

devices can be obtained for as little as US$100, and the ability to

spoof an AIS signal is achievable with the use of a US$100 VHF set.

So serious is the concern that both the US Government and NATO

have issued independent warnings to international shipping with the

US Maritime Authority (MARAD) and NATO’s Allied Maritime

Command (MARCOM), alerting that several electronic interferences

had been detected, particularly involving GPS and AIS interference as

well as possible GPS jamming in the East Mediterranean.

It is estimated that there are currently over 250,000 cell towers in

Russia which are equipped with GNSS jamming devices. This has

huge potential significance for the maritime industry. In 2017, a

trial carried out at Flamborough Head in the UK showed that the

effect of such transmission systems was to create incorrect data on

ECDIS, AIS and Radar. In other words, all systems were affected.

There are considerable issues identified in relation to the security of

AIS, not least as it operates without any authentication protocols or

encryption, and it is relatively easy to impersonate targets (ships).

Even the most basic of jammers can now have a radius of over 30

kilometres. In a report published in 2017, it was estimated that a

five-day loss of GNSS would cost the UK in excess of £149 million.

COSCO An attack not dissimilar to that faced by Maersk (see above) was

experienced by COSCO in 2018. While detailed reporting has been

restricted, it is understood that there was initial interruption to

telephone, email and electronic data exchange. Having an efficient

and tested cyber policy in place appears to have protected COSCO

which was able to restore its full service within five days.

Norsk Hydro In March 2019 the Norwegian aluminium producer was hit by the

LockerGoga virus which quickly spread through the firm’s network

encrypting files. As a result, the company was forced to halt

production in several plants, switching to increased manual

operations as a workaround while the cyber issue was dealt with.

Regulation, guidance and the law

Current legal precedents do not cater for the technological

developments available to the shipping industry because, as yet,

they have not needed to.

The industry is in need of more certainty, and current definitions and

terminology are being reconsidered to determine how and where the

changes in technology fit into them.

Leading shipping organisations such as BIMCO and the IMO, have

published guidelines, which are free to download, to help the

industry minimise the risk of cyber-attacks on ships. One

particularly helpful and comprehensive guide is the “Guidelines on

Cyber Security On board Ships” (http://www.ics-shipping

.org/docs/default-source/resources/safety-security-and-operations

/guidelines-on-cyber-security-onboard-ships.pdf?sfvrsn=16). The

incorporation of these guidelines into shipping companies’ working

practices will soon become compulsory. IMO Resolution MSC.428

(98) demands that cyber-risks should be properly addressed in

existing safety-management systems no later than the first annual

verification of the company’s Document of Compliance after 1

January 2021. Each company will therefore have to implement

cyber-risk management plans and procedures identifying the roles

and responsibilities of all users ashore and on board the ships, and

identifying the systems and data which, if disrupted, could cause

risks to the vessel’s operations. The plans will also have to take into

account the cyber-threat, assess the risk, reduce the risk and develop

contingency plans. The difficulty remains, however, that legal,

insurance and regulatory regimes are struggling to keep pace with

the advancing developments in technology.

From an insurance point of view, the International Group of P&I

Clubs covers P&I liabilities arising out of a cyber-attack, so long as

the attack in question does not constitute “terrorism” or another war

risk defined – and excluded – in the Rules. Hull & Machinery and

cargo policies either exclude all liabilities arising from a cyber-

attack via the Institute Cyber Attack Exclusion Clause (CL380), or

are silent as to cover. This means that the companies and people

involved in managing insurance risk will have to look to bespoke

and separate policies in order to properly manage cyber-risk. At

least one significant player has sought to address the lacuna in cover.

Leading London syndicate Beazley have now placed on the market,

the “Beazley Cyber Defence for Marine” product which provides

insurance for physical damage and loss of hire following a cyber-

incident and is aimed at meeting the rapidly developing needs of

both vessel owners and operators. This is a welcome addition to the

range of insurance provision available to an owner and operator.

While we have yet to see a reported decision dealing with the issue,

it seems inevitable that at some stage the absence of appropriate

cyber protocols and emergency response systems, together with

inadequate training of crews and ability to quality test the highest

level of cyber protection, will lead to questions concerning the

seaworthiness of the vessel. One only needs to consider the list of

issues which led to the loss of an ability to rely upon the fire defence

otherwise available under the Hague/Hague Visby Rules as reported

in the High Court decision in Papera Traders Co Ltd v. Hyundai Merchant Marine Co Ltd [2002] EWHC 118 (Comm) to see how this could apply in a cyber context. Similarly, a finding of “cyber

unseaworthiness” could create significant issues with regard to

cargo interests refusing to contribute towards general average, and

even potentially the loss of the right to limit liability in

circumstances where an owner’s failure to have adequate systems in

place could be deemed “reckless”. Companies that can address

cyber-risks at the highest level of management, and that are able to



ensure that all personnel are properly trained and fully cyber-aware,

by implementing forms of security that will be adequate to protect

their businesses, are without doubt going to gain a significant

competitive advantage.

