II. Case Law Developments
A. U.S. Circuit Courts
1. Third Circuit
The Third Circuit affirmed the District Court’s judgment in Stevanna Towing, Inc. v. Atlantic Specialty Insurance Company. In a non-precedential opinion, Judge Phipps held that a towboat’s owner and charterer could not recover from the insurance policies of a maritime towing company whose employee was injured while working on the towboat the company operated. The case consolidated appeals concerning an insurance coverage dispute arising after the towboat collided with a barge on the Ohio River, causing the deckhand employee on the towboat to fall onto the empty barge. The deckhand sued his employer, Stevanna Towing, to recover for his injuries. Stevanna’s insurer, Atlantic Specialty, alleged that the deckhand’s claims were not covered by any of Stevanna’s insurance policies, and therefore the insurance company did not indemnify the employer or any entity who claimed to be an additional insured for the costs associated with the deckhand’s case.
Stevanna operated a towboat called the Timothy James. The boat’s owner, Frank Bryan Inc., chartered the Timothy James to its subsidiary, a sand and gravel company. Stevanna, Frank Bryan, and the subsidiary came to an agreement for the use of the boat. Stevanna would use the vessel to move barges for the boat’s owner and subsidiary. When not doing so, Stevanna could use the boat for its own purposes.
Stevanna had three insurance policies with Atlantic Specialty: (1) a protection and indemnity (P&I) policy; (2) a marine general liability (MGL) policy; (3) an excess liability policy. Stevanna sued the insurer for breach of contract and bad-faith denial of insurance under Pennsylvania law for refusing to cover the deckhand’s injuries. The boat’s owner, subsidiary charterer, and the boat intervened, claiming that Atlantic Specialty owed them coverage as additional insureds. On de novo review of the summary judgment record, the District Court determined that these three claimants could not recover under the towing company’s insurance policies (Stevanna settled before this judgment). The parties appealed to the Third Circuit on the denial-of-coverage decision under claims of breach of contract and bad-faith denial. The Circuit Court held for Atlantic Specialty on all claims, finding the insurer did not owe the claimants.
Stevanna’s P&I policy had an automatic acquisition clause covering each vessel that the company “acquired, purchased, or chartered.” At issue was whether Stevanna legally chartered the Timothy James. Judge Phipps determined that the P&I policy did not extend to the boat for two reasons. First, the term “charter” must mean a charter with ownership attributes, distinct from a borrowing arrangement like Stevanna had with the boat’s owner and charterer. Second, established federal maritime law limits P&I protection to the insured’s liability “as owner of the vessel,” known as a “bareboat charter.” Stevanna had no bareboat charter, and therefore was not covered by the P&I policy, for the following reasons:
- The charterer paid for the boat’s maintenance and fuel, therefore not relinquishing the required degree of control to Stevanna.
- Stevanna did not view itself as owning the boat at the time of the accident.
- The boat’s owner entered into a bareboat charter agreement for the vessel with its subsidiary, not Stevanna. However, bareboat charters must be exclusive.
- Stevanna’s oral agreement for the use of the boat was terminable at will, which typically prevents an agreement from being a bareboat charter.
- During the collision, the subsidiary was piloting the boat, not Stevanna.
The MGL policy did not cover the deckhand’s claims due to its employer-liability exclusion. The employer-liability exclusion denied coverage for an employee’s bodily injury arising out of and in the course of the employee’s job. An exception to that exclusion stated that the exclusion would not apply to liability for damages assumed by the insured under an “insured contract” which would include Stevanna’s assumption of tort liability of another party in a contract pertaining to Stevanna’s business. In the court’s view, any agreement by Stevanna to indemnify the owner, charter or vessel would not suffice to establish Stevanna’s intent to assume the intervenors’ tort liability – just the tort liability of Stevanna’s. Finally, the court held that the dependent claims under the excess liability policy and for bad-faith breach of contract necessarily fail without coverage under the P&I or MGL policy. The excess liability policy would only expand coverage limits for the P&I and MGL policies. The bad-faith claim fails if the insurer correctly concluded that there was no potential coverage under the policy, as here.
