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THE COASTAL SHIPPING BILL, 2020

The Ministry of Shipping has published the draft of Coastal Shipping Bill, 2020 and has invited comments, which are to be submitted before 6th November 2020.  

The object of the bill is to consolidate and amend the regulatory framework for coasting trade and other activities in coastal waters of India in line with global best practice and to encourage participation of Indian vessels in coasting trade. This bill seeks to create shipping transportation networks for greater economic growth.

At the moment, the Coastal Shipping in India is governed by Merchant Shipping Act, 1958 which imposed various conditions regarding pollution control, manning norms and other operations which were cost-incurring for the coastal ships. The new bill intends to lower production costs and efficiency in the manufacturing sector.

This proposed act would apply to all vessels engaged in coastal trade including foreign vessels. The proposed act has 29 sections and a schedule.

Section 4 of the bill states that the no vessel other than the vessels registered as Indian ships (Part V of the Merchant Shipping Act, 1958) shall engage in  coasting trade, or the exploration, exploitation, or research, in the coastal waters of India, except under a licence granted by the Director-General under Chapter II of the Bill. This section incorporates the essence of Section 407 of Merchant Shipping Act, 1958 which states that no ship other than Indian Ship or ship chartered by citizen of India shall engage in coasting trade of India except under license provided by DG Shipping. The term “ship chartered by citizen of India” is seen to be omitted.

Section 5 of the bill deals with Conditions of grant license which may include conditions on Citizenship requirements of the crew, build requirements of the vessel and such other requirement DG may consider necessary.

Section 5 states that Director General shall consider whether the applicant has previously held license that was cancelled, violation of any provisions by the applicant, availability of vessels on the route, licenses granted for the same route, safety and security concerns, validity of vessel etc. If the grant of license is made dependent on the availability of vessels on the route, it may be lead to regulations being enacted which would hamper competition in the trade.

Section 8 of the Bill states that all the vessels shall report the ports or ports which it will visit in the course of its voyages, details of goods and passengers and any other information DG may deem fit. This seems to be an additional statutory requirement which the Coastal Traders have to comply with and may prove to be burdensome to the Coastal Traders. Fine upto one lakh may be imposed if the above provision is contravened.

Section 9 of the Bill states that National Coastal and Inland Shipping Strategic Plan which will be developed within two years of the enactment. It would identify new routes and would identify best practises for improvement of coast shipping. This would be effective only if the plan is prepared scientifically. Otherwise, it may lead to public outcry from affected communities such as that of fisherman early this year.

Section 10 of the bill states that a National Register of Coastal Shipping shall be maintained by DG Shipping which would contain details of licenses.

Chapter III of the Bill deals with offences under the Act. It refers to schedule which describes the offences and penalties for those respective offences. Chapter IV provides power to the DG Shipping to make rules.

The Bill appears to be an amendment to the Part XIV of the Merchant Shipping Act, 1958. The hope is that it may give a boost to the Coast Shipping in India which would enable optimal utilisation of India’s vast coast line. However, the increasing state intervention is to be viewed cautiously and sceptically keeping in mind that over-regulation would be counter-productive to growth.

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From Ship Building Agreement to Ship Recycling Agreement – Part III

CHARTERPARTY

Once a ship is built and manned, the next aim would be to put it to commercial use. The main agreements which are involved are charterparty, and ship management agreement.

Charterparty is one of the most required contract in shipping business. Charterparty is nothing but a contract to rent/lease a vessel which is entered between a ship owner and charterer. There are standard forms of charterparty such as that of GENCON, BALTIME etc. These are made the basis for drafting the charterparty.

There are three types of charterparty: time charterparty, voyage charterparty and demise charter which is also known as bareboat charterparty.

Time Charterparty : In a time charterparty, a ship is chartered for a defined period of time. In this charterparty, the ship owner is responsible for the management of the ship.

Voyage Charterparty : In a voyage charterparty, the ship is chartered for a specific voyage. Like time charterparty, the ship owner is responsible for the management of the ship.

Demise Charterparty : In a demise charterparty, the owner only provides a “bare boat”. Hence, it is also known as bareboat charterparty. The vessel may be sub-chartered and the original charterer will be known as disponent owner. Section 11 of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017.

Some of the common clauses are herebelow:

Port of Delivery – The charterparty will specify where and when the vessel will be delivered by the owner to the charterer.

