- The Chairman’s Cocktail Party
One of the standout events of the Baltic calendar, the Chairman’s Cocktail Party, will take place this year on Wednesday 15 May.
Attended by 600 guests, this historic event originally celebrated the end of a Baltic chairman’s two year tenure, held on the floor of the old Baltic Exchange. Now held at Christ Church Spitalfields in London, it brings Baltic members from across the globe together for a unique annual networking and social event, which is also attended by politicians, industry leaders and journalists amongst others.
Baltic Exchange Chairman, Duncan Dunn, will undertake the customary speech, presenting the David Bradley Cup to the 2018 winners, The Baltic Exchange, as well as reviewing another eventful year.
For those interested in attending, we suggest securing your tickets early by following this link to ensure you don’t miss this great occasion.
For pictures from last years event, click here.
- Ship Finance Executive training course
The Baltic Exchange’s Ship Finance Executive course (London, 13-14 May) looks at the benefits and risks of equity and debt finance to shipping companies looking for capital and to investors looking at shipping.
Using a variety of real-life examples, course participants will learn how an IPO is made; what to look for when choosing an underwriter; how to identify an under-priced IPO before it is made public using only publicly available information; how to issue a high-yield bond; and how to calculate the probability that a high-yield bond will default.
Click here for full details and booking.
- Member update: 24 April
The following individuals have applied for membership of an existing member company:
Company Individual Exxon Mobil Corporation Mr G P Los Kaunis Iron AB
Mr L Styrman
Triomphe Shipping Pte Ltd
Mr G Mussa
The following individuals have applied for Retired Membership:
Mr P J Wood
Mr M J Exley
Any comments should be passed to Karen Karanicholas by 1 May 2019.
- No hiding from weaker economic outlook
Three megatrends are playing out in the global economy and serving to keep economic growth in check, according to research from Bloomberg Economics.
The analyst’s GDP tracker hit its lowest since the global financial crisis in the first quarter at 2.2% and is only expected to reach 3.1% by the end of the year, a stark contrast from the 3.6% achieved in 2018.
The analyst’s ASEAN, Australia & New Zealand economist Tamara Henderson pointed out that the International Monetary Fund has warned about “synchronised deceleration” of global growth which can in turn threaten social security. Risks on the horizon include a potentially-disappointing US-China trade deal and new US tariff threats on the EU.
Speaking at Moore Stephens’ Singapore Shipping Forum, Ms Henderson noted that part of the deceleration in growth is down to a move to a more mature phase of the growth cycle and to be expected. However, the trade war is further depressing that slowdown.
“A lot of people are thinking that the second half should be better but I’m a little more cautious that it might not be that much brighter,” she said.
For the US, Bloomberg is forecasting slower growth but at levels above the long-term trend, and higher inflation but still benign. For China, Ms Henderson points out that the growth forecast is at 6-6.5% with leading economic indicators pointing up; however, China production and exports are still under pressure. In Europe, Bloomberg sees slower growth in 2019 albeit gaining momentum in the second half. However, there are risk areas to be wary of, as Italy falls into recession, industrial activity sputters in Germany, and a no-deal Brexit looms on the horizon.
Ms Henderson listed the three megatrends playing out in the world economy as demography, the technology revolution and the new economy.
Under demographics, she noted a number of sub-trends. Firstly, slower population growth is a headwind to growth that is being re-enforced by anti-immigration policies. Secondly, ageing populations mean that more people are moving into those years where they need to think about retirement and saving for retirement. “That means that they are sucking away money, saving more and spending less and so economic growth is slower.”
The second megatrend of the technology revolution relates to rapid automation and transformation of business models. “This opens up global competition not just from your cohorts but through the internet as well, through robots and through artificial intelligence,” she said. “This rapid automation means a mis-match of labour and labour skills to what the market needs. This is not just a problem for the next generation. This means being more cautious about spending your income and, again, slower economic growth.”
On the third megatrend of the new economy, Ms Henderson explained that a world of slower growth, lower returns and greater volatility means that there is greater risk of not-so-great returns. “Our savers need to put away more money because they are not getting much return on those savings,” she said. Ultra-low interest rates are also re-enforcing the choice by business of capital over labour.
