WMU Studies in Maritime Affairs 8

Proshanto K. Mukherjee
Maximo Q. Mejia, Jr.
Jingjing Xu Editors

Maritime Law
in Motion
WMU Studies in Maritime Affairs

Volume 8

Series Editors
Maximo Q. Mejia, Jr.
World Maritime University, Malmö, Sweden
Aykut Ölçer
World Maritime University, Malmö, Sweden
Jens-Uwe Schröder-Hinrichs
World Maritime University, Malmö, Sweden
WMU Studies in Maritime Affairs was launched in 2013 to inspire scholars from all
walks of maritime life to contribute to the creation and advancement of knowledge in
the numerous maritime disciplines through publications of the highest order of
excellence. With this book series, the World Maritime University aims to lead an
expansion of scholarly pursuits, particularly in the areas of maritime law and policy,
maritime safety and environmental administration, maritime education and training,
marine environmental and ocean management, port management, and shipping
management.

More information about this series at http://www.springer.com/series/11556

Proshanto K. Mukherjee • Maximo Q. Mejia, Jr. •
Jingjing Xu
Editors

Maritime Law in Motion

With the Contribution of Huiru Liu

Editors
Proshanto K. Mukherjee Maximo Q. Mejia, Jr.
Faculty of Law Maritime Law and Policy
Dalian Maritime University World Maritime University
Dalian, China Malmö, Sweden

Jingjing Xu
Plymouth Business School
University of Plymouth
Plymouth, UK

ISSN 2196-8772 ISSN 2196-8780 (electronic)

WMU Studies in Maritime Affairs
ISBN 978-3-030-31748-5 ISBN 978-3-030-31749-2 (eBook)
https://doi.org/10.1007/978-3-030-31749-2

© Springer Nature Switzerland AG 2020

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In memory of our esteemed friends and
colleagues
Karl Laubstein (1937–2019) and
Rajendra Prasad (1944–2019)
Foreword

If there were any doubts left about maritime law being a dynamic system, this
exciting new book extinguishes such doubts quite firmly. For many of us, who
have worked in the maritime sector during long and varied careers, it has also been
quite clear for some time that maritime law has moved from its ancient, but rather
narrowly defined, antecedents into a much broader perspective that today encom-
passes almost everything connected to the sea—no matter how remote. That is how it
should be. After all the ocean system cannot really be viewed, studied or regulated in
neatly compartmentalized sectors as most, if not all, maritime sectors interact and
often affect one another. This has not always been entirely clear from the volumi-
nous literature in the area that, to a great extent, still follows the more traditional
sectoral system.
Maritime Law in Motion very much breaks this pattern and is likely the first
publication to clearly achieve this. Given the wide variety, extensive experience and
skilled research of the 45 contributing authors, this is not surprising at all. For me, at
the end of a very lengthy career in the maritime sector, this also provides an
especially double delight in writing a Foreword. Firstly, the book provides a very
significant and much-needed new direction in the maritime law area, especially in its
focus on the importance of interdisciplinary approaches. However, secondly, I find it
extremely satisfying that most of the authors are known to me as former students,
colleagues and collaborators who have become distinguished scholars, practitioners
and teachers in their own right. As a result, I would have not expected anything less
than a first-class, innovative, far-reaching and thoughtful publication from this
group, who clearly lead a new generation of maritime specialists. Furthermore,
although the more traditional maritime literature generally originated in Europe
and the United States, this book is compiled by authors from 22 countries, covering
all parts of the global maritime world. This is a very positive development that
illustrates the truly global reach of our industry.
As already indicated, the scope of this book is ambitious and exhaustive. Even
though many of the chapters break new ground, the more traditional aspects of
international maritime law, such as the law of the sea, carriage of goods, marine
insurance, arbitration, protection of the marine environment and marine collisions
vii
viii Foreword

are still well covered. But the real core of many of the 37 chapters focusses on the
numerous new developments faced by the modern maritime industry today and in
the near future. Today’s global occupation with environmental issues, such as the
maritime sector’s role in climate change, is addressed, as are other pressing issues
related to maritime and cyber security, port sanctions, illegal immigration, waste
management, decarbonization, maritime education and training, piracy, vessel aban-
donment, the development of “intelligent” and autonomous ships, application of
blockchain technology to shipping and a number of other subjects all presented in an
up-to-date form.
Special recognition must be given to the co-editors of Maritime Law in Motion. I
know from experience that compiling this type of multi-authored publication is
complex and risky, especially with contributors scattered across the world. However,
this Canadian-Filipino-Chinese trio of editors managed to carry it off with consum-
mate skill. That they have done so is also not surprising. Professor Proshanto
Mukherjee is at the culmination of a long and distinguished career that has taken
him from command of a ship to law practice and then to professorships at the IMO
International Maritime Law Institute, Malta, the World Maritime University (WMU)
in Malmö, Sweden, and WMU’s sister institution in Dalian, China. After a career in
the Philippines Coast Guard, Professor Max Mejia studied at and graduated from
WMU where he now holds a high position. Professor Jingjing Xu also graduated
from WMU and is now Head of the University of Plymouth’s Business School in the
United Kingdom. I am delighted to acknowledge that all three are former students of
mine and I am quite prepared to bask in the glow of what I expect to be an entirely
successful venture!

Canadian Maritime Law Association, Edgar Gold

Vancouver, BC, Canada
Dalhousie University, Halifax, NS,
Canada
World Maritime University, Malmö,
Sweden
IMO International Maritime Law
Institute, Msida, Malta
University of Queensland, Brisbane,
QLD, Australia
Comité Maritime International,
Antwerp, Belgium
August 2019
Preface

The origins of maritime law are said to be “veiled in antiquity and lost in obscurity”.
On the private maritime law side of the equation, it has meandered into the twenty-
first century from the Babylonian Code of Hamurrabi and the Manu Sanghita of an
ancient bygone millennium, and latterly through the Rhodian Sea Law and the lex
maritima and lex mercatoria of Roman law vintage through to the mediaeval
Mediterranean maritime codes. Public maritime law evolved relatively later in
time when states perceived it necessary and expedient to protect their national
interests in seaborne trade and developed navies for that purpose. In the public law
sphere, the concepts of res nullius, res publico and res communis began to unfold
from Roman times in the west although in the eastern hemisphere, custom and
practice embracing uses of the sea and corresponding rights had also taken shape in
that era and before. In the contemporary milieu of public and private maritime law,
age-old customs tempered by sophisticated treaty law have burgeoned into numer-
ous legal regimes governing virtually every aspect of matters maritime.
This book is the brainchild of the lead editor who felt committed to give to the
younger genre of maritime law academics and scholars worldwide the opportunity to
publish alongside their senior peers and mentors. The co-editors fully supported the
proposition and an inter-generational team of authors was put together consisting of
highly accomplished, versatile maritime law scholars and recent PhDs, junior aca-
demics, lecturers and doctoral candidates. The editorial team recognizing the intrin-
sically evolving nature of maritime law undertook to produce this book as an
initiative under the auspices of the book series arrangement concluded between
World Maritime University and Springer Publications. The book reflects the prodi-
gious efforts of authors from a wide variety of maritime law disciplines and
backgrounds representing no less than 22 nationalities. Collectively, they have
contributed 37 chapters covering multifarious maritime law subject matters. It is
noteworthy that the editors and authors hail from both civil and common law
jurisdictions projecting their different and distinctive legal persuasions. This is
particularly reflected in the works of authors comprising comparative legal analysis
of selected public and private maritime law subjects viewed from contrasting
perspectives.
ix
x Preface

The most unique feature of the book is its anticipated global readership appeal by
reason of the wide and comprehensive array of maritime law subjects covered in it,
combined with the diversity of scholarship characterized by the national academic
backgrounds of the authors.
The public law features of the book include public international law of the sea and
regulatory maritime law embracing IMO conventions and instruments. The private
law subject matters comprise a variety of generic topics, the principal ones being
commercial maritime law, admiralty and shipping law, and conflict of laws as well as
new technological advancements such as the impacts and applications of blockchain
and intelligent ships on maritime law. As well, current and contemporary discussions
and discourses within IMO and other international maritime fora covering regulatory
and private law matters are addressed in the chapters. The infusion of the public and
private law dimensions of maritime law is evident in the chapters addressing
maritime security, marine environmental law, the law respecting seafarers affairs
and maritime pedagogics, port law, carriage of passengers, rail/sea carriage of goods
under bills of lading, charterparties, marine insurance, limitation of liability, mari-
time trade law, taxation law in the maritime context, maritime arbitration, compar-
ative law in the maritime field and recent case law analysis on relevant topics.
Maritime law has its historical roots in ancient civilizations, but it is as dynamic
today as it has always been. Inevitably and invariably, it will continue to evolve with
the changing times and will remain in perpetual motion driven by technology
moving at the speed of sound. It is hoped that readers, including teachers and
students of maritime law and maritime professionals, will derive sufficient benefit
from the book and inspire others. Bon voyage.

Dalian, China Proshanto K. Mukherjee

Malmö, Sweden Maximo Q. Mejia, Jr.
Plymouth, UK Jingjing Xu
Beijing, China Huiru Liu
31 July 2019
Contents

The Effect of the Arbitration Clause Incorporated in a Bill of Lading

to Third Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pinar Akan
Regime Interaction and GAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Gabriela Argüello
Maritime Rules for Rail Carriage: China’s Initiative to Incorporate
Rules from the Road to the Belt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Abhinayan Basu Bal and Trisha Rajput
A Critical Analysis of Carriage of Passengers by Sea: Uniformity
Through International and Regional Approaches . . . . . . . . . . . . . . . . . . 59
Olena Bokareva
Occupational Hazards in the Light of the Maritime Migration
Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Laura Carballo Piñeiro
Governance of International Shipping in the Era of Decarbonisation:
New Challenges for the IMO? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Aldo Chircop and Desai Shan
Good Faith in Maritime Law Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 115
Shatarupa Choudhury and Pallab Das
Legal Aspects of Green Shipping Finance: Insights from the European
Investment Bank’s Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Jason Chuah
When Was the Last Time You Were Restrained by a Prince?
Conservatism and the Development of Maritime Law . . . . . . . . . . . . . . 153
Martin Davies

xi
xii Contents

Private Maritime Security Companies Within the International Legal

Framework for Maritime Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Osatohanmwen Anastasia Eruaga
Compensation for Cargo Damage in International Maritime
Transportation: Chinese Law Perspective . . . . . . . . . . . . . . . . . . . . . . . 207
Lixin Han and Shuang Cai
Innocent Passage Under UNCLOS: An Exploration of the Tenets,
Trials, and Tribulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Anish Hebbar
What Challenges Lie Ahead for Maritime Law? . . . . . . . . . . . . . . . . . . 257
Måns Jacobsson
Sanctions Compliance Risks in International Shipping: Closure
of Five Crimean Ports, the Sanctions Regime in Respect
of Ukraine/Russia and Related Compliance Challenges . . . . . . . . . . . . . 289
Henning Jessen
Shipowner’s Implied Obligations in a Charterparty Relating to Lien
on Cargo: English and Chinese Law Perspectives . . . . . . . . . . . . . . . . . . 311
Shengnan Jia and Haiyang Yu
An Exposé of Canadian “Abandoned Vessels & Derelicts” Through
a Legal Analysis of Doctrinal Silos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
Tafsir M. Johansson
Korean Collision Avoidance Rules and Apportionment of Liability . . . . 377
In Hyeon Kim
The Application of Human Rights and Ethics Principles
to Self-protection Measures by the Ship Against Pirates and Armed
Robbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Khanssa Lagdami and Aref Fakhry
Blockchain and Bills of Lading: Legal Issues in Perspective . . . . . . . . . . 413
Huiru Liu
Environmental Challenge in Port Development: The Legal Perspective
in Cross-Disciplinary Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
Lars-Göran Malmberg
Taxation and Ship Management: A Canadian Case Study . . . . . . . . . . . 457
F. Mikis Manolis and Ron L. Bozzer
The Evolution of Seafarer Education and Training in International
Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471
Michael Ekow Manuel and Raphael Baumler
Contents xiii

