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So Update January 2007

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So Update January 2007

  1. 1. UpdateWikborg Rein’s Shipping Offshore: SHIPPING OFFSHORE UPDATE FROM WIKBORG REIN UPDATE 1/ 2007
  2. 2. 3 Editorial4 How will the market respond to the EU’s abolishment of liner conferences?6 The new 2007 version of the Norwegian Marine Insurance Plan8 Norwegian net closes on substandard ships10 Assignment of contractual rights12 Enforcing foreign judgements in Norway14 The importance of the “carrier” being entitled to global limitation16 Liability regimes in offshore contracts – contractors be aware!17 Tax incentives for establishing business within the EU18 ITF actions in Norway20 Stricter rules for control and management of ballast water22 Emissions trading – the future for shipping?24 Moves towards greater transparency in the shipping industry25 Associated ship arrests in the South African jurisdiction26 New limitation limits for wreck removal, passenger injuries and damage caused by oil platforms28 The Norwegian system for protecting mortgagee interest30 WR newsPUBLISHER: Wikborg Rein/January 007 LAYOUT  DESIGN: Lise Røed   EDITORS: Gaute Gjelsten and Herman Steen PRODUCTION: SignaturCOVER PHOTO: © O. Kobayashi ( NUMBER PRINTED: 000        WIKBORG REIN JANUARY 007
  3. 3. NAVIGATING THE CHALLENGES IN 2007The 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 BjørnstadLeader of Wikborg Rein’sShipping Offshore Group WIKBORG REIN JANUARY 007       
  4. 4. HOW WILL THE MARKET RESPOND TOTHE EU’S ABOLISHMENT OF LINERCONFERENCES?The EU Competitiveness Council decided on 25 September 2006 to repealRegulation 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 carriersto meet in conferences, fix prices and regulate capacities on routes to and fromthe 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  ( 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 structureIn 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. 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 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 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 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 WIKBORG REIN JANUARY 007        5
  6. 6. THE NEW 2007 VERSION OF THE NORWEGIAN MARINE INSURANCE PLAN The Norwegian Marine Insurance Plan (the “Plan”) is revised at regular intervals by the Permanent Revision Committee jointly established by the Norwegian insurance market and the Norwegian Shipowners’ Association. In this article Haakon Stang Lund, member of the Permanent Revision Committee, considers some of the novelties in the new Plan version. The seaworthiness concept is (International Safety Management) Code. the Plan. It may have served a purpose  abolished when the net of safety regulations was  The new Norwegian Ship Safety Act (the  As a result of the new legislation  not as tight as it is today. The Permanent  “Act”), which is expected to be passed  the Plan’s previous § - on ships’  Revision Committee felt that such a legal  by the Parliament in February 007,  seaworthiness is abolished and replaced  standard was not required anymore and  is replacing the Seaworthiness Act of  by an obligation on the insured to  that it was more appropriate to apply the  190. In the new Act, the seaworthiness  adhere to the more specific safety and  more explicit requirements laid down in  concept is not used. Instead, the Act  quality standards. It is difficult to form  the safety regulations.   defines various safety and quality  a definite opinion on whether this will  standards that the shipowner must  have any significant impact on the  Race II Exclusions Incorporated comply with, the most important being  cover. Seaworthiness is in itself a vague  The “release of nuclear energy”  the SOLAS Convention (International  legal standard. It was introduced to the  exclusion contained in § -8 litra (d) and  Convention for the Safety of Life at Sea  Norwegian marine insurance legislation  § -9 subparagraph  litra (b) has been  of 1974, as amended), including the ISM  in 190 and at the same time adopted by  replaced by the incorporation of the  English RACE II clause. The reason is  that the RACE II clause is incorporated  in all re-insurance contracts and hence  the insurers have no choice other than  to incorporate the RACE II clause also in  each individual insurance policy in order  to ensure that there is no gap between  the direct insurance contracts and the  re-insurance agreement.   The perils covered by the RACE II clause  numbers (1) to (4) largely correspond with  the previous “release of nuclear energy”  exclusion. Number (5), also known as  the biochem exclusion, is clearly an  extension of the previous exclusion.FOTO: © O. Kobayashi In the wake of 9/11 the English market  also introduced a so-called cyber attack  exclusion, but this exclusion is normally  possible to buy back from the re-insurers.  6        WIKBORG REIN JANUARY 007
