P&I Fixed Premium Renewals. Coronavirus exclusion clause to apply.

So far, P&I Insurance has operated continued to afford liability cover without any specific exclusions for incidents arising out of COVID-19. However, fixed premium and Charterers’ P&I covers are reinsured outside the International Group’s Pooling Agreement and with effect from 20.2.2021 and will be subject to the Coronavirus Exclusion Clause (LMA 5395) and The Cyber Endorsement (LMA 5403) in the Rules for Mobile Offshore Units (MOUs).

The coronavirus exclusion for marine and energy provides:

“This clause shall be paramount and shall override anything contained in this insurance inconsistent therewith.

This insurance excludes coverage for:

1) any loss, damage, liability, cost, or expense directly arising from the transmission or alleged transmission of:

a) Coronavirus disease (COVID-19);

b) Severe Acute Respiratory Syndrome Coronavirus 2 (SARS-CoV-2); or

c) any mutation or variation of SARS-CoV-2;

or from any fear or threat of a), b) or c) above;

2) any liability, cost or expense to identify, clean up, detoxify, remove, monitor, or test for

a), b) or c) above;

3) any liability for or loss, cost or expense arising out of any loss of revenue, loss of hire,

business interruption, loss of market, delay or any indirect financial loss, howsoever

described, as a result of any of a), b) or c) above or the fear or the threat thereof.

All other terms, conditions and limitations of the insurance remain the same.”

Gard have recently announced that they will offer Members and clients in respect of the categories of covers listed below a special extension of cover. The extension of cover (hereinafter referred to as the ‘Special Covid-19 Extension’) shall comprise liabilities, losses, costs and expenses falling within the scope of terms of entry agreed but for the Coronavirus Exclusion Clause (LMA 5395) and subject to a sub-limit of USD 10 million per ship or vessel per event. This extension does not apply to the Cyber Endorsement.

Got a claim against a subsidiary but would like to go against the parent? We have some bad news.

You have an important ongoing contract with X, a subsidiary of a major foreign conglomerate Y. Then Y re-organises its business in a way that doesn’t involve you. X tells you it is regretfully going to break its contract. Obviously you can sue X; but can you sue Y as well? The result of this morning’s deision of the Court of Appeal in Kawasaki Kisen Kaisha Ltd v James Kemball Ltd [2021] EWCA Civ 33 is that in practice, in the vast majority of cases the answer is No.

Shipping lawyers will know the background. KKK a couple of years ago completed a reorganisation of its business; the container side was merged down into ONE, a joint venture with a couple of ex-competitors. Before the reorganisation, ancillary trucking etc in Europe had been organised by a sub-subsidiary of KKK called K-Euro, which had signed up the claimant JKL to do the haulage. This arrangement was now redundant, and K-Euro told JKL it would not be performing further.

JKL seems to have had a clear breach claim against K-Euro, but was not satisfied with it. History and legal confidentiality do not relate why, but there may have been doubts about K-Euro’s long-term solvency and/or a troublesome limitation of liability clause in the JKL – K-Euro contract. Be that as it may, JKL sued KKK for inducing a breach of contract, and sought to serve out in Japan. Teare J allowed this (see [2019] EWHC 3422 (Comm)); but the Court of Appeal disagreed, on the basis that on the evidence the claim had no realistic prospect of success..

The difficulty was twofold. First, despite the existence of a relationship of corporate control, and indeed substantial overlapping directorships, as between KKK and K-Euro, there was no element of persuasion or inducement by the former of the latter. KKK had not induced or persuaded K-Euro to break any contract. Instead, it had been a matter not so much of persuasion as practical compulsion: KKK had reorganised its business wholesale, with the inevitable (and admittedly entirely foreseen) result that K-Euro was forced to break the old arrangement. That, said the Court of Appeal, was something different. Furthermore, inducement of breach of contract required the defendant in some sense to have aimed his actions against the claimant. But here KKK had in no sense aimed its act at JKL, as might have been the case had it told K-Euro directly to appoint another haulier in its stead: instead, the loss to JKL had been, as it were, mere collateral damage.

