Environment vs. Big Oil: The Hedge Fund’s Tale

The oil and gas industry is rarely unremarkable, but over the past two weeks there have been several events of note, including:

  • Biden renewing Chevron’s special license. The licence exempts the oil giant from the 2019 US imposed sanctions barring imports of Venezuelan oil and US dollar transactions made with PDVSA (Venezuela’s state oil company), essentially extending the time Chevron has to wind down its operations there to 01 December 2021.
  • ExxonMobil relinquishing its entire 80% stake in its deepwater oil prospect off the coast of Ghana (Deepwater Cape Three Points), leaving the venture’s two other participants (Ghana National Petroleum Corp. and Ghana Oil Co.) to search for a new operator. Meanwhile, on the other side of the planet, ExxonMobil is developing the offshore Bacalhau oilfield in Brazil with Norway’s Equinor acting as operator (each hold a 40% participating interest, with state-owned Petrobas taking the remaining 20%). They’re set to make a US$ 8 billion investment for phase one.

Unexpected news…

ExxonMobil’s other news, however, made larger headlines when, in a surprising twist, a small group of investors won three seats on its board of twelve directors. What makes this move so unusual is not – as one would expect – the fact that the investors, named Engine No. 1, are an environmental activist hedge fund established less than a year ago, but rather their success in securing these seats when they invested so little (a mere US$ 54 million, which is an absolute miniscule 0.02% stake). But how did this happen? And what exactly does this mean for the oil giant’s future?

As for the how, blame is being placed at CEO Darren Woods’ door: ExxonMobil losing US$ 25 billion last year to covid-19 is a big reason, especially since this was the company’s first loss since 1998. Even though they weren’t the only ones to suffer these kinds of figures, their shareholders were angry, including several large pension funds, advisory services and fund managers who ended up supporting the nominations. Compounding on this is the direction the company has chosen to follow in recent years. Instead of embracing the renewables trend, as its competitors have, its focus has remained staunchly on growing its ‘core competencies’ (i.e. its oil and gas business). While it is true that investment in renewable energies cannot match the current rates of return provided by fossil fuels, in taking this stance ExxonMobil has portrayed itself as stubbornly antiquated, quickly losing value and acting out of step with other global companies. Engine No. 1 took advantage, putting forward four very credible candidates with vast experience in the industry (the three successful ones were an oil refining exec, a biofuels programme exec and an energy dept. official), who offered detailed analysis (80 pages’ worth) blaming the company’s climate approach for their losses. It’s what the shareholders wanted to hear: the nominees were presenting them with a new direction of travel, a call for ExxonMobil to recognise that energy transition is a serious and unavoidable issue which must be addressed and planned for if the company is to survive, let alone thrive.

What does this mean?

As for how this will affect ExxonMobil, stocks have recovered as the world has begun to get back on its feet, but if they want stability over the long run, they’ll need to keep up with the times and diversify their options. The new directors only take up a quarter of the board, so they will be in a minority, and how pivotal a role they’ll play will depend on what committees they’ll infiltrate and what alliances they form among the other directors. As for their overall strategy for ExxonMobil and how environmentally conscious they actually aim to be, we might not have any certainties yet, but it’s worth remembering that Engine No. 1 is a hedge fund, not an environmental charity. Its main aim is to make a profit on its investment and climate change is factored into their planning because they view it as a real and serious business risk.

If nothing else, the very reason for Engine No. 1’s successful nominations and the events which led up to them suggests that the company will take a good look at its current ethos. Already under pressure at home from a number of lawsuits filed in several US states, and by the environmental pledges its competitors were making, last year ExxonMobil had announced prior to the shareholder’s annual meeting that they would be spending US$ 3 billion over the next half decade on a new ‘low carbon business unit’, which aims to cut the intensity of its CO2 emissions from its upstream production by 20% and the intensity of its more devastating methane emissions by 50%.

A smoke and mirror promise? How does it compare to others?

Their promises, however, fall far short of what many of the European major players have committed to: prompted by the Paris Agreement 2016 and the Greenhouse Gas Protocol (GHG Protocol), in early 2020 BP announced its pledge to achieve net-zero GHG emissions by 2050, forcing the metaphorical hands of both Royal Dutch Shell and Total to do the same.

These pledges do have some issues: none of them actually pledge to cut emissions directly – the most effective way of meeting their ‘net zero’ targets. Rather the goal is often to reduce ‘intensity’ and to offset production. And almost none of the companies’ pledges include scope 3 emissions.

Plans for offsetting emissions is dubious in and of itself, in that capture technology is not yet equipped to meet the requirements of the more ambitious pledges and the scale of reforestation is… questionable at best. The other problem, of course, is that offsetting and capturing doesn’t mean that fossil fuel emissions will necessarily be reduced – it is entirely possible for them to increase so long as they outsell them with renewable fuels.

As for scope 3 emissions, these are the most difficult to measure since they originate from assets not owned or controlled by the oil companies but that the organisation indirectly impacts in its value chain (e.g. transportation and distribution). BP did include such emissions in its pledge but deliberately excluded the scope 3 emissions coming from its stake in the Russian Rosneft, which accounts for nearly half of its total oil production. It’s still better than ExxonMobil’s pledge, which doesn’t include scope 3 emissions at all.

