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Legal & Documentary News

Year 2015 Issue 9

September 2015

The Bribery Act 2010 Practical Guidance for Shipping Industry


The UK Chamber hosted an event during London International Shipping Week to present its
new publication, The Bribery Act 2010 Practical Guidance for the UK Shipping Industry.
Tim Springett, Policy Director, stated that the guidance was uniquely tailored to the shipping
industry and would provide shipping companies and ships Masters with tools for dealing
with commonly-encountered situations in areas where demands for unwarranted facilitation
payments and gifts are endemic.
Roderick Macauley of the Ministry of Justice said that he was aware of the issues faced by
the shipping sector and recognised that a strategy that relied on enforcement measures
along would not be successful. He added that it would serve no purpose to prosecute a
company that had adopted and was applying adequate procedures to prevent bribery but
that adequacy would be affected by the risks of bribery and the circumstances surrounding
any payments made.
Jake Storey of the Maritime Anti-Corruption Network (MACN) then gave details of collective
action initiatives that had been undertaken in Nigeria and Argentina. In Nigeria, the potential
for facing demands for illicit gifts and payments had been reduced by some operators who
were using electronic ship arrival forms, which meant less person-to-person contact. In
Argentina meanwhile, there was greater awareness of the problems of corruption and the
need to tackle them than had been expected. MACN is now working with the Suez Canal
Authority to devise means of supervising the activities of port officials who demand
payments and gifts with the aim of reducing them.
The chambers guidance is now available from Witherbys, price 30 per copy. It can be
ordered online from www.witherbyseamanship.com/bribery-act-guidance.html

High Court ruling on bunker supply contracts


A bid by a shipowner to avoid the risk of having to pay twice for bunkers supplied has been
thwarted by the English High Court decision in PST Energy 7 Shipping LLC v OW Bunker
Malta Ltd [2015]. The court has held that a contract for the supply of bunkers is not a sale
contract falling within the Sale of Goods Act 1979.
The owner of the mv Res Cogitans contracted with OW Bunker Malta Ltd (OWBM) for the
supply of bunkers. OWBM, through a series of contracts, arranged for the bunkers to be
physically supplied by the Russian subsidiary of Rosneft Marine (UK) Ltd. All of the
contracts provided for payment on credit with retention of title clauses in favour of the
supplier, on terms typically found in bunker supply contracts. One such term was that the
owner had permission to consume the bunkers before payment fell due.
OWBM went into administration without have received any payment from the shipowner and
no payment was made to Rosneft. The owner's concern was that if it paid OWBM, it risked
a claim from Rosneft and thus risked having to pay twice for the same bunkers. The owner
asserted that, since OWBM had not paid for the bunkers, property in them could not be
transferred to the owner for the purposes of Section 49 of the Sale of Goods Act. This in turn
meant that OWBM could not sue for the price.
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OWBM's response was that the contract was not one to which the Sale of Goods Act
applied, but was rather a claim for a contractual debt. As such, OWBM did not need to
demonstrate that it could pass property in the bunkers at the time of payment.
The dispute was referred initially to London arbitrators, who held that it was not a contract
falling within the Sale of Goods Act. The shipowner appealed to the High Court.
The court considered the fact that the shipowner had been given permission to consume the
bunkers prior to making payment for them. Once bunkers are consumed, the property in
them is extinguished and cannot be transferred. Where a sale contract states that the seller
retains title to the goods but gives permission for those same goods to be consumed, the
parties must be taken to have understood that title to the goods may never be transferred to
the buyer.
The court noted that, in order for a contract of sale to fall within the Sale of Goods Act, four
conditions must be met:
The contract must be for goods
The seller must undertake to transfer good title in the goods
The goods must be paid for by the buyer and
There must be a link between the payment and the transfer of title.
If a contract contemplates payment for the goods being made without the buyer acquiring
title to those goods because property in the goods has been extinguished by their
consumption, the requirements of the Sale of Goods Act have not been met and the act
does not apply.
In answering the question of what an owner is paying for under a bunker supply contract if
not title in the bunkers being purchased, the court held that the buyer is paying for a lawful
right to consume those bunkers.
The court made clear that it was not the existence of a retention of title clause alone which
prevented the bunker contract from being a contract of sale within the Sale of Goods Act; nor
was it the delivery of goods to a person with permission to use them in a way which would
result in their consumption, as this would usually infer that property in them was intended to
pass to that person. Rather, it was the combination of the retention of title clause and the
imminent consumption or destruction of the goods that resulted in this being a contract that
fell outside the Sale of Goods Act.
OWBM's obligation under its contract with the owner was to deliver bunkers on board the
vessel and to give the owner permission to use those bunkers before payment was made.
In its contractual arrangements with Rosneft, OWBM had secured permission for the owner
to consume the bunkers; it had thus fulfilled its contractual obligations, for which it was
entitled to be paid. Meanwhile Rosneft had no claim under English law against the owner,
since it had given permission for the bunkers to be consumed without payment being made.
The court did not consider the fact that Rosneft could arrest the vessel in other jurisdictions
by asserting a maritime lien to secure payment.
This decision has been appealed to the Court of Appeal.

