Thomas More Institute

for a more informed ethical engagement in public and professional life

The Law and the Sea: Ownership, Risks and Pirates

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Ship Ownership – Should a ship’s true ownership be permitted to be obscured?

In theory, at least, every vessel has a unique 'IMO Number' which is provided to its Registered Owners at the time of its first registration with the International Maritime Organisation ('IMO') as a 'newbuilding', i.e. a newly built vessel.

The purpose of a vessel’s IMO No. is to make it as easily identifiable as possible, for various reasons.

There are various websites, such as Equasis.org (a database containing safety-related information on the world’s merchant fleet from both public and private sources) and Sea-web.com (Lloyd’s Register of Ships online), via which, with the necessary subscriptions, further information may be obtained about specific vessels.

However, whilst the registered ownership of vessels is (by means of such websites) becoming more easily identifiable, historically and indeed even still on many occasions today, it is less than straightforward to establish precisely who owns vessels and should, on occasion, ultimately, be held responsible for incidents arising in respect of their vessels.

Most commercial vessels have Registered Owners who are invariably a company, as well as Managers/Operators, who are invariably a company also, frequently operating from such places as Piraeus, the port of Athens in Greece.

The vast majority of the companies which are Registered Owners of vessels are, themselves, registered in such places as 80, Broad St., Monrovia, Liberia, West Africa, and hardly therefore readily accessible, whether geographically or legally.  Indeed, thousands of so-called 'one-ship companies' (that is to say companies each being the registered owner of one single commercial vessel in order to limit the reach of legal liability) are registered at that precise address in Liberia.

In any event, what is known as 'lifting the corporate veil' can be extremely complicated, difficult to achieve and highly costly.

To make matters still more complicated, a vessel’s name may be altered completely at practically any time or just altered slightly such as by the addition of a roman numeral after its name, i.e., the M/V 'RUST BUCKET' may become the M/V 'RUST BUCKET I' practically overnight.

In those circumstances in which the subject vessel’s IMO No. is not known, identifying that vessel and her Owners is often less than straightforward.

Historically, the reason why Liberian ship-owning companies were so popular was that so-called 'Bearer Shares' could be held in such companies and ownership of those companies could thus be passed, literally, from 'Bearer' to 'Bearer', rendering service of legal documents, such as a Claim Form, on the correct person(s) extremely difficult, if not impossible.

There were calls for this type of ship ownership to be forbidden and progress was made, thanks to the IMO, on that front.

Nevertheless, suffice it to say that a ship’s real ownership can still be obscured, usually intentionally but sometimes unintentionally.  Here, I am thinking of where a vessel involved in an incident is on 'demise' or 'bareboat charter', i.e., a charter operating as a lease of the vessel rather than as a contract of carriage, i.e. a charterparty or bill of lading.  Whereas in an ordinary time charter the shipowner retains control over the operation of the vessel, under a demise charter the charterer displaces the owner and, for the period of the 'lease', takes possession and complete control of the ship.  Under this type of contract, the charterer mans and equips the vessel and assumes all responsibility for its navigation and management.  For all practical purposes, he acts as owner for the duration of the charter and is responsible for all expenses incurred in the operation of the vessel, and also for insuring her.

In any event, one might ask oneself whether shipowners should be permitted to obscure the ship ownership situation such that, through ignorance of who they are, or perhaps due to some technical error made by lawyers acting against the shipowners, or at least seeking to act against them, the shipowners may not be correctly identified and may consequently escape legal liability and its associated negative publicity.

Perhaps this might be a topic for later discussion?

'Flags of Convenience' - Should the situation be legally acceptable?

What are Flags of Convenience?  Well, the International Transport Workers' Federation ('ITWF') describes a 'flag of convenience ship' as 'one that flies the flag of a country other than the country of its ownership', meaning registered ownership.  The ITWF’s website further explains that 'cheap registration fees, low or no taxes and freedom to employ cheap labour are the motivating factors behind a shipowner's decision to 'flag out.'  The ITWF takes into account the degree to which foreign-owned vessels are registered and fly the country flag, as well as the following additional criteria, when declaring a Ship Register a 'Flag of Convenience': 

• The ability and willingness of the flag state to enforce international minimum social standards on its vessels, including respect for basic human and trade union rights, freedom of association and the right to collective bargaining with bona fide trade unions.
• The social record as determined by the degree of ratification and enforcement of ILO (that is Maritime Labour) Conventions and Recommendations.
• The safety and environmental record as revealed by the ratification and enforcement of IMO Conventions and revealed by port state control inspections, deficiencies and detentions. 

The ITWF believes there should be a 'genuine link' between the real owner of a vessel and the flag the vessel flies, in accordance with the United Nations Convention on the Law of the Sea ('UNCLOS'). There is, however, no 'genuine link' in the case of 'Flag of Convenience' ship registries. Some of these ship registries have poor safety and training standards, and place no restriction on the nationality of the crew. Sometimes, because of language differences, seafarers are not able to communicate effectively with each other, putting safety and the efficient operation of the ship at risk (not to mention rendering them extremely lonely for months on end).

In many cases these flags are not even run from the country concerned.

Once a ship is registered under a 'Flag of Convenience', many ship owners then recruit the cheapest labour they can find, pay minimal wages and cut costs by lowering standards of living and working conditions for the crew.

Globalisation has helped to fuel this rush to the bottom.  In an increasingly fierce, competitive, shipping market, each new 'Flag of Convenience' is forced to promote itself by offering the lowest possible fees and the minimum of regulation.  In the same way, some ship owners are forced to look for the cheapest and least regulated ways of running their vessels in order to compete, and 'Flags of Convenience' provide the solution.

Non-Disclosure – Could, and, if so, should, more be done about this?

Not all, but some, ship owners seem to find it impossible to locate documents which, pursuant to CPR Part 31 and the Practice Direction thereto (relating to the 'disclosure and inspection of documents'), they are obliged to disclose.  In such circumstances, ultimately (after complaints have been expressed), the best that can be done, if positive evidence that the documents in question were,or must have been, drawn up is not obtained, is that the other party’s lawyers request that the Court or Tribunal 'draw the necessary adverse inferences' from the non-disclosure.  I do not wish to consider this issue further now, but it is certainly one regularly encountered in commercial shipping and commodity dispute resolution, whether that be by way of litigation or arbitration.

Limitation of Liability – Should shipowners be entitled to limit their liability nowadays?

One of the unique features of maritime law is the ship owner’s right to limit his liability for loss or damage resulting from negligent navigation or management of his vessel.  Originating in the nineteenth century, the limitation rule is one of the first examples of 'protectionism' in the form of state support for the shipping industry.  Its retention nowadays is justified not so much on its history as on its providing the shipowner with a calculable risk before embarking on a trading venture.  According to Lord Denning M.R., it 'is a rule of public policy which has its origin in history and its justification in convenience'.  And according to Lord Justice Griffiths, 'It is a right given to promote the general health of trade and in truth is no more than a way of distributing the insurance risk'.  The argument is that if the maximum liability of the shipowner can be assessed in advance then it should be easier and cheaper to obtain insurance cover – a factor also important to the injured party if he can thus be certain of recovery in the event of loss.

Historically, two main systems of limitation of liability have developed over the years.  In its earliest form, a ship owner’s liability was limited to the value of his vessel – together with the current freight.  This system still operates in many countries, including the United States, but has two serious disadvantages.  On the one hand, the older and more decrepit the vessel, the more likely that claims will arise but the smaller will be the compensation fund.  On the other hand where, as in the United States, the fund is limited to the value of the vessel after the casualty, plus the pending freight, only the minimum of compensation is likely to be recovered, particularly if the vessel is lost in the collision.

The alternative formula, based on the tonnage of the vessel, was introduced in the United Kingdom in 1854, and has subsequently been adopted in a series of international conventions drafted in the twentieth century.  A fund is thus created, varying with the size of the vessel involved, out of which all claims for personal injury and property damage have to be met.  Should the claims exceed the amount of the fund, they are abated pro rata.

Whilst the formula will often produce a larger fund than under the old 'valuation' system, there remains the problem that such a method of calculation may unduly benefit the owners of smaller vessels, since the latter are often capable of inflicting an equal amount of damage to their larger counterparts.

Despite the status quo, one might ask oneself whether shipowners should be entitled to limit their liability nowadays?

The Repatriation of Seafarers and Stowaways – Should they be better protected by the law?

A significant number of seafarers are abandoned each year by ship owners around the world without fuel or supplies.  Moreover, frequently, stowaways are not repatriated until some months after their initial disembarkation.

Shipowners are regularly urged by their insurers not to rely upon port security in the usual stowaway 'hot spots' and to take all reasonable precautionary measures to prevent stowaways getting on board.

It is clear that some seafarers and stowaways are not treated with the human dignity that they should be.

Seafarer Fatigue and the Safe Manning of Ships – Should the legal position be improved?

 'Seafarer fatigue' has long been an issue in many ways.  Depending on the circumstances (such as the type of ship and cargo and geographical location) the effects of seafarer fatigue may be fatal, not only resulting in the crew dying and/or the ship and cargo being lost or damaged but the marine and general environment being damaged too.

In a recent flyer to ship owners issued by the Marine Accident Investigation Bureau, the MAIB advised owners (once again) to consider the appropriate manning levels required for each voyage based on the hours the crew would have to work, and to introduce measures to ensure that each crew member was properly rested to avoid accidents.  Owners should also ensure that the bridge watch alarm is sited such that that a watchkeeper is not able to cancel the alarm whilst seated in the wheelhouse chair (potentially taking a nap).

'Safe manning' is dependant upon the flag of the vessel and its type and is the bare minimum needed to safely work the vessel.  One will quite often find that if one mans at the level shown on the Safe Manning Certificate, one cannot comply with the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers ('STCW') Chapter VIII work and rest rules.

These rules stipulate that any officer or rating forming part of a watch must have a minimum of 10 hours rest in any 24 hour period. The rest period may be divided into two periods, one of which must last at least 6 hours.

These rest periods need not be maintained in case of an emergency, an emergency drill or any other overriding operational conditions.

One can also override the rest period requirements by reducing the 10-hour requirement to a single 6 hour period, provided that any such reduction does not extend beyond 2 days and not less than 70 hours of rest are provided in each 7-day period.

Confused?  That’s why certain companies actually keep their work and rest log book in their head office (in a certain Mediterranean town) and that log bears no resemblance to the hours actually worked because with a crew level barely above safe manning it is not possible to work the ship, to make money, and observe the work and rest requirements.

Perhaps this is also, therefore, a possible topic for later discussion?

Piracy – Is this or will it become a form of terrorism?  How should it be dealt with?

We have all seen, at least, headlines in recent times regarding piracy.  The issue is highly topical and raises a number of policy issues.  For example: 

• the right of the Master/crew/shipowner to defence by arms;
• the obligation on states to protect international merchant shipping from attacks;
• the breakdown of law and order in failed states such as Somalia;
• the potential consequences if nothing is done (for example, loss of life/an increase in freight costs – passed on to the consumer because ships avoid the Gulf of Aden, etc.; and
• possible environmental damage if a ship and/or its cargo is damaged during a pirate attack.

According to experts on this issue (such as Christopher Coker – a Professor of International Relations at the LSE with NATO experience), shipping now operates in an environment characterized by risk.  In Coker’s view, 'We can’t eliminate risk, we can only manage it'.  Piracy will never be stamped out.  It is a consequence of an increase in population and hunger.  Hunger in the world’s shanty towns makes them breeding grounds for the foot soldiers for those with influence and access to food.  Worryingly, Professor Coker considers that, 'We have neither the political will, nor the resources, nor the cultural ruthlessness, to eradicate piracy'.

Moreover, Coker is convinced that there is a strong connection between piracy and terrorism; pirates will move from begging to menacing.  He asks, 'What happens if they switch off access to the Gulf of Aden or the Strait of Malacca?'.  To do that, pirates would have to link up with terrorists.

The fact is that few states feel obliged to help shipping, which leaves shipping left to help itself.  Ship operators and managers must learn to become risk managers.  Risk management means categorising ships and trades into low, medium and high-risk ventures and acting accordingly.  This may mean that medium-risk ships take on security advisors with SAS or Royal Marines training, to provide the combat perspective seafarers do not have; they boost morale, confidence and preparedness, and bring on board the very latest intelligence.  Yet while some ship managers are lining the ships they manage with barbed wire and ensuring that those ships are navigated through danger areas at night, where possible, because pirates rarely attack in the dark, Professor Coker is urging shipping to leave behind its 19^th-century images of piracy.  Two hundred years ago, (as former U.S. President George W. Bush would probably have described it) pirates were 'hunted down and destroyed'.  Pirates used to be regarded as terrorists; they should, in Coker’s view, be seen as terrorists now.

Everyone seems to agree that the threat of piracy cannot be eradicated.  The primary question then is how to manage effectively the risks faced by seafarers.

Far from improving, piracy off the African coastline is becoming progressively worse, more violent and more frequent, with mounting evidence of criminal syndication.  Crime syndicates are moving into piracy to add their know-how and expertise.  Africa is now the world’s number one hot spot for piracy, with 65% of the incidents reported in 2008 having taken place off the African coast.  The seas off Somalia and the Gulf of Guinea are by far the most dangerous, whilst ports in Tanzania and Mozambique and parts of West Africa are becoming vulnerable.

Pirates operating off Somalia use violence during the initial attack, with sophisticated weaponry (including automatic weapons and rocket-propelled grenades), but their ultimate purpose is to kidnap crew members and demand ransom for their safe return with the ship.  Attacks of this nature require a level of sophistication normally associated with organised crime, to conduct negotiations and arrange for the transfer of ransom monies as well as the use of more sophisticated vessels to reach distances of up to 400 nautical miles off the coast from which to launch their attacks.

African security analysts (such as Henri Fouché) consider that in spite of the presence of warships of various nations, the situation is unlikely to be resolved until the source of the problem – lack of a functioning central government in Somalia and of a law enforcement structure – is resolved.  'The successful combating and investigation of piracy, needs focused, terrestrial-based intelligence gathering on the pirate gangs and a mechanism for robust prosecution and the imposition of severe sentences.  This is essentially a task for law enforcement', Fouché has said.

Analysts of African criminal codes (such as Lukas Swart) agree that there is mounting evidence of the involvement of organised crime syndicates in piracy off the African coast.  However, some suggest that these syndicates are, themselves, for the time being at least, African in origin (rather than international criminal groups).  The pirates are making use of their ability to acquire prior knowledge of shipping movements and of the cargos being carried.  There is strong evidence that the Somali pirates belong to a specific cultural group, making it imperative to understand what motivates the group.  The majority of Somali pirates are fishermen or nomads of an African, rather than Arabic, background.  They are, experts suggest, however, no 'rag-tag' army of opportunists and operate according to strict codes of conduct.  Therefore, some experts consider that a good understanding of their cultural background is necessary to understand them and without that knowledge, no attempt at negotiation with African pirates, where attempted, will ever succeed.

Nevertheless, security firms are rapidly stepping into the counter-piracy business, intending, for example, to put guards aboard ships sailing between the Suez Canal and the Arabian Sea.  They say they 'won’t be providing a gunslinger cowboy-type approach' but rather 'a proactive response aimed at deterring and preventing pirates from ever getting on board merchant ships'.

According to the CEO of one such company (Schalk Fourie of SecuroQuest), 'Some … companies … want armed guards and equipment taken on board their vessels; others want our people on board to be unarmed.  But each ship we guard will be backed up with sufficient know-how to avoid capture, along with a rapid response team undertaking constant aerial and seaborne surveillance and able to respond using helicopter, fixed wing and unmanned air vehicles'.

From an insurance perspective, piracy obviously raises some interesting issues.  Perhaps suffice it to say on this occasion that 'piracy' is covered as an 'insured peril' under section 55 of the Marine Insurance Act 1906, which, thanks to Sir Mackenzie Chalmers, codified and clarified the previously voluminous case-law on marine insurance and remains in force today.

Moreover, 'ransom' funds paid to pirates are recoverable, where necessary, as a 'sue and labour' expense (as outlined by s.78(1) of the 1906 Act) as they are paid to protect insurable and insured property, which is deemed laudable, albeit that the piracy activity is of course criminal.  However, technically, the assured is, pursuant to s.78(4) of the 1906 Act, under a duty to mitigate his loss under this heading and therefore, in theory (although I have no experience of this), an assured who makes a ransom payment is bound to evidence to his insurer that he has taken reasonable steps to avoid the payment or, at least, negotiate its terms.  Such a situation may be avoided altogether, I understand, by Owners taking out specialist ransom insurance cover.

U.S. Coast Guard Commandant Admiral Allen said last week that armed security teams on merchant ships represent one of several viable options to help reduce ships’ vulnerability to pirates.  He made that statement whilst announcing that the U.S. Coast Guard would be issuing a new maritime security directive which would address 'additional security measures authorized and required by vessels operating in waters threatened by piracy'.  In the wider context, Admiral Allen said that piracy is a 'symptom' of instability, particularly in Somalia, and that, 'The only long-term solution must address piracy’s root causes in Somalia itself: political instability and lack of economic opportunity.  Until this happens, the U.S. and the international community must treat the symptoms and secure the maritime domain and protect its seafarers by improving response options, reducing vulnerabilities and establishing effective legal mechanisms to deliver consequences against pirates'.

Pursuant to the current 'rules of engagement' with which the U.K.’s Navy and others (such as the U.S., Canadian, Indian and Dutch) are obliged to comply, naval intervention is only permitted during the (often very few) minutes in which the pirate attack is actually happening: once the pirates are aboard the target vessel, naval intervention is not permitted.  Some, like me, may wonder whether the rules should be amended given the inevitable practical effect they have on extremely expensive naval attempts to achieve improvements to the current situation?

Finally, it would seem that legislation is being planned in the U.S. that could bar the vessels of ransom-paying shipowners from U.S. ports.  This, somewhat surprising, move is apparently in response to Administration claims that ransoms paid to pirates to secure the release of vessels, cargoes and crews are making it more difficult to combat the piracy scourge.  The legislative idea was officially rejected only last Friday by the Council of American Master Mariners.  CAMM’s President, Cal Hunziker, has expressed the view, however, that the idea indicated 'overreaching by Congress' and 'would dramatically impede commerce'.  Meanwhile, the Somali region known to be home to many of the country’s pirates now has its own lobbyist on Capitol Hill.  The state of Puntland, autonomous since 1998, has apparently hired the Washington D.C. lobbying firm Duane Morris to represent its interests within the U.S. Congress.

Duane Morris, which is a law and government affairs firm, has agreed to represent Puntland for US$10,000 a month to make the case on Capitol Hill and within the Obama Administration to obtain assistance and funds for security, infrastructure, social services, healthcare, mass media and the democratisation process.  Secretary of State Hillary Clinton has said that a State Department diplomatic team will meet with the Somali government and regional leaders in Puntland to discuss a proposed – but not yet Congressionally approved – US$5M grant to improve Somali security services.

Closing comments:

If you would like to investigate further any of the points I have raised, you may find the websites of the Sailors’ Society and the International Transport Workers’ Federation of particular interest.

In view of time constraints, I have had to leave environment-related issues for another day.

Thank you for listening.