Even with their many loopholes, European big oil’s promises are far and above those offered by their American equivalents. Engine No. 1’s directors are in a prime position to move ExxonMobil forward in a way that will help them avoid what’s happened to Shell – more on that on the next blog post – but it’s a difficult path to navigate, involving steep changes and an about turn in direction for the mighty oil giant. One suspects, however, that the reason for the election of the new board members, combined with external pressures (international policy making and increasingly environmentally conscious state governments) and internal demands (shareholders and investors) will provide the company with sufficient motivation to make substantial change.

Strict product liability: information doesn’t count — official (sort of).

If you hoped that since Brexit you could forget about keeping one eye on the decisions of the CJEU, think again. Yesterday in Krone Verlag GmbH (Case 65/20) [2021] EUECJ C-65-20, that court decided an important issue of product liability under the Product Liability Directive, an EU measure that remains essentially in effect here having been enacted as Part I of the Consumer Protection Act 1987.

An Austrian redtop newspaper reader followed the advice contained in an article it ran on home doctoring, and applied a poultice of grated horseradish for several hours to a swollen ankle. She suffered a serious toxic skin reaction because such remedies ought to be applied for only a few minutes. In an unfortunate typo the paper had substituted hours for minutes.

She sued the proprietors, alleging that the newspaper was a defective product under the Directive and that they were therefore strictly liable to her for the consequences of the material contained in it. The owners argued that defective products meant only physically defective products, and did not cover informational defects. Case law in Austria being divided on the point, the Oberster Gerichtshof (ie the Austrian Supreme Court) referred the matter to Luxembourg.

The Euro-court briskly sided with the newspaper proprietors. A bright Euro-line had to be drawn between liability for defective things (strict) and for bad services (fault-based): and a thing did not become defective merely because it happened to be the medium for misleading advice or intellectual content apt to cause harm or injury.

Good news, certainly, for publishers: not only of newspapers, but (more importantly in the commercial context) of instruction books and manuals for maintenance or assembly. These people are it seems now insulated — at least as a matter of our law — from strict liability claims by workers complaining of injury due to incomplete or misleading materials contained in them; they are also safe from strict liability contribution claims by the insurers of employers and others who have been successfully sued by workers and now seek to pass on part of the liability. Equally, in the rare case where mariners rely on a misleading paper chart with untoward results, there can be no question now of liability in the cartographers for injuries resulting.

This judgment was about paper media: but presumably it applies to material on machine-readable media too. It can hardly make a difference whether information is supplied printed on paper or written on to a DVD or USB stick. So there can now be no strict liability suit for instructions supplied on a DVD, or if a DVD fitted into, say, an ECDIS display has a bug in it that causes the display to be wrong. (If material is supplied over the Net no question arises anyway, since then there is no physical medium at all).

A little more difficult is the position of software for operating machines, where there is no element of intellectual content readable by humans: the DVD, for example, that you insert into a device (such as the control unit of a drone submersible) to cause it to run or to transfer necessary operating information to it. If this is misconfigured and causes the device to malfunction and cause injury, is this a defective good? The matter is not absolutely clear. But the stress laid by the Court on the difference between goods and services suggests that here too liability under the Product Liability Directive should be denied. Bad instructions directed at a machine seem more a matter of a defective service than a defect in anything physical: physicality here is confined to the medium on which the instructions happen to be written.

In terms of strict law this decision is not in any way binding on a court in the UK applying the Consumer Protection Act. In practice, however, Brexit or no Brexit, it’s difficult to see the courts here coming to a different conclusion. Particularly since, at least to us at the IISTL, the result reached in Luxembourg seems so overwhelmingly sensible.

Maritime Labour Convention and Electronic Certificates: The Way Forward?

It is often said that a period of crisis brings in the light opportunities for development, and this cannot be less true of the COVID-19 pandemic. Indeed, this on-going pandemic, together with the control measures adopted by many countries, are highlighting the need for a shift towards digitalisation. In the context of the Maritime Labour Convention (MLC), 2006, in particular, the crisis created by the COVID-19 pandemic not only interrupted, in some instances, for a significant period of time, the conduct of inspections required in accordance with Title 5 of the Convention, but also challenged the traditional ways of carrying out such inspections. It came, thus, as no surprise that a number of countries, influenced by the benefits and the practicality of having on board electronic certificates, specifically authorised their use during this pandemic to facilitate port State control inspections, with a view to ensuring that safety standards and decent working and living conditions on board ships are maintained.[1] But, how ready was the regulatory framework for such a change?

At an international level, discussion of issues relating to electronic certificates in the context of the MLC, 2006, had started at the third meeting of the Special Tripartite Committee in April 2018, only two years before the beginning of this pandemic, without taking any decisions on this matter. During this meeting, the Vice-Chairperson of the Shipowner group, the Vice–Chairperson of the Seafarer group and the Chairperson of the Government group recognised the benefits of the use of electronic documents in relation to the Maritime Labour Certificate or the Declaration of Maritime Labour Compliance, which could facilitate the maintenance and withdrawal of documents and expedite inspections by port State control officers.[2] However, one issue was whether the text of the MLC, 2006, would permit the use of such electronic certificates.[3] Furthermore, concerns were raised as to whether the various port State control authorities would accept those electronic certificates.[4] Finally, there was uncertainty as to how such electronic documents could be displayed on board ships to conform with the requirements of the Convention.[5] The possibility of using electronic certificates in relation to other documents, such as crew lists, seafarers’ employment agreements or information on crew members had also been addressed. In this respect, both the Vice-Chairperson of the Shipowner group and the Vice–Chairperson of the Seafarer group highlighted the difficulties surrounding the protection of the personal data of seafarers and noted the need to ensure compliance with the EU General Data Protection Regulation.[6]