  7. 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 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 540’ 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,  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.nodamage 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.noof 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. 8. NORWEGIAN NET CLOSES ONSUBSTANDARD SHIPSIn support of international initiatives to eliminate substandard shipping theNorwegian Parliament is expected to enact new legislation proposed by theMinistry of Trade and Industry enabling Norwegian marine insurance companiesto exchange information on substandard ships with other insurance companies,classification societies, flag state authorities etc. without the approval of theinsured.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 proposaldiscovered 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
  9. 9. FOTO: © O. Kobayashi However, based on comments from  The final proposal specifies an additional  tort liability by e.g. issuing incorrect  the industry, the proposal no longer  requirement to provide information in  information.  includes a specific obligation on the  that the information shall be directly  part of the insurance companies to  relevant for the safety of the vessel.  Entry into force provide Norwegian public authorities  According to the travaux preparatoire  The Act is expected to be passed by  with information regarding the safety  from the Ministry of Trade and Industry,  the Parliament in February 007 and  of vessels flying Norwegian flag. The  it has to be determined on a case to  will most likely enter into force shortly  Ministry of Trade and Industry agreed  case basis whether the information in  thereafter.  with the industry that such a provision  question is directly relevant for the safety  would distort competition in relation to  of the vessel. The party requesting the  insurers based in other countries. It also  information is obliged to demonstrate  FOR MORE INFORMATION, CONTACT: pointed out that § 46 in the proposed Act  to the insurer that the information  entitles Norwegian public authorities  is relevant. A question is what kind  Birgitte Karlsen,  to request the information from the  of information can be considered as shipowners themselves as long as the  relevant to the safety of the vessel.  request is in accordance with Norway’s  The Act’s definitions of safety set out in  international law obligations.  chapters  (safety control),  (technical  and operational safety), 5 (environmental  Haakon Stang Lund,  The final proposal contains an obligation  safety) and 6 (safety- and anti-terror for the insurer to provide the insured with  mobilisation) provides useful guidelines  a copy of the information given, in order  in this respect. to ensure that the information is accurate  and to give the insured an opportunity to  The proposal will not exonerate insurance  rectify any inaccurate information.  companies from possible criminal and/or  WIKBORG REIN JANUARY 007        9
  10. 10. ASSIGNMENT OF CONTRACTUAL RIGHTS- LEGAL AND LINGUAL CHALLENGESA consequence of the international aspect of shipping and ship financing is that anumber of contracts and related documents are drafted in English. This can oftenlead to confusion between the parties involved due to different interpretation ofterms 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 ofor to receive refund to its financing bank as security for his  securityobligations 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
  11. 11. (Norwegian: pant). A buyer’s assignment to a subsidiary of a right to take delivery of a vessel under a newbuilding contract is a practical example of assignment by way of sale. An example of assignment by way of security is where a purchaser under a newbuilding contract assigns his rights to take delivery or refund payments under the building contract in favour of his financing bank as security for the loan.  FOTO: © O. KobayashiUnder English law, security assignment is a present transfer of rights which is later re-assigned when the loan is repaid. Under Norwegian law security assignment is normally created as a pledge which does not involve immediate transfer of rights but is passive until and if the security assignment is enforced. Hence, the security assignment is normally discharged and not re-assigned, although variations may be  For other contractual rights, such as taking delivery of a vessel, observed in practice.  there is no provision in the Pledge Act or other legislation  (except for a few scattered provisions) providing general legal Norwegian law Security assignment under is normally made  basis. by way of an assignment agreement, including a notice of assignment and an acknowledgement, whereby the purpose  There is a difference in opinion in the Norwegian legal theory of the notice is to ensure legal perfection for the assignment  as to whether it is possible in general to validly pledge or (pledge) and the acknowledgement is signed by the obligor for  assign such rights by way of security. There is no decisive evidence purposes. If the assignment is not enforced, a transfer  legal authority on the matter and hence it is unclear whether is not effected.  pledge or security assignment of contractual rights other  than receivables may be validly created and enforced under  Buyer’s Bank/ Norwegian law. Despite this uncertainty, the requirement of  t Assignee an assignment of contractual rights other than receivables by  e men wledg way of security is regarded as standard practice in financing of  Ac kno both newbuildings and second hand vessels today, including  transactions which are subject to Norwegian law. Legal  opinions normally contain reservations or conditions in this  Builder/ Shipbuilding contract Buyer/  respect.  