Coming soon? Legal Equivalence for Electronic Trade Documents in England and Wales. 

Spain got one in 2014[1], Singapore in 2020[2], and now it seems England and Wales are going to get one in the next year  – a law on the functional legal equivalence of electronic bills of lading, and other trade documents, to their paper counterparts.

On 16 March 2022 the Law Commission of England and Wales issued its report on Electronic Trade Documents, LC 405, which proposed a draft, six clause, bill, the Electronic Trade Documents bill creating functional equivalence for electronic trade documents with their paper equivalents.  In May 2022 the government included the Electronic Trade Documents Bill in the Queen’s Speech in May 2022 setting out its legislative programme for 2022-23 session of Parliament and there is a good prospect of it becoming law in the next year.

The bill operates as follows.

Clause 1 defines the relevant paper documents as “…any paper document used in trade to which possession is relevant (as a matter of law or commercial practice) for a person to claim performance of an obligation, regardless of its precise legal nature.” The bill then lists examples of specific paper documents, including the bill of lading, that would constitute paper trade documents.  

Amenability to exclusive control is a necessary criterion for an electronic equivalent to these paper trade document so as to qualify as an electronic trade document and the transfer of an electronic trade document must necessarily entail a transfer both of the document and of the ability to control the document. This is set out in the next clause.

Clause 2 provides that Electronic equivalents of those documents would be ‘qualifying electronic documents’ and would become “electronic trade documents” if

“ a reliable system is used to—

(a) identify the document so that it can be distinguished from any copies,

(b) protect the document against unauthorised alteration,

 (c) secure that it is not possible for more than one person to exercise control of the document at any one time,

(d) allow any person who is able to exercise control of the document to demonstrate that the person is able to do so, and

(e) secure that a transfer of the document has effect to deprive any person who was able to exercise control of the document immediately before the transfer of the ability to do so (except to the extent that the person is able to exercise control by virtue of being a transferee).”

Clause 3 provides for full legal equivalence between electronic trade documents and paper trade documents, as follows:

(1) A person may possess, indorse and part with possession of an electronic trade document.

(2) An electronic trade document has the same effect as the equivalent paper trade document.

(3) Anything done in relation to an electronic trade document that corresponds to anything that could be done in relation to the equivalent paper trade document has the same effect in relation to the electronic trade document as it would have in relation to the paper trade document.

Legal equivalence will mean that the electronic bill of lading can operate as a document of title, and will constitute a bill of lading for the purposes of COGSA 1992 and COGSA 1971.

Clause 4 provides for change of form from paper document to electronic document, and vice versa.

Clause 5 provides for a list of excluded documents, currently (a) a bearer bond; (b) an uncertificated unit of a security that is transferable by means of a relevant system in accordance with the Uncertificated Securities Regulations 2001 (S.I. 2001/3755). The Secretary of State is empowered to add to, remove, or amend the list by statutory instrument.

Clause 6 provides for consequential amendments with the repeal of Sections 1(5) and 1(6) of COGSA 1992 and the insertion of “or to a bill or note that is an electronic trade document for the purposes of the Electronic Trade Documents Act 2022 (see section 2 of that Act)” at the end of section 89B(2) of the Bills of Exchange Act 1882 (instruments to which section 89A applies).

The Act extends to England and Wales only, comes into force at the end of the period of two months beginning with the day on which it is passed and does not apply to a document issued before the day on which the Act comes into force.

The bill is likely to prove uncontroversial, but will come up against 57 other legislative items fighting for space in the 22-23 session of Parliament. One hopes it makes it through.


[1] Under arts 262-266 of the Maritime Navigation Act 14/2014

[2] Under the Electronic Transactions (Amendment) Act setting out a legislative framework for Electronic Transferable Records (ETRs) based on the Model Law on Electronic Transferable Records (MLETR).]

The anti-suit injunction and state immunity.

UK P&I Club NV and Another v República Bolivariana de Venezuela (The RCGS Resolute) – [2022] EWHC 1655 (Comm), raises, for the first time, the question of the effect of a claim to state immunity when a party claims an anti-suit injunction against a State.

A Venezuelan navy patrol intercepted a cruise liner, ‘Resolute’, in March 2020. A collision resulted and the navy vessel suffered hull damage and eventually sank. ‘Resolute’ was insured by UK P&I Club NV, a subsidiary of United Kingdom Steam-Ship Assurance Association. The Club’s Rules contained the two usual provisions relating to coverage: a “pay to be paid” clause under which liability to provide indemnity was postponed until actual payment of damages by the owners; and an English law and London arbitration clause.

In 2020 Venezuela brought civil claims in the courts of Dutch Curaçao and Venezuela against Resolute, the owners, head managers and the Clubs. The Clubs obtained an ex parte interim anti-suit injunction against Venezuela in the High Court and then sought a permanent anti-suit injunction against Venezuela to restrain it from pursuing both sets of foreign proceedings, on the basis that its direct action claim against them was subject to London arbitration.

Sir Ross Cranston held that Venezuela’s claim against the Clubs had been made under local legislation permitting a direct action. If the local law treats the claim as derived from the insurance policy the arbitration clause would be binding. He concluded that this was the case here and by pursuing judicial proceedings Venezuela was in breach of the arbitration clause. This was a ‘quasi-contractual’ claim which would be treated in the same way as a contractual claim. The court would ordinarily exercise its discretion to restrain the pursuit of proceedings brought in breach of an arbitration or jurisdiction clause, unless the injunction defendant could show strong reasons to refuse the relief.

However, there was the question of state immunity to consider. Although the commercial activity exception in s.3(1)(a) and the arbitration exception in s9(1)(a) of the State Immunity Act 1978 applied and meant that Venezuela did not have adjudicative immunity, it did have enforcement immunity under section 13(2)(a) which clearly states “relief shall not be given against a State by way of injunction …” Adjudicative immunity and enforcement immunity were separate and did not stand or fall together.

Article 6 of the European Convention on Human Rights applied in that s.13(2) deprived the Clubs of a remedy otherwise available to them. However Article 6 was not infringed as under customary international law there was no generally recognised right to an anti-suit injunction and section 13(2)(a) lies within the range of possible rules consistent with current international standards. Section13(2)(a) could also be justified as well by reference to legitimate domestic policy, if pursued by proportionate means.