E-Commerce and Blockchain

In the maritime industry, e-commerce has huge potential and many

businesses are already modifying their systems in order to maximise

the benefits that a full e-commerce platform can provide. One of the

drivers behind the advancement of the incorporation of e-commerce

within the shipping sector has been the development of

“blockchain”.

So, what is blockchain and why is it having such an impact on

maritime and commodities trade? Blockchain is in effect a secured,

decentralised and encrypted public ledger. It is a digital

communication protocol where all parties to the transaction have

access to the same information, and no single party can unilaterally

change such information without the consent of all the other parties

involved. Its application in the shipping industry could well

revolutionise the way in which the entire industry operates. By

bringing together blockchain technology and the increasing

development and utilisation of “smart” contracts, i.e. agreements

written in a computer code that can be executed online to digitalise

the supply chain, the savings in cost and enhanced efficiency in time

could lead to a complete reorganisation of the sector. Indeed, it may

lead to the shipping industry being affected and changed forever by

the first maritime “disruptors”.

The scope of potential in the shipping sector is immense. We

operate in an industry where the processes have always been

traditional, slow, document-heavy and reluctant to change. But

think about a maritime regime where everything from the process of

issuing bills of lading, delivering letters of credit, entering into

charterparties or selling a ship, to facilitation of international trade,

development of new markets and streamlining of the provision of

insurance solutions, can be fully digitalised? To date, operations in

the maritime sector have necessitated the involvement of a number

of parties, often middlemen, frequently resulting in an increased risk

of error, additional cost, reduction in profit margin and increases in

time-processing, which prolong the entire supply chain and can

regularly result in not only financial loss but potentially the whole

collapse of a commercial transaction.

By intelligent utilisation of e-commerce solutions, a new era of

international and verifiable trust could be created, eliminating the

need for a large number of the “middlemen” in the industry and

leading to considerable improvements both in terms of time,

efficiency and cost. The World Economic Forum has said a 15%

enhancement in world trade could be achieved if we remove the

friction of sharing information in the supply chain. That’s no

surprise – the paper chase and associated costs of so many supply

chains have been well documented in recent times.

How could it help? The advantages of using blockchain include:

■ reduced processing times;

■ increased efficiency and reduced risk of errors;

■ cyber-security, due to blockchain being completely encrypted

and therefore allowing the transfer of information which

cannot be tampered with by third parties;

■ transparency in the transaction as all parties involved can see

what is happening;

■ direct relation between the parties without the need to use

intermediaries; and

■ cost-effectiveness of the entire transaction.

Blockchain is, by its nature, cross-jurisdictional, which makes

identification of the appropriate governing law essential. It is also

essentially a system that seeks to remove central control and

overregulation; however, it is clear that in order for the system

effectively to become the main foundation for global economic

world trade, steps must be taken to ensure adequate regulation, legal

protection and ultimately, how any disputes will be resolved. It is,

therefore, very important in any e-commerce operation to ensure

that both exclusive governing law and jurisdiction clauses, as well

as dispute-resolution provisions, are in place in order for the parties

to be clear on how to deal with situations where the platform fails,

or for some reason the chain is broken.

Perhaps one of the best current examples of the application is that of

TradeLens launched in January 2018 by A.P. Moller Maersk and

IBM as a means by which blockchain could be applied to the global

supply chain. Currently, the system includes more than 40 port and

terminal operators across an international network linking in customs

authorities, brokers, cargo owners, freight forwarders, transportation

and logistics companies. During the initial trial period the system

was proved to reduce transit time by 40% leading to huge savings in

cost. It is estimated that in the future, systems such as TradeLens

could eliminate literally hundreds of pages of documentation and

streamline operations resulting in increased profits which could then

be used to further develop and support business.

Other innovative and exciting projects include the formation of the

Global Shipping Business Network (GSBN) which was launched at

the end of 2018 joining five shipping lines and four terminal

operators looking for ways in which to develop a blockchain

platform to digitalise processes and transform the industry. The

challenge going forward will be how such independent systems,

controlled by the major operators, can be dovetailed into a

singularly recognised regulatory process which is the only way in

which the true and full benefits of blockchain technology will be

realised.

Another area where we are likely to see utilisation of blockchain

solutions in the maritime sector is the increasing and developing

scope of the manufacture, production and distribution of medicinal

cannabis. The whole range of issues ranging from authentication

and origination process, to security in transport and distribution,

could all potentially be solved by the blockchain.

