Shipping

October 2012 SHIPPING BULLETIN

Welcome to the October edition of our Shipping Bulletin.

This edition of the Bulletin focuses on risk management. It considers the recent Costa Concordia casualty and analyses risk management and best practice in the cruise market. On a similar theme, the following article looks at the issues raised by the next generation of mega containerships, reviewing the likely consequences of a serious incident involving one of these vessels. The article raises several relatively recent near misses and considers the salvage, logistical, regulatory and environmental challenges.

Both articles highlight current concerns about ship design risks and the increasingly demanding legal environment in which large casualties must be handled. We then turn to legal risks and consider the continuing risk of industrial action, looking at how owners and charterers can best protect their positions when fixing.

Should you require any further information or assistance on any of the issues dealt with here, please do not hesitate to contact any of the contributors to this Bulletin or your usual contact at HFW.

David Morriss, Partner, [email protected] Nick Roberson, Associate, [email protected] What can we learn from the Claimant personal injury solicitors 30 minutes, rather than the Costa Concordia? called upon all regulators, including six hours it took on the Costa the IMO, to improve safety through Concordia. Almost exactly 100 years after the the design and management of sinking of the Titanic, the Costa vessels in order to avoid death and • Practical issues - location of Concordia disaster has been cited as serious injury, and to do so pro- lifeboats and life jackets and one of the worst maritime insurance actively, rather than just learning importance of safety briefings. losses ever. The fallout from the “after the event”, a call which Costa Concordia is likely to have a was backed by the EU Transport • Environmental risk (after the worldwide impact, not only on cruise Commissioner, Slim Kallas. Modern event), such as oil spills and operators, but also on insurers and cruise ships are very different from damage to reefs. all vessel owners and operators. their predecessors and changing all According to analysts, the total the time, primarily to maximise the These risk factors need to be insured loss could be nearly US$1 number of passenger cabins, and it managed as far as possible in billion, including the salvage and hull is therefore essential that regulators order to prevent a disaster of such costs, and it was initially estimated keep up with the changes to both magnitude occurring again. There that the claims from passenger ships themselves and the nature of is also the added factor, more deaths, injuries and loss of property their use. significant perhaps with passenger will exceed US$8 million, before vessels than cargo ships, of risk to even considering any environmental It is apparently undisputed that the reputation. damage or wider loss of business to Costa Concordia incident occurred the whole cruise market. Claims filed for a number of reasons. Chief Cruising is now a significant to date are understood to seek more among these is the fact that the part of the tourism industry, and than US$1.4 billion in compensation. vessel deviated from the planned cruise ships carry huge numbers The size of the claim means that route in order to “salute” the island of passengers each voyage, with it will resonate throughout the of Giglio and struck rocks, causing large crews comprising not only insurance world and into the wider the vessel to capsize and lie heavily seamen, but also entertainment, shipping industry. on her side. The catastrophe was catering and housekeeping staff. compounded by the high number of The considerations to be taken into Claims are still emerging in the passengers and crew on board, the account are therefore very different aftermath of the Costa Concordia lack of safety drill and the fact that from 100 years ago. Modern cruise incident, with claims for loss of life, the vessel’s list meant that almost ships are considerably taller than personal injuries from passengers half the lifeboats were ineffective. It the old-style liners such as the and crew alike. Four of the has subsequently been suggested Titanic and are designed with a musicians and dancers employed on that the high centre of gravity found large number of decks above the the vessel have recently launched on a modern cruise ship means that waterline, with a large superstructure claims for US$200 million, alleging capsizing is inherently much more accommodating more passenger that they can no longer work due likely. cabins and balconies, and a to physical and emotional injury, flattened hull to allow them to enter and the family of the Hungarian This incident emphasises several key more harbours and carry more violinist who died while helping other risk factors including: passengers. As a result, they have passengers has launched a claim a relatively shallow draft and a very for US$400 million. In such a case • Design of the vessel. high air draft, which leads to the as this, claimants are flocking to the higher centre of gravity (increased US, where punitive damages are • Crew error. by the fact that the swimming pools awarded and the Athens Convention are generally at the top of the vessel) (which limits liability for passenger • Emergency procedures - under which has been partly blamed for claims) does not apply. SOLAS ships are required to the Costa Concordia incident. As be able to evacuate within a result, the wind heeling moment

