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NAVIGATING THE CHALLENGES IN 2007The activity of our Shipping Offshore Group has never been higher than in 006 and is reflecting the level of activity in the shipping and offshore industry in general. We are today counting 54 lawyers in the group and we are more than ever working on the international arena recognised as an “international law firm”. Our range of services is wide and requires specialists within all areas. At one end of the range, we have the traditional maritime law work related to collisions and other accidents at sea with shipboard investigations all over the world which are often followed by heavy litigation. At the extreme other end we have the more commercial aspects of the shipping and offshore industry with high profiled deals with advice on structuring of acquisition and takeovers, financing and stock exchange listing etc. In between these two ends there is a wide area of “ordinary course of business” which involves our clients’ daily challenges. This middle area constitutes the core of our business and may involve negotiations of newbuilding contracts, joint ventures, charterparties, offshore contracts, dispute handling and litigation, and many other matters.This wide range is necessary to get the full picture and understanding of the business of our clients, but the legal knowledge must be combined with practical experience in order to be of any added value to the client. The expertise within our group has been sustained by the shipping lawyers of the firm over decades and passed on to the lawyers in the group today. We have not only developed our shipping group to take advantage of todays marked, but over time been able to recruit and develop the best talents with interest in shipping and offshore.One great achievement during 006 that I would like to mention is Øystein Meland’s book on Shipbuilding Contracts. The timing of this book is perfect as we have been involved in more than 50 shipbuilding contracts over the past years. His in depth knowledge and experience will prove useful if any of these contracts develop into legal disputes.In the first half of 007 we will arrange two seminars that we hope will interest our clients. The first seminar will be a half day seminar which will discuss legal and practical challenges with shipbuilding contracts in China. The seminar will be held together with our Chinese lawyers in Shanghai and the English law firm Curtis Davis Garrard. The second seminar will focus on how competition law affects the businesses of our shipping and offshore clients, and will give practical guidelines in order to comply with new laws and regulations. So, what will 007 bring? There are certainly many possible scenarios and predictions. Will the negative predictions related to the ability of yards and oil service suppliers to deliver in time and on budget be correct? Will consolidation continue in the shipping sector, or between rig companies? Will the Norwegian shipping and offshore companies continue to move their assets out of Norway to Singapore, Cyprus or other more favourable tax regimes, and how will it affect the Norwegian management? Nothing is as dynamic as the shipping and offshore industry and there is no reason to believe that the high level of activity will cease. We are prepared and confident that our Shipping Offshore Group possesses the people, the knowledge and the experience to handle the challenges. I have taken over the leadership of the group from Trond Eilertsen, and his achievements are not easy to match. My best plan is accordingly to build on our strength, and that means business as usual for 007.I wish all our clients the best for 007.Finn BjørnstadLeader of Wikborg Rein’sShipping Offshore Group WIKBORG REIN JANUARY 007
HOW WILL THE MARKET RESPOND TOTHE EU’S ABOLISHMENT OF LINERCONFERENCES?The EU Competitiveness Council decided on 25 September 2006 to repealRegulation 4056/86 (the “Block Exemption”) after a two-year transition period.The repeal of the Block Exemption puts an end to the possibility for liner carriersto meet in conferences, fix prices and regulate capacities on routes to and fromthe EU.The exemption from European operate. Conferences are expected to While the market analysts seem to agree competition rules was granted in 1986 have some impact on market rates due that the trend is likely to move towards on the assumption that it was necessary to the fact that conference members lower overall rates, the understanding to ensure reliable transport services assemble, exchange views, fix prices and is more ambiguous with respect to price and stable freight rates. Since then, the regulate capacity. volatility. In a study commissioned by the market situation in the maritime sector European Commission, ICF Consulting has evolved considerably. We have seen The impact of more competition on (http://ec.europa.eu/transport/maritime/an increase in the number of individual short and intermediate term rates will studies/doc/005_05_icf_study.pdf) service contracts, the proliferation of depend on the extent to which liner concluded that the repeal of the block operational co-operation agreements conferences have been able to set and exemption may increase volatility in between shipping lines such as consortia maintain prices above competitive levels. the short term until the markets reach a and alliances, and a growing importance If a liner conference has had significant new state of equilibrium. In a study by of independent operators. price setting power on a particular Global Insight, also commissioned by the route, the repeal of the Block Exemption European Commission (http://ec.europa.The process of repealing the Block is supposed to lead to greater initial eu/comm/competition/antitrust/others/Exemption, which started in March fluctuations in prices compared to other maritime/shipping_ report_610005.00, was undertaken in the context of routes where no party is in possession of pdf), it is suggested that the repeal will the conclusions of the Lisbon European such market power. not lead to more price volatility, arguing Council in 000 which called on the that without conferences price volatility Commission “to speed up liberalisation