Time of Delivery – The charterparty should state when the vessel will be delivered and from when the hire will be charged.

Time of Redelivery – The charterparty should also specify when and where the vessel, the charterer will redeliver the vessel. A delay in redelivery may incur hire as per the charterparty.

Owners to provide and charterers to provide – The charterparty must lay down the undertakings by both parties and clearly mention their responsibility. It should also mention the consequence of default.

Bunkers : The term in shipping is used to refer to fuel for the vessel. It is the Charterers’ obligation to buy bunkers required for the vessel. The charter should also return the vessel with the same amount of bunkers at the time of delivery. In the alternative, the charterer may buy the bunker remaining on board at delivery port and the owners’ may buy bunkers remaining on board at redelivery port.

Hire : Hire is the consideration paid for chartering the vessel. Owners can withdraw the vessel for default on hire payments. The hire payment can be suspended for duration for certain specified circumstances such as boiler cleaning.

Cargo Space : Agreement that entire carrying capacity of vessel will be at charterers’ disposal.

Directions and Logs : It is the resposibility of the Charter to to provide master with voyage instructions and information and the master and engineers’ responsibility to make voyage logs available to charterers and their agents.

Excluded Ports :Prohibition on charterers from ordering vessel to a place where disease is prevalent or which would be beyond the agreed limits of the Crew Agreement. This is specially relevant in charterparty that are entered during the pandemic.

Lien : The charterparty may state that the owner shall have lien on the cargo for non-payment of hire or any other dues.

Sublet : The charterparty will lay down what are the responsibilities of original charterer if the vessel is on sublet and whether the charter has right to sublet.

Cancelling : The charterparty may provide option to the charter to cancel the charterparty if the vessel is not delivered as agreed. This may be due to delay in delivery or due to seaworthiness of the vessel.

Commission : The charterparty may also mention obligation of parties to pay the charter broker.

These are some of the clauses in a charter party. The clauses in the charterparty will be different depending on the type of charterparty. Apart from these clauses, there will be clauses like boiler cleaning, master’s responsibility and obligations, boilerplate clauses etc.

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From Ship Building Agreement to Ship Recycling Agreement – Part I

There are many agreements that are part of the Shipping Trade. When it comes to the life of a vessel, we can say it starts from an agreement of Ship Building and ends in the agreement for ship recycling. This series of posts briefly covers the agreements which are related to a vessel.

Ship Building Agreement

A Ship Building Agreement is nothing but a simple agreement of sale between a ship builder and a purchaser for building of a vessel and sale of the same. For example, the Cochin Shipyard signed an agreement to build two automated electric ferries from the world’s shipping giant, Norway. In India, it is governed by Sale of Goods Act, 1930. Like any other agreement, it must include the details of parties, consideration etc to be valid.

Description of the Vessel : In the description of the vessel to be constructed, it must clearly state the class of vessel to be built, the dimensions required, guaranteed trial speed, guaranteed fuel consumption etc. Approved plans and drawings of the vessel are also enclosed as annexures/schedules to the Agreement.

Contract Price : With regard to the payment of contract price, it is practical to pay in instalments based on the completion of construction. For example, when Stage 1 is completed, 5% of contract price will be released. While drafting the price clause, attention must be paid to banking charges, fluctuation in currency rates, mode of payment, and change in tax rates. It must also mention the consequences of default of payment by the purchaser.

Representative of the Buyer : A representative will be appointed by the purchaser/buyer in order to conduct time to time inspections.

Warranties : The ship builder provides warranty that any manufacturing defects will be taken care of at his expense. The clause must include when the notice of defect is to be issued and must specify if anything is excluded from the warranty. The builder also indemnifies the purchaser from claims of infringement of intellectual property rights belonging to a third party.

Sea Trial : A sea trial is like a test run for the vessel. After the completion of the construction of the Vessel, a sea trial is conducted. A notice must be issued by the builder to the purchaser specifying date and time of the trial so that the purchaser can make necessary arrangements for attendance of trial by the representatives of the purchasers and other observers. The provision providing the same must specify the weather conditions and such other details under which the trial will be conducted. It must also mention the consequences that will follow if the vessel specifications are not as agreed. Provision can be made for deductions, allowing grace period for any changes or an option to the purchaser to reject the vessel. It also must provide clarity regarding the salary of crew during the sea trial.