The Special Tripartite Committee returned to some of those issues during the first part of its fourth meeting in April 2021 where it was explained that the provisions of the MLC, 2006, as currently drafted, would not prevent national administrations from authorising the creation and storage of seafarers’ employment agreements in electronic format, the maintenance of electronic records on board ships and the use of such records for inspection purposes as well as the issuance of electronic Maritime Labour Certificates and Declarations of Maritime Labour Compliance.[7] However, print outs of such electronic documents should be carried on board ships and should remain available to seafarers in accordance with Standard A5.1.3 of the MLC, 2006, paragraph 12 of which explicitly states that ‘a current valid maritime labour certificate and declaration of maritime labour compliance, accompanied by an English-language translation where it is not in English, shall be carried on the ship and a copy shall be posted in a conspicuous place on board where it is available to the seafarers’.[8] It was further stressed that the use of electronic seafarers’ employment agreements should not affect the obligations under Standard A2.1 of the MLC, 2006.[9] Amongst other things, those obligations provide that seafarers working on board ships shall have a seafarers’ employment agreement signed by both the seafarer and the shipowner or a representative of the shipowner, that seafarers shall be given an opportunity to examine and seek advice on the agreement before signing, that the shipowner and the seafarer shall each have a signed original of the seafarers’ employment agreement, and that clear information as to the conditions of employment shall be easily obtained on board by seafarers and shall also be accessible for review by inspectors. The question of whether electronic signatures should be acceptable in the context of the seafarers’ employment agreement is a matter of general contract law that is left by the Convention to be determined by the national law of the flag State or any other law applicable to the seafarers’ employment agreement.[10] Finally, it was observed that the use of electronic certificates should not undermine the obligations of State parties to the MLC, 2006, or shipowners with regards to ship certification and should not make more difficult the process of issuing, accessing or using ship certificates by the individuals concerned.[11]

At a national level, Denmark was the first country to use electronic certificates for seafarers. Its pilot project of digital certificates for seafarers started in June 2016. The aim of this project was to show how digital certificates could operate on board ships, for companies and authorities.[12] The project was based on three pillars. First, seafarers would use a mobile application to sign-on, enabling data sharing; then the master would access the digital certificates of the crew, which would facilitate the management of the crew, the automatic validation of compliance with minimum safe manning requirements, and the transfer of the details to authorities prior to arriving in the next port; and, finally, port authorities would access the digital certificates of the crew, in order to verify compliance with minimum safe manning requirements.[13] Before the launch of this project, the Danish Maritime Authority sent information to the IMO explaining that the certificates would be in compliance with international conventions and instruments, including the Convention on Facilitation of International Maritime Traffic (FAL Convention) and the IMO Facilitation Committee (FAL) Guidelines for the use of electronic certificates (FAL.5/Circ.39/Rev.2 and Corr. 1), as they would carry an electronic coat of arms, the stamp of the Danish Maritime Authority, a signature of an authorised inspector as well as a unique tracking identification number.[14] The certificates would also be protected from alteration or tampering through encryption and use of a digital signature.[15]

Since 2016, other flag States have also started to adopt regulations in relation to the use of electronic certificates, in compliance with the IMO Guidelines for the use of electronic certificates (FAL.5/Circ.39/Rev.2). Such countries include Antigua and Barbuda,[16] Bahamas,[17] Belgium,[18] Cyprus,[19] India,[20] Kiribati,[21] Liberia,[22] Malta,[23] Marshall Islands,[24] Myanmar,[25] Norway,[26] Singapore,[27] Palau,[28] Panama,[29] Sri Lanka,[30] and the UK.[31] However, it may be worth mentioning that only very few countries have made explicit provisions for the issuance of MLC, 2006, documents in electronic format. For example, the Marshall Islands provided that, as from February 2020, the Maritime Administrator would issue the Declaration of Maritime Labour Compliance Part I in electronic format only.[32]

This hesitation on the part of flag States must be associated with the fear of port State control authorities denying the validity of electronic certificates and the possibility of port State authorities unduly detaining or delaying vessels carrying such certificates. Clearly, the latter can be particularly onerous for seafarers, shipowners and other stakeholders. In this respect, the guidelines for port State control officers carrying out inspections under the MLC, 2006, which were published by the ILO in 2008, does not provide any guidance.[33] In fact, those guidelines provide that port State control inspectors should use their professional judgment in carrying out all duties.[34] Furthermore, the guidelines prescribe that the Maritime Labour Certificates and Declaration of Maritime Labour Compliance should be the starting point in the inspection process as they constitute prima facie evidence that the ship is in compliance with the requirements of the MLC, 2006,[35] and that an inspection may end after a satisfactory document review.[36] Noting the importance of the Maritime Labour Certificates and Declaration of Maritime Labour Compliance in the process of port State control inspections under the MLC, 2006, it can, thus, be argued that an update of this guidance is necessary to set out some uniform standards for the issue, acceptance, and use of such certificates.

