Commercial Contract Law as a Counter-Piracy Measure

Kyle Best

1,288 days. This is the unfathomable amount of time that 11 crewmembers of the MV Albedo were held hostage since Somali pirates hijacked their vessel in 2010. News of their release surfaced earlier this month, and is accompanied by footage of the crew going on an African safari, an excursion that they had initially planned in 2010 before they were taken hostage. As they traverse the planes of Africa, the expressions on their faces are ones of excitement and elation, expressions that stand in stark contrast to the enduring pain that these individuals suffered for almost four years prior.

MV Albedo Crew, following release. source: http://www.marsecreview.com/2014/06/albedo-crew-and-families-aftercare/

Crew of the MV Albedo, following their release. Source:http://www.marsecreview.com/2014/06/albedo-crew-and-families-aftercare/

The plight of these seafarers provides a human face to the problems that arise from maritime piracy, however, this human element is not always sufficient to elicit a timely response. This was true for the crewmembers of the MV Albedo. The owner of the ship, believed to be uninsured, abandoned his efforts to pay for the release of the crew early in the negotiations (link). While this type of abandonment is not uncommon in hostage situations, many ship owners nonetheless prioritize crew safety. However, even under the guardianship of such a responsible owner, ships are often chartered by larger corporate entities with a financial interest in sending that ship through an area at risk of piracy. Thus, seafarers are left in a particularly vulnerable state, and the question remains as to how they can be protected from piracy. One possible solution may reside in an unexpected area: commercial contract law.

Consider for a moment the CONWARTIME 1993 clause, known within the industry as a “piracy clause”. This is a standard contractual clause drafted by the Baltic and International Maritime Council (BIMCO), and can be applied when a vessel is ordered to travel through an area that threatens the safety of ship and crew. In short, this clause creates a legitimate means by which an owner of a ship can protect his or her crew when commanded to travel through an area at risk of piracy. Indeed, the clause was recently invoked to protect seafarers in the case of Pacific Basin IHX Ltd v Bulkhandling Handymax AS, heard at the Commercial Court of the High Court of Justice in England.

In this case, Pacific Basin IHX Ltd. chartered a vessel from Bulkhandling Handyman AS, and ordered them to sail through the Gulf of Aden, which was the fastest route to its destination. However, Bulkhandling did not wish to sail this route due to the increased reports of piracy in the area, notably one in which a vessel had been hijacked and its crew taken hostage the previous month. Faced with this legitimate concern, the owner of the Bulkhandling ship was forced to choose between putting workers at risk of being attacked, and going against the orders of its charterer. Bulkhandling chose to protect its workers, and sailed instead through the Cape of Good Hope, incurring an extra cost of $462,221.40 USD. Pacific’s claim in court was that Bulkhandling should incur this cost because it acted against Pacific’s orders. These costs are significant and, under such financial pressure, it is conceivable that Bulkhandling might risk traveling through an area of noted piracy. However, Bulkhandling countered Pacific’s claim by invoking the CONWARTIME 1993 clause, demonstrating how commercial contract law stands to protect seafarers.

The Court’s ruling on this matter provides significant guidance as to when an owner can invoke this clause, and reject his or her charterers’ order to travel through an area affected by piracy.

1)    The owner must first judge that there is a real likelihood that the Vessel will be exposed to acts of piracy.

2)    Secondly, the owner must judge that there is a real likelihood the acts of piracy will be “dangerous” to the Vessel, her cargo, crew or other persons on board the Vessel

3)    The owner’s judgment must be “objectively reasonable”, and the owner is required to make all necessary enquiries before deciding to avoid the risk.

While these requirements are abstract and somewhat meaningless in isolation, a closer look at how the Court interprets the term “real likelihood” provides some clarity. A “real likelihood” risk of piracy would include something that has less than 50% chance of occurring, however the chances of it occurring must be greater than a “bare possibility”. This standard is not overly stringent, and in practice it provides owners with considerably greater leeway to invoke piracy clauses than the comparably rigorous standard of “more likely than not” (which requires greater than 50% chance of occurring). Beyond this, it is crucial, when invoking this clause, to prove that the area in question is in fact “dangerous”, a point that has been noted by BIMCO in its 2013 revisions of the piracy clauses.

