Maritime Labour Convention and Electronic Certificates: The Way Forward?

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

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

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

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

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

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

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

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

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


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

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

[3] ibid.

[4] ibid.

[5] ibid.

[6] ibid.

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

[8] ibid at page 25.

[9] ibid.

[10] ibid.

[11] ibid.

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

[13] ibid.

[14] IMO Circular letter No 3646.

[15] ibid.

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

[17] Marine Notice 53 of 4 January 2021.

[18] Circular 2019/0001.

[19] Circular No 14/2018.

[20] Engineering Circular No 07 of 2017.

[21] Marine Circular 37/2017.

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

[23] Merchant Shipping Notice No 139.

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

[25] Marine Guidance 1/2018.

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

[27] Shipping Circular No 26 of 2017.

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

[29] Merchant Marine Circular MMC-355.

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

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

[32] Marine Safety Advisory No 07-20.

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

[34] ibid, at paragraph 39.

[35] ibid, at paragraph 42.

[36] ibid, at paragraph 45.

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

[38] ibid.

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

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

COVID-19: An Occupational Disease?

On April 28, 2020, the global trade union movement urged governments and occupational health and safety bodies around the world to recognise SARS-CoV-2 as an occupational hazard, and COVID-19 as an occupational disease.

In practice, this means that the employer’s duty to take reasonable measures to protect the health and safety of their employees will cover COVID-19 related risks. Furthermore, it means that employees will be able to benefit from compensation schemes provided for those injured, or the dependants of the deceased, whenever there has been injury or death due to work-related accidents or occupational diseases.

Recognising COVID-19 as an occupational disease will be crucial to ‘key workers’, such as seafarers. For that it will ensure that adequate preventive measures are adopted and, if they contract COVID-19 at work, that existing compensation and liability regimes remain applicable.

PASSENGERS SUE CRUISE LINES FOR NEGLIGENCE OVER COVID-19 OUTBREAK

Ever since January 2020, it became evident that COVID-19 will place significant hurdles on cruise ship operators. The quarantine of approximately 2,500 passengers on board Diamond Princess off the coast of Japan that led to 700 confirmed cases of coronavirus was the first hard knock on the cruise industry. However, this was not enough to urge cruise ship operators to temporarily suspend their activities to minimise new transmissions on cruise vessels, or at the very least, to implement policies to prevent similar outbreaks.

Cruise ship operators continued their business as usual for more than a month. It was only mid-March, when some of the major cruise ship operators announced the voluntary suspension of scheduled cruises amid the severity of the public health crisis. Arguably, this delayed response on the part of cruise ship operators led to more passengers being exposed to COVID-19 with several passengers testing positive on cruise vessels around the world.

It now comes as no surprise that several claims have been brought against cruise ship operators over their response to COVID-19 outbreak. In early April, former passengers of the cruise ship Grand Princess filed lawsuits against the ship’s operators in federal courts of the US, claiming negligence on the part of the company in failing to ensure the health and safety of its passengers. The claims ask for compensatory and punitive damages for lost earnings, medical expenses and mental distress.

The Grand Princess departed on February 21 for a cruise from San Francisco to Hawaii. Before sailing to Hawaii, the ship made a 10-day round-trip to Mexico, and 62 passengers and more than 1,000 crewmembers continued on the voyage to Hawaii. On February 25, a man, who had been on the Mexico trip, died of the coronavirus. At this point, some members of the ship’s crew had already shown COVID-19 related symptoms. The Grand Princess turned back to the US mainland and skipped a planned stop in Mexico. On 5 March, passengers were quarantined in their cabins. However, COVID-19 had already been spreading on the ship, and 103 would ultimately test positive, with two passengers and one crew member now dead. On 9 March, passengers were moved into quarantine ashore.

The claims allege that the cruise ship operators were negligent in failing to inform Hawaii passengers that several passengers on the Mexico trip had shown COVID-19 related symptoms, failing to disinfect the ship thoroughly after the Mexico trip, and failing to screen passengers and crew before departing for Hawaii. In this respect, the claims mention that on the Grand Princess, the ship’s crew only asked passengers boarding the ship to ‘fill out a piece of paper confirming they were not sick’. The claims further allege that the cruise ship operators were negligent during the cruise in failing to inform passengers about the former passenger’s death and failing to quarantine passengers in their cabins on February 25.