B. Federal District Courts
1. Southern District of Florida
In Havana Docks Corp., v. Norwegian Cruise Line Holdings, Ltd. and three sister cases, the Southern District of Florida entered final judgment in favor of Havana Docks. The District Court ordered Norwegian Cruise Line Holdings, Carnival, MSC Cruises, and Royal Caribbean Cruises to each pay about $110 million in damages for violating the Helms-Burton Act by bringing cruise passengers to the dock facilities in Cuba that had been owned by plaintiff but had been nationalized by the Cuban government in 1960. Each cruise company also had to pay Havana Docks between $2 million to $4 million in attorneys’ fees and costs.
U.S. District Judge Beth Bloom previously held that the four cruise lines had allowed passengers to disembark at the Havana port, which Fidel Castro’s government dispossessed from the U.S.-based Havana Docks in 1960. Havana Docks sued the four cruise companies for their use of the Havana port between 2015 and 2019. Havana Docks alleged that the companies gained $1 billion in revenue during their unlawful port use. Judge Bloom sided with the plaintiff, finding that the cruise lines knowingly and intentionally engaged in illegal activities by transporting passengers to Cuba and profiting off the use of the Havana port facilities. According to the Court, the cruise companies used Havana Docks’ terminal even after receiving correspondence from the company notifying them of its certified claim to the property.
The cruise lines’ use of the docks established impermissible trafficking under the Helms-Burton Act. The Helms-Burton Act, also known as the Cuban Liberty and Democratic Solidarity Act of 1996, is a federal law that strengthens the embargo against Cuba. The Act prohibits the trafficking of property owned by U.S. citizens that has been confiscated by the Cuban government. This ban includes profiting from or engaging in commercial activity using property formerly belonging to U.S. nationals that was expropriated in Cuba.
In a September 1, 2022 order, Judge Bloom found that the plain language of the Helms-Burton Act applied a trebling provision to the damages claim and the interest. Havana Docks’ claim was certified by the Foreign Claims Settlement Commission. As such, Havana Docks claimed it was entitled to damages three times the greater of the amount certified by the FCSC (plus interest), the amount determined by a special master (plus interest), or the property’s current or past fair market value (plus interest), plus attorneys’ fees and court costs.
Carnival and Royal Caribbean have publicly stated that they disagree with the District Court’s ruling and plan to file an appeal of the ruling and the judgment.
C. State Courts
1. Delaware Chancery Court
The Delaware Chancery Court recently heard a trial on a corporate merger involving an 18th-century shipwreck and alleged corporate misconduct. In 1717, a pirate by the name of “Black Sam” Bellamy captured the Whydah Gally, a ship carrying enslaved people. Later that year, the ship sank in a storm off the coast of Cape Code, Massachusetts. The vessel was discovered by underwater explorer Barry Clifford in 1982.
Paul Buddenhagen sued Barry Clifford and Clifford’s now-deceased business partner, Robert Lazier, for breach of fiduciary duties related to company Maritime Explorations Inc. (MEI). Shareholder Buddenhagen claimed that Clifford and Lazier manipulated a 2018 merger of entities related to the Whydah Gally ship in order to “sideline minority shareholders who had helped keep salvage operations afloat.” Buddenhagen alleged in court filings that the merger’s “true purpose” was to “paper over decades of self-dealing and cram down the existing MEI stockholders.” The shareholder claimed Clifford and Lazier coordinated the merger to personally benefit from new business ventures.
Maritime Explorations brought on Buddenhagen as a consultant in the 1990s. Clifford argues that Buddenhagen’s case is fueled by personal disagreements and greed. According to the plaintiff, Clifford and Lazier spent years diverting company revenues and assets to personal accounts as they “avoided board meetings and bookkeeping that mark normal corporate operations.” Clifford and Lazier’s estate acknowledge that the corporate paperwork was not very strong, citing “cleaning the messy slate” as a reason for the 2018 merger.
2. New York Supreme Court
The holding company of a 42-foot sailboat was at issue in Ludwig v. Salhman. In 2014, three individuals purchased the sailboat, named the Nite Cap, via a jointly owned LLC called Bull-Poet. The Bull-Poet co-owners entered into a fairly standard Operating Agreement for the LLC, which included an Article VII governing voluntary withdrawal of a member from the joint enterprise and an Article VIII governing events of dissolution of the LLC. It was all smooth sailing for the first five years of joint ownership. However, in 2019, co-owner Avram Ludwig died and transferred his membership interest in Bull-Poet to his sister, Antonia. After Antonia discovered the co-owners had maintained minimal records and failed to file tax returns, she filed suit against the surviving co-owners alleging they breached the recordkeeping requirements set forth in the Bull-Poet Operating Agreement. Antonia sought to entirely dissolve Bull-Poet pursuant to Section VIII of the Operating Agreement and also prayed for an accounting of Bull-Poet’s income and expenses.