Sir Ross Cranston noted [124]: “Finally, the fact that the Clubs will not have an injunction preventing parallel proceedings does not render worthless their right to have Venezuela’s claims determined by way of London arbitration. As well as an order to this effect, there may also be supportive remedies available to the Clubs including, at least in a contractual context, the compensation for breach of the arbitration agreement and declaratory relief which the Clubs are seeking in the arbitration, and which could be relied upon to resist enforcement of any judgment which Venezuela obtains in the foreign proceedings.”

The position may be different in respect of an anti-suit injunction ordered by arbitrators pursuant to their powers under s48(5) of the Arbitration Act 1996. In The London Steam-Ship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain [2020] EWHC 1582 (Comm) Henshaw J held that this was a matter for the arbitrators at first instance, but stated [188]:  “I consider the better view to be that SIA section 13 governs the exercise but not the existence of the court’s power to grant an injunction, and that AA 1996 section 48 permits an arbitrator to grant an injunction against a state.”

Covid lockdown and force majeure. Sale of vessel for demolition

The emergence of the COVID pandemic in March 2020 led to a great interest in commercial circles as to the effect on their contracts of force majeure clauses. One such case is NKD Maritime Ltd v Bart Maritime (No. 2) Inc [2022] EWHC 1615 (Comm) (24 June 2022) which involved the sale of a vessel for demolition on the beaches of India at the time the world was waking up to the pandemic.

On 5 March 2020 Bart Maritime concluded a MOA with NKD for the sale of a ship for scrapping in India with delivery to be at “outer anchorage Alang”. An initial payment of 30% of the purchase price was made and the vessel sailed to India but due to the risk of COVID the vessel was refused entry to the Gulf of Khambat Vessel Traffic Scheme (VTS) on 21 March 2020. Shortly afterwards India went into lockdown on 25 March 2020 which was extended on 14 April 2020 for a further 15 days. During this time the vessel was waiting some 100 nautical miles off Alang and on 14 April the buyers purported to cancel pursuant to cl.10 which gave either party the right to terminate the contract “should the Seller be unable to transfer title of the Vessel or should the Buyer be unable to accept transfer of the Vessel” due to (among other things) “restraint of governments, princes, rulers or people of any nation”. Owners claimed that this amounted to a repudiation and claimed retention of the initial payment as well as damages.

Three issues arose before Butcher J. First, did clause 10 operate so that transfer of title meant that there had to be a delivery of the vessel? Butcher J held that NKD were not entitled to cancel pursuant to cl.10 as, although delivery was affected by the COVID restrictions, these did not affect the ability of the seller to transfer title of the vessel. Transfer of title required payment of the price, delivery of the bill of sale and deletion from the relevant ship’s registry, and the COVID delays did not render Bart unable to transfer title. The MOA referred to both delivery and transfer of title, but they were not interchangeable terms and sometimes the terms appeared in the same clause meaning different things.

Second, if, contrary to the first finding cl.10 did require delivery as part of transfer of title, had there been a delivery as of 14 April? The vessel was not delivered at the delivery location as she had been told  not to enter the Vessel Traffic Scheme, and had anchored some 100 nautical miles off Alang.  However, there had been delivery pursuant to the substituted delivery provisions in cl.2 (a) of the MOA which provided

“[t]hat “if, on the Vessel’s arrival, the Delivery Location is inaccessible for any reason whatsoever … the Vessel shall be delivered and taken over by the Buyer as near thereto as she may safely get at a safe and accessible berth or at anchorage which shall be designated by the Buyer, always provided that such berth or anchorage shall be subject to the approval of the Seller which shall not be unreasonably withheld. If the Buyer fails to nominate such place within 24 (twenty four) hours of arrival, the place at which it is customary for vessel (sic) to wait shall constitute the Delivery Location”.

The delivery location was clearly inaccessible and the vessel had ‘arrived’ as it had got as near as possible to the delivery location. Although waiting outside the VTS was not a customary waiting place, for the purpose of the clause it was a suitable place to wait given the order of the port authority for the vessel not to enter the VTS.

Third, if cl.10 did require delivery as part of transfer of title, and there had been no delivery, could the buyer rely on cl.10? There was clearly a temporary restraint of government, but that was insufficient to show that Bart had been ‘unable’ to transfer title. ‘Inability’ to perform for the purposes of clause 10 by reason of a temporary restraint of governments depended on whether the probable period of that restraint was such as materially to undermine the commercial adventure. “Inability” was not to be judged simply by reference to whether there was inability to perform by the contractual cancellation date.

An analysis similar to that undertaken as regards frustration was required. Relevant factors were: the sale contract was for demolition of the ship, not for its trading; demolition would take a year from delivery; some delays were to be anticipated in demolition given that there were only two times in the month that the tides were such as to enable the vessel to be beached; delays were not anticipated beyond the expiry of the lockdown on 3 May and on 15 April revised guidance was issued by the Indian Home Secretary which permitted certain activities, including shipbreaking, to resume as of 20 April. The Court noted that had the buyers not purported to cancel it is likely that the vessel would have arrived at Alang outer anchorage on 1 May.

Butcher J concluded that that NKD was not entitled to terminate the MOA on 14 April 2020, and in doing so it was in default under the MOA and had repudiated the contract. Bart was entitled to retain the initial payment and to claim further compensation to the extent to which the initial payment did not cover any losses which it had sustained as a result of NKD’s non-fulfilment of the contract.

The decision is particularly interesting as to the construction of force majeure clauses in regard to the effects of the pandemic on contractual performance, particularly as regards the analysis of whether these had caused an ‘inability’ to perform.

Insurance and P&I: life in Europe just got easier

Whatever you think of Brexit, there can be little doubt that English P&I Clubs have reaped a substantial dividend from it when it comes to jurisdiction. A discreet bottle or two will no doubt be cracked open as a result of Foxton J’s judgment today in QBE Europe SA v Generali España de Seguros y Reaseguros [2022] EWHC 2062 (Comm).