Beyond the MLC, 2006, context, in June 2017, the Paris MoU issued a set of guidelines for the use of electronic certificates.[37] In particular, section 3, read in conjunction with section 2.2, explain that port State control inspectors should accept electronic certificates provided that: they are consistent with the format and content required by the relevant international convention or instrument, as applicable; they are protected from edits, modifications or revisions other than those authorised by the issuer or the administration; they contain a unique tracking number used for verification; and they contain a printable and visible symbol that confirms the source of issuance. However, those guidelines were only drafted for the purpose of providing guidance to port State control inspectors in performing a port State control inspection, and third parties could not claim any rights on that basis.[38]

More recently, the IMO adopted the procedures for port State control, 2019. What is particularly interesting, though, it is that section 1.2.3 provides that if a port State exercises control based on the MLC, 2006, guidance on the conduct of such inspections is given in the ILO publication “Guidelines for port State control officers carrying out inspections under the MLC, 2206”. It is, thus, unclear whether these procedures should apply to such port State control inspections or not. In that respect, it is submitted that a combined reading should be preferred. In any case, this guidance adopts a positive approach towards the use of electronic certificates that aims to afford consistency in the conduct of port State control inspections. More specifically, section 2.2.3 of the IMO procedures for port State control, 2019, explains that certificates may be in hard copy or electronic format.[39] Where the ship relies upon electronic certificates, the certificates and website used to access them should conform with the IMO Facilitation Committee (FAL) Guidelines for the use of electronic certificates (FAL.5/Circ.39/Rev.2 and Corr. 1), specific verification instructions should be available on the ship, and viewing such certificates on a computer should be considered as meeting the requirement of carrying certificates on board.[40] Of course, this guidance is only recommendatory in nature. Governments are only encouraged to implement these procedures when exercising port State control. This implies that port States can still adopt different requirements in relation to the validity of electronic certificates. In practice, this could mean that a ship calling at various ports in the course of a single voyage would have to carry both a hard copy and an electronic version of a certificate to comply with the requirements of different port States. There is no doubt that this could disincentivise flag States and companies from investing on acquiring the necessary knowledge and technology for issuing, accessing or using electronic certificates. On a final note, it should not be overlooked that this lack of uniform standards at the international level could lead to the emergence of more ports of convenience.

As we move forward and out of this pandemic, the use of electronic certificates in the context of the MLC, 2006, is likely to be expanded or even generalised. However, for that to be a viable possibility for the future, international cooperation is necessary for the creation of uniform standards for the issuance, acceptance and use of such certificates.

[1] For example, Belgium (Circular 2020/002).

[2] Final report: Third meeting of the Special Tripartite Committee of the Maritime Labour Convention, 2006, as amended (MLC, 2006) (Geneva, 23-27 April 2018), International Labour Office, International Labour Standards Department, Geneva, ILO, 2018, at page 15.

[3] ibid.

[4] ibid.

[5] ibid.

[6] ibid.

[7] Background paper for discussion, Fourth meeting of the Special Tripartite Committee established under Article XII of the Maritime Labour Convention, 2006, as amended – Part I (Geneva, 19-23 April 2021), International Labour Office, International Labour Standards Department, Sectoral Policies Department, Geneva, ILO, 2021, at page 24.

[8] ibid at page 25.

[9] ibid.

[10] ibid.

[11] ibid.

[12] Danish Maritime Authority, “Digital Certificates for Seafarers” available at < https://www.dma.dk/SoefarendeBemanding/SoefartsbogBeviser/DigitaleBeviser/Sider/default.aspx> accessed 28 May 2021.

[13] ibid.

[14] IMO Circular letter No 3646.

[15] ibid.

[16] Circulars 2018-003 and 2018-004.

[17] Marine Notice 53 of 4 January 2021.

[18] Circular 2019/0001.

[19] Circular No 14/2018.

[20] Engineering Circular No 07 of 2017.

[21] Marine Circular 37/2017.

[22] Information on Certificates and Documents issued by the Republic of Liberia of 14 September 2017.

[23] Merchant Shipping Notice No 139.

[24] Marine Notice MN-1-109-1 rev Nov/2020.

[25] Marine Guidance 1/2018.

[26] Norwegian Maritime Authority, “Electronic Certificates for Vessels” available at < https://www.sdir.no/en/shipping/vessels/certificates-and-documents-for-vessels/electronic-certificates-for-vessels/> accessed 28 May 2021.

[27] Shipping Circular No 26 of 2017.

[28] Marine Circular No 17-045 and Marine Notice 108.1.

[29] Merchant Marine Circular MMC-355.

[30] Merchant Shipping Notice (MSN) 01/2018 of 12 September 2018.

[31] Marine Information Note (MIN) 609 (M+F).

[32] Marine Safety Advisory No 07-20.

[33] ILO, Guidelines for port State control officers carrying out inspections under the Maritime Labour Convention, 2006. Geneva, International Labour Office, 2009.

[34] ibid, at paragraph 39.

[35] ibid, at paragraph 42.

[36] ibid, at paragraph 45.

[37] Paris MoU, “Guidelines for the use of electronic certificates” available at < https://www.parismou.org/guidelines-use-electronic-certificates> accessed 28 May 2021.

[38] ibid.

[39] IMO Resolution A. 1138(31).

[40] IMO Resolution A. 1138(31), Annex at Section 2.2.3.

Ever Given latest.

Yesterday, 23 May, the appeals chamber of the Ismailia Economic Court upheld a ruling issued by the Ismailia Court of First Instance on May 4, rejecting the appeal made by the owners of the ship (Shoei Kisen Kaisha) against keeping the ship under arrest. In a second case that was filed by the Suez Canal Authority (SCA) to keep the seizure of the ship valid, the Court recused itself and referred this case back to the Economic Court of First Instance to be considered on May 29.