Antonia’s dissolution claim leveraged ambiguous language found within the Operating Agreement. According to Article VIII, the death of any of the three original co-owners would result in the dissolution of the LLC. Importantly, there also appeared to be a limiting clause within the very next paragraph of Article VIII stating that dissolution would only occur if the majority of the surviving co-owners elected to proceed with the dissolution remedy. However, as written, the limiting clause applied only to Article VII, not to Article VIII. According to Antonia, the plain language of the Operating Agreement had no limiting clause for Article VIII, which meant the death of a co-owner automatically dissolved the LLC without any consents needed. The defendants moved to dismiss the claims, arguing primarily that the reference to Article VII within the limiting clause was merely a scrivener’s error, and that the only logical reading of the Agreement was to apply the limiting clause to Article VIII such that automatic dissolution of the LLC was not compelled upon death of a co-owner.
The Court granted the defendants’ motion to dismiss. Although acknowledging that neither side’s interpretation of the contested Operating Agreement language was a perfect fit, the Judge determined that there would be no reason for an exception to the provisions of Article VII to be placed in Article VIII, especially when the contested language concerned the same topic (corporate dissolution) as did Article VIII. As a result, the contested cross-reference to Article VII within the limiting clause was determined to be a scrivener’s error, and the language instead was applied to the Article VIII dissolution remedies. As a result, Antonia was unable to force the dissolution of Bull-Poet since she lacked the consent of the other co-owners. Additionally, the Judge denied Antonia her requested accounting based solely on the defendants’ unsworn assertions that there were no profits for which to account. Although this outcome makes sense because the sailboat did not earn revenue (because the co-owners had rights to use the vessel without separate payment), it conflicted with a body of precedent under New York law holding that minority members of LLCs have an “absolute” right to an accounting absent an adequate remedy at law. The Presiding Judge therefore leveraged judicial pragmatism to resolve both aspects of the suit.
III. International Arbitrations
A. United Kingdom – Bulk Trident Shipping
Bulk Trident Shipping prevailed over the appeal of Fastfreight PTE Ltd. and won a $2.1 million maritime arbitration award for the unpaid hiring of its ship, the Anna Dorothea. At the heart of the dispute, Singaporean shipping company Fastfreight denied that it owed Bulk Trident a chartering fee after three of Fastfreight’s crewmembers tested positive for COVID-19 upon reaching port in China.
In April 2021, shipper Fastfreight and boat owner Bulk Trident agreed that Fastfreight would pay $20,000 a day to charter the Anna Dorothea in order to carry iron ore pellets from Visakhapatnam, India to Lanqiao, China. The Anna Dorothea arrived at the Lanqiao port on May 4, 2021, but could not moor to deliver its cargo due to multiple crewmembers testing positive for COVID. The vessel was held in quarantine and Fastfreight failed to return the ship to Bulk Trident until months later, on August 28. Despite this delay, Fastfreight only paid for five days of hire for the days the Anna Dorothea was traveling between India and China. Fastfreight refused to pay for the ship’s hire between the date of its Lanqiao arrival and the date of return.
Fastfreight claimed that the vessel went off-hire when it arrived in China. Bulk Trident disagreed and brought an arbitration suit, claiming that the Anna Dorothea never went off-hire because Bulk Trident did not agree to cessation of the charter. The tribunal issued an award in favor of the ship owner, Bulk Trident. Reading together all the relevant terms of the charter, the arbitrators determined that the document “only allows charterers to withhold payment of hire not simply if the vessel is actually off hire,” but “only where the owners agree in writing.”
Following the arbitration judgment, Fastfreight appealed the award to the High Court of England and Wales. It argued that the arbitrators based their reasoning on assumptions about the companies’ commercial objectives, rather than the words of the charter. The High Court affirmed a finding for Bulk Trident.