The facts will be entirely familiar to any P&I claims handler. The Angara, a small superyacht insured against P&I risks by QBE UK under a policy later transferred to QBE Europe, allegedly damaged an underwater cable linking Mallorca and Menorca to the tune of nearly $8 million. The cable owners’ underwriters Generali brought a subrogated claim in the Spanish courts against QBE, relying on a Spanish direct action statute (Arts. 465-467 of the 2014 Ley de Navegación Marítima). QBE pointed to a London arbitration clause requiring disputes between insurer and assured to be arbitrated in London, said that if Generali wanted to enforce the policy they had to take the rough with the smooth. This being a post-Brexit suit, they sought an ASI.

Generali resisted. They argued that they were enforcing a direct delictual liability under Spanish law, and that in any case since the arbitration clause merely referred to assured and insurer (and indeed the whole policy excluded any third party rights under the Third Parties (Rights against Insurers) Act 1999) they were unaffected by it.

Pre-Brexit, QBE’s position would have been fairly hopeless: intra-EU ASIs were banned, and furthermore the effect of Assens Havn (Judicial cooperation in civil matters) [2017] EUECJ C-368/16 (noted here in this blog) would have largely pre-empted the matter in the Spanish courts.

But in this, one of the first post-Brexit P&I cases to come to the English courts, QBE won hands down. Solid first instance authority had extended the rule in The Angelic Grace [1995] 1 Lloyd’s Rep 87 (i.e. that very good reasons had to be shown for not granting an ASI to halt foreign proceedings brought in blatant breach of contract) to cases where the person suing was enforcing transferred rights, as where a subrogated insurer sought to take advantage of contractual provisions between its insured and the defendant. That line of decisions applied here: and Foxton J duly followed it, confirmed it and lengthened it by one.

He then asked whether, properly characterised, Generali’s suit was a tort claim or in substance a claim to piggy-back on the policy QBE had issued. His Lordship had no doubt that it was the latter. True, the Spanish direct action provisions disapplied certain limitations in the policy, such as pay to be paid provisions and a number of defences based on misconduct by the assured; but the matter had to be viewed in the round, and overall the cause of action arising under the 2014 Spanish law, being based on the existence of a policy and limited to sums assured under it, was clearly contract-based. It remained to deal with Generali’s further point based on the limited wording of the arbitration clause. Here his Lordship accepted that parties could provide that an arbitration clause in a contract did not apply to those suing under some derivative title, but said that much more would be required to demonstrate such an intent: the mere fact of reference to the original parties to the contract was not nearly enough.

And that was it: having failed to show any substantial reason why the ASI should not go, Generali were ordered to discontinue the Spanish proceedings.

What messages can P&I clubs and other insurers taker away? Three are worth referring to. One is that the enforcement of jurisdiction and arbitration clauses in a European context is now fairly straightforward. Another refers to the specific case of Spain, which altered its direct action statute in 2014: the QBE case has confirmed that under the new dispensation, as much as under the old, an attempt to use direct action as a means of getting at insurers abroad will continue to be be regarded as essentially an attempt to enforce the insurance contract. And third, judges in the UK are unlikely to be very receptive to attempts by claimants desperate to litigate at home to give arbitration or jurisdiction clauses an unnaturally narrow meaning.

Life, in short, has got a good deal easier for P&I interests. Now, where’s that bottle of cava?

Supplementary Nature of Mortgagees’ Interest Insurance Affirmed

Piraeus Bank A.E. v. Antares Underwriting Ltd (The ZouZou) [2022] EWHC 1169 (Comm) 

 In practice mortgagee’s interest policies (MIPs) provide financiers (e.g. banks) a supplementary cover to the shipowner’s policies (marine and war risks) to ensure that the mortgagee will still have cover in the event of the cover is declined under owners’ policies for an insured risk by reason of: a) misrepresentation or non-disclosure; b) breach of a promissory warranty, c) the failure to exercise due diligence insofar as it is required under the owners’ policies d) the expiry of a time limitation period; and, even in case of a total loss where there is a judgment or award holding that the shipowner’s claim is not recoverable under the owner’s hull or war risk policies on the grounds that the loss has not been proved to have been proximately caused by a peril insured against, but is not otherwise excluded by any exclusion or provision. However, on the last point it needs to be stressed that there will be no cover under MIPs, if the loss is proximately caused by a peril excluded from cover under owners’ policies.   

In the present case, the mortgaged ship was detained in Venezuela in late August 2015 on the suspicion that the crew had attempted to smuggle part of a cargo of high sulfur diesel oil by diverting it from the cargo tanks nominated for loading to other tanks through the cargo lines. Four members of the crew allegedly involved in this smuggling attempt were tried and acquitted. The ship was detained for about 14 months and two weeks before its release, the owners tendered a notice of abandonment (NOA) and sought indemnity under its war risk policy for constructive total loss. The vessel’s war risk insurer (Hellenic Club) declined indemnity on the basis that an excluded peril (cl. 3.5 which excluded cover for losses arising out of steps taken “under the criminal law of any state”).

The mortgagee bank turned to mortgagees’ interest insurer, which insured the risk under a standard MIP, and claimed their net loss (indemnity quantified by reference to the outstanding indebtedness).  The mortgagee’s interest insurer declined the claim on various grounds which will be briefly discussed below.                   

The cause of loss is an excluded peril under the war risk policy

Whilst providing cover for seizure, arrest and detention and the consequences thereof, there was an exclusion in the policy stipulating that loss arising out of action taken “under the criminal law of any state” would not be covered under the policy. The mortgagee bank claimed that this exclusion did not apply as detention was unlawful. Relying on the expert advice, the Court was able to find that the detention was carried out in line with Venezuelan criminal law by the order of the Venezuelan Criminal Court and was accordingly lawful. Therefore, the exclusion certainly was relevant in this context.

The alternative argument of the bank was that the exclusion did not apply as the owners themselves were not guilty (or alleged to be guilty) of the offence. The Court, rightly, in the opinion of the author, rejected this alternative argument stating that the exclusion in question did not draw such a distinction (i.e. excluding losses arising out of steps taken under the criminal law of any state only when the assured themselves are involved in the criminal activity and not so when this is not the case). This is in line not only with literal wording of the clause but also the decision of Hamblen J in Atlasnavios-Navegação v. Navigators (The B Atlantic) [2014] EWHC 4133 (Comm) in connection with the equivalent exclusion in the Institute War and Strikes Clauses.