This seems right. True, the suggested distinction between persuasion and compulsion needs to be taken with some care: if I threaten never to deal with X again unless X breaks his contract with you, I remain liable under Lumley v Gye (1853) 2 E & B 216, and pointing out that I bullied X rather than gently cajoling him will do me no good at all. Perhaps it is better expressed as the difference between the defendant who at least in some way desires the breach of contract, if only as a means to an end, and is liable, and the defendant who knows the result will be a breach but is otherwise indifferent, who is not. But the precise drawing of the line can be left to another day.

What we are left with is what we said at the beginning. If you contract with a subsidiary company, your chances of visiting the consequences of a breach of contract by the latter on its parent concern are low. As, at least in the view of this blog, they should be. If you contract with one entity, then generally it is to that entity that you should look if something goes wrong: to give you a cause of action against some other part of the corporate pyramid, you should need to show something fairly egregious – like a deliberate subornation of breach. Nothing short of that will, or should, do.

No Joy for Insurers- Test Case Goes Against Business Interruption Insurers

Financial Conduct Authority v. Arch Insurance (UK) and Others [2021] UKSC 1 

This was a test case brought by the Financial Conduct Authority (FCA) on behalf of holders of business interruption policies. During the spring national lock-down (in 2020), businesses which held such policies made claims from their insurers but most of these claims were denied on the premise that the wording used in such policies was not broad enough to provide indemnity to the policy holders. In particular, the focus turned on business interruption policies that provided cover for infectious and notifiable diseases (disease clauses) and prevention of access and public authority clauses and restrictions (prevention of access clauses). The FCA selected a representative sample of 21 types of policies issued by eight insurers for the test case. It is believed that the outcome of the case could be relevant for 370,000 businesses holding similar policies issued by 60 different insurers. The High Court delivered its judgment on 15 September [2020] EWHC 2448 (Comm) mainly in favour of the assureds. Using leapfrog appeal procedure, the FCA and six insurers appealed to the Supreme Court composed of Lords Reed, Hodge, Briggs, Hamblen and Leggatt. 

The judgment of the Supreme Court is very technical and lengthy (112 pages) but is no doubt a great victory for holders of such policies. The analysis below will focus on the key points made by the Supreme Court. 

Disease Clauses 

When a business interruption policy provides cover for losses emerging from “any occurrence of a Notifiable Disease within a radius of 25 miles of the premises” what does that exactly mean? Does it mean that cover is available for business interruption losses as long as it could be shown that they resulted from the occurrence of the disease within the radius? Or does the clause provide cover as long as there is one case of illness caused by the disease within that radius? Naturally, the former construction would restrict the limit of cover as in most cases it would be impossible to show that the losses resulted from the localised occurrence of the disease as opposed to the wider pandemic and government restrictions generally. The High Court went along with the latter construction which the Supreme Court was prepared to accept with a slightly different reasoning. The Supreme Court by making reference to the wording of the clause, especially the emphasis in the clause on “any occurrence of a Notifiable disease”, indicated that the wording of the clause is adequate to provide cover for the business interruption caused by any cases of illness resulting from Covid-19 that occur within 25 miles of the business premises. 

Prevention of Access 

It has been stressed that such clauses generally provide cover for business interruption losses resulting from public policy intervention preventing access to or use of the insured premises. A legal deliberation was necessary to determine the nature of public policy intervention required to trigger such clauses. The Supreme Court agreed with the High Court’s analysis on this point to the effect that “restrictions imposed” by a public authority should be understood as ordinarily meaning mandatory measures “imposed” by the authority pursuant to its statutory or other legal powers and the word “imposed” connotes compulsion and a public authority generally exercises compulsion through the use of such powers. On that premise, Prime Minister’s instructions in a public statement of 20 March 2020 to named businesses to close was capable of being a “restriction imposed” regardless of whether it was legally capable of being enforced as it was a clear, mandatory instruction given on behalf of the UK government.  

In some hybrid policies a different wording is used such as “inability to use” or “prevention of access” or “interruption”. The Supreme Court was inclined to construe such wordings broadly. For example, in policies where the insurance provides cover when there is “inability to use” the premises, the Supreme Court was adamant that the requirement is satisfied either if the policyholder is unable to use the premises for a discrete part of its business activities or it is unable to use a discrete part of its premises for its business activities as in both of these situations there is a complete inability to use. This construction opens the door for businesses in hospitality sector which can do only take-away meals for the loss of their in-person business. Similarly, the Supreme Court rejected insurers’ argument that the hybrid policy that refer to “interruption” implies a “stop” or “break” to the business as distinct from an interference, holding that the ordinary meaning of “interruption” is capable of encompassing interference or disruption which does not bring about a complete cessation of business activities, and which may even be slight.  

