On Shipping and Divorces

Two parties, from different cultures, linked by contract. Sound familiar?

By Ryan Skinner (email)

Reading a story in the Economist this morning, the "parallels to shipping" bells started ringing. The story concerned how multicultural couples divorcing in London may find that UK courts do not respect the clauses of prenuptial agreements established in other jurisdictions.

The same holds true for shipping. Here two parties, almost by definition in different jurisdictions, agree (for better or worse, but not for richer or poorer) on a well-defined, closed-ended relationship. What happens when that relationship goes sour, however? When the chartering party feels robbed? When the company ordering a newbuilding wants to cancel the order?

The obvious answer: Look to the law. But that may not satisfy the aggrieved party. Perhaps they did not pay attention enough to the clauses or jurisdiction of the contract. Perhaps the rush to get an order placed led to short-cuts, which cannot be abided after the rush turned into a soft market.

I've already heard from one shipping executive who gambled on one jurisidiction's inability to enforce contract law to find greater business opportunity. To what degree do shipping people play legal arbitrage? Sign risky deals in jurisdictions that may not be able to hold you to your promises. And reserve your rock-solid deals for jurisdictions with tougher enforcement.

What have you heard? Do shipping companies play legal arbitrage to optimise their "divorce" settlement?