Proposed powers to intercept vessels being used for people smuggling


The Governments Immigration Bill, which will be laid in Parliament in September, will
include new powers for the Border Force to intercept vessels in UK territorial waters where
they are suspected of smuggling people into the UK. In recent months, several small craft
have been detected bringing illegal migrants across the Channel. Under existing law, no
offence is committed until the individuals are landed in the UK. As a result, such craft, where
detected, must be tracked until they arrive in the UK before any enforcement action can be
taken against them. The Governments intention is to enable such craft to be stopped at sea
when encountered, and the traffickers apprehended.
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Specifically, the Bill will provide powers to stop, board, divert and detain a vessel where
there are reasonable grounds to suspect that it is being used to facilitate the breach of an
immigration law; to search a ship and anyone and anything on it; to arrest any person
reasonably suspected of being guilty of an offence of facilitation; and to use reasonable force
in the exercise of these powers. The powers would apply in UK territorial waters; there
would also be a power for hot pursuit beyond the 12 mile limit. The powers mirror those in
the Modern Slavery Act 2015 and also already exist in relation to drug smuggling and
modern slavery. However the power to seize offending ships is not proposed in the
Immigration Bill.
The UK Chamber and the Royal Yachting Association met the Home Office on 13 August,
and neither organisation raised objections to the principle that Border Force cutters should
also be empowered to stop ships engaged in people smuggling. Discussion focused instead
on concerns related to safety and liability: for example, about the safety of ordering ships to
stop in Traffic Separation Schemes or in circumstances where they might be stranded on an
ebbing tide; about diversions to unsuitable ports (that are too small for merchant ships, say,
or excessively difficult for yachts to reach in the prevailing weather conditions); and about
costs associated with unwanted port calls.
The UK Chamber does not believe that interceptions of merchant ships will be either
numerous or frequent. The Border Force cutter fleet comprises just five vessels, two of
which are in the Mediterranean. Moreover, where a merchant ship bound for a UK port is
identified as being engaged in people smuggling, the Border Force may be expected as a
matter of practice, and for reasons of common sense and the safety of its own personnel
to wait and attend the ships arrival in port rather than to attempt to intercept it at sea. The
chamber has suggested that guidance to this effect be included in any Code of Practice
published to support the new powers.

Ship recycling EU study on feasibility of a financial instrument


The Hong Kong convention on the safe and environmentally sound recycling of ships, 2009,
will enter into force once it has been ratified by fifteen states. So far it has only four
ratifications. The EU has adopted a Regulation on ship recycling, of which some of its
provisions will start to apply from December this year. The regulation goes further in several
respects than the Convention. The inventory of hazardous materials (IHM) required under
the regulation is more detailed than required by the convention, whilst beaching as a form of
scrapping is prohibited and EU-registered ships may only be recycled at facilities approved
by the EU. The timing of which shipowners will have to comply with the regulations IHM or
equivalent requirements rests on whether the EU Commission approves enough recycling
facilities by 31 December 2015, or at the very latest, 31 December 2018.
The Commission is now considering a possible further instrument, seemingly aimed at
providing financial guarantees to ensure that ships are recycled safely. A feasibility study is
considering legislation to force shipowners:
to open a ship recycling account, making regular payments to meet the eventual cost of
recycling
to take out ship life insurance to cover the cost of recycling
to obtain a guarantee from a financial institution, possibly involving giving the latter a
charge over the ship
to contribute to a ship recycling fund, similar to the oil pollution funds.
The study is also examining possible non-financial measures and the consequences of
taking no further action. It is believed that the consultants favoured option is a ship
recycling fund, financed via a levy on ships calling at ports in EU Member States.
ICS and the European Community Shipowners' Associations (ECSA) are preparing a
response to the study, in which the two organisations express their strong disapproval of the
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proposals. They consider the proposals to be unworkable in practice and legally


questionable. They assert that none of the proposals will improve conditions for workers in
ship breaking yards in India, Pakistan and Bangladesh, which are believed to account for
over 90% of world ship recycling activity and will simply encourage owners of EU ships to reregister them before selling or sending them for re-cycling.
The two organisations believe that the European Commission should instead focus its
energies on procuring the entry into force of the Hong Kong Convention and offer technical
assistance to yards in the aforementioned three countries.