Coastal, Flag and Port State Jurisdictions: Powers and Other

Considerations Under UNCLOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
Emmanuel Kofi Mbiah
Air Pollution, Climate Change, and Port State Control . . . . . . . . . . . . . 525
Maximo Q. Mejia, Jr.
A Century of Piracy Treaties: An Overview for the Future . . . . . . . . . . 547
Samuel Pyeatt Menefee
Windfall in the Law of Subrogation: Marine Insurance in Motion . . . . . 563
Proshanto K. Mukherjee
Ship Nationality, Flag States and the Eradication of Substandard
Ships: A Critical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Reshmi Mukherjee
Pedagogies and Strategies in International Maritime Business . . . . . . . . 607
Fikile Portia Ndlovu
Cyber Risks Insurance in the Maritime Sector: Growing Pains
and Legal Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627
Baris Soyer
The Legal Concept and Significance of Clean Shipping Transport
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643
D. Rhidian Thomas
Liability Insurer’s Right to Limit Liability for Maritime Claims:
English and Chinese Law Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . 657
Yuanjun Xia
Shipowner Protection in the Wake of the Collapse of O.W. Bunker:
The Second Circuit Approval of Interpleader Actions in Hapag-Lloyd
Aktiengesellschaft v. U.S. Oil Trading LLC . . . . . . . . . . . . . . . . . . . . . . . 677
Jingchen Xu
The International Legal Regime Governing Shipboard LNG . . . . . . . . . 691
Jingjing Xu and Proshanto K. Mukherjee
Intelligent Ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Tingting Yang
The United Kingdom Tonnage Tax Regime: Compatibility
with Relevant European Union Tax Law and Policy . . . . . . . . . . . . . . . 713
Yinan Yin
xiv Contents

Advisory Jurisdiction of the International Tribunal for the Law

of the Sea as a Full Court: Legal Basis and Limits . . . . . . . . . . . . . . . . . 741
Minna Yu
Lex Maritima in a Changing World: Development and Prospect
of Rules Governing Carriage of Goods by Sea . . . . . . . . . . . . . . . . . . . . 761
Lijun Zhao
About the Authors

Pinar Akan graduated with an LLB from Istanbul University, Faculty of Law in
1993; received LLM from the University of Wales, Cardiff Law School, in 1995;
and PhD from Marmara University. She has been a member of the Academic staff of
Marmara University, Faculty of Law, since 1996 and was appointed Full Professor
in 2013. She is Head of the Maritime and Insurance Law Department. She has been a
visiting professor at Tulane University both in New Orleans and the Rhodes summer
programme. She has also been a visiting professor at International Research Semi-
nars on Maritime, Port and Transport law organized by Bologna University, Faculty
of Law, and a visiting professor at Ca’Foscari University in Venice to give lecture at
the PhD level. She has several published articles to her credit at both national and
international levels and has authored books on shipwreck removal, liability of the
carrier due to the breach of care of cargo and maritime mediation. Lately, she edited
Liber Amicorum in Loving Memory of Prof. Athanassios Yiannopoulos. She con-
tinues to be the sole organizer of International Congress of Maritime and Admiralty
Law since 2010 and of Bilateral Meetings between Italy and Turkey on Transport
and Logistics.

Gabriela Argüello holds a Doctor of Laws in maritime and transport law from the
University of Gothenburg and a Master in Maritime Law from Lund University
(Sweden). Her research interests relate to environmental global challenges in relation
to the marine environment and the governance of the oceans. Currently, Gabriela is a
Postdoctoral Research Fellow in Law with a focus on Large Scale Collective Action
at the Centre for Collective Action Research (CeCAR). Gabriela has published
refereed articles in areas of waste management and ship recycling in international
journals.

Abhinayan Basu Bal is Assistant Professor at the School of Business, Economics

and Law, University of Gothenburg, in Sweden. He lectures in the field of interna-
tional trade and maritime law. His research interest lies in commercial maritime law,
digital trade, supply chain finance, trade facilitation, and the Belt and Road Initiative.
Funding from the EU, national governments and industry bodies has supported some
xv
xvi About the Authors

of his research endeavours. Since 2013, he is the accredited Swedish observer to the
United Nations Commission on International Trade Law Working Group IV on
Electronic Commerce. He has published monographs, chapters in books and articles
in peer-reviewed journals. Earlier he worked at Lund University and was responsible
for the delivery of the Master’s Programme in Maritime Law. He read for his PhD
degree at the World Maritime University in Sweden. He did his LLM in Maritime
Law from University College London in the UK and holds BSc, LLB and MBL
degrees from India. He was admitted to the Bar Council of India in 2005.

Raphael Baumler is Associate Professor and Head of the Maritime Safety and
Environmental Administration at the World Maritime University, Sweden. Educated
as dual officer, his sea life drove him to work as shipmaster on large containerships,
staff captain on cruise ship, and various assignments as deck or engineer officer on
ferries, VLCCs and supply vessels. He holds degrees in Crisis Management (MSc.)
and Risk Management (PhD) from the University of Artois (France).

Olena Bokareva is Associate Senior Lecturer in private law at the Faculty of Law
at Lund University. She is currently working on a postdoctoral project financed by
the Ragnar Söderberg Foundation on the topic of “Compensation and Liability for
Passengers’ Claims in Sea and Air Transport”. She obtained her doctoral degree
from Lund University in 2015 and holds her LLM degree from the same university.
Her doctoral research was based on the analysis of the Rotterdam Rules. Her
academic interest lies in maritime and commercial law, carriage of goods by sea,
multimodal transport and the law of the sea. She teaches maritime and transportation
law at the Faculty of law and selected topics in EU law.

Ron L. Bozzer is legal counsel at DuMoulin Boskovich LLP and practices general
business and corporate law, with emphasis on mergers and acquisitions, project
finance, banking and financing transactions, regulation of financial institutions,
captive insurance and public-private partnerships. Ron obtained his LLB from the
University of British Columbia in 1975 and was admitted to the British Columbia
Bar in 1975. Ron has extensive experience in project finance for major infrastructure
initiatives across many sectors, including telecommunications, mining, real estate
and forestry sectors. Ron is also involved in advising with respect to the develop-
ment of infrastructure projects in developing and emerging markets around the
world, including power projects, hospitals, airports and housing developments.

Shuang Cai graduated from Dalian Maritime University with a Bachelor of Law
degree in 2017. In September of the same year, she began to study for a master’s
degree in maritime law, mainly engaged in the law of the contract for the carriage of
goods by sea and the law of marine environmental damage.

Laura Carballo Piñeiro joined the World Maritime University in February 2018
as Professor and holder of the Nippon Foundation Chair of Maritime Labour Law
About the Authors xvii

and Policy. Prior to joining WMU she worked at the Universities of Vigo and
Santiago de Compostela in Spain, where she developed her expertise in private
international law, international litigation, international insolvency and maritime law.
She is admitted to practice as a lawyer and has worked as a deputy judge in Spain.
Her research as a Fellow of the Alexander von Humboldt Foundation led to the
publication of the book International Maritime Labour Law as part of the Hamburg
Studies on Maritime Affairs Collection (Springer, 2015) edited by the International
Max Planck Research School for Maritime Affairs at the Hamburg University.
Professor Carballo has published in a number of international journals in English,
German, Italian and Spanish. She has been visiting fellow at the Max Planck Institute
for Comparative and Private International Law, Columbia Law School, the Institute
of European and Comparative Law at Oxford University and UNCITRAL, and she
has taught in a number of institutions in Europe and Latin America such as the
Universities of Antioquia and Medellín in Colombia, the Central University of
Venezuela, and the Hague Academy of International Law.

Aldo Chircop JSD is Professor of Law and Canada Research Chair in Maritime
Law and Policy, Schulich School of Law, Dalhousie University, Halifax, Nova
Scotia, Canada. Professor Chircop’s research interests are in the fields of Canadian
and international maritime law and international law of the sea. Professor Chircop is
Chair of the International Working Group on Polar Shipping of the Comité Maritime
International, Research Fellow at the Ocean Frontier Institute, Research Consultant
to the Centre of International Law at the National University of Singapore, Senior
Fellow at the Centre for International Governance Innovation (CIGI), Visiting
Professor at Dalian Maritime University and member of the Nova Scotia bar. He
has received several academic and professional awards. His numerous publications
include: Canadian Maritime Law 2d (Irwin Law, 2016; with Moreira, Kindred and
Gold eds); Places of Refuge for Ships: Emerging Environmental Concerns of a
Maritime Custom (Martinus Nijhoff Publishers, 2006; with Linden eds); The Future
of Ocean Regime-Building (Martinus Nijhoff Publishers, 2009; with McDorman and
Rolston eds); The International Regulation of Shipping: International and Compar-
ative Perspectives (Martinus Nijhoff Publishers, 2012; with McDorman, Letalik and
Rolston eds). Professor Chircop is co-editor of the Ocean Yearbook since volume
13 (currently at 32).

Shatarupa Choudhury is Legal Counsel with Swiss Singapore Overseas Pte Ltd,
Aditya Birla Group, in Dubai. Shatarupa is a graduate of the National University of
Juridical Sciences (NUJS), Kolkata. Her current work profile involves global com-
modity trading and shipping business in a multinational company. Her current work
profile involves international arbitration especially in the Singapore International
Arbitration Centre and the Hong Kong International Arbitration Centre. Her first
international paper was in the field of space law; it was published in the Prague
Yearbook of Comparative Law. She hails from Bhubaneswar, India, and is a
passionate Odissi dancer.
xviii About the Authors

Jason Chuah is Professor and Head of Department at City, University of London

and, currently, Guest Research Professor at the University of Gothenburg. He is also
Director of the London Universities Maritime Law and Policy Group. He has
published well over 200 articles and eleven books, including Law of International
Trade (Sweet & Maxwell), Commercial Law (Pearson) with Prof. M. Furmston,
Carriage of Goods by Sea (Routledge) with A. Rogers and Research Handbook on
Maritime Law (as editor) (Edward Elgar). His works have been cited by institutions
in the UK, US, EU and Asia. He has been involved in consultations with the UK
Ministry of Justice, OECD, ICC, EU Commission, Association of British Insurers,
UNCITRAL, among others.

