The global oil and LNG shipping sector has long been anticipating a rise in legal disputes relating to the transition away from fossil fuels, as new and unpredictable regulations spur adoption of new and untested solutions. But geopolitical uncertainty is adding another layer of complexity and risk to energy-shipping markets. These trends look likely to fuel growth in legal disputes for years to come. What form will they take, and what can mitigate the risks?
Q: What are some notable legal trends and challenges in oil and LNG shipping disputes?
Director and Head of Shipping
Helmsman
A: Recent geopolitical events have caused a dislocation in global energy markets at a time when the world was struggling to recover from pandemic-driven supply chain disruptions. For example, price and supply volatility and the entry of alternative suppliers have seen a rise in disputes as counterparties seek to exit or renegotiate contracts that are no longer financially viable.
The impact of sanctions, as well as price caps, asset seizures and other measures has expanded the complexity and cost of compliance. Sanctions may also impede the ability to perform pre-existing contracts and spur an increase in force majeure and hardship claims, suspensions and terminations. This increases the likelihood of disputes.
Amid the uncertainty, the energy market is in the midst of an epochal transition away from fossil fuels – one whose progress has been driven by political considerations that carry their own legal risks. For example, disputes may arise over failure to meet climate action targets.
Q: How do international laws and environ-mental regulations impact the resolution of LNG and oil shipping disputes?
A: The ever-expanding regime of international trade sanctions increases the risks, complexity and costs of oil and LNG shipping – a disincentive to invest in new ships and technologies. There may be a shortage of tankers if current ones cannot comply with decarbonisation regulations and new ones cannot be built fast enough.
Adding to the mix, sanctions regimes are not seamless across jurisdictions, and are enforced through a bewildering array of national laws.
The shipping industry accounts for about 3% of global greenhouse gas emissions from human activities, and these have increased 20% in the past decade – fuelling demands for the International Maritime Organisation to take drastic action.
Some governments have moved ahead on their own, creating often inconsistent measures that add costs and risks to shipping. The EU, for example, introduced legislation with extraterritorial reach.
Q: What steps can help prevent or prepare for possible legal disputes?
A: It is important to have in place a robust and holistic system to comply with legislative and regulatory requirements.
Establish a system of due diligence. Set out what activities your company is performing or intends to perform, as well as its suppliers, vendors and customers. Is there an appropriate mechanism to perform checks on such parties?
Review and assess your documentation and record keeping. Maintaining proper records is essential for providing evidence of compliance and to address legal disputes. Look at your trading/sale and purchase documents, as well as financing and chartering paperwork. Regularly monitor the composition of supply chain and customers, as well as existing mid to long-term contracts, and strengthen contract management.
Invest time in understanding the different sanctions regimes and which countries’ measures might apply to your company’s activities. Are any of your services or products, or even personnel, caught by restrictions? Are any of your counterparties subject to an asset freeze or at risk of losing access to bank financing? Banks increasingly require information on the UBO – or ultimate beneficial owner – of a company as well as information on not only a company’s directors but also their shareholders in respect of transactions. Do you have measures in place to manage your risks?
Most importantly, train your employees. A due diligence and record maintenance system is only as good as its people. Sensitise your managers and adopt good corporate governance to comply with appropriate ESG standards.
Q: What advantages can arbitration offer in shipping disputes?
A: Aside from efficiency, cost and choice of law, arbitral centres provide neutrality – especially valuable in energy disputes, where one or more parties is likely to be a state or a state-affiliated entity.
Arbitral seats and mediation hubs also offer specialist knowledge. Singapore is becoming a recognised leader in arbitration of maritime and energy disputes, thanks in large part to its role as a petrochemicals trade and transshipment hub, as well as a leader in port governance and reform.
Maureen Poh is a director and head of shipping at Helmsman in Singapore
HELMSMAN LLC
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Singapore 089604
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