Piracy

September 2008

The International Maritime Bureau’s website contains a weekly pirate report, live piracy map and has been carrying a piracy alert from 26 August 2008, reporting on an upsurge in pirate activity in the Gulf of Aden.[1] Of the seven incidents reported to the IMB Piracy Reporting Centre[2] between the 19 and 23 September 2008, three involved incidents in the Gulf of Aden, with a chemical tanker and RoRo reported as boarded and taken by pirates along with her crew. In respect of these vessels, the IMB website simply records “further details awaited”. In fact, worldwide pirate attacks in 2007 rose by 10% on the previous year, with 263 recorded attacks and an increase of 35% in armed attacks. The increase was attributable to incidents off Nigeria and Somalia. In the first six months of 2008, 18 and 24 incidents were reported in these areas, while in September scarcely a day seemed to go by without news of another incident off Somalia.  

Irrespective of the financial costs of the threat of piracy to property, the risk to life is clearly unacceptable. On 2 June 2008, the UN Security Council issued Resolution 1816 (2008) allowing naval vessels of states co-operating with Somalia’s Transitional Federal Government for a period of six months to enter Somali territorial waters to use “all necessary means” to repress acts of piracy and armed robbery at sea. In addition, and as a specific response to the increased number of incidents in the Gulf of Aden, as well as the increasing use of violence, a Maritime Security Patrol Area (“MSPA”) was established in late August by the US Naval Central Command to support the IMO’s efforts to suppress piracy in the region. The MSPA is a corridor in the Gulf of Aden that is patrolled by coalition naval vessels[3] in the area. The International Convention on the Law of the Sea 1994 (UNCLOS) also provides for the concepts of “right of visit“[4] and “hot pursuit”[5] which allows naval vessels to board foreign vessels on the high seas, and to pursue pirates from their territorial waters into the territorial waters of other states and, if captured, put them on trial.    

Definitions of Piracy and Terrorism  

Piracy is defined in UNCLOS 1982 article 101 : 

“Piracy consists of any of the following acts: 

(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 or a private aircraft, and directed: 

(i)         on the high seas, against another ship or aircraft, or against persons or property on board such ship or aircraft; 

(ii)        against a ship, aircraft, persons or property in a place outside the jurisdiction of any State; 

(b)        any act of voluntary participation in the operation of a ship or of an aircraft with knowledge of facts making it a pirate ship or aircraft; 

(c)        any act inciting or of intentionally facilitating an act described in sub-paragraph (a) or (b).

 There is no universally accepted definition of terrorism[6]. One academic definition based on a linguistic survey of over 100 definitions from around the world[7] is: 

Terrorism is an anxiety-inspiring method of repeated violent action, employed by (semi-) clandestine individual, group or state actors, for idiosyncratic, criminal or political reasons, whereby – in contrast to assassination – the direct targets of violence are not the main targets’ 

Terrorism is defined under the English Terrorism Act 2000 (as amended by the Terrorism Act 2006) : 

(1)        In this Act "terrorism" means the use or threat of action where: 

(a)        the action falls within subsection (2),  

(b)        the use or threat is designed to influence the government or an international governmental organizationor to intimidate the public or a section of the public, and 

(c)      the use or threat is made for the purpose of advancing a political, religious or ideological cause.  

(2)        Action falls within the subsection if it: 

(a)      involves serious violence against a person,

(b)      involves serious damage to property,

(c)        endangers a person's life, other than that of the person committing the action,

(d)      creates a serious risk to the health or safety of the public or a section of the public, or

(e)      is designed to seriously interfere with or seriously to disrupt an electronic system. 

(3)        The use or threat of action falling within subsection (2) which involves the use of firearms or explosives is terrorism whether or not subsection (1) (b) is satisfied. 

Therefore, piracy can be contrasted with terrorism. In straightforward terms piracy is a criminal activity for the personal benefit or profit of the person or persons committing an act of piracy. In contrast, terrorism has a political objective, aim or agenda, of seeking, by the use or threat of violence, to coerce or induce a government or a population to change its policies or programs. 

P & I liabilities 

P & I liabilities (incurred by owner and charterer members) arising from both piracy and from terrorism (and other specified acts of hostility set out in the Rules under “War Risks”) are covered by entry in the Club, albeit on separate terms and conditions:  

1. Piracy - P & I liabilties 

Subject to the terms of entry in the Club, an owner of a vessel has cover against liabilities arising under the contract of carriage for delayed delivery or damage to cargo, or injuries or death of crew members, collision, pollution and wreck removal. If these liabilities arise as a consequence of, or are caused during, a pirate attack or seizure, they will be covered in the normal way under the Club’s Rules. Piracy is not an excluded cause of liability under the Club’s Rules. As in every case involving P & I risks, of course, the question whether cover is available will depend on the facts of any incident, and whether, given the requirements of mutuality, the vessel has been employed in an unlawful, imprudent, unsafe or unduly hazardous or improper trade[8]. 

2. Terrorism (and other specified war risks under Rule 21) - P & I liabilities 

Liabilities, costs and expenses arising from an incident caused by “i. war, civil war , …….. or any act of terrorism; ii. capture, seisure….. (barratry or piracy excepted) and the consequences thereof or any attempt thereat; …” are excluded from normal P&I cover[9]. The consequence is that, unlike piracy, liability arising from most “war like” perils - terrorism amongst them - is excluded under standard Club cover. However, as members will be aware, insurance for such liabilities is largely reinstated by the War Risk Extension clause provided to all mutual members. The clause sets out the terms of cover which is somewhat different to the normal P&I Rules. It is limited to US$500 million, any one event, and to “an excess of either: … 

a) the "proper value" of the entered ship …… (which, for the purpose of this War Risk Extension cover only is deemed not to exceed US$100 million), or

b) the amount recoverable in respect of the claim under any other policy of insurance, whether of war risks or otherwise, whichever shall be the greater……..” [10] 

The distinction between piracy and terrorism is thus significant from an insurance perspective because the structure and limits of cover are different according to whether P&I liability has arisen as a consequence of an act of piracy or a terrorist (or other war like) incident. 

Similarly, but subject always to the limits and particular terms applicable to a chartered entry in the Club, charterer members are covered for P & I liabilities arising as a consequence of a pirate attack.  

For charterers in particular, and in many cases for owners too, claims arising from piracy give rise to the following questions;  

(a) In what circumstances will the charterers be liable to the owners, and  

(b) For what kinds of loss and damage? 

(i)        Unsafe Port claims 

The legal definition of a safe port is in negative terms:  

“... a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence being exposed to danger which cannot be avoided by good navigation and seamanship...”[11] 

The recent increase in the number of attacks in the Gulf of Aden may well be such as to make any ports in the area ‘unsafe’ if the threat of attack can be said to be a characteristic of ports in the area. Although always a question of fact, if at the time of the order to sail to a port the vessel is unable to “reach the port, use it and return from the port” without being exposed to danger, that port will be unsafe and the charterer liable for damages flowing from that order. As such a charterer may be exposed to claims by the owners in respect of liabilities under the contract of carriage, for damage to or delay in the delivery of cargo carried onboard the vessel, liabilities to crew, as well as damage or loss of the vessel.  

In The “Saga Cob” (1992) 2 Lloyd’s Rep. 545 it was held by the Court at first instance that on 26 August 1988, it was a characteristic of the port of Massawa that vessels proceeding to and from it or at anchor outside the port could be subject to seaborne attack. Therefore, the port was prospectively unsafe at the time the order to proceed to the port was given. However, the Court of Appeal ruled that although a seaborne attack was foreseeable there had been none since an incident some three months earlier, which itself was held to have been isolated and abnormal. Thus the earlier court decision was reversed because it was not correct to say that an attack or even the risk of such an attack was a normal characteristic of the port of Massawa, Eritrea.  

If the port is unsafe for the vessel when ordered to sail to that port the owner has a right to reject the order and request further legitimate orders. However, if an owner complies with an order to  proceed to a port he knows to be unsafe, it does not necessarily follow that he will lose any entitlement to damages or indemnity from the charterers[12]  in the event of loss of damage to his vessel. Unless there is an unequivocal waiver of the right to claim damages or the port is obviously unsafe, the only right waived by accepting that order is the right to reject an “uncontractual” order to go to that unsafe port [13].    

(ii) Employment and Indemnity vs. Navigation 

Clause 8 of the standard NYPE charter form provides an implied indemnity against losses which occur as a result of the owners following the employment orders of the charterers.  

"The Captain (although appointed by the owners) shall be under the orders and directions of the charterers as regards employment;” 

When a vessel is on time charter the master is under the orders of the charterer and must generally comply with the charterers’ lawful orders – for example to proceed only to safe ports. The general principle is this: in return for complying with the charterers’ legitimate orders as to the employment of the vessel, and as long as there is an unbroken chain of causation and no charterparty terms to the contrary, the owner will normally be entitled to an implied indemnity from the charterers against his loss/liability  . 

Thus, it might be thought that an order to sail from port x to port y via the Gulf of Aden will, absent any intervening event, give rise to an indemnity for any losses flowing from that order. So if the vessel is attacked by pirates, the charterers on this basis should indemnify owners against any liability for consequent cargo or crew claims. Nevertheless, an owner is not always owed an indemnity for complying with the charterers’ orders as to employment.  

Lawful orders as to employment of a vessel given by charterers must be distinguished from navigational considerations which are the responsibility of the master. While charterers may give instructions as to the route to be followed for a voyage[14] the master remains responsible for safe navigation and the safety of the vessel, her crew and cargo. This may create a potential source of conflict if the master considers that the route to be followed creates an unacceptable risk.

In extreme situations, the master, as is often said in the safe port cases, is on the horns of a dilemma. On the one hand he is required to follow charterers’ lawful orders as to the vessel’s route and is under an obligation of utmost dispatch, but on the other he is responsible for the navigation and safety of the vessel, her crew and cargo. An indemnity will not arise automatically, if whilst complying with charterers’ orders to sail via the Gulf of Aden, the vessel is attacked by pirates, and as a consequence owners suffer losses. In such a case it may be argued that, in accordance with the master’s responsibility for the navigation and safety of the vessel, her crew and cargo, he should have refused to comply with the order, or required or devised an alternative, safer route.  

Clearly much will turn on the facts of any particular matter, both as to the extent of the danger in that area at that time, the information available to both owners and charterers, and the navigational decisions taken by the vessel’s master.  

(iii) Hire 

Whether a vessel will be off hire as a consequence of a pirate attack will depend on the charterparty off hire clause. A vessel is likely to be ‘off-hire’ if, as a result of a pirate attack, the vessel is not able to render the service then required of her by charterers, and provided that the time thereby lost is as a consequence of the one of the causes listed in the off hire clause[15]  

It is for charterers to bring themselves clearly within an off hire clause. The clause is often amended by the addition of the words “or by any other cause whatsoever” or “or by any other cause”.  

The word “whatsoever” is key. None of the off hire events listed under a typical off hire clause[16] cover pirate attacks. If the off hire clause does not contain the word “whatsoever” but does contain the words “or by any other cause,” off hire events have been construed by the courts to be restricted to the causes listed in the clause, and to any other causes which are similar to those expressly listed and “internal[17] to the vessel. In a clause of this type, the vessel will probably remain on hire unless or until one or more of the causes or similar causes listed in the off hire clause is brought about by the activities of the pirates. “Piracy” per se is unlikely to be an off hire event. [18]. 

If the off hire clause contains the word “whatsoever” in addition, this will probably mean that from the moment that the full working of the vessel is prevented as a consequence of a pirate attack, and there is a loss of time, the vessel is off hire. Unlike the unamended off hire clause, the addition of the word “whatsoever” means that events that are extraneous to the vessel and not restricted to the actual physical efficiency of the vessel, for example pirate attacks, will entitle the charterers to place  the vessel off hire if its full working is prevented and if time is lost. 

The recent upsurge in pirate attacks off Somalia and the risk to shipping has highlighted the human cost of piracy, as well as the threat to trade and property, and has quite rightly focused attention on the question  - who is responsible for the consequences of an attack? Many liabilities arising from piracy may be covered under normal Club Rules - for example cargo loss or damage claims, pollution, collision, and wreck removal liabilities, as well as crew claims. However, an owner (or charterer) whose vessel is attacked by pirates should in many cases be able to avoid liability altogether for P & I claims, because he will not usually be at fault for the attack or responsible for its consequences. 

As always, cases of this kind depend on their facts and must be assessed on their own merits. Members who are confronted by such issues are encouraged to consult the Club’s claims staff who will be pleased to offer advice and assistance. 

War Risk Extension Clause

1) Cover excluded under Rule 21 is hereby reinstated subject to the terms set out in this Certificate of Entry and any Endorsement thereto, and to the following conditions.

2) This special cover shall be subject to an excess of either:

a) the "proper value" of the entered ship as defined in the Note to Rule 25 xv, (which, for the purpose of this War Risk Extension only, shall be deemed not to exceed US$100 million), or

b) the amount recoverable in respect of the claim under any other policy of insurance, whether of war risks or otherwise, whichever shall be the greater, save that such excess shall not apply where the entry of the ship is solely in the name of or on behalf of a Charterer other than a Charterer by Demise or Bareboat Charterer, provided that the Directors may authorise the payment, in whole or in part, of any claim or part of a claim which falls within such excess, if in their discretion and without having to give any reasons for their decision they decide that the Owner should recover from the Club.

3) Subject to the exception set out below, the limit applying to this special cover shall be US$500 million, any one event each vessel or any limit set out elsewhere in this Certificate, whichever shall be the lesser.

4) All perils included in the special cover shall be subject to the following:

Chemical, Biological, Bio-chemical, Electromagnetic Weapons and Computer Virus Clause:

In no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to by or arising from

a) any chemical, biological, bio-chemical or electromagnetic weapon;

b) the use or operation, as a means for inflicting harm, of any computer virus.

5) At any time or times before, or at the commencement of, or during the currency of any Policy Year of the Club, the Directors may in their discretion determine that any ports, places, countries, zones or areas (whether of land or sea) be excluded from the insurance provided by this P&I war risks cover. Save as otherwise provided by the Directors, this P&I war risks cover shall cease in respect of such ports, places, countries, zones or areas at midnight on the seventh day following the issue to the Members of notice of such determination in accordance with the terms of the cover provided pursuant to Rule 21 of the Club's Rules. Unless and to the extent that the Directors in their discretion otherwise decide there shall be no recovery from the Club under this P&I war risks cover in respect of any claim howsoever arising out of any event, accident or occurrence within the said area after such date.

6) Whether or not notice has been given under Clause (5) above, this P&I war risks cover shall terminate automatically:

i) upon the outbreak of war (whether there be a declaration of war or not) between any of the following countries:

United Kingdom, United States of America, France, the Russian Federation, the People's Republic of China and this insurance excludes loss, damage, liability or expense arising from such outbreak of war;

ii) in respect of any vessel, in connection with which cover is granted hereunder, in the event of such vessel being requisitioned either for title or use and this insurance excludes loss, damage, liability or expense arising from such requisition.

7) Notwithstanding any other term or condition of this insurance, the Directors may in their discretion cancel this special cover giving 7 days' notice to the Members (such cancellation becoming effective on the expiry of 7 days from midnight of the day on which notice of cancellation is issued by the Club and the Directors may at any time after the issue of notice of such cancellation resolve to reinstate special cover pursuant to the proviso to the terms of the cover issued pursuant to Rule 21 on such terms and conditions and subject to such limit as the Directors in their discretion may determine.

8) When either a Demise, Time, Voyage, Space or Slot Charterer and/or the Owner of the Entered Ship are separately insured for losses, liabilities, or the costs and expenses incidental thereto covered under Rule 21 of the Club and/or the equivalent Rule of any other Association which participates in the Pooling Agreement and General Excess Loss Reinsurance Contract, the aggregate of claims in respect of such losses, liabilities, or the costs and expenses incidental thereto covered under Rule 21 of the Club and/or the equivalent Rule of such other Association(s), shall be limited to the amount set out in the Certificate of Entry in respect of any one ship, any one incident or occurrence. If such claims exceed this limit, the liability of the Club in respect of each Certificate of Entry shall be limited to that proportion of the limit that claims recoverable from the Club under that Certificate bear to the aggregate of the said claims recoverable from the Club and from such other Association(s), if any.

9) Cover for acts of terrorism as defined in the U.S. Terrorism Risk Insurance Act of 2002 (TRIA) is included hereunder, subject to the conditions set out above, the estimated cost of this element of coverage being US0.25 cents per entered gross ton.

10) The Club shall not provide insurance hereunder for any losses, liabilities, costs or expenses if the provision of such insurance would create a liability for the (Insured Owner) under the Tanker Oil Pollution Indemnification Agreement 2006 to contribute to the IOPC Supplementary Fund 


***

[1] The IMO and BIMCO websites also provide useful information and guidance in the event of a pirate attack.
[2] The IMB Piracy Reporting Centre in Kuala Lumpur is a 24 hour information centre acting as a focal point against attacks of piracy and armed robbery. Services are free and available to all ships irrespective of flag. www.marisec.org/piracy/imb/htm
[3] Including ships from the UK, France, Canada, Germany, Pakistan and the USA.
[4] UNCLOS article 110
[5] UNCLOS article 111
[6] The Definition of Terrorism A Report by Lord Carlile of Berriew Q.C.
[7]  Schmid A and Jongman; Political Terrorism (1987) Amsterdam, 1987.
[8] SSM Rule 24ia,b - If so, cover in unlikely to be available in any event
[9] SSM Rule 21 - War Risks
[10] The War Risk Extension clause is set out in full at the end of this article
[11] The Eastern City (1958) 2LLR 127
[12] The “Kanchenjunga” (1990) 1LLR 391 (HL) – Lord Goff  “…if the owners, notwithstanding their right to reject the nomination, complied with it and their ship suffered loss or damage in consequence, they would be entitled to recover damages from the charterers for breach of contract” and Lord Brandon “ The only right which the owners waived was the right to reject the nomination”
The “Kanchenjunga”
(1987) 2LLR 509 -  Hobhouse J   “Even if the breach of contract is clear it is vital to the proper conduct of business that the relevant party should be able if he considers the breach a minor one to proceed without sacrificing his right to be indemnified. But this does not mean that a master can enter ports that are obviuosly unsafe and then charge the charterers with damage done” 
[13] The “Kanchenjunga” (1990) 1LLR 391 (HL) – Lord Goff   “… where a person, having legal rights against another, unequivocally represents that he does not intend to enforce those legal rights; if in such circumstances the other party acts, or desist from acting, in reliance on that representation, with the effect that it would be inequitable for the representor thereafter to enforce his legal rights inconsistently with his representation, he will to that extent be precluded from doing so …    
[14] Hill Harmony [1998] 1 Lloyd’s Rep 317
[15] “We are to enquire first whether the ‘full working of the vessel’ has been prevented. Only if it has, do we consider the ‘cause’” – Lord Denning The “Aquacharm” (1982) 2 LLR
[16] For example, deficiency of and/or default 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 any other cause whatsoever preventing the full working of the vessel
[17] In the sense that if the vessel is fully capable of performing the service required by charterers but only prevented from doing so by some external cause (Lloyd J The “Aquacharm” (1980) 2 LLR 237), or is not restricted by the actual physical efficiency of the vessel (Leggatt J The “Manhattan Prince” (1985) 1 LLR 140), the vessel remains on hire
[18] As discussed above there might be an indemnity from charterers for following employment orders and /or unsafe port considerations and /or damages flowing from charterers’ orders .