Causation Issue  

Insurers argued that traditional causation test applied in insurance law should not be adopted as the appropriate test in the context of construing relevant provisions of business interruption policies. Instead, it was argued, that is should be necessary to show, at a minimum, that the loss would not have been sustained “but for” the occurrence of the insured peril. In their view, it was necessary for the business to show that the insured peril had operated to cause the loss; otherwise due to the widespread nature of the pandemic it would be very easy for holders of such policies to show business interruption losses even if the insured risk had not occurred. The obvious objective for developing this contention was to limit the scope of cover provided by such policies as otherwise (if the traditional causation rules were to apply in this context) businesses operating in locations which have no or few cases of the illness could still recover under the policy even though the loss in those instances is caused by disruption occurring outside the radius (or nationally).

In developing their argument, insurers relied heavily on the decision in Orient-Express Hotels Ltd v Assicurazioni General SpA [2010] EWHC 1186 (Comm); [2010] Lloyd’s Rep IR 531. In that case, the claim was for business interruption losses caused by Hurricanes Katrina and Rita. The insured premises in question were a hotel in New Orleans. There was no dispute that the insured property suffered physical damage as a result of the hurricanes. When it came to the business interruption losses, however, insurers in Orient-Express case successfully argued that there was no cover because, even if the hotel had not been damaged, the devastation to the area around the hotel caused by the hurricanes was such that the business interruption losses would have been suffered in any event. Accordingly, the necessary causal test for the business interruption losses could not be met because the insured peril was the damage alone, and the event which caused the insured physical damage (the hurricanes) could be set up as a competing cause of the business interruption. The High Court chose to distinguish Orient Express from the current litigation on matters of construction.  The Supreme Court went further and decided that Orient-Express was wrongly decided and should be overruled. Analysing the facts of Orient-Express case the Supreme Court reached the conclusion that business interruption loss arose there because both as a result of damage to the hotel and also damage to the surrounding area as a result of hurricanes. Therefore, there two concurrent causes were in operation, each of which was by itself sufficient to cause the relevant business interruption but neither of which satisfied the “but for” test because of the existence of the other. In such a case when both the insured peril and the uninsured peril which operates concurrently with it arise from the same underlying fortuity (i.e. the hurricanes), then provided that damage proximately caused by the uninsured peril (i.e. damage to the rest of the city) is not excluded, loss resulting from both causes operating concurrently is covered.

Accordingly, the Supreme Court rejected insurers’ argument, holding that the “but for” test was not determinative in ascertaining whether the test for causation has been satisfied under the insuring clauses analysed as part of the test case. The traditional principles of causation should, therefore, be applied. The Supreme Court on this point concluded at [191]  

there is nothing in principle or in the concept of causation which precludes an insured peril that in combination with many other similar uninsured events brings about a loss with a sufficient degree of inevitability from being regarded as a cause – indeed as a proximate cause – of the loss, even if the occurrence of the insured peril is neither necessary nor sufficient to bring about the loss by itself.” 

Applying the traditional proximity test, essentially enables business to recover under such policies simply by proving a link between the local occurrences and the national reaction even if the “but for test” is not satisfied.

Some Further Remarks 

The judgment is legally binding on the eight insurers that agree to be parties to the test case but it provides guidance for the interpretation of similar policy wordings and claims. However, it should not be ignored that there are still many policy wordings not tested or considered by this decision. There is no doubt that the decision is welcomed by businesses that have been adversely affected from the global pandemic and have failed to rely on their business interruption policies. Was this a case simply concerning construction of certain insurance contracts or other considerations (i.e. impact of the pandemic on social and economic life) played a significant role? The answer is probably the latter even though insurers throughout the litigation maintained that “one simply should not be allowed to rewrite an insurance contact to expand the scope of the indemnity”. But isn’t this the nature of test cases, i.e. judges are usually required to pass moral, ethical judgments on an issue that has significant implications on a part of the society? The global pandemic had significant implications on our lives and economy and at times like this it is inevitable that a judgment needs to be made as to where the economic loss resulting from the pandemic should fall. This is what the UK Supreme Court did here!     