02 Shipping Bulletin is also high, which has to be compartments. Fire on board is up to 20° for new vessels. Marine compensated for with heeling tanks perhaps a more likely event than evacuation systems (i.e. chutes transferring ballast from side to side collision or grounding, and fire on for speedy evacuation) and freefall to maintain stability and promote a balcony can spread very quickly lifeboats (launched at the stern) may passenger comfort. down the side of a vessel due to deal with some of these problems, wind. It is therefore important that but there are concerns over their This had been taken further in fires can be isolated and smoke suitability for the very young and recently revised class actions cleared promptly. Fundamentally, very old. SOLAS also requires that in the US, which allege that the the ship itself is designed to limp emergency drills for passengers are Costa Concordia had a flawed back to port (under tow if necessary) to take place within 24 hours of the design and maximised passenger- if disaster strikes. Consequently, ship leaving the embarkation port, carrying capacity at the expense of cruise ships are significantly safer and requires that a sufficient number seaworthiness. The suit suggests than many other modes of transport. of crew are trained to handle life that safety was compromised boats and deal with passengers. in order to maximise passenger The sheer size of modern cruise Unfortunately, the Costa Concordia numbers and stated that the shallow ships (which have been likened incident took place only two hours draught “made it unstable, and to a small town at sea - the Costa after leaving the embarkation port, susceptible to tilting during the Concordia was carrying more and an emergency drill had not taken allision with the rock, rendering than 4,000 passengers and crew) place. many of its lifeboats useless”. It also mean that any incident is likely to alleges that the internal architecture affect a large number of people, The shipping industry is already made evacuation difficult, turning and present major challenges for highly regulated and safety- the vessel into “a deadly maze and evacuation, rescue and salvage. It is aware (with conventions such as labyrinth”. This internal architecture therefore crucial that all emergency SOLAS and the Convention on can also lead to an increased requirements are complied with, and Standards of Training, Certification instability, with a high shear force evacuation procedures are properly and Watchkeeping), but in the and bending moment, due to the implemented. immediate aftermath of the Costa nature of the structure, with lots of Concordia incident, the Cruise small internal walls (in cabins) and During the evacuation of the Costa Lines International Association spaces. Conversely, there are also Concordia, the lifeboats appear to (CLIA) called for a comprehensive large open spaces on cruise ships, have caused particular problems evaluation of safety regulations such as the centrepiece grand as many of them were unavailable by the IMO, although a fuller atrium and theatres. These open due to the angle at which the investigation would have to wait spaces (which have a structural vessel came to rest (about 70°). until the Italian police investigation effect more like cargo holds than the This angle will also have affected was complete. The CLIA (which rest of a cruise ship) cause different access to emergency corridors. The has a North American focus) and stresses and strains, and present International Convention for Safety the European Cruise Council (ECC) different risks in the event of fire in of Life At Sea (SOLAS) (which was carried out a review of operational those spaces, as they need to be developed following the sinking of safety following the accident, and able to be easily evacuated. the Titanic and added to following has now launched new policies as a other major incidents such as the result. Significantly, the new muster However, experts have commented sinking of the Estonia, in 1994) sets policy is that all passengers must that the broad beam of these out the requirements for life jackets receive their muster drill before the “floating hotels” promotes stability, and lifeboats/rafts (a major issue ship sails. They have also prescribed despite the higher centre of gravity. for the Titanic which notoriously did that extra life jackets must be Furthermore, modern vessels are not have enough), as well as their carried (in excess of the SOLAS designed to stay afloat, even in the locations and distribution around the requirements), voyage planning event of a significant hull breach, ship, and states that lifeboats should procedures are tightened and due to large numbers of watertight be able to be launched at lists of passenger nationality information

