Pirates of old are romanticised in books and films, such as Pirates of the Caribbean. There’s nothing romantic about modern pirates and their methods. The international community will have to work hard to drive them out of business. Meantime, their exploits will throw up interesting issues for us maritime lawyers to deal with.
The following definition of piracy is contained in article 101 of the 1982 United Nations Convention on the Law of the Sea (UNCLOS):
“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).”
That is, in summary, the definition of modern piracy.
The Scale of the Problem
The International Maritime Bureau’s report on piracy incidents provides hard figures for the intensity of piratical activity off Somalia during 2009. There were some 214 attacks reported, 47 of which resulted in a hijacking. The vessels involved are being held, quite literally, to ransom.
Two examples reported by Lloyd’s List Intelligence on 5 August 2010, but with rather different outcomes, are these:
M/V Syria Star
“General cargo Syria Star reported that she was under attack from pirates who had climbed on board and fired shots at the crew in the Gulf of Aden this afternoon. Helicopters were immediately despatched to the vessel and tried to establish communications with the Syria Star, which had stopped in the water. They found an abandoned skiff nearby, containing fuel and ammunition. When war ships arrived on the scene shortly after, the Syria Star had reversed course and was heading South East back towards the Horn of Africa under the control of the pirates, who refused to respond to radio contact. The Syria Star was sailing West in the Internationally Recommended Transit Corridor through the Gulf of Aden… ”
M/V London 2012
“Bulk carrier London 2012, Taichung for Valencia, experienced piracy attacks in Aden Bay today. Vessel made manoeuvres together with increasing speed and evaded the attack. Vessel continued voyage without further event”
With ransom payments apparently averaging about US$2m per vessel, piracy is good business and shows no sign of disappearing.
English Commercial Court Cases 2010
The English Commercial Court handles more international cases (cases where one and very often both of the parties are non-domestic) than any other court in the world. There have been two interesting cases on piracy, both decided in February this year.
1) Time Charterparty: Off-Hire or Not?
M/V Saldanha (2/10)
Mr Justice Gross (soon to become Lord Justice Gross) opened his judgment by saying:
The subject-matter of this case is unfortunately topical: namely, Somali pirates… The question is whether detention by pirates, piracy or perhaps the effects of piracy entitled charterers to put the vessel off-hire in reliance upon that version of clause 15 of the NYPE form of charterparty agreed by the parties in the charterparty of 25 June 2008.
In an important ruling for the maritime industry, the court has upheld the unanimous decision of an eminent arbitration tribunal that a vessel chartered on the NYPE 46 form which was seized by pirates remained on hire while under the control of the pirates.
The arbitrators had held unanimously that the vessel remained on hire during the period of detention and until she reached a position equidistant to the location at which she was seized. They considered, inter alia, the scope of the off-hire clause in the charterparty and concluded that seizure of the vessel by pirates was not an “event” within the meaning of that clause.
The charterers appealed this part of the tribunal’s decision and the court has dismissed the appeal. The charterers have been refused leave to appeal to the Court of Appeal.
Factual and contractual background
The M/V Saldanha was seized by Somali pirates on 26 February 2009 while sailing in a laden condition through the UKMTO transit corridor in the Gulf of Aden. The vessel was taken to Eyl where she was detained by the pirates until 25 April. The vessel reached an equidistant position to the location at which she was seized on 2 May.
The NYPE form of charterparty included the familiar off-hire clause 15 in the following terms:
That in the event of the loss of time from default and/or deficiency of men including strike of Officers and/or crew or deficiency of 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
(Emphasis added to identify the words relied on by the charterers).
The words “default and/or” and “including strike of Officers and/or crew or deficiency of” were amendments to the standard wording.
The charterparty terms also included a “bespoke” clause 40 dealing with seizure, arrest, requisition and detention of the vessel, as well as a put-back clause and the Conwartime 2004 clause.