Delivery : Once the sea trials are completed, the vessel is delivered to the purchaser. It is necessary to include time and place of delivery in the agreement. It must also include a complete list of documents will be handed over along with the vessel. The contract must also include the remedies available to parties if the vessel is not delivered on date or is not taken possession of the mentioned date.

A point to be pondered upon is regarding the title of the vessel. If the title passes upon delivery of the vessel or from the date of first payment is to be paid attention to. Otherwise, it will create hurdles if any of the parties faces insolvency and is declared bankrupt.

Insurance : The ship building contract must assign responsibility of insurance coverage.

Other clauses which are to be included are force majeure, disputes resolution and indemnities. It is important to pay heed to these clauses as the choice of law and seat of arbitration would be an important consideration when there is a dispute, not just from the legal aspect but also, from the cost management aspect.

There are standard forms of contract such as the contracts of of Shipbuilders Association of Japan, AWES etc., which can be used as the basis for negotiating a shipbuilding contract.

The next post will be regarding Seafarer Employment Agreements/Collective Bargaining Agreement.

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Who is who under the Electricity Act, 2003

The Electricity Act is the statute which governs generation, transmission, distribution, trading and use of electricity in India. It constitutes various authorities for dispute resolution and for regulation. Also, the Electricity (Amendment) Bill, 2020 proposes to constitute a Electricity Contract Enforcement Authority (ECEA).

In this context, it is important to understand who are the different authorities and what are their powers and functions.

Before we delve into the authorities, we need to understand that the main players in the industry are generation companies, distribution licensees and the consumers. Generation companies as the name suggests are involved in generation of electricity. After generation, the next stage is the transmission and then, distribution of electricity which is done by a distribution licensee who operates and maintains a distribution system for supplying electricity to the consumers in its area of supply.

Central Electricity Authority : Part IX of the Electricity Act deals with the constitution, powers and functions of the Authority. This authority promotes research and specifies the technical standards for construction of electrical plants, electric lines and connectivity to the grid. It advises the Central Government on matters relating to national electricity policy for optimal utilisation of resources. They issues regulations regarding construction standards, transaction of business , metering , grid operation, connectivity, safety measures and communication system. They also have the power to require statistics as per Section 74 of the Electricity Act.

Central Electricity Regulatory Commission: There are regulatory commissions which are constituted at the Central and State level. Their main role is to determine tariff. In simple terms, tariff is the price at which consumers buy their electricity. It is not the same price that everyone pays; it changes from category to category. The category may depend upon volume, purpose etc. Fir example, the tariff for a factory won’t be the same as the one for a household. So electricity regulatory commissions play a key role in determining who belongs to which category. The constitution, powers and functions of Central Electricity Regulatory Commission [CERC] is laid down in Part X of the Act. The CERC regulates the tariff for generating companies owned by the Central Government, for generating companies who operate in more than one State and for interstate transmission of electricity. In case, generating companies or transmission licensees have any dispute regarding the tariff so determined, the Authority adjudicates the disputes. It specifies Grid Code having regard to Grid Standards. Grid to put in easy language is an interconnection necessary for transmission of electricity between producer and consumer.

State Electricity Regulatory Commission

There are regulatory commissions formed in states known as State Regulatory Commission. For example, there is a Kerala State Electricity Regulatory Commission in Kerala. The powers and functions of this commission is provided under Section 86 of the Act. It determines tariff for generation, supply and transmission of electricity within the state. It also regulates electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State. They specify Grid code in accordance with the Grid Code specified by the Central Government.

They can adjudicate upon the disputes between the licensees, and generating companies and can refer any dispute for arbitration.

Both Central Regulatory Commission and State Regulatory Commission, can specify the standards with regard to quality, continuity and reliability of service by licensees and fix the trading margins for inter-state trading of electricity, if necessary.

Appellate Tribunal for Electricity (APTEL)

As per the Electricity Act, appropriate commission appoint adjudicating officers as per Section 143 for the purpose of adjudicating as per the Act. Any person aggrieved by an order made by an adjudicating officer under the Act except under section 127, or an order made by the regulatory commission may prefer an appeal to the Appellate Tribunal for Electricity. The procedure for Appeal is provided under Section 120 of the Act. An order passed by APTEL is executable as decree of civil court and has all the powers of a civil court. Any person aggrieved by any decision or order of the Appellate Tribunal, may, file an appeal to the Supreme Court under Section 125 of the Act.