Like in all personal injury claims, the liability of cruise ship operators for a passenger’s illness, injury or death will turn upon two legal questions. The first is whether the company was in any way negligent. In this respect, the claimants will have to prove that the ship operators did not exercise reasonable skill and care to ensure the health and safety of their passengers. On the facts, this may be possible, especially if it is proven that the company knew that several passengers on the Mexico trip had contracted COVID-19 and failed to disinfect the ship or at least to warn passengers boarding the ship in San Francisco.

The second is whether the company’s negligence caused the passenger’s illness. That is more problematic because it is hard to trace the exact moment when a person is infected with COVID-19. According to the official guidance of the WHO, the incubation period of COVID-19 (i.e. the time between catching the virus and beginning to have symptoms of the disease) ranges from 1 to 14 days, most commonly around 5 days. It is, thus, possible that some passengers had already been infected with COVID-19 when boarding the Grand Princess on February 21. Nevertheless, an argument may revolve around the fact that the company allowed 1,000 potentially infected people to share confined space with approximately 2,000 potentially uninfected passengers.

Assuming that both these questions will be answered in favour of the claimants, then a further question will arise as to whether the passengers of Grand Princess were in any way negligent in contracting COVID-19. If so, the company will be able to benefit from the defence of contributory negligence.

It is, thus, interesting now to see whether these claims will actually reach the courts or whether they will be settled in private.

COVID-19: When is a pandemic force majeure? And what should new force majeure provisions address?

Simon Rainey QC and Andrew Leung

The COVID-19 outbreak was declared a pandemic by the World Health Organisation on 11 March 2020. Some six weeks before this, on 23 January 2020, China implemented a regime of lockdown measures in Wuhan and other cities in Hubei in an attempt to quarantine the foci of the outbreak. China is edging back to normalcy, while bracing for a second surge of cases. Elsewhere, the clampdown on global economic activity by national governments is widening and intensifying with the spread of the pathogen.

Inevitably, many parties are finding it increasingly difficult if not impossible to perform contracts pre-dating these extraordinary and turbulent times. A question increasingly being asked is whether the outbreak or its consequences amount to a force majeure event. Naturally, there is no one-size-fits-all analysis. All will turn on the specific terms of the force majeure clause, the effects of the relevant event on contractual performance, and whether there are alternative means of performance. In this article Simon Rainey QC and Andrew Leung highlight some of the relevant themes as declarations of force majeure due to COVID-19 proliferate. 

Once again, China seems to be ahead of the curve: LNG importer CNOOC has declared force majeure on LNG contracts (see The impact of Covid-19 on the energy & natural resources sector – Chris Smith QC), and the China Council for the Promotion of International Trade has started to issue force majeure certificates. The legal or evidential weight such certificates might bear under English law is a moot question. Certainly, they will not simply supplant the multi-stage enquiry undertaken by English Courts as to force majeure, though whether they might inhibit enforcement in China is another matter.  

Force majeure clauses: the basics

A force majeure clause is a contractual term which regulates the consequences of supervening events beyond the parties’ control on the obligations of one or both of the parties to the contract. Such clauses typically require a causal link between such events and performance, and provide for the consequences of the event on the parties’ obligations. The event may result in the cancellation of the contract, excuse non-performance (whether in whole or in part), or entitle a party to an extension of time and/or to suspend performance. 

In addition to fulfilling any procedural requirements such as the giving of notice, it is for the party relying upon a force majeure clause to prove the facts bringing it within the clause. The party must prove the following, and this checklist must be applied to any COVID-19 force majeure argument:

  1. The occurrence of an event identified in the clause;
  2. It has been prevented or hindered (as the case may be) from performing the contract by reason of that event;
  3. Its non-performance was due to circumstances beyond its control; and
  4. There were no reasonable steps that could have been taken to mitigate the event or its consequences.

We consider particular problem areas in the light of recent cases and the special challenges which the worldwide sweep of COVID-19 poses. Where does this leave parties entering into new contracts in drafting force majeure provisions?

(1) What is the relevant force majeure event?

“Force majeure” is not a term of art. Whether the viral outbreak falls within a force majeure clause will turn on the proper construction of the wording of the clause.