Environmental divergence starts now. EU gold plates the Basel Convention 2019 amendments.

The fourteenth meeting of the Conference of the Parties to the Basel Convention (COP-14, 29 April–10 May 2019) adopted amendments to Annexes II, VIII and IX to the Convention with the objectives of enhancing the control of the transboundary movements of plastic waste and clarifying the scope of the Convention as it applies to such waste. New entries relating to plastic waste were included.

The amendment to Annex VIII, with the insertion of a new entry A3210, clarifies the scope of plastic wastes presumed to be hazardous and therefore subject to the Prior informed consent procedure. The amendments came into force on 1 January 2021.

On 22 December the EU Commission decided to ban the export of plastic waste from the EU to non-OECD countries, except for clean plastic waste sent for recycling. By contrast UK exports of plastic waste will now be made under a new system of PIC, under which the importer has to agree to accept the waste, and has the opportunity to refuse it.

COVID 19. Lengthy delays for discharge of coal cargoes in two Chinese ports.

COVID 19 has caused numerous delays in loading and discharging at ports throughout the world. Sometimes we have seen total exclusion of ships from specified countries, as with the UK’s exclusion of all ships from Denmark for a time in November due to the ‘covid-mink’ scare, and with the brief exclusion by France of accompanied road freight from the UK shortly before Christmas.  

News has now come in of very serious delays in certain Chinese ports. Two Indian ships carrying coal from Australia are still waiting at anchorage for a very long time. The ‘Anastasia’ with 23 crew members on board arrived off Jingtang in Hebei Province on 13 June and the ‘Jag Anand’ with 16 crew members arrived off Caofeidian port on September 20. On New Year’s day India said it was looking at several options to repatriate the 39 Indian sailors on the two ships, including a crew change at sea or at a Chinese port. 

Last year’s New Year’s Day it was Sulphur – this year it’s Cyber

As from today, the IMO’s Resolution MSC.428(98) – Maritime Cyber Risk Management in Safety Management Systems – kicks in. The resolution encourages administrations to ensure that cyber risks are appropriately addressed in existing safety management systems (as defined in the ISM Code) no later than the first annual verification of the company’s Document of Compliance after 1 January 2021. The IMO’s Guidelines Present five functional elements that support effective cyber risk management, which are not sequential – all should be concurrent and continuous in practice and should be incorporated appropriately in a risk management framework:

1 Identify: Define personnel roles and responsibilities for cyber risk management and identify the systems, assets, data and capabilities that, when disrupted, pose risks to ship operations.

2 Protect: Implement risk control processes and measures, and contingency planning to protect against a cyber-event and ensure continuity of shipping operations.

3 Detect: Develop and implement activities necessary to detect a cyber-event in a timely manner.

4 Respond: Develop and implement activities and plans to provide resilience and to restore systems necessary for shipping operations or services impaired due to a cyber-event.

5 Recover: Identify measures to back-up and restore cyber systems necessary for shipping operations impacted by a cyber-event.

Can Independent Contractors be sued under the Athens Regime?

Sperling v. Queen of Nanaimo [2020] BCSC 1852 (CanLII)

Athens Convention Relating to the Carriage of Passengers and Their Luggage at Sea 1974 has been implemented into Canadian Law by the Marine Liability Act 2001. By virtue of Article 3.3 of the Athens Convention, a carrier is liable for the negligence of its “servants and agents”.

The plaintiff claims damages for personal injuries allegedly sustained when the Queen of Nanaimo, a ferry on which she was a passenger, hit the dock at Mayne Island BC on 3 August 2010. It is the contention of the plaintiff that she was thrown from a chair abroad the ferry and struck her head on a pole.  In addition to the owner and operator of the ferry, the present applicants, Ulstein Maritime Ltd and Rolls Royce Ltd, are named as the defendants in this action. They are alleged to have been involved in “the design, construction, installation, maintenance, service, inspection, refit and/or repairs of the operating systems, equipment and/or machinery of the ferry, including but not limited to those relating to its propulsion, breaking and or steering systems.”

The applicants (Ulstein) seek a declaration under r 9-4 of the Supreme Court Civil Rules that any liability they may have to the plaintiff is subject to a monetary limit of about CA$ 325,000 (the limit set by the Athens Convention 1974). Article 11 of the Athens Convention 1974 extends the benefit of the monetary limit to servants or agents of a carrier acting within the scope of their employment.

