Wednesday, August 3, 2016

Wages of Crews not paid for 6 to 12 months or Slavery?

Came across this interesting article about “Slavery at Sea” which rekindle an event that happened more than 30 years ago where I was brought into the fray of identical situation. Would have thought that in this modern age of 2016, such incidents was a thing of the past.

This is my story.

Arresting a vessel via “in rem” action to compel payment of crew wages can be an easy and quick process. You peruse the evidence, consider the merits, watch the time bar, get all the relevant crews to sign affidavits and what-not, obtain information on the vessel and its whereabouts (though not as expeditious as present day). File the necessary court papers.

Sunday, July 10, 2016

Sea transportation and installation of FPSO topside modules – Legal Risk Shifting and Ideal Contractual Position for Owner

Written by David Seah, LLB London 
Managing Partner,


One of the significant activity during an FPSO conversion project is the fabrication, delivery and installation of the topside modules (“modules”) onto the deck of the FPSO. Apart from the installation which is normally within Shipyard’s scope, the fabrication and delivery could be undertaken by the Shipyard, Modules Fabricator or the Owner.

If the modules are fabricated outside the Shipyard by other Fabricator (locally or overseas) and Owner arranges for delivery of the modules from Fabricator’s yard (Point A) to the FPSO (at Point B) via sea transportation, the sequent of operation will basically be as follows:

Module Fabricator fabricates and conveys the modules to the wharf at its yard.
Floating Crane lifts modules from the said wharf and load them unto a barge.
Lashing and sea-fastening of the modules on the barge.
Tug boats tow the barge from Point A to Point B.
Upon arrival at Point B, barge crew unweld seafastening and prepare for offloading.
Floating Crane lifts modules in sequent onto the FPSO.
Shipyard installs the modules.

(Note: All the above activities must be approved by Marine Warranty Surveyor as per their requirements).

Key players in such an operation will comprise the Owner, Marine Warranty Surveyor, Modules Designers, Modules Fabricator, Heavy Lift Consultants, Floating Crane, Barges & Tugs and Shipyard. Their respective work scope are summarised below:

Prepares operation plan, method statement and risks assessment – Arrange insurance - Contract for services of heavy lift consultants, marine warranty surveyor, barge, towing tug and floating crane - Obtain and disseminate required information to relevant parties – Plan and Select the operation date – Coordinates and monitors the operation.

Marine Warranty Surveyor (MWS)
Provide MWS requirements - Conduct suitability survey of floating crane, barge and towing tugs - Review and approve documents or certificates (prior and during operation) for load out, transportation and offloading/installation of the modules, rigging and lifting arrangement -  Site inspection of preparation for load out, lifting, barge departure - Approves commencement and certify conclusion of Operation.

Modules Designer
Designs the modules - Provide structural analysis of modules’ lifting condition (using updated weight, centre of gravity and table of components) - Update structural calculation of modules eye plates for necessary modifications.

Modules Fabricator (MF)
Fabricates the modules - Provide quayside layout, bathymetric survey report for the loadout area, tidal table, method statement and risk assessment - Updates details of the modules - Supply manpower - Assists in rig up - Provides forklift and other necessary equipment – Brings modules to its yard quayside.

Heavy Lift Consultants (HLC)
Provides design and calculation for rigging design, lifting, loading, mooring, ballasting, stowage, stability, grillage, sea-fastening and deck strength check.

Floating Crane (FC)
Provides floating crane, spreaders, rigging and lifting arrangement plan (together with vessel registry, insurances and relevant certificates).

Barge/Tugs Owners (BT)
Provide engineering, documentations, method statement and risk assessment - Prepare and provide barge(s) and tug(s), sea transportation, pilotage, sea fastenings, manpower, loading and offloading operations - Produce vessel registry, insurances and relevant certificates.

Shipyard (SY)
Provide quayside layout - Ensure that FPSO is ready to receive modules - Clear obstacle or interference on deck and ensures lifting guides are in place - Provide equipment and tools for final adjustment of module alignment - Provide hot work and other permits, logistics, manpower, cranes and weather information - Obtain maritime authorities’ approval and provide other assistance.

Legal Risks

Although there is no unanimous definition of the term legal risks, the International Bar Association, has referred to the term as a risk of loss to an institution that is primarily caused by: Defective transaction - Claim, defense or counterclaim that results in a liability for the institution or other loss - Failure to take appropriate measures to protect assets owned by the institution and - A change in law.

In the context of this Paper, legal risks shall mean risk of loss to the Owner cause by contractual or maritime issues arising from the operation. 
Owner could manage such risks by shifting them to either the Shipyard or the Modules Fabricator in order of precedence as follows:

-              Shipyard fabricates, delivers and installs the Modules.
-              Shipyard delivers and installs the Modules
-              Modules Fabricator fabricates and delivers the Modules.

Alternatively, if Owner assumes responsibility for the fabrication and delivery of the modules as per paragraph 2 above, they could still diminish those risks by negotiating and attaining an ideal contractual position as underlined below in their contracts with the key players. 

Suspension of Work
Key player suspend work due to disagreement over disputed invoice or “eleventh hour” questionable variation claim – All disagreements shall be resolved in accordance with relevant contractual dispute resolution provisions. There shall be no contractual right to suspend work except for non-payment of outstanding undisputed invoice, safety concern or by judicial or governmental orders.

Termination for Convenience
Owner’s clients exercised its contractual right to terminate the FPSO Conversion contract for convenience and there is no corresponding right between the Owner and key players. Any purported termination of contract without cause with any key player will be a breach of contract – In all contracts with key players Owner must have the right to terminate the contract for convenience, subject to prior agreed compensation arrangements.