Most significantly, this case confirms the possibility to invoke piracy clauses as a means to protect seafarers at risk of an attack. Indeed, a recent case heard by the same Court confirmed an owner’s right to invoke a piracy clause, and further removed a debilitating requirement that precluded certain claims. Despite this progression, the legal community has noted that there is likely to be further judicial development on the subject.[1][2] As the courts move forward on this issue, concerns relevant to the plight of the seafarer include:

  • Piracy clauses require owners to make a decision to ignore a charterers’ order, a decision that courts must deem “objectively reasonable.” However, Oceans Beyond Piracy has noted that there are continuing challenges in both reporting and information sharing with regards to piracy. Such an environment obfuscates both the owner’s ability to make this decision, and his or her ability to prove its objective reasonableness in court.
  • Piracy clauses serve as a strictly preventative tool. Providing owners with this discretion may reduce the possibility of an attack, but it does not eliminate the risk.
  • Owners, not seafarers, exercise the discretion granted by piracy clauses. In an industry where the cost of transportation often amounts to significant sums, financial pressures exerted by charterers stand to outweigh some owners’ concern for the safety of their crews.

Footnotes:


[1] http://www.steamshipmutual.com/publications/Articles/conwartime-1993.htm

[2] http://www.nortonrosefulbright.com/knowledge/publications/59912/the-threat-of-piracy-deviation-and-conwartime-1993-war-risk-ruling-to-be-reassessed

Difficulties of Somali Remittance Companies – Explained with Animation

2013 Jim Burman 100x150Over the summer, most major banks in the United Kingdom began closing the accounts of the small companies which Somali migrants use to send money home to their families.  The group I’m working with, Shuraako, put together an informational video which explains the situation.

I plan to write a longer post with a bit more background, including a review of the anti-money laundering/couter-terrorism finance laws which contribute to the reluctance of banks to service this sector, but I wanted to share the video while it is still fresh:

You can also read more about the situation on the Shuraako’s website:

http://shuraako.org/remittances-industry-analyses-and-news

 

Piracy, Universal Jurisdiction, and Domestic Law in the United States

Andrew Higdon, One Earth Future Foundation. Broomfield, Colorado, USA.

2013 Andrew Hidgon 100x150On November 7, 2008 the Bahamian flagged cargo ship CEC Future was attacked by Somali pirates on the high seas in the Gulf of Aden. The attackers, armed with AK-47s and rocket propelled grenades, fired shots and boarded the ship. The ship and her crew (eleven Russians, one Georgian and one Estonian) were released a month later when the Dutch ship owners paid a $1.7 million USD ransom. In order to negotiate with the outside world, the pirates employed Ali Muhammad Ali who acted as a facilitator and interpreter onboard the ship.  Ali made $16 500 USD from his cut of the ransom, and negotiated an additional $75 000 USD from the ship owners for coordinating the release – all without leaving Somali territorial waters for any significant length of time.

In addition to being a pirate negotiator, Ali also served as the Director General of the Ministry of Education of Somaliland – a fact that neatly conveys at the scale of the problems facing Somalia. US prosecutors used his position to lure him into the US by inviting him to a fake education conference in Raleigh, North Carolina. Upon arrival he was immediately arrested and charged under US piracy and hostage taking laws. How could the US claim jurisdiction over a non-national who committed a crime in another country against a ship sailed and owned by foreign nationals?

Under international law, states must have jurisdiction over the person and the offence in order to affect a legitimate prosecution. In the case of piracy, nations rely on customary international law and the UN Convention on the law of the Sea (UNCLOS 1982) to ground their jurisdiction. Unique among crimes, piracy has long been treated as an offense that any nation can prosecute. Unlike other theories of jurisdiction (such as “the territoriality principle” which gives states jurisdiction over events that take place within their territory,  or “the nationality principle” with gives states jurisdiction over actions committed by a their nationals) piracy is a crime that requires no nexus for a state to properly assert jurisdiction. Basically, any state that finds a pirate on the high seas can prosecute him. Traditionally, this unique jurisdictional aspect of piracy has been viewed as a consequence of the fact that pirates committed their crimes on the high seas, outside of anyone’s jurisdiction, and against the international community at large.

But Ali hadn’t operated on the high seas; he had helped facilitate piracy from Somali territory. The prosecutors charged Ali under 18 U.S.C. § 1651 – the US law that prohibits piracy – which states that individuals commit an offence where they commit piracy as defined by international law. This meant that the court had to examine the provisions of UNCLOS. Despite a long history of academics and law makers articulating the belief that piracy was something that could only occur on the high seas, the court took the opposite view. Brown J. ruled that since the sub article criminalizing the facilitation of piracy did not explicitly mention a high seas requirement (while other articles did) this indicated that no high seas requirement existed. While the position is defensible, it does suggest a challenge to the accepted order of jurisdiction.

