The difficult we do immediately. The impossible, at least offshore, takes a little longer.

It can be disconcerting to find, towards the beginning of the report of a decision in the Supreme Court, something like this:

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Don’t despair. The point at issue in the August 3 case of MT Hojgaard AS v EON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59  was actually quite straightforward.

Problems appeared in a wind-farm off the Cumbrian coast, which were traceable to weaknesses in the foundations. The owners, E-ON, sued the constructor, Hojgaard, for breach of contract. In particular they relied on a warranty that the structure had been built to last for 20 years. There was some doubt over the meaning of the warranty (did it mean the thing would last 20 years, as the parties thought, or that its design was such that it ought to do so, as Lord Neuberger opined?); but the point didn’t matter, since here the collapse took place only a very short time after the whole caboodle had been built in the first place.

The claim thus looked straightforward, but here a difficulty arose. Like all major construction projects, the constructor had to observe detailed specifications. In this case the specification was named J101 (a technical specification prepared by acknowledged experts DNV — don’t ask further), which not only embodied the fearsome formula above, but which turned out to have a major defect in it. And the problems were due to this defect. Hojgaard argued that E-ON could hardly complain where Hojgaard had merely followed instructions: E-ON riposted that that was all very well, but a warranty was a warranty, and this one had been broken.

The Supreme Court confirmed what construction lawyers had always assumed was the case (see decisions such as Cammell Laird v Manganese Bronze [1934] AC 402 and Steel Co of Canada v Willand Management [1966] SCR 746): namely, that the warranty continued to apply even though in a sense inconsistent with the specification and thus impossible to satisfy. And, in the view of us at Maricom, rightly so. If a sophisticated business chooses to promise that something will happen come hell or high water, the fact that it turns out to have promised the impossible should not let it off the hook: that’s what warranties are all about.

The case is not of earth-shattering significance. DNV smartly changed its specifications in late 2009, so the particular issue here won’t affect wind-farm contracts signed after that date. As for the future, lawyers for constructors would do well to advise them to change their wording, making it clear that in so far as customers order structures to a particular specification, any warranties are qualified so as to prevent those customers both eating their cake and having it. If lawyers don’t do this, their PI insurers can expect some embarrassed phone calls; if construction companies don’t follow any such advice then that’s their look-out. But the decision in the Hojgaard case could still have some ramifications in respect of some older structures; to that extent at least it’s worth filing away a note.

Offshore drilling and Jones Act

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U.S. Customs and Border Protection (CBP) is proposing to modify and revoke previous Headquarter ruling letters relating  to the exception to the Jones Act for the carriage between two U.S. points of “vessel equipment,” which has not been considered “merchandise”.

 

The modifications will affect the use of foreign flagged vessels in offshore drilling under the Jones Act (46 U.S.C. 55102), through  revocation of prior rulings that:

transport of pipe for repair of offshore sites was not considered engagement in coastwise trade;  the installation of anodes on a subsea pipeline did not constitute an engagement in coastwise trade because the activity was in the nature of the repair;

a foreign flagged vessel may engage in laying and repairing of pipe in territorial waters and installing pipeline connectors to offshore drilling platforms and subsea wellheads;

if the sole use of a vessel is underwater repairs to offshore or subsea structures, then it is not considered a use in coastwise trade;

if the sole use of a vessel is in the installation or servicing of a wellhead assembly at a location within U.S. waters, then it is not considered a use in the coastwise trade.

 

CBP has extended the time for comments on these proposals  to April 18, 2017

 

 

 

Demurrage claim under HEAVYCON 2007

London Arbitration 7/17 involved a demurrage claim under a Heavycon 2007 charter, the first reported decision on this form. The charter involved carriage of two jack-up rigs from Malaysia to India. Indian customs regulations required the vessel to call at an intermediate port to be converted from a “foreign” to “coastal” run. After the rigs had been discharged at the discharge port, the vessel would then have to go back to Port X so that she could be reconverted from “coastal” to “foreign”.  Owners made two demurrage claims. The first was for demurrage accruing at the discharge port which charterers sought to resist, in part, on the basis that it was caused by “reasons beyond the control of the [charterers] such as adverse weather conditions and … deficiency of the Master … officers and crew”.  However, cl13 provided

(b) Demurrage shall be payable for all time used in excess of the free time. Demurrage shall also be payable for any delay whatsoever not caused by the Owner, including waiting on weather…

(c) Free Time shall not count and if the Vessel is on demurrage, demurrage shall not accrue for time lost by reason of deficiency of the Master, officers or crew or strike or lockout of the Master, officers or crew or by reason of breakdown of the Vessel or its equipment.