Automation of Vessels

The prospect of automated ships sailing on our seas is no different to

the inevitability of blockchain. The question is not if automated

ships will hove into view on our horizon, but when. There remains,

however, some confusion over what we mean when we say

“automation”. Are we talking about completely crewless vessels

operated from control rooms in Mumbai or something different?

Thankfully, guidance has now been provided by the IMO’s

Maritime Safety Committee who has approved a framework for a

regulatory scoping exercise on Maritime Autonomous Service Ships

(MASS). Usefully, IMO have identified four degees of autonomy as

follows:

■ Degree one – a ship with automated processes and decision

support. Seafarers are on board to operate and control

shipboard systems and functions. Some operations may be

automated and at times be unsupervised but with seafarers on

board ready to take control.

■ Degree two – remotely controlled ship with seafarers on

board. The ship is controlled and operated from another

location. Seafarers are available on board to take control and

operate the shipboard systems and functions.


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■ Degree three – remotely controlled ship without seafarers on

board. The ship is controlled and operated from another

location. There are no seafarers on board.

■ Degree four – fully autonomous ship. The operating system

of the ship is able to make decisions and determine actions by

itself.

But how far away is this? Science fiction or science fact? In

December 2018, two offshore vessels were able to conduct

operations without a crew on board while being operated remotely

(Degree three). One of the vessels was able to conduct a voyage

between Parainen and Nauvo in Finland, with the other operating off

the coast of Aberdeen while being controlled in San Diego.

Previously the highest expression of automation of vessels was the

development and construction of the “YARA BIRKELAND”.

Predicted ready for launch in 2020, the autonomous, zero-emissions

container ship will start its life fully manned but with the plan to

move to a fully autonomous operation by 2022 (also Degree three).

The technology (save for that for Degree four) required is therefore

already available and is being cultivated further still. A number of

ports around the world are already operating autonomous smaller

vessels in port management. The only market barrier to their further

introduction will be their expense, and whether owners/operators

are prepared to spend the money for the initial hardware outlay.

However, whilst automated ships will present considerable

opportunities for the industry, they will also pose some challenges –

three, in particular.

First, regulation. In December 2017, the Danish Maritime Authority

reported to the IMO on the regulatory barriers to the introduction of

automated ships. The report is 141 pages long, but its conclusions are

succinctly clear: a substantial body of regulation and legislation (both

national and international) will need reviewing and revising to take

account of automated ships – not least UNCLOS, the Collision

Regulations (COLREGs), the ISM Code, STCW and a multitude of

other conventions. One central and recurring theme is: how can an

automated ship (if we assume it is in fact a “ship” within the traditional

meaning) adhere to the current regulatory framework? The simple

answer is, it can’t. What is needed therefore is a complete overhaul of

that entire framework, and the insurance field that supports and relies

on it. No easy task, especially when you consider that the maritime

industry – for all its innovation and longevity – is not renowned for

ensuring that regulation keeps pace with technology. Work is being

undertaken by international bodies to make sure that regulations are

updated to accommodate automated ships. This is something which is

obviously to be welcomed; however, there is no escaping that it will

inevitably be a long process, and there remains the possibility that

automated ships will be in operation before the legislation has been

modernised. That will, of course, also present issues for insurers.

Having said that, at least one of the leading providers of P&I cover has

already developed a bespoke policy for automated ships which is

gaining regular attention from the maritime marketplace.

Second, safety. While the introduction of automated ships may

result in fewer casualties – if you believe the statistics that 80%, plus

casualties, are caused by people-related faults or actions – a big

question is, how will such vessels operate alongside traditionally

manned ships, where the propensity for human error remains

prevalent? Furthermore, as we have identified above, wherever

there is increased automation, there is also the increased risk of

cyber-attack. Shipping is no different in this respect and measures

will have to be implemented to mitigate that risk.

Third, casualty investigation. There has been a great deal of talk on

regulation and safety, but little on (a) the kind of evidence that might

be available following a casualty involving an automated ship, or

(b) how you go about getting it. After all, there will be no shipboard

crew to interview following an incident on a fully automated vessel.

Casualty-investigation methods will therefore necessarily change.

This is already happening in the current era, given the evidential

probity of electronic data available from voyage data recorders and

electronic charts, and how the courts generally tend to accord higher

credibility to that evidence over any other. By working with

shipping companies and their insurers to address these issues today,

those providing support services to the industry are endeavouring to

be ahead of the curve ready for when such issues arise tomorrow.

While addressing the Comite Maritime International on the challenges

of unmanned vessels at its London meeting in 2018 Sir Bernard Eder

identified a number of the challenges that would have to be considered

from a legal perspective. He commented that the practical difficulty

involved in amending each and every international convention dealing

with maritime law, trade and operation may lead to a need to create an

overarching instrument similar to the Polar Code.