Contractual provisions commonly enumerate force majeure events, which may include a “pandemic” or “epidemic”, potentially by reference to WHO classification or, more generically, “disease”. It is unlikely that the pandemic in and of itself will have had immediate ramifications on contractual performance. It is the knock-on effects which will be in issue, which gives rise to questions of causation (discussed further below). It is therefore the ripple effect of the disruption caused by the virus which will in almost all cases provide the relevant putative ‘event’. For example, the virus decimates the population of a port and the port is closed by government order, preventing delivery of the contract goods: the ‘event’ is in reality the port closure or government lockdown. Or where the government makes no closure order but recommends port users are to be confined to essential imports only. There is no ban or embargo, just a voluntary self-policing scheme: what is the ‘event’? Is there one at all?

Many force majeure clauses do not expressly include a “pandemic” or similar in the list of named events. They may instead refer to an “Act of God” – a term that has been subject to surprisingly scant attention in the force majeure context – or, more concretely, “quarantine”, “embargo” or “government action”.  With daily changes in the legal and regulatory landscape as governments enact outbreak management measures, events of this nature will be invoked under force majeure clauses with increasing frequency.

(2) “Beyond a party’s reasonable control”

Most force majeure clauses contain sweep up language such as “any other cause beyond [the party’s] reasonable control”. The COVID-19 outbreak itself is clearly capable of constituting such a cause. But again, is the secondary or tertiary effect produced by it such a cause, and which is the actual trigger for inability to perform?

In Aviation Holdings Ltd v Aero Toy Store LLC [2010] 2 Lloyd’s Rep 668, which concerned a contract for the sale of a Bombardier executive jet aircraft, Hamblen J stated that a seller unable to deliver the aircraft on time due to a pandemic causing a dearth of delivery pilots would be able to bring itself within the wording of a force majeure clause which provided “any other cause beyond the seller’s reasonable control”.

This type of wording applies to causes beyond the reasonable control of the party or, where relevant, any other party to whom contractual performance of that party’s obligation has been delegated: The Crudesky [2014] 1 Lloyd’s Rep 1 (in which the first-named author appeared). That case involved a string of contracts for the sale and purchase of Nigerian oil, ending with the charterers of the MV “CRUDESKY”. The parties in the string who had delegated their obligation to load the vessel to Total, the terminal operator, were unable to rely on force majeure to avoid liability for a six week delay caused when the vessel was detained due to Total’s failure to obtain official loading clearance. Total was their delegate for the purposes of loading. Its decision not to use official channels to obtain loading clearance was within its reasonable control and, by extension, that of its principals.

It will be relevant to ask in transactions with supply chains interrupted by the pandemic whether the cause of non-performance was beyond the reasonable control of any party to whom performance was delegated. For instance, it may be doubtful whether a factory closure by a vendor acting voluntarily and independently of government diktat would qualify as a force majeure event vis-à-vis a seller who arranged to source goods from that vendor.

(3) Causation: the effect on performance

Once a party has established the occurrence of a force majeure event, the next criterion is establishing that the event had and/or is having the contractually stipulated effect on performance.

Where the clause states that a party is relieved from performance or liability if it is “prevented” from performing its obligations or is “unable” to do so, it is necessary to show physical or legal impossibility, and not merely that performance has become more difficult or unprofitable: Tandrin Aviation Holdings Ltd v Aero Toy Store LLC (supra.). The economic toll of the pandemic will therefore not suffice. Nor will a delay of several months due to a pause in production in the context of a multiple year contract. However, as Tandrin Aviation suggests, a lack of personnel without whom contractual performance cannot occur, e.g. crew to operate an oil rig under a hire contract for an oil rig, could qualify.

Further, a seller will not be entitled to rely on a “prevent” clause where alternative sources of supply remain available. In PJ van der Zijden Wildhandel NV v Tucker & Cross Ltd [1975] 2 Lloyd’s Rep 240, the sellers of frozen Chinese rabbits were not entitled to cancel the contract which provided “should the sellers fail to deliver…or effect shipment in time by reason of war, floor, fire or storm…or any other causes beyond their control”. They had been let down by their Chinese suppliers, but this did not prevent them from performing by other means. By contrast, if it is not possible to perform by any alternative means after the original or intended means for performance becomes impossible, that is a classic force majeure case.