The Suez Canal Authority initially demanded $916 million in compensation, which it later lowered to $600 million which would cover the salvage operation, costs of stalled canal traffic and lost transit fees for the week the Ever Given blocked the canal. It seems the claim for reputational damage totalling $300 million may have been jettisoned.

The vessel’s owners have denied that the accident was their fault and are claiming fault on the part of the SCA in allowing the vessel the ship to enter the canal amid bad weather, and claim that at least two tugs suitable for the vessel’s size should have been supplied. Owners are claiming $100,000 in initial compensation for losses related to the vessel’s seizure.


The CJEU recently issued a decision in the case of YL v Altenrhein Luftfahrt GmbH (12 May, Case C‑70/20, ECLI:EU:C:2021:379) interpreting the term “accident” in Article 17 of the Montreal Convention 1999. The said Article provides that an airline is liable for a passenger’s bodily injury on condition that the injury is caused by an accident that takes place on board the aircraft or during the operations of embarking or disembarking. The case was referred to the CJEU by the Supreme Court of Austria.

The facts of the case are not overly complicated. The passenger claimed to have suffered spinal disc injury (the bodily injury) as a result of the heavy landing of the aircraft (the alleged accident) that was transporting her from Vienna to St. Gallen/Altenrhein. The flight data recorder demonstrated that the vertical load borne by the landing gear and the structural parts of the aircraft during landing reached 1.8g, below the manufacturer’s limitation that was set at 2g. The Court noted that the passenger experienced a heavy landing, yet it was “within the normal operating range of the aircraft in question” (para 14). The Court further noted that heavy landings are to preferred for safety reasons at the St Gallen/Altenrhein airport and accepted that the pilots committed no errors (para 14). 

Historically, the rule of thumb is that cases of heavy landing are not considered accidents for the purposes of Article 17, unless the roughness of the landing is “either unusual or beyond the expectations of an air traveller” (Salazar v Mexicana Airlines 20 Avi 17,114 (WD Tex, 1986), affd 800 F 2d 1143 (5th Cir, 1986) as found in Shawcross and Beaumont on Air Law, Chapter 37, para 691). The CJEU concluded that the heavy landing in question was not an accident, yet in reaching this (correct) conclusion followed a way of thinking that has the potential to change decidedly the interpretation of the term “accident” in Article 17.

The term “accident” is not defined anywhere in Montreal Convention 1999 (or in its predecessor, the Warsaw Convention). Its prevailing interpretation comes from the US Supreme Court case of Air France v Saks 470 US 392 (1985) which, in a nutshell, defined accident as an unusual or unexpected event that is external to the passenger and not the passenger’s own internal reaction to the usual, normal and expected operation of the aircraft.  As Professor David Mcclean recently wrote (in file with the author) regarding the Saks definition “…the unexpectedness of what has happened is central to the idea of an accident. It seems important that unexpectedness be viewed from the standpoint of the passenger; to see it from that of the airline would attract ideas of foreseeability that belong to a negligence analysis”. The benefits of the no-negligence interpretation of Saks (and the reasons for becoming the prevailing definition since then) is that it relieves the passengers of the requirement to prove fault and creates a standard that is detached from domestic interpretations of value-laden terms such as duty of care and foreseeability.   

The reasoning of the CJEU has the potential to wave goodbye to this era of interpretation as it applies the definition of the term “accident” that was recently created in the case of Niki Lufthahrt (19 December 2019, Niki Luftfahrt, C‑532/18, EU:C:2019:1127), namely that accident is an “unforeseen, harmful and involuntary” event. As such, the focus of the Court’s inquiry in our case was whether the heavy landing was “unforeseen”. For the CJEU, foreseeability is not to be determined by reference to the passenger’s expectations as that would create unfair results for airlines that run against the balance of interests achieved in the Montreal Convention 1999. Instead, it is to be judged from the airline’s perspective, namely by reference to industrial standards, operating manuals and safety regulations:

“Compliance… is aimed at ensuring a landing accomplished in accordance with the applicable procedures and limitations, set out in the flight manual of the aircraft in question, or any equivalent airworthiness documentation relating to it, and taking into account the rules of the trade and best practice in aircraft operation, even if that landing is perceived by certain passengers as being harder than they were expecting” (para 39).

As the landing in question complied with the technical procedures and margins and the pilots committed no error, the CJEU concluded that the bodily injury did not result from an accident. By doing so, the Court ushers us in an era that negligence takes centre stage in the legal inquiry of Article 17: the further the acts of aviation professionals fall short of industrial norms, the easier will be to establish that the injury was caused by an unforeseeable event that constitutes an accident. As such, the door is open for courts to make policy judgments based on negligence considerations that have strong and diverse domestic flavours.  

Admittedly, the tendency to link the term “accident” in Article 17 with industrial standards is not new. It has been brewing for a while as several courts have interpreted (or considered interpreting) the “unexpected” element of the Saks’ definition by reference to industrial practices (for example, see my comments on Labbadia v Alitalia (Societa Aerea Italiana SpA) [2019] EWHC 2103 and Salih v Emirates (No. 2) [2019] NSWDC 715 in this blog). Even Lord Mance in In re DVT [2006] 1 AC 495, paras 78-79 linked, albeit obiter, the “usual, normal and expected operation of the aircraft” to industrial behavioural standards, when he argued that “[t]he present case involved carriage by air in an aircraft and, in a manner, which were, in terms of industry standards and practice, at the relevant times normal, usual and expected….But it is accepted that it was neither industry nor the respondent air carrier’s practice at the relevant time to give such warnings or advice”.  Lord Scott, in the same case (para 24), went a step further and posed a question that, following the CJEU decision, becomes relevant again: “how the case would look if there were such an established practice and if by an oversight the usual warnings were not given does not arise for consideration in the present case”.  