It was common ground that the charterers were required to pay hire for the use of the ship unless they could bring themselves within the ambit of the off-hire exceptions. If unable to do so, the risk of delay was to be borne by the charterers. The charterers sought to argue that the vessel was off-hire on three grounds, as set out below.
The charterers contended that detention by pirates amounts to “detention by average accidents to ship or cargo”. They submitted that the capture of the vessel, albeit planned in advance and a deliberate act on the part of the pirates, was a fortuity as far as the crew and the vessel were concerned. The judge disagreed and upheld the arbitrators’ findings, namely that heavily armed pirates attacking and seizing a vessel was not an accident, let alone an “average accident” to the ship; and that an “average accident” to ship necessarily means an accident that causes damage to the ship, as stated by Kerr J (as he then was) in The Mareva AS (1977), 1 Lloyd’s Report p368. As the arbitrators had said:
Accident requires lack of intent by all protagonists. An obviously deliberate and violent attack is not described as an accident, no matter how unexpected it may have been to the victim.
Furthermore, while the wording “average accident” points towards an insurance context, the judge stated it does not follow that “average” in this context is simply to be equated with a peril ordinarily covered by marine insurance, such as the risk of piracy.
Default and/or deficiency of men
The charterers argued that the phrase “default and/or deficiency of men” encompasses errors, alternatively negligent errors, by the master and crew. They sought to argue that the ship’s officers and crew had failed to take adequate anti-piracy precautions before and during the attack, that those alleged failures were a significant cause of the vessel being seized, and that such alleged failures fell within the scope of the “default of men” exception.
The owners strenuously denied that there were any such failings as alleged and reserved the right, should it prove necessary, to adduce relevant evidence and ask the tribunal to consider the facts and circumstances of the seizure and make findings in this regard. Purely to allow for the determination of the preliminary issues, the tribunal was invited to proceed on the assumption that the alleged failure on the part of the officers and crew was a significant cause of the vessel’s seizure and detention.
Both the arbitrators and the judge rejected the charterers’ contention that “default of men” in clause 15 includes any failure by the master and crew to perform their duties or any breach by them of their duties. While it was accepted that the natural meaning of “default of men” was capable of including a negligent or inadvertent performance of duties by the master or crew, both the arbitrators and the judge decided that a narrower construction should be applied to the wording. In particular, the words “default and/or” and “including strike of Officers and/or crew or deficiency of” were added to the standard wording of the off-hire clause to meet a particular mischief, namely the refusal of officers and crew to perform duties, whether or not amounting to a full-scale strike.
The judge also observed that accepting the charterers’ construction would result in a startling alteration to the bargain typically struck in time-charterparties as to the risk of delay. It would follow that on almost every occasion when the master or crew negligently or inadvertently failed to perform their duties causing a loss of time, a vessel would be off-hire under the “default of men” wording. It was noted that such an argument had never been advanced in any previous cases.
Any other cause
The charterers finally argued that seizure by pirates falls within the sweep-up provision “any other cause”. The charterers based this argument on several alternatives, all of which were rejected by the court. The judge labelled as “unreal” the charterers’ submission that the crew’s failure to carry out their duties under duress of pirates was equivalent to a refusal to perform those duties. With regard to average accident, he dismissed the contention that a fortuitous occurrence normally covered by marine insurance which happens not to have caused damage would fall within “the spirit” of clause 15 and be caught by the catch-all wording. In addition, the judge dismissed the suggestion that there was only a “fine distinction” between the narrower and wider constructions of “default of men”, still less a distinction that would bring the charterers within the sweep-up wording.
Finally, the judge observed that it was telling that bespoke clause 40 dealing with the risk of seizure, arrest, requisition and detention did not extend to cover seizure by pirates.
Mr Justice Gross confirmed that, in his view, seizure by pirates is a “classic example” of a totally extraneous cause that falls outside the scope of the standard NYPE off-hire clause. However, had the wording of clause 15 been qualified with the addition of “whatsoever” after the words “any other cause”, it is possible that the decision might have gone the other way.