General Average: Review of York-Antwerp Rules


Since the conference of the Comit Maritime International (CMI) in Istanbul in June,
discussions between the International Chamber of Shipping (ICS) and the International
Union of Marine Insurers (IUMI), representing cargo insurers, have continued. The CMI is
urging both parties to resolve their differences in time for the 2016 CMI conference, at which
it hopes to adopt a new version of the York-Antwerp Rules.
Some issues have been agreed, subject to the formal votes from the various National
Maritime Law Associations next year. The general principles that salvage and crew wages
in a port of refuge should be allowed as General Average expenses have been accepted by
IUMI, overturning the position set out in the 2004 York-Antwerp Rules. However, in certain
circumstances a party that has agreed a settlement with a salvor will be able to retain the
benefit of the settlement. ICS and IUMI have also agreed that the commission of 2% on
owners disbursements could be abolished, subject to agreement on an acceptable rate of
interest for shipowners on the advances they make for general average expenditure. The
rate of interest would be a LIBOR plus formula, with the uplift expected to be 4%.
Two significant issues remain unresolved. The first relates to restricting, widening or
removing the Bigham cap on non-separation agreements, which places a cap on general
average allowances of the amount that it would have cost cargo interests to take delivery of
or forward their own cargo from the port of refuge. ICS would like to remove or restrict the
cap.
The second relates to allowing the cost of temporary repairs for accidental damage in order
to allow the journey to be completed. The Association of Average Adjusters considers that,
on some occasions, the place of temporary repairs results in additional benefits to
shipowners by being able to make cheaper but more extensive repairs. It believes that this
benefit should be reflected in a more limited recovery of the temporary repairs and has
proposed wording accordingly. ICS is concerned that such a limit could restrict the
shipowners ability to take a decision for the common benefit of all concerned.
Further discussions are scheduled to take place in the near future.

Places of Refuge
ICS and other industry associations are continuing to promote the proper implementation by
governments of the existing international and regional legislation on places of refuge, in
particular the IMO Guidelines on Places of Refuge for Ships in need of Assistance
(Assembly Resolution A.949(23)).
At the EU level, work is continuing on the initiative of Member States, supported by the
European Commission and EMSA, to develop a set of Operational Guidelines on Places of
Refuge, based on the requirements of the EU VTM Directive and the IMO Guidelines. ICS is
participating actively in this work in close collaboration with ECSA and other industry
associations, in particular the International Group of P&I Clubs, IUMI, Intertanko and WSC,
as well as the International Salvage Union. ICS co-ordinated the submission of industry
comments to the Commission earlier this year. Although the proposed guidelines are still at
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the discussion and drafting stage, the Commission decided to submit a paper to the IMO
Maritime Safety Committee meeting in June (MSC 95) to inform other IMO States of the
work that is in progress in the EU. ICS and the other industry associations agreed that this
would send a positive signal to IMO and agreed to co-sponsor the INF paper. The paper was
generally welcomed and some non-EU States made positive comments expressing a wish
for IMO to receive further information on the outcome of the work, notably Japan and Liberia.
ICS has accepted an invitation to participate in an EMSA table top exercise in Malta on 1
September to test the proposed guidelines. The European Parliament TRAN Committee has
been following the project with interest and a presentation is expected to be made to the
Parliament in the coming months.
Meanwhile, the European Sea Ports Organisation (ESPO) and the Federation of European
Private Port Operators (FEPORT) are continuing to lobby for compensation for ports and
terminal operators for financial losses sustained when accommodating a ship in need of
assistance. ICS and the International Group, in consultation with ECSA, initiated
discussions with the two organisations earlier this year to better understand, and hopefully
allay, their concerns. The ESPO position on financial damages sustained in places of
refuge and the International Groups response (supported by ICS and ECSA) were circulated
with the notes for the last Committee meeting (MLC(15)01 of 13 January, Annexes 2 and 3).
A meeting was suggested to discuss any continuing concerns. In response, however, ESPO
advised that it had decided to conduct a detailed study of the issues and proposed to meet
when the results of its risk assessment exercise were known, probably later in the year.

Bar Association for Commerce, Finance and Industry Big Meet, 14 October
2015
The Bar Association of Commerce Finance and Industry (BACFI), which aims to provide
representation, education and support for employed barristers, is holding a Big Meet on
Wednesday 14 October 2015 at Middle Temple. The Big Meet consists of a speed
networking event, followed by an informal dinner. It will provide an opportunity for lawyers
from different backgrounds to meet, exchange details and follow up interesting new contacts
over dinner.
The timetable for the event is as follows:
Speed Networking 18:00-19:00
Drinks Reception 19:00-19:30
Buffet Supper 19:30-22:00
The ticket cost for the Networking, Reception and Supper is 45.00. The ticket cost for the
networking event alone is 10.00.
Any lawyers within member companies may be interested in attending. The Chairman of the
UK Chambers Legal, Insurance and Documentary Committee (LIDIC), Tim Reading of BP
Shipping, is Junior Vice-Chairman of the BACFI.
Members wishing to register for the event, or who have any queries, should email
events@bacfi.org or call 01525 222 244. The BACFI website is www.bacfi.org.
www.bacfi.org

For further details on all the items in this edition of Legal and Documentary News, please
contact Tim Springett (tspringett@ukchamberofshipping.com or 020 7417 2820 or
Katrina Ross (kross@ukchamberofshipping.com or 020 7417 2880).

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