In the long term, increased competition is due to price-mixing behaviour which is in areas such as gas, electricity, postal will put stronger pressure on carriers normal and common in other industries. services and transport”. to innovate, improve performance and reduce costs, which will be the basis for Effects on market structureIn this article we will consider the further rate reductions. The opponents to the withdrawal of repeal’s potential impacts on liner the Block Exemption have argued that shipping services. With respect to surcharges the repeal of without coordinated capacity and pricing the Block Exemption is expected to have policies the industry would be subject Effects on transport prices a considerable impact. Each carrier will to destructive competition, leading to In the 00 report “Competition Policy have to base surcharges on the carrier’s bankruptcies and unstable markets. in Liner Shipping”, OECD concluded that own cost structure. In the absence of There is, however, no empirical evidence prices are likely to be lower and more conference “guidance”, the united front to support this opinion. Although it is stable in competitive shipping markets on surcharges will weaken, leading to difficult to make a certain assessment of than in markets in which conferences lower overall rates. the consequences, high cost providers 4 WIKBORG REIN JANUARY 007
FOTO: O. Kobayashi are likely to be forced to cut their cost profit when the market is exposed to free transport offer will play an important role to be able to compete, or will otherwise competition. Alternatively, there might in the assessment. In case the current have to exit the industry. The outcome be some reconfigurations of routes, inter transport companies are covering specific will largely depend on the existing alia, changes to the scheduling, costs, routes by participating in operational exposure to competition on each route. service components or establishment agreement such as consortia or alliances, A significant impact on market structure of new trade routes and port of calls the transport offer is likely to remain the cannot be expected if the trade is already eliminating others. Secondly, the quality same also after the Block Exemption is considered competitive. The impact will, of the services rendered could be reduced effectively repealed. on the other hand, be more significant as conference members start competing if the trade is not already exposed to more aggressively on price. FOR MORE INFORMATION, CONTACT: competition, especially if the present transport companies are high cost The last mentioned consequence has Kristoffer Rognvik Larsen, service providers. In such case we might been rejected by a report from the US email@example.com expect changes in terms of the number Federal Maritime Commission. They of liners exiting and entering the trades feared the same when similar changes (e.g. high cost liners are replaced by were adopted in the American Ocean low cost liners). We could also expect a Shipping Reform Act. Their experience Lars Tormodsgard, certain degree of consolidation between was that increased competition in the firstname.lastname@example.org different companies aiming to increase liner industry contributed to a variety of their market power, and thereby get service improvements. better control over the rates. Further, if a trade line is profitable Effects on the availability of services it is not likely that the services are Øystein Meland, The availability of services may be af- discontinued or disrupted after free email@example.com fected in several different ways. Firstly, competition is introduced to the market. If one could think that services offered on there is any disruption, it should at least routes less profitable could be discontin- only be temporary. If the trade line is less or Berit Mehl, ued or disrupted if vessels are unable to profitable, the structure of the current firstname.lastname@example.org WIKBORG REIN JANUARY 007 5
Hence the cyber attack clause is not estimated costs of repairs. The owner limited repair facilities and no or limited incorporated into the Plan exclusions. will still have the option to carry out salvage capacities. Therefore the insurer repairs and get the actual costs of repairs may charge an additional premium for Change of classification society compensated as before. sailing in the excluded areas regardless Change of classification society shall of the ice condition on the sailing route.no longer result in automatic termination If the vessel becomes a total loss or a of the insurance. It is now defined as constructive total loss (“CTL”) before The “punishment” for sailing in the an alteration of risk, see the new § -8 the policy expires, the insurer is not conditional areas without notifying the subparagraph and § -14 sub- obliged to compensate any unrepaired insurer in advance is increased to a paragraph 4. damage even if the total loss or CTL is maximum of USD 175,000. compensated by another insurer. This amendment means that the insurer The trading areas defined in the Plan’s must, pursuant to § -9, demonstrate The Norwegian conditions are thereby Appendix have been changed. The waters that he would not have accepted the brought in line with English conditions between Sakhalin and Kamchatka have insurance if, at the time of the contract and non-marine conditions in Norway and become a conditional area as opposed was concluded, he had known that elsewhere. Previously § 18-10 contained to an excluded area which it was before. the change of classification society a similar right for the owners of offshore From the Amchitka and Amukta passes, would take place. Thus, a change of structures, but this provision is repealed the Bering Sea north of the Aleutian classification society would normally in the 007 version as the new § 1- is Islands can also be accessed or departed, no longer have any consequences for also applicable for offshore structures. but ships sailing north of the Aleutian the owner if the insurer already has a Islands may not proceed north of 540’ portfolio of vessels classed with the new Inadequate maintenance north.classification society. The special exception from cover pursuant to § 1- subparagraph