Obligor Assignor This article is based on a lecture held by Marie Notice of Assignment Efpraxiadis and Linn Hertwig Eidsheim on 13 November 2006 in the Norwegian Maritime Law Association.In English law a bundle of contractual rights may be assigned for security purposes. Under Norwegian law, we need to distinguish between assignment of receivables (Norwegian:  FOR MORE INFORMATION, CONTACT:enkle pengekrav) and other contractual rights. In practice this  Linn Hertwig Eidsheim, would mean to distinguish between for instance, the right to receive payment or refunds on the one hand, and the right to take delivery on the other. The need for distinction is a consequence of Norwegian law - more specifically the Norwegian Pledge Act § 1- () which  Marie Efpraxiadis,requires legal basis in the Pledge Act or other legislation for  hah@wr.noestablishing a valid pledge. With regard to receivables, the Pledge Act § 4-4 and § 4-9 contains legal basis for pledge and assignment by way of security. WIKBORG REIN JANUARY 007        11
  12. 12. ENFORCING FOREIGN JUDGEMENTS INNORWAYInternational business transactions inevitably result in situations where individu-als and companies experience disputes having to be solved by the courts in otherjurisdictions than their own. Often there is a need to enforce the judgement in acountry other than the country in which the court is situated, in particular if thedebtor 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 enforceabilityRecognition 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
  13. 13. FOTO: © ScanStockPhoto duly served with the relevant documents  appeal to the Supreme Court.  FOR MORE INFORMATION, CONTACT: or given sufficient time to arrange for  a proper defence. These provisions  The effect of enforceability Hågen Hansen, should be contemplated before filing the  A foreign judgment which has been enforceability application.  declared enforceable in accordance with  the Lugano Convention constitutes a  Appeal basis for execution of the claim under  The court’s decision as to the  the Norwegian Enforcement Act, §§ 4-1  Gaute Gjelsten, enforceability of the judgment may  and 4-17. On this basis the claimant may be appealed by the claimant or the  apply for distrain and forced sale of the  defendant to the Court of Appeal. The  defendant’s assets. appeal decision may be contested by an  WIKBORG REIN JANUARY 007        1
  14. 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. 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.noaverage 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.nogross 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 carrierunder the 1996 Protocol approximately  In most jurisdictions, the contractual  WIKBORG REIN JANUARY 007        15
  16. 16. LIABILITY REGIMES IN OFFSHORECONTRACTS - CONTRACTORS BE AWARE!Offshore contracts include a variety of services, such as construction or modificationof offshore installations, drilling and sub-sea installation of pipelines. The contractsoften involve complicated high risk offshore operations. Damage or delay can haveenormous financial consequences. It is therefore important to consider carefully theagreed 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 liabilityproposing 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 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 limitationclosely 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.noto well and reservoir due to the fact that  Third party liabilityit 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.nowithout 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. 17.   TAx INCENTIVES FOR ESTABLISHINGBUSINESS WITHIN THE EUThe combination of Norwegian tax law and developments in EU tax law favoursestablishment of business in the EU. Some EU member states like Cyprus and Maltaoffer favourable tax conditions for certain types of businesses and may be interestingalternatives 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.nonor 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.nodividends – 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. 18. ITF ACTIONS IN NORWAYMany shipowners around the world, especially those with vessels flying so-called “flagsof convenience” (“FOC”), have faced the brutal reality of actions by the InternationalTransport Workers’ Federation (“ITF”) in the form of boycott actions. Several of theNorwegian maritime unions are affiliated with ITF and regularly undertake actions inNorwegian ports on behalf of ITF. This article addresses some important features underNorwegian 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      orand 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. 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, 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, 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, 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, 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, tel. +47 55 1 5 1 WIKBORG REIN JANUARY 007        19