Demurrage would run from the expiry of free time to the completion of discharge unless charterers could bring themselves within a relevant exception, which they could not.

Owners second demurrage claim was in respect of time from completion of discharge to sailing from the second Indian port at which the vessel was reconverted from “coastal” to “foreign”. The tribunal found that demurrage came to an end on completion of discharge but the majority found that there would be a quantum meruit claim for performance of extra-contractual services. On the return journey, the vessel did not have to take any detour since the intermediate Indian port was directly in the line of the return route and there would be no quantum meruit for the voyage, but there would be for the time spent at that port.

Parents and subsidiaries. No liability in tort for Nigerian pipeline pollution.

When will a parent company be liable in tort in respect of acts of one of its subsidiary companies? Fraser J has provided some answers to this question in Okpabi v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria Ltd,  [2017] EWHC 89 (TCC). The case involved pollution claims arising from oil leaks from Nigerian land pipelines due to the illegal process of bunkering by which oil is stolen by tapping into the pipelines. The principal target was Shells’ Nigerian subsidiary SPDC who operated the pipelines but the claimants wanted the case to be heard in the English courts rather than in Nigeria. To do this they brought proceedings against the English holding company, Royal Dutch Shell, which would serve as an “anchor defendant” to allow claims against SPDC to be joined to those proceedings. In a jurisdictional challenge by the two defendants the issue arose as to whether there was an arguable duty of care on the part of RDS to the claimants under Nigerian law which for these purposes was the same as English common. If not, there would be no ‘anchor defendant’ and SPDC’s applications challenging jurisdiction would succeed, due to the lack of connection of the claims against SPDC with this jurisdiction.

The claimants argued that Royal Dutch Shell owed a direct duty of care to them, relying heavily on the Court of Appeal’s decision in Chandler v Cape [2012] 1 WLR 3111, in which a parent company was found to owe such a duty to employees of its subsidiary company. They alleged that RDS had failed to ensure that repeated oil leaks from SPDC’s infrastructure were expeditiously and effectively cleaned up so as to minimise the risk to the claimants’ health, land and livelihoods and, further, had failed to take appropriate measures to address the well-known systemic problems of its operations in Nigeria which led to repeated oil spills.

Fraser J applied the threefold Caparo test to finding the existence of a duty of care.

1. The damage should be foreseeable; 2. There should exist between the party owing the duty and the party to whom it is owed a relationship of proximity or neighbourhood; 3. The situation should be one in which it is “fair, just and reasonable” to impose a duty of a given scope upon the one party for the benefit of the other.

The second and third of these limbs were problematic for the claimants. The evidence from those at SPDC’s evidence was to the effect that it, rather than RDS, took all operational decisions in Nigeria, and RDS performed nothing by way of supervisory direction, specialist activities or knowledge, that would put RDS in any different position than would be expected of an ultimate parent company. It was SPDC that had the specialist knowledge and experience – as well as the necessary licence from the Nigerian authorities – to perform the relevant activities in Nigeria that formed the subject matter of the claim.

Nor could a duty of care be said to arise from public statements by made both by the Shell Group and by RDS about the Group’s commitment to environmental issues, and the organisation of the Shell Group, such statements being a function of the listing regulations of the London Stock Exchange.  First these statements were qualified by the following wording “Royal Dutch Shell plc and the companies in which it directly and indirectly owns investments are separate and distinct entities. But in this publication, the collective expressions “Shell” and “Shell Group” may be used for convenience where reference is made in general to those companies. Likewise, the words ‘we’, ‘us’, ‘our’ and ‘ourselves’ are used in some places to refer to the companies of the Shell Group in general. These expressions are also used where no useful purpose is served by identifying any particular company or companies.” Second, it was highly unlikely that compliance with such disclosure standards mandated for listing on the London Stock Exchange could of itself be characterised as an assumption of a duty of care by a parent company over the subsidiary companies referred to in those statements.

