Ship Chartering Present and Future From a

Ship Chartering – Present and Future: From a Broker’s, Insurance, and Legal Perspective 35 th WISTA International Conference – October 7 -10, 2015 – Istanbul Veins of Shipping

Today’s Panelists Brian Malone, Head of Marine Division, MIDSHIP Group LLC Muge Anber–Kontakis, Vice President, FD&D Manager, American Steamship Owners Mutual Protection and Indemnity Association, Inc. Oliver Hutchings, Head of Division, Mediterranean & Middle East, Charles Taylor & Co. Limited, The Standard Club Europe Ltd. Darryl Kennard, Partner, Thomas Cooper LLP Moderator – Jeanne M. Grasso, Partner, Blank Rome LLP

Brian Malone Head of Marine Division MIDSHIP Group LLC

Muge Anber–Kontakis Vice President, FD&D Manager, American Steamship Owners Mutual Protection and Indemnity Association, Inc.

KNOW BEFORE FIXING Due diligence before entering into a charterparty Müge Anber-Kontakis Vice President & FD&D Manager The American P&I Club WISTA International Conference 2015

Due diligence • It is the care that a reasonable person exercises to avoid risks and losses. It is simply doing your homework before entering into a contract. • In the P&I/FD&D insurance world we ask members to act as “prudent uninsured. ” • Due diligence can be time consuming and inconvenient, it may even involve costs. But it is better to make that investment now to avoid costly mistakes later.

How to exercise due diligence before entering into a charterparty Investigating your contractual party is important • Is the potential charterer/owner financially sound/insolvent? • Performance reputation - Inquire within the industry – Information on companies with consistent trading pattern would be easily found. – Lack of trading history may be a concern – May be blacklisted by previous contract partners – Outstanding arbitration awards/ court judgments • Be aware of changing sanctions environment – Caution! Owners/Charterers/Vessels may be listed by OFAC SDN (i. e. , owned by a sanctioned country, terrorist organization, narcotics traffickers, etc).

Investigating your contractual party is important (cont. ) • Commission an internationally recognized asset investigation company. • Owners are encouraged to check with BIMCO, INTERTANKO, INTERCARGO or ICC International Maritime Bureau to obtain information regarding charterers prior to fixing their vessels. • Utilize contacts to obtain intelligence. Ask brokers, P&I/FD&D Clubs, correspondents, search on:

Importance of knowing restrictions on import/export of cargo • Owners may discover that the intended charterer has left vessels waiting at anchorage for months awaiting a cargo, which ultimately was not granted permission for export. The charterer didn’t know its trade and failed to perform. Is your vessel the next victim? • Especially for voyage charters, Owners must confirm that the intended cargo can, in fact, be loaded at the intended port(s). Owners can easily inquire as to the history of success in loading that cargo at the port(s) on similar vessels.

Attention on charterparty clauses before finalizing a fixture Beware! Fixtures without full consideration can be an expensive problem • Are there any unusual/vague charterparty clauses, which Owners/Charterers do not fully understand? Parties must know what they are agreeing to so that they would not be unpleasantly surprised when a claim arises. • Ascertain whether certain clauses are classified as beneficial to Owners or Charterers. • Consult with your lawyer and/or the Club in advance of finalizing a recap. An experienced broker’s advice would be advantageous.

Attention on charterparty clauses before finalizing a fixture (cont. ) Owners • Knowing that charterer wishes to carry sensitive cargo – provide relevant certificates for their inspection and satisfaction • Spell out in detail the obligations and requirements of charterer in loading such cargoes– charterer then decides if they wish to fix the vessel Charterers • Request review of fitness for carriage certificates during pre-C/P fixture exchanges • Insert provision in C/P that valid fitness for carriage certificates are provided upon delivery of vessel for duration of charter Both owner and charterer should pay particular attention and consider “one-off provisions” when carrying any sensitive cargoes!

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Oliver Hutchings Head of Division, Mediterranean & Middle East, Charles Taylor & Co. Limited, The Standard Club Europe Ltd.