 Rule 9-4 of the Supreme Court Civil Rules stipulate:

…(2) If, in the opinion of the court, the decision on the point of law substantially disposes of the whole action or of any distinct claim, ground of defence, set-off or counterclaim, the court may dismiss the action or make any order it considers will further the object of these [Rules]…

If the application of Ulstein is successful, their liability and the extent of their liability would be determined under the Athens Convention 1974. This is an outcome that plaintiff wishes to avoid at any cost as bringing a personal injury claim with no limit to liability outside the Athens Convention regime against Ulstein would obviously yield serious advantages for the plaintiff in terms of litigation strategy.  

The key question, therefore, is whether Ulstein can be regarded as the “servant or agent” of the carrier for the purposes of the Athens Convention 1974. These terms have not been defined in the Convention and it is natural that when determining the meaning of these terms each contracting state will be tempted to defer to its legal system. This is precise what the applicants suggest that the Court should refrain from. It is the contention of the applicants that common law definitions of, and distinctions between servants/employees, agents and independent contractors should not apply to the interpretation of international agreements given that such agreements are meant to apply in multiple jurisdictions under many legal systems (a similar point was made in J.D. Irving Ltd v. Siemens Canada Ltd 2016 FC 69 at [260]).

The author has sympathy to this approach (as it promotes uniformity of the Athens regime) even though he is well aware of several cases where courts in contracting states have applied their national law in answering questions not addressed in the relevant international convention.

To advance their argument further the applicants argue that there is a distinction between contractors who repair or maintain a vessel, including installing necessary equipment, and those who manufacture or modify a vessel or its components. It is the contention of the applicants that the former are agents of the carrier while the latter are not. Applying this logic, the applicants suggest that they should be treated as the agent of the carrier for the purposes of the Athens Convention as their contract with the operators required them to maintain, service, inspect the vessel in addition to repair, design and install necessary parts.

The plaintiff, on the other hand, does not agree the extended definition of agency applies, and insists that common law definitions remain relevant.

The Honourable Mr Justice N Smith dismissed the application of the applicants under Rule 9-4 indicating that the ruling sought by the applicants would likely not be decisive or shorten the trial and it is a point of law that cannot be resolved without hearing evidence. He indicated that it would be for the judge to decide the nature of the relationship between the applicants and the operators, what work the applicants were engaged to perform.

It is fair to say that the issue of whether an independent contractor who is engaged in maintenance of the vessel can be regarded as an agent or employee of the carrier for the purposes of the Athens Convention is still an open one. It is submitted that at trial the court should attempt to maintain the objective behind extending the application of the Athens regime to the agents and employees of the carrier. In a technical sense, the applicants here do not seem to be an agent or employee of the carrier (under common law). However, if they are actively involved in maintaining the vessel’s systems as an independent contractor should their position be any different than an employee onboard responsible for maintaining the vessel? Put differently, if their activities have a significant impact on the passenger’s safety onboard the vessel, is it in the spirit of the Convention to leave them outside the Athens regime? It is expected that the judge will be able to shed light on the position of independent contractors who have an ongoing responsibility to maintain the vessel from the perspective of the Athens regime. Ultimately, the finding will be binding from the perspective of Canadian law. However, it will certainly be an analysis that will be put forward for consideration when the same issue arises in another jurisdiction that has implemented the Athens regime into its legal system.                             

Greece Extends its Territorial Sea in the Ionian Sea to 12 nm: A Sign of Things to Come with Regard to the Aegean Sea?

Coastal State are entitled to claim a territorial sea, extending to a maximum of 12 nautical miles (nm) from the baselines of its land territories, be it from mainland territory or a high-tide feature. In the territorial sea, a coastal State has sovereignty, which extends to the air space above it and the seabed and subsoil beneath it.

Greece has not claimed full 12 nm territorial seas from all its mainland territory and islands. This used to be the case in both the Aegean Sea and the Ionian Sea, but Greece recently changed its position with regard to the latter, by making a decree in December 2020, whereby it extended its territorial sea in the Ionian Sea to 12 nm. In the decree, the Greek government also indicated that this approach may be extended to other areas, including the Aegean Sea.

