1/ Michael, you are the Managing Partner at HFW Switzerland and a Shipping and Trading Specialist Solicitor. What messages will you give delegates when you speak at the GrainCom24 Geneva conference in May?
I will discuss market disruptions, sanctions, navigating the rapidly evolving risk environment, and the challenges and opportunities posed by electronic bills of lading.
I will say it’s an exciting time to be in commodities and trading in general. We’ve seen significant supply chain disruptions in the last 3 or 4 years, but tremendous opportunities lie ahead. I’m upbeat about the industry and where we’re heading. It will be challenging, but traders thrive in demanding environments.
Geneva is one of the primary hubs for commodity trading. We are in the heart of the global community, and long may it last.
Traders sometimes get bad press, but Geneva and Switzerland are lucky to have traders. The Swiss like to speak about chocolate and watches, but trading and shipping account for about 3.5 per cent of the Swiss GDP and 20 per cent of Geneva’s GDP. It’s a thriving industry with a great future.
The bonuses and the profits we’ve seen in the trading industry here in Geneva have been eye-watering, but disruption plays to a trader’s strength. Traders thrive on volatility.
2/ What legal lessons can we learn from three recent events: the Russian invasion of Ukraine, the attacks in the Red Sea, and the Baltimore Bridge collapse?
When Russia invaded Ukraine, we had a wave of contract defaults where parties on either side tried to argue force majeure – sometimes successfully, sometimes unsuccessfully. We’re still seeing the consequences. Clients have vessels stuck in Ukraine and are fighting with insurers to recover what’s owed under their policies.
The legal lesson is that you must look at your contractual arrangements. War is not a case of force majeure in every case. Force majeure clauses have an event trigger in the case of war, but it has to be in the contract. If it isn’t, you can’t claim it.
The Red Sea has taken the industry by surprise. The Houthis control a vast area in Yemen and are highly organised. All vessels are potentially now at risk in the area.
Owners will only go through the area if the charterer agrees to pay extra war risk premia. Traders can choose between paying the additional freight cost via the Cape or the extra war risk premia of going through the Red Sea.
But it is not a straight choice. An interesting case was published in the UK Supreme Court earlier this year. Pirates hijacked the Polar in 2010, and the owners paid a ransom in excess of the payout the insurers were obliged to pay.
The court grappled with whether the excess was for the charterer’s or owner’s account. The charterers argued they shouldn’t pay the excess, but the court disagreed. It ruled that charterers are liable for General Average (GA)* contributions if they want to go to that region. Under GA, the charterers are liable for an excess over and above the insurance cover.
I can’t say much about the Baltimore Bridge incident because the case is still under investigation.
One general comment: a liability regime does apply, and owners are responsible for their vessels. They can probably limit liability, but they can also be exposed to claims from the state, such as the cost of rebuilding the bridge or the cost of any delays.
The question of liability will turn on what caused the accident. Was it a fortuitous event? Was it caused by the owners’ fault, neglect or want of due diligence to make the ship seaworthy? Were the crew negligent?
Incompetence is not a defence, but negligence is. The owners must recruit a competent crew and update them with the various regulations and training obligations. But if they’ve done that, they are not liable even if the crew is negligent on the day.
This reminds me of a case I handled a few years ago, known in the press as the Philippine boxing incident. In that incident, a vessel ran aground and discharged a cargo of coal on a coral reef. We successfully pleaded negligent navigation, as most of the crew were watching a boxing match on their mobile phones. They had left a junior crew member on the bridge to navigate the ship, and he ran into a coral reef.
3/ What is the difference between maritime law and commercial law?
Most English contract law is based on shipping precedents and principles. England ruled the waves for over a hundred years, and many commercial counterparties prefer to deal on English law terms.
There are some differences. A Bill of Lading is a document that ship owners, traders, and banks know well and use daily. Still, the legal aspects of the Bill of Lading are currently being fought over in the English courts. The legal implications are pretty specific to the shipping business.
So, the answer to your question is that maritime law is mainstream but has some narrow and niche aspects.
4/ What hot maritime and commercial law issues will you raise at the conference?
A series of significant frauds has led to claims under the Bill of Lading against the ship owner for missed delivery.
As a result, people are seriously speaking about moving to electronic bills of lading. They are a hot topic. The UK passed the Electronic Trade Documents Act in 2023, and we hope people will embrace the technology.
Commodity price volatility has been high, encouraging people to default on contracts. For a firm like HFW, these market disruptions have played to our strength as we specialise in disputes.
Sanctions are another hot topic. We have a specialised team dealing with them, and they have been flooded with requests. Can we do the deal? Can we finance this deal? Or, sometimes, can we get out of the deal?
5/ What advice would you give a physical grain trader starting their career, apart from reading the contract?
Challenge is a good thing. When you face a challenge, your life crumbles, and you have sleepless nights, but it’s an experience; you will learn from it and become stronger. So, don’t give up hope and remain positive.
Shipping and trading are challenging sectors, but they are full of opportunities. Never sit back on your laurels. Reinvent yourself daily. Get up early and catch the day.
Note
* General Average is a principle of maritime law that essentially establishes that all sea cargo stakeholders (owner, shipper, etc.) evenly share any damage or losses that may occur due to voluntary sacrifice of part of the vessel or cargo to save the whole in an emergency. (Source)
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