is The conditional area of the Baltic Sea has But the rating or standing of classification repealed so that consequences of wear not been amended, but the time periods societies may vary, and individual and tear, corrosion, rot, inadequate have been simplified and extended to insurers may have adopted an acceptance maintenance and the like will be covered comprise the period from 15 December to policy which excludes from cover vessels without any exception, provided of course 15 May, both days included.classed with certain classification that none of the general exceptions in societies. Therefore, it is still highly part 1 of the Plan are applicable such as recommendable to notify the insurers § - on violation of safety regulations. The 007 version of the Plan is as soon as possible of any change of available with its commentary, both the classification society in order for the Trading limits in English and Norwegian, on the owner to be on the safe side. There are two changes to § -15 website www.norwegianplan.no, subparagraph which make clear that which also gives an overview of all It is important to note that loss or the insurer may require, but is not the changes since the 00 version.suspension of class still leads to necessarily entitled to, an additional automatic termination of the insurance premium for sailing in a conditional pursuant to the Plan § -14. trading area. In mild winters there may FOR MORE INFORMATION, CONTACT: be no or very limited risk of encountering Haakon Stang Lund, Compensation for unrepaired ice even in the conditional areas. If the email@example.com vessel does not encounter any ice on its The Plan § 1- subparagraphs 1 and voyage in the conditional area, then there have been amended so that the owner, is no basis for any claim for an additional at the expiry of the insurance period, will premium. be entitled to cash compensation for the Anders W. Færden, estimated reduction of the market value Sailing in the excluded areas entails not firstname.lastname@example.org the ship due to the damage without only the ice risk, but also other risks such any obligation to carry out repairs. The as generally rougher weather conditions compensation shall not exceed the in the winter, inaccurate charts, no or WIKBORG REIN JANUARY 007 7
NORWEGIAN NET CLOSES ONSUBSTANDARD SHIPSIn support of international initiatives to eliminate substandard shipping theNorwegian Parliament is expected to enact new legislation proposed by theMinistry of Trade and Industry enabling Norwegian marine insurance companiesto exchange information on substandard ships with other insurance companies,classification societies, flag state authorities etc. without the approval of theinsured.Background: Current legislation and The PI clubs of the International Group Ship Safety Act, which was circulated for need for reform followed up and commenced discussions comments from the industry in November Section 1-6 (§ 1- of the previous on such cooperation. It soon transpired 005.1988 Act) of the Insurance Act of 005 that the two Norwegian PI clubs Gard imposes a fairly strict secrecy obligation and Skuld where unable to participate The proposal allowed marine insurance on the insurer, which is generally in this cooperation to the full extent companies to exchange certain accepted when it comes to sensitive because of the secrecy obligation information about safety defects of information about an insured’s personal imposed on them by said Insurance Act. insured vessels and also to forward such health records, sensitive business It was deemed rather unfortunate that information to the relevant Norwegian information etc. However, should the Norwegian insurers were restricted in and international public authorities information on the technical standard of their contributions towards increasing the and classification societies without the an insured vessel be subject to the same safety at sea. prior written consent from the insured. restrictions? In the outset the answer is Information could be provided about in the affirmative. Hence, the Norwegian market asked for vessels currently being insured by the an exception from the secrecy obligation insurance company, as well as vessels In June 004 the Maritime Transport in this regard. The Ministry of Finance having been insured by the company Committee of OECD issued a Report (which is in charge of the Insurance Act) during the last three years prior to the on the Removal of Insurance from declined to propose new legislation to request for information or the time when Substandard Shipping. One of the that effect. However, the Ministry of information is given. proposals in the report was that insurers Trade and Industry came to the rescue should report to each other when they of the shipping industry and proposed Revised proposaldiscovered substandard vessels or new legislation enabling the insurers to Following the comment period the operations so that other insurers could exchange information on the technical Ministry of Trade and Industry proposed avoid insuring such vessels and clients. standards of vessels. to the Norwegian Parliament to enact In particular, the report pointed out that the new Norwegian Ship Safety Act (Ot.the PI clubs were in a position to have Original proposal prp. nr. 87 (005-006)), including the a substantial impact if they were able to The legislation originally proposed by provision regarding exception from the exchange information and thereby deny the Ministry of Trade and Industry was secrecy obligation.PI cover for substandard vessels. The reviewed in an article in Wikborg Rein’s idea was that if substandard vessels Shipping Offshore Update 1/006. The The formal proposal submitted to the were denied PI cover they would sooner proposed exception from the secrecy Parliament is substantially the same or later be put out of business. obligation took the form of § 71 in the as the original proposal circulated for proposal for enactment of the Norwegian comments in November 005.8 WIKBORG REIN JANUARY 007