A distinction can be drawn with the less stringent requirement that the force majeure event should “hinder” or “delay” performance. In Tennants (Lancashire) Ltd v CS Wilson & Co Ltd [1917] A.C. 495, a clause in a contract for the sale of magnesium chloride gave the sellers the right to suspend performance due to contingencies beyond their control “preventing or hindering the manufacture or delivery of the article”. The sellers’ principal source of supply in Germany was cut off on the outbreak of the First World War. Though an English source remained available, the sellers were entitled to rely on the clause. A multi-national export prohibition due to the pandemic therefore need not eliminate all possible sources to potentially hinder the performance of a contract for the sale of goods.

(4) But for causation?

A further question which may arise is: what if, though the pandemic indisputably prevents performance, the party claiming the benefit of the clause would not have performed even absent the pandemic? Take an example of a counterparty already in deep financial difficulty who, before Corona, was suspected of being unable to perform the long-term contract or the next obligation when it fell due. Corona intervenes and prevents any performance of the contract, relieving the pressure on the counterparty, who then declares force majeure.

This was the position in Classic Maritime v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102 (in which both authors appeared) (see “But you weren’t going to perform anyway!”: A new hurdle when invoking Force Majeure – Classic Maritime Inc v Limbungan Makmur SDN BHD – Simon Rainey QC and Andrew Leung). The contract was a long term contract of affreightment (“COA”) for the carriage of Brazilian iron ore. The relevant contractual force majeure clause excluded liability for loss or damage “resulting from” a series of specified events, including one applicable on the facts, which “directly affect the performance of either party”. The Samarco tailings dam-burst destroyed all means of the party sourcing Brazilian iron ore and prevented any possible performance of the COA. The non-performing party was in financial difficulties and had missed several shipments just before the dam-burst event as a result. It was held to be unable to rely on this clause despite performance having been rendered wholly impossible because, but for the dam burst, on the facts it would not have performed anyway.

This contrasts with the clause considered in Bremer Handelgesellschaft v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109, which, once triggered, cancelled the affected portion of the contract. Being a “contractual frustration clause”, the House of Lords held that there was no such requirement of “but for” causation as it automatically brought the contract to an end forthwith.

The antithesis between these cases suggests the nature of the remedy conferred by the force majeure clause (i.e. suspension or cancellation) may influence whether or not it is necessary to prove ‘but for’ causation.

(5) Avoidance / mitigation: working round the problem

The existence of reasonable steps the non-performing party could have taken to avoid or mitigate the effects of a force majeure event will preclude reliance on the clause. To take the example given above of the port closed as a result of COVID-19 affecting the population which prevents the normal route of delivering goods to the buyer. If it were possible to deliver at a neighbouring country whose ports were still open, and then carry the goods by rail or road to the delivery place, then reliance on force majeure would not be possible.

The burden on the party claiming force majeure is in this respect a heavy one. For example, in Classic v Limbungan it was held that the non-performing party had no means of avoiding or mitigating the dam-burst and its effect on supplies of Brazilian iron ore, but only after an exhaustive analysis (at summary judgment: [2017] EWHC 867 (QB)) of all possible sources of supply, including going into the market, buying afloat and shipping back to the Brazilian ports to reship and thereby perform the COA by this alternative route and, subsequently, a full debate in expert evidence (at trial) as to market quantities available: see e.g. [2018] EWHC 3489 (Comm). Faced with COVID-19 problems preventing the immediately obvious means or manner of performance, a party may be faced with a much more expensive and inconvenient means of performing. If that is open to it, then it may later be unable to justify its invocation of force majeure. In practical terms, it makes sense to explore and document how there were no other alternative routes. In Classic, the non-performing party had in part laid a proper paper-trail by seeking alternative supplies from the other supplier (Vale) once the supplier it was using (Samarco) closed its operations after the dam-burst and was able to show that Vale refused to make supplies available, preferring to service the needs of its established customers in time of dearth of supply.

Some contracts go further, such as that in Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] 2 Lloyd’s Rep. 628 which contained an unusual express term requiring both parties to “use their reasonable endeavours to mitigate, avoid, circumvent, or overcome the circumstances of force majeure”.

In the present COVID-19 context, the unprecedented nature of the measures being introduced by governments internationally is likely to narrow the scope for avoidance or mitigation. But it will not foreclose it altogether and expense and inconvenience are not enough, hence the importance of the focus on the precise wording: ‘prevent’ or ‘hinder’ etc.

