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Shipowner of “Win Win” secures CTL win against insurers in Indonesia ‘illegal parking’ case

Master of “Win Win” in February 2019 was ordered by Owners to anchor outside port limits, Singapore to await bunkers/orders when Indonesian authorities detained ship.

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Andrew Bicknell, Partner, Clyde & Co (Singapore)

Delos Shipholding SA, the owner of bulk carrier Win Win, on 25 March 2024 secured a constructive total loss (CTL) win under a War Risks Policy against its group of insurers at the English Commercial Court.

The shipowner was entitled to recover the USD 37.5 million agreed value of the vessel, and further claims estimated at USD 235,900 in respect of sue and labour expenses.

The Indonesia “illegal parking” case started in February 2019 when the Master of Win Win was ordered by Owners to anchor outside East of Singapore Port Limits (EOPL) to await orders after receiving bunker fuel at the republic, informed Andrew Bicknell, Partner, Clyde & Co (Singapore).

Bicknell was presenting his findings ‘When illegal parking causes a Constructive Total Loss’ to delegates at Clyde & Co’s Asia Pacific Conference 2024 on Wednesday (29 May).

The following details were extracted from his presentation.

Factual background

The Singapore EOPL anchorage, partly in international waters and partly in Indonesian territorial limits, had been used by hundreds if not thousands of vessels for many years without issue.

Because it was a customary anchorage, neither Master nor Owners considered territorial limits though the vessel was anchored within the Indonesian 12 nautical mile (NM) limit. A sudden change of approach by Indonesian authorities, however, resulted in 20 vessels including the Win Win being detained in EOPL.

The Owners, their club and local club correspondents became involved in discussions with Indonesian authorities to see whether a payment would be made to the authorities in order to release the vessel.

Negotiations ended in April 2019 when it became clear beyond all doubt that any payment would be in the nature of a corrupt payment.

From August 2019 onwards the Owners of Win Win claimed a CTL under their War Risks Policy; War Risks insurers reject Notices of Abandonment.

Vessel was released after nearly 12 months, and the Master was given a seven-month suspension sentence and a USD 7,000 fine.

Owner’s claim under the policy

Under the policy written on American Institute War Clauses, a CTL could arise after six months of vessel detainment.

Following failure of negotiations with Indonesian authorities, a Notice of Abandonment was given by Owners to the insurers in August 2019 and a further notice was served to include the mortgagee bank which was the loss payee under the policy.

All notices to insurers were rejected, and Owners brought proceedings in Commercial Court in London.

Insurers’ defences under the policy

  • Fortuity
    • Insurers accepted that (subject to other Defences) if a fortuitous event had occurred the policy criteria for a CTL had been met. However, insurers argued that because the Master and Owners had voluntarily chosen an anchorage within Indonesian territorial waters without permission, there was no fortuity when the Indonesian authorities decided to detain the vessel.
  • Exclusion (e)
    • The Policy excluded claims resulting from or incurred as a consequence of:
      “Arrest, restraint or detainment under customs or quarantine regulations and similar arrest, restraints or detainments not arising from actual or impending hostilities.”
    • Insurers argued this exclusion applied to the actions of the Indonesian / Navy in enforcing Indonesian sovereignty.
  • Sue and Labour
    • Insurers alleged that Owner’s discussions with Indonesian authorities amounted to a failure to sue and labour.
    • Insurers alleged Owners knew they were getting into a discussion with the Navy for corrupt payments and all they achieved when they withdrew was to alienate the Indonesians.
  • Non-disclosure
    • Insurers allege that Owners’ failure to disclose that the sole nominee shareholder of the owning company (Vangelis Bairactaris – a Piraeus shipping lawyer) had been charged in connection with unrelated alleged drug smuggling activities of well known Greek shipowner Evangelos Marinakis, amounted to material non-disclosure.