Electricity Ombudsman

As the Electricity Act, every distribution licensee (for example, Kerala State Electricity Board) has to establish a forum for redressal of grievances of the consumers. If the grievance is not redressed by the forum, then the consumer may make a representation for the redressal of his grievance to an authority to be known as Ombudsman who is appointed by the State Commission. So if you are a consumer, then the remedy for you is to approach the forum established by the distribution licensee. If it is not addressed, then the next forum is the ombudsman. If the order of the Ombudsman is arbitrary, it is seen often that the consumers approach the Court under Writ Jurisdiction for redressal.

Proposed Electricity Contract Enforcement Authority (ECEA)

The amendment to the Electricity Act proposes to establish a Electricity Contract Enforcement Authority (ECEA) to adjudicate contractual disputes arising from contracts relating to sale, purchase, or transmission of electricity. It would have no power over any other matter related to regulation or determination of tariff or any dispute involving tariff which is vested with appropriate commissions.

When there is a dispute, it is important to understand which is the relevant authority that can redress the grievance. Sometimes, the regulations by these authorities are challenged on the ground that the authorities do not have the power to issue such a regulation as per the Act.

The developments in dispute resolution in Electricity law would be interesting if the new authority is constituted as proposed by the Electricity Amendment Bill, 2020.

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A to Z of Shipping Law

This post is inspired by Bharath Chugh’s A to Z of IBC. This is not an exhaustive list of words but a quick reference for those readers who are new to the Shipping industry. The attempt is to simplify the terms and make them sound easier than rocket science.

Arrest – Arrest is an order by the High Court under Section 5 of Admiralty (Jurisdiction and Settlement of claims) Act, 2017. In simple terms, it is a direction to a vessel to remain within the territory of the Court and not to sail away till the order is lifted.  A High Court can order for Arrest of a vessel if there is a maritime claim as per Section 4 of the Admiralty Act,2017.

Bill of Lading – Bill of Lading is an instrument which is issued by a Carrier upon receipt of Cargo. It would contain details such as the name of Consignor, Consignee, Cargo details, Port of Discharge etc.

Consignor – Important parties in a bill of lading are the three ‘C’s. consignor, consignee and the carrier. For example, if Ramu is sending a container full of cashew nuts to Shamu through Maersk Line. Then, Ramu is the consignor and Shamu is the consignee. Maersk is the Carrier.

Demurrage– Demurrage is the charge which is imposed on the time taken to unload the Cargo. Usually the Carriers will provide a free period for unloading the cargo and after that the demurrage charges will be imposed on each day as agreed in the bill of lading. For example, the container reaches the Port at Tuticorin on 1 April,2020. The free period is 14 days. From 15th April, Shamu will be liable to pay demurrage charges till he takes delivery of the Cargo and returns the empty container.

Extended Suit time – The carrier and the ship is discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. This time period can be extended for another three months with the leave of the court. The provision is in the Indian COGSA, 1925.

Freight Charges– Freight Charge is the amount paid to the Carrier for the transport of Cargo.

Ground rent – Ground rent is the charge imposed by whoever stores the container till the consignee takes delivery. It can be either the port or the Container Freight Station (CFS).

Hague Visby Rules– Hague visby rules are international rules for carriage of goods by Sea laying down the rights between parties. In simple terms, it is an international version of Indian COGSA. 

Intermodal Transport – When more than one mode of transport is used, it is called Intermodal Transport.

Joint Survey – An inspection of cargo conducted together by the parties when the Cargo arrives in order to record the state of cargo at its destination when there is a damage is called Joint Survey. This report is a key document when there is  a claim arising from damage to the cargo.

Knot – Unit for speed of the ship

Lien – Maritime Liens are Maritime Claims which have priority over other claims. Section 9 of the Admiralty Act, 2017 lays down what are maritime liens. For example, if a vessel is sold, the priority of claims will decide who will be paid first and what will be the amount that is paid. Maritime Liens have higher priority over other claims. Most Maritime Liens expire in one year. 

Maritime Claim – Maritime Claims are claims that arise from transactions with a ship or due to operation of a ship. The list of Maritime Claims are provided in Section 4 of the Admiralty Act, 2017.