(6) Looking ahead… future-proofing new contracts

Even in these troubled times, trade and commerce continue. New contracts face particular challenges in that they are concluded against the backdrop of the pressing current problems but also forecasts of continuing or extended lockdowns into the future and with the spectre of secondary outbreaks and recurrence of the virus next winter.

This calls for a careful review of the force majeure provisions contemplated for the new contract. Simple reliance on the last pre-Corona contract ‘with logical amendments’ or standard terms and boilerplate is unlikely to be sufficient or wise, unless the clause in question is a sophisticated one which covers some or all of the points raised above.

Plainly clauses which refer to “unforeseeable events” will be of scant assistance. To take the example of the NNPC Terms considered in The Crudesky, these provided general wording which qualified the various listed events: “Neither the Seller nor the Buyer shall be held liable for failure or delay in the performance of its obligations under this Contract, if such performance is delayed or hindered by the occurrence of an unforeseeable act or event which is beyond the reasonable control of either party (“Force Majeure”) which shall include, but not [be] limited to…” (emphasis added). COVID-19, its recurrence, and its mutations are now all unfortunately very foreseeable. Similarly clauses which are modelled on the civil law definition of force majeure (imprévisible, irrésistible et extérieur: unforeseeable, unpreventable and external) will leave the parties fully exposed. Thus the ICC Force Majeure Clause 2003, together with the requirements of causation of prevention of performance, the results of which could not reasonably be avoided or mitigated, requires the party invoking force majeure to establish also “that it could not reasonably have been expected to have taken the occurrence of the impediment into account at the time of the conclusion of the contract”.

Obvious points to consider will include:

  1. Moving away from prevention to hindrance or lesser thresholds for interruption or impedance of contractual performance;
  2. Specific sub-clauses dealing with epidemic and the results of epidemic;
  3. Addressing the threshold for “beyond reasonable control” in the light of the Court of Appeal’s judgment in The Crudesky;
  4. Building on, in addition to the traditional force majeure regime, more sophisticated provisions which can address the economic effect and increased costs of performance and alternative means of performance, such as “material adverse change” (MAC) or “material adverse effect” (MAE) clauses which allow termination of the contract, or suspension or adjustment of contract obligations, where external events impact upon the value of performance (although even these commonly do not extend to pure market or price movements).

Arbitration Hearings… and the Corona ‘New Normal’ Ten Golden Rules: or the easy path to your Virtual Hearing

Simon Rainey QC and Gaurav Sharma

The Covid-19 pandemic places enormous challenges on every aspect of life. Arbitration hearings, almost always with a mixture of parties, representatives, witnesses and tribunal members attending from far and wide and with complex dovetailed ‘availability’ issues, face particular challenges, both from national lockdowns and the disappearance of international (and much domestic) travel.

The initial and immediate reaction, from personal experience and much anecdotal evidence, has been for many parties and tribunals simply to adjourn hearings fixed in the likely affected period. While perhaps understandable as the crisis suddenly changed its perceived severity and impact within hours, we are now in for the long haul, and arbitration hearings (unlike sporting events, music festivals, walking with friends or going to the pub) are in fact very well placed to adapt and ‘carry on’.

Simon Rainey QC and Gaurav Sharma of Quadrant Chambers propose ten easy rules for keeping the current international arbitration diary on the road as much as possible.

Here they are, to cut and paste to your Desktop. For more detail, read on below.

  1. Adjournment should now be the last resort.
  2. Arbitration embraces tools and technology: let’s build on what we already do well.
  3. More realism, please, about ‘seeing the witness’ (etc.)
  4. Using the existing wide procedural powers firmly and creatively
  5. Remember: many useful ‘video-protocols’ are already out there.
  6. Embrace technology as your friend (a.k.a. ‘Use Zoom’)
  7. Electronic hearing bundles really do work.
  8. A new Tribunal Secretary: the Technical Assistant?
  9. Flexibility, flexibility, and more flexibility, in timetabling and everything else…
  10. … including how we handle new disputes in our brave new world.

In more detail, here are our key points to try to make your path to your Virtual Hearing, whether as counsel, in-house adviser or arbitrator an easier one.

