The Future Lawyer Weekly Briefing – W/C 3rd June 2024

Devious Routes

Legal Implications of the Red Sea Crisis on International Carriage Arrangements: Chapter 1

International commerce relies on an efficient cargo transferring system, and maritime transport plays a significant role in that, accounting for 80% of global exchange of goods and commodities.

The Red Sea crisis (“the crisis”), a significant chokepoint in global maritime transport responsible for 30% of global container trade and 15 percent of total global maritime trade, impacts international commerce with a compound effect on shipping routes, ports, merchants, shipowners, financial institutions, and consumers.

While the crisis provokes humanitarian, environmental, and security concerns, this article focuses on the practical legal and commercial challenges for shipowners, charterers, cargo interests, and consumers. These challenges include cost, contractual obligations, risk, and liabilities.

Legal issues posed by the crisis

The crisis has significantly disrupted international commerce, raising critical legal questions. Disruptions and delays to delivery occasioned by the crisis may compel parties to invoke force majeure clauses and frustration in situations when the carrier decides in its best interest to terminate contracts connected with the crisis area, potentially absolving them from liability for delays caused by the crisis.

Owners may claim indemnity for increased freights from using a longer alternative route. The crisis could also lead to increased insurance premiums for vessel and cargo, prompting legal issues on cost allocation between carriers and merchants.

For shipowners in the international commercial chain, particularly for contractual arrangements that have nominated the red sea region for carriage, the crisis poses tough choices: vessel/crew/cargo safety against contractual obligations.

The following questions are of legal importance:

1. Can shipowners deviate from the canal against contractual terms or refuse charterers orders to sail through the Suez Canal?
2. Can shipowners refuse to call at a nominated port located along the crisis impacted region?
3. Can Shipowners suspend, cancel or terminate contracts on the basis of the crisis?
4. Who assumes liability for damage to cargo or delay in delivery?

The article addresses the first question.

Deviation and breach of contract

Following the decisions in The Caroline P and The Athanasia Comninos, vessels and shipowners must follow express instructions of voyage and shipping route specified by the charterer. However, shipowners may deviate under certain circumstances, but contracts (charterparty, bill of lading) need careful review to assess feasibility and legal implications. Each case will be very fact specific.

Deviation is deemed a serious breach of contracts of carriage. Charterers have a ‘key right’ to decide how the ship is used/employed, which can only be limited or derogated from by clearly expressed terms under the charterparty. Hence, deviating from the Suez Canal to alternative routes, like the Cape of Good Hope, may commercially result in a repudiatory breach of contract for shipowners.

Reasonable deviation

However, the right of a charterer, per The Triton Lark, does not exist carte blanche, and corresponds with the responsibility to nominate a safe route and safe port. In essence, the charterer cannot nominate a route that would jeopardize reaching a safe port.

Consequently, some standard forms and international conventions, subject to being incorporated in the contract of carriage, provide liberty to deviate clauses, allowing vessels to deviate from the nominated route or port in particular situations, without incurring liability.

For instance, GENCON 2022, an international standard charterparty, includes a deviation clause permitting vessels “to deviate for the purpose of saving life or property and for any other purpose reasonably necessary for the safe continuation of the voyage.” A very similar wording exists in Asbatankvoy form. The Hague or Hague-Visby Rules, Article IV(4) allows for deviation or “any reasonable deviation” in saving or attempting to save life or property at sea.

“Reasonable deviation” was held in Foscolo, Mango & Co. v. Stag Line Ltd to mean such departure from the contract voyage as a prudent owner would make regarding all the relevant circumstances. A related provision exists under Article 5(6) of the Hamburg Rules. It must however be restated that these forms and international convention can only enjoy application to contractual carriage arrangements where they have been incorporated into the contract of carriage.

War risk clauses

Furthermore, where the contract incorporates war risk clauses (CONWARTIME/VOYWAR 2013), shipowners can reroute from the Red Sea despite charterer orders, following an objective and vessel-specific assessment. The crisis likely qualifies as “war risks” under these clauses.

English courts have held that the decision of shipowners to reroute must be evidence based rather than speculation, following a vessel-specific objectively reasonable risk assessment, made by the masters/owners of the vessel and not simply the management ashore, that it ‘may be’ or ‘likely to be’ exposed to war risk.

If no assessment was done, it may be concluded that the decision to reroute against the charterers instructions was not made in good faith. Documentation of assessments and notifications to the charterers is therefore important. General facts and flag state advisory, while not sufficient for the assessment, can bolster it.