Slower growth intersects all three megatrends which is feeding a zero sum game, she added. Growth now will need to be taken from someone else’s share, hence the move towards more protectionism and nationalism. “This protectionism that we’re seeing today and hoping will end by the 2H of this year hasn’t happened in a vacuum and it might be here to stay,” Ms Henderson warned.
On the structural side of the equation, central banks are taking their foot off the accelerator – if not tapping on the brakes – as the global economy enters this mature phase of the cycle. Added to this the trade war with its taxes and redistribution of wealth effects mean that the market is trending weaker. Asked if there will be a tariff roll-back sufficient enough to turn the global economic ship around in the second half, Ms Henderson said she was pessimistic.
Oil prices are also not co-operating with favourable growth outlooks with supply factors underpinning prices, pitching oil prices as another headwind to growth.
Also presenting at the Moore Stephens seminar, John D’Ancona, senior analyst, divisional director – Dry Cargo, Clarksons Platou Asia, reminded the audience that freight markets pivot off three things: supply and demand to fundamentals, technicals and sentiment.
“The shipping markets at the moment have been hit very hard with overriding negative sentiment,” he said. “Is it a problem with trade? Do people actually want the cargoes? Yes they do – we’re moving nearly 12bn tonnes of cargo around the world.”
He added that underlying demand remains positive and that shipping is “pretty cheaply-priced” today. “I think the market has far more upside potential if you can strip away some of the uncertainties,” he said.
The next Baltic Exchange Shipping Economics & Investment course takes place on June 10-11 in London. Click for more information and the booking form.
- BARECON classification obligation is absolute
A Court has held that the obligation to maintain a vessel in class under a BARECON ’89 form was both an absolute obligation and a condition of the bareboat charterparty. In doing so, it disagreed with the Tribunal’s findings, which had resulted in the Tribunal refusing to grant the Owners an injunction requiring delivery up of the vessel on the grounds of the Charterers’ breaches of the bareboat charterparty.
The background facts
On 17 October, 2012, the Owners bareboat chartered the vessel to the Charterers under an amended standard BARECON ’89 form for a period of 15 years. The vessel was delivered into the charter service on or about 18 October, 2012. She arrived at the Caspian port of Astrakhan for repairs and maintenance on 31 October, 2017. She was classed by Bureau Veritas (BV), but her class certificates expired on 6 November, 2017, before she entered dry dock for repairs.
On 7 December, 2017, the Owners sought to terminate the Charterparty because, among other things, the vessel’s class had expired. They alleged that the Charterers were in breach of the classification obligation in Clause 9A) of the charterparty, which provided as follows:
“9. Maintenance and Operation
The Vessel shall during the charter period be in the full possession and at the absolute disposal for all purposes of the Charterers and under their complete control in every respect. The Charterers shall maintain the Vessel, her machinery, boilers, appurtenances and spare parts in a good state of repair, in efficient operating condition and in accordance with good commercial maintenance practice and, except as provided for in Clause 13 (I), they shall keep the Vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times. The Charterers to take immediate steps to have the necessary repairs done within a reasonable time failing which the Owners shall have the right of withdrawing the Vessel from service of the Charterers without noting any protest and without prejudice to any claim the Owners may otherwise have against the Charterers under the Charter.”
The obligation had an obvious temporal element, because the vessel’s class had to be maintained ‘at all times’
The Owners also alleged unpaid hire and a failure to maintain the vessel in a good state of repair. They demanded the return of the vessel, but the Charterers resisted that demand and denied any breach, contending that the charterparty remained alive. They argued that the Owners were well aware that the vessel was undergoing scheduled maintenance works. The vessel had arrived at the dock prior to expiration of the documents and representatives of BV were constantly monitoring the vessel during her repairs and maintenance works. The vessel was not out of class. Upon completion of the works, the BV surveyors would undertake a final inspection and a new set of documents would be issued accordingly.
The Owners sought a final injunction requiring delivery up of the vessel from the arbitral Tribunal, but the Tribunal dismissed the application. The Tribunal equated the Charterers’ obligation to maintain class with the obligation to maintain and repair the vessel. These were not absolute obligations, but only obligations to exercise reasonable diligence.
