Tuesday, 2 September 2008

An Introduction to Shipping Law (published in the Obiter Dicta Law Journal)

An Introduction To Shipping Law

Welcome ‘onboard’. 'Shipping' is the physical process of transporting goods and cargo. Virtually every product ever made, bought, or sold has been affected by shipping. Despite the many variables in shipped products and locations, there are only three basic types of shipments: land, air, and sea. This article is concerned with some features of Shipping law, or Maritime law, in the context of the carriage of goods by sea.

The EU is the world's largest trading bloc. Its foreign trade with the rest of the world is more than double the Japanese total and even greater than the US figure. There is no doubt about the strategic significance of shipping for the EU and its Member States. Indeed, about 90% of the EU's foreign trade is carried by sea. About one-third of the goods carried each year between the Member States is carried by sea.

Ships are accorded a nationality, like persons and corporations, and thus subject to the jurisdiction of that nationality. As with all objects of property commanding a certain value and involving a certain risk, co-ownership in ships is a familiar phenomenon. Ownership of a ship in common takes a somewhat unusual form, since each ship is notionally divided into sixty four parts. The origin of this practice has not been definitely established although various theories have been advanced. For instance, it is believed that the custom grew out of the fact that in olden days most vessels had 64 ribs.

A person desirous of trading at sea may charter a ship, purchase one, or have one built specially. Which course he adopts will depend on the state of the market and its future as he foresees it, the probable period during which the ship will be used, the trade in which it is to be employed and the consequent necessity of special equipment. For instance, a record number of new ships are to be delivered in 2009 and 2010 due to an expected increase in demand of coal and iron ore from the Chinese and India economies.

From the earliest days of trading, the character of shipping as a means of transporting goods and passengers, along rivers and across lakes and seas, established this sector as a necessary component in the development of international commerce. As Pamborides put it, 'transportation of goods has mostly been carried out by sea making the conservation of the shipping industry a sine qua non factor for the world's economy.' Let's take the iPod as an example. It's technology is developed in Silicon Valley in California, its parts are assembled in China, and you probably bought it from Currys.digital, an English company. So how did it get there? Answer: In a ship. And with that ship comes shipping law, leading the way.

In a nutshell, shipping law can be divided into two categories: wet and dry. 'Wet shipping' specialises in casualty related work including collisions, salvage, wreck removal, pollution and other environmental issues, hull insurance, actual and constructive total losses and personal injury claims.

For instance, marine salvage is the process of rescuing a ship, its cargo and sometimes the crew from peril. Salvage law provides that a salvor (a person that saves another) should be rewarded for risking his life and property to rescue the property of another from peril. Salvage is a very ancient right, one that can be traced to the ancient Greeks and the Rhodian maritime code of some 3,00 years ago. There are also clear references to it in Roman law and it is referred to in the Laws of Oleron in AD 960; the maritime law of Visby in 1219 (which provided that the amount of the salvage award should be assessed by an arbitrator); and by the 16th century law of Trani (which provided that the salvor should receive half of the value of if the property had initially been afloat, and two-thirds of the value if it had been beneath the sea).

Salvage is not only an ancient right but one peculiar to maritime law. If I see my neighbours’ house on fire and voluntary extinguish it, I am not entitled to any remuneration for so doing. However, if the master and crew of the ship come across another vessel on fire and extinguish that fire, or save it or contribute in saving it from any other danger, they will be entitled to salvage award. The seas can be a very lonely place and even today there are parts of the world where it is not easy to find assistance. Thus in shipping law we find solidarity…

'Dry shipping' specialises in disputes arising out of Charterparties, bills of lading, ship building, sale contracts, finance and insurance. A buzz word often heard in City law firms specialising in Shipping law is "Charterparty". A Charterparty is a contract between merchant and shipowner by which a ship is leased or hired for the conveyance of goods on a specified voyage, or for a defined period of time (called Voyage Charterparties and Time Charterparties respectively). The contract essentially deals with the use of the vessel. The charterer takes possession of the vessel for a certain amount of time or for a certain point-to-point voyage.

In the Voyage Charter, the charterer hires the vessel for a single voyage – say from a port in Portugal to another in Japan - while the vessel's owner provides the master, crew, bunkers and supplies (similar to renting a car with a chauffeur). In a Time Charter, the vessel is hired for a specific amount of time. Essentially, the owner still manages the vessel but the charterer can determine the employment of the vessel, and may sub-charter (i.e. sub-let) the vessel on a time charter or voyage basis. There is a third form of charter called the bareboat or demise charter. This is like a time charter in which the charterer takes responsibility for the crewing and maintenance of the ship during the time of the charter, assuming the legal responsibilities of the owner (similar to renting a car for a specified amount of time). A number of disputes will inevitably arise as a result of different interpretations concerning clauses in the Charterparty. Many shipping disputes are referred for arbitration before arbitrators who will have particular experience (commercial or legal) in the area in question.

The other big facet of dry shipping is finance. Shipping finance is important as commercial ships are expensive to buy. The essence of any ship finance deal is that a bank or some other lender advances money to a shipowner to assist the owner to build a new ship; buy a second-hand ship; convert, repair or alter a ship; or refinance existing indebtedness secured on a ship. The lender must be secured and looks, for his principal (though by no means only) security, to the ship itself. More than most other forms of finance, ship finance is international. Indeed, a ship is an unusual asset. Most ships move – or are capable of moving – all over the world. The financing of large ocean-going ships is undertaken by banks all over the world (and thus spreading the risk), by no means just for owners in their own country. On the contrary, and certainly for larger ships, it is more likely to find a Singaporean bank, acting through its London office, lending to a Brazilian-controlled owning company and securing itself on a Chinese registered ship.

As you may have gathered, shipping law is highly commercial and international. It is a fascinating practice area providing opportunities to combine economic theory to legal and technological practice. Efficient transport networks are integral to a healthy world economy. Effective rules governing these methods of transportation, or the subjects involved in these operations, are essential in ensuring business efficacy and certainty. Arguably, such rules are crucial in keeping international trade afloat and preventing the global economy from falling into an irrecoverable abyss (and I don’t mean the subterranean ocean). In any event, I hope this article has shed some light on a branch of the law that deserves to be studied in greater detail at undergraduate level.

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