legal - NI HKG

                

                

                  

                 

                 

                 

                

                

                

When your ship is hijacked by pirates how exposed are you?

                 

                 

You hope to get your ship back undamaged with crew and cargo unharmed, but what if the worst happens and you don't?

                 

                 

You should be covered for the loss of or damage to your ship under the terms of your hull insurance. “Piracy” is a named peril in the most commonly used 1983 version of the Institute Time Clauses (“ITC”) (Hulls) : para. 6.1.5.

                 

You should be aware however, of the limits of the cover for “piracy”.

                 

There is no one all encompassing definition of what acts amount to “piracy”. Perhaps the most quoted definition is that in Article 101 of the United Nations Convention on the Law of the Sea (“UNCLOS”), 1982:

                 

“ (a) any illegal acts of violence or detention, or any act of depredation, committed for private ends by the crew or the passengers of a private ship….and directed:

                 

                

                 

This definition suggests that piracy can only occur upon the high seas, outside of territorial waters. As a matter of English law however, piracy is not limited to the high seas; it is enough that the ship is “at sea”: see The Andreas Lemos (1983) Q.B.647 where the piratical acts occurred whilst the ship was lying in  Chittagong roads about 2 miles from the shore.

                 

The key words are “for private ends by the crew or the passengers of a private ship”. It is this which distinguishes acts of piracy from acts of war or terrorism, where the motive is political rather than mere extortion.

                 

Acts of war or terrorism are expressly excluded from the perils usually covered in a hull insurance policy:  see ITC (Hulls) para. 23 : War Exclusion.  Separate War Risks cover is required if you are to be indemnified for loss, damage, liabilities and expenses caused by acts of war or terrorism. The cover provided for such risks under the Institute War and Strike Clauses (“IWSC”) Hulls encompasses that excluded for such risks under the ITC (Hulls) and the two are mutually exclusive, so that there is no overlap or double insurance.

                 

Presently, the hijackings of ships off Somalia have been accepted as acts of piracy and that is unlikely to change, but could conceivably do so if, for example, the UK Government were to find evidence that ransom monies were being used to finance the civil war in Somalia, or to further the causes of Al Queda. The hijacking of ships is not limited to the seas off  Somalia, of course; and a prudent ship owner with ships trading to or through the known trouble spots around the globe will have War Risks insurance.

                 

                 

Your P&I Club will normally cover you for loss of life or personal injury to the crew caused by acts of piracy. Indeed, as a general observation piracy does not affect the nature of the cover provided by your P&I Club, so that you would still be covered, for example, for wreck removal and pollution liabilities were the “intentional act of a third party”  type of defence not be available in these circumstances for any reason.

                 

Again however, you need to be aware of the dividing line between acts of piracy and acts of war or terrorism. The cover provided by P&I Clubs invariably excludes war risk liabilities, costs and expenses. That is understandable when one remembers that P&I Clubs evolved to provide cover for those risks and liabilities which could not be insured in the market. Unfortunately, and unlike the IWSC/ITC Hulls, the scope of the war risks exclusion in P&I is more widely worded and includes loss and damage caused by:

                 

                 

(The War Exclusion in the ITC Hulls is limited to “derelict mines, torpedoes, bombs or other derelict weapons of war.” ).

                 

The pirates operating out of  Somalia are using “weapons of war”, although admittedly it is relatively rare for them to actually use these weapons to inflict damage to the ship or cargo, or to injure the crew. But that has happened and it would be well to check now with your P&I Club to find out if they would hold you covered, or expect you to look to your War Risk underwriters in such an event.

                 

                 

You should be able to avoid liability for loss or damage to the cargo by reason of the defences available under Article IV Rule 2 of the Hague/Hague-Visby Rules which are incorporated into most bills of lading and charter parties.  Piracy comes under the “perils of the sea” defence [Rule 2(c)] and the “Act of Public Enemies” defence [Rule 2(f)].

                

Your right to rely upon these defences however, will depend upon whether you have exercised due diligence to ensure the ship was seaworthy at or before the commencement of the voyage; and whether you were in any way at fault for the ship deviating from her usual route. We will look at this further below.

                  

                 

If you want your ship back undamaged, with crew unharmed and cargo in tact, it appears you will have to pay the ransom demanded by the pirates. But legally, can you do so?

                 

Presently, and as a matter of English law, you can but you need to be aware of two potential pitfalls: anti-terrorist legislation; and money laundering legislation.

                 

                 

Under the  UK anti-terrorist legislation it is an offence to provide funds which you know or have reasonable cause to suspect may be used for the purposes of terrorism. The definition of terrorism in this legislation extents to acts outside the  UK; to acts which may not be violent in themselves but which might have a devastating impact upon a modern society; and to acts which are politically, or religiously, or ideologically motivated.

