In Marine Insurance P&I Club News 19/02/2015
Members are advised to exercise caution and undertake enhanced due diligence when entering into new fixtures with unknown charterers, especially those that involve trade to countries where sanctions may apply or where there is limited judicial redress.
If a new charterer or fixture is not properly vetted the consequences for Members can be costly in both reputational and financial terms, as two recent claims have highlighted.
Quality dispute resulting in lengthy arrest
Our Member entered into a voyage charter to ship a cargo of sunflower seed oil from the Ukraine to Syria. There was a quality dispute between shippers and receivers resulting in the charterers arresting the vessel at the disport in Syria and the shippers cancelling the sale contract. Charterers rejected a Club LOU and instead demanded either a bank guarantee or a cash deposit into court in order to release the vessel.
What would ordinarily have been a relatively straightforward situation for the Club and our Member became problematic due to EU/US Sanctions in place against certain Syrian entities that restricted EU banks from providing bank guarantees. The alternative was to make a cash deposit into the Syrian court, but as this involved money being transferred through the Syrian Central Bank (a named sanctioned entity) EU banks were similarly restricted.
The resultant impasse left the Club with no alternative but to challenge the arrest through the Syrian courts whilst the vessel remained under arrest with a deteriorating cargo. Eventually, after seven months, the shippers stepped in and settled the dispute with charterers/receivers and the vessel was released.
Impecunious Charterers
Our Member contracted to perform a scrap tow on the basis of a knock for knock ‘TOWCON’ agreement. The tow subsequently sank in Ukrainian waters and our Member’s tug was arrested by the tow interests. The Club challenged the arrest and after some time obtained an order that the arrest was unlawful.
However, at this stage it became apparent that the charterers would not respond to the underlying claims presented by the local Port Authority and Environmental Agency, and we discovered that the insurance policy for the tow had been cancelled immediately prior to the voyage. As a result our Member’s tug was prevented from leaving by the authorities who rejected a Club LOU.
Efforts to arrange a bank guarantee were unsuccessful as local Ukrainian banks were not inclined to provide security – on the basis that the claims were advanced by governmental agencies. Eventually, a payment into court was made as security and the claims have been settled; but it remains that our Member’s vessel is still detained pending the arrest order being lifted.
Minimise risks when entering into new contracts
When considering new business/fixtures Members should consider the following steps before entering into new contracts, to minimise the potential risks:
- Enquire, through brokers and other shipping contacts, about the reputation of the charterer.
- Refer to sites such as BIMCO/IMB databases for positive or negative information gathered on charterers or agents.
- Carry out credit reference and status checks.
- Consider choice of jurisdiction and choice of law clauses in the charter-party.
- Request appropriate advice from the Club.
- Investigate whether the contracting parties and/or individuals or proposed areas of trade may be subject to sanctions.
Where appropriate Members may wish to consider requesting charterers to provide a written guarantee underwriting their obligations to owners, this is typically issued by a parent company.
