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Sea Views

Issue 3 - Spring 2009

Below is the paper on issues of Piracy presented by Laurence Marron at a commercial law seminar organized by the University of Westminster in March 2009

Piracy in the Gulf of Aden
A consideration of some of the legal issues

1. Introduction

In the early years of this decade, the word "piracy" would generally conjure up images associated with Robert Louis Stevenson's "Treasure Island". Not so today. It is now not uncommon to read a newspaper or hear a television or radio report of an attack on a merchant ship by Somali pirates in the Gulf of Aden. Many of us will have followed the story of the seizure in September 2008 of the Ukrainian owned ship FAINA carrying tanks and weapons to Kenya (released last month after the payment of a ransom believed to be of about US$3.2M) or the reports of the oil tanker SIRIUS STAR carrying an oil cargo valued at US$100M when she was seized by pirates 450 miles south east of Mombasa.

When a merchant ship is attacked by pirates, immediate concern, understandably, focuses on the safety of the crew. However, such humanitarian concerns aside, there is little doubt that the financial consequences of a ship seizure by pirates can be huge, not only in terms of lost revenue but also in relation to the costs involved in arranging for the ship's release. Our session this morning is to highlight some of the legal issues which may arise out of the seizure of a ship by pirates operating in the Gulf of Aden. Naturally, definitive answers to particular problems will depend on the precise wordings of contracts and insurance policies, but this paper will consider some of the general principles involved.

2. What is piracy?

It is unfortunate that there is no precise definition of piracy.

For the purposes of marine insurance, a pirate is someone who plunders indiscriminately for his own ends rather than someone who is acting to advance a particular political cause. So, in Republic of Bolivia - v - Indemnity Mutual Marine Assurance Co [1909] 1 KB 785, it was held that there was no piracy when Brazilian insurgents seized goods intended for Bolivian troops.

Schedule 1, Rule 8 of the Marine Insurance Act 1906 provides that the term "pirates" includes passengers who mutiny and rioters who attack the ship from the shore.

In The Andreas Lemos [1983] 1 All E R 590, a ship anchored within port limits and within territorial waters of Bangladesh was boarded by thieves armed with knives. Some equipment was stolen, but on the facts this was found to be clandestine theft, not piracy. Staughton J held that force or a threat of force was necessary to elevate theft to piracy under a policy of marine insurance - " is not necessary that the thieves must raise the pirate flag and fire a shot across the victim's bows before they can be called pirates. But piracy is not committed by stealth."

Staughton J also held that piracy is not confined to acts outside territorial waters - "...if a ship is, in the ordinary meaning of the phrase, "at sea" or if the attack on her can be described as "a maritime offence", then for the business purposes of a policy of marine insurance, she is, in my judgement, in a place where piracy can be committed.".

It is the pirates' motive which is the important issue. Although precise information on the reasons behind the recent increase in attacks is not yet available, the consensus is that the goal of the pirates is mere financial gain through ransom demands rather than any larger political motive.

3. Can a ship owner refuse the charterer's order via the Gulf of Aden?

This question highlights the conflict between, on the one hand, the ship owner's obligation to his charterer (and to the holders of bills of lading) to prosecute the voyage with reasonable or utmost despatch by the usual and most direct route, and, on the other, the ship owner's concerns for the safety of his ship and crew and the right to avoid areas where there is a real risk of attack.

As the piracy risks in the Gulf of Aden have increased, ship owners have been looking closely at their charterparty terms to see if they (owners) have the right to refuse what would otherwise be legitimate orders. Many charterparties now incorporate a CONWARTIME clause which contains two relevant provisions:

(i) the term "war risks" is defined as including "... acts of piracy ... by any person, body ..." which " ... in the reasonable judgement of the master and/or the owners may be dangerous or are likely to become dangerous to the vessel, her cargo, crew or other persons on board the vessel"

(ii) the ship "... shall not be ordered to or required to continue to or through any ... place, area, zone ... where it appears that the vessel, her cargo, crew or other persons on board the vessel, in the reasonable judgement of the master and/or the owners may be or are likely to be exposed to war risks ..."

While it would appear that the attacks on shipping in the Gulf of Aden fall within the above definition of "war risks", the ship owner may only refuse the orders of the charterer to proceed on a voyage via the Gulf of Aden if, in the "reasonable judgement" of the master and/or the ship owner, the ship "may be" or is "likely to be" exposed to attack. Thus, the ship owner does not have an unfettered discretion to decide whether or not to continue with a voyage into the Gulf of Aden - the master might genuinely believe that his vessel may or is likely to be exposed to war risks, but that opinion would have to be shared by a reasonable and prudent master, ie the objective test, for a decision to avoid the Gulf of Aden to be justified.

It might be very difficult for a ship owner to refuse an order to transit the Gulf of Aden when the vast majority of ships still follow that route. The statistics currently show that there is a less than a 1% chance of a ship being seized - and a fear or apprehension of attack would not be sufficient to invoke the clause.

4. Other charterparty issues

4.1 Issues of hire

In the event of a seizure by pirates, does the ship remain on-hire? This will depend on the construction of the charterparty clauses. Consider the standard off-hire clause in the NYPE form, at clause 15, which provides

" the event of loss of time from deficiency of men or stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, dry docking for the purpose of examination or painting bottom or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost ..."