Note of Protest – A note of protest is basically a declaration from the party that their conduct will not be considered acceptance. For example, delivery of cargo is taken by paying certain charges. A note of protest is made so that it can be claim for refund can be made later on. A note of protest is also means a declaration under Oath by the Master of the Ship.

Off-hire – Off hire is the period when the hire is not payable as per charterparty.

Port Charges- Port Charges are the charges paid by operators to the Port for using the facilities of Port.  

Quay – It is a platform like structure for loading and unloading a vessel.

Re-delivery – As per the Charter Party, the vessel will have to be returned to the owner at the place decided  agreed between them in the same condition as it was taken. This returning of the vessel is called re-delivery. If there is a delay in re-delivery, it may be included in the Charter period.          

Salvage – Salvage is rescuing of a wrecked or disabled ship or its cargo. There are parties who provided such specialised services and they are called  ‘salvors’.

Time Charter Party – Charter Party in layman terms is like a rent agreement for a ship. Time charterparty is when ship is hired for a fixed period of time. For example, I hire a ship for a period of three months to go around the world to wherever I please, it would be a time charterparty. If I hire the ship to travel from India to Mauritius, then it would be voyage charterparty. In time charterparty and voyage party, the owner has control over the crew and such matters. In a bareboat charterparty, the Charterer steps into the shoes of the owner and manages everything.

Unseaworthiness – Unseaworthiness means that a ship is not fit to be used for a voyage. It is an important concept in Marine Insurance.

Vessel – Vessel is the term used for Ships, yachts, dredgers etc. Admiralty Act, 2017 defines it as “to include any ship, boat, sailing vessel or other description of vessel used or constructed for use in navigation by water, whether it is propelled or not, and includes a barge, lighter or other floating vessel, a hovercraft, an off-shore industry mobile unit, a vessel that has sunk or is stranded or abandoned and the remains of such a vessel.

Way bill – Way bill is similar to bill of lading but it does not confer title. Unlike bill of lading, it is not negotiable. The purpose of way bill is to avoid the delay and need not be presented in original while taking delivery of the cargo.

X Letter – X letter in International Code of Signals means “Stop carrying out your intentions and watch for my signals”.

York Antwerp Rules  – The York Antwerp Rules are a set of rules that outlines the rights and obligations of both ship and cargo owners in the case that cargo must be jettisoned in order to save a ship. Jettison means to abandon a cargo or to discard it. In such a situation, the cargo owner will be the ‘General Average’ which is the compensation. In simple terms, the loss is divided proportionally between all the parties. York Antwerp rules elaborate on the concept of General average.                                         

Zone – The Maritime zones are divided into territorial waters, exclusive economic zone, contiguous zone and continental shelf. The first 12 nautical miles is the territorial waters of India. The Courts in India will have jurisdiction to arrest a vessel only when the ship enters with in this 12 nautical miles.

So these are some of the common terms in shipping and there are many more terms which I have left out, which will be explained in another post some other day.

From Ship Building Agreement to Ship Recycling Agreement – Part IV

SHIP BREAKING AGREEMENTS

Ship Breaking is the process of dismantling a vessel. This is also called ship recycling. Alang in India is one of the biggest ship graveyards. Recently, India enacted the Recycling of ships Act, 2019 which provides for the regulation of recycling of ships by setting certain standards and laying down the enforcement mechanism for such standards.

When the Ship owners decides to sell the vessel for ship breaking, an agreement called Ship recycling agreement is entered into. BIMCO has a standard form of contract called RECYCLON for ship recycling. This standard agreement is drafted in accordance with the the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009.

Some of the important clauses in a Ship Recycling Contract are as below:

Place of Delivery : This clause must make it clear whether the sale is outright or the sale is complete only upon delivery at the ship breaking yard.

Consideration : The Ship Recycling Contract like any contract would contain clauses such as consideration and mode of payment. This clause must make the currency, mode and time of payment clear. The parties may also opt for an escrow account and decide when the amount will be released.

Documents: A ready for recycling certificate has to be obtained from National Authority as per Section 16 of the Ship Recycling Act, 2019. As per Section 19 of this Act, shall give an advance intimation to the Maritime Rescue Co-ordination Centre and the Competent Authority about the date of arrival, clear all port dues, and must keep the ship clear of cargo residues and minimise any remaining fuel oil and wastes on board. The agreement must clearly specify the consequences if there is any default in obtaining such documents.