WISTA International conference 2015 Oliver Hutchings Head of Division, Mediterranean & Middle East October 2015

Ship Chartering from an insurer’s perspective • Has the downturn in the dry bulk market led to a rise in insurance claims? • Is it a charterer’s market? • Are commercial risks being taken in a prolonged depressed market? 21

• Post 2008 – defence claims on the rise - Charterers defaulted on hire - Bankruptcy - Unpaid suppliers 022

Issues • Unpaid hire • Delays or detention to the ship • Unpaid suppliers • Cargo claims arising from incorrectly issued bills of lading • Liabilities arising from contractual terms 23

Contractual terms • Is the contract standard form or amended? • Are the liability provisions fair and balanced? • Are you being asked to take risks on cargo? - Issuance of clean bills - Delegation of authority without question - Cargo operations against an LOI 24

What can P&I clubs do? • Loss prevention advice - Trading areas - Cargo issues • Guidance on cover issues − Cargo exclusions • Guidance on letters of indemnity 25

Regulatory status The Standard Club Ltd is regulated by the Bermuda Monetary Authority. The Standard Club Ltd is the holding company of the Standard Club Europe Ltd and the Standard Club Asia Ltd. The Standard Club Europe Ltd is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Standard Club Asia Ltd is regulated by the Monetary Authority of Singapore. The Standard Syndicate 1884 is managed by Charles Taylor Managing Agency Ltd, a Lloyd’s managing agent , which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Standard Syndicate Services Limited, trading as 1884 Europe, is a service company and a Lloyd’s coverholder that is part of the Charles Taylor PLC group of companies. The Standard Syndicate Services Limited is an appointed representative of Charles Taylor Managing Agency Ltd which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Standard Syndicate Services Limited has authority to enter into contracts of insurance on behalf of the Lloyd’s underwriting members of The Standard Syndicate 1884 which is managed by Charles Taylor Managing Agency Ltd. The Standard Syndicate Services Asia Pte. Ltd, trading as 1884 Asia, is a service company and a Lloyd’s coverholder that is part of the Charles Taylor PLC group of companies. The Standard Syndicate Services Asia Pte. Ltd. is regulated by the Monetary Authority of Singapore in its capacity as a Lloyd’s coverholder under the Insurance (Lloyd’s Asia Scheme) Regulations. The Standard Syndicate Services Asia Pte. Ltd. has authority to enter into contracts of insurance on behalf of the Lloyd’s underwriting members of The Standard Syndicate 1884 which is managed by Charles Taylor Managing Agency Ltd. 26

@Standard. Pand. I The Standard P&I Club www. standard-club. com @ctaylorplc Charles Taylor plc www. ctplc. com

Darryl Kennard Partner, Thomas Cooper LLP

Judicial top trumps Darryl Kennard LONDON MADRID PARIS PIRAEUS SÃO PAULO SINGAPORE WWW. THOMASCOOPERLAW. COM

Classification of terms § Conditions. They are essential terms that are said to go to the root of a contract. Breach of a condition is repudiatory in charcter, allowing an innocent party to treat the contract as discharged and claim damages for loss of a bargain. § Innominate term. They are provisions which may be regarded as going to the root of the contract (and thus repudiatory) depending upon the nature of the breach. § Warranty. They are non-essential terms, the breach of which is not repudiatory in character and will only give rise to a claim for damages; there is no right to treat the contract as discharged and claim damages for loss of a bargain. 30 The clear way forward

Clause 5 of NYPE Form “Payment of said hire to be made. . . semi-monthly in advance, …, otherwise failing the punctual and regular payment of the hire, or bank guarantee, or on any breach of this Charter Party, the Owners shall be at liberty to withdraw the vessel from the service of the Charterers, without prejudice to any claim they (the Owners) may otherwise have on the Charterers” 31 The clear way forward

Wilford on Time Charters – Pre Astra [2013] “it is thought that the better view is that the obligation to pay hire is by nature an intermediate term, so damages for the loss of the charter are recoverable only where the failure to pay hire by the due date can be shown to be repudiatory. It may be that the judicial remarks recorded [to date] should not be understood as meaning that Clause 5 is a condition, but only that its draftsman, by adding an option to withdraw to the obligation to pay hire, has given to that obligation one characteristic of a condition, namely that any breach gives a right of termination”. Based on The Brimnes 32 The clear way forward