The Tribunal further held that the obligation to maintain class was not a condition of the charterparty contract which, if breached, would allow the Owners to immediately terminate the charterparty for breach of condition and/or repudiatory breach of contract by the Charterers. Rather, it was an intermediate condition that would allow the Owners to terminate only if the breach was serious enough to deprive them of the substantial benefit of the charterparty. If the Charterers were in breach of their obligations to maintain/repair the vessel and to maintain her class, they had to take immediate steps to carry out the necessary repairs and reinstate the class certificates within a reasonable time, failing which the Owners could then withdraw the vessel from service. However, the burden of proof was on the Owners to establish that the Charterers were in breach of their obligations as of 7 December 2017. On the evidence, the Tribunal did not think that the Owners had established this.
The Owners appealed, and the Court has allowed the Owners’ appeal. The Court distinguished between the maintenance obligation, which was one of reasonable diligence, and the classification obligation, which was an absolute one to keep the vessel with unexpired classification of the relevant class and with other required certificates in force at all times. The two obligations were different in quality. There was a distinction to be drawn between a vessel’s physical condition and her classification status. A vessel’s class was a matter of status and the classification obligation was essentially documentary. Unseaworthiness was not a matter of status. The Charterers could be in breach of the classification obligation without being in breach of the maintenance obligation. The Court stated that the reference to “other required certificates” in Clause 9A) reinforced the fact that the classification obligation was not targeted at maintenance. While the two obligations were related, they were not part and parcel of a single obligation, as the Tribunal appeared to have found.
The Court further found that the classification obligation was a condition of the bareboat charterparty. The obligation had an obvious temporal element, because the vessel’s class had to be maintained “at all times”. Either the vessel was in class or it was not. Only one kind of breach was possible. The obligation was clear and absolute with a fixed time element, suggestive of a condition. The Charterers’ obligation to keep certificates valid was an integral feature of a bareboat charter because loss of class could have potentially adverse consequences not only for the parties but also third parties and regulatory authorities. It could affect insurance, ship mortgage and flag. Additionally, damages for breach of the classification obligation might be difficult to assess.
The Court distinguished non-payment of hire under a time charterparty. Unlike breach of an obligation of punctual payment, which may be very trivial or minor, breach of the obligation to maintain the vessel in class was likely to be serious. To treat the classification obligation, therefore, as a condition would not risk allowing trivial breaches to have disproportionate consequences.
This decision reflects the importance of a vessel’s classification status under a bareboat charter because of the serious consequences that can result from loss of class.
Silverburn Shipping (Iom) Ltd v. Ark Shipping Company LLC (M/V Arctic)  EWHC 376 (Comm)
Michael Volikas and Reema Shour are Partner and Professional Support Lawyer respectively at Ince Gordon Dadds, an international law firm. Contact Mr Volikas on +44 (0) 20 7481 0010 or by emailing email@example.com. Contact Ms Shour on the same number or by emailing firstname.lastname@example.org.
- Defective passage plan rendered vessel unseaworthy
In a recent judgment, in the context of a claim by Owners for a contribution in General Average (GA), the Court considered whether a defective passage plan, prepared prior to the commencement of the voyage, rendered the Vessel unseaworthy. On the facts, it was found that that even though the Owners had in place good safety management practices, the Vessel was unseaworthy on the basis that a prudent owner would not have sent the Vessel to sea with such a defective plan, and that due diligence had not been exercised.
The background facts
On 17 May, 2011, the container vessel, CMA CGM Libra (the Vessel), grounded shortly after leaving the Port of Xiamen in China.
At the time, the Vessel was about four cables west of the buoyed fairway, in an area where the charted depth was over 30 metres. The fairway through which the Vessel was navigating prior to the grounding was bordered by areas marked on the chart as “Former Mined Areas”, the presence of which were noted in the chart notes and Admiralty Sailing Directions as having inhibited hydrographic surveying and, therefore, potentially containing uncharted wrecks and isolated shoals that posed a danger to deep-drafted vessels. Furthermore, a Notice to Mariners issued just five months prior to the grounding advised mariners that “numerous depths less than the charted exist within, and in the approaches to Xiamen Gang”. It also noted that the fairway had a depth of at least 14 metres. A further Notice to Mariners issued in April 2011 also gave specific examples of depths of water outside the fairway being observed to be considerably less than the charted depth.