Modules are detained due to exercise of lien. Disruption and delays impact with litigation looming - All Parties and subcontractors of any tiers shall waive or have no right whatsoever to place any lien on the modules or FPSO. Where a lien is attached, relevant counterparty must inform the Owner immediately and take steps to release the modules promptly.

Damage to Property/Injury Death or Disease
No knock for knock indemnity provisions. Owner potentially subjected to protracted and multiple legal suits - All contracts with key players must comprise reciprocal indemnity clause where the parties indemnify each other, regardless of fault for (a) damage to their own property (and those of their own subcontractors) and (b) personal injuries, disease or death of their own employees and those of their subcontractors.

Third Party Liability – At law

Inadequate Insurances or no waiver of subrogation rights. Potential paper judgement against counterparty as they becomes insurers themselves - All Parties must carry the following insurances as listed in Appendix – of the Contract.

Title to the modules not addressed. If MF becomes insolvent, Owner will be forced into litigation with local Liquidators or Receivers. Depending on the lex situs, possession of the modules may be protracted or impossible. Owner will rank as unsecured creditors - Title to the Modules shall remain with the Owner at all times.

Ethical Business Practice
In the event of bribery or corruption allegations, Company and project personnel may be detained and subject to prolonged criminal investigation – Project manpower depleted – Owner’s client or Innocent party may cancel the contract – Anti bribery/corruption provision must be included in all contracts with key players.

Access to Yards
No express access rights to MF yard and SY. Relevant yards may delay or impose unreasonable conditions for access - MF and SY shall grant access to key players and their representatives or employees with reasonable conditions agreed to by Owner.

Maritime and Regulatory Risks

Arrest of Vessels - Vessel arrested and no contingency for avoidance or immediate release. The Operation will be jeopardized and Owner forced into protracted litigation and required to provide bank guarantees for release of the modules - FC and BT must warrant that its vessel is not subject to any arrest. If their vessels are arrested, they must take steps or provide financial security to secure its release immediately. Such situation shall be deemed a non-permissible delay event at FC or BT’s expense.

Certificates, Permits & Approvals - Operation will be stop or suspended if these documents are not available - Key player must procure or furnish all relevant permits, certificate and approval timely.

Non-Compliance with Marine Warranty Surveyor’s Requirements - Operation cannot proceed without approval from MWS. Breach of insurance conditions and possibly state safety regulations - All Parties must comply strictly with MWS’s requirements and directions.

Wharf and Port Limitations – No local Maritime Port Authority approval for use of SY and or MF sea front and its quayside for the Operation. The Operation delayed or aborted - SY and MF sea front and its quayside must be approved by relevant Maritime Port Authority for such operation. This must be verified during pre-qualification and included as a contractual term and representation.

Floating Crane, Barge & Tugs - No local Maritime Port Authority approval for sea passage to/from either MF yard or SY. The Operation is hindered or aborted - Owner’s Shipping Agent, FC and BT must confirm that the vessels will be allowed by local Maritime Port Authority to have free passage to either MF yard or SY.

Some Practical Insights

Even though the above represents an ideal contractual position, some counterparties may not agree to all of them if Owner is negotiating from a position of weakness. Examples:

Amateurs negotiating on behalf of Owner.

Negotiations with FC and BT conducted at a very late stage, when market demand for the required vessels are high or when availability of suitable vessels, especially floating crane, are limited. In the latter situation, FC Operators may even insist on onerous contractual conditions - refusal to acknowledge suitability of their crane for the operation, insist on full payment well in advance of the operation, require that any unanticipated expenses shall be at Owner’s account and refuse to agree to knock for knock indemnity provision.

Hence, tenders and selection of FC and BT should be conducted well before the operation date and its contracts negotiated by experienced professionals.

Legal Contingency

Consider this, if the modules are detained unjustifiably during the operation (locally or in foreign location), what are the options available to Owner?

Have external court lawyers of relevant jurisdiction intervene immediately or start to source for one. The answer is obvious - instead of leaving matters to chance, Owner should retained external court lawyers on standby during the operation to provide timely respond to legal issues.

Lastly and where relevant, an item that may be worth exploring relates to contingency for maritime piracy. 

Friday, May 27, 2016

Drilling Rig Hire Contract - Are wasted spread costs considered “consequential losses” within the context of a contractual exclusion clause?

Transocean Drilling UK Limited v Providence Resources PLC [2016] EWCA Civ 372.

Transocean (Owner of the rig ‘GSF Arctic III’), entered into a drilling contract with Providence for the hire of a semi-submersible drilling rig. The contract was based on a standard industry agreement ‘LOGIC’ form, with agreed adaptions. There was a loss time of over 27 days due to defects in the rig and also a further 10 hour’s delay because of failure of a crew to tighten a blanking plug properly.

Consequently, there were various disputes between the parties pertaining to remuneration payable to Transocean in respect of what became known as the ‘disputed period’. Providence claim against Transocean for spread costs, comprising the costs of personnel, equipment and services contracted from third parties, which it alleged were wasted as a result of the delay.

At first instance, Mr Justice Popplewell (“the Judge”) held that Transocean was in breach of contract and that Providence was entitled to recover the spread costs. Transocean’s appeal against the latter part of the Judge’s decision as they content that spread costs was excluded by virtue of Clause 20 of the contract.

Clause 20 - Clause 20 defined Consequential Loss as “ . . . loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption . . . “.

The closing paragraph of Clause 20 (ii) sub-paragraph 3 provide that the each of party was to “save, indemnify, defend and hold harmless” the other for its own consequential loss.

The Court of Appeal (“CA”) had to decide whether wasted spread costs incurred by Providence as a result of Transocean’s breaches of contract are “consequential losses” within the meaning of clause 20”.