  1. Adjournment should be the last resort.

Adjournment simply pushes off the problem. With different jurisdictions on different epidemiological timetables and with second outbreaks wholly unpredictable, let alone ‘resumption of normal services’, never has the term sine die (without a new date being fixed) had such appalling resonance! The norm can and should be, save in the most exceptional cases, to hold the hearing date and to avoid the waste of costs and time which adjournment entails (and the difficulties in rescheduling ‘after Corona’ … whenever that will be). As banking, insurance, legal services and other sectors move over to remote and home-working, it requires a very good explanation why an arbitration hearing cannot take place virtually. If international governmental meetings can do it this way, so can we. The 27th Vis Moot, with 248 teams, is taking place ‘as normal’, online and on Vienna time and in the usual Vienna timeslots (https://vismoot.pace.edu/)  The London Business and Property Court has set the lead of ‘business as usual’ wherever possible and by and by whatever virtual means available (see :https://www.judiciary.uk/publications/civil-court-guidance-on-how-to-conduct-remote-hearings ). For a recent example, see Teare J’s robust case management of a two-week trial: https://www.law360.com/articles/1255010/kazakh-row-over-530m-bny-funds-faces-virtual-trial . So, Golden Rule No. 1? Adjournment should now be the absolute exception, not a default option.

  1. Arbitration embraces tools and technology: let’s build on what we already do well.

Is the challenge, while hugely different in scale and complexity, really so different from the day-to-day practical challenges of international arbitration and what we, as counsel and arbitrators, do now, and do well to address those challenges? Arbitration already makes routine and highly effective use of (at least) two virtual tools to cope with dispersed participants and the logistical impossibility of live attendance: (1) the telephone (or video-link) procedural hearing and (2) the taking of witness evidence by video-link. If the hearing is mostly legal argument or part of it is to be taken up with oral addresses or submissions (with or without an accompanying PowerPoint), then why is not (1) just as effective as it is for a hard-fought and important procedural or disclosure battle? And if the hearing is a heavy evidential one, why is (2) not a perfectly acceptable option? If an arbitration may already turn on the evidence by video-link of a key witness, why is it really so different to run the whole hearing in this way?

  1. More realism, please, about ‘seeing the witness’ (etc.)

This is not the time or place to debate the Anglo-Saxon predilection for ‘seeing the witness’ and belief in assessing his or her veracity and credibility based on the tribunal’s acute psychological insight and unerring ability to read every gesture and passage of emotion across a witness’ face. But if the option is to hold off the hearing until better times (when?) and when the matter can be refixed (think of the rescheduling logjam), we need to assess critically whether the importance of this ‘advantage of seeing the witness’ is not very much overstated, when balanced against postponing a hearing indefinitely. Where a good or even passable video-link takes place, the discomfiture or arrogance of a witness (or whatever it is that we as counsel or tribunal members are supposed to be looking for) is almost always readily apparent. Take the example of a politician in a television interview. Other concerns about who is in the room with the witness etc (if he or she is not self-isolating!) can be dealt with either by the nature of the camera used, or just (as in a recent case) asking the witness to rotate his laptop to show the whole of the room in which he is sitting.

  1. Use the wide existing procedural powers firmly and creatively

As with any potentially disruptive event, Covid-19 may regrettably be fastened onto by the party who wants to derail the procedural timetable, put off the hearing timetable and ‘game’ the practical difficulties for perceived tactical advantage. “Seeing the witness in a serious case of this nature is vital”, “the importance of live interaction between counsel and the tribunal and between tribunal members themselves cannot be overstated” are already submissions which are being made. Under all of the main institutional rules (e.g. ICC 2017 Rules, Article 22(2); LCIA 2014 Rules, Article 14.4(ii) etc) and under the general statutory powers in most seats (e.g. sections 33 and 34 of the Arbitration Act 1996) the tribunal will have effective carte blanche to make the hearing happen and counsel and parties must be expected to cooperate (or be made to do so). Cf. the recent approach of the London Commercial Court (cited above): “The court has to be optimistic rather than hesitant. It is a duty of all the parties to seek to cooperate, to ensure that a remote hearing is possible. […] The default position now in all jurisdictions is that hearings must be conducted with one, more than one, or all parties attending remotely.”  A watch-word for all of us engaged in arbitration.