ASSIGNMENT OF CONTRACTUAL RIGHTS- LEGAL AND LINGUAL CHALLENGESA consequence of the international aspect of shipping and ship financing is that anumber of contracts and related documents are drafted in English. This can oftenlead to confusion between the parties involved due to different interpretation ofterms and expressions used in the documents.Assignment vs. novation rights and obligations are transferred. We also often see Terms which are often confused are “assignment” and expressions like “assignment of the contract” or “assignment “novation”. Under English law, assignment is normally used only of the rights and obligations under the contract”. For instance, when rights under a contract are transferred. This is as opposed in the Standard Norwegian Shipbuilding Contract 000 clause to novation, where both rights and obligations are transferred. XIII it is agreed that the parties cannot transf er their rights and obligations without the other party’s consent. The Norwegian Assignment of contractual rights is often made in the context version uses the term “transport av kontrakten”, whilst the of, inter alia, building contracts, charter parties and ship and English version uses the term “assign the Contract”. This shipbuilding financing. An assignment can be defined as a would normally not make much sense to an English lawyer, as present transfer of rights by the assignor in favour of a third assignment under English law is only a transfer of rights, not party, the assignee. The obligor is the party bound to perform obligations. the obligations in relation to the assigned rights. Instead, the term “novation” should have been used. A novation A practical example is when a purchaser under a memorandum agreement creates a new contractual relationship between one of agreement assignshis rights to purchase and take delivery of of the original parties and a new third party. For example when a vessel to one of its subsidiaries: the rights and obligations of a shipowner under a charter party are transferred to a new owner, a new contractual relationship is created between the new owner and the charterer. This is Assignee/ often formalised by a tripartite agreement called “novation Erverver agreement” between the original parties to the contract and a third party, where the contracting parties agree to terminate the contract and one of them enters into a new contract with the Assignment third party. The new contract replaces the terminated contract. If a novation agreement is entered into under English law, there Obligor/ Contract Assignor/ are important aspects to be aware of which give cause for Debtor/ Overdrager concern, such as, guarantees issued in relation to the original Debitor contract may be discharged and hence should normally be re- issued if intended to apply to the novated contract. Another example is when a purchaser under a shipbuilding contract assigns his rights to take delivery of a newbuilding Assignment by way of sale vs. assignment by way ofor to receive refund to its financing bank as security for his securityobligations under a loan agreement. Another distinction can be drawn between the assignment by way of sale and the assignment by way of security. Whilst the Sometimes a Norwegian party uses “assignment” as first assignment is a definite or outright assignment (Norwegian: a translation of the Norwegian terms “transport” or overdragelse til eie), the second is an assignment for security “overdragelse”, notwithstanding whether only rights or both purposes which by the very nature is not intended to be definite 10 WIKBORG REIN JANUARY 007
ENFORCING FOREIGN JUDGEMENTS INNORWAYInternational business transactions inevitably result in situations where individu-als and companies experience disputes having to be solved by the courts in otherjurisdictions than their own. Often there is a need to enforce the judgement in acountry other than the country in which the court is situated, in particular if thedebtor is domiciled in another country.If the judgement is in the form of an Convention provide that a judgement held with a Norwegian bank. In such case arbitration award, it can be enforced by given in an EEA state shall be recognised the court where the asset is located can way of application of the Norwegian and enforceable in other contracting claim jurisdiction.rules implementing the widely adopted states. Hence, Norwegian courts New York Convention (Convention on the are obliged to recognize the foreign The conditions for enforceabilityRecognition and Enforcement of Foreign judgement without allowing the party The claimant must, in accordance with Arbitral Awards of 1958). Judgements against whom enforcement is sought (the Article 46, produce a certified true copy of by ordinary courts in countries outside “defendant”) to challenge the judgment the judgment which adequately satisfies the EEA (European Economic Area) on the basis of the merits of the case. the court of its authenticity. In the case of may be enforceable provided certain a judgment given in default, the claimant specific conditions in the Norwegian Civil The actual enforcement under the Lugano must produce the original or a certified Convention is subject to a separate Procedure Act are fulfilled. In this article true copy of a document establishing that we will consider judgements by ordinary procedure. According to Article 1 an the proceedings were served on the party courts in EEA countries, which may be application from the party seeking to in default, or an equivalent document.enforced under the Lugano Convention enforce the judgement (the “claimant”) (Convention on Jurisdiction and the shall be lodged with a Norwegian court, In accordance with Article 47 the Enforcement of Judgments in Civil and requesting the court to summarily try claimant must produce documents Commercial Matters of 1988). the foreign judgement and declare it establishing that, according to the law enforceable in accordance with ordinary of the state of origin, the judgment is The Lugano Convention Norwegian enforcement rules. enforceable and has been served. In The Lugano Convention was implemented principle a non-formalized statement from in Norway by the Lugano Act in 199. It Norwegian jurisdiction a court in the state of origin evidencing extends the jurisdiction and enforcement The application for enforceability must the enforcement and proof of service of regime in civil and commercial