B. United Kingdom – MUR Shipping BV
In MUR Shipping BV v. RTI LTD, the England and Wales Court of Appeal (Civil Division) was confronted with a claim for breach of contract due to disputed exercise of a force majeure clause. The appellee, MUR, is a Dutch company that owned cargo ships chartered by RTI, a British company. Pursuant to their affreightment contract, the vessels were to carry freight continuously from Guinea to Ukraine between July 2016 and June 2018, and with a corresponding flow of payment from RTI to MUR. In April 2018, the United States imposed sanctions on Oleg Deripaska, a Russian industrialist who owned parent companies that, in turn, owned RTI. As part of the sanctions, Deripaska and his subsidiary companies were unable to transact in U.S. Dollars, which was the currency called for by the affreightment contract.
In response to the sanctions, MUR declared force majeure on the ground that continued contract performance would violate the U.S. sanctions and, due to the unavailability of U.S. Dollars, would leave RTI unable to perform as required. RTI rejected the force majeure notice, explaining to MUR that the sanctions would not interfere with cargo operations and that RTI could transact in Euros instead, with RTI agreeing to bear the costs of currency exchange. However, MUR was unwilling to accept payment in Euros and maintained its refusal to nominate vessels under the contract.
The dispute first proceeded to arbitration, where the validity of MUR’s exercise of force majeure was one of many issues litigated. On the force majeure issue, the arbitrators held that regardless of whether continued contractual performance was lawful in light of the sanctions, as a practical matter, any payment made by RTI in U.S. Dollars was almost certain to be blocked by U.S. banking intermediaries as a precautionary measure. With it established that RTI could not feasibly pay in U.S. Dollars under the contract, the arbitrators next turned to whether MUR had acted reasonably in denying RTI’s offer to pay in Euros while bearing all additional transaction costs. According to the contract’s force majeure clause, force majeure could only be declared if the circumstances “cannot be overcome by reasonable endeavours from the Party affected.” Here, the arbitrators found that MUR could have easily accepted payment in Euros, and because it did not, MUR did not make reasonable efforts to continue to perform under the contract. As a result, MUR’s nonperformance was not protected by force majeure and RTI was entitled to damages.
On appeal of the award, the Court considered the limited question of whether MUR’s unwillingness to accept alternative payment in Euros from RTI was sufficiently reasonable to authorize MUR to declare force majeure. Two of the three judges held that MUR did not make reasonable efforts as required by the force majeure clause, and as a result, its invocation of force majeure was improper. According to the lead opinion, the real question was whether MUR would have been at all burdened by accepting alternative payment in Euros. Because RTI offered to handle all aspects and costs of the currency exchange, the majority of the panel found that MUR would have suffered no harm from accepting payment in Euros regardless of the strict terms of the contract requiring payment in U.S. Dollars. The majority opinions favored practicality over formality in approaching contract construction. As a result, the Court upheld the arbitration award and dismissed the appeal.
IV. Other Notable Developments
A. Legislative and Regulatory Developments
1. Limitation of Liability Act
In December 2022, President Biden signed into law a defense policy bill containing the Small Passenger Vessel Liability Fairness Act. The Act reforms the Limitation of Liability Act, a vexing federal maritime statute that dates back to 1851. For well over a century, the Limitation of Liability Act allowed vessel owners to limit their liability after a maritime accident or casualty event to the post-casualty value of the vessel and its cargo. To limit liability, the vessel owner merely needed to prove is that it lacked express knowledge of the underlying problem that caused the loss of the vessel before the accident occurred.
The Limitation of Liability Act became a useful avenue for insurance companies and vessel owners to minimize their liability for money damages even when at fault. However, the tides began to turn following a highly publicized event in 2019. The dive boat Conception caught fire off the coast of California, resulting in the death of thirty-three passengers and one crewmember. The National Transportation Safety Board eventually found that the vessel owner was at fault, but the decedents were left high and dry. Three days after the accident, the Conception’s owner filed an action under the Limitation of Liability Act to limit its liability to the post-accident value of the vessel. As a burnt hulk, that value was $0 according to the Conception’s insurance provider. As a result, the decedents were denied any recovery. The vessel owner’s ability to fully escape liability for a tragic accident of this magnitude caused public outcry that eventually motivated Congress to take action.