                 

Presently, and as noted, the hijackings of ships off  Somalia have been considered acts of piracy rather than acts of terrorism, and the payment of ransom monies to the pirates does not fall foul of this anti-terrorist legislation.  Other States however, may have different legislation  and may take a different view; and this is something you should check first with your own government and the  Flag  State before paying any ransom.

                 

                 

Once the ransom monies are in the hands of the pirates, they become the “proceeds of a crime” . It is not the purpose of  UK money laundering legislation however, to punish the payers of ransom monies in these types of circumstances, and paying the ransom does not of itself amount to an offence under this legislation. Other States however, may again have different legislation and may take a different view.

                  

                 

The ransom monies can be as much as US$3 million; and when the costs involved in negotiating with the pirates and arranging the delivery of the ransom are taken into account, the overall cost can be double this, or as much as US$6 million.

                 

A sizeable sum of money. Can you get it back?

                 

Payment of the ransom monies has to date resulted in the release and return of the ship with the crew and any cargo on board. As such it has lessened the potential exposure for  Hull insurers; and as a matter of English law, the payment of a reasonable ransom should be recoverable under your hull policy as sue and labour expenditure; or alternatively, where there is cargo on board, as general average (“GA”) expenditure.

                 

To date, the burden of ransom payments does appear to be being absorbed by  Hull insurers at first instance; and as GA expenditure where the ship is carrying cargo. Certainly, on the successful release and return of the ship and cargo, you should be taking steps to collect GA security from the cargo interests in the usual way and prior to the discharge of the cargo at destination.

                 

Hull and Cargo insurers are now also putting pressure upon P&I Clubs to help fund piracy ransoms, on the basis that the P&I Clubs have a vested interest in the safe recovery of the crew.  Presently, P&I Clubs will reimburse their members for sue and labour (or mitigation) costs, but usually only where approved in advance or determined by the P&I Club Board of Directors at its discretion to have been reasonably incurred.

                 

As the dividing line between acts of piracy, and acts of war or terrorism can become blurred, for the added certainty of being able to recover these ransom costs you may wish to consider Kidnap and Ransom (K&R) insurance. Such insurance should guarantee reimbursement of the ransom monies and the associated costs; and additionally the risk of the ransom monies becoming lost in transit which is a very real risk when you consider that payment of the ransom monies may have to involve a “middle man”.

                  

                 

On average it takes about 45 days to secure the release of a ship hijacked by Somali pirates. During this time the voyage is not being progressed whilst bunkers and stores are being consumed; and the delay may be causing damage to the cargo, and consequential losses to the receivers. It is also causing mental anguish for the crew and their families.

                 

                 

Whether hire remains payable during the hijacking will depend upon the terms of the charter party. That your ship was following the charterer’s orders as to route or service does not mean hire is necessarily payable, as issues can arise over the applicability of any deviation clauses in the charter party.  Depending upon their wording, such clauses may excuse payment of hire whenever your ship departs from the usual route for whatever reason, so that the absence of any fault or lack of intention on the part of your master is irrelevant.

                 

Ship owners and charterer’s organisations have attempted to address this problem by drafting “piracy” clauses for incorporation in charter parties.

                 

One example is the BIMCO Piracy Clause which has been designed to provide a ship owner with the right to avoid areas where there is a real risk of a pirate attack, and the right to continue to receive hire if attacked and detained, with such detention not amounting to a deviation. It has been drafted so as to be of general application and not limited to piratical acts off  Somalia. It is being revised primarily to place a cap on the hire payable where the ship is being detained, with charterers paying hire for the first 90 days of detention after which hire in no longer payable until the ship  has been released. The revised wording however, has still to be published and is not presently in use.

                 

Another example, more charterer friendly, is the so-called Gulf of Aden Clause, credited to Cargill, which gives charterers the right to order a ship to transit the Suez Canal and through the  Gulf of Aden whilst exempting them from liability for:

                

                

                 

It does also provide for the ship to remain on hire where detained by pirates but that hire is only payable for the first 60 days of detention, whereafter the charterers obligation to continue paying hire is to cease.

                 

Several such Piracy Clauses also expressly require the charterers to pay for the additional insurances which you should be taking out in light of their orders for the ship to proceed to an area where there is a risk of piracy.

                 

You may also wish to consider obtaining loss of hire insurance.

                 

                 

You should be able to avoid liability for any damage to the cargo as noted above, and as a matter of English law consequential economic losses occasioned by delay in delivery are not generally recoverable.