As regards Chandler v Cape, the claimant there was a former employee, which, by definition, involved a closer relationship than parties affected by operational activities. A duty of care was more likely to be found in respect of employees, a defined class of persons, rather than others not employed who are affected by the acts or omissions of the subsidiary.  None of the four factors identified by Arden LJ in Chandler as leading to a duty of care on the parent company was present here. 1. RDS was not operating the same business as SPDC. 2. RDS did not have superior or specialist knowledge compared to the subsidiary SPDC. 3. RDS could have only a superficial knowledge or overview of the systems of work of SPDC.  4. RDS could not be said to know that SPDC was relying upon it to protect the claimants.

Accordingly, there was no arguable duty of care on the part of RDS and with the disappearance of the anchor defendant the claims against SPDC could not proceed in England. The claimants’ solicitors, Leigh Day, have stated that they will appeal.

 

Did Obama Just Permanently Block All Offshore Drilling in US Federal Arctic Waters?

He just might have!

The 1953 Outer Continental Shelf Lands Act (OCSLA) provides federal jurisdiction over the leasing of the outer continental shelf (i.e. submerged land lying seaward of state coastal waters and extending to 3 miles offshore) for the purposes of energy exploration. Interestingly however, under the same act the President of the United States has the right to withdraw from disposition any of the lands of the outer continental shelf which are unleased (see § 1341 – Reservation of lands and rights).

Using this authority, yesterday President Obama, in co-ordination with Canada’s Prime Minister Trudeau (who is enacting parallel actions within Canada, albeit with a five-year time limit), announced the withdrawal of almost 119 million acres of US ocean from future mineral extraction (including areas within the north and mid Atlantic, and the US Arctic Ocean, thereby encompassing the entirety of the US Chukchi Sea and significant portions of the US Beaufort Sea). It is usual for the President to announce a five year plan for the leasing of federal waters (Obama announced his 2017-2022 plan earlier this year), but the enactment of this right to withdraw is rare and might have long-lasting consequences: while it has been used in the past by previous presidents (the most recent being Clinton), most of those enactments were limited to a certain period of time – President Obama’s is not, with the White House having described the ban as indefinite.

Considering the policies of the current President-Elect it’s unlikely that such a move will remain unchallenged once the new regime comes into power. This then begs the question: can the decision be reversed?

The short answer is not anytime soon. The OCSLA might endow the President with the right to withdraw these lands from being leased for offshore exploration and exploitation, but it doesn’t provide him (or subsequent presidents) with any express authority to repeal that decisionIt’s even possible to argue that had Congress intended this right to be reversible, they would have drafted the relevant OCSLA provision accordingly.

It means that if Trump wants to fight this, he’ll have to do it through the courts – this would be unprecedented and therefore the potential outcome is unclear. The ban has been enacted in the past without a time limit (Eisenhower did it back in the 1950s when he permanently blocked drilling off the Florida Keys) but while the ban still remains in place to this day, it’s never had to withstand the test of a battle in court and thus offers no real guidance on establishing whether the withdrawn lands could be un-withdrawn.

Of course, Trump’s other option would be to convince Republican-dominated Congress to amend the OSCLA to expressly allow for such a rescission (thus saving himself the trouble of needing to establish whether the right to un-withdraw existed in the first place), but were Congress to agree, the amendments would take time to enact; meanwhile, the ban would remain in place.

It’s difficult to say definitively whether or not Obama has managed to permanently ban offshore drilling in the US-controlled areas of the Arctic Ocean, but it’s going to be a while before anyone can answer that question with absolute certainty, let alone actually try to reverse his decision.