So, what other issues might arise with automation? One of the most

significant concerns that has been raised by many who oppose the

development and introduction of automated vessels is the effect it

could have on the international seafaring community. There is no

doubt that the advent of the automated ship will change the life of

the seafarer forever. However, there is no need to think that the

reduction of personnel at sea will reduce or restrict the employment

need and capacity within the industry. In fact, automation could

well lead to enhanced opportunity. Certainly, there could be an

immediate improvement in working conditions which, in turn, could

lead to an increase in safety by a reduction in stress-related activities

caused by being away from families in a confined space, and

operating long hours in isolated conditions. Properly regulated and

with adequate training, remote operation of vessels could vastly

reduce stress-related illness and the associated risk of error resulting

in significant casualty. It would also create far greater opportunity

for those who are physically impaired and currently unable to

pursue a career at sea and undertaking maritime operational and

navigational duties. The potential for eradicating discrimination, in

terms of both sex and disability, can clearly be seen.

As the future is clearly closer than we think, let’s give further

thought to what the impact of autonomous ships would be on the

shipping sector. We have identified below some further general

considerations as follows:

■ Automated vessels should be more efficient and cheaper to run.

■ There will be no need, or very little need, for crew as vessels

will mostly be unmanned. This could mean that the space

normally used for accommodating the crew can instead be

dedicated to cargo, thereby increasing a vessel’s capacity.

■ Unmanned ships could mean less chance of human error

being committed; however, such errors could simply be

moving onshore – but balance against that the improvement

of working conditions, supervision and enhanced training

which could result in a reduction in maritime casualties.

■ Automated vessels could become less attractive to pirates, who

may find them more difficult to board, while the absence of crew

on board greatly reduces the ability to obtain ransom payments.

However, the risk of cyber-piracy attacks could increase.

■ Given the level of technology on board, maintenance costs

could increase, although these could be set off against

savings in crew wages.

■ It may be far easier to make autonomous vessels environ-

mentally friendly.

■ There will be a whole new range of risks, many of which

have yet to be identified, due to the digitalisation and

technology that will govern these ships. A thorough risk

assessment will therefore have to be carried out, and liability

of manufacturers in a shipping context considered more fully.



■ Different skills will be required from seafarers, as they will

need to have an in-depth knowledge of IT, technology and all

the systems installed on board. However, greater diversity

may well result.

■ Shipbuilding contracts will have to undergo great changes,

especially in relation to the allocation of responsibility and

builders’ exclusion-of-liability clauses, given that the vessels

will mostly be controlled remotely by systems installed by

the builders or other third parties.

■ Being fully dependent on the Internet could cause major

issues if a vessel loses its connection during a major storm in

the middle of the ocean, or if there is a terrorist attack on

satellite systems, or a major dispute between governments

whereby satellite access is restricted. One or two back-up

plans will therefore need to be in place and available.

■ Given the quick pace of technology development, for how

long will these types of ships be able to stay in service?

■ Finally, serious consideration will have to be given to cyber-

risks. Having dealt with these above, it can be seen how fully

automated vessels will be more exposed to cyber-attacks.

Currently, the shipping industry is not ready to defend itself

from minor attacks, therefore, a lot needs to be done before

automated vessels can become “cyber-proof” and safely used.

Conclusion

As set out at the beginning of this chapter, significant developments

in technology have always had an important part to play in maritime

trade and transport. However, never before have we faced such a

range of innovation and technological development which could

well result in a complete reorganisation of the way in which the

sector operates.

We have discussed above how the introduction of autonomous

vessels may lead to the need of an entirely separate and independent

maritime code. Similarly, the introduction of blockchain and smart

contracts is likely to lead to a completely new way of working, not

only for the traditional transportation sector but also all those areas

that traditionally support maritime trade and transport.

The role of lawyers, underwriters, average adjusters, claims

handlers, brokers, freight forwarders and transport intermediaries is

likely to see as significant a change as that which will be

experienced by Owners, Charterers, Operators and Crews. This is

does not mean that the roles will become redundant, it does though

mean that the training, development and tasks undertaken will face

radical change.

When this chapter was first published 12 months ago it seemed

strange to be writing about concepts such as cyber-risk, blockchain

and vessel automation in a maritime context. Today the world’s

largest research centre in the field of artificial intelligence is

working on a project utilising robotics in the field of deep sea

mining. Other AI projects include the development of a program

aimed at predicting the profile of investors in marine vessels aiming

to give market lead and strategic advantage, and the use of

unmanned drones in search and rescue missions. From a legal

perspective, one can anticipate the eradication of time, cost and

uncertainty in various areas of marine disputes ranging from laytime

and demurrage to speed and performance to small claims by

adoption of AI and ML.

Hill Dickinson LLP The Changing Fa

ICLG · 2019-08-23 · ICLG A practical cross-border insight into shipping law 7th Edition....

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