Pallab Das is Lecturer in Law at the National Law University of Odisha (NLUO) in
India. He obtained his BSL and LLB from ILS Law College, Pune, ranking in 8th
place at Pune University, and his LLM from Swansea University on an International
Excellence Scholarship in 2015 specializing in International Commercial and Mar-
itime Law. He has several publications to his credit and assisted with the authorship
of the book Maritime Jurisdiction and Admiralty Law in India. He also compiled and
edited two other special texts entitled Justice for Women: Legal Compendium and
The Moot Compendium. He is a qualified Westlaw UK researcher. He is a member of
the Chartered Institute of Arbitrators, London, and an Associate Member of the
Asian Institute of Alternate Dispute Resolution, Malaysia. His areas of interests
include International Maritime Law, International Commercial and Investment
Arbitration, Air Law, Evidence Law and Transfer of Property Act. Prior to joining
NLUO, he practiced in the High Court of Orissa and was also a Civil Judge in the
Odisha Judicial Services. He is presently a Research Associate and Teaching
Assistant at NLUO. He teaches Maritime law and International Commercial Arbi-
tration to undergraduate students and is in charge of the Centre for Maritime Law at
NLUO. He is also a knowledge partner with the Centre for Arbitration and Consul-
tation Development (CACD), a non-profit organization in India.

Martin Davies is Admiralty Law Institute Professor of Maritime Law at Tulane

University Law School in New Orleans and Director of the Tulane Maritime Law
Center. He holds the degrees of MA and BCL from Oxford University, England, and
an LLM from Harvard Law School. Before joining Tulane, he was Harrison Moore
Professor of Law at the University of Melbourne in Australia and before that he
taught at Monash University, University of Western Australia and Nottingham
University. He has also been a visiting professor at universities in China, Italy,
Azerbaijan and Singapore. He has received several teaching awards, and in 2017, the
editors of the law report series American Maritime Cases dedicated the 2016 bound
volumes to him. He is author (or co-author) of books on maritime law, international
trade law, conflict of laws and the law of torts. He has also published many journal
articles on these topics. He has extensive practical experience as a consultant for over
30 years on maritime matters and general international litigation and arbitration, in
Australia, Hong Kong, Singapore and the USA.
About the Authors xix

Osatohanmwen Anastasia Eruaga is a Research Fellow with the Nigerian Insti-

tute of Advanced Legal Studies and a Doctoral Candidate of the World Maritime
University, Sweden. She studied Law at the University of Benin, Nigeria, and
subsequently obtained an LLM (Maritime Law) from the University of Nottingham,
the United Kingdom, in 2009. She has been involved in extensive legal research and
writing in the areas of public law, especially Maritime and Human Rights Law. Her
current research brings her in close contact with maritime security-related issues.
With several individual and co-authored peer-reviewed book chapters and journal
articles to her credit, she has served as a speaker and guest lecturer at several
conferences. She served as part of the support faculty for the 2015/2016 and 2018/
2019 MSc class in Maritime Law and Policy (MLP) at the World Maritime Univer-
sity, Malmö, Sweden.

Aref Fakhry joined WMU in 2014 as an Associate Professor. He mainly lectures in

WMU’s MSc Maritime Law and Policy specialization. His areas of expertise are
commercial maritime law, maritime security, marine environmental law, and ocean
governance and policy. Aref carries 15 years’ experience as a lecturer at the IMO
International Maritime Law Institute (IMLI) and the International Ocean Institute.
He concurrently lectures at the Faculties of Law of the Holy Spirit University of
Kaslik in Lebanon and the University of Malta. He has acted as a consultant for
IMO, REMPEC, UNEP, UNCTAD and the European Commission. Aref earned his
PhD from the University of Southampton where he studied the implications of piracy
in the Horn of Africa on maritime contracts. He is an advocate registered at the
Montreal Bar in Canada. He is also a member of the Canadian Maritime Law
Association. He is a citizen of both Lebanon and Canada. He speaks fluently Arabic,
English and French and has a good level of Spanish.

Lixin Han is Vice Dean, Professor and Doctoral Tutor, Faculty of Law, Dalian
Maritime University; PhD in law; Arbitrator, China Maritime Arbitration Commis-
sion; Arbitrator, China International Economic and Trade Arbitration Commission;
Arbitrator, Dalian Arbitration Commission.

Anish Hebbar serves as Assistant Professor of Maritime Safety and Environmental

Administration at the World Maritime University. His doctoral work focused on
governance of oil spill disasters and his master’s dissertation focused on risk
communication. His current work focus includes risk assessment, maritime accident
investigation, domestic ship safety and member state performance. As a practitioner
of the law of the sea in his previous service of over twenty-eight years in the Indian
Coast Guard, he gained deep insights into the several tenets of innocent passage
described in this book chapter.

Måns Jacobsson was Director and Chief Executive Officer of the International Oil
Pollution Compensation Funds (IOPC Funds) from 1985 to 2006. In his earlier
career he served in the Swedish judiciary at district court and appellate court levels,
xx About the Authors

and he held the post of President of Division of the Stockholm Court of Appeal. He
has also been Head of the Department of International Civil Law of the Swedish
Ministry of Justice. He is a member of the Board of Governors of the World
Maritime University (WMU) in Malmö (Sweden). He works as a consultant in
maritime and environmental matters and as an academic lecturer at numerous
institutions in a number of countries, inter alia, as Visiting Professor at the WMU
and at the Maritime Universities in Dalian and Shanghai and as Visiting Fellow at
the IMO International Maritime Law Institute (IMLI) in Malta. He has published
three books and numerous articles in various fields of law. The University of
Southampton has conferred upon him the Degree of Doctor of Laws honoris
causa. In 2010 he was awarded the King of Sweden’s Gold Medal for significant
achievements in the fields of marine environment and shipping.

Henning Jessen is a fully qualified lawyer in his home jurisdiction in Germany. He

graduated from the University of Kiel in 2001. Supported by a Fulbright Scholar-
ship, he has undertaken postgraduate studies in Admiralty and Maritime Law in the
United States (Tulane Law School, New Orleans) from 2003 to 2004. He started his
legal career as a WTO lawyer in 2006 in the German Ministry for Economic
Cooperation and Development. Since 2008, he has been working as a professor in
the areas of Maritime Law and the Law of the Sea, at two universities in the German
maritime hubs of Bremen (2008–2012) and Hamburg (2012–2016). Since 2016,
Henning Jessen is an Associate Professor for Maritime Law and Policy at the World
Maritime University (WMU) in Malmö, Sweden. His main areas of teaching and
research are the Law of the Sea (UNCLOS), Legal Aspects of IMO Conventions and
Related EU Law, Carriage of Goods by Sea Law/International Aspects of Transport
Law, and Trade Facilitation and Related WTO Law. Henning has co-edited the book
EU Maritime Transport Law and contributed several chapters to this extensive
commentary (see: https://www.bloomsburyprofessional.com/uk/eu-maritime-trans-
port-law-9781509905607/).

Shengnan Jia obtained her Bachelor of Laws (LLB) from Beijing Union Univer-
sity, her first LLM degree from the Graduate School of the Chinese Academy of
Social Sciences, specializing in Civil Commercial Law in 2009, and a second
combined LLM degree in Maritime Law from Lund University and World Maritime
University in Sweden, in 2013. She previously served as a partner with the Beidou
Dinging Law Firm in Beijing and as Manager of International Business in the
Zhongrui Law Firm in Beijing. She is a supporting member of London Maritime
Arbitrators Association, a member of China Centre (Maritime) of Southampton
Solent University, member of the Professional Committee of Maritime Law of
Beijing Municipal Lawyers Association and a member of the editorial board of
Journal of Shipping and Ocean Engineering.

Tafsir Matin Johansson is Associate Research Officer at the WMU-Sasakawa

Global Ocean Institute (Global Ocean Institute) in Malmö, Sweden. He is a policy
analyst with a PhD in Maritime Affairs from WMU and an LLM in Maritime Law
About the Authors xxi

from Lund University in Sweden. Dr. Johansson has led research teams and worked
proactively on regulatory development projects funded by Transport Canada (Gov-
ernment of Canada) since 2014 in diverse areas under Canada’s Oceans Protection
Plan, including oil spill intervention, abandoned vessels and derelicts, ISPS Code,
security in unmanned and remote facilities, impact mitigation and demand drivers in
the context of anchorage, marine medical certificates for seafarers and aquaculture of
salmonids. Dr. Johansson has published extensively in the field of ocean gover-
nance, corporate social responsibility, international law and environmental law. His
key area of interest lies in developing policy briefs for government officials as well
as applying “legal theory research” and “expository research” to determine the
efficiency and effectiveness of national laws in dealing with contentious issues in
the maritime and ocean domain.

In Hyeon Kim is Professor of Maritime Law and Marine Insurance Law and
Director of the Maritime Law Centre at the School of Law, Korea University. He
studied nautical science in Korea Maritime University and was employed by the
Sanko Steamship Co. Ltd. After discontinuing his service as ship master, he studied
maritime law at Korea University and obtained his LLD in 1999 and his LLM from
University of Texas at Austin in 2004. He also studied law at the Bachelor’s level at
Korea University from 2005 to 2007 and was a visiting professor at National
University of Singapore (2013). He served as a maritime consultant for Kim &
Chang, the largest law firm in Korea from 1996 to 1999. He was the president of
Korea Maritime Law Association. He acted as legal adviser for Korean government
to UNCITRAL Transport Law Project (Rotterdam Rules) and the Legal Committee
of IMO. He was also a member of revision committee for Korean Commercial Code
Maritime Law Section. He is a member of Planning Committee of CMI. He has
published several articles in English on maritime law in the Journal of Maritime Law
and Commerce (JMLC), including Sewol Ferry Accident and Hanjin Shipping’s
Rehabilitation case in Hong Kong Law Journal. He is the author of Transport Law in
South Korea published by Kluwer. He is a listed member of Korea Commercial
Arbitration Board and SCMA as well. He acted as the chairman for establishing
Seoul Maritime Arbitration Association during 2017 and 2018.

Khanssa Lagdami joined the World Maritime University as a Researcher in 2015.

Her areas of expertise are law of the sea, marine environmental law, maritime
governance and policy, maritime transport and new technologies. Khanssa carries
over 10 years of experience as a researcher in maritime and ocean affairs. Her
research interests involve project creation, project management as well as capacity
building and training (especially for developing countries). Dr. Lagdami has had the
opportunity to teach International Public Law, Law of the Sea and Maritime Law at
the Faculty of Law of the University of Nantes in France and delivers training on
maritime security for MSc Maritime Law and Policy at the World Maritime Uni-
versity. Dr. Khanssa Lagdami earned her doctorate from the University of Nantes
where she studied maritime safety and security in the Mediterranean. Her
multidisciplinary profile holds also an MSc in Maritime Affairs Management and
xxii About the Authors

an LLM in International Comparative Law from the University of Perpignan in

France. She is fluent in English, French and Arabic.