Prior to departure, as required by the Owners’ Safety Management Systems (SMS), a passage plan had been prepared by the Second Officer and approved by the Master. Although some non-causative defects were noted on the plan, the fact that the Notice to Mariners identified the existence of shallower depths than those charted in the vicinity of the fairway which were not included on the plan meant that the Judge held that the passage plan was defective: a source of danger was not clearly marked as it ought to have been. In addition, although the Vessel had on board a memorandum issued by the Owners relating to the difficulties in navigating the waters around Xiamen, the passage plan did not mark or identify any “no-go” areas outside the buoyed channel. In the event, the Master decided to depart from the passage plan to navigate outside the buoyed channel; a decision which, on the facts, was found to be negligent.
The judgment is a further demonstration that the English Courts consider the concept of seaworthiness to be an evolving obligation which is intended to develop in line with the developments in the shipping industry
The Owners claimed some $13m in GA. While 92% of the cargo interests paid their contribution in GA, the remaining 8% refused to do so and so the sum claimed in these proceedings amounted to approximately $800,000. While the Owners said that the cause of the grounding was an uncharted shoal, the cargo interests claimed that the inadequacy of the Vessel’s passage plan rendered the Vessel unseaworthy, due diligence had not been exercised, and that, as a result of the unseaworthiness, the Master’s navigation was negligent and the grounding caused by the Owners’ actionable fault.
The Admiralty Court decision
As a preliminary point, the Judge considered the recent decision of the Supreme Court in Volcafe Ltd. V. Cia Sud Americana de Vapores SA  3 WLR 2087 in relation to the burden of proof. The Supreme Court held in that case that the carrier had the burden of proving that there had been no breach of its obligations under Article III r.2 of the Hague Rules to properly and carefully load, carry and care for the cargo or that the damage had been caused by one of the exceptions. The cargo interests argued that the Owners had the burden of proving that the Vessel was seaworthy under Article III r. 1 or, if it was not, that due diligence had been exercised.
However, the Volcafe decision was distinguished as only being relevant to the burden under Article III r. 2. The Judge held that the conventional view, that under Article III r. 1 the burden lay on cargo interests to establish that the Vessel was unseaworthy and that the unseaworthiness was causative of the grounding, remained good law.
The Judge cited the usual test of seaworthiness set out in the Cape Bonny  1 Lloyds Rep. 356: 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. Under Article III r. 1 of the Hague Rules, the obligation of seaworthiness attaches “before and at the beginning of the voyage”.
Counsel for the Owners submitted that passage planning is not an aspect of seaworthiness and instead is an aspect of navigation that takes place prior to the actual passage. It was argued that a one-off defective passage plan did not amount to unseaworthiness and that a carrier’s duty was discharged by putting proper systems in place to ensure that the Master and crew can prepare an adequate passage plan before the beginning of the voyage. The Judge was unable to accept this, holding that the Vessel was unseaworthy at the commencement of the voyage by virtue of the defective passage plan. He stated that concentrating on the actions of the Owners without considering those of their servants confused the issue of seaworthiness with the non-delegable duty of due diligence.
It was held that the defect in the passage plan was causative of the Master’s decision to leave the fairway, which in turn caused the grounding.
The cargo interests argued that the Master and Second Officer’s negligence in preparing the passage plan amounted to a failure on the part of the Owners to exercise due diligence to make the Vessel seaworthy. The question then arose whether the Master and Second Officer could reasonably have prepared an appropriate passage plan with the exercise of due diligence. The Judge held that they could have done so. The Owners submitted that due diligence had been exercised because the Owners’ SMS contained appropriate guidance for passage planning. The obligation to exercise due diligence only concerned things done by the Owners in their capacity as carrier, and not by the crew in preparing the passage plan, which was a matter of navigation.
