COVID-19 has been an ongoing concern for the maritime industry on many fronts; most obviously, seafarers have been stranded at sea as many countries had until recently stopped allowing crew changes within their territorial waters; an estimated number of close to half-a-million seafarers have been kept onboard ships worldwide long after their contracts expired, putting their own well-being and also the safety of navigation at risk. Freight rates have also been affected by COVID-19, mostly negatively, as weak demand and mandatory lockdowns around the world meant less cargo to ship. We had opined in a previous post on the impact of COVID-19 on vessel values and vessel appraisal methodology, and also contributed for an interview at Freightwaves and an article in the Journal for Turnaround Management Association.
Besides the “macro” and long-term financial impact of COVID-19 on shipping, the impact on day to day shipping transactions has been equally important. For example, if transacting parties cannot get together for a sale & purchase (S&P) closing, original documents have to be sighted virtually and presumed true for a buyer to release the purchase money as part of a vessel’s acquisition while crew changes typically ensuing an S&P closing may not take place raising both humanitarian and insurance concerns, and so on.
We have asked prominent London-based maritime lawyer Ms Anastasia Papadopoulou, Partner with law firm Keystone Law, to share her insights on the impact of COVID-19 on transactional shipping and we are delighted to be hosting her “COVID-19 legal shipping diaries”, including real stories as experienced by a legal transactional shipping expert.
COVID-19 Legal Shipping Diaries by Anastasia Papadopoulou
Early this year, the focus in shipping revolved predominantly around decarbonisation. All eyes were set on the implementation of IMO2020, the regulation requiring shipping operators and owners to reduce the sulphur content in marine fuel and the Poseidon Principles, a voluntary initiative by ship finance banks and financial institutions to disclose the climate alignment of ship finance portfolios which, in turn, encourages shipowners to adopt a “greener” mindset on their investments.
The focus changed rapidly with the outbreak of COVID-19. Here are some interesting developments marked by real examples from deals and enquiries we received from our amazing clients. The varied and complex nature of these examples are the reason why we love shipping!
Early into the spread of COVID-19 in Europe, we managed to close a secondhand sale and purchase deal with delivery in China just days before crew changes were banned and flights to and from China stopped. At the time, there were a lot of cancellations on flights and the on-going crew had to fly via several different countries to take delivery of the ship in China. When the on-going crew arrived at the delivery port in China, the port authorities tested them for coronavirus and allowed them to embark. The closing had to wait a couple of days; comparatively, it was a smooth closing although, from a legal point of view, we had to consider at the time whether buyers could argue that the sellers were in breach for delivering a ship at a non “accessible berth”, if the buyers’ crew were not allowed to embark.
A different scenario played out for another secondhand sale and purchase that closed a couple of weeks later. The sellers’ crew could not disembark on the closing date and it was agreed between the parties that the crew shall stay on board under the new ownership while we ensured that the ship’s insurers, the flag authorities and financiers were all aligned with this.
At the beginning of March, documentary closings started happening virtually. The physical “tabling” of the delivery documents was replaced by parties exchanging delivery documents electronically in pdfs and escrow funds were released on the basis of notices that were served to the other party electronically (again in pdfs). Deeds were electronically exchanged under the Mercury Rules, practices adopted in virtual signing based on the Mercury Case.
At around mid-March, the oil prices hit record low and the charter hires for oil tankers boomed. Oil refineries were looking to store their surplus with a record fixture for a VLCC going at US$352K. On the secondhand market however and, in particular, the dry bulk segment, the activity slowed down substantially. Even for buyers that viewed the downturn as an opportunity to invest, the practical challenges prohibited them to proceed with agreeing a purchase; surveyors were either difficult to source or too expensive but the major issue was that sellers did not allow surveyors to board the ship to inspect. Some sellers were suggesting that photo surveys are carried out by their representatives on board but that was not considered a satisfactory solution for a buyer.
At around that time, most enquiries shifted from transactional to contentious. The freight rates had declined significantly. We were instructed to run due diligence on the sale and lease back exposure of a shipping group and advise on how the group would be affected if the charterers defaulted on their payments to the lessor and the consequences of early redelivery of the ships.
Another client consulted us on insolvency procedures while others enquired on Chapter 11 filing under the US Bankruptcy code. Other clients asked us to advise on whether a force majeure clause would justify non-performance under their contracts while others looked into invoking force majeure to cease loan repayments. It was interesting to see how certain port authorities in certain jurisdictions allowed for the application of force majeure principles in the disruption of supply chains to eliminate uncertainty irrespective of whether force majeure clauses were contractually agreed.
Another matter we advised on was a project that involved the use of two mini cruise ships as accommodation for a sizeable construction project. Our unlucky client had chartered out two ships to use for the project but, as the ship was entering the delivery port, they were served cancellation notice by their counterparty with the delivery port going into full lockdown on that same day. Upon bringing the ships back to the redelivery port, the same client was faced with more legal issues; some crew members reportedly fell sick and the entire crew were unable to disembark causing significant delays to the ships' redelivery to their owners.
From mid-April onwards, ship sale and purchase queries picked up significantly. We were often asked by Far Eastern law firms to represent their clients at documentary closings in London and across Europe. Distressed assets were bought across different segments and clients were able to pick up ships at attractive prices while some investors started to look into the cruise ship sector opportunistically.
The discussion around environmentally friendly ships resumed while a promising marine tech company that develops technology to optimise vessels’ performance secured financing from a London based VC fund, an original move for the VC industry. In the meantime, the shipping fuel discussions focused on the use of ammonia and hydrogen as the favourite future fuel.
Never a dull moment as a shipping lawyer.
Ms Anastasia Papadopoulou started her career in London as a structured finance lawyer in the Structured Finance department of Ashurst LLP. It was only in 2008 that she decided to switch to being a shipping finance lawyer mostly due to the fact that the financing was backed by real assets and, of course, being Greek, there was an innate inclination to the maritime sector.
Ms Anastasia Papadopoulou is London based and runs a successful practice in transactional shipping as a partner with Keystone Law, a leading AIM listed law firm with over 350 lawyers and extensive international reach. Before joining Keystone, Anastasia was heading up the Maritime division of TLT in London after she had already worked in the Transportation and Finance department of Clyde & Co in London for seven years.
Anastasia assists shipping companies and operators with ship sale and purchase contracts, bareboat charterparties, pool agreements and ship management contracts, finance and refinance work Anastasia also assists technology companies in the maritime sector with their corporate and financing work. In addition, Keystone has strong capabilities in shipping litigation, marine insurance and reinsurance with the ability to advise on shipping claims, coverage questions and disputes. The firm also has experience of competition and employment matters relating to shipping.