                 

The cargo interests however, may take issue with the precautions, if any, which you took to avoid the ship being hijacked, and may seek to argue that these perceived deficiencies rendered the ship unseaworthy, and that this was a competing cause of the damage to the cargo. You could find yourself therefore, having to show that you exercised proper care – due diligence – to reduce the risk of hijacking.

                 

The cargo interests may also seek to argue that as the ship has deviated from her normal route, you are no longer entitled to rely upon any of the defences available in the contract of carriage evidenced by the bill of lading. Today, the terms and conditions on the reverse sides of most bills of lading include a “deviation” clause, giving the carrier wide liberty to deviate, and if there is such a clause in your bill of lading you should still be able avoid liability. If there is not, you may still be able to avoid liability on the basis that you were not in any way responsible for the deviation. Again however, the cargo interests may take issue with the precautions, if any, which you took to avoid the ship being hijacked, and may seek to argue that you were in part responsible for the hijacking – the deviation - because these precautions were inadequate. You could again find yourself therefore, having to show that you exercised proper care to reduce the risk of hijacking.

                 

We will look at this duty of care in more detail below.

                 

                 

As a matter of English law, if you have failed to properly prepare the crew for entering an area with high piracy risk, and for facing the threat of attack and hijacking, then where things go wrong and the ship is hijacked, the Crew will be entitled to claim for any personal injuries they may sustain, as well damages for mental anguish, that is, post traumatic stress. Again therefore, you may have to show that you exercised proper care.

                  

                 

It is important that you take make proper preparations and take appropriate precautions to minimise the risk of your ship being hijacked.

                 

You should carefully assess the risks involved with a transit through the  Gulf of Aden. This will involve such matters as an analysis of the locations and circumstances of previously reported hijackings. Most attacks have generally happened at first light, after nights with no moon and in benign weather conditions; and you will want to ensure increased vigilance at these key times. Your crew and shore staff should have a full understanding of what the risks are and how they are expected to meet them.

                 

You should carefully plan the ship’s route; and have contingency plans for dealing with a pirate attack, which should be tested at drills. Your crew and shore staff should know what procedures they are to follow to prepare for and deal with this sort of emergency, as with any other shipboard emergency.

                 

In making preparations and deciding what precautions to take, you should keep the following in mind:

                 

                 

The shipping industry publishes a “Best Management Practices” (“BMP”) guide for ship owners which sets out the suggested planning and operational practices to be followed by ships transiting the Gulf of Aden and off the coast of  Somalia. This BMP guide is regularly updated and revised, and should be your primary point of reference. To a degree it is the yard-stick against which your performance will be judged.

                 

                 

The IMO has established and military authorities are policing an “Internationally Recognised Transit Corridor“ (“IRTC”) for ships transiting the  Gulf of Aden. The IRTC is subject to change by the military authorities according to the prevailing circumstances and it is important that you obtain up-to-date information about its location. A convoy system is in operation for ships using the IRTC, and ship owners are free to join this “Group Transit” scheme. Although it is not compulsory, you may wish to consider doing so.

                

                 

There has been much discussion about the benefits and disadvantages of employing privately operated armed guards on board ships, and to using privately operated armed patrol boats to escort ships through the troubled areas. These measures should significantly reduce the risk of your ship being hijacked, but they will increase the risk of confrontation with the pirates which in turn will increase the risk of damage to the ship and injury to the crew.  Some governments have made it clear that they consider the increased risk of confrontation to be unacceptable; others have stressed the importance of ships demonstrating “a willingness to defend” themselves.

                 

From a legal perspective you will need to consider:

                 

                    
1. the credentials of the security company which will be providing      you with armed guards/patrol boats;
                

                 

                    
2. who is going to be in overall charge should the ship actually      be attacked. If it is not to be the Master, issues could arise under      Article 34-1 of SOLAS which provides:
                

                 

                 

As Captain Phillips of the MAERSK ALABHAMA said at the hearing before the Senate Foreign Relations Committee:

                 

                 

                    
3. the legal status of an armed patrol boat. Under Article 107 of      UNCLOS, only military vessels have power to seize ships involved in      piracy; and the right of innocent passage defined in Article 19 of UNCLOS      is unlikely to be readily extended by neighbouring states to a privately      operated armed patrol boat.
                

                 

                    
4. the right to use lethal force. You should insist that the      security company provide you with their “Rules of Engagement”      and that these are endorsed by the Flag Sate.
                

                 

                    
5. the need to inform your insurers, charterers, and the cargo      interests of your decision in this regard
                

                  

                 

When you get your ship back remember that it is important, as always, to collect all the relevant evidence so as to be in a position to make claims under your insurance policies, and defend claims from third parties.