The judgement

Finding that the Owner’s claim for a CTL succeeded, the Judge ruled as follows:

  • Fortuity
    • There was no wilful misconduct in anchoring where the Vessel did and there was no active choice by Master / Owner to anchor inside territorial waters and the arrest and subsequent detention of the Vessel was not in the ordinary consequence of that conduct or from the ordinary incidents of trading. Accordingly, the loss was fortuitous.
  • Exclusion (e)
    • The Judge said the test was to ask whether the object and purpose of the arrest was similar to the object and purpose of an arrest under either customs or quarantine regulations. The Judge found there was no such similarity. Rather the arrest of Win Win and the other vessels was prompted by a change of policy on the part of the Indonesian government to assert sovereignty. Accordingly, exclusion (e) did not apply.
  • Sue and Labour
    • The Judge emphasised the challenging and possibly dangerous situation faced by the vessel and the difficult choices faced by the Owners.
    • The Judge considered it quite proper for the Owners to rely heavily on the advice of their P&I Club and to appoint Indonesian lawyers.
    • The sort of informal discussions that then took place were permissible and common practice. The only possible way to secure early release would have been through a discretionary route.
    • When it became “pellucidly clear” that the proposed payment would not be possibly be legitimate, Owners called an immediate halt to this activity:

Accordingly, I find the Claimants were not in breach of their duty to sue and labour as alleged. Other prudent uninsured might have pulled the plug on discussions sooner, many others I suspect would not.

  • Non-disclosure

The Judge was not at all sympathetic to this argument; and

  • Accepted the evidence of Mr. Bairactaris that he was solely involved to facilitate the signing of transactional documents quickly when required. He was discharging an administrative function.
  • Bairactaris was not involved in the vessel’s insurance.
  • Found that insurers failed to prove that any of the Claimants either knew or ought to have known about the criminal charges and therefore there was no breach of fair presentation.
  • This disposed of the Defence of non-disclosure but for those interested, the Judge went on to consider issues of inducement as an academic exercise.

Note: A link to the full 111-page judgement can be found here: https://caselaw.nationalarchives.gov.uk/ewhc/comm/2024/719

Related: IFC shipping advisory: Illegal anchoring by merchant ships in east of Tanjung Berakit, Indonesia
Related: Indonesia: Naval officers allegedly asked for USD 375,000 to release oil tanker “Nord Joy”

 

Photo credit: Clyde & Co
Published: 5 June 2024

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Legal

Interview with a Helmsman: Issues regarding bunker trader employee movement

Matthew Teo, Director, Head of Employment at Helmsman LLC, answers questions on privileged knowledge, non-compete clauses, non-solicitation, payment during garden leave, and more.

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Bunker trading firms are part of the marine fuels supply chain. When a bunker trader starts representing their company, they usually gain access to privileged information and industry contacts as part of their line of work; this is especially so for senior staff.

Marine fuels publication Manifold Times is privileged to have Matthew Teo, Director, Head of Employment at multi-disciplinary law firm Helmsman LLC, answer questions relating to staff movement.

Employment law is one of Matthew’s areas of specialisation. He often advises on restrictive covenants, contentious terminations of employment and non-contentious aspects such as drafting employment contracts and disciplinary policies. Matthew also acts regularly in employment disputes in Singapore.

MT: How should employment contracts within bunkering firms be structured where privileged knowledge is kept within company walls even when a trader leaves?

Employers generally utilise a mix of contractual obligations placed on employees in order to protect confidential trade information. There are normally confidentiality clauses and restrictive covenants (e.g. non-competition and non-solicitation clauses). However, these are not a panacea. In reality, it is difficult to police and prove breaches of confidentiality clauses. Similarly, restrictive covenants are, by default, unenforceable unless they meet certain criteria.

For more effective protection, employers should consider segregation of confidential information within the company and ensure that only people with a “need to know” are granted access to such information. Employers can also implement data loss policies and measures to monitor and track unauthorised download of confidential information. For example, if a trader resigns, the employer should immediately cease the trader’s access to the company’s confidential information.

MT: Regarding non-compete clauses, what are employer’s and employee’s rights on enforceability of ex-traders joining competitors?

The default position is that as a matter of public policy, non-competition clauses are unenforceable unless they protect a legitimate proprietary interest of the employer and are reasonable.

In recent cases in 2024, the Singapore courts have taken a very strict approach towards analysing non-competition clauses and held that confidentiality clauses which are premised on the protection of confidential information or trade connections are unenforceable where the employment contracts also contain confidentiality and non-solicitation obligations. There has been some academic discussion as to whether this approach is correct but this remains the current status of the law until the Court of Appeal of Singapore decides otherwise.

This is not to say that non-competition clauses will always be deemed unenforceable. Much will depend on the extent of the particular circumstances of each case and the ambit of the clause.

MT: On the topic of non-solicitation, can a former employer stop ex-traders from trading with previous customers even when bunker trading is such a niche market?

Non-solicitation clauses generally restrict the solicitation of an ex-employer’s customers. In other words, it requires a positive act of solicitation. On that basis, if the non-solicitation clause is reasonable in terms of period of restraint, scope of restraint and geographical area of restraint, it is possible for such a clause to be upheld as enforceable.

On the other hand, clauses which purport to prevent a former employee from trading with a previous customer without any solicitation may not be enforceable.

MT: What is the difference between notice period and garden leave?

A notice period is the period of time between the date on which an employer or employee notifies the other party that it intends to terminate or cease employment. This is a statutory requirement and most employment contracts will stipulate the specific notice period (failing which the Employment Act provides for the minimum period which will apply). For example, if an employment contract has a notice period of 1 month, then if the employee resigns today, the employee will have to serve the employer for another month (i.e. the notice period) unless the employee pays the employer 1 month’s salary in lieu of notice.

Garden leave is different concept. It is a period of time during the notice period in which the employee may be asked to stay away from the workplace and not conduct any work. The purpose of this is to cease the employee’s access to other employees and trade connections, as well as confidential information, so that the employer can then take steps to build relationships with those trade connections or prevent employees from being influenced to leave the company. In order to place an employee on garden leave, the employer must have included a right to do so in the terms of employment.

MT: It is common for big bunker trading firms to impose non-competition clauses for up to a year which prevents traders from being bunker traders during the period. Who should be paying the trader in this period and what can be considered fair for an ex-trader to ‘comply’ when considering a 100%/50%/0% non-competition payment scheme?

There are various jurisdictions in the world which have specific legislation governing non-competition clauses and in some cases, the laws of these jurisdictions may require the employer to make payment of a percentage of the employee’s last drawn salary during the period of post-termination restraint. Singapore, however, does not have any legislation governing this issue. Nevertheless, some employers in Singapore have drawn inspiration from these jurisdictions and introduced the concept of payment of “salary” during the post-termination period of restraint in Singapore to compensate ex-employees for not competing.

In my view, if an employer wishes to restrain an employee from working in the industry and utilising his skill sets post-termination, and if the period of restraint is very long (e.g. a year), then the employer should consider compensating the employee. Otherwise, the employee may have no alternative but to find work in the industry and “compete” with the employer in order to earn a livelihood.

The quantum of payment during such period of post-termination restraint is also a difficult issue. Whilst an employer may think it is fair if it pays the employee 100% of the employee’s last drawn salary during the period of post-termination restraint, the employee’s perspective may be different because the employee will be out of the industry for a long period and there may be a negative impact of the employee’s future career development that is greater than the compensation received. In other words, there is no law or fixed rule as to what percentage of salary payment would satisfy an employee, but I would think that a former employee would find it more palatable to accept such a clause and abide by it if there is a bigger financial incentive.

MT: Can an ex-trader compensate the former employer if he/sure wishes to seek relief from the non-competition period? How can it be done?

There is no specific legislation or law in Singapore that governs this issue. As such, this will have to be a negotiation between the former employee and former employer. In reality, a former employee is likely to obtain legal advice on the enforceability of the non-competition clause. If such legal advice is favourable to the employee, the employee may decide to proceed as if there was no such clause and test the former employer’s appetite in pursuing legal action.

Note: Matthew can be contacted at [email protected] for further enquiries.

 

Photo credit: Helmsman LLC
Published: 24 July 2024

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Bunker Fuel

Cargo ship “Tony Stark” detained in Spain for bunker fuel spill

Authorities have not allowed the Antigua & Barbuda-flagged ship to leave the port on Africa’s north coast until the owners pay bail of EUR 120,000.

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Marine Traffic / Raul Buque

Spain detained a cargo ship for causing a spill during a bunkering operation near the Spanish enclave of Ceuta, according to Reuters on Tuesday (23 July). 

Authorities have not allowed the Antigua & Barbuda-flagged Tony Stark ship to leave the port on Africa's north coast until the owners pay bail of EUR 120,000 (USD 130,129), Reuters reported, citing comments from Spain’s Merchant Fleet. 

Trails of fuel oil were found in front of Benitez beach, the breakwaters of the port and San Amaro beach in Ceuta, in the Alboran sea.

The Merchant Fleet estimated the size of the fuel spill was one metric tonne. It opened a disciplinary procedure that will determine the final fine.

 

Photo credit: Marine Traffic / Raul Buque
Published: 24 July 2024

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Legal

Gard issues reminder on anchoring in Malaysian waters off East Johor

In nearly all cases Gard has handled regarding vessels detained and fined by MMEA for anchoring in East Johor, mariners had mistakenly understood their anchoring position to be outside Malaysian territorial waters.

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Maritime protection and indemnity (P&I) club Gard recently released a reminder to the shipping community as several vessels have been detained and fined by the Malaysian Maritime Enforcement Agency over the years for anchoring in East Johor waters without the requisite permissions from the authorities:

Malaysian authorities conducted a special operation, “Jangkar Haram” in 2021, targeting ships that had anchored in waters off East Johor, without prior written permission from the Director General of the Malaysian Marine Department. Even three years later, arrests of such vessels continue.

Extent of Malaysian waters off East Johor

In nearly all the cases Gard has handled, mariners had mistakenly understood their anchoring position to be outside Malaysian territorial waters. As our correspondent, Spica, reports in their circular these waters are sometimes referred to as Singapore OPL East, or sometimes even International waters.

Malaysia 1979 chart

Malaysia 1979 chart

The Malaysian governing law which sets out the limits of its territorial waters is the Territorial Sea Act 2012 (TSA). To determine if a vessel has entered Malaysian territorial waters, the Malaysian Maritime Enforcement Agency (MMEA) and the Marine Department of Malaysia rely on the “1979 Territorial Waters Chart”. Below is an image of this chart to illustrate the area within which vessels have been detained, which is shaded in blue in the below chart. This area may not be marked on the navigational charts commonly used by merchant vessels and this has contributed to a lack of clarity amongst mariners. As such, vessels are advised to obtain a copy of the Malaysian “1979 Territorial Waters Chart” through their local agents.

All the recent detentions have been under section 491B(1) of the Malaysian Merchant Shipping Ordinance 1952 (MSO). This section stipulates that ships must notify the Director of Marine of activities within Malaysian waters whenever engaging in various activities. The relevant provision in this section under which vessels have been detained by the MMEA is 491B(1)(L) which is a sweep-up provision, requiring approval be obtained for “any other activity as determined by the Director of Marine”. The provision is widely worded, which makes it difficult to challenge.

Malaysian Shipping Notice no. 05/2014 aims to clarify the definition of “any other activity” to include the following: laying up; welding and other hot works; anchoring in a non-anchorage; and any form of underwater operations. The effect of this Notice is that it is now more difficult for owners of detained vessels to argue that they were not aware of the fact that permission was needed prior anchoring. 

We have previously also seen vessels being detained by the MMEA for alleged non-payment of light dues. Section 3(1) of the Federation Light Dues Act 1953 requires the owner, agent or master of every ship which visits any port or place within Peninsular Malaysia to pay light dues.

Detention and statement taking of crew

Once a vessel has been detained, Owners can expect the following investigative steps to be taken by the MMEA:

  • The Master and Chief Officer/Chief Engineer are usually taken ashore to MMEA’s office to give their statements.
  • The Master and Chief Officer/Chief Engineer can expect to be questioned about their qualifications and experience, voyage details, and the reasons for anchoring at that specific location etc.
  • The crew’s passports and ship’s documents are also confiscated by MMEA.

Owners will have to appoint a local Malaysian agent, and it is recommended that owner’s representative (local agent, correspondent, or a lawyer) accompanies the crew member when the statement is being taken by the MMEA investigating officer. An owners’ local representative would be able to assist with translating the questions asked by the investigating officer into English, as well as deal with the authorities on behalf of the owners.

We understand that the investigation could take anywhere between 1-3 days, or even longer and owners may have to make arrangements, through their local agents, for overnight stay of the Master ashore.

Getting the vessel released

Once statements have been taken from the crew, MMEA will hand the case over to the Marine Department. For the purposes of securing the release of the vessel a hearing may be fixed before the magistrate. Owners usually will be represented by a lawyer at the hearing and will be required to pay a bond to release the vessel under section 413 of the Criminal Procedure Code (CPC). A bond is a security paid by owners for the release of the vessel, as security for a fine or compound to be set at a later date. The bond is paid by a fixed deposit through opening an account under the name of the Court appointed bailor - usually the local agent.

Once the bond is paid and ship’s documents returned to the vessel, the vessel can be released. Thereafter, a decision can be taken whether to admit liability and pay the compound, i.e., pay a lower penalty in exchange for admitting liability for the charges, or dispute the charges. The maximum fine for each offence is MYR 100,000 (approximately USD 24,000).

The entire process of getting the vessel released can take anything from a few days to a few weeks.

Recommendations

Vessels are advised to obtain a copy of the Malaysian “1979 Territorial Waters Chart” through their local agents.

If anchoring in locations within the purported boundaries of the 1979 Territorial Waters Chart, it is advised that owners appoint a local agent in Malaysia. Gard has been informed that the Marine Department of Malaysia has established dedicated lay-up anchorages in waters off East Johor. Owners can contact their local agents for further information.

Mariners must check with the appointed local agents that the Director of Marine has been informed before anchoring and written permission obtained.

Fines of this nature may not be covered by Gard under P&I Rule 47 and therefore could fall outside P&I cover. That being said, if a vessel is detained or arrested, we encourage Members to contact Gard for assistance.

Such detentions can also lead to commercial disputes between owners and charterers. Reference can be made to our article ‘Double-check where you can anchor – lessons from the AFRA OAK decision’. It is worth mentioning that over the past few years several vessels have also been arrested for illegal anchoring in the Indonesian archipelago by its navy. Please see our alert ‘Vessel detentions for illegal anchoring in Indonesian waters’ for further information. 

We would like to thank Jeremy Joseph and Matthew Van Huizen of Joseph & Partners for their contribution to this alert.

Manifold Times has covered several cases of ships being detained by MMEA for illegally anchoring in East of Johor:

Related: Malaysia: MMEA detains foreign-registered ships for illegally anchoring in East Johor waters
Related: Malaysia: MMEA detains three vessels for illegal anchoring in East Johor waters
Related: Malaysia: MMEA detains tanker for illegal anchoring in East Johor waters

Other related link:

Related: Oon & Bazul to shipowners: Measures to take before anchoring, conducting STS ops in Malaysian waters

 

Photo credit: Aaron Lee on Unsplash
Published: 24 July 2024

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