  1. Remember: many useful ‘video-protocols’ are already out there.

Building on the video-conferencing of witnesses, there exists an impressive and very useful (but in our experience rather underused) body of protocols and guides to best practice, all recent and topical. These have already grappled with almost all of the practical problems inherent in taking evidence by video-link (including dealing with documentary evidence) and provide excellent templates on which to build in drawing up the procedural format for a virtual hearing with multiple participants. First is the ICC’s Commission Report on Information Technology in International Arbitration of October 2017. Then the ever comprehensive CIArb series of guidelines was joined in April 2019 by the CIArb Guidelines for Witness Conferencing in International Arbitration, with many useful insights. But the Hague Conference Draft Guide to Good Practice on the Use of Video-Links Under the Evidence Convention (March 2019) is outstanding in its foresight and coverage and cannot be too highly recommended. These and other resources (e.g. the Seoul Protocol on Video Conferencing in International Arbitration) all make the tasks of counsel and arbitrators in formulating a virtual hearing protocol for a particular case so much easier. The wheel has already been invented and it is just a case of fitting it to size (and adding one or two more if need be). Here are some of the relevant links:

ICC: https://iccwbo.org/publication/information-technology-international-arbitration-report-icc-commission-arbitration-adr/

CIArb: https://www.ciarb.org/news/ciarb-s-new-guidelines-for-witness-conferencing-in-international-arbitration/

Hague: https://assets.hcch.net/docs/e0bee1ac-7aab-4277-ad03-343a7a23b4d7.pdf

Seoul: www.kcabinternational.or.kr

  1. Embrace technology as your friend (a.k.a. ‘Use Zoom’)

A virtual hearing is only ever going to be as good as the platform which is used to host it. Cometh the hour, cometh the platform! The new home-working environment has been the proving-ground of Zoom (www.zoom.us). Its selling-point, apart from being fantastically easy to use and adaptable (see Golden Rule 7) is that it will “Bring HD video and audio to your meetings with support for up to 1000 video participants and 49 videos on screen”. And what it says, it delivers (see Golden Rule 10). It looks set to be the mainstay of arbitration life, just as it is fast becoming the go-to solution for any virtual meeting, congregation, class or any other ‘socially distanced’ interaction. It can be used really effectively for all procedural steps in arbitration, including witness interviews, drafting sessions, work with experts, preparation for hearing, as well as all aspects of the hearing itself. Coupled with setting up parallel “chat” groups for the various counsel and tribunal teams and their internal communication, a virtual hearing in real time is readily achievable, with appropriate flexibility (see Golden Rule 9), including for example frequent planned breaks. Many other options are available. Skype for Business we have of course grown up with and it is working well so far in the Business and Property Court. The Vis Moot will be run on the virtual mediation / dispute resolution platform Immediation (https://www.immediation.com). But the popularity of Zoom may see it becoming an everyday arbitration tool. See for example: https://www.cnbc.com/2020/03/21/why-zoom-has-become-darling-of-remote-workers-amid-covid-19-outbreak.html

  1. Electronic hearing bundles really do work.

For most of us as counsel (or arbitrator), the electronic bundle is, with apologies to Trollope, “The way we live now”. Epiq and Opus2 have revolutionised document heavy hearings in court and arbitration, in venues around the world. The key (as cross-examiners know) is the Olympian operator who seems, even as one is uttering the runic incantation “[B2/16/ page 345]”or some such, to be already bringing it up telepathically on the multiple screens. Normally present in the room, the main providers have already developed the use of remote operators, themselves using the live video-link and managing the electronic hearing bundle: further developments are under way: https://www.epiqglobal.com/en-us/about/news; and Opus2 has already created new offsite case and technical managers: https://cdn2.hubspot.net/hubfs/5553909/New%20remote%20accessw%20brochure%20-%20vFinal.pdf?hsCtaTracking=2d70e7e7-a694-4dbc-91ba-d0abf96ab4d9%7C68ea0924-808d-41ab-9225-9fd372b8ef85 But there are simpler options for less document heavy cases or where there is only a shared electronic bundle and no Epiq or Opus2 document management in place. Zoom (yes again) allows one to exhibit documents on the shared screen by clicking on a document open on your second screen. And there are other portals and providers, all gearing up for the challenge presented by the disruption to the ‘normal way of doing things’.

