The International Who’s Who of Shipping & Maritime Lawyers has brought together four of the leading practitioners in the world to discuss legal trends, client-firm relationships and the effects of the global recession on their practice.
Hill Dickinson LLP
Who’s Who Legal: Have the recent worldwide economic difficulties affected the shipping industry? Which areas remain particularly busy?
Frazer Hunt: Like all industry sectors, the crisis has led to corporate insolvencies, with companies ceasing trading or restructuring, particularly in sectors involving importers and exporters. Relatively speaking, however, Australia has remained largely untouched by the economic crisis and continues to import goods at similar or greater levels than before commencement of the downturn. Vehicle carriers and container ships were the worst affected by the GFC, but are picking up again. Charter party negotiation and disputes have remained steady, albeit that freight rates and hire have fluctuated in certain areas.
John Kimball: The crisis affected all sectors of the shipping industry; the liner business and dry bulk may have been the hardest hit. The good news is that only a small number of ship-owning companies did not survive the crisis and, at least in the United States, we had only a few bankruptcies of companies in the shipping industry.
Helen Noble: The global economic crisis has had a significant impact on the shipping industry in Ireland. The volume of throughput at our ports for 2009 decreased significantly, by 22 per cent. There was less demand for imported goods due to lack of consumer confidence. The crisis has also been a challenge for Irish exporters; whilst the decline in exports has not been as sharp as the decline in imports, various sectors of the industry have been hit substantially. Bulk volumes fell to levels experienced in 1995, and the lo-lo and ro-ro markets are back to 2003 and 2005 volumes. Break bulk cargo volumes also fell dramatically, due mainly to a fall in the construction industry. There are, however, some signs of recovery in the sector for the fourth quarter of 2009 and the first quarter of 2010.
Rhys Clift: The economic crisis will have had widespread effects. The substantial ordering and delivery of new buildings will probably continue to have an impact, possibly serious. In the UK – indeed, in the West at large – there is much reporting of domestic debt reduction, the paying-off of credit card debts and cutting back of discretionary spending. One assumes that this would have led to, and may still ground, a significant reduction in demand for the transport of consumer goods from the Far East – whether East to the USA’s West coast or West to Europe, presumably impacting the container trade. More recently there has been a surge – or a resurge – in prices of commodities such as minerals and ores. One assumes this should benefit dry bulk shipping, although would this be counterbalanced by the availability of new tonnage?
Who’s Who Legal: How has this changed the nature and amount of work for shipping and maritime lawyers?
John Kimball: Transactional work has been affected due to a credit crunch and diminished access to capital markets. We have seen an increase in charter party disputes. A change in the law concerning Rule B cases affected a number of maritime law firms.
Helen Noble: The recession in Ireland has given rise to an increase in general insolvency work for the firm as a whole: transactional work, specifically, has been affected. We saw a rapid decline in new shipping business establishing in Ireland. We have, however, seen an increase in shipping and transport-related disputes and increased interest in pursuing protective measures, such as ship arrest.
Frazer Hunt: Apart from an increase in general corporate and insolvency work for the firm, we have noticed a marked increase in ship arrests and freight forwarders (NVOCCS) exercising liens over cargoes in an effort to obtain advantage over other creditors. Routine cargo and liability work remains steady.
Rhys Clift: When money is tight, people fight. The economic crisis has resulted in the usual shift; transactional activity is down and disputes are broadly up, whether on contracts for the carriage of goods, policies of insurance or the purchase and construction of ships. If the figures were readily to hand, I would guess that we would see a strong correlation between periods of depressed economic activity on the one hand and a surge in litigation or arbitration on the other; for example now as in the 1930s, during the OPEC crisis and during the Far East problems of 1998.
Who’s Who Legal: How has the relationship changed between client and law firm? Have there been developments in the role counsel play, billing rates or other areas?
Frazer Hunt: The relationship between our firm and the transport and trade clients has remained consistent, with a modest increase in fees this financial year which were largely frozen last year. Some firms have experienced slower paying of bills and staff movements have picked up recently, due to the perceived upturn.