Huiru Liu was the recipient of the Juthika Memorial PhD fellowship Award during
her doctoral research at WMU on “The Environmental Dimension of Salvage:
Towards a New Legal Regime”. She was awarded a scholarship for attending the
IFLOS Summer Academy in Hamburg in 2016 and served as an intern at the
International Maritime Organization (IMO) in 2018. She also served an internship
with the Intermediate People’s Court of Dalian, China, in September 2014 and the
Yahetai law firm in Qingdao, China. She has several peer-reviewed publications to
her credit including book chapters on various public and private maritime law topics
including marine insurance, maritime safety and security, arctic shipping and law of
the sea, both in English and Chinese. She has presented conference papers at World
Maritime University and City University of London and has lectured at the National
Judicial Institute of Ghana, Jimei University in China, National Law University of
Odisha, India, Yangon University and Myanmar Maritime University. She is Assis-
tant Consultant for Marine Care Ltd. for Review of the Merchant Shipping Ordi-
nance 1983, of Bangladesh.

Lars-Göran Malmberg holds the Torsten Petterson Chair as Professor in Maritime

and Transportation Law at the School of Business, Economics and Law, University
of Gothenburg. Professor Malmberg has specialized in public law matters
concerning aviation, maritime and other transport-related activities. He has been
representing the Swedish Government in the ICAO as a legal expert. Between 1994
and 2010, he participated in numerous committees and diplomatic conferences
within the organization. He has also been active in legal development programmes
in South-East Asia and has been a Visiting Professor at Nagoya University in 2012.
He is presently participating in a number of cross-disciplinary research projects in
both maritime and transport law and logistics within the University of Gothenburg
and Chalmers University of Technology.

F. Mikis Manolis is legal counsel at DuMoulin Boskovich LLP and a commercial

litigator whose practice touches on a wide variety of matters including maritime,
transportation, shareholder, insurance, product liability, securities, employment and
professional negligence matters. Mikis completed an MA at Dalhousie University in
1996 with a focus on the Law of the Sea and related policy issues. He later obtained
his LLB degree from Dalhousie University in 2001. Mikis was admitted to the
British Columbia Bar in 2002. In 2009, Mikis completed a PhD in international
commercial and maritime law in a programme run jointly by the University of Wales
in Swansea and the World Maritime University in Malmö, Sweden. Mikis is also a
member of the Canadian Maritime Law Association.

Michael Ekow Manuel is Professor (Nippon Foundation Chair) and Head of the
Maritime Education and Training Specialization at the World Maritime University,
Sweden. He was previously the Dean of the Faculty of Maritime Studies at the
About the Authors xxiii

Regional Maritime University in Ghana. He is a Master Mariner, with his work at sea
culminating in an appointment as Master (Ship Captain). He holds degrees in
Maritime Affairs (MSc) and Maritime Administration (PhD) from the World Mar-
itime University with ITF and Sheldon Kinney Fellowships, respectively.

Kofi Emmanuel Mbiah is a Barrister at Law. He holds a Master’s degree in Marine

Management (MMM) from Dalhousie University, Canada, and a Master of Laws
(LLM) from IMO International Maritime Law Institute (IMLI), Malta, where he
graduated with distinction and was the recipient of the IMO Secretary General’s
Award for Best Overall Performance. Dr. Mbiah also obtained a Master of Business
Administration (MBA) from the Ghana Institute of Management and Public Admin-
istration in 2005. He obtained his PhD in Maritime Administration from World
Maritime University, Sweden, in 2011. He is a member of the Chartered Institute of
Arbitrators U.K. (MCIArb) and a Fellow of the Chartered Institute of Logistics and
Transport (FCILT). He started his career at Ghana Shippers Authority in 1982 as an
Assistant Legal Officer and rose through the ranks by dint of hard work to become
the Chief Executive Officer in 1998, a position he held for 19 years. Dr. Mbiah is the
immediate past Chairman of the Legal Committee of the International Maritime
Organization, a position he held for 6 years. He also served as Chairman of the
Union of African Shippers Councils from 2016 to 2017. Since 2006 to date,
Dr. Mbiah has served at various times as a Visiting Professor at the World Maritime
and Lund University in Sweden and at the IMO International Maritime Law Institute
in Malta. He has also served as a resource person and maritime law expert at various
international seminars and conferences including CMI conferences and Maritime
Law seminars for judges in Kenya, Ghana and Nigeria. He has published articles in
local and international journals. In 2015, the IMO appointed Dr. Mbiah to the Board
of Governors of IMLI. He is a proud recipient of many awards for excellence
including the IMLI International Achievement Award. He now works with Alliance
Partners as a Private Legal Practitioner and a Maritime Law and Management
Consultant with Shipman Consult. He is presently the CEO of the Ghana Chamber
of Shipping.

Maximo Q. Mejia, Jr. has been a member of the resident faculty at the World
Maritime University (WMU) since 1998. He holds a BSc (US Naval Academy,
Annapolis, Maryland), MALD (Fletcher School, Medford, Massachusetts), MSc
(WMU, Malmö, Sweden) and PhD (Lund University, Lund, Sweden). Before
joining WMU, he saw duty on board naval and coast guard vessels as well as in
shore-based facilities in the Philippines. He went on leave from WMU to return to
the Philippines to serve as Administrator (Director General) of the Maritime Industry
Authority (MARINA) from May 2013 to July 2016. MARINA is the country’s
maritime administration, responsible for integrating the development, promotion and
regulation of the maritime industry. In 2013, Lloyd’s List included Dr. Mejia in its
list of the world’s 100 Most Influential Persons in the Shipping Industry. Prof.
Mejia’s teaching and research areas include maritime policy, law, human factors,
safety and security-related issues. He is the editor/co-editor of 8 books and author/
xxiv About the Authors

co-author of more than 60 published articles and book chapters. Prof. Mejia’s
editorial responsibilities include the WMU Journal of Maritime Affairs (Associate
Editor) and the WMU Studies in Maritime Affairs (Series Editor). At WMU, he
currently serves as Director of the PhD Programme, Associate Academic Dean and
Head of the Maritime Law and Policy specialization.

Samuel Pyeatt Menefee has a background in anthropology and law and is Maury
Fellow at UVA’s Center for Oceans Law and Policy. He holds degrees from Yale,
Harvard, Oxford, Cambridge and the University of Virginia and has published
extensively on piracy and maritime terrorism. Menefee has held several academic
appointments and was formerly Rapporteur of the CMI’s Joint International Work-
ing Group on Uniformity of the Law of Piracy. The Mariners’ Museum made him a
Huntingdon Fellow for his work in the field.

Proshanto K. Mukherjee is Professor of Maritime Law, Dalian Maritime Univer-

sity; Professor Emeritus of Maritime Law and Policy, World Maritime University;
Chancellor of CINEC, Colombo. He was previously Vice President (Research),
Director of Doctoral Programmes, and ITF Professor of Maritime Safety and Envi-
ronmental Protection at WMU; Director of LLM and PhD Programmes in Maritime
Law at Lund University; IMO Legal Adviser for the Caribbean Region; Senior
Adviser, Maritime Policy and International Affairs, Department of Fisheries and
Oceans, Canada; and Senior Deputy Director and Professor of Maritime Law,
International Maritime Law Institute (IMLI), in Malta. He is Honorary Research
Fellow, Swansea University; Visiting Professor, Shanghai Maritime University and
Jimei University; Visiting Professor, Graduate School of Human Resource Devel-
opment, Chung-Ang University, Seoul; Visiting Professor, National University of
Juridical Sciences, Kolkata; Visiting Professor and Senior Academic Adviser,
National Law University of Odisha, Cuttack; and Visiting Professor, BSMR Mari-
time University, Dhaka. He spent 16 years in a seafaring career reaching the rank of
Master before entering legal studies and the legal profession. He is a member of the
Canadian Maritime Law Association and the CMI Working Group on Fair Treat-
ment of Seafarers. He is on the editorial boards of several academic journals. He is
author of Maritime Legislation and lead author of Farthing on International Ship-
ping, Fourth Edition. He has numerous publications to his credit on virtually every
aspect maritime affairs and public and private maritime law, and his works have been
cited by the Federal Court of Australia.

Reshmi Mukherjee is a solicitor within the jurisdiction of England and Wales.

After completing a degree in Political Science at Carleton University in Ottawa,
Canada, she pursued her LLB at the institution that was then called the University of
Wales, Swansea (now Swansea University). Upon completing the LLB,
Ms. Mukherjee studied for and completed the LLM in Maritime and Commercial
Law, also at the University of Wales, Swansea. She then took the Legal Practice
Course at the same law school, before qualifying as a solicitor. Ms. Mukherjee lives
within the County of Swansea with her husband and young son.
About the Authors xxv

Fikile Portia Ndlovu is a Professor of International Maritime Business at the

Massachusetts Maritime Academy, USA. Dr. Ndlovu specializes in publishing
research and teaching of international trade laws, which directly includes subjects
such as International Commerce, International Trade, the Law of the Sea, Marine
Environmental Law and International Diamond Trade Law subjects. As a practicing
Maritime Lawyer, Dr. Ndlovu has provided consultancy services to Government
bodies such as the Ports Regulator, legal compliance advice and support to various
commercial entities; she has also sat as an arbitrator and assessor in various tribunals
bringing specialized academic and practical legal knowledge. Dr. Ndlovu’s Dia-
mond Law Book, which investigates the use of natural resources, international
financial systems and the mining of sea areas, has received a citation for “Most
Notable Publication Received in the Journal of Energy and Natural Resources Law
(JERL) Vol 31 No 3”.

Trisha Rajput is Assistant Professor at the School of Business, Economics and

Law, University of Gothenburg, where she lectures to both law and management
students on international trade law. She holds a Doctorate in Law and Master’s in
European and International Business Law from the University of Leeds, United
Kingdom. She did her Bachelor’s degree in Law from India and was admitted to the
Bar Council of India in 2005. Her research interest lies in the area of international
economic law with particular focus on international trade law. Her current research
considers the contribution of digital infrastructures and the impact of trade facilita-
tion measures in enhancing the efficiency and predictability of global value chains.
More recently, her research has focused on Belt and Road Initiative. She has worked
on research projects funded by the Swedish government and the European Union.

Desai Shan PhD, LLB is an Ocean Frontier Institute Postdoctoral Fellow at the
Schulich Law School, Dalhousie University, Canada. Her research project is Reg-
ulating Maritime Occupational Health and Safety in the Canadian Arctic Gateway:
Regulatory Divergence or Convergence between the Shipping and Fishing Sectors.
Before joining Dalhousie University, Dr. Shan was a Postdoctoral Research Fellow
at the Faculty of Law, University of Ottawa. She conducted a research project on
Occupational Health and Safety Regulation and Management on the Great Lakes
and St. Lawrence River. Funded by the Nippon Foundation, Dr. Shan completed her
PhD in socio-legal studies at the Seafarers International Research Centre, Cardiff
University, Wales. She is a maritime lawyer and a socio-legal researcher. She has
published 13 articles, several of which in leading academic peer-reviewed journals,
including Marine Policy, International Journal of Law and Psychiatry and Relations
Industrielles/Industrial Relations.