Encumbrances: The Contract also provides a warranty from the seller that the vessel is from encumbrances and maritime liens. It is to be noted that Maritime lien cannot be exercised on a vessel, once the documents are submitted for the ship breaking as it is considered a dead vessel.

Environmentally Sound and Safe Recycling : The Seller must provide an inventory of hazardous materials and the buyer must provide a ship recycling plan. The Ship Recycling Act, 2019 also lays emphasis on the importance of safe and sound recycling and has introduced various regulations for the same.

Apart from the above clauses, other clauses which are included are dispute resolution, notices etc.

From Ship Building Agreement to Ship Recycling Agreement – Part II

SEAFARER EMPLOYMENT AGREEMENTS

Seafarer is a person who is employed by the ship owner for operation of a vessel such as petty officers, deck cadets etc. A seafarer employment agreement is an employment agreement between ship owner and a seafarer. They are drafted on the basis of Collective Bargaining Agreements entered into between Ship Owners and Unions of Seafarers such as ITF.

Following clauses are to be included while drafting the Seafare Employment Agreement:

It is mandatory to enter into an Seafarer Employment Agreement as per Section 100 of the Merchant Shipping Act, 1958. The Directorate General of Shipping issued a circular (MS Notice 7 of 2020) dated 04 May 2020 providing the guidelines for drafting Seafarer Employment Agreements. This was issued in order to ensure complete effect of Maritime Labour Convention, 2006 provisions for employment of Indian Seafarers.

Following are the clauses mainly found in Seafarer Employment Agreements :

Name and details of the Seafarer : This clause mentions name, date of birth, nationality and address of the seafarer. The agreement should also mention what is the capacity in which the seafarer is to be employed.

Name and details of the Shipowner : This clause mentions the name and address of the Shipowner.

Description of the Vessel : The SEA must mention the Gross Tonnage, type of the ship and the trading area.

Work Hours : The SEA states what are the hours of work and hours of rest.

Wages: Like any other contract of employment, SEA also must clearly laid down what is the agreed consideration. SEA must also include details regarding overtime allowance. Overtime allowance can be paid as a lumpsum amount or on the basis of actuals.

Period onbaord : The SEA must mention the period for which the Seafarer is employed. Maritime Labour Convention (MLC), 2006 states that the maximum continuous period that a seafarer should serve on board a vessel without leave is 11 months. The Ship owner must arrange for crew change at agreed periods.

Leave Policy : SEA must lay down the leave policy. National Holidays are to be taken into consideration.

Contributions : Contribution to the Seafarers Welfare Fund Society and Seamen’s Provident Fund Organisation. These contributions cannot be deducted from the wages.

Benefits: The SEA states what are the benefits available to the seafarer in the form of disability compensation, death compensation, sick wages and sick leave . The amount so mentioned shall not be less than that provided under Collective Bargaining Agreements. The above mentioned circular states that death and disability compensation for trainees shall not be less than ten lakhs.

Legal Support : The SEA shall specify the Ship owner’s liability for providing legal support to the seafarer in the event the seafarer is stranded, detained or arrested during the course of employment.

Repatriation : The SEA must clearly lay down the entitlement of seafarer for repatriation. This clause must also mention circumstances which are exempted from Ship owner’s liability.

Liabilities of both parties : The SEA must mention that the Ship owner is to provide clean and living condition for the seafarers along with food and water. The seafarers guarantee that there shall be no omission or negligence in the performance of duty.

Termination : The SEA must lay down what is the notice period for termination of SEA.

Apart from the above clauses, the SEA includes the date and time of agreement like any other agreement. SEA will also contain jurisdiction and governing law clause, disciplinary procedures, grievance redressal procedures etc.

Grenada Private Power Limited vs. GRENADA

I recently authored the case summary of Grenada Private Power Limited and WRB Enterprises, INC v. Grenada (ICSID Case No. ARB/17/13) in TDM IACL. The Award examines an issue of occurrence of ‘Repurchase events’ and is definitely, an interesting read. A brief summary is here below:

In 1994, Government of Grenada privatised GRENLEC and sold a controlling interest in GRENLEC Grenada Electricity Services Company Limited to the claimants. The privatization package included a Share Purchase Agreement signed between the Respondent and the Claimants which provided that upon the happening of a “Repurchase Events”, the Claimants would have the right to “put” their shares to the Government of GRENADA(GOG), and the GOG would be obliged to repurchase them at a price calculated in accordance with the Second Schedule of the 1994 ESA. Twenty-two years later, the incoming NNP Government decided to restructure the electricity sector through sweeping changes to its regulation, production and distribution. The result, the Claimants say, was to trigger an obligation on the part of GOG to repurchase the Claimants’ shares in GRENLEC. The Claimants put their GRENLEC Shares to the GOG for repurchase, claiming compensation of EC $182,100,000, pursuant to the statutory valuation formula in the Second Schedule. Claimant brought an action against rejection of any obligation to repurchase the shares and refusal to pay the claim.