  1. A new Tribunal Secretary: the Technical Assistant?

In these times, it may well be necessary to add a new face to the arbitral personnel. The arbitral secretary and his or her role is a familiar one (and continues to give rise to optimistic challenges: as in the recent Yukos case before the Hague Court of Appeal. But understandably the challenges to putting in place and then conducting an effective virtual hearing will in reality be technological and logistical (as much as, for some, an inbuilt adherence to traditional ways of doing things or to a preference for the comfort blanket of the cut-and-paste ten or more page procedural order detailing the minutiae of, and preparatory, for the oral hearing: cf. Golden Rule 9). The leading document management platforms will have this ‘built in’ (as with Opus2’s Virtual Hearing Manager, Case Manager and the somewhat forbidding-sounding “EPE [electronic presentation of evidence] Officer”). But while that may be available and appropriate for larger cases, engaging technical advice and a technical advisor should be a priority in every case in order to avoid the tribunal and/or counsel having to grapple with what will be the inevitable breakdowns, non-compatibilities, sound without vision and vice versa etc. And, pragmatically, why should parties not agree (or be directed to agree) on the use of the IT expertise of one or other firm of lawyers, billed at cost as a cost of the arbitration?  In very many cases, any incremental cost will be a very small fraction of the value in dispute. And if that may raise hackles, why not pool or combine the law firms’ IT expertise, or rotate it?

  1. Flexibility, flexibility, and more flexibility in timetabling and everything else…

The demands will initially seem great and, perhaps to some, too difficult. But the alternative of postponing the proceedings indefinitely in the pursuit of some unquantifiable conception of perfection does not serve the interests of the parties who have entrusted the timely and effective resolution of their dispute to the counsel teams they have chosen and the tribunal they have empanelled. The traditional features of a hearing (such as hearing length; the hearing day: its length; its timetabling, order of submissions and witnesses etc) are already handled flexibly by most tribunals with the active support of most arbitration practitioners. The ‘New Normal’ is going to call for even more flexibility and a pragmatic realisation that things will not be the same for an undefined future time. So: hearings and hearing days may have to be shorter; with witness evidence pruned and focused on the things that really matter to make it more manageable to assimilate and test virtually; with greater use of pre-reading in relation to witness evidence with, possibly, counsel showing their hand so that the tribunal can see in advance what the main challenges to a witness’ evidence are, before the live ‘show’ of cross-examination when the documents are put to the witness with a flourish; with the use of telephone only hearings for parts of the arbitration main hearing as appropriate; and timetabling hearings in portions and at mutually uncomfortable times to spread the pain of linking up widely distant participants. If arbitration is anything, it is inherently flexible from a procedural perspective, so as to achieve effective and efficient resolution of the parties’ dispute.

  1. … including how we handle new disputes in our brave new world.

Arbitration serves business needs, not the other way around. As businesses find ways of adjusting their practices to suit the new environment and operate without disruption or interruption, they need to know that their business partners who handle the resolution of their commercial disputes are equally adaptable and ready, and are learning from the challenges we’re all facing together. That includes changing the way in which we handle new disputes arising now, in real time. Counsel should assume that their disputes will be born and live their lives in a world where expensive and diary challenging in-person hearings are neither the norm nor necessarily desirable as a default. We should think carefully about the way in which we draft pleadings, focusing on the issues that really matter, rather than assuming for example that there will be time, utility and patience for the examination of peripheral witnesses on largely immaterial issues. The same goes for an appropriate and judicious evaluation of the evidence – for example, the number and nature of witnesses and experts to be presented or called; the documentary burden to be placed on the tribunal; or the scope and focus of document requests, knowing that any interlocutory applications may not be heard by the tribunal in person. Procedural timetables might similarly assume that hearings and meetings will be conducted by video-conference, and accordingly provide the logistical and technical details in advance. Indeed, all of these things could and should result in shorter overall timetables and lead to quicker awards. If handled responsibly, then who knows: when happier times return we may emerge having all learnt to do things better, more efficiently and more cost-effectively, with long-term advantages for the streamlining and simplification of arbitration hearings.

Virtual hearings will at first undoubtedly have more than their fair share of frustrations and mishaps. But with us all pooling our experiences and knowledge and building on the lead already taken by the major arbitral institutions and venues (and with more from them to come), international arbitration will strengthen and improve its position, where other dispute resolution options may not be able to match its flexibility.