Baris Soyer is Professor and Director of the Institute of International Shipping and
Trade Law at Swansea University; he is also a member of the British Maritime Law
Association and British Insurance Law Association. He is the author of Warranties
in Marine Insurance (2001), Marine Insurance Fraud (2014), and many articles
xxvi About the Authors

published in journals such as Cambridge Law Journal, Law Quarterly Review,

Edinburg Law Review, Lloyd’s Maritime and Commercial Law Quarterly, the
Journal of Business Law, the Torts Law Journal and the Journal of Contract Law.
Warranties in Marine Insurance won the Cavendish Book Prize 2001 and was
awarded the British Insurance Law Association Charitable Trust Book Prize in
2002 for its contribution to insurance literature. Marine Insurance Fraud also won
the latter prize in 2015. He has also edited large numbers of collections of essays on
commercial, maritime and insurance law. In addition, he sits on the editorial boards
of the Journal of International Maritime Law, Shipping and Trade Law and the
Baltic Maritime Law Quarterly. Professor Soyer currently teaches Admiralty Law,
Charterparties: Law and Practice and Marine Insurance on the LLM Programme at
Swansea.

D. Rhidian Thomas is Professor Emeritus of Maritime Law and Founder Director

of the Institute of International Shipping and Trade Law at Swansea University,
Wales, UK. He previously held academic posts at the Universities of Cardiff and
East Anglia and visiting positions at universities in Europe, Scandinavia, Far East
and North America. He held the Francqui Chair at the University of Leuven in 2010/
2011 and is currently visiting professor at Gothenburg University, World Maritime
University and Bologna University. In 2019 he was the recipient of an Honorary
Doctorate of Law conferred by the University of Gothenburg. Professor Thomas is
Editor-in-Chief of the Journal of International Maritime Law and a member of the
editorial board of Shipping and Trade Law. He is a member of the Comité Maritime
International and its International Standing Committee on Marine Insurance, British
Maritime Law Association, Chartered Institute of Arbitrators and British Insurance
Law Association. In 2016 he was made an Honorary Member of the Croatian
Maritime Law Association. He was a member of the Departmental Advisory Com-
mittee on Arbitration Law which drafted the UK Arbitration Act 1996. His principal
teaching and research interests are in the fields of maritime and shipping law, marine
insurance law, international trade law and commercial arbitration. He has written,
edited and contributed to many books and published widely in academic and
professional journals. In particular he has edited and contributed to two books on
the Rotterdam Rules, A New Convention for the Carriage of Goods by Sea – The
Rotterdam Rules (2009, Law Text Publishing, UK) and The Carriage of Goods by
Sea under the Rotterdam Rules (2010, Lloyd’s List Law, London, UK), and is editor
and contributor to the Modern Law of Marine Insurance series of volumes
(1996–2016) published by Informa Law from Routledge (UK). He is a frequent
speaker at conferences and seminars and also acts as an expert witness and
consultant.

Yuanjun Xia is an associate professor in maritime law at Dalian Maritime Univer-

sity (DMU) Law School and a member of Liaoning International Maritime Law
Institute and the China Maritime Law Association. He is also a part-time lawyer of
Beijing Globe-Law Law Firm, Dalian Branch. His research interests are primarily in
the fields of carriage of goods by sea, marine environmental law and private
About the Authors xxvii

international maritime law. Yuanjun earned his LLB in 1998 and his LLM in 2001
from DMU and gained his PhD from Tsinghua University in 2011. He attended a
short-term training programme at the World Maritime University in 2016 and
conducted an academic visit in the Institute of Maritime Law at the University of
Southampton from August 2018 to August 2019. Yuanjun has published a number
of articles on maritime law in both English and Chinese academic journals, some of
which were awarded prizes by different academic institutions. He has been both
person-in-charge and participant in several research projects concerning maritime or
shipping law.

Jingchen Xu is currently a postdoctoral fellow at the Centre for Maritime Law,

National University of Singapore, Faculty of Law. She obtained her SJD and LLM in
Admiralty (with distinction) from Tulane University Law School and her LLB in
Maritime Law from Dalian Maritime University. At Tulane, Jingchen was a Senior
Editor for Volumes 40–41 of the Tulane Maritime Law Journal and a research
assistant to Professor Robert Force. Jingchen’s work has been published in the
American Bankruptcy Law Journal and the Journal of Maritime Law and Com-
merce, and she has presented papers at several conferences. She has interned with the
American P & I Club and several US maritime law firms and is admitted to practice
law in New York State and in China.

Jingjing Xu is Head of Plymouth Business School at the University of Plymouth.

She is Professor of Maritime Law and Economics, and before she took on the Head
of School role, she was the Associate Dean for Research in the Faculty of Business
and Director of the Institute for Social, Policy and Enterprise Research (iSPER). She
has published extensively on issues relating to the law, policy and management of
maritime transport and played a lead role, or acted as an Expert Advisor, in a
significant number of EU/international projects. She sits on a number of national
and international panels and committees as member or Expert Adviser, and she is an
elected Fellow of the Royal Institute of Navigation. She is a member of the editorial
board of a number of leading journals in her field and a regular reviewer for
numerous journals and publishers. In addition to her role at the University of
Plymouth, she is a Visiting Professor at World Maritime University and Lund
University in Sweden, Shanghai Maritime University in China, and an Adjunct
Professor at the University of Tasmania, Australia.

Tingting Yang obtained her BSc and PhD degrees from Dalian Maritime Univer-
sity, China, in 2004 and 2010, respectively. She is currently Associate Professor at
the School of Electrical Engineering and Intelligentization, Dongguan University of
Technology, Dongguan, China. She has been honoured as one of the Outstanding
Young Talents of Dalian, Young Talents in Liaoning Province and Standardization
Specialist of Liaoning Province. Since September 2012, she has been a visiting
scholar at the Broadband Communications Research (BBCR) Laboratory at the
Department of Electrical and Computer Engineering, University of Waterloo,
Canada. Her research interests are in the areas of maritime wideband communication
xxviii About the Authors

networks, 6G/B5G wireless network and brain-inspired wireless networks. She

serves as the associate Editor-in-Chief of the IET Communications, Advisory Editor
for SpringerPlus and Guest Editor for Journal of Communications and Information
Networks and Journal of Computer Networks and Communications. She also serves
as ICCC2019 Co-chair of Wireless Communications Symposium, the workshop
chair of FCST’15 and the TPC Member for IEEE Globecom ’16, Globecom ’17,
Globecom ’18 Conferences, IEEE ICC’14, ICC’15 and ICC’16 Conferences, IEEE
SmartGridComm’14 Symposium and IEEE ScalCom’14 Conference as well.

Yinan Yin completed her PhD under the supervision of Professor Keyuan Zou at
the University of Central Lancashire. She now is lecturer in law in Liverpool John
Moore’s University. She teaches a range of subjects at both undergraduate and
postgraduate levels and also undertakes module leadership of maritime law. The
research questions of her PhD involve various current interdisciplinary issues of law
and policy in relation to contract law and tort law in the context of international and
Chinese law. She has presented at conferences and published journal papers and
book chapters concerning issues on international law and international maritime law.
She is carrying out a book project in relation to regionalism and international law as
co-author for the Routledge publisher. Apart from being a lecturer in law, she also
serves as arbitrator with Beihai Arbitration Commission.

Haiyang Yu obtained his LLB degree from East China University of Political
Science and Law (ECUPL) in Shanghai in 2016, his LLM in Commercial Law
specializing in Maritime and Transport Law from Erasmus University Rotterdam in
2017 and is currently pursuing a PhD in law specializing in Maritime Law at the
Institute of Transnational Legal Research, Faculty of Law, Maastricht University. He
attended courses in Marine Insurance at the master’s level offered jointly by the
Dutch P&I Insurance Group and Erasmus University Rotterdam and served a legal
internship at Pfizer in Shanghai. He holds the Legal Professional Qualification of
China and currently serves as Executive Editor-in-Chief of the CECCA Newsletter
on Maritime and Commercial Law, London.

Minna Yu is a doctoral student in Public International Law at Wuhan University.

She received the degrees of Master of Laws (2016) and Bachelor of Laws (2014)
from Dalian Maritime University. Minna has a well-rounded educational back-
ground encompassing both private and public maritime law. She served as a legal
adviser with China National Cereals, Oils and Foodstuffs Corporation (COFCO
Group) for one year. Her doctoral research focuses on jurisdictional issues involving
various international judicial institutions and probes into Chinese perspectives
towards legal methodologies for the settlement of maritime disputes.

Lijun Zhao is Senior Lecturer at Middlesex University, London, specializing in

international trade and maritime law and a Founding Director of CECCA. She has an
interdisciplinary background in economics, business and management and is a
Fellow of the Society of Legal Scholars, the British Institute of International and
About the Authors xxix

Comparative Law and the British Higher Education Association. She is a member of
the Bar of P.R. China and specializes in commercial law. She was a practicing
lawyer in Beijing. Dr. Zhao has acted as a consultant for several governmental law
reform projects and has held visiting posts at various institutions including Harvard
Law School, the Max Planck Institute for Comparative and Private Law in Hamburg,
Swansea University, Cardiff University and Shanghai Maritime University. She was
previously a Teaching Fellow and Liaison Officer at Bangor University and Exec-
utive Editor of the Journal of China University of Political Science and Law.
The Effect of the Arbitration Clause
Incorporated in a Bill of Lading to Third
Persons

Pinar Akan

Abstract The validity of the arbitration clause in a bill of lading (liner and/or
charterparty bills of lading) under Turkish law governed by various Acts. Conditions
for the validity of foreign arbitration agreements are; (1) The arbitration agreement
shall be in writing. (2) The parties to the arbitration agreement shall be competent.
(3) The arbitration agreement shall be valid under the law, which the parties have
chosen. The condition for the arbitration agreement to be in writing can be achieved
in two ways. One of them is insertion of the arbitration clause among other existing
terms and conditions of the bill of lading and the other way is incorporation to a
charterparty provided that a copy of the charterparty is handed over to the holder of
the bill of lading. Due to the following reasons those terms and conditions, including
arbitration clause, either inserted or incorporated properly are exempted from the
examination brought by the Art. 20 of Turkish Code of Obligations; (1) By virtue
of a bill of lading having the characteristics of negotiable instruments, (2) The
infeasibility of examination of generalized transaction terms in contracts between
merchants, (3) Freedom of contract and the principle of diligent businessman
in commercial law, (4) Article 55/1 of Turkish Commercial Code and the issue
of constituting unfair competition already regulated, (5) The privity of practical
commercial and customary application compared to Turkish Code of Obligations,
(6) The effect of the compulsory provisions regarding maritime law under Turkish
Commercial Code.

1 Introduction

This chapter covers my legal assessment regarding whether or not the arbitration
clause in a bill of lading is valid against third party holders in Turkey. In my opinion,
the issue of validity of the arbitration clause in a bill of lading, which is a document of
title, receipt and evidence for the contract of carriage, be it either liner or charter party,
three separate but closely connected areas should be taken into consideration;

P. Akan (*)
Maritime Law Department, Marmara University, Faculty of Law, Istanbul, Turkey

© Springer Nature Switzerland AG 2020 1

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_1
2 P. Akan

International Private Law, Commercial Law and Law of Obligations. As a basis for
the evaluation, bills of lading are discussed in this chapter under two separate
classifications; namely, the “liner bill of lading” and the “charterparty bill of lading”.1

2 Assessment in Terms of Arbitration Legislation

Arbitration is a widely invoked procedure due to its speedy and is a relatively

inexpensive way of settling international commercial disputes. It is also suitable
regarding to the resolution of issues with technical knowledge requirement. In the
discussion below, first, the conditions of validity pertaining to an arbitration agree-
ment are assessed in general terms and thereafter the validity of the arbitration clause
or reference to another instrument containing an arbitration clause is examined.