The Judge made clear that an Owner’s SMS must be adequate to secure a finding that due diligence has been exercised. It was recognised that a well-documented SMS is an important tool for defending claims based on unseaworthiness. However, it is not sufficient for an Owner to demonstrate that it has itself exercised due diligence. The non-delegable nature of due diligence means that it must be shown that the servants and agents relied upon by the Owner to make the Vessel seaworthy at the beginning of the voyage must also have exercised due diligence.
The judgment is a further demonstration that the English Courts consider the concept of seaworthiness to be an evolving obligation which is intended to develop in line with the developments in the shipping industry. As Teare J acknowledged, before the need for passage planning to be adopted by “all ships engaged on international voyages was recognised by the IMO 1999 Guidelines for Voyage Planning, it may have been the case that a prudent owner would not have insisted upon the preparation of an adequate passage plan from berth to berth. However, I am confident that by 2011 the prudent Owner would have insisted on the preparation of an adequate plan from berth to berth”. It remains to be seen whether the Court’s finding on this and other issues will be appealed and, if so, this will be a case to watch.
Significantly, the case breaks new ground and sets a new bar for seaworthiness in finding that a defective passage plan will, of itself, render a vessel unseaworthy if a prudent owner would not have sent the vessel to sea with the relevant defect. It also provides a useful reminder of the non-delegable duty of due diligence. In particular, the decision highlights that even if an owner has in place good SMS practices, the non-delegable duty of due diligence will override it and will not absolve the owner of liability if a crewmember nevertheless fails to follow it or is negligent in its application prior to commencement of the voyage.
We would also make the following observations:
- There is no doubt that, following this judgment, the adequacy of a vessel’s passage plan will come under greater scrutiny. In light of the apparent elevation of a passage plan to a document that could render a vessel unseaworthy, some owners may give consideration to ensuring that additional checks are made on the adequacy of passage plans and may wish to consider arranging for the plans to be approved by owners’ operations team, as well as by the master prior to a vessel sailing. This may, however, be a challenge in terms of practicality and resources.
- That said, a defective passage plan of itself will not lead to liability if the defect is not causative. The burden remains on the cargo interests or charterers to demonstrate that any defects in a passage plan are causative of any loss and a careful analysis of causation will still need to be made on a case by case basis. In this regard, it is noteworthy that it may prove important going forward that navigational experts have the requisite experience of operating and working with electronic charts.
- We would suggest that it remains questionable whether the requirement of a berth to berth passage plan is practicable and relevant in every case. The defect in the passage plan in this case concerned the immediate departure from the load port and not arrival at the eventual discharge port. As a matter of practice, it is often the case that a vessel’s orders change during the voyage or final orders as to the discharge berth are only provided en route. In those circumstances, an issue will be whether, if a passage plan is completed during the voyage but contains a defect which is causative of a grounding, the negligent navigation defence under Article IV r. 2(a) of the Hague Rules would in fact still be available to an owner (assuming the relevant documents to complete the passage plan are on board).
- This particular grounding occurred during a time of transition from paper to electronic charts. While it was found that the Vessel did have the means to prepare a non-defective passage plan, the requirement now to carry electronic charts may aid accurate passage planning.
- It is noteworthy that the cargo interests argued a number of other points relating to bridge management, incompetence of the Master and fatigue. These were unsuccessful and this suggests that it remains a challenge for cargo interests to prove such issues, particularly where owners do have adequate systems in place.
- Finally, this case also highlights the importance of obtaining witness evidence immediately after a casualty and demonstrates that witness evidence given several years after the event has little value in comparison. It also gives an insight into the Admiralty Judge’s views on and encouragement of the use of Nautical Assessors for issues of passage planning and navigation in GA cases arising from groundings.
Alize 1954 and CMA CGM SA v. Allianz Elementar Versicherungs AG and others (CMA CGM Libra)  EWHC 481 (Admlty)
Christian Dwyer and Sophie Henniker-Major are global head of admiralty and Senior Associate respectively at Ince Gordon Dadds, an international law firm. Contact Mr Dwyer on +44 (0) 20 7481 0010 or by emailing email@example.com. Contact Ms Henniker-Major on the same number or by emailing firstname.lastname@example.org.