Shipping Bulletin 03 must be logged, to be kept ashore, Minimum crew requirements, for employment or the accident was in order that this information can be example, do not take account of actually the responsibility of a third easily available in the event of an the vast amounts of paperwork now party (perhaps port operatives emergency. Bridge access is also to required to be completed, or the or stevedores). It is difficult to be limited to those with operational number of port calls that a cargo see how this might be proven, functions unless senior management ship might make in a short period particularly where passage-planning approves otherwise. Another notable of time, leading to crew exhaustion is concerned, as a Master of a addition is to add certain additional and with no time for maintenance ship has considerable freedom to requirements to the muster policy to be completed. Crew exhaustion, determine this (as he should), and to be provided to passengers as in particular, has been blamed for it may be difficult to draw a line as required by SOLAS. major accidents such as the Exxon to where he has acted outside his Valdez oil spill. It is not possible to employment. In cases where the Even where excellent procedures avoid all accidents, but perhaps Package Travel Regulations apply, have been set down by the owners/ closer monitoring can reduce their the customer can always make the operators at management level, likelihood. Further regulation may claim against the tour operator in human error frequently plays a also lead to increased costs, but the first instance and it is then up significant role in accidents in any may lead to increased safety and a to the tour operator to make an industry, and is likely to have been reduced potential for loss of life. indemnity claim if appropriate. a significant factor in the Costa Concordia incident. As part of With accidents such as that of the Fundamentally, ship owners and several safety measures introduced Costa Concordia or other cruise operators must put in place (and by the vessel’s operators since the ship incidents such as fires or actually apply) all appropriate Costa Concordia incident (including serious food-poisoning outbreaks, measures and safety management those recommended by the CLIA), it will be the owners or operators systems, particularly for passenger they have announced that they have who face many of the subsequent ships, where there will be many launched a safety monitoring system legal claims, whether as a tour passengers with no experience which is overseen in real time by operator under the Package Travel of life aboard ship. Crew must be land-based staff, thus enabling Regulations (for EU customers), selected and trained appropriately, unexpected changes of direction as an employer (for crew claims) and following major incidents there to be readily identified. Voyage or simply as the provider of the need to be systems in place to deal planning will also be discussed cruise. Given the size of the claims, with the injured passengers and before departure. there is no merit in these claimants their families, and the inevitable seeking recourse from the Captain claims that follow. In addition to this kind of monitoring, himself, even if it can be said that regular review of planned it was his negligence that caused For more information, please contact maintenance systems, class surveys the accident. The latest actions Eleanor Ayres, Associate, on and claims records can perhaps launched by passengers in Florida +44 (0)20 7264 8320 or provide an indication of when cite inadequate training of crew [email protected], or your something is not quite right, and it (as well as the failure to carry out usual HFW contact. is then up to the owners/operators muster drills) as being the root of the to ensure that all safety procedures negligence leading to the incident. are properly implemented, and, if Cruise and tour operators must also necessary, reviewed and updated. consider the reputational aspects of For all vessels, whether cargo, dealing with passenger claims in a passenger or other types of vessel, reasonable and appropriate manner. there have been suggestions that However, there may be scope, under minimum requirements, whether English law at least, for defending set by the flag state, classification or passing on claims where a crew society or the IMO, are not enough. member has acted outside his