2.1 Determining the Validity of Arbitration Agreement

At present, the principals for determining the validity of arbitration clauses are
governed by the provisions of the laws enacted for the enforcement of arbitration
awards. Within the scope of Turkish law, the legal provisions pertaining to arbitra-
tion may be enumerated as follows:
1. Dated 08.05.1991 and numbered 3731: “Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (dated 10th of June 1958)”, which
entered into force through publication in the Official Gazette No. 20877 dated
21.05.1991.
2. International Arbitration Law (IAL), Law No. 4686, accepted on 21.06.2001,
with the effective date 05.07.2001 through publication in the Official Gazette
No. 24453.
3. Act on Private International and Procedural Law (APIPL), Law No. 5718
accepted on 27.11.2007, with the effective date 12.12.2007 through publication
in the Official Gazette No. 26728.
With regard to Turkish legislation, arbitral awards based on arbitration proceed-
ings are divided into two types as follows:

1
Charter party bills of lading are assigned based on the charter parties that are set. In this type of bill
of lading a reference is made to the charter party concerned and by that way the terms and conditions
of the bill of lading are made enforceable for the charter party concerned. This type of bill of lading,
is used for vessels of which their voyage is designated independently mostly called as “tramp
service”. Liner bills of lading, instead, are used for vessels that are navigating in a designated route
and within the scope of designated trip details and the clauses involved in the agreements
concerning the conveyance that will be made by these vessels are not drawn up on a separate
charter party, instead, they are drawn up directly on the reverse side of the bill of lading issued.
The Effect of the Arbitration Clause Incorporated in a Bill of Lading. . . 3

1. National arbitral awards

2. Non-national arbitral awards (hereinafter “foreign arbitral awards”).
National arbitral awards, are sub-divided into two types as follows:
(a) National Arbitral Awards given pursuant to International Arbitration Law, and
(b) National arbitral awards given pursuant to the Turkish Civil Procedure Code
No. 6100 (hereinafter TCPC)
National arbitral awards given under the TCPC and excluding any foreign
element, can be enforced without the need for an order of execution. But, for the
enforcement of foreign and national arbitral awards given under any International
Arbitration Law, a certificate or order of execution must be obtained.

2.2 Validity of Foreign Arbitration Agreement

In order for:
(a) foreign arbitral awards to be enforced in Turkey, or
(b) the defendant, depending on an arbitration agreement, to raise a valid arbitral
opposition
the arbitration agreement between the parties should be valid.
In the event of the defendant, against whom an action has been brought in a
Turkish court, raising an arbitral opposition, depending on the arbitration agreement
drawn up with the plaintiff, the court verify the validity of the arbitration agreement,
and if it is confirmed, Judge will dismiss the claim underground or existing an
arbitration agreement.
In a case filed in a Turkish court, if one of the parties asserts an arbitral opposition,
the validity of the arbitration agreement shall be assessed on the basis of the
arbitration legislation being valid in Turkey. In order to determine the validity of
the arbitration agreement the Turkish court will examine the following issues;
– Whether the counter party of a Turkish party is a foreigner or not, or
– Whether the chosen arbitration place is at one of the New York Convention
countries, or
– Whether Turkey was chosen as arbitration place or not where the counter party of
a Turkish entity or person is a foreigner.
Also, the requirements and corresponding provisions of law set out below will
apply:
1. If in an arbitration agreement, the counterparty to the Turkish party is a citizen of
a country, which is a party to the New York Convention and if the place of
arbitration is set as Turkey, then the validity of the arbitration agreement shall be
examined on the basis of Law number 3731, which recognizes the New York
Convention.
4 P. Akan

According to this Law:

i. The arbitration agreement shall be in writing. The term “agreement in writ-
ing” shall include an arbitral clause in a contract or an arbitration agreement,
signed by the parties or contained in an exchange of letters or telegrams.
(New York Convention Art. II-1,22)
ii. The parties to the arbitration agreement must have legal capacity. [New York
Convention Art. V-1(a)3]
iii. The arbitration agreement shall be valid under the law to which the parties
have subjected the agreement. In the case where the parties have not subjected
the agreement to any applicable law, the validity examination shall be
made under the law where the arbitral award is made. [New York Convention
Art. V-1(a)4]
2. If in an arbitration agreement, the counterparty to the Turkish contractor, is a
citizen of a country which is not a party to the New York Convention and the
place of arbitration is set as Turkey, then the validity of the arbitration agreement
shall be examined according to the Act on Private International and Procedural
Law (hereinafter APIPL).
According to this provision:
i. The arbitration agreement shall be in writing,
ii. The arbitral award shall not be contrary to public law or public order,
iii. It shall be possible to settle the dispute subject to the arbitral award by way of
arbitration under Turkish law,
iv. The arbitration agreement or clause shall be valid pursuant to the governing
law designated by the parties, or in the absence thereof, pursuant to the law of
the place where the arbitral award is rendered. (APIPL Art. 625).

2
New York Convention Art. II
1. Each Contracting State shall recognize an agreement in writing under which the parties
undertake to submit to arbitration all or any differences which have arisen or which may
arise between them in respect of a defined legal relationship, whether contractual or not,
concerning a subject matter capable of settlement by arbitration.
2. The term “agreement in writing” shall include an arbitral clause in a contract or an
arbitration agreement, signed by the parties or contained in an exchange of letters or
telegrams.
3
New York Convention Art. V-1(a)
The parties to the agreement referred to in article II were, under the law applicable to them,
under some incapacity.
4
New York Convention Art. V-1(a)
. . . or the said agreement is not valid under the law to which the parties have subjected it or,
failing any indication thereon, under the law of the country where the award was made. . .
5
APIPL Art. 62
The court shall dismiss the enforcement request of a foreign arbitral award, if,
The Effect of the Arbitration Clause Incorporated in a Bill of Lading. . . 5

3. If in an arbitration agreement, the counterparty to the Turkish party to the contract

is a citizen of a country that is a contracting or non-contracting party to the
New York Convention and the place of arbitration is set as Turkey, then the
validity of the arbitration agreement shall be examined depending on the IAL.
According to this provision:
i. The arbitration agreement shall be in writing. An agreement is in writing if it is
contained in a document signed by the parties or in an exchange of letters,
telex, telegrams or other means of telecommunication, which provide a record
of the agreement. The arbitration agreement is deemed to exist if one party in
the statement of claim alleges it and the other in the statement of defence does
not deny it. The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement provided that the reference is such
as to make that clause part of the contract (IAL Art. 4/26).
ii. The arbitration agreement shall be valid under the law agreed by the parties, in
the absence of such agreement shall be valid under Turkish Law (IAL Art.
4/37).
In an action which includes a request for enforcement or arbitral opposition
brought in a Turkish court, the validity of the arbitration agreement, as stated
above, shall be examined according to whether or not the parties to the contract
are parties to the New York Convention and the place of arbitration is Turkey.

a) An arbitration agreement is not executed or arbitration clause does not exist in the main
agreement,
b) The arbitral award is contrary to public morality or public order,
c) It is not possible to settle the dispute subject to the arbitral award by way of arbitration
under Turkish law,
...
d) The arbitration agreement or clause is invalid pursuant to the governing law designated
by the parties, or in the absence thereof, pursuant to the law of the place where the arbitral
award is rendered,
...
6
IAL Art. 4/2
The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a
document signed by the parties or in an exchange of letters, telex, telegrams or other means
of telecommunication which provide a record of the agreement, or in an exchange of
statements of claim and defence in which the existence of an agreement is alleged by one
party and not denied by another. The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement provided that the reference is such as
to make that clause part of the contract. (Also for detailed information, Kalpsuz, Türkiye’de
Milletlerarası Tahkim, 2007)
7
IAL Art. 4/3
The validity of the arbitration agreement is subject to the law agreed by the parties, failing
such agreement shall be valid under Turkish Law.
6 P. Akan

After the determination of the criteria for the assessment of the validity of the
arbitration agreement, the applicable law shall be determined. If this determination
results in the applicable law being Turkish law (where the Turkish law is agreed by
the parties or in the absence of such an agreement, the place of arbitration is agreed
as Turkey), the validity of the arbitration clause or agreement shall be examined
under Turkish law.
However, if it is determined that the Turkish court should apply the law of another
country other than that of Turkey, since the validity of the arbitration clause should
be examined according to that law, and it is enacted in Article 33 of TCPC that the
judge shall apply it ex officio, and since knowing the law of another country requires
special knowledge, the judge, according to Article 266 of TCPC, should have expert
examination carried out and the validity of the arbitration clause in question should
be determined by such expert examination.
As result of expert examination, if it is determined that the arbitration clause is
valid under the law of that country, the case should be rejected due to the arbitration
clause. On the other hand, as a result of the expert examination if it is determined that
the arbitration clause is found to be invalid under the law of that country, with the
rejection of the objection, judicial proceedings should be continued.

2.3 Validity of the Arbitration Clause in the Bill of Lading

If, as explained above, the validity of the arbitration clause is to be determined

according to Turkish law, the clauses incorporated in the bills of lading and the
charterparties referred to, should be examined and the validity of the arbitration
clause should be evaluated in the light of the following points.
The contract of affreightment may be defined as the contract between the carrier
and the charterer for the carriage of goods by sea. Therefore, the contract of
affreightment, may be divided into two categories as follows:
1. Charter contracts, issued for the carriage of the goods, referred to as bulk cargo,
by vessels carrying out irregular voyages. A single charterer (or multiple charterer
providing multiple merchants coming together), holds a vessel for the carriage of
goods and issues a charterparty contract with the carrier.
2. A contract, issued by a carrier carrying out regular voyages referred to as liner
voyages, or a single voyage with numerous individual shippers, referred to as a
contract of affreightment. Contrary to charterparty contracts, in a contract of
affreightment, the vessel is not allocated to a single shipper or multiple shippers.
Even in container carriage, where there are numerous individual shippers, they
are reassured of their cargo being carried from one place to another.
The arbitration clause in a contract of affreightment issued between the carrier
and the charterer should be evaluated separately according to the two types, men-
tioned above.
The Effect of the Arbitration Clause Incorporated in a Bill of Lading. . . 7

2.3.1 Liner Bill of Lading

Arbitration clauses contained in these types of bill of lading, must be in written form.
In addition, if the validity requirements of the applicable law of the country chosen,
or if the law is not chosen, the law of the place of arbitration is satisfied, then a valid
contract is deemed to exist. In case the bill of lading is transferred, the arbitration
clause will bind both the assignee and the original holder of the bill.