The reasoning of the CJEU in YL gives the green light for such considerations to dominate the inquiry of what constitutes accident;  even the use of the term “foreseeability”, instead of “usual and expected”,  has so strong negligence connotations that courts are likely to explore them by reference to their own cognitive biases and their domestic tort law cases. While the YL case suggests that the universal industrial standards of aviation will provide this common ground of uniform interpretation of an international treaty, I am not optimistic. And I will use the following factual scenario as a taste of what we might experience in the future with respect to common industrial standards:

In the unreported English case of Singhal v British Airways plc (2 November 2006, Uxbridge County Court) the passenger injured her left ankle while disembarking from a B777 on a jetty at LHR that was fitted at a level six inches below the door. The District Judge held that the injury was not caused by an accident as he accepted evidence of industrial standards, namely that “on a 777 aircraft…. a step of six inches or so is necessary because otherwise the top of the jetty will foul the door, which on an aircraft of that type opens outwards…”(para 10). As the jetty was operated in accordance with the airport manual, the drop could not be described as unusual and unexpected, and thus could not qualify as accidental.

On appeal (20 October 2007, Wandsworth County Court), Mr Recorder Bueno QC reversed the decision, as he held that the airport manual was not enough to make the six-inch fall so common and generic to qualify as usual and expected. For him the manual was “confined to the apparent practice at Heathrow Airport” and required evidence that the six-inch drop is universal practice:

“There is, for example, no evidence whatever of the practice at other airports, whether in the UK or elsewhere, with regard to Boeing 777 aircraft or other aircraft with different exit characteristics, whether this form of alignment is universal, whether different types of jetway are used which eliminate the necessity for a step, whether ramps are employed, whether practices elsewhere are to give warnings – and so on and so forth. It would thus be unsafe to make a finding which is based only on the manual in use at Heathrow Airport…” (para 49).

I wrote in 2009 (Risk and Liability in Air law, paras 5.242-5.245) that this conclusion runs contrary to the spirit of the Convention and the reasons behind an interpretation that favours unexpectedness over foreseeability. I also hoped that it will not be used extensively, a statement that was accurate until the 12th of May 2021. It remains to be seen whether courts around the world will be persuaded by the new approach of the CJEU. If they do, there is a real risk that the interpretation of the term “accident” will be disunified by reference to domestic negligence concepts.

Charterers orders to wait off berth not an extra contractual service; time falls within the laytime and demurrage regime.

London Arbitration 14-21 involved a claim by owners that time spent waiting on charterer’s orders following tender of NOR at the discharge port was a non-contractual service which should be remunerated by way of quantum meruit. This would be at the demurrage rate and would include bunkers consumed while waiting.

The Tribunal rejected the claim. Laytime had already started to run when the charterers ordered the vessel to wait off berth. This was not a non-contractual order as in The Saronikos [1986] 2 Lloyd’s Rep 277 and Glencore Energy UK Ltd v OMV Supply & Trading Ltd [2018] 2 Lloyd’s Rep 223. The charterers were entitled to use the whole of the agreed laytime, whether  by holding the ship off the berth, or by berthing her and not working her for some time, or by berthing her and working her immediately. Once laytime had started to count the charterers were entitled to use it in full. Even if owners had been right, they would not have been entitled to anything for bunker consumption. Assuming the demurrage rate was to be taken as a genuine pre-estimate of damages for detention, it had to follow that running expenses, including bunker costs, were to be taken as included in the agreed rate.

Smart claims for bill of lading freight by owners.

If an owner’s bill of lading incorporates the freight provisions of a time charterer’s voyage charter, can owners intervene to require payment of the freight to themselves rather than to the time charterer? That was the issue recently before Butcher J in Alpha Marine Corp v Minmetals Logistics Zhejiang Co Ltd (MV Smart) [2021] EWHC 1157 (Comm) (05 May 2021).

Claim were made by owners against charterers in respect of the loss of the vessel for breach of the safe port warranty. the Tribunal found that the Charterers had provided a safe port warranty in respect of Richards Bay and that there were some shortcomings in the running of the port. However, the Master had been negligent in his handling of the Vessel and it was this that caused the grounding of the Vessel. Owners had issued bills of lading which stated ‘freight as per charter’.  After the vessel was lost the Owners gave notice to the bill of lading holder, the voyage charterer to pay full freight to them. At that time only a sum in respect of bunkers was due to Owners.  Charterers claimed damages in respect of losses sustained as a result of owners’ intervention in respect of freight due under the bill of lading through the incorporation of the terms of the voyage charter. They also claimed in tort on the basis of procuring breach of contract by the voyage charterer and/or knowingly and/or unlawfully interfering with the Voyage Charter. The Tribunal found that Owners were not entitled to revoke Charterers’ right to obtain the bill of lading freight or to direct it be paid to the Owners. This is because the Charterparty contained an implied obligation that Owners would not revoke unless hire and/or sums were due to them under the Charterparty

On appeal, Butcher J considered three possible terms constraining owners’ exercise of their rights to intervene to claim freight under the bill of lading. First, the “all freight” implied term whereby if the Charterers were in default of their obligations under the Charterparty, then the Owners would be entitled to collect the entirety of the freight, even if it exceeded the amount of the Owners’ claim against the Charterers arising out of their default. Second, “All Freight (Sum Identified) Implied Term”) by which the Owners were not entitled to revoke the Charterers’ authority to collect any freight unless a sum was due to the Owners under the Charterparty and the relevant sum was identified at the time of any revocation of the Charterers’ authority; and (3) the “Dollar for Dollar” Implied Term whereby the Owners were only entitled, in the event of a default by the Charterers, to revoke the Charterers’ authority to collect freight in respect to an amount up to, but no more than, the amount due from the Charterers under the Charterparty.