Where no standard clause has been incorporated in the contract, the decision in Whistler International Ltd. V. Kawasaki Kisen Kaisha Ltd (The “Hill Harmony”) may be applicable. Following that decision, although charterers have the right to employ the vessel advantageously and determine its routes, they cannot put the vessel and its crew in danger.

Conclusion

In essence, shipowners will be allowed to refuse an unsafe route without incurring contractual liability in breach, particularly if it relates to a risk that the owners have not undertaken to bear. But following Herculito Maritime Ltd v. Gunvor International BV, the court now requires a qualitative change in circumstance for such deviation to be legally justifiable.

Therefore, vessels may deviate to save lives on the vessel or other vessel. For instance, the International Convention for the Safety of Life at Sea imposes a general obligation on masters of ships to help those in serious danger.

Article by Ebenezer Ajayi

Climate Crisis in Court: The Growing Trend in Environmental Litigation

Since 2015, environmental litigation has doubled worldwide, rapidly becoming a powerful catalyst for change. The emphasis has been on scrutinising net zero transition plans, green strategies and climate targets, as well as holding governments, public bodies, and big corporations accountable for their actions and omissions.

Climate-related litigation can be separated into two categories: cases brought with the intention of changing conduct or policies, and cases brought with the intention of reaching financial redress for damages of environmental wrongdoing.

Courts across the world have been dealing with complex group actions for loss and damage relating to environmental issues. As a result, it is expected that the number of claims will steadily increase.

The broader societal implications

The long-term climate damage caused by big corporations and governments has created an endless list of problems. Suffering locals wish that the ramp up in environmental litigation can thwart those who abuse their powers to profit at the expense of a deteriorating environment.

With environmental litigation being sought globally, civilians across the world can obtain justice against major corporations. For example, a Peruvian farmer in 2014 claimed that Germany’s largest energy company contributed to the melting of a glacial lake above his village, necessitating flood defences. Although the case is ongoing, the court agreed that the company would be liable for damages if it can be proven that the climate breakdown had caused it to melt.

In other instances, claims were filed in late 2021 against Volkswagen and Mecedes-Benz to prevent the companies from producing internal combustion engine cases unless they prove neutrality for Scope 3 emissions.

The spread of public awareness has helped increase environmental litigation, with 200 claims being filed in 2023 alone. The figures continue to grow, and it is believed even unsuccessful litigation will influence narratives and drive climate action. As such, a rise in group litigation, where misleading environmental claims have caused demonstrable loss to consumers, is expected.

However, there may be a growing legal backlash as the frequency of cases filed could delay climate action and criminalise activists. Environmental litigation is time-consuming and expensive. The complex and far-reaching nature of environmental law means courts face difficulty imputing singular litigants.

Advances in climate attribution have made it easier to establish legal causality. Despite that, English courts have made it clear that their role is not to make policy decisions or to decide on government strategy. Consequently, climate-related disputes have proved to be less successful than in other jurisdictions.

Law firm involvement

The variety of precedents and minimum governance standards set by the courts because of environmental litigation will require law firms to interpret case law and guide companies on appropriate strategies and changes.

Parent company and jurisdictional differences

In Lungowe and Orse v Vedanta Resources Plc and Konkola Cooper Mines Plc, the Supreme Court ruled that parent companies can be trialled for doings of their international subsidiaries.

The landmark judgment opened the possibility for parent companies to be liable to communities affected by the actions of their subsidiaries and, in this instance, enabled 1,826 Zambian villagers to bring a claim in the English courts against the UK-based parent company and its Zambian subsidiary.

As such, law firms advising clients with overseas businesses will need to consider jurisdictional differences and court precedents to advise how to appropriately avoid risks.

Ensuring compliance

Companies will need to understand how to align their environmental promises with their business strategies while ensuring compliance with commercial practices.

A 2021 European Commission screening exercise found that 42% of websites contained outdated, deceptive or exaggerated environmental claims. The increase in environmental litigation will motivate companies to articulate their plans and targets in practical ways and in line with commercial practices.

Law firms will advise on correct commercial standards and ensure companies are compliant with various codes like the Green Claims Code, which links green claims to obligations under consumer law dealing with misleading marketing.

Environmental lawyers

Environmental lawyers will help businesses ensure regulatory compliance, as well as advising on claims and appeals, obligations and legislation compliance. As a result of increasing environmental litigation, lawyers need to keep abreast of more frequently updated guidance and legislation and adapt contractual drafting accordingly.

Law firms will assist companies with staying on top of new law by providing briefs setting out important oversights. Environmental lawyers will also be supporting companies in preparing for regulatory investigations, which are anticipated to increase.

Article by Dominka Gaber