It is highly unusual for a state to claim jurisdiction over the actions of a foreign national who committed a crime within the territory of his own nation, and where there is no other nexus with the prosecuting state. This is predicated on the understanding in international law that states will not interfere with the internal affairs of others. With this ruling, the US appears to be signalling its willingness to do so in certain situations. Perhaps the court decided as it did because of the fact that in Somalia there is little chance that men like Ali will ever see a courtroom. It seems unlikely that they would have decided the same way in a case that concerned a more developed nation. In any event, it illustrates the seriousness with which US prosecutors regard international crime and their comfort with dealing with it domestically. It is something that I think we should watch carefully.

Oceans Beyond Piracy and the Somali Situation

2013 Andrew Hidgon 100x150Andrew Higdon, Oceans Beyond Piracy, Colorado USA.

Far from an 18th or 19th Century problem, maritime piracy continues to exact a humanitarian toll on seafarers and an economic toll on the global economy. While dangers exist in the vicinity of the Malacca Strait and the Gulf of Guinea, the waters near Somalia form the seas most well known for their pirates. Somali piracy has achieved greater notoriety than piracy elsewhere largely as a result of a massive spike in activity that began in 2008 – 2009. Several large vessels were taken hostage by pirates, and the world media began to pay attention.

Somalia is unfortunately an ideal environment for pirates. As a failed state, there is little law enforcement capacity or interest in establishing rule of law. Further, the crushing poverty in Somalia drives some to crime. Finally, Somalia is located by the Gulf of Aden, through which the vast majority of European trade with Asia passes. The confluence of factors makes a career as a pirate all too tempting for some Somali men. The problem began to escalate quickly. In 2011 more than 3,500 seafarers suffered attacks by pirates, and more than 500 were taken hostage.

Since it is difficult to acquire sophisticated equipment in Somalia, pirates use small boats with outboard motors to attack. Pirates attempt to manoeuver alongside “deep-sea” ships unnoticed and then scale ropes or ladders to get on deck. Once aboard, they seize the bridge of the ship, take the crew hostage, and re-route the ship to an anchorage near the shores of Somalia. Since these pirate anchorages lack the facilities to unload large ships, the pirates do not steal cargo. Instead, they ransom the ship and the seafarers back to the shipping company and owners. This attack-and-ransom profile is different from pirate attacks elsewhere in the world and puts additional stress on seafarers, who are often held for long periods of time while they wait to be ransomed. Some of these mariners do not survive, and some are very clearly tortured during their captivity. Since the crews of merchant ships are disproportionately chosen from the poorer nations of the world and are paid only modestly, it seems an additional affront that they must endure the greatest share of the burden.

Fortunately the international community has responded. Many countries sent naval forces to protect World Food Program vessels and merchant traffic. The Royal Canadian Navy continues to participate in Operation Ocean Shield, the NATO contribution. International organizations set up “sharing centres” where merchant ships could share their planned route and coordinate with available military assets.  Perhaps most significantly, sharing centres began to promulgate Best Management Practices (BMPs) to merchant ships to help teach mariners ways to decrease the likelihood of attack. Some of these practices are as simple as speeding up through High Risk Areas (HRAs). Pirates in small boats have a tremendously difficult time boarding fast moving targets. However, the shipping industry runs on razor thin profit margins, and increasing the speed of ships is inefficient and very costly. In 2012, shipping companies paid more than $1.5 billion in extra fuel costs associated with the faster speeds recommended in BMPs.

Thankfully, these measures have made a difference. It has been more than a year since a ship was reported to be successfully hijacked by pirates off the coast of Somalia. However, shipping companies continue to spend billions of dollars re-routing ships away from the HRA and buying additional fuel to achieve faster speeds. The international community also expends billions of dollars keeping a naval presence in the area. Another major expense is the placement of Private Military Security Company (PMSC) personnel aboard merchant ships. These armed guards used to be hired from among retired Special Forces personnel from Western militaries, but increasingly are being chosen from less reputable armed forces at more affordable rates. While PMSC personnel generate a very effective deterrent (no ship has been successfully hijacked off the coast of Somalia with PMSC personnel embarked) they potentially add a new facet to the problem. On the high seas, where criminal jurisdiction is hard to enforce, there is little to restrain a “shoot first, ask questions later” fire policy. Unfortunately, there are already cases where PMSC personnel appear to have misidentified fishermen with fatal consequences. These cases will prove to be exceptionally difficult to prosecute.

Oceans Beyond Piracy (OBP), where I am doing my internship, is part of a larger project called the One Earth Future Foundation (OEF). OBP pursues long-term solutions to the many issues surrounding piracy worldwide. In Somalia, this means bringing shareholders from industry, government and third parties together with sound research and analysis. So far I have been asked to conduct research on points of international law, especially questions about criminal jurisdiction at sea. The people who work here are knowledgeable and dedicated, and it’s been very exciting to work with them. I’m looking forward to the next few months immensely!

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