Maritime Attorneys Address Potential Legal Issues Relating To COVID-19
Marc Hebert and Lance M. Sannino, partners, hosted the session, titled “Managing Risk through MSAS (Master Service Agreements) and Charter Agreements.”
“At the end of the day, it’s all about compliance, managing risks and training,” Herbert explained to the virtual audience before he and Sannino took participants through what they have seen from a client perspective. Those issues included: increased expenses for new health and safety protocols and potential regulatory noncompliance; contract terminations; force majeure (reduced demand for services leading to contractual delay, suspension and off-hire claims); and an expanded virtual operating environment with a proliferation of new and enhanced technology solutions and increasing cybersecurity.
“At the end of the day, what COVID has really done is accelerate a lot of these issues for the industry,” Hebert said.
Sannino noted that “essential work” equates to an increased risk or liability for companies. He and Hebert went through common scenarios and suggested some best practices to help mitigate that risk.
Sannino reviewed a current court case in which the owner of a towboat covered by Subchapter M turns over control of the towboat to an operator by contract. The contract contains requirements for the operator to “adhere to a valid safety management system that is compliant with all applicable laws and regulations” and to provide appropriate insurance. A deckhand on the vessel sustained a significant crushing injury and asserted claims against the owner and operator, after which it was determined the operator didn’t have the correct insurance or money to cover medical treatment or a potential judgment. The deckhand then turned to the owner and alleged that despite the contract, the owner is negligent in failing to verify and confirm that the operator adhered to a valid and suitable safety management system that was understood by the operator’s crew.
Sannino said the case is still being litigated but is one example of a situation that can arise. It also calls into question what would happen if instead of a crushing injury, the deckhand had been infected with the coronavirus.
In general, Hebert said, the way Subchapter M is written, owners should do everything they can to minimize risk that could arise when making a master service agreement or charter agreement, including verifying that the operator meets the requirements of the agreement.
To verify compliance, the attorneys said, owners can ask for documents to verify compliance, such as: the U.S. Coast Guard Certificate of Documentation (COD); The Certificate of Inspection (COI) if available, or most recent Uninspected Towing Vessel (UTV) exam/evidence of compliance, if not; copies of any outstanding recommendations/corrective actions under USCG 835 and, if none, written confirmation that the vessel is free from defects/damages; copies of any damage/repair reports issued since the last drydocking of the vessel or confirm none if applicable; most recent Responsible Carrier Program (RCP)/Towing Safety Management System (TSMS) certification; most recent vessel internal TSMS audit and external TSMS audit, if available; most recent Ship Inspection Report Programme (SIRE) inspection and current Oil Companies International Marine Forum (OCIMF) Terminal Particulars Questionnaire (TPQ), if available; and review of Coast Guard Port State Information Exchange (PSIX) contacts for the vessel and request information on any relevant contact data noted.
It is also important to include this information in an audit clause so the other party realizes it must provide this information, Hebert said.
Additionally, he said, it needs to be part of a larger system to review the information, ideally including annual audits and a notification requirement requiring deficiencies noted in audits to be communicated.
When asked what a contract should say to cover Subchapter M issues, the answer was that any reference to Sub M is better than nothing but that preferable language could include indicating that the other party must comply with all applicable laws including those under 46 CFR Subchapter M and have in place and be operating under an approved TSMS and comply with inspection and record-keeping requirements.
If there is concern about distribution of the documents needed for validation, a confidentiality clause may also be included, the attorneys said.
Sannino went over whether COVID-19 should be covered under the TSMS, noting that he hasn’t heard a Coast Guard requirement for it but it could well be deemed a hazardous condition per 33 CFR 160.216. Hebert went farther, saying that someone could make a compelling case that it should be part of TSMS when reading the regulations.
“I think the basis is there, and I think an enterprising plaintiff’s attorney is going to look at that someday and think it’s worth making a run at,” Hebert said.
He pointed to 46 CFR 138.215 concerning functional requirements of a TSMS and to 46 CFR 138.220 concerning elements a TSMS must include as well as health and safety requirements in Part 140.
What it comes to at the end of the day is ensuring the right plan is in place and doing due diligence to follow laws and regulations so as not to be negligent in maintaining a seaworthy vessel, Hebert said.
The men also spoke about force majeure, noting that the party claiming it must prove that the event that has had an adverse effect on performance or nonperformance is beyond the party’s reasonable control and could not have been avoided with the exercise of reasonable steps. Standards vary depending on the locale involved, Hebert and Sannino said.
The party claiming force majeure must also provide a timely notice, which may be spelled out in the existing contract. Companies litigating a force majeure clause should be prepared to answer the question, “How did you exercise reasonable care to avoid the triggering of the force majeure clause?”
Some force majeure clauses in contracts are general. Others are more specific and may include wording such as pandemic, epidemic or disease outbreak, act of God, act of government/government intervention or any other unforeseen events. Hebert said it is important to list key events instead of just including a broad clause and that best practice should specifically include “government/government intervention” in the clause.
“The government has taken on a lot of actions that have curbed business activities, so having the right force majeure clause is important,” Hebert said.
For businesses that don’t have a force majeure clause in their contracts, Hebert suggested examining local laws as some jurisdictions, such as Louisiana, have implied force majeure written into them “when a fortuitous event makes performance impossible.”
Finally, Hebert and Sannino suggested companies revisit their cybersecurity policies, determining their plans for addressing evolving cybersecurity threats, whether they have consultants, policies and procedures in place and how they will handle disaster recovery, including business continuity and other contingency plans. They can look at workforce cybersecurity training and whether they undertake threat and risk assessments. There is a question on whether a company could be negligent for not implementing best practices in the area of cybersecurity. Also, Sannino said, businesses may want to look at whether they carry cyber risk insurance and to review policies to make sure they are not going to run into an exclusion.
“It’s not a regulatory requirement yet, but I think we can all agree it’s headed that way,” Sannino said.