matters be submitted to the District Court the judgement will suffice. in the Brussels Convention (Convention having local jurisdiction in the matter, on Jurisdiction and the Enforcement which will ordinarily be the District The enforcement application may be of Judgments in Civil and Commercial Court in the jurisdiction in which the refused for one of the reasons specified Matters of 1968), which applies between defendant is domiciled. If the defendant in Articles 7 and 8 of the Lugano the EU member states, to the EFTA is not domiciled in Norway, Norwegian Convention, i.e. if e.g. the enforcement (European Free Trade Association) states. courts may still have jurisdiction if the will be contrary to public policy or if defendant has any assets in Norway, for the relevant judgement is a default Articles 6 and 1 of the Lugano example chattels, real estate or accounts judgement and the defendant was not 1 WIKBORG REIN JANUARY 007
THE IMPORTANCE OF THE “CARRIER” BEING ENTITLED TO GLOBAL LIMITATION For cargo vessels, two set of limitation regimes often operate in parallel: the unit and weight limitation and the global limitation. Shipping is a particularly international business, sometimes with overseas post box companies acting as owners, inter- company charterparties or other tax-driven inter-company arrangements, and the purpose of this article is to look more closely at some of the pitfalls shipowners should consider before being too creative when organising their activities.FOTO: O. Kobayashi The concept of shipowners being entitled operator of a seagoing ship”. The United the ship” or by the “perils, dangers and to limitation of liability is thought to be States is neither party to the 1957 accidents of the sea”. Provided that the of Dutch origin and dates back hundreds Convention nor the 1976 Convention, but carrier is found liable, the HVR further of years to the Middle Ages and still under US law the Limitation of Vessel offers the carrier the benefit of limitation remains one of the core principles which Owner’s Liability Act entitles shipowners of liability either by unit (666.67 SDR per underpin the distribution of risk involved and bareboat charterers to limit their unit) or by weight ( SDR per kilogram), in a maritime venture. In Norway the liability. whichever is the higher, cf. the HVR concept of limitation of liability was in Article IV No. 5 (a). The US COGSA limits its earliest form introduced by Fredr k II’s Unit and weight limitation the carrier’s liability to US$ 500 per maritime code of 1561, whereas England For carriers of cargo by sea, other unit (customary freight unit), cf. the US and USA introduced this concept in the important limitation regimes are found COGSA § 104 (5). 18th and 19th centuries. in the rules governing the contract of carriage (normally evidenced by a bill The party entitled to limitation of liability Global limitation of lading), such as the Hague Rules of under these rules is invariably referred to Pursuant to the International Convention 194 (“HR”), the Hague-Visby Rules of as the “Carrier”, cf. HV/HVR Article I and Relating to the Limitation of Liability 1968 (“HVR”) and the United States US COGSA § 101, defined as “the owner of Owners of Seagoing Ships of 1957 Carriage of Goods by Sea Act of 196 or charterer who enters into a contract of (“1957 Convention”) an “owner, charterer, (“US COGSA”). These rules offer carriers carriage with the shipper”. Most bills of manager and operator” is entitled to limit of cargo by sea the benefit of both lading contain so-called Himalaya clauses their liability. Similarly, the International certain liability exemptions and certain purporting to contractually extend the Convention on Limitation of Liability liability limitations. Under the HR/HVR immunities and protections afforded the for Maritime Claims of 1976 (“1976 and the US COGSA, the cargo carrier is carrier by operation of law to other third- Convention”) (and the 1996 Protocol) exempted from liability for cargo damage parties involved in the carriage, such as offers the benefit of global limitation e.g. when the loss was caused by “error agents, managers, stevedores etc. Such to the “owner, charterer, manager and in the navigation or the management or Himalaya clauses are generally accepted 14 WIKBORG REIN JANUARY 007
in many jurisdictions, but the effect of US$ 40,500,000 (SDR 7,00,000). The carrier will be regarded as “carrier” under a Himalaya clause is dependent on the importance of global limitation increases the HR/HVR as incorporated into national party identified as carrier in the bill of if the limitation fund can be established law and thus liable for cargo damage lading is also being regarded as carrier in a country party to the 1976 Convention claims, as well as the liability exemptions under the HV/HVR and US COGSA. If not, (as opposed to the 1996 Protocol), and and unit and weight limitations. In some neither the carrier as identified in the bill even more so in the case where the jurisdictions (for example Norway) the of lading nor the third-parties purportedly limitation fund can be established in a actual carrier, normally the shipowner, protected by the Himalaya clause are country party to the 1957 Convention, will be regarded as “carrier”, but that is afforded the benefit of the liability such as e.g. South Africa. not always the case. It is thus important exemptions and limitations provided for to ensure that the party identified in the HR/HVR and US COGSA. This is further illustrated by the fact that as carrier in the bill of lading is also in case of a major casualty, the liability regarded as a “carrier” under the HV/HVR The importance of being entitled for cargo damage limited by the HV/HVR and US COGSA. When drafting bill of to limitation under both limitation and the US COGSA is only one of several lading terms we would recommend that regimes potential groups of claims. Other claims advice be obtained from local lawyers in In respect of carriage of goods by such as oil pollution clean-up costs the main trading jurisdictions.sea, the global limitation regime and from bunkers spills, salvage, damage to the unit and weight limitation regime local fisheries, tourism claims, collision In order