04 Shipping Bulletin Are we about to see history national governments, local and other the Oslo Paris (OSPAR) Convention, repeating itself? relevant authorities is that there must which applies to the geographical be complete removal of all debris area of Northern Europe, effectively It took several disastrous casualties in including cargo and the vessel itself, makes dumping a vessel completely the late 60s and early 70s, including almost irrespective of costs. impossible. Costs of wreck removal the Torrey Canyon, for improved operations are spiralling upwards at standards and sensible international All of this comes at a time when there an alarming rate. liability regimes to be introduced for is something of a perfect storm taking VLCCs. In the same way, it seems place. There is a global recession that, There are also logistical challenges likely that the Deepwater Horizon if anything, is affecting the shipping in managing casualties on this incident in the Gulf of Mexico will industry even more harshly than scale. One particular problem with finally result in real change to the most sectors; ever larger untested the salvage of large containership way the oil industry operates. Three vessels, including container vessels; casualties is identifying and relatively recent casualties involving giant bulk carriers and very large having in place a proper system modest size containerships serve as cruise ships; increasing environmental of management so that the costs a timely warning that the shipping concerns and increasing public and incurred are paid for by property industry may well soon be facing its government awareness. The MSC owners and/or insurers or, in a own Deepwater Horizon. Napoli appears to have led to a disposal and recovery operation, real sea-change in terms of public damaged and worthless cargo and The MSC Napoli was, when she was awareness and knowledge of shipping ultimately removal and disposal of the built in 1991, lauded for a few months casualties (what is often referred to ship are covered. as the largest container vessel in the as the MSC Napoli effect). Modern world, with a 4,688 TEU capacity. communications and instantaneous Increasingly, we are seeing Famously though, the MSC Napoli media reporting means that there is government and local authority came to grief in the English channel less time than ever to deal with such intervention in the management in January 2007 and was beached at incidents and the pressure on those of casualties, with often direct Branscombe Bay in Dorset, becoming trying to manage casualties has never consequences on the costs of these the subject of a huge salvage, been greater. operations. For those involved in container recovery and wreck removal these cases, the sheer number of project. This project took over three In parallel with this, we have seen real parties to deal with is bewildering. years to complete and the total claim struggles in the salvage industry and All of the stakeholders need to be is likely to be in excess of US$250 there are relatively few global players engaged with and kept informed and million. The MSC Chitra casualty remaining with relatively limited and their particular agenda satisfied. occurred after a collision in Mumbai ageing resources. Whilst the Lloyds Port in August 2010. Again, by modern Open Form contract remains the As already discussed, the standards she is a containership of preferred contract of choice for major environmental challenges of modest proportion, with a 2,312 TEU casualties, given the best endeavours casualties on this scale are also capacity. She became a total loss obligations that the contract imposes enormous. There is increasingly a and again salvage, container recovery it is quite possible that salvors “zero tolerance” policy towards oil and wreck removal operations lasted themselves will become increasingly pollution at sea or on beaches, which over nine months, with total claims risk adverse. must be cleaned-up irrespective likely to be in excess of US$200 of cost. We have seen exorbitant million. More recently, and perhaps Further complications and pressures claims arising from claimants such even more controversially, the total come from the disposal and recycling as local fishermen and hoteliers, and loss of the Rena after grounding on of damaged vessels or wrecks. the cost of cleaning the seabed of the Astrolabe reef in New Zealand, The 1996 Protocol to the London debris is also increasingly dramatic. is further evidence that even modest Dumping Convention effectively Even where the vessel is dismantled, containerships can give rise to huge moved the legal framework from a as with the MSC Napoli, there are claims. Increasingly, the expectation of permissive to restrictive regime and now huge challenges in meeting the

