3. NAVIGATING THE CHALLENGES IN 2007
The 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 Bjørnstad
Leader of Wikborg Rein’s
Shipping Offshore Group
WIKBORG REIN JANUARY 007
4. HOW WILL THE MARKET RESPOND TO
THE EU’S ABOLISHMENT OF LINER
CONFERENCES?
The EU Competitiveness Council decided on 25 September 2006 to repeal
Regulation 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 carriers
to meet in conferences, fix prices and regulate capacities on routes to and from
the 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 structure
In 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
5. 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 krl@wr.no
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 lto@wr.no
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 ome@wr.no
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 bme@wr.no
WIKBORG REIN JANUARY 007 5
7. 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
hsl@wr.no
damage 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 awf@wr.no
of 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
8. NORWEGIAN NET CLOSES ON
SUBSTANDARD SHIPS
In support of international initiatives to eliminate substandard shipping the
Norwegian Parliament is expected to enact new legislation proposed by the
Ministry of Trade and Industry enabling Norwegian marine insurance companies
to exchange information on substandard ships with other insurance companies,
classification societies, flag state authorities etc. without the approval of the
insured.
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 proposal
discovered 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
10. ASSIGNMENT OF CONTRACTUAL RIGHTS
- LEGAL AND LINGUAL CHALLENGES
A consequence of the international aspect of shipping and ship financing is that a
number of contracts and related documents are drafted in English. This can often
lead to confusion between the parties involved due to different interpretation of
terms 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 of
or to receive refund to its financing bank as security for his security
obligations 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
12. ENFORCING FOREIGN JUDGEMENTS IN
NORWAY
International business transactions inevitably result in situations where individu-
als and companies experience disputes having to be solved by the courts in other
jurisdictions than their own. Often there is a need to enforce the judgement in a
country other than the country in which the court is situated, in particular if the
debtor 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 enforceability
Recognition 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
14. 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
15. 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 heh@wr.no
average 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 ggj@wr.no
gross 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 carrier
under the 1996 Protocol approximately In most jurisdictions, the contractual
WIKBORG REIN JANUARY 007 15
16. LIABILITY REGIMES IN OFFSHORE
CONTRACTS - CONTRACTORS BE AWARE!
Offshore contracts include a variety of services, such as construction or modification
of offshore installations, drilling and sub-sea installation of pipelines. The contracts
often involve complicated high risk offshore operations. Damage or delay can have
enormous financial consequences. It is therefore important to consider carefully the
agreed 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 liability
proposing 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 limitation
closely 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 col@wr.no
to well and reservoir due to the fact that Third party liability
it 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 jhe@wr.no
without 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
17.
TAx INCENTIVES FOR ESTABLISHING
BUSINESS WITHIN THE EU
The combination of Norwegian tax law and developments in EU tax law favours
establishment of business in the EU. Some EU member states like Cyprus and Malta
offer favourable tax conditions for certain types of businesses and may be interesting
alternatives 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
miv@wr.no
nor 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
pbr@wr.no
dividends – 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
18. ITF ACTIONS IN NORWAY
Many shipowners around the world, especially those with vessels flying so-called “flags
of convenience” (“FOC”), have faced the brutal reality of actions by the International
Transport Workers’ Federation (“ITF”) in the form of boycott actions. Several of the
Norwegian maritime unions are affiliated with ITF and regularly undertake actions in
Norwegian ports on behalf of ITF. This article addresses some important features under
Norwegian 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 or
and 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
19. 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 tei@wr.no, 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
ggj@wr.no, 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 heh@wr.no, 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 klo@wr.no, 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 rbj@wr.no, tel. +47 55 1 5 1
WIKBORG REIN JANUARY 007 19