to take advantage of both normally operate in parallel. In order to liability, wreck removal costs etc. will limitation regimes, it is further important benefit from both limitation regimes, also often emerge in the wake of a that the “carrier” is also within the group it is important that the liable party is major casualty. The liable party for such of persons entitled to global limitation, protected by both regimes. In recent claims will normally be the shipowner, i.e. an “owner, charterer, manager years we have seen examples where who may be entitled to limit such claims [or] operator”. This will normally be shipowners and financial institutions due under the global limitation regime. accomplished by ensuring that there is to tax or other financial reasons organise However, the cargo claims may not be a charterparty or chain of charterparties their shipping activities or investments included in the limitation proceedings between the registered shipowner and in a manner where they accidentally if (1) the contractual carrier being the contractual carrier, establishing the may deprive themselves of the right to liable for cargo damage is not within contractual carrier as a “charterer”.limitation under one or both regimes, the group of persons entitled to global e.g. by using a company as a contractual limitation and () the cargo claims are Wikborg Rein’s Shipping Offshore carrier that is not an “owner, charterer, governed by a law not automatically department has broad experience in manager [or] operator”. The following recognising also the actual carrier as handling cargo claims and assisting example illustrates the importance of “carrier” for the purpose of the HR/HVR shipowners and insurers with the being entitled to limitation under both or US COGSA. The result may be that drafting of bill of lading terms and shall regimes: the cargo claims are settled outside be pleased to render assistance in this the limitation fund. For a 1,000 unit regard.In the near future we will see car carriers capacity car carrier suffering a total loss, with a capacity of up to 1,000 cars. If this may under a worst-case scenario FOR MORE INFORMATION, CONTACT:we assume that the average value of result in an extra bill of approximately each car is US$ 15,000, the total cargo US$ 45,000,000 in respect of the cargo Henrik Hagberg,value will be US$ 180 mill. Using an claims. Another important aspect is that email@example.com weight of 1,50 kg per car, the a carrier not entitled to global limitation total limitation amount under the HVR in would normally also be deprived of the case of a total loss of the cargo would possibility of constituting a limitation be approximately US$ 45,000,000 (SDR fund, which in addition to the monetary Gaute Gjelsten,0,000,000). With a roughly estimated consequences resulting from the cargo firstname.lastname@example.org tonnage (1969) of 85,000 tons, damage liability, may also significantly the global limitation amount under the complicate the settlement of claims.1976 Convention would be approximately US$ 17,000,000 (SDR 11,8,500), and Identity of the carrierunder the 1996 Protocol approximately In most jurisdictions, the contractual WIKBORG REIN JANUARY 007 15
LIABILITY REGIMES IN OFFSHORECONTRACTS - CONTRACTORS BE AWARE!Offshore contracts include a variety of services, such as construction or modificationof offshore installations, drilling and sub-sea installation of pipelines. The contractsoften involve complicated high risk offshore operations. Damage or delay can haveenormous financial consequences. It is therefore important to consider carefully theagreed apportionment and limitation of liability.Many standard contracts contain a fairly Down hole equipment in respect of any claims exceeding the balanced liability regime. However, In drilling contracts the oil company agreed limitation. we often experience that important will usually agree to compensate the issues are not sufficiently regulated. We contractor for replacement of down hole If there are any existing installations recommend considering the necessity of equipment even when such equipment is owned by third parties within the area drafting additional provisions for each provided by the contractor, except to the of operation, the contractor should individual project, taking into account extent of fair wear and tear. ensure that the oil company agrees to an the relevant insurance coverage. In this indemnity of any loss or damage to the article we will consider some of the most Contract object installations. important elements which the contractor Responsibility for the contract object in should have in mind when considering construction contracts normally lies with Pollution liabilityproposing additional liability provisions. the party having the care and custody, Normally the contractor is liable towards which means that the contractor is third parties (including governmental The parties’ property and personnel usually liable until delivery. In many pollution control authorities) for pollution Liability for loss of or damage to the standard contracts the contractor’s originating from its own equipment or parties’ property and personnel is usually liability is unlimited if the loss or damage vessel, whereas the oil company is liable regulated in accordance with the “knock is not covered by insurance. We have for pollution originating from reservoir, for knock” principle, which implies that seen a trend of reduced insurance well, facility, pipeline or other subsea or each party is liable for loss or damage coverage, which means that the surface structures.to its own personnel and property contractor will have unlimited liability for regardless of cause. This principle is loss or damage not covered by insurance. Aggregate limitationclosely connected with the parties’ It is therefore important for the contractor The contractor’s total aggregate liability possibilities to procure insurances, and to ensure that the contract object is fully under the contract should be specified. provides for a predictable and reasonable covered by the insurances taken out. Determining the limitation amount is a apportionment of liability. Normally, the question of the parties’ relative bargain-“knock