Shipping Bulletin 05 bureaucratic requirements of various even the traditionally accepted marine the recent English Court of Appeal waste recycling directives, which insurance arrangements for such large judgment on strike clause wording require the provision of all manner vessels. It will be to the enormous in Carboex S.A. v Louis Dreyfus of licences and permissions. All of credit of the shipping industry if it Commodities Suisse S.A.1. The High this comes at a time when there are could accept the inevitability of a major Court judgment on this case was relatively few local recycling options incident on this scale and encourage considered in detail in the January and far stricter requirements in all stakeholders to see if protocols and edition of this Bulletin. The dispute traditional scrapping markets. procedures can be drawn-up that will centered on the effect of the inclusion ease the pain as and when disaster in the amended AmWelsh 1979 The very largest container vessels now strikes. charterparty of a WIBON (whether are of 14,000, 16,000 or even 18,000 in berth or not) provision. Clause 9 TEU, with even larger vessels on the For more information, please contact contained the following provision: drawing boards. In the UK, the Port of Andrew Chamberlain, Partner, on Felixstowe is investing in excess of £1 +44 (0)20 7264 8170 or “…in case of strikes, lockouts, civil billion to ensure that it is well equipped [email protected], or commotions or any other causes to accommodate the next generation your usual contact at HFW. included but not limited to breakdown of 20,000 TEU containerships. For of shore equipment or accidents anyone who has been involved in A version of this article previously beyond the control of the Charterers recent container casualties like the appeared in Maritime Risk consignee which prevent or delay MSC Napoli, MSC Chitra or Rena, the International, July 2012. the discharging, such time is not to scale of the claims that would arise count unless the vessel is already on from a serious casualty involving one demurrage.” of these behemoths is hard to imagine. Strikes: understanding the risks However, owners argued that the In conclusion, there is an increasingly WIBON provision at Clause 40 of the demanding legal environment for Strikes have once again made charterparty meant that laytime would the management of major marine shipping industry headlines as an commence in any event, because casualties. The cost of salvage of the almost month-long strike of workers charterers took the risk of the delay Costa Concordia is likely to exceed at the Fenoco railway in Colombia caused by the congestion at the port. US$300 million which will make it began in late July. The strike led to They suggested that Clause 9 was comfortably the largest wreck removal a number of major Colombian coal intended to cover a situation where project ever undertaken. The technical producers declaring force majeure, the vessel was already in berth but challenges faced will be huge and halting exports accounting for over was delayed in discharging due to the consequences of failure are quite 50% of national coal output and a strike in progress. Since the strike unimaginable. leaving vessels waiting for cargo. This was concluded once the vessel is only one of a number of strikes finally berthed, no period stood to In truth, the only surprising aspect of affecting shipping over the course be deducted from the laytime and the debate on containership casualties of the last few months, including demurrage was therefore due. is that there has not been a massive a Brazilian customs strike, which disaster already. There were two new impacted both exports from and The owners succeeded in arbitration, near-misses in 2011, both involving a imports to Brazil into August. but the charterers won on appeal to container vessel in excess of 10,000 the High Court. On further appeal by TEU, and it can only be a matter of In light of the ever-present risk the owners to the Court of Appeal, time. The scale of losses and claims of delays and expense resulting the court found in favour of the from a very large container vessel may from strike action, both owners charterers, holding: run into the billions of dollars. The and charterers would be well consequences of such an accident advised to revisit the terms of their 1. Clause 9 was clearly intended may well result in a complete change charterparties and review the strike to transfer the risk of some in the accepted liability regimes and clauses. This is emphasised by delay caused by strikes from the

1. [2012] EWCA Civ 838.

06 Shipping Bulletin charterer to the owner and there for lay time saved...In case of strikes, 2. It made sense to exclude from was nothing in the language lockouts, civil commotions, or any the running of laytime events of the clause to indicate that other causes or accidents beyond which were beyond the control of its operation was restricted to the control of the consignee [our the consignee, but did not make time lost while the vessel was emphasis] which prevent or delay sense to exclude from laytime alongside the berth. the discharging, such time is not to causes which were within the count unless the vessel is already on control of the consignee. 2. The natural meaning of Clause demurrage...” 9 showed that it was concerned In light of this case, charterers only with the consequences of The vessel arrived at the discharge entering into voyage charterparties the excepted causes, not with port and discharge commenced the on the AmWelsh 1979 will want to their duration, and there was next day. Four days later a strike consider amending Clause 9 so nothing in Clause 9 to support of personnel, employed by the as to omit the phrase “beyond the the conclusion that its operation consignee of the cargo, broke out control of the consignee”, if this is was limited to interruptions and and did not end until almost a month commercially achievable. In this delays occurring during the later. Discharge was only completed way, charterers will be able to rely on period of the excepted causes - the day after the strike ended. The the strike exception, provided that and there was already authority arbitrators upheld a claim by the they can prove that the strike was for the proposition that “such owners for demurrage, finding that causative of the delay in discharge, time” in Clause 9 meant time although the charterers could not without having to prove in addition lost to the vessel in completing have avoided the strike, it was not that the strike was beyond the discharging by reason of one of outside the control of the consignee. consignee’s control. Appropriate the excepted causes. The owners submitted, and the adjustments can of course be arbitrators agreed, that in order to made to other printed forms to 3. In order to obtain the protection rely upon Clause 9, the charterers ensure idle time due to striking by of Clause 9, the charterer simply had to prove not just the existence of consignees’ employees is excluded had to establish that the event a strike which prevented or delayed from laytime. In order to protect on which he relied fell within the discharging, but also one which was their interests, owners entering clause and was the effective beyond the control of the consignee. into voyage charterparties on the cause of delay to the vessel. basis of the AmWelsh 1979 might The charterers then appealed to consider amending Clause 9 so as This latest judgment has upheld the English High Court, arguing to expressly provide that laytime will the commonly accepted industry that they were entitled to rely on only be excepted for time lost in the view on the effect of the wording. the existence of a strike provided duration of any strike. However, the case demonstrates the that it was causative of the delay in importance of ensuring that the risk discharge and that they did not have When reviewing or drafting strike of strikes is properly considered at to prove that the strike was beyond clauses generally, both parties need the fixing stage and clear wording the consignee’s control. The court to be aware that the general rule inserted. This is neatly illustrated by dismissed the appeal, confirming the remains that an exception clause another relatively recent decision decision of the arbitrators. It held: must expressly state that it applies of the English High Court (Frontier to laytime or demurrage, otherwise it International Shipping Corp. v 1. The natural construction of Clause will not apply to those provisions of Swissmarine Corporation Inc. and 9, and the use of the word “other”, the charterparty. It is also important another)2. Clause 9 of the relevant was that the phrase “beyond for all those involved in fixing charterparty (again an amended the control of the consignee” vessels to remember that any strike AmWelsh 1979) provided: applied not only to “any other clause will be construed against the causes or accidents” but also to party seeking to rely on it and any “If longer detained, consignee to pay the specified events of strikes, ambiguity will therefore be read in vessel demurrage...dispatch money lockouts and civil commotions. favour of owners. For example, the