Additional coverage provided by the MIP in question?

When setting out the coverage terms, clause 1 of the policy provided for an indemnity in the event of loss, damage to, or liability, arising in connection with the vessel:

  1. Which prima facie would have been covered by the Owners’ policies but for any act or omission by the Owners (amongst others and/or their servants and/or their agents- referred to as the “Relevant Parties”; or
  2. Which occurred because of “any alleged deliberate, negligent or accidental act or omission … of any of the Relevant Parties”.    

The Bank’s alternative argument was that it was entitled indemnity under cl 1(ii) as the wording of this clause did not expressly cross-refer to the owners’ insurance policies thus providing wide coverage for any loss or damage to the ship as a consequence of any act of omission by any of the crew or any other servant or agents of the owners or charterers or by any allegation of such and act or mission. The Court rejected this argument as well stressing that cl 1(ii) could not be construed in isolation and was dependent on the war risk policy. Put differently, it was held that the words “relevant party” in this clause referred to the owners’ or their employees/agents acting in the context of the relevant insurance contract (war risk insurance) and claim only. This means that this clause only applies in a case where the loss of the ship is prima facie covered by the owners’ insurances and the owners’ insurers refuse to pay by alleging involvement of the owners or agents in the loss.

As highlighted by the Court, a contrary interpretation would have led to outcomes which would have been wholly uncommercial, such as:

  1. The bank recovering losses which would have never recovered under the owners’ policies as they would have been excluded;
  2. The bank recovering sums far in excess of anything recoverable under the owner’s policies, even if covered; and
  3. The bank recovering from mortagees’ interest insurers even where the loss had already been paid under the owners’ policies.

Was there a loss under the war risk policy in any event?

Most war policies contain a detainment clause, and the owner’s war policy here was no exception, which provided that the vessel will be deemed to be a constructive total loss (CTL) when the owner is deprived of possession of the insured vessel for a period of 12 months. Although, the vessel in question was detained by Venezuelan authorities more than 12 months in the present case, given that the detention was lawful and this was an excluded peril under the relevant war risk policy, there can be no prospect of claiming CLT unless it was found that the detention was in fact unlawful. The Court’s finding that the vessel had not been detained unlawfully at any point meant that there was no CLT under the detainment clause.   

What is the key message coming out of the case?

From the perspective of the application of principles of legal construction, the outcome of the case makes sense and does not break any new ground. However, the judgment reiterates the point that MIPs are secondary in nature and issues a stark warning to financiers that there might be several instances where they might fail to recover under their MIPs. Where, for example, drugs placed by criminal carters on board of a ship which eventually lead to detention of the vessel in question, even if the owners are not involved in this criminal activity, the resulting loss will be excluded from most war risk policies given that there is often an exclusion for loss resulting from “detainment… by reason of infringement of any customs or trading regulations in standard war policies (see The Kleovoulos of Rhodes [2003] 1 Lloyd’s Rep 138) and The B Atlantic [2018] UKSC 26). This would mean that any claim of a bank under a MIP will also fail. Similarly, claims airing out of any detention for alleged breach of government sanctions are likely to be excluded from war risk policies as there is an exclusion for loss, damage, cost or expense arising out of “ordinary judicial process” (see cl 4.1.6 of the Institute War and Strikes Clauses- Hulls- Time (1/10/1983). The banks, therefore, need to appreciate the limitations of standard MIPs and consider negotiating tailor-made coverage clauses in their policies.            

Israel Authorised a Floating Gas Production Platform to Move into a Rich Gas Field Located in an Area that is also Claimed by Lebanon – Can this Unilateral Act be Reconciled with International Law?

Introduction

There remain several disputed maritime areas in the Mediterranean Sea, including between Cyprus and Turkey, and Israel and Lebanon. A pattern that can be observed in these disputed maritime areas is the following: after licences/concessions for mineral resource activity in respect of defined areas that extend into the disputed waters are activated, conflict almost invariably follows between the neighbouring coastal States concerned.[i] In a similar vein, at the beginning of June 2022, following a period of relative calm, a conflict was created between Israel and Lebanon because of the former activating a gas concession extending into their disputed exclusive economic zone (EEZ)/continental shelf area. More specifically, on 5 June 2022, a floating gas production platform, belonging to Energean, which was licensed by Israel to start gas exploitation, arrived at the Karish field; the latter is located in a part of the Eastern Mediterranean to which both Israel and Lebanon lay claim. The Israeli navy has been accompanying the production platform for protective purposes. Upon learning of the arrival of the production platform in the disputed waters, Lebanon protested, referring inter alia to it as an ‘aggressive action’. Lebanon argued that Israel must refrain from such action as long it remains unclear where the maritime boundary lies between the two adjacent States. Hezbollah cautioned Israel that progressing to the exploitation stage would meet with a violent response. However, the production platform, which is now located in a more southern part of the Karish field, has not yet begun exploitation drilling; and it will be several months before the necessary infrastructure is in place that would enable this. On 3 July 2022, reports emerged that Israel shot down three drones that were on their way to the Karish field, which were seemingly dispatched by Hezbollah without the approval of the Lebanese government. This blog post will start with sketching the general background to the maritime boundary dispute between Israel and Lebanon and will then move to discuss whether authorising a floating gas production platform to move into a disputed EEZ/continental shelf area with a view towards gas extraction can be considered lawful under international law.  

The underlying maritime boundary dispute

Complicating matters between Israel and Lebanon is the absence of diplomatic relations between them,[ii] as the two States are officially still at war. As a consequence, there have been no direct negotiations, but the United States of America (US) has been acting as a mediator in this maritime boundary dispute for several years now. On the day that the gas platform arrived at the Karish field, the president of Lebanon invited Amos Hochstein, who has been the US mediator since 2020, to Beirut to express Lebanon’s misgivings with the unilateral move of Israel. In these talks, the Lebanese president reiterated Lebanon’s position that the maritime boundary lies at ‘Line 29’ (see map below). The salient aspect of ‘Line 29’ is that it cuts through the middle of the Karish field. This claim of Lebanon was not new, as it had first emerged in 2020. After this, the indirect negotiations that were ongoing at the time with Israel reached a deadlock, because Israel viewed this claim as being ‘excessive’. By way of comparison, Lebanon has also suggested ‘Line 23’ at times during negotiations (see map below), pursuant to which the Karish field would be located in its entirety on Israel’s side. For instance, this was Lebanon’s position as “a gesture of goodwill”, during indirect talks at the beginning of 2022, and has seemingly been its commonly held position in the period between 2011-2020. The change on the part of Lebanon in 2020 as to its position on where the maritime boundary lies seems partly tied to a change in its negotiation team, which reportedly blamed the previous one for possessing a ‘lack of techincal and legal expertise’. A further reason that has been adduced as underpinning the revision of Lebanon’s negotiation position – in that it shifted to ‘Line 29’ – was new case law, including the 2021 judgment of the International Court of Justice (ICJ) in Somalia v. Kenya,[iii] which was felt to support the Lebanese argument that the boundary between Israel and Lebanon in the Eastern Mediterranean lies further south than it would under ‘Line 23’.   