Subsequent news reports have predicted that Greece taking an identical step concerning the Aegean Sea is in the cards. However, can the fact that Greece has changed its position with regard to the Ionian Sea be seen as a sign that a similar expansion of the Greek territorial sea to 12 nm in the Aegean Sea, is looming on the horizon? Answering this question is difficult, but the short answer is ‘not necessarily’. Especially considering the fact that, in the Aegean Sea, the issue of the breadth of the territorial sea has been a highly controversial matter.

The current state of play in the Aegean Sea, as far as the breadth of the territorial sea is concerned, is that Greece still follows the Turkish position to only claim a 6 nm territorial sea from any of its land territories. Greece has, however, never excluded the possibility of it claiming a territorial sea in the Aegean Sea in the future, which extends to a maximum of 12 nm. In fact, Greece has asserted on various occasions that international law entitles Greece to extend its territorial sea to this distance, and that it may take the necessary steps to make this a reality. Viewed in this light, the fact that Greece in its recent decree, whereby it extended the breath of its territorial sea in the Ionian Sea to 12 nm, also indicated to reserve the right to take a similar approach as regards the Aegean sea, is not a novelty, but rather a continuation of a previously and consistently held position.

However, if Greece were to proceed to claim a full 12 nm territorial sea in the Aegean Sea, such a unilateral move will undoubtedly provoke Turkey. Historically, whenever Greece has made any suggestions that it is entitled to a territorial sea of 12 nm in the Aegean Sea, this has been automatically followed by condemnations form Turkey, indicating that it would take whatever steps necessary to prevent Greece from making such an extension. In fact, Turkey has regarded Greece extending its territorial sea within the Aegean Sea beyond 6 nm as a casus belli. Turkey also takes the position that to claim full territorial sea entitlements within the geographical context of the Aegean Sea, which is rather congested, amounts to an abuse of rights by Greece, as it would lead to Turkey being inequitably affected by such an extension.

One aspect that may explain Turkey’s opposition to such an extension is that this would place approximately two third of the Aegean Sea under the sovereignty of Greece. There is also the issue of that Turkey never acceded to the 1982 Law of the Sea Convention, whereas Greece ratified the Convention in June 1995. This means that Turkey may not be directly bound by its Article 3, which deals with the breadth of the territorial sea, unless the provision therein reflects a customary rule. In this vein, the International Court of Justice in Territorial and Maritime Dispute (Nicaragua v. Columbia) made it clear that Article 3, and the breath of the territorial sea of 12 nm set out therein, have indeed evolved into a customary rule (para. 177, p. 690). There is a caveat, however: if Turkey would be able to demonstrate consistently objecting to this being a customary rule, at the time that it was in the process of obtaining such status, Turkey would not be bound by it once the rule obtains customary status. A potential difficulty in this regard is that Turkey itself claims 12 nm territorial seas in both the Black Sea and the Mediterranean Sea.

Whether Greece will claim a full 12 nm territorial sea in the Aegean Sea as well remains to be seen. However, due to the fundamentally different dynamics that are at play in the Aegean Sea, including its more complex geography, volatility, and the long history of conflict that exists between Greece and Turkey in relation to this area, an expansion of the Greek territorial sea to 12 nm there is perhaps not to be expected soon. Although Greece may have international law on its side on this point, this would increase and lead to further conflict with Turkey.  

Admiralty registrar refuses to unpick contractual incidents of bunker suppliers’ in rem claims.

In TRANS-TEC INTERNATIONAL SRL AND ANOTHER V OWNERS AND/OR DEMISE CHARTERERS OF THE VESSEL “COLUMBUS” [2020] EWHC 3443 (Admlty), Admiralty Registrar Mr Davison, on 17 December 2020, considered the meaning of “claim in respect of goods or materials supplied to a ship for her operation or maintenance” under the Senior Courts Act 1981, section 20(2)(m)

Various bunker suppliers claimed in rem against two vessels and also claimed additional sums sought for contractual interest, administrative fees and costs indemnity. The vessels had been sold and the actions were against the sale proceeds with a claim for default judgments. Other in rem claimants disputed the additional sums claimed and argued that these could only be brought in personam.

The additional sums were held to be recoverable under s.20 (m). The fees and interest were incidents of the contract and although the collection costs were further removed they too formed part of the contractual bargain.