As a side note (considering this is a maritime law blog) it’s also worth noting that in the White House’s announcement yesterday it was stated that Canada and the US are launching the first processes ever to identify sustainable shipping lanes throughout their connected Arctic waters. I’ll be honest, I don’t know what those processes are or could entail, but I suppose it’s nice to see that they’re trying…

Of Default Gas and Freedom of Contract

It’s a good day for freedom of contract as Christopher Clarke LJ handed down his judgment for Scottish Power UK Plc v BP Exploration Operating Company Ltd & Ors [2016] EWCA Civ 1043 in favour of the respondents.

The appellants, Scottish Power – the buyers of natural gas under four, almost identical long term gas sales agreements – argued they should be allowed to recover damages for a contractual breach (the underdelivery of gas) under the general law. This was in spite of a compensation mechanism within their agreements which limited the remedy for such a breach to the delivery of the entitled quantity of gas at a discounted rate (“Default Gas”), and which expressly excluded the buyer’s right to seek compensation for such a breach through any other means.

During the initial case, in considering the commercial purpose of the compensation clause in the contracts, Leggatt J thought it improbable that the parties intended a situation where the buyer would automatically receive a quantity of Default Gas as compensation for the undelivered gas and yet still be permitted to seek another remedy for the failure to deliver the very same quantity of gas that already been compensated for. Christopher Clarke LJ was in agreement and further argued, quite sensibly, that the wording of the compensation regime was clear enough that the court was obliged to give effect to it, even though it deprived Scottish Power of a right it would have otherwise had under the law.

This case (along with the recent Transocean v Providence) is rather refreshing given how one of the very cornerstones of English contract law – freedom of contract (a rather sensible and practical doctrine which provides a good deal of certainty and thus is beloved by businesses everywhere) – has been placed under some scrutiny recently.

One hopes for more cases like Scottish Power v BP on the horizon but we’ll have to wait and see.

 

What’s in a name? From DECC to DBEIS to OGA.

On 1 October 2016 the Energy Act 2016 (Commencement No.2 and Transitional Provisions) Regulations 2016 (the “Regulations”) will bring into force most of the sections of the Energy Act  2016 which relate to oil & gas operations. Various powers will be transferred from the former Department of Energy and Climate Change (‘DECC’) – which became the Department for Business, Energy & Industrial Strategy (‘DBEIS’) over the summer – to the Oil and Gas Authority (‘OGA’). The powers transferred will be the licensing and regulatory powers, and decommissioning powers, under the Petroleum Act 1998, as well as certain powers relating to assessment of offshore tax liability. DBEIS remains the principal environmental regulator for the offshore oil and gas industry and the changes should not materially affect the operation of the Offshore Safety Directive Regulator (‘OSDR’), responsible for overseeing industry compliance Offshore Safety Directive 2013. The OSDR is a partnership between the Health and Safety Executive and DBEIS.

Tomorrow the movie ‘Deepwater Horizon’ opens worldwide. A must-see for all concerned with offshore oil and gas operations.

Safe berths, charters and occupiers’ liability in the US

An otherwise unremarkable, but bitterly fought, safe berth / occupiers’ liability case from the Eastern District of Pennsylvania a few weeks ago. A tanker, the Athos I, was owned by Frescati, time-chartered to a tanker pool Star, and voyage-chartered by them to Citgo, an oil company, to carry a crude oil cargo from Venezuela to its own facility at Paulsboro, NJ (opposite Philadelphia). On the way in to the berth she hit an abandoned anchor, was holed, and oil escaped costing tens of millions to clean up. Could Frescati sue Citgo, the voyage (sub)charterers, for repair costs to the vessel (which actually they scrapped) plus the other costs incurred? Yes. The safe berth warranty was broken by Citgo. Interestingly the courts had earlier held that this enured to the benefit of Frescati, disponent owner under the time charter to Star, as a third-party beneficiary (In re Frescati Shipping Co Ltd, 718 F.3d 184, 200 (3d Cir. 2013): something lawyers in England might care to bear in mind, especially where a mesne charterer is bankrupt). In addition there was an occupiers’ liability claim against Citgo for negligence, which also succeeded, the court making it clear that there could be a pro-active duty to check for hidden hazards using things like sonar side-scans. Frescati recovered the clean-up costs they had paid, plus the repair costs, even though no repairs had in fact been done (the vessel having been scrapped); the latter point confirming that the rule as repair costs is much the same both sides of the Atlantic.