for knock” principle does not Company provided items (CPI) ing power. Usually, contractors are able apply if the loss or damage is caused In standard contracts the liability regime to negotiate a limitation amount of about by the other party’s leading personnel’s applicable to items provided by the oil 15-0 percent of the total contract price. wilful misconduct or gross negligence. company varies to a great extent. We usually recommend that the contractor FOR MORE INFORMATION, CONTACT:Well and reservoir ensures that the “knock for knock It is important for the contractor that the principle” applies in this respect. Christian James-Olsen,oil company be responsible for damage email@example.com well and reservoir due to the fact that Third party liabilityit is much easier for the oil company to Usually, each party is responsible for obtain necessary insurance coverage. It the liability they incur towards a third would be unacceptable for the contractor party for damage to or loss of property Jon Heimset,to take this enormous financial risk and personal injuries. A recommendable firstname.lastname@example.org having insurance. alternative for contractors is to accept liability up to an agreed limit in return for an indemnity from the oil company 16 WIKBORG REIN JANUARY 007
TAx INCENTIVES FOR ESTABLISHINGBUSINESS WITHIN THE EUThe combination of Norwegian tax law and developments in EU tax law favoursestablishment of business in the EU. Some EU member states like Cyprus and Maltaoffer favourable tax conditions for certain types of businesses and may be interestingalternatives to Singapore.Under the exemption method introduced apply in case income is mainly of passive to 4.17 percent. Malta does not levy by Norway in 004 dividends as well as character. withholding tax on dividends paid to non-capital gains upon disposal of shares are resident shareholders. Tax on inbound tax exempt for corporate shareholders. The tax regimes in Cyprus and Malta dividends is subject to a maximum tax The tax exemption applies to shares in Some EU states like Cyprus and Malta rate of 6 percent, but in certain cases the Norwegian companies and companies in offer surprisingly advantageous tax con- participation exemption may lead to a the EU/EEA (European Economic Area). ditions for certain types of businesses. zero rate.The tax exemption does not, however, comprise shares in “low taxation” Cyprus companies are generally taxed at Neither Cyprus nor Malta levies exit countries. a rate of 10 percent. However, shipping tax upon liquidation or emigration of a and ship management companies may company.The Cadbury Schweppes case be subject to a special tax regime (which The Cadbury Schweppes decision of 1 applies until 00). No income tax is due The advantageous tax conditions of September 006 by the EU Court puts on the profits of Cypriot shipping compa- EU states like Cyprus and Malta may restrictions on the member states’ appli- nies which own ships under the Cypriot lead to a shift in the preferred place of cation of legislation on Controlled Foreign flag (parallel registration is allowed) establishment of e.g. rig companies, Companies (“CFC”) – in Norway known and operate in international waters, but which have until now seemed to prefer as the “NOKUS” provisions. These regu- a tonnage tax must be paid based on Singapore. Tax aspects are of course lations provide that profits of a subsidiary the weight and age of the vessel. Ship only one of several elements to be resident in a low taxation country may be management companies may choose considered when choosing an appropriate taxed in the shareholder’s residence state between a general 4.5 percent tax rate legal structure. Other important irrespective of any dividend distribution. and a 5 percent of the tonnage tax rate. factors are, inter alia, infrastructure, It was held in the Cadbury Schweppes language, legal system and business case that under the EU principle of Furthermore, Cyprus offers advantageous environment. In addition, tax regimes in freedom of establishment such regula- conditions for holding companies as the other jurisdictions may also have to be tions may, broadly speaking, apply only to country does not levy any withholding taken into consideration, i.e. taxation in wholly artificial tax arrangements. tax on dividends to non-resident the “source” state – the state in which shareholders. Inbound dividends from performance of rig activities are carried This means that even if a subsidiary of a non-resident companies may be tax out.Norwegian company is subject to low or exempted provided that the shareholding zero tax in an EU/EEA country, Norway is at least 1 percent and the foreign tax FOR MORE INFORMATION, CONTACT:may neither tax the subsidiary’s profits burden on the income of the subsidiary is Marianne Iversen,or dividends upon such distribution at least 5 percent or less than 50 percent email@example.com capital gains upon disposal of of the income is investment income.shares as long as the subsidiary has substance as required in the Cadbury Malta also offers favourable tax Schweppes decision. This is as opposed conditions. Even if the general income to subsidiaries in other favourable tax tax rate in Malta is high (5 percent) a Petter Breivik,countries like Singapore, where only tax refund for certain kinds of business firstname.lastname@example.org – and not capital gains – are (including rig activities) may be claimed, exempted from Norwegian tax under the having the effect that the tax rate for tax treaty and NOKUS provisions may practical purposes will be reduced WIKBORG REIN JANUARY 007 17
