Sanctions and sensitivity in the first major Iran-related casualty since the JCPOA
M Taher & Co is expert in Iran and related issues, with long history of advising and acting for Iranian and other interests on marine, insurance, trade and sanction matters. Having summarised the recent and still developing incident in the East China Sea, this article outlines some of the maritime challenges arising from the casualty and discusses the likely impact of sanctions on the claim process.
Background
On 14 July 2015 Iran and the U.S. were among the seven countries which together with the EU signed the Joint Comprehensive Plan of Action (“JCPOA”), whose implementation on 16 January 2016 saw, on terms, the lifting of the majority of nuclear-related sanctions against Iran. Other wide-ranging restrictions, for example as regards terrorism and those otherwise applying to particular individuals and bodies, however, remain. The JCPOA does not apply to widely-defined “U.S. persons”, and, absent specific licensing, all such are barred under U.S. law from transacting with Iranian interests.
We outlined this in our update last summer headed “
The missiles, manoeuvres and measures - a miscellany of new sanctions”. Since then the Trump administration has continued to threaten the subsistence of the JCPOA and related concessions and U.S. - Iran relations remain extremely difficult. On 12 January 2018 President Trump warned that he would for the last time waive sanctions under the JCPOA, and reiterated that unless provisions that allow Iran gradually to resume nuclear activities in the next decade (the so-called “sunset clauses”) are removed he will pull out of the accord.
Casualty
On 6 January, about 260 km east of Shanghai and for reasons still unknown there was a collision between the Chinese bulk carrier “CF CRYSTAL”, laden with 64,000 tonnes of U.S. grain bound for China, and the “SANCHI”. The “CF CRYSTAL” and her crew reached Zhoushan, China on 10 January, but the “SANCHI”, which was carrying 136,000 tonnes of condensate, or ultra-light crude oil, caught fire, later capsizing and then sinking on 14 January.
Two of her complement of 32 are confirmed dead and the others are missing and presumed so. Escaping cargo and now heavy bunker fuel oil have formed several slicks. Closely monitored and said to be getting larger, these last week ranged in size from about 5.5 to 48, and totalled around 100, square kilometres. The vessels' black boxes were opened yesterday in the presence of officials from China, Iran, and Panama.
This is the first major Iran-related casualty since the JCPOA, and managing the effect of relevant sanctions is likely to add further challenge to the considerable operational difficulties.
Claims
As ROVs survey a wreck that sits in only 115 metres of water, seeking to identify and later hopefully staunch leaks - and with recent suggestion of raising the vessel in some way from the sea floor - the various parties will be considering what marine conventions apply, any effective limitation (and how perhaps to break it) and looking to assess, quantify, secure, present and defend what will probably be very substantial claims.
These will include those of the families of the dead and missing crew, for the loss of the vessel and her cargo and bunkers, for attempts to contain, disperse or neutralise the escaped fuels, for any clean-up costs and for damage to the marine environment and fishing and other maritime losses.
They will be under the Bill(s) of Lading and perhaps also the charterparty, P&I Club rules and the H&M policy and perhaps also via the Bunkers (though maybe not the CLC) Convention and possibly under the Chinese COPC rather than the IOPC Fund.
While it is far too soon to appropriate liability, and much may depend on the accuracy of drift projections (whether and if so where and how much escaped material makes landfall), the claims could run into hundreds of millions of U.S. dollars. With NITC and Iranian cargo interests and nationals involved, such could be by and against numerous Iranian parties. Banks, insurers, claim representatives and many other entities will be wary and may be looking to their advisers.
Sanctions
There are likely to be three main areas of concern:
- Sanctions surviving the JCPOA
We referred to these above. Those in the claim process and their advisers must comply with the non-nuclear restrictions that remain and avoid involvement with the numerous individuals and entities still subject to specific sanction.
On initial consultation, preliminary due diligence should screen appropriately and provide reassurance. If parties run what should be their usual rigorous checks there should be no problem with counterparty or client identity. These processes should, of course, be repeated for any other party later emerging as involved.
- “U.S. persons”
This might be more difficult. It will be straightforward to identify U.S. owned and domiciled bodies, but others might employ an individual who is a U.S. person as defined, and perhaps not know it. Any such would need to be sealed from the process in any action involving Iranian interests, or risk breaching U.S. law, with perhaps serious consequences. The sensible first step of identifying “U.S. persons” could in some cases raise privacy and data protection issues.
- Banking and the transfer of funds
The U.S. financial system cannot be involved, and this presents practical difficulties, especially for payments denominated in U.S. dollars. Moreover it is notorious that, no matter the currency, Western financial institutions remain reluctant to transact Iran-related business, sometimes even if it is plainly legitimate and on the most precautionary basis. Having seen its possible consequences, many banks, insurers and similar will not risk breach and routinely decline.
Parties and their advisers have long been aware of what has been called banking paralysis. It is not a new thing. Thus, in these early days, preparatory steps should include a preliminary route-map of what might be paid, by and to whom and where. One cannot be certain at this stage, but claims will likely include those by the representatives of the crew, most of whom are Iranian nationals and probably domiciled in Iran, or perhaps by NITC on their behalf, by the vessel owner under the H&M policy and (depending on title and risk) maybe by NIOC as regards the cargo and also perhaps NITC in respect of the bunkers. Neither NITC nor NIOC is of course any longer a nuclear-sanctioned entity.
Alongside the common issues of liability, quantum and limitation, all might, therefore, (in readiness) focus on valid payment mechanisms, perhaps involving some of the banks who will handle Iran-related monies. In that way any later crystallised payments could hopefully proceed without the great difficulty and additional delay which is still the frequent fate of claims involving Iranian interests.
If you would like to discuss any point or topic in this article please contact
Maryam Taher and
Paris Pantelis.