The Astra [2013] EWHC 865 – Flaux J 1. Clause 5 contains a right to withdraw whenever there is a failure to make punctual payment. This suggests a failure to pay hire promptly was intended to go to the root of the contract. 2. There is a general rule in mercantile contracts that provisions which require something to be done or paid by a certain time are considered to be “of the essence”. 3. The “wait and see” approach of an innominate term is inconsistent with the importance to businessmen of certainty in commercial transactions. 4. There is judicial support for it being a condition. 33 The clear way forward

Flaux J on Wilford “The suggestion in Wilford that the various dicta should somehow be understood as meaning not that the obligation is a condition, but that it has one characteristic of a condition, …, seems to me not only contrary to the dicta themselves, …, but also somewhat heretical. The obligation either is a condition or it is not. If it is not, then it is an innominate term, if it is a condition then all the “usual consequences” as Moore-Bick LJ puts it, follow, including the right to claim damages for loss of bargain. ” 34 The clear way forward

Wilford on Time Charters – Post Astra “Flaux, J. ’s obiter comments have given rise to uncertainty as to whether Clause 5 is a condition which will remain, we suggest, until the point is decided by the Court of Appeal. ” 35 The clear way forward

Popplewell J in Spar v Grand China [2015] EWHC 718 Lord Diplock said that dicta are of persuasive strength, depending upon the professional reputation of the judge who voiced them. In this case dicta come from judges on each side … who command the very greatest respect. It would be invidious to seek to ascribe relative weight to the professional reputations of each of those identified. The solution to this issue is not to be found by a judicial game of cards, allocating to the authors of the views the status of colour cards or trumps so as to assess which is the stronger hand. 36 The clear way forward

Popplewell J on The Astra 1. The inclusion of express right of withdrawal for failure to pay hire suggests the obligation was not otherwise a condition. 2. There is a presumption in mercantile contracts that, unless stated otherwise, stipulations as to the time of payment are not to be treated as conditions. 3. Breaches of the term may range from the trivial to the serious, which suggests it is an innominate term. 4. Contractual intention. Should owners and charterers be taken to have intended that a payment a few minutes late would entitle the owners to throw up a five year charter. 5. The desire for certainty must be counterbalanced with the need not to impose liability for a trivial breach. 37 The clear way forward

Lord Phillips at ICMA § Prefers the reasoning of Flaux J. § Lord Phillips said that characterising Clause 5 as a condition has the effect of imposing a draconian sanction on Charterers which will induce them to pay hire on time. § This, he said, is a powerful incentive on a rising market – if they do not pay, then they will lose the benefit of below market charter rates. 38 The clear way forward

Lord Phillips on falling market § Lord Phillips then considered the effects in a falling market and observed that the threat of withdrawal is of no concern unless it carries with it liability to pay damages for loss of a bargain. § He said Popplewell J’s finding that withdrawal provision adequately protects Owners “makes no sense” in a falling market because it does not carry with it the liability to pay damages for loss of a bargain. 39 The clear way forward

Lord Phillips on falling market § Lord Phillips then attacked the logic of the following observation made by Popplewell J: “If payment of hire were a condition entitling owners to terminate at common law and claim damages, charterers’ exposure would be just as great if the market had risen. On a risen market the charterers would bear the market difference by having to charter in at a higher rate; in a fallen market charterers would have to pay owners for the fall in the rate as damages for repudiation” 40 The clear way forward

Lord Phillips on falling market § Lord Phillips observed that, in a falling market, Charterers can charter in replacement tonnage at below charter rates. Broadly speaking, this results in a saving that will correspond to the liability for damages for loss of a bargain. § He concluded that the right to withdraw for non-payment of hire only makes commercial sense on a falling market if prompt payment of hire is a condition. § Watch this space – Spar Shipping v Grand China is under appeal. 41 The clear way forward

Judicial top trumps Darryl Kennard Judicial top trumps LONDON MADRID PARIS PIRAEUS SÃO PAULO SINGAPORE WWW. THOMASCOOPERLAW. COM