Is piracy an off-hire event to justify charterers deducting hire for the time lost? Specific provision might be made at the contract negotiation stage to include piracy as an off-hire event, but whether or not a ship owner would accept such a term will depend of the bargaining power of the parties.

Deviation and other clauses will also have to be reviewed to consider whether they are sufficiently wide to maintain the ship on-hire even in the circumstances of a piracy attack and seizure where the ship would inevitably depart from the normal route and the voyage delayed.

4.2 Is the charterer's safe port warranty relevant?

Decisions of the English Court have confirmed that the charterer's warranty to trade the ship only between safe ports covers the approaches to a port as well as the port itself. However, if the ship is merely transiting the Gulf of Aden rather than heading for a port in that area, it is unlikely that the route via the Gulf of Aden could be considered an "approach" to the port to which the ship has been ordered. The charterer's safe port warranty does not extend to the safety of the ocean voyage.

4.3 Indemnity

Would either party have a claim for damages against the other in connection with a piracy attack or the seizure of the ship? In particular, would the ship owner be entitled to seek an indemnity from the charterer for losses which the ship owner sustains from complying with the charterer's legitimate order for the ship to transit the Gulf of Aden? (consider the decision of the Court of Appeal in the Island Archon [1994] 2 Lloyd's Rep 227).

4.4 Are there issues of seaworthiness?

Many charterparties incorporate the Hague Visby Rules, Article III, Rule 1 of which provides

"The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to-
(a) Make the ship seaworthy.
(b) Properly man, equip and supply the ship.
(c) Make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation."

A ship owner would thus have an obligation to ensure that his ship is seaworthy for the contemplated voyage, ie one which will transit the Gulf of Aden in the current climate and is properly manned by a competent crew. Relevant factors might include whether the master and crew were effectively trained to be able to deal with a potential piracy situation, given that the voyage was to pass through a high risk area, and whether the ship was equipped with the necessary security features to prevent easy access to the ship by pirates.

5. The payment of a ransom for the ship's release

5.1 The legality of a ransom payment

Under English law, the payment of a ransom is not itself illegal. However, under the Terrorism Act 2000, a person commits an offence if he provides money or other property and knows or has reasonable cause to suspect that it will or may be used for the purposes of terrorism. Given that the current view is that the pirates in the Gulf of Aden are acting out of personal gain rather than any political motive, any ransom payment would not fall foul of this legislation.

Intended ransom money in the hands of the ransom payer would not be covered by the Proceeds of Crime Act of 2002. However, once in the hands of the pirates, the ransom money would be considered as the proceeds of a crime.

While the payment of a ransom in these circumstances is not a breach of English law, there are some countries where the payment of a ransom is indeed illegal.

5.2 Insurance issues

5.2.1 Piracy is a marine peril under the Institute Time Clauses - Hulls 1.10.83 (clause 6.1.5). Terrorist acts are considered as a war risk and are covered under the Institute War & Strikes Clauses - Hulls Time (clause 1.1.5).

5.2.2 Can a ransom payment made by the ship owner for the release of the ship (and her cargo, crew and bunkers) be considered as general average? Section 66(2) of the Marine Insurance Act 1906 provides:

"There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in the time of peril for the purpose of preserving the property imperiled in the common adventure"

The ransom payment could indeed be considered as extraordinary expenditure for the common benefit of the adventure. If it were to secure the ship's release, it is arguable that the other interested parties to the adventure (eg the cargo owners, charterers) should pay a general average contribution.

Given that the payment of a ransom will, it is hoped, also secure the release of the crew unharmed, it is possible that the ship's P&I Club, which carries the risk of crew injury, might contribute to the ransom payment.

5.2.3 Alternatively, it is possible that the payment of a ransom by a ship owner to secure the release of his ship can be considered a sue and labour expense, assuming that the policy covers the peril which the sue and labour expense (ie the ransom) was paid to avoid. Hull and cargo policies generally contain a "duty of assured" clause requiring the assured to take such measures as may be reasonable to minimize or avert a loss which would be recoverable under the policy (mirroring section 78 of the Marine Insurance Act 1906).

6. Employment matters

Under English law, an employer owes a duty to his employees to take reasonable care for their safety. In circumstances where a ship owner, as an employer of crew, knows that his ship is to transit a high risk area such as the Gulf of Aden, the standard of care will be a high one. While the ship owner is not required to guarantee that there will be no risk at all to the employee on the voyage, the ship owner, as employer, must take reasonable steps to reduce the risk of harm as far as reasonably possible. After the crew's release from the trauma of detention at the hands of pirates, the ship owner ought to ensure that crew members have access to professional counseling.

7. Summary

Given the available time at this morning's session, I have merely highlighted some of the legal issues related to the events in the Gulf of Aden. This is a current and evolving subject and it is likely that if events change in the Gulf of Aden, commercial interests will have to react.

The increased naval presence in the area has resulted in 2009 seeing a slight decrease in the number of attacks on ships, but the problem remains. Given the importance of the area in terms of shipping volume - it is estimated that annually in excess of 20,000 merchant ships pass through the Gulf of Aden - it is a problem which will have to be resolved. The additional costs of ships taking the longer route to Europe via the Cape of Good Hope will merely increase prices in the shops, something which we can all ill afford in the current economic climate.

Laurence Marron
March 2009




The contents of this bulletin are not intended to be a substitute for legal advice on any of the specific issues discussed in it.


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