Butcher J rejected the implication of any term.  Owners’ duty to account to the charterer for any excess in the amount of freight collected over the amount due under the charterparty meant that the present charterparty, or other time charters in similar form, did not lack commercial or practical coherence without an implied term restricting the owners’ right to intervene.  If owners claimed freight in excess of sums due to them under the time charter the owners would have to account for the balance to the time charterers, and that was the charterers’ protection.

The Award was set aside insofar as it awarded damages for breach of the implied term found by the Tribunal; and the matter was remitted to the Tribunal for reconsideration of the Charterers’ freight counterclaim on the alternative Tortious Basis, having regard to this judgment.

Lugano blues?

Unfinished business permeates Brexit. A case in point is jurisdiction and enforcement of judgments. As of the end of last year the regimes which had thitherto featured so large in lawyers’ lives, Brussels I, Lugano and the Brussels Convention, fell away. What remained was the common law rules on jurisdiction and enforcement, tempered only by the much more skeletal 2005 Hague Convention on Choice of Court Agreements, possibly a few hoary pre-EU bilateral treaties on enforcement of judgments, and a vague prospect of the UK joining Lugano as a non-EU state with the agreement of the EU.

The latter possibility has now been scotched; although the other Lugano states (Switzerland, Iceland and Norway) were cool about the idea, the EU Commission on 4 May came out with a de Gaullean Non. For the moment therefore we are stuck with the status quo.

Is this a disaster for UK lawyers, in particular as regards the enforceability of our judgments elsewhere in Europe? Not as much as you might think, even though though it is a reverse, and admittedly proceedings to give effect to judgments may become somewhat untidier and more costly.

First, note that in the EEA outside the EU, Switzerland has a fairly summary native procedure for enforcing foreign (non-Lugano) judgments; and as regards Norway we have dusted off a 1961 agreement and reactivated it.

Turning to the position within the EU, it is worth remembering that one sizeable subset of Commercial Court judgments will remain fairly readily enforceable: namely, those emanating from exclusive English jurisdiction clauses – a very common phenomenon in international trade contracts, and a not unusual one in other cases where English law is chosen by the parties to govern their transaction. This is because the 2005 Hague Convention, already applicable in the UK and throughout the EU (and also in Singapore and Montenegro) mandates enforcement, not only of such clauses, but also of any judgments resulting. The only gaping exceptions here are interim judgments and carriage contracts.

In the mid-term things may moreover get better. The EU is, it seems, well on the way to ratifying the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, a convention to which the UK can also adhere. If and when EU and UK both ratify this Convention, it will require expeditious enforcement of each other’s commercial judgments – and incidentally judicially-approve settlements – rendered against, among others, anyone who has agreed to the jurisdiction of the court rendering the judgment. Its only slightly annoying exception, as in the case of the 2005 Hague Convention, concerns carriage contracts, something apt to exclude bill of lading and voyage charter disputes (though possibly not time charter litigation).

Furthermore, it is worth remembering that the UK’s exclusion from Lugano carries one positive benefit: namely, an escape from its strict and arguably over-dirigiste provisions on jurisdiction. UK courts will thus retain the ability regained in January to decline jurisdiction where there is a good reason to do so without being concerned with the straitjacket imposed by Owusu v Jackson (C-281/02) [2005] E.C.R. I-1383. Conversely, English courts will keep their newly-restored ability to extend to European-domiciled defendants the wide English rules of exorbitant jurisdiction tempered only by forum non conveniens and the court’s discretion to refuse permission to serve out. Further, one suspects much to everyone’s relief, lis alibi pendens in Europe will not, as in Art.27 of Lugano, prevent the English court hearing the case, but merely give it a discretion to do so. The unlamented Italian torpedo fashioned by cases such as Erich Gasser GmbH v MISAT SRL (Case C-116/02) [2003] E.C.R. I-14693, partly but only partly disposed of in Brussels I Recast, will thus be for ever disarmed and its casing given a decent burial on the seabed. And, of course, the anti-suit injunction, a remedy of very considerable use in the practical defence of exclusive jurisdiction and arbitration agreements, is now available against all defendants.

In short, life may be messier for English lawyers without Lugano. But one suspects that it may not be that much unhealthier for the legal business of the English courts. For the moment at least UK Law Plc remains in pretty rude health, and with very decent prospects for the foreseeable future. You’d be foolish if you thought of writing it off any time soon.

EU Proposes a Uniform Approach to the Regulation of Artificial Intelligence

Artificial intelligence (AI) is used in many domains ranging from public sector to health, finance, insurance, home affairs and agriculture. There is no doubt that AI can potentially bring a wide array of economic and societal benefits for nations and humanity as a whole. However, it has been subject of intense deliberation as to how AI can be best regulated given that its applications could potentially have adverse consequences on privacy, dignity and other fundamental human rights of individuals. There is no easy answer to this question and various options have been deliberated over the years. Academics have come up with theories as to which manner of regulation would suit the interest of the society best, whilst various stakeholders (developers and/or users of the technology) have supported different types of regulation alternatives suiting their interests.