See In re Petition of Frescati Shipping Co Ltd, Civil Action Nos. 05-cv-305 (JHS), 08-cv-2898 (JHS), ED Pa, 25 July, 2016.

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Common sense on limitation

Some robust old-fashioned common sense on limitation from Lord Clarke in the Privy Council today. In BORCO v The Cape Bari [2016] UKPC 20 the Cape Bari, a sizeable tanker of about 160,000 dwt, managed to demolish large parts of a Bahamian berth where it was docking to pick up a cargo of crude oil. The damage was about $22 million; the limitation fund about $16 million. The vessel had docked under a contract stating:

“If in connection with, or by reason of, the use or intended use by any vessel of the terminal facilities or any part thereof, any damage is caused to the terminal facilities or any part thereof from whatsoever cause such damage may arise, and irrespective of weather [sic] or not such damage has been caused or contributed to by the negligence of BORCO or its servants, and irrespective of whether there has been any neglect or default on the part of the vessel or the Owner, in any such event the vessel and the Owner shall hold BORCO harmless from and indemnified against all and any loss, damages, costs and expenses incurred by BORCO in connection therewith. Further, the vessel and her Owner shall hold BORCO harmless and indemnified against all and any claims, damages, cost and expenses arising out of any loss, damage or delay caused to any third party arising directly or indirectly from the use of the terminal facilities or of any part thereof by the vessel … ”

BORCO, owners of the berth, claimed their full losses, saying that the owners of the Cape Bari had contracted out of their right to limit. The first instance judge agreed with BORCO. The Court of Appeal, without the point being argued, allowed the shipowners’ appeal on the basis that the right to limit under the Limitation Convention 1976 as enacted was mandatory law and could not be ousted by agreement.

The decision of the Court of Appeal faced some little criticism, and BORCO appealed (with IISTL stalwart Peter Macdonald-Eggers QC leading the charge). The Privy Council held today (1) that the right to limit could be waived in advance; but that (2) it hadn’t been, on the proper interpretation of the contract. They therefore dismissed the appeal.

Both holdings are to be welcomed.

The first holding corresponds with what had always been assumed by shipping lawyers, and also with one’s instinctive feeling as a commercial lawyer: why ever not? It is also quite important in practice. Not only port usage agreements, but offshore construction contracts quite often contain waivers of the right to limit, with insurance arrangements doubtless made to match. There is only one word of caution: owners and P&I interests will now have to get it absolutely clear what the coverage position is where there is an effective contractual waiver of this sort (as an increasing number of ports in countries like Indonesia are said to demand).

The second holding seems entirely in accordance with the the terms of the agreement. The Privy Council rightly said that a shipowner should not lightly be regarded as having abandoned a crucial right of his: the gravamen of the clause in question was clearly aimed at making the owners strictly liable, and there was no reason to think that a reference to “all and any loss, damages, costs and expenses”, without more, implicitly got rid also of the right to limit. [Note for classical contract law buffs: the holding in that golden oldie, The Satanita [1897] AC 59, that similar words did oust the right to limit was, shall we say, not unequivocally endorsed. See Lord Clarke’s dry comment at [59]].

Speculative question for readers: how soon will the Bahamian port authorities and others re-write their terms of use to say expressly that the right to limit is waived? Answers on a postcard, please.

The EU Referendum. Part Three. Losing our Directives?

 Since 2000 the EU has become increasingly active in the maritime sphere as regards safety and the environment. This has led to a series of Directives, set out below, which will cease to have effect under the implementing statutory instruments in the UK on repeal of the European Communities Act 1972.

First off, there is the series of Directives generated under the third maritime safety package, known as ERIKA III, which entered into force on 17th June 2009.