2.3.2 Charterparty Bill of Lading

In these types of bills of lading, the charter parties are incorporated into the bills of
lading by an incorporation clause. In order to satisfy the condition that the arbitration
agreements should be in writing, a copy of the charter party should be handed over to
the bill of lading holder along with the bill of lading. The incorporation of the charter
party clauses along with the arbitration can be considered to be sufficient. However,
such arbitration agreement or clause is valid between the carrier and the charterer. In
the case that the bill of lading is transferred to a new holder, in order for the
arbitration clause to be valid for the new holder, a copy of the charterparty must
be submitted to the new holder in the course of transfer. (Art.1237/3 of Turkish
Commercial Code “hereinafter TCC”)
If the charterparty is submitted to the holder of the bill of lading, the arbitration
clause shall be binding for the new holder, as well. However, if the bill of lading
transferred, also contains an arbitration clause and there is contradiction between this
clause and the clause contained in the charterparty referred to, the clause in the bill of
lading will prevail. This issue is explained in more detail below.

3 Assessment in Terms of Commercial Law

3.1 Arbitration Clause Along with Other Carriage

Agreements/Bills of Lading Not Issued as a Reference
to Any Charterparties (in Container Shipping)

Container shipping, by its very legal nature, is a contract for the carriage of goods
without a need to issue a separate agreement, as all the conditions being applicable to
holders, are depicted on the reverse side of the bill of lading. The conditions in the
bill of lading become a part of it and are integrated with negotiable instruments. The
conditions being set out in the reverse side of the bill of lading, gives to that
instrument the characteristics of a contract of affreightment.8 Moreover, merchants

8
Çağa/ Kender, Deniz Ticareti Hukuku, II, Eight Edition, 2006, pp. 16, 72.
8 P. Akan

and companies in the container shipping business, declare the carriage conditions
written on the reverse side of the bill of lading in their websites regularly, and in that
manner, the content remains unchanged.
Briefly, as there is no customary usage regarding issuing contracts of
affreightment in written form, the terms of the contract of carriage of goods by
sea, are those contained in the bill of lading which becomes evidence of the contract
of carriage of goods settled between the carrier and the charterer.9 On the other hand,
where the contract of carriage of goods pertains to carriage of particular cargo such
as piece goods, the particular distance and the carriage conditions between ports is
known in advance. Essentially, printed bill of lading formulations and general tariff
specifications also include general provisions regarding carriage conditions. Where
there is notification of goods being forwarded to the carrier in advance and accep-
tance of it by the carrier, the contract is deemed to be concluded. In such a case, the
issue of a charterparty contract is of no concern. Upon the dispatching of goods to the
vessel, the dispatch or delivery of the bill of lading as a written document, constitutes
evidence of the conclusion of the contract.10

3.2 Bill of Lading Issued as a Reference to a Charterparty

in Which Charterparty Provisions Are Referred in
General or Explicit

In the carriage of bulk cargo, the parties determine the outline of the conditions of
carriage before the actual carriage by an initial text known as recap/fixture/stem. The
conditions of this initial settlement text are attached to the charterparty by mutual
covenant. In carriage by sea, across the world, the bills of lading, both issued through
liner and charterparty contracts, contain arbitration clauses and international agree-
ment of jurisdiction authorizing the courts of different countries to exercise juris-
diction in the event of a dispute.
In order to make mention of a valid arbitration clause or agreement, it is not
compulsory for the agreement to be directly drafted or cited by the parties. Parties
may issue an arbitration agreement by reference to generalized transaction
terms involving an arbitration clause. It is important to know whether the parties
have chosen the generalized transaction terms involving an arbitration clause of their
own free will. In this respect, in order for an arbitration clause involving such kinds
of general conditions to be valid, a reference must be made to the general conditions

9
Sözer, Deniz Ticareti Hukuku, Third Edition, 2014, p. 397.
10
İzveren, Deniz Ticareti Hukuku, Ankara 1960, p. 118; Tekil, Deniz Hukuku, Sixth Edition, 2001,
p.258.
In the contracts of carriage of goods, for the reason that a contract of carriage of goods is not also
drawn up and the bill of lading constitutes a part of the contract of carriage of goods, bill of lading,
also consist many printed terms (Çağa, Deniz Ticareti Hukuku II, 1995, pp. 12–13).
The Effect of the Arbitration Clause Incorporated in a Bill of Lading. . . 9

involving this clause; in other words, in the agreement, it must be clarified that the
general conditions are part of or a supplement to the agreement.11
There is no problem if there are explicit references to the arbitration clause
incorporated in a voyage charterparty. Where parties refer to the application of the
charterparty terms and conditions including an arbitration clause, such a clause will
be binding. On the other hand, if there is reference to a voyage charterparty or
generalized transaction terms without mentioning the arbitration clause, although the
binding effect of the arbitration clause may fluctuate, it can be foreseen that an
arbitration agreement can be entered into by incorporation in the IAL. In other
words, under Art. 4/2 of IAL, a valid arbitration agreement shall be deemed to be
made in case of a reference to a document containing an arbitration clause constitutes
an arbitration agreement provided that the reference is such as to make that clause
part of the contract.12 In this context it will be appropriate to mention Articles
124513and 124314 of TCC.
According to Art. 1243 of TCC, all terms and conditions in the contract of
affreightment, bill of lading or sea waybill which abolish or restrict obligations
and liabilities directly or indirectly, are invalid. According to Art.1245, the pro-
visions of Article 1243 shall not be applied to the voyage charter contracts. In other
words, obligations and liabilities can be removed in advance. However, in the
continuation of Art.1245 it is provided that if the bill of lading is issued on

11
Şanlı, Uluslararası Ticari Akitlerin Hazırlanması ve Uyuşmazlıkların Çözüm Yolları, Sixth
Edition, 2016, pp. 417–421.
12
Ekşi, “Milletlerarası Deniz Ticareti Alanında “Incorporation” Yoluyla Yapılan Tahkim
Anlaşmaları”, First Edition, 2004, pp. 38, 41; Şanlı, “Konişmentonun Devri,Alacağın Temliki,
Perdeyi Kaldırma Teorisi Uygulamasında Sözleşmede Yer Alan Tahkim Şartının Konişmentoyu
Devralan, Alacağı Temellük Eden ve Perdenin Arkasında Kalan Bakımından Geçerliliği Sorunu,
2002, MHB Ergin Nomer’e Armağan, pp. 774–776.
13
The provisions of Article 1243 shall not be applied to the voyage contracts. However, if the bill of
lading is issued on the basis of such a contract, the provisions of Article 1243 shall apply to the
relationship between the consignee and the carrier.
14
In a contract of affreightment or in the bill of lading, or seawaybill;
(a) Articles 1141, 1150, 1151 and 1178 to 1192 relating to the carrier’s obligations and liabilities,
(b) Articles 1145, 1149, 1165 and 1208 concerning the obligations and liabilities of the charterer
and the shipper,
(c) Articles 1228 to 1242 of the seawaybills,
All the terms and conditions that void or restrict the obligations and liabilities arising directly or
indirectly from these provisions are invalid.
(2) All the terms and conditions resulting from the transfer of the rights and receivables of the
insurance to the carrier or to provide such benefits to the carrier and to reverse the burden of proof,
which is regulated by the laws, shall be subject to the provisions of the first paragraph.
(3) The invalidity of the terms and conditions that abolish or restrict the responsibility shall not
be the result of the invalidity of the contract of affreightment or the remaining provisions of the bill
of lading or seawaybill.
(4) The terms and conditions that extend or aggravate the carrier’s obligations and liabilities are
valid.
10 P. Akan

the basis of the voyage charter contract, Art. 1243 is not applied with respect to the
relationship between the non-charterer consignee and the carrier. In other words, the
provisions of the charter contract which abolish the obligations and liabilities of the
vessel for the non-charterer consignee, are invalid. Accordingly, under Art.1237, the
question arises as to whether the arbitration clause in the charterparty is valid for the
holder except for the charterer to whom a charterparty is submitted. In order for this
question to be answered, it should be assessed whether the arbitration clause, on its
own, has a feature for removing or restraining obligations and liabilities of the
carrier.
An arbitration clause, on different grounds, is to ensure that there is a real person/
corporation for the settlement of disputes. Such clause does not hinder the party
alleging a dispute from resorting to a third party for the settlement of the dispute. It is
also not possible to state that the preference of the arbitration procedure breaches the
right to legal remedies. If the charterparty is submitted to the non- charterer holder of
the bill of lading, it is deemed that he is aware of the method available for the
settlement of disputes and there is no restraint on him to apply the agreed arbitration
procedure. For these reasons, in my opinion, for the holder, excluding the charterer
to whom a charterparty is submitted, it is not possible to interpret the arbitration
clause in the charter party as a clause removing or restraining liability. The holder,
excluding the charterer to whom a charter party is submitted, shall not allege under
TCC Article 1243 that the arbitration clause is invalid.

4 Assessment in Terms of Law of Obligations

4.1 In Regard To a Bill of Lading as a Negotiable Instrument

the Unavailability of Examining Generalized Transaction
Terms Under Article 20 of TCO

By virtue of the principle of abstraction, which is a leading principle in the Nego-

tiable Instruments Law, a bill of lading, independently of the legal relationship based
on it, is in circulation with all its terms and conditions. Another principle that should
be mentioned in this regard is the principle of “Trust to Negotiable Instrument
Records”. The one who takes over a bill of lading, trusts the records in the belief
that the conditions therein are valid for him as well; that is, both for the transferee
and the transferor. This principle has a protective effect.
It is well known that the negative conclusion of the examination conducted under
Article 20 of Turkish Code of Obligations (hereinafter TCO) is the condition
examined being “deemed to be unwritten”. The conclusion of the condition being
deemed to be unwritten is contrary to the principle of trust to the negotiable
instrument records stated above. As a result of the examination of the generalized
transaction terms, there is a possibility that the clauses which were agreed upon by
the transferee and the transferor of the bill of lading shall become invalid. For this
The Effect of the Arbitration Clause Incorporated in a Bill of Lading. . . 11

reason, for the conditions incorporated in the bill of lading, the examination
of generalized transaction terms pursuant to TCO Art.20 is improper with the
Negotiable Instruments Law.

4.2 The Infeasibility of Examination of Generalized

Transaction Terms in Contracts Between Merchants

In doctrine relating to the Law of Obligations, there is dictum that with regard
to the standard-type agreements concluded between merchants and in commercial
relations, the examination of generalized transaction terms should not be
conducted.15 This is because such an examination constitutes intervention of free
market conditions and poses the effect of deteriorating the market balance.