The Small Passenger Vessel Liability Fairness Act reforms the Limitation of Liability Act in key respects. First, it allows owners of small passenger vessels to be held liable for damages resulting from future boating accidents regardless of the post-accident value of the vessel. The Act also extends the time period for victims to file claims from six months to two years, which cannot be reduced by contract. However, the liability reforms do not apply to large commercial cargo vessel owners. The reforms also only apply prospectively to future liability claims. Nevertheless, this legislative development warrants attention from owners, operators, and insurers of small passenger vessels.
2. Department of Treasury Guidance on Seaborne Russian Oil Transportation
In September 2022, a coalition of countries including the G7, the European Union, and the United States implemented a series of restrictions on maritime transportation of Russian crude oil and petroleum products in response to its war on Ukraine. Although the “default” restriction was a full ban on maritime transportation of crude oil and petroleum products, an important exception was included for jurisdictions and actors that purchase these products at or below a price cap of $60 per barrel. The restrictions therefore function as a price cap on seaborne Russian oil products rather than an outright ban. According to the coalition, this price cap is intended to serve three objectives: (i) maintain a reliable supply of seaborne Russian oil to the global market; (ii) reduce upward pressure on energy prices, and (iii) reduce the revenues Russia earns from oil. The price cap on maritime transportation of Russian crude oil took effect on December 5, 2022 and the price cap on Russian petroleum products took effect on February 5, 2023.
The U.S. Department of the Treasury has issued preliminary guidance on domestic implementation of the price caps. U.S. exporters of Russian crude oil and petroleum products may continue to do so as long as the oil was purchased below the price cap. Similarly, providers of ancillary services related to Russian oil may continue to do so as long as the underlying shipments of oil were purchased at or below the price cap. However, the U.S. continues to completely prohibit the importation of Russian crude oil and petroleum products pursuant to Executive Order 14066.
To ensure regulatory compliance, the Department of the Treasury requires that U.S. based entities regularly trading in Russian crude oil and petroleum products (with direct access to price information) should keep detailed records showing that all seaborne Russian oil was purchased at or below the price cap. Appropriate documentation may include invoices, contracts, or receipts, and the documentation must be retained for five years. Additionally, for U.S. based entities conducting operations indirectly linked to Russian oil and without access to price information, the Department of the Treasury recommends soliciting customer attestations where the underlying customer commits to not purchase seaborne Russian oil above the price cap. Such attestations create a “safe harbor” for these indirect actors, who will not be subject to sanctions if they reasonably rely on the attestations made by their customers with direct price access. Any violations of the price cap policies may result in enforcement actions and sanctions from the U.S. Office of Foreign Assets Control.
B. Industry Developments
1. Autonomous Ships
Since our last report in fall 2022, developments with Maritime Autonomous Surface Ships (MASS) have begun to expand beyond the commercial sector and into the defense industry. For instance, the U.S. Military’s Defense Advanced Research Projects Agency (DARPA) has proceeded to Phase 2 of its No Manning Required Ship (NOMARS) program, which aims to build, test, and demonstrate a fully unmanned surface vessel. The ship, to be named Defiant, will be a 210-metric ton Medium and Large Unmanned Surface Vessel class ship, and will be the first of its kind in the defense sector. Separately, the U.S. Navy entered the USNS Apalachicola into service on February 16, 2023. The Apalachicola successfully completed trials of its autonomous capabilities, including in-port and at-sea demonstrations, in late 2022. The Apalachicola is the first fully operational U.S. naval ship with autonomous capability that can also navigate commercial vessel traffic lanes. The vessel may be used by the Navy for rapidly transporting troops and their equipment, supporting humanitarian relief or operational efforts, and shallow water operations.
Additionally, the world has experienced early-stage international incidents involving MASS. In late August 2022, Iran’s Islamic Revolutionary Guard Corps Navy attempted to confiscate the Saildrone Explorer, an American unmanned vessel that undertakes data collection missions, in the Persian Gulf. An Iranian naval ship begun towing the Salidrone Explorer in international waters, but the operation was prevented by a U.S. Navy patrol coastal ship. In July 2022, Spanish authorities seized three unmanned underwater vessels that were suspected of use in drug trafficking operations and arrested eight people. These remote-controlled “narco-drones” were each capable of transporting around 200 kg of drugs. The incident has raised concerns that autonomous vessels may become an increasingly favored means of drug trafficking, and in the future, it is likely to pose difficult international jurisdictional questions for maritime seizures.