Helen Noble: The biggest impact of the economic crisis on the relationship between client and law firm is in the area of fees. Clients have consistently been looking for reduced fee arrangements or alternative billing arrangements and as a firm we have had to adapt accordingly.
John Kimball: We have seen more requests for, and interest in, alternative billing arrangements than ever before. To be successful in this difficult economic climate, law firms and clients need to work closely together to create fee arrangements which serve both of their needs. We have definitely seen more pressure on billing rates and have made adjustments in our staffing and hiring requirements as a result.
Rhys Clift: The law is not isolated from the general economy. In times of financial difficulty clients look to all outgoings, including fees. Alternative charging methods attract attention. However the focus is not exclusively on price or rate, but rather on value for money. There is a realisation that an apparently costly individual, team or firm, judged by an hourly rate alone, may be excellent value for money. They may be able to produce high-quality results quickly and efficiently, resulting not only in an overall saving on fees but a significantly better overall financial outcome.
At a time when it is necessary to control costs, E-Disclosure poses a threat to the economic management of litigation and arbitration and imposes significant burden on clients in compliance - quite apart from the new risks created by the ease of creating, storing and sending messages, and informality creeping into business exchanges. Lawyers and clients need to co-operate closely to manage the difficulties of E-Disclosure
Who’s Who Legal: What new trends are you seeing in your own jurisdiction, either in terms of domestic regulation, the related legal market or in the industry itself?
Helen Noble: The most significant development in Ireland is the much-publicised establishment of the National Asset Management Agency (NAMA), established by the Department of Finance in 2009 with a view to restoring stability to the Irish banking system. NAMA will purchase land and development loans as well as associated commercial loans with a nominal value of approximately €80 billion from the relevant financial institutions, for an estimated purchase price of €54 million, for the purposes of freeing up the institution’s capital from long-term loans. NAMA will then seek to maximise the value of, and recover, the loans.
It is recognised that Ireland’s recovery from recession will be export-led, and therefore focus is on how to drive up export volumes by development of the transport network and port infrastructure.
Frazer Hunt: Australia is reforming personal property securities, due to perceived limitations for the use of personal property as security, as a result of complexities and gaps in the arrangements for registering security interests. The Commonwealth government is in the process of establishing a national system for the registration of personal property securities which will be implemented by Commonwealth legislation. It is anticipated that some of the reforms will overlap with the Admiralty Jurisdiction of the Australian Courts.
John Kimball: The Deepwater Horizon disaster has led to potentially very significant legislative changes in the United States, which may affect not only the legal regime governing drilling rigs and oil spills but the regulatory regime for shipping in the US generally. We have also seen significant activity with increased sanctions against Iran and certain Al Qaeda persons believed to be involved in piracy in Somalia. It has been a period of very considerable legislative and regulatory activity. For ship-owners and their insurers, these developments only underline the continued need to be actively involved with US government officials in helping to develop new laws and regulations. It is very important for shipping groups to have as much input as possible.
Rhys Clift: We are seeing the impact here of US laws in relation to piracy (efforts to restrict payment of ransom) and sanctions, particularly against Iran. Insurers doing business in England are alert to regulation abroad – especially that emanating from the USA, given the importance of the USA as a market and the extent of US involvement in the capitalisation of insurance and reinsurance. There has been similar regulatory change in the EU. As for shipping, hardly a day goes by when the subject of climate change does not feature in the specialist press; progressive and radical regulatory change seems inevitable. Energy sources, transportation, use and effect on the environment; these are, along with security of supply and the availability of clean water, the issues of this generation. As to the legal market, ADR continues to grow, albeit not as quickly as some might have predicted following the major reforms to civil justice in 1999. ADR, and mediation in particular, has become a fact of life in commercial litigation. It is now regarded as an integral part of litigation by some of the most senior judiciary (rather than some external alternative); but is making progress more slowly where disputes are subject to arbitration (much-used in maritime matters). The implementation of the EU Mediation Directive in 2011 (for cross-border disputes) will give added impetus to the spread of knowledge and use of ADR within the EU and beyond, hand in glove with the need to manage the cost of resolving disputes.