Read the Case Summary in detail here.

Lockdown: Release of Cargo without Claiming demurrage

All over India, various Courts are occupied with the question Whether the Shipping Lines are entitled to claim demurrage for the period of extended lockdown. There are Applications under Section 9, Arbitration and Conciliation Act, 1996 filed in High Court of Delhi, Writ Petitions filed in High Court of Kerala and other Courts are also deciding on the same. It is safe to say that the General tendency of Court is not to grant a waiver of demurrage on the basis of High Court of Delhi’s refusal to provide a relief under Section 9 and High Court of Kerala’s refusal to provide a waiver in a similar writ petition. The case of Rashmi Cement Ltd. vs. World Metal & Alloys is a quick and comprehensive read to understand the dispute between importers and shipping Lines. The case is briefly summarised here below:

On 18.06.2020, the High Court of Delhi in Rashmi Cement Ltd. vs. World Metal & Alloys (FZC) and Ors. dismissed  an application filed under Section 9 (Arbitration and Conciliation Act, 1996) which was filed in order to seek release of cargo without claiming any demurrage. The Claimant contended the delay in having the cargo discharged was a direct consequence of the national lockdown and the sudden and unexpected suspension of all commercial establishments and transport services due to lockdown constituted a force majeure event as per the contract between the parties. The respondent contended that it was open for the petitioner, who was always aware of its own contractual liability for payment of demurrage, to take delivery of the cargo if it so desired and force majeure is not applicable in the present situation.  The Respondent relied on M/s. Haliburton Offshore Services Inc. Vs. Vedanta Limited & Anr. OMP(I) (COMM.) 88/2020 and M/s. Polytech Trade Foundation Vs. Union of India & Ors. WP(C) 3029/2020, wherein the Court, while dealing with a similar plea by a petitioner claiming exemption on account of the same circulars on which the petitioner is seeking to rely, found the same to be wholly misplaced by holding that these circulars were merely advisories and could not exempt parties from performing their obligations under a valid contract.

After hearing the parties, the Honourable Court found that applicability of Force Majeure clause cannot be decided in the abstract and has to be decided after an examination of the facts and circumstances of each case. Mere difficulty in performing the contractual obligations cannot be a ground for invoking a Force Majeure Clause and it has to be decided in the Arbitration.

The Petitioner prayed that the goods may be released on the furnishing of Bank Guarantee. The Court held that it is only when, in the opinion of the Court, the party seeking interim reliefs under Section 9 of the Act satisfies the three pronged test for grant of the same, viz., prima facie case in its favour, balance of convenience in its favour and, most importantly, that it would suffer irretrievable injury unless such relief is granted, that interim protection is granted under this provision and these requirements are not met by the Petitioner. Even the petitioner’s offer to furnish a bank guarantee in exchange for payment of demurrage, is not a convincing ground in support of its case considering that the liability of paying demurrage has been placed on the petitioner under the express stipulations of the contract between parties.

The Court held that it would not be fair to direct the respondent to await conclusion of arbitration to receive demurrage as per the contract. This Court has to respect the sanctity of the contract signed between the parties and cannot, at this stage, permit demurrage payment to be substituted with a bank guarantee of the same amount, when the contract does not provide for it.

Thus, the Court dismissed the application with a direction stating that in case it were to be held in the arbitration proceedings that no demurrage was in fact payable by the petitioner or it turns out that the vessel owner is exempted from the liability of paying demurrage, the amount paid by the petitioner to the respondent by way of demurrage would be refunded with interest at a rate determined by the learned Arbitrator.

The Courts denial to provide a waiver without detailed hearing is welcoming as the financial crunch it would have caused would have resulted in adverse effects on the global supply chain. It would be interesting to see how the Arbitrators and Courts decide the question of Force Majeure.