4.3 Freedom of Contract and the Principle

of Diligent Businessman in Commercial Law

In accordance with the principle of “freedom of contract”, ascendant in private law,

everyone has the right to make a contract with anyone, in any condition, content and
any form he wants. According to Art. 18/2 of TCC, a merchant, in commercial
affairs and transactions and in all commercial activities, committed by him, shall act
as a diligent businessman.
The term “diligent businessman” determines the scope of application of the
freedom of contract principle in Commercial Law. A merchant, who is aware of
the conditions of the contract that he draws up and of the rights and obligations it
raises, is diligent. The reflection of this term in maritime law, especially regarding
contracts of affreightment, is as follows: The merchant party to the contract of
affreightment, being aware of who, how and under which circumstances the burden
will be carried and examining the conditions of the contract of affreightment before
the contract is drawn up, is a diligent merchant. The consignee will examine the
content of the bill of lading, in this context, all that is written on both the front and
reverse sides of the bill, and if conditions are appropriate, he will submit the bill of
lading to the carrier or the agency by endorsing it.
In this way, the weaker party is protected against the more powerful party under
the generalized transaction terms examination held under Article 20 of the TCO.
This approach is adopted especially in areas such as business, banking or consumer
law under which there exists power inequalities between the parties. As to commer-
cial relationships between merchants, the adoption of such an approach is ill suited

15
Antalya, Borçlar Hukuku Genel Hükümler, 2012, p. 294.
12 P. Akan

because of the principle of the diligent merchant; and this is valid a fortiori for
merchants who intend to have their goods carried by sea.
The bill of lading is an instrument concerning commercial business involving
carriage of goods by sea. It cannot be contemplated that a merchant holding a bill of
lading, who engages in international business, does not act as a diligent merchant
and is not aware of the clauses in a bill of lading setting out his obligations in the
charterparty to which it refers.

4.4 Article 55/1 of TCC and the Issue of Constituting Unfair

Competition

Under the Turkish Commercial Code, there is provision for examination of gener-
alized transaction terms pertaining to commercial relationships between merchants.
According to Article 55/1 of TCC, those who use the pre-written generalized
transaction terms in a misleading way against the other party, those who directly
or through interpretation deviating from the applicable legal regulation or using
terms provided for the distribution of rights and debts that significantly violate the
nature of the contract, are deemed to act against good faith.
The use of generalized transaction terms in a manner that is against good faith
constitutes unfair competition. The sanction for unfair competition is compensation
and criminal conviction. Since the TCC passed into law after the TCO, it is “new
law”. According to general principles, where a “new” and “special” law contradicts
with an “old” and “general” law, the provisions of the new and special law are
deemed to repeal the corresponding provisions of the old and general law.16 This is
consistent with the legal maxim lex specialis derogate legi generali.
As seen from the foregoing discussion, the TCC provides for special effect and
consequence for the examination of generalized transaction terms. It is obvious that
the aim of the legislation is to separate out through examination of the generalized
terms in commercial transactions between merchants, the general provisions of
TCO. This is subject to Article 55/1 of TCC and the application of the relevant
sanctions in case of a finding of unfair competition instead of the imposition of an
unwritten sanction. In this regard, rather than the general provisions of TCO, Article
55/1 of TCC should be applied to commercial contracts and transactions such as
contracts of affreightment and bills of lading. Besides, in the TCC there are com-
pulsory provisions with regard to maritime law and these provisions constitute a kind
of generalized transaction terms examination. This issue is examined in detail below.

16
Baştuğ, Hukukun Temel İlke ve Kavramları, 1975, p. 85.
The Effect of the Arbitration Clause Incorporated in a Bill of Lading. . . 13

4.5 The Privity of Practical Commercial and Customary

Applications Compared to TCO (TCC Article 1/2)

According to Article 1/2 of TCC, commercial affairs that do not have a commercial
clause, commercial custom applies before general provisions. In this respect, even if
Article 55/1-(f) of TCC, as mentioned above, did not exist, customary law would
apply before the general provisions of Article 20 of the TCO. Because of the
international characteristics within the scope of maritime law, agreements regarding
such matters as sea carriage of goods, towage and salvage are drafted as standard-
form contracts. International authorization and arbitration clauses involved in these
contracts and also charterparties to which bills of lading relate, have gained accep-
tance across the world including Turkey. In this connection, it is submitted that
custom, practice and usage have developed. In that regard, before implementing
general provisions, this custom must be applied and international authorization and
arbitration clauses must be accepted.
International bodies involved in global maritime trade expend great efforts into
global protection of carriers and parties related to cargo, in order for principles of
trade and commerce to be uniform all over the world. The standard type contracts
prepared for almost all trade and commerce relations and agreements by the organi-
zations such as the Baltic and International Maritime Council (BIMCO) are resorted
to widely in international trade. Changes and updates related to the agreements
concerned are announced and presented regularly on their websites for the informa-
tion of merchants operating internationally.
Thus, it is not possible to say that the generalized transaction terms, that become a
matter of common knowledge, are accepted by using the ignorance of one of the
contracting parties or by imposing means for concealing them. On the contrary, it
can be said that the terms in question have reached the status of custom. Examining
of generalized transaction terms as general provisions that are contrary to custom
will cause the practice that has become uniform to be removed from the international
trade system.

4.6 The Effect of the Compulsory Provisions Regarding

Maritime Law Under TCC

Article 1243 of TCC, involves compulsory provisions regarding contracts within the
scope of maritime law, the conditions that will not be involved in bills of lading and
their legal consequences. For example, according to Article 1243 of the TCC,
provisions in contracts of carriage, abolishing and restricting the carrier’s liability,
must be void. The compulsory provisions of the law mentioned above can be
considered as an examination of generalized transaction terms. In such case, while
it may be in accordance with the special provisions regarding maritime law in the
TCC, internal examination of generalized transaction terms and examining in
14 P. Akan

accordance with Art. 20 of TCO, will be contrary to the principle that special
provisions shall apply before common ones.

5 Conclusion

Whether it is a bill of lading (incorporating either an arbitration clause or referring to

charterparties containing an arbitration clause) which has detailed regulation on its
validity under the relevant legislation and subject to sensitive examination, both
general and specific as in the TCC, or where the terms or references are determined
as applicable as a result of such examination, it is necessary to adopt the arbitration
clause that is in validity and to establish the decisions in accordance with this
determination without applying any other examination.
The arbitration clause subject to specific examination, as stated above, will
also be subject to the generalized transaction terms examination, which will result
in the destruction of the principle of trust and of the universal systems accepted
by domestic laws and international conventions. In my view, application of the
examination of generalized transaction terms will be improper for maritime transport
contracts, charterparties and bills of lading issued accordingly, where the arbitration
clause is incorporated.

References

Act on Private International and Procedural Law (APIPL), Law No. 5718
Antalya, Borçlar Hukuku Genel Hükümler, 2012
Baştuğ, Hukukun Temel İlke ve Kavramları, 1975
Izveren, Deniz Ticareti Hukuku, Ankara 1960
Çağa, Deniz Ticareti Hukuku II, Fifth Edition, 1995
Çağa/ Kender, Deniz Ticareti Hukuku, II, Eight Edition, 2006
Ekşi, “Milletlerarası Deniz Ticareti Alanında “Incorporation” Yoluyla Yapılan Tahkim
Anlaşmaları”, First Edition, 2004
International Arbitration Law (IAL), Law No. 4686
Kalpsuz, Türkiye’de Milletlerarası Tahkim, 2007
New York Convention
Şanlı, “Konişmentonun Devri,Alacağın Temliki, Perdeyi Kaldırma Teorisi Uygulamasında
Sözleşmede Yer Alan Tahkim Şartının Konişmentoyu Devralan, Alacağı Temellük Eden ve
Perdenin Arkasında Kalan Bakımından Geçerliliği Sorunu, 2002, MHB Ergin Nomer’e
Armağan
Şanlı, Uluslararası Ticari Akitlerin Hazırlanması ve Uyuşmazlıkların Çözüm Yolları, Sixth Edition,
2016
Sözer, Deniz Ticareti Hukuku, Third Edition, 2014
Tekil, Deniz Hukuku, Sixth Edition, 2001
Regime Interaction and GAIRS

Gabriela Argüello

Abstract The prevention of pollution has a predominant sectoral approach that

could result in the transformation of one source pollution into another. This
Chapter addresses the role of General Accepted International Rules and Standards
(GAIRS) established in the United Nations Convention on the Law of the Sea
(UNCLOS) as a legal mechanism to avoid pollution transformation. Particularly,
the author discusses ship waste management while at sea and land.
This Chapter illustrates the role of GAIRS on the development cross-sectoral
policies regarding the Environmentally Sound Management (ESM) of wastes at port
reception facilities and integration of these facilities into national waste management
systems. These cross-sectoral policies are the result of the collaboration between the
International Maritime Organization (IMO) and the Conference of the Parties (COP)
to the Basel Convention on the Control of Transboundary Movement of Hazardous
Wastes and Their Disposal.

1 The Need for Normative Integration of Environmental

Media: The Ship Waste Case

Ship wastes are regulated in the wider context of the prevention and control of ship-
source pollution. According to Article 211 of UNCLOS, States have the obligation
to prevent, reduce, and control ship-source marine pollution. Particular standards for
wastes generated due to day-to-day operations of vessels are governed by the
International Convention for the Prevention of Pollution from Ships 1973 as Mod-
ified by its 1978 Protocol (hereafter MARPOL). MARPOL regulates, among other
things, operational residues generated in: (a) machinery spaces; (b) cargo spaces; and
(c) living spaces of a ship. MARPOL is the most comprehensive regime dealing with
ship-source pollution, both operational and accidental. This instrument relates to the
prevention of “pollution of the marine environment by the discharge of harmful

G. Argüello (*)
University of Gothenburg, Gothenburg, Sweden
e-mail: gabriela.arguello@law.gu.se

© Springer Nature Switzerland AG 2020 15

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_2
16 G. Argüello

Table 1 MARPOL—ship wastes

Ship Wastes MARPOL
Annex I Oily waste Oily bilge water
Oil Oily residues (sludge)
Oily tank washings (slops)
Dirty ballast water
Scale and sludge from tank
cleaning
Annex II Residues from cargo Residues from Category X
Noxious substances carried in Residues from Category Y
bulk Residues from Category Z
Residues that are mixed with Tank washing
water Dirty ballast water
Bilge slops
Annex IV Including for example: drainage and other wastes from any form
Sewage of toilets and urinal, drainage from medical premises, and grey
water
Annex V Including for example: animal carcasses, cargo residues that are
Garbage not covered by other Annexes, and incinerator ashes
Annex VI Including for example: ozone depleting substances from refrig-
Air pollution eration, air conditioning, and fire extinguishing equipment

substances or effluents containing such substances.”1 Harmful substances under

MARPOL are polluting materials of any kind, i.e., liquid, gas or solid, whose
introduction into the environment is detrimental to both human health and the
environment. The substances regulated by MARPOL comprise a wider category
than waste, since the concept of “harmful substances” includes, for instance, bunkers
and hazardous cargoes, such as oil or chemicals, as well as the residues of such
cargo. Article 1 (1) of MARPOL defines harmful substances in relation to their
deleterious effects if released into the marine environment, i.e., “any substance . . .
liable to create hazards to human health, to harm living resources and marine life, to
damage amenities or to interfere with other legitimate uses of the sea.”2 This
Convention has six annexes, which deal with, respectively: oil; noxious substances
carried in bulk, i.e., chemicals; harmful substances carried in packaged form;
sewage; garbage; and air pollution. The day-to-day operations of ships will generate
ship wastes in relation to the following MARPOL’s annexes (See Table 1):
The prevention of ship source pollution strictly regulates harmful substances
(including wastes) while at sea, restricting discharges in the marine environment.
Based on several discharge criteria, some residues can, under limited circumstances,
be disposed of at sea, after being subject to other waste treatