U.S. Ports - Liability For Cost Of Security Guards

July 2004

The imposition of wide-ranging security measures at U.S. ports has been reported on the Steamship website on a regular basis. The Maritime Security section of the website includes many articles on this issue. In particular, the articles U.S. Ports - Additional Coast Guard Security Requirements and U.S. Anti-Terrorism Legislation - Contractual Considerations deal with the issue of security guards.

The U.S. Coast Guard may require armed guards to be placed on board a vessel to make sure that crew members who are not cleared to go ashore remain on board. This can happen where the Coast Guard has security concerns about a particular vessel or where crew information cannot be verified by the Immigration and Naturalisation Service. The exact criteria used to reach this decision are not in the public domain but are understood to include crew nationality.

A number of disputes concerning liability for the cost of security guards have been referred to arbitration in London. These cases are of interest not only because they deal with issues of responsibility for expenses, which at the time of fixing had not been contemplated, but because they have also led to discussion of important English case law, in particular, the Court of Appeal decision in the "Island Archon"¹.

In an unreported case which was referred to arbitration in London, owners chartered their vessel on an NYPE form which included the following provisions (clause numbers have been amended for ease of reference in this article): -

A. "Owners shall provide and pay for all provisions…wages and consular shipping and discharging fees of crew and all other charges relating to the Master, Officers and Crew…"

B. "Charterers shall provide and pay for all the fuel…Port Charges, Pilotages, Agencies, canal tolls and fees, tugs, Commissions, Consular Charges (Except those pertaining to the Crew and Vessel), and all other usual expenses, except those before stated…"

C. "Watchmen to be for Charterers account, if ordered by the Charterers and for the Owners account if ordered by the Owners. If watchmen are compulsory, then same to be for the Charterers account".

D. "If the vessel is refused permission to enter, load or leave any port of call within the trading limits of this Charter Party due to ownership, flag, nationality of Officers and/or crew, all delays and/or expenses arising from this to be for the Owners account…"

The combination of these clauses created great difficulty as they could all be relevant to determining whether owners or charterers were responsible for the security guard costs.

Owners sought to rely on the decision in the "Island Archon" to claim an implied indemnity in their favour for the consequences of following charterers' orders or directions. The Court of Appeal in that case had held that where owners put their ship at the disposal of charterers who could choose, within agreed limits, what cargoes to load and where to send the ship, charterers should bear the consequences of their choices.

In this case, the owners argued that the security guard expenses were incurred solely as a result of owners complying with charterers' order to proceed to the U.S. and were, therefore, for the charterers' account.

However, the benefit of the implied indemnity is subject to two important conditions: First, the indemnity is lost if the loss was caused by some subsequent or intervening act. In this case, it was accepted that there was no such act. Secondly, the loss must not have arisen from a risk which the owner had agreed to accept. In the "Island Archon" the risk faced was that the Iraqi system for dealing with incoming cargo made inevitable fraudulent and/or dubious cargo claims which owners could not defend. Importantly, the system was held not to have been common knowledge at the time the charter party was entered into, but had become notorious by the time the vessel was ordered to Iraq.

In the context of U.S. security guard costs, timing is important because the more time that passes since introduction of the security regulations, the more likely it is that owners will be unable to argue successfully that this is a risk that they had not agreed to accept.

In any event, in the subject case, provision D above proved fatal to the owner's claim. The Tribunal held that the expenses were levied because of the nationality of the crew. Accordingly, an "Island Archon"-type indemnity would not be available as the charter party had made adequate provision for the expense.

In another case, London Arbitration 1/04², the security guard expenses were held to be "port charges". The charter party contained a provision similar to B above. The Tribunal sought to adopt the approach of Moore-Bick J. in "The Trade Green"³ in which he said that expenses covered by such a clause would include "...any charges which the vessel would ordinarily incur as a necessary consequence of entering or staying at the port in question…" In Arbitration 1/04, the Tribunal held that "…there was no question but that they had to be incurred in order to allow the ship to be in the Mississippi, let alone to berth at New Orleans…" (It is not known whether that charter party also contained a clause similar to D in the unreported case and whether that would have made any difference to the Tribunal's decision.)

In a further unreported case, the Tribunal took the opposite view and held that the security guard expenses were not usual or regular expenses such as to be ordinarily incurred and, therefore, were not "port charges". The Tribunal specifically looked at "The Trade Green" case but, unlike the Tribunal in Arbitration 1/04, rejected the owner's argument that security guard expenses fell within the ambit of port charges. Rather, it was held that they were incurred because the U.S. Coast Guard took exception to one or more of the crew members because of their nationality. The fact that they may have taken this action on a number of other occasions since the regulations were introduced did not make the expenses usual or regular. The Tribunal held that the expenses were incurred because of the nature of the crew employed on board the vessel rather than the fact that the vessel was required to proceed to a port in the U.S. Hence, they were for the owner's account under a provision similar to A above.

Therefore, in two of the three cases considered the expenses were held to be for the owner's account. If the charter parties in these cases are broadly representative of the terms that were commonly agreed between owners and charterers prior to the widespread adoption of the BIMCO and other similar clauses dealing with U.S. security measures, then it can be concluded that the new clauses have greatly improved the owner's position on security guard expenses and have introduced clarity into this previously uncertain area.

The May 2005 English Commercial Court decision in the "Doric Pride" is reported in another website article U.S. Coast Guard Security Inspections - Who Bears The Cost Of Delay?

1.[1994] 2 LLR 227 (Sea Venture Vol. 16 page 66). 

2.Lloyd's Maritime Law Newsletter 0635/04 

3.[2000] 1 Lloyd's Rep. 451