2. [2004] EWHC 8 (Comm).

Shipping Bulletin 07 English court has held3 that Clause Conferences & Events News 28 of the Sugar Charter Party 1969 was not sufficiently clearly worded Lloyds List Middle East Awards World Ocean Council expands to apply to laytime or demurrage. Dinner The clause stated that “Strikes… Dubai The membership of the World Ocean or any other force majeure clause… (16 October 2012) Council (WOC) has continued to grow occurring beyond the control of the and now includes A P Moller-Maersk shippers…which may prevent or Insights and solutions for Australian and Zodiac Maritime, along with delay the loading and discharging Chartering Seminar founder members Rio Tinto and Exxon of the vessel, always excepted”. Sydney Mobil. HFW are a founder member of However, the court decided that the (17 October 2012) this international leadership alliance clause was merely a mutual general Stephen Thompson on Corporate Ocean Responsibility. exception in favour of both owners and charterers in the event that either Insights and solutions for Australian WOC convened an Arctic Business had a claim against the other for Chartering Seminar Leadership Council Meeting and damages. Melbourne Business Dialogue with the Arctic (18 October 2012) Council’s Sustainable Development In conclusion, whilst both owners and Hazel Brasington Working Group in Reykjavik last charterers will also want to review month, with the aim of creating the terms of existing charterparties Seacare Conference and Awards common dialogue between the to ascertain who bears the risk of Sydney business community and the Arctic any delays caused by strikes, careful (24-25 October 2012) Council, which is the main forum for attention to the relevant wording at Peter Leslie and Ben Buckhurst governmental cooperation in the region. the time of fixing vessels can also pay dividends in mitigating the effects Choice of law? Not if chartering for of such delays. shipments to or from Australia

For more information, please contact, Foreign law and jurisdiction clauses Benita Cheung, Associate, on in voyage charters are now void and +44 (0)20 7264 8144 or unenforceable in Australia. To view [email protected], or your this article please go to: http://www. usual HFW contact. hfw.com/publications/client-briefings/ choice-of-law-not-if-chartering-for- shipments-to-or-from-australia

For further information, please contact Hazel Brewer, Partner, on +61 (0)8 9422 4702 or [email protected], or Marina Taouxi, Associate, on +61 (0)8 9422 4704 or [email protected], or your usual 3. [2002] 1 AER (Comm) 214. HFW contact. Lawyers for international commerce hfw.com

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