–  Directive 2009/21/EC on compliance with flag state requirements

– Directive 2009/15/EC and Regulation (EC) No. 391/2009 on common rules and standards for ship inspections and survey organisations

–  Directive 2009/16/EC on port State control

– Directive 2009/17/EC establishing a Community vessel traffic monitoring and information system

– Directive 2009/18/EC establishing the fundamental principles governing the investigation of accidents in the maritime transport sector

– Directive 2009/20/EC on the insurance of shipowners for maritime claims

This gives Member States the power to expel from their ports vessels which do not have a certificate showing liability for maritime claims up to the limits in the 1976 LLMC as amended by the 1996 Protocol.

Erika III also produced a Regulation.

Regulation (EC) No. 392/2009 on the liability of carriers of passengers by sea in the event of accidents. This brought the 2002 Protocol to the Athens Convention into force within the EU in 2012. The UK has ratified the Protocol and on 28 May 2014 brought it into domestic law through a statutory instrument The Merchant Shipping (Convention Relating to the Carriage of Passengers and their Luggage by Sea) Order 2014 deriving from the powers conferred by sections 183(4) and (6) and 184(1) and (3) of the Merchant Shipping Act 1995

 Other notable Directives in the maritime sphere are

Directive 2005/35/EC of the European Parliament and of the Council of 7 September 2005 on shipsource pollution and on the introduction of penalties for infringements

This criminalises ship source pollution in cases of ‘serious negligence’ and was the subject of a decision of the ECJ in 2008 in the Intertanko case C-308/06 in which it decided that the legality of the Directive could not be assessed in the light of either MARPOL or UNCLOS.

Directive 2012/33/ on the Sulphur Content of Maritime Fuels.

This came into effect on 1 January 2015 and requires ships sailing in the English Channel, the North Sea and the Baltic Sea (the North European emission control area) to use bunker oil with a maximum 0.1% sulphur or apply alternative methods in order to achieve the same effect.

Directive 2013/30/EU on the safety of offshore oil and gas operations and amending Directive 2004/35/EC

This was the EU response to the ‘Deepwater Horizon’ blowout in 2010. The Directive aims to prevent the occurrence of a ‘Deepwater Horizon’ in offshore installations in the EU but also addresses, in part, the response should such an incident occur, through three provisions. First, art. 38 extends the territorial scope of the Environmental Liability Directive 2004 (the ‘ELD’) from coastal waters to waters within the exclusive economic zone or the continental shelf of Member States, up to 370 km from shore. Second, art.7 requires Member States to ensure that the licensee is financially liable for the prevention and remediation of “environmental damage” – i.e. damage falling within the ELD – caused by offshore oil and gas operations carried out by, or on behalf of, the licensee or the operator. Third, art.4 requires Member States “to require the licensee to maintain sufficient capacity to meet their financial obligations resulting from liabilities for offshore oil and gas operations.” and, when granting or transferring licenses, to take due account of, inter alia, “the applicant’s financial capabilities, including any financial security, to cover liabilities potentially deriving from the offshore oil and gas operations in question including liability for potential economic damages where such liability is provided for by national law”. These provisions came into effect on 19 July 2015.

It is, of course, open for Parliament to provide for the continuation of the statutory instruments implementing these Directives.

The House of Commons Briefing Paper of 30 June suggests (p14):

There might be some over-arching legislation saying, for example, that all UK laws implementing any EU Directive were repealed (perhaps with specified exceptions); or that they would all remain in force (again perhaps with exceptions). If the ECA were repealed, any secondary legislation based on s2(2) ECA would need to be saved from lapsing if it was to continue in force. EU Regulations, which are directly applicable (i.e. they do not need further implementation in the UK to come into force) will cease to have effect if the UK were to repeal the ECA.

There is no reason why EU-based UK law could not remain part of UK law, but the Government would have to make sure it still worked without the UK being in the EU.

The Government would probably come up with a mechanism for allowing changes to be made to secondary legislation (Statutory Instruments) made under the ECA or other ‘parent’ acts. There could also be general amendments, such as replacing references to ‘the Commission’ or ‘Council’ with references to ‘the Secretary of State’.

The devolved legislatures would have to deal with EU legislation they have transposed into Scottish, Welsh or Northern Irish laws. It would also be necessary to amend the relevant parts of the devolution legislation, which might require a Legislative Consent Motion under the Sewel Convention.