On 21 April, the European Commission unveiled its proposal for the regulation of AI in EU (2021/0106 (COD)). This is an important development which will, no doubt, generate significant interest (and debate) and play a role in shaping the regulatory framework not only in the EU but perhaps globally. In a nutshell, the proposed new regulatory regime for AI will be as follows:

  • The regulation lists AI systems whose use is considered unacceptable and accordingly prohibited (Article 5). Such AI practices are: i) those that deploy subliminal techniques beyond a person’s consciousness in order to materially distort a person’s behaviour in a manner that causes or is likely to cause that person or another person physical or psychological harm; ii) those that exploit any of the vulnerabilities of a specific group of persons due to their age, physical or mental disability, in order to materially distort the behaviour of a person pertaining to that group in a manner that causes or is likely to cause that person or another person physical or psychological harm; iii) those that are used by public authorities or on their behalf for the evaluation or classification of the trustworthiness of natural persons over a certain period of time based on their social behaviour or known or predicted personal or personality characteristics, with the social score leading to either or both of the following: a) detrimental or unfavourable treatment of certain natural persons or whole groups thereof in social contexts which are unrelated to the contexts in which the data was originally generated or collected; b) detrimental or unfavourable treatment of certain natural persons or whole groups thereof that is unjustified or disproportionate to their social behaviour or its gravity; and iv) those that use “real-time” remote biometric identification systems in publicly accessible spaces for the purpose of law enforcement (certain exclusions also listed for this).
  • The new regime contains specific rules for AI systems that create a high risk to the health and safety of fundamental rights of natural persons (Title III, Arts 6 and 7). Annex III, lists a limited number of AI systems whose risks have already materialised or likely to materialise in the near future (e.g. biometric identification and categorisation of natural persons; AI systems intended to be used for recruitment or selection of natural persons for employment; AI systems intended to be used by public authorities to evaluate the eligibility of natural persons for public assistance benefits and services and AI systems intended to be used by law enforcement authorities as polygraphs and similar tools to detect the emotional state of a natural person) Article 7 authorises the Commission to expand the list of high-risk AI systems in the future by applying a set of criteria and risk assessment methodology.
  • The proposed regulation sets out the legal requirements for high-risk AI systems in relation to data and data governance, documentation and record keeping, transparency and provision of information to users, human oversight, robustness, accuracy and security (Chapter 2).              
  • Chapter 4 sets the framework for notified bodies to be involved as independent third parties in conformity assessment procedures and Chapter 5 explains in detail the conformity assessment procedures to be followed for each type of high-risk AI system.
  • Certain transparency obligations have been set for certain AI systems (e.g. those that i) interact with humans; ii) are used to detect emotions or determine association with (social) categories based on biometric data and iii) generate or manipulate content (deep fakes)) by virtue of Title IV.
  • Title V encourages national competent authorities to set up regulatory sandboxes and sets a basic framework in terms of governance, supervison and liability.   
  • The draft regulation proposes to establish a European Artificial Intelligence Board which will facilitate a smooth, effective and harmonised implementation of the requirements under this regulation by contributing to the effective corporation of the national supervisory authorities and the Commission and providing advice and expertise to the Commission. At national level, Member States will have to designate one or more national competent authorities and, among them, the national supervisory authority, for the purpose of supervising the application and implementation of the regulation (Title VI).           

There is no doubt in the coming weeks the suitability of the proposed regulation will be rigorously deliberated. For example, civil rights campaigners might possibly argue that the proposed regulation does not go far enough as the it allows several exceptions to the use of “real time” biometric identification systems. Fundamentally, Article 5 of the proposed regulation states that the use of real-time biometric identification systems can be allowed for the “prevention of a specific, substantial and imminent threat to the life or physical safety of natural persons or of a terrorist attack”, the interpretation of which leaves wide discretionary power to the authorities. On the other hand, developers of AI applications might find it troubling that the Commission would have a discretion going forward to treat new applications developed as high-risk making them subject to a demanding compliance regime set out in the proposed regulation.

Obviously, the proposed regulation will not apply in the UK. However, it is important for the relevant regulators in the UK to see what is brewing on the other side of the Channel. We should follow the debates emerging, reactions to it from various interest groups and academics with interest. There might be considerable benefit for the UK to make its move once the path the EU is taken on this issue is settled. This might bring economic advantages and even perhaps a competitive edge (assuming that more efficient regulatory measures are preferred in the UK)!   

No-go Lugano?

The UK’s application, submitted on 8 April 2020, to join the Lugano Convention in its own right appears to be foundering on opposition from the EU. Although the three non-EU Members (Iceland, Norway and Switzerland) have expressed support for admitting the UK, the European Commission is less favourably disposed, and its consent is essential if the UK is to become a party to the convention. On 12 April the Commission stated.

“The Commission has conducted a thorough assessment of the request and has discussed it with Member States. It will come forward with a Communication in the coming weeks.

It is worth noting, however, that the Lugano Convention is a tool used within the EU-EFTA/EEA context. The UK has chosen to leave the EU, the Single Market and the Customs Union. It has chosen to have a more distant relationship with the EU than EEA-EFTA countries. These choices have to be taken into account when determining the EU’s position.”

The final decision, however, lies with the European Council, which comprises EU Member State heads of state or government and is expected soon. We wait with bated breath.