Commercial Awareness Update – W/C 5th April 2021

The round-up of the stories that a budding Student Lawyer should be aware of this week. Sign up here to get these updates in your inbox every week.

Disaster at Sea

Article by Andrew Dewey (2nd yr LLB student at Reading University) 

The Suez Canal sees around 19,000 vessels, approximately 12% of global trade, pass through it every year. However, supply chains across the globe have been severely affected by the nautical disaster which occurred on the 23^rd March 2021. The Ever Given cargo ship, which is owned by the Japanese firm Ever Green, was on a route from China to Rotterdam and was carrying goods including iPhones, PPE and toilet rolls, when it was stranded in the one of the world’s largest and busiest water-ways carrying $3.5 billion worth of cargo.

Direct Consequences 

A Suez Canal official, Lieutenant General Ossama Rabei has released a statement saying that the Suez Canal Authority (SCA) has lost around £68.8 million in revenue following the incident. As a result, the SCA is expected to be claiming around €2 billion worth of damages with the intention that the Ever Given will not be leaving the port it is currently anchored if the issue of damages requires judicial assessment. Adding to this issue is the further complexity of the multi-jurisdictional elements surrounding potential claims. For example, litigation is expected to be highly complex when considering that the vessel is owned by a Japanese firm, but it is operated by a Taiwanese shipper and is flagged in Panama.

In regard to the consequences on specific sectors, the automobile industry is expected to see one of the largest impacts following the disaster. This is chiefly down to the fact that this industry operates on a ‘just-in-time’ principle. In short, this principle relies on a strategy which is intended to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately and have reliable supplies – clearly at odds with the unreliability triggered by the Ever Green. As a result, this could result in companies rethinking their reliance on a just-in-time principle however analyists believe that this should not have any drastic effects on their practice.

Wider Implications

Whilst canal authorities have announced that they expect all of the outstanding vessels, 422 ships at both ends of the canal, to have moved or be moving in 3-5 days, this does not consider the additional ships which have chosen to re-route. Many vessels elected to redirect around the Cape of Good Hope which required an increase in their fuel bills to make up for an additional 3000 nautical miles and a further issue of 1,600 tonnes of carbon dioxide being discharged into the atmosphere. These longer journeys are likely to have repercussions on the contracts surrounding the goods on the ship. For example, the delay in delivering the goods could expose the relevant parties to contractual liability for the delayed delivery of goods or indeed the non-delivery if the goods have perished as a result of the lengthened route. Further, given the 189% increase in freight rates in March 2021 compared to March 2020, there is now considered to be a greater backdrop of delay as a result of the incident.

Future Considerations 

There are new efforts by the UN to reconsider plans of creating a Suez 2 with the UK preparing to have a leading role in the project. The Suez 2 was an idea that was initially rejected which involved creating an additional canal along the Egypt/Israel border with ships running through Iraq and Syria. Not only did this have political issues, but the plans were also rejected as being too dangerous and taking 5 years to dredge the canal. However, the UN correctly believes that technology has come a long way and the creation of the Suez 2 would accommodate approximately 28% of all of the ships that travel through the Suez albeit not including any of the ships which are the size of the Ever Given.

A Comparison of Voluntary and Mandatory Corporate Social Responsibility Framework

Article by Simone Forostkenko (5th year BCrim/LLB student at University of New England)

Corporate social responsibility (CSR) is a framework that holds businesses accountable to their communities and encourages reinvestment into society. There are two types of CSR framework; the voluntary framework utilised in United Kingdom and the mandatory framework pioneered in India.

The United Kingdom and India have differing approaches to encourage their businesses to reinvest into their communities. Despite India’s current status as a developing country, it has one of the fastest growing economies globally  and implemented binding CSR framework seven years ago to further feed that economic growth. United Kingdom has not mandated companies to participate in CSR in the same manner as India and instead utilise social pressure.

The strong social pressure placed on businesses by UK’s society to invest back into the community is stronger than ever with the rise of social media and the ‘cancel culture’ that has developed increasingly over the last few years. Cancel culture for companies can occur when a company makes a campaign or is associated with a spokesperson or employee that says/does something to offend the wider community. This offence will then cause the company to face public backlash, often fuelled by politically progressive social media, ultimately leads to boycotting the business.

Despite the positive effects on society of CSR, there can be disadvantageous costs to implementing CSR and without a rigid federal mandatory framework businesses may choose their profits over investing back into society. The voluntary system provides UK businesses with a lot of discretion when deciding what type of CSR to implement. This discretion can leave the framework open to exploitation as dishonest companies may not be as forthcoming as their counterparts when they are able afford to provide the community with CSR and instead pocket their profits.

India legislated mandatory CSR framework in 2014. Section 135(1) of the Companies Act 2013 outlines that ‘companies  with a net worth of INR 5 billion (US$70 million) or more, or an annual turnover of INR 10 billion (US$140 million) or more, or net profit of INR 50 million (US$699,125) or more, to spend 2 percent of their average net profits of three years on CSR.’

The disadvantage that can arise with mandatory framework is that for companies who qualify to participate in CSR, it gives them a minimum to work towards and rather than expanding on further CSR projects, they may instead retain the rest of their revenue. For companies that do not meet the requirements for mandatory CSR, it could mean that they simply do not invest into their communities at all as they already know that the larger companies are forced to do so.

Mandatory framework ensures companies are investing back into their communities. Ultimately, the Indian Government can rely on qualifying companies to reinvest into their community rather than anticipating they will like the UK Government must do.

Deliveroo’s Disappointing Debut

Article by Joyce Yiu (LLM student at Queen Mary University of London)

The food delivery company, Deliveroo was described as a “true British tech success story” by the UK Chancellor of the Exchequer Rishi Sunak, when it chose London for its anticipated IPO. But its share price plunge in the London stock market debut has put a doubt over UK’s ambitions to become a home for fast-growing tech companies following its leave from the European Union.

Share in Deliveroo had been offered to investors at £3.9 each and closed 14% lower at £2.84 per share, having lost as much as 30% within the first minutes of trading. They were down another 2.2% on their second day of trading. By comparison, US rival DoorDash saw its share price jumped more than 86% on its first day of trading in New York in December 2020, giving it a market cap of over $60 billion at the time. Closer to home, Deliveroo faces competition from other platforms like Uber and Just Eat Takeaways. The level of rivalry had increased the concern about the ability of Deliveroo to grow its profit margin and eventually become profitable.

Changing employment law

It is undoubtably Deliveroo is an advocate of the gig economy. As has been seen with the likes of Uber, governments across the world can have a different view of things. The European Commission is also looking at the status of workers in the gig economy. Deliveroo has been found liable in Italy for the back pay of wages and benefits between September 2015 and October 2020 when it changed its rider model. At the end of 2020, there was a £112m provision for these costs on Deliveroo’s balance sheet and these costs have been expensed in the income statement, but no cash has yet flowed out of the company. Deliveroo could face a huge bill as well as suffering a blow to the economics of its business model if the governments increasingly found Deliveroo’s riders are employee.