In the weeks following the renewed tensions between Israel and Lebanon that were set in motion by the arrival of the floating gas production platform in their disputed maritime area, news reports emerged suggesting that Lebanon would be willing to abandon its claim over the Karish field altogether. This was conditioned on that Israel in return would relinquish any claim over the Qana field, which is located north of the Karish field. Under a proposal of Frederick Hoff (see map below), who was the US mediator between 2010-2012, it was envisaged that the Qana field would be divided between Israel and Lebanon, with the latter receiving a slightly more sizable part (i.e. 57% of the field). Whilst Israel seems to have been willing to accept the proposal, it received a lukewarm reception from Lebanon, more specifically from Hezbollah. The latter is fiercely opposed to the prospect of having to cooperate with Israel in the exploitation of the Qana field, as it could be interpreted as that the relations between Israel and Lebanon were normalising which is antithetical to Hezbollah’s goals.

States’ obligations in disputed EEZ or continental shelf areas

From an international law perspective, Israel’s unilateral action gives rise to several questions. One question is to what extent authorising a floating gas production platform to move into the Karish field, and the possible future undertaking of gas exploitation in a maritime area of overlapping EEZ or continental shelf claims, can be reconciled with the obligations a coastal State has under international law? The incident involving the floating gas production platform has been preceded by other clashes between Israel and Lebanon, which were similarly sparked by the undertaking of activities related to mineral resources within disputed waters of the Eastern Mediterranean Sea.[iv] Especially at the beginning of the 21st century, when Israel started to activate previously given concessions that extended into disputed waters, which led to the discovery of significant amounts of mineral resources in the Levantine Basin, protests and heated exchanges of words between Israel and Lebanon were common occurrences. In their mutual condemnations of each other’s acts, both Israel and Lebanon stated that they would be willing to protect their rights by force, if necessary. Historically, Lebanon’s acts in relation to disputed waters have mainly consisted of opening a tender process for several blocks that extended into areas that Israel felt exclusively belonged to itself, and the granting of a license to a consortium of oil companies covering Qana field.[v] Also, in the wake of each other’s past mineral resources activities that were undertaken in disputed parts of the Eastern Mediterranean Sea, both Lebanon and Israel regularly wrote to the UN Secretary-General to contest the lawfulness of the unilateral acts of the other State.[vi]

As a consequence of Israel authorising the floating gas production platform to move into the Karish field, with a view to commencing gas extraction in the near future, tension arose between Israel and Lebanon. At the core of the maritime boundary dispute is that pending the delimitation of the maritime area where their EEZ or continental shelf claims overlap, there are conflicting sovereign rights of these neighbouring coastal States in relation to the same maritime area, and thus also over any of the mineral resources that are contained therein.[vii] Within the 1982 Law of the Sea Convention (LOSC),[viii] the key provision for determining the lawfulness of authorising an act that is under the jurisdiction of the coastal State is paragraph 3 of Articles 74 and 83 of the LOSC. This paragraph imposes two different types of obligations on neighbouring coastal States pending EEZ or continental shelf delimitation: first, to seek provisional arrangements, which, if successful, allows the States concerned to shelve the delimitation issue; and, second, States must exercise a measure of restraint, in that acts having a jeopardising or hampering effect have to be abstained from.[ix] International courts and tribunals have only more rarely addressed the extent to which neighbouring coastal States can exercise their rights within an area of overlapping EEZ or continental shelf claims in the light of the obligation to not jeopardise or hamper. However that may be, the Tribunal in Guyana v. Suriname, in interpreting the obligation to not hamper or jeopardise under paragraph 3 of Articles 74 and 83 of the LOSC, considered obiter dictum that seismic work did not lead to a breach thereof.[x] In the same case, the Tribunal also addressed the status of exploration and exploitation drilling for mineral resources in a disputed area. It concluded that such drilling has an effect of jeopardising or hampering the final agreement, which made it unlawful for States to proceed therewith in the absence of delimitation or cooperation.[xi]

What are the obligations of a State that is not a party to the LOSC in a disputed EEZ or continental shelf area?

A difficulty concerning the applicability of paragraph 3 of Articles 74 and 83 of the LOSC in the maritime boundary dispute under consideration here is that whereas Lebanon has become a party to the LOSC, Israel has not. In this light, the issue of whether paragraph 3 of Articles 74 and 83 of the LOSC reflects customary international law takes on a particular urgency. It is difficult to answer the question around the customary status of this paragraph with certainty.[xii] Two particular difficulties are the existence of significant contrary State practice, and that States more rarely invoke paragraph 3 of Articles 74 and 83 of the LOSC in their condemnations of when a neighbouring coastal State unilaterally authorises an act that falls within coastal State authority.[xiii] If this paragraph 3 cannot be considered customary, this raises the issue of through the lens of what international law obligations Israel’s activities in a maritime area which is claimed by Lebanon as well, have to be assessed instead.