ITF ACTIONS IN NORWAYMany shipowners around the world, especially those with vessels flying so-called “flagsof convenience” (“FOC”), have faced the brutal reality of actions by the InternationalTransport Workers’ Federation (“ITF”) in the form of boycott actions. Several of theNorwegian maritime unions are affiliated with ITF and regularly undertake actions inNorwegian ports on behalf of ITF. This article addresses some important features underNorwegian law with respect to boycott actions initiated by ITF.The FOC campaign that such agreements are not properly unlawful if the boycott action:ITF is an international federation of adhered to by the shipowner, ITF regularly transport workers’ unions with inspectors undertakes actions against the vessel in a) has an illegal purpose or cannot all over the world. ITF has for more than order to enforce ITF policy. achieve its purpose without causing an 50 years waged a campaign against the unlawful act;use of FOC, defined as situations “where Boycott in Norwegian ports b) is carried out or maintained by illegal beneficial ownership and control of a Actions by the Norwegian ITF affiliated means or by untrue or misleading vessel is found to lie elsewhere than organisations normally take place through information;in the country of the flag the vessel is a boycott of the vessel, i.e. preventing c) will harm major community interests or flying”. In the view of ITF, the use of FOC loading or discharging operations while operate in an excessive manner or “provides a means of avoiding labour the vessel is in port, which results in there is a significant disproportion regulation in the country of ownership, delays in the vessel’s loading/discharging between what can be achieved by the and becomes a vehicle for paying low and sailing schedules. Boycott by the boycott and possible resulting damage; wages and forcing long hours of work seamen’s unions has a long history in orand unsafe working conditions”. As Norway, and the Norwegian ITF affiliated d) is carried out without reasonable part of the campaign against the use organisations are of the more active warning or proper explanation of the of FOC, ITF has developed a set of organisations within ITF. Over the years grounds for the boycott.standard collective agreements which several of the boycott actions undertaken contain minimum acceptable wages by ITF in Norway have ended up in the Within the above limits, a boycott action and working conditions applicable to courts. will normally be regarded as lawful all crew members onboard FOC vessels pursuant to the underlying principle irrespective of nationality (e.g. ITF The lawfulness of boycotts in Norwegian law that a boycott is Standard Collective Agreement, ITF The underlying principle in Norwegian considered a lawful measure in labour Uniform TCC Collective Agreement law is that a boycott is considered a conflicts. and ITF Offshore Standard Collective lawful measure that can be applied in Agreement). labour conflicts, within certain limits set In order to determine whether a boycott forth in the Norwegian Boycott Act of 5 is lawful or not, proceedings may The FOC campaign involves inspections December 1947 No. 1 (the “Boycott Act”). be initiated by filing a request for an onboard FOC vessels to check whether Only if the boycott exceeds the limits set interlocutory injunction with the local the crew members are employed on forth in the Boycott Act § , the boycott court where a threatened or actual terms which correspond to ITF minimum will be considered unlawful and the boycott takes place, cf. the Boycott Act standards, and when such agreements person executing the boycott may be held § . Proceedings may be initiated on the are already in place, whether such liable for damages, cf. the Boycott Act § basis of the warning of boycott. Oral agreements are in fact adhered to by 4, and in extraordinary situations also be hearings will normally be held within the shipowners. In cases where ITF subject to prosecution and fines, cf. the a couple of days. However, a suit for finds that the crew members are not Boycott Act § 5. Pursuant to the Boycott damages arising out of an unlawful employed on satisfying terms, or finds Act § , a boycott action may be regarded boycott must follow the ordinary route 18 WIKBORG REIN JANUARY 007
FOTO: O. Kobayashi through the court system starting at the law suggests that this will normally be not manage to get a dialogue with the local district court. regarded as lawful, but always depending shipowner. In our experience that would on the circumstances of the particular only be wishful thinking and very seldom In respect of boycott actions aimed at case. lead to a positive result. enforcing the shipowners to employ the crew members on terms satisfying to What to do if faced with a boycott We have several lawyers who are ITF, case law in Norway suggests that warning experienced with ITF actions in Norway insofar as the level requested by ITF is When faced with a boycott warning and they are ready to be of assistance to “reasonable”, such actions are lawful issued by ITF in Norway, our general shipowners and their insurers in case a under the Boycott Act, irrespective of advice would be to enter into a dialogue boycott warning is issued in Norway. whether the individual crew members with ITF to clarify the exact background support the boycott action or not. and motive for the action, and on that FOR MORE INFORMATION, CONTACT: Recent cases from the district courts basis explore the possibilities of avoiding Oslo: indicate that e.g. the level in the ITF a commencement of the boycott. We Trond Eilertsen Standard Collective Agreement exceeds often see that when the complete picture email@example.com, tel. + 47 8 76 1 what is regarded as “reasonable” and is available to all parties, the matter is will not constitute a valid basis for a solved amicably without the need for Gaute Gjelsten firstname.lastname@example.org, tel. +47 8 76 1 boycott action. Also boycott actions court action. However, if court action is with the main purpose of forcing the unavoidable, we will normally manage Henrik Hagberg, crew members to become members to draft and file with the court a request email@example.com, tel. +47 8 75 5 of an ITF affiliated labour organisation for an interlocutory injunction within 1 will normally be regarded as unlawful, to 4 hours, provided we are in receipt Bergen: Knud Lorentzen cf. the Norwegian Supreme Court’s of necessary documentation. What we firstname.lastname@example.org, tel. +47 55 1 5 64 decision in the San Dimitris, reported clearly do not recommend is that the in Rt. 1959 page 1080. In respect of a shipowner remains silent in the futile Richard Bjerk so-called “recovery boycott”, recent case belief that ITF will surrender if they do email@example.com, tel. +47 55 1 5 1 WIKBORG REIN JANUARY 007 19