The judge ended his judgment with these words:
The issue of piracy is topical and, I suspect, of interest to the industry, so making this a suitable case for crossing the threshold from the private realm of arbitration into a public judgment at first instance. Accordingly, I have set the matter out at a little length, even though, effectively, I have dismissed the appeal for the reasons given by the Tribunal
A word here or there can have a decisive effect on the allocation of risk and the moral is clear; parties must consider their charterparty wordings very carefully.
2) Insurance: Against Public Policy to Pay a Ransom?
Masefield AG v Amlin Corporate Member (2010)
This was an action by the claimant assured against the defendant insurer for total loss of a cargo of biodiesel on board a vessel seized but subsequently released by pirates off Somalia.
The case arose from the seizure of the laden Bunga Melati Dua in the Gulf of Aden in August 2008 during which, sadly, a crew member was killed. Some six weeks later, the owners paid a ransom and the vessel was released. The vessel, with her remaining crew and her biodiesel cargo, were all intact. Despite having their cargo restored to them, the cargo owners (Masefield) claimed an indemnity from their cargo insurers, Amlin, for the actual or, alternatively, constructive total loss of the cargo (ATL and CTL, respectively).
In this somewhat unusual context, Steel J had to consider an argument by the cargo owner that the likelihood that the vessel would be released by payment of a ransom ought to be disregarded because ransoms are contrary to English public policy. Although they conceded that payment of a ransom was not illegal, Masefield argued it was contrary to public policy. If so, the ability to recover property by making such an improper payment was something the court should not take into account when considering whether a vessel and her cargo were irretrievable. Irretrievability was a relevant consideration in proving a CTL since, under section 60 of the Marine Insurance Act 1906, to be a CTL a vessel must be reasonably abandoned on one of two grounds. The only relevant ground on this occasion was to show that her actual loss appeared unavoidable.
The judge noted that issues of public policy must be approached with great caution relying on Lord Atkin’s observations in Fender v St John Mildmay that the doctrine “should only be invoked in clear cases in which the harm to the public is substantially incontestable”. The judge gave three reasons why payment of a ransom should not be categorised as contrary to public policy. First, the payment of a ransom was accepted by Masefield as not being illegal as a matter of English law. [That remains true as a matter of international law provided the payment is made to criminals rather than terrorists.] Second, where legislative action has intervened to make such payments illegal, for example, the Ransom Act of 1782 (now repealed), courts should refrain from entering into the same field. He might have noted here that the Ransom Act was actually a war measure, directed to stop British merchantmen paying ransoms to the French, with no hint that parliament thought ransoms to be objectionable in general. Finally, while it is true that ransom payments encourage repetition of pirate activity – the number of incidents reported last year bears that out – to date no viable alternative has been identified to secure return of crews of seized vessels to safety. Diplomatic or military intervention cannot usually be relied upon, and may even put other crews in jeopardy. The judge was fortified in this conclusion by the wider implications of reaching the contrary view, noting that kidnap and ransom cover, whether for personnel or property, is a long-standing and important feature of the insurance market. While this is a long way from finding that courts should not render unenforceable a type of policy just because it is acceptable to the industry, this does reflect the fact that kidnap and ransom coverage has been acceptable to the market’s regulators for decades. As Steel J said at paragraph 62 of his judgment:
This conclusion (that payment of ransom is not contrary to public policy) is fortified by the wider implications of any contrary conclusion. Kidnap and ransom cover (whether for personnel or property) is a long-standing and important feature of the insurance market. Are such policies (acceptable to the industry) to be rendered unenforceable?
The marine market has long been alive to legality doubts about ransom payments, the known areas of concern being anti-terrorist legislation, the Proceeds of Crime Act 2002, the impact of UN sanctions and national legislation. Those issues remain but where they do not arise current practice has been to treat a ransom as subject to the law of general average and, if large enough, as triggering a claim on the hull and cargo policies. A finding that the payment of these ransoms is somehow tainted would have had ramifications well outside this particular sphere. Concluding that payment of a ransom is not contrary to English public policy removes one of the uncertainties in this fraught area.