The assumed inapplicability of paragraph 3 of Articles 74 and 83 of the LOSC, for the sake of argument, does not mean that there is an absence of relevant law. Rather the contrary: there are various general rules of international law that are on States irrespective of whether they are party to the LOSC, which come in two forms: customary international law and general principles of international law.[xiv] Amongst these are the following obligations: first, States must settle their disputes peacefully, which excludes settling them through force; second, States have to show due regard for each other’s rights; and third, States have to act in good faith; and they must not abuse their rights.[xv] Other more specific obligations can be derived from these general rules. Particularly relevant in this regard are two specific obligations: to not threaten irreparable prejudice to each other’s rights and that when a dispute arises, the States involved must refrain from taking acts that lead to an aggravation or extension thereof.[xvi] A common denominator of these obligations is that States have to exercise restraint, which similarly extends to neighbouring coastal States that are faced with maritime boundary disputes, and is hence applicable to the situation between Israel and Lebanon. The main difficulty that arises is determining the extent to which it is required that neighbouring coastal States exercise such restraint. A further difficulty is that the exact measure of restraint that has to be exercised is entwined with the context of a maritime boundary dispute.[xvii] To home in on the obligation of a State to not cause irreparable prejudice to rights, which was inter alia addressed by the ICJ in the Aegean Sea Continental Shelf (Interim Measures) case. It considered whether the unilateral seismic work undertaken by Turkey within a disputed continental shelf area required that interim measures of protection should be indicated.[xviii] The ICJ answered this question in the negative, the key consideration being that the infringement caused to Greece’s rights over the disputed continental shelf area could be repaired after delimitation.[xix] More invasive activities, including exploratory drilling, placing installations and mineral resource exploitation, were deemed by the ICJ to detrimentally affect the other’s State rights to a degree that irreparability would ensue. This would have been sufficient reason for the ICJ to institute interim measures of protection. Although this finding was made in an interim measures procedure, its relevance is not isolated to this context. For example, when looking at the relevant case law, it can be observed that to not threaten irreparable prejudice to rights has been set as the main threshold by international courts and tribunals, which needs to be exceeded in order to assume the unlawfulness of a unilateral act falling under the jurisdiction of the coastal State within a disputed maritime area.[xx]

Is there a silver lining to the clash between Israel and Lebanon resulting from the floating gas production platform moving into the Karish field?

The current state of international law is that sending a floating gas production platform, with the aim of beginning unilateral gas extraction within a disputed EEZ or continental shelf area, is difficult to square with the international obligations a coastal State has in relation to such an area, rendering Israel’s unilateral act likely contrary to current international law. Somewhat paradoxically, in the situation between Israel and Lebanon, arguably, the silver lining to the undertaking of this unilateral act by Israel, despite that it led to flaring tensions, is that it has blown new life into the indirect negotiations on where the maritime boundary lies between the two States, which if successful would greatly benefit both States, certainly in economic terms. However, as the history of the maritime boundary dispute between Israel and Lebanon illustrates, there are more factors to contend with than merely economic ones, and which may well ultimately continue to stand in the way of Israel and Lebanon reaching a final boundary agreement; this importantly includes the political landscape.

*** This blog post has also been kindly posted, in slightly amended form, on the blog of the Journal of Territorial and Maritime Studies (JMTS Online) at https://www.journalofterritorialandmaritimestudies.net/post/israel-stations-gas-platform-in-disputed-waters.


[i] Y van Logchem, The Rights and Obligations of States in Disputed Maritime Areas (Cambridge University Press, 2021), pp. 249-276; NA Ioannides, Maritime Claims and Boundary Delimitation: Tension and Trends in the Eastern Mediterranean Sea (Routledge, 2021), pp. 51-53.

[ii] E.g. T Scovazzi, ‘Maritime Boundaries in the Eastern Mediterranean Sea’ (2012) Policy Brief 1, 8–10, 11 June 2012, available at www.gmfus.org/publications/maritime-boundaries-easternmediterranean-sea.

[iii] Maritime Delimitation in the Indian Ocean (Somalia v. Kenya) (Judgment) [2021], available at https://www.icj-cij.org/en/case/161/judgments.

[iv] Van Logchem, supra note 1, pp. 264-269.

[v] Letter of the Permanent Mission of Israel to the United Nations addressed to the Secretary-General, UN Doc. MI-SG-12212017, 21 December 2017.

[vi] See e.g. Letter of the Permanent Mission of Israel to the United Nations addressed to the Secretary-General, UN Doc. MI-SG-02022017, 2 February 2017; Letter of the Permanent Mission of Lebanon to the United Nations addressed to the Secretary-General, UN Doc. 574/2017, 20 March 2017.

[vii] Y van Logchem, ‘The Rights and Obligations of States in Disputed Maritime Areas: What Lessons Can Be Learned from the Maritime Boundary Dispute between Ghana and Cote d’Ivoire?’ (2019) 52(1) Vanderbilt Journal of Transnational Law, p. 130; DH Anderson and Y van Logchem, ‘Rights and Obligations in Areas of Overlapping Maritime Claims’, in S Jayakumar et al. (eds.), The South China Sea Disputes and Law of the Sea (Edward Elgar, 2014), p. 198.

[viii] United Nations Convention on the Law of the Sea, 10 December 1982, 1833 UNTS 3 (LOSC).

[ix] See e.g. Y van Logchem, ‘The Scope for Unilateralism in Disputed Maritime Areas’, in CH Schofield et al. (eds.), The Limits of Maritime Jurisdiction (Martinus Nijhoff, 2014), pp. 178-181.

[x] In the Matter of an Arbitration between Guyana and Suriname (Guyana v. Suriname) [2007] XXX RIAA 1, p. 132, para. 467.

[xi] Ibid., p. 137, paras. 480–481.

[xii] Van Logchem, supra note 1, pp. 172-174.

[xiii] Ibid., pp. 172-173.

[xiv] Ibid., pp. 67-86

[xv] Ibid.

[xvi] Ibid., pp. 74-78.

[xvii] Ibid., pp. 302-306.

[xviii] Aegean Sea Continental Shelf (Greece v. Turkey) (Interim Measures) [1976] ICJ Rep 3, Oral Pleadings, pp. 108, 119.

[xix] Aegean Sea Continental Shelf (Interim Measures), p. 10, para. 30.

[xx] See e.g. Report on the Obligations of States under Articles 74(3) and 83(3) of UNCLOS in respect of Undelimited Maritime Areas (British Institute of International and Comparative Law, 2016), pp. 37–38; Van Logchem, supra note 1, pp. 74, 78, 155.

EU inclusion of shipping in the ETS. Latest developments.

Almost a year ago the EU Commission proposed inclusion of shipping in the Emissions Trading Scheme https://iistl.blog/2021/07/14/bastille-day-eu-commissions-present-to-the-shipping-industry/  with a proposed directive amending the 2003 ETS Directive. This was considerably less extensive that the proposed amendment to the 2015 MRV Regulation which is what the EU Parliament voted for in October 2020. The matter has recently come back to the European Parliament which voted on 22 June to make certain amendments to the EU Commission’s proposed directive amending the 2003 ETS Directive.

The Parliament’s proposed amendments would see coverage of 100% of emissions from intra-European routes as of 2024 and 50% of emissions from extra-European routes from and to the EU as of 2024 until the end of 2026. From 2027, emissions from all trips in and out of the EU should be covered 100% with possible derogations for non-EU countries where coverage could be reduced to 50% subject to certain conditions. 75% of the revenues generated from auctioning maritime allowances should be put into an Ocean Fund to support the transition to an energy-efficient and climate-resilient EU maritime sector. Instead of the phasing in of the surrender of allowances proposed by the Commission, the Parliament proposes that from 1 January 2024 and each year thereafter, shipping companies shall be liable to surrender allowances corresponding to one hundred percent (100 %) of verified emissions reported for each respective year.

Under the Commission’s proposal the person or organisation responsible for the compliance with the EU ETS should be the shipping company, defined as the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner.

The Parliament has accepted this, but has proposed an amendment whereby, a binding clause should be included in contractual arrangements with the shipping company so that the entity that is ultimately responsible for the decisions affecting the greenhouse gas emissions of the ship is held accountable for covering the compliance costs paid by the shipping company under this Directive. That entity would normally be the entity that is responsible for the choice and purchase of the fuel used by the ship, or for the operation of the ship, as regards, for example, the choice of the cargo carried by, or the route and speed of, the ship – in other words, the time charterer.

Quite how this binding clause in time charters of vessels coming into and out of the EU would be monitored is another matter.

The Parliament also proposed the expansion of the MRV Regulation, Regulation (EU) 2015/757, beyond CO2 emissions, to encompass ‘greenhouse gas emissions’ meaning the release of CO2, Methane and Nitrous Oxides into the atmosphere. The scope of the MRV Regulation should also be amended to cover ships of 400 gross tonnage and above from 1 January 2024, but operators of such ships operators should only be required to report the information which is relevant for inclusion from 1 January 2027 of such ships within the scope of the EU ETS, in particular the type of fuel, its carbon factor and energy density.

The Parliament’s decision was shortly followed by the Council communication of 29 June 2022 stating:

“The Council agreed to include maritime shipping emissions within the scope of the EU ETS. The general approach accepts the Commission proposal on the gradual introduction of obligations for shipping companies to surrender allowances. As member states heavily dependent on maritime transport will naturally be the most affected, the Council agreed to redistribute 3,5% of the ceiling of the auctioned allowances to those member states. In addition, the general approach takes into account geographical specificities and proposes transitional measures for small islands, winter navigation and journeys relating to public service obligations, and strengthens measures to combat the risk of carbon leakage in the maritime sector.

The general approach includes non-CO2 emissions in the MRV regulation from 2024 and introduces a review clause for their subsequent inclusion in the EU ETS.”

Following the adoption of the Council’s position, negotiations between the Parliament and the Council will start shortly in view of finding an agreement on the final text. One way or another, the inclusion of shipping in the ETS is coming soon.

Breaking limitation under the CMR?

The owner of two extremely valuable cars, a Mercedes Benz CLK GTR 97 and a 1948 Talbot-Lago T26 GS Franay Cabriolet claimed damages from the carrier, CARS, after they were damaged while in its possession. The carrier CARS was engaged through Peter Auto, a French events management company, to transport the two cars from the premises of their owner, Mr Knapfield, in Beaconsfield to the Chantilly Arts & Elegance Richard Mille Concours d’Etat (“Chantilly”), north of Paris, and back again after the event. During the return journey both cars were damaged when the Talbot – which had been stowed forward of the CLK 97 –  slipped backwards into the CLK 97, due to the front wheel straps attached to the Talbot becoming free, as a result of inadequate securing of its front wheel straps.

The central issue in Knapfield v CARS Holdings Ltd Company (No. 05481676) & Ors [2022] EWHC 1437 (Comm) (13 June 2022). was whether the owner’s damages were limited by the Carriage of Goods by Road Act 1965 which incorporates the CMR Convention (“CMR”).  The Convention’s provisions have the force of law “so far as they relate to the rights and liabilities of persons concerned in the carriage of goods by road under a contract to which the Convention applies” (s1) and a person concerned in the carriage of goods by road includes a consignee (s14(2)(b)). Under CMR the carrier’s liability would be limited to SDR 23,490.60, about $20,000, considerably lower than the diminution in value claimed by the owner of the two cars.

The CMR applied because there was a contract for the carriage of goods for the vehicles by road in the Transporter for reward, and because CARS took over the vehicles in France for carriage to the United Kingdom. The owner of the cars was not a party to that contract, but CMR applied because he was the consignee.  The failure of CARS to issue a consignment note did not affect the applicability of CMR due to article 4 which provides “The contract of carriage shall be confirmed by the making out of a consignment note. The absence, irregularity or loss of the consignment note shall not affect the existence or the validity of the contract of carriage which shall remain subject to the provisions of this Convention.” There was nothing in CMR which expressly placed the burden of issuing the consignment note on the carrier so that a claim for breach of contract could be made against the carrier for failure so to do.

The owner’s case was that the liability of CARS was not limited by CMR, due to three exceptions, all of which were rejected by Charles Hollander QC, acting as a Deputy Judge of the High Court:

a. Where the sender declares in the consignment note a value for the goods (Article 24 CMR).

The owner was not a party to the contract of carriage and was not the sender, who was the party that needed to make such declaration. Any discussion between the owner and the sender about the value of the vehicles, which was disputed, was oral and was not declared in the consignment note, as there was no consignment note. Any declaration of value needed to have been made with the agreement of CARS as the carrier and be evidenced in writing. There was no such agreement here.

b. Where the sender fixes the amount of a special interest in delivery in the consignment note (Article 26 CMR).

This argument failed for the same reasons as the Article 24 argument, with the additional reason being that “special interest” must provide for loss or damage which is not provided for in Articles 23, 24 and 25, such as consequential loss.

c. Where the damage was caused by the wilful misconduct of the carrier or its servants or agents (Article 29 CMR).

To establish wilful misconduct on the part of the carrier or its servants and agents, the Claimant needed to prove that:

a. There must have been misconduct.

b. The carrier, employee or agent either (a) must have committed the misconduct deliberately knowing that the conduct was wrongful, regardless of the consequences, or (b) must have committed the misconduct deliberately with reckless indifference as to whether what he or she was doing was right or wrong, where such misconduct was unreasonable in all the circumstances.

c. There must have been an increased real and substantial risk of damage to the goods resulting from such misconduct and the carrier, employee or agent must have been aware of that additional risk.

Such misconduct was not made good by negligence or even gross negligence. The case of wilful misconduct was based on the combination of an unjustified failure by CARS’ driver, Mr Constantinou, to follow instructions given by the owner to him and the use of an unsafe method of securing the Vehicles in circumstances. Responsibility and expertise in carrying the Vehicles lay with CARS rather than the owner and whilst a failure to do what the owner had proposed or advised might be evidence of deliberate or reckless conduct, it would not be a breach of any obligation to fail to follow the owner’s instructions,

The cause of the damage was the failure of Mr Constantinou properly to secure the front over-the-wheel straps on the Talbot on the return journey, so that in the course of that journey they worked loose. Although that failure could readily be described as negligent, perhaps even grossly negligent, there was no reason to think it was reckless, still less deliberate. Although Mr Constantinou had failed to follow company policy to use chocks were possible, there was a legitimate explanation for this – he did not do so because the Transporter had forward wheel wells sunk into the deck, and the Talbot was driven into the wells, which had already acted as chocks. Significantly, that method for transportation was the same as been used for the carriage to Chantilly without incident, which went against any suggestion that the method of carriage was reckless.

The owner also claimed by way of damages for misrepresentation under s2(1) of the Misrepresentation Act 1967, and by way of an alleged contract with CARS  whereby it agreed to reimburse him for the damage which had occurred in full, that contract being separate to CMR. The Misrepresentation claim could not succeed as this claim could not succeed because the misrepresentation would have been made to someone who was neither a contracting party or their agent. The claim based on the reimbursement contract could not succeed as there was no consideration for CARS’ promise, and if there were to be an enforceable promise to surrender the right to rely on the statutory limit of liability under CMR, there would have to have been express reference to the right to limit. Without such a reference, the promise would not be clear and unequivocal, which is a requirement for a contractual surrender of such rights of limitation.

The Prestige case. Victory for Spain in the CJEU.

Back in March we noted the reference to the CJEU of three questions regarding the application of Article 34 in the London P&I Club’s appeal against the recognition of the Spanish judgment against it in The Prestige case. https://iistl.blog/2022/03/25/the-prestige-20-years-on-cjeu-reference-may-be-withdrawn-at-last-gasp/

The High Court stayed proceedings and referred three questions to the CJEU for a preliminary ruling:

1. Is a judgment granted pursuant to s.66 of the Arbitration Act 1996 capable of constituting a relevant “judgment” of the Member State in which recognition is sought for the purposes of Article 34(3)?

2. Is a judgment falling outside the material scope of Regulation No 44/2001 by reason of the Article 1(2)(d) arbitration exception, capable of constituting a relevant “judgment” of the Member State in which recognition is sought for the purposes of Article 34(3)?

3. If Article 34(3) does not apply, can Art 34(1) be relied on as a ground of refusing recognition and enforcement of a judgment of another Member State as being contrary to domestic public policy on the grounds that it would violate the principle of res judicata by reason of a prior domestic arbitration award or a prior judgment entered in the terms of the award granted by the court of the Member State in which recognition is sought?

The Court of Appeal set aside the Judge’s order referring the questions to the CJEU. However, only the referring judge has jurisdiction to withdraw the reference. The Court of Appeal referred to Butcher J, pursuant to CPR 52.20(2)(b), the question of whether, in the light its judgment, he should withdraw the reference he made to the CJEU on 21 December 2020.

  The reference was not withdrawn and on Monday the CJEU gave its decision on the three questions referred [2022] EUECJ C-700/20.

The answer to the first two questions is that Article 34(3) of Regulation No 44/2001 must be interpreted as meaning that a judgment entered by a court of a Member State in the terms of an arbitral award does not constitute a ‘judgment’, within the meaning of that provision, where a judicial decision resulting in an outcome equivalent to the outcome of that award could not have been adopted by a court of that Member State without infringing the provisions and the fundamental objectives of that regulation.

The infringement would be two fold. First, as regards the relative effect of an arbitration clause included in an insurance contract which does not extend to claims against a victim of insured damage who bring a direct action against the insurer, in tort, delict or quasi-delict, before the courts for the place where the harmful event occurred or before the courts for the place where the victim is domiciled (as per the CJEU judgment of 13 July 2017 in Assens Havn, C 368/16, EU:C:2017:546).

Second, as regards the rules on lis pendens in Article 27 which favour the court first seised where there are parallel proceedings between the same parties, and does not require effective participation in the proceedings in question. The proceedings in Spain and in England involved the same parties and the same cause of action, and the proceedings were already pending in Spain on 16 January 2012 when the arbitration proceedings were commenced. It is for the court seised with a view to entering a judgment in the terms of an arbitral award to verify that the provisions and fundamental objectives of Regulation No 44/2001 have been complied with, in order to prevent a circumvention of those provisions and objectives, such as a circumvention consisting in the completion of arbitration proceedings in disregard of both the relative effect of an arbitration clause included in an insurance contract and the rules on lis pendens laid down in Article 27 of that regulation. No such verification took place before either the High Court or the Court of Appeal and neither court made a reference to the CJEU for a preliminary ruling under Article 267 of the CJEU.

The answer to the third question is that Article 34(1) of Regulation No 44/2001 must be interpreted as meaning that, in the event that Article 34(3) of that regulation does not apply to a judgment entered in the terms of an arbitral award, the recognition or enforcement of a judgment from another Member State cannot be refused as being contrary to public policy on the ground that it would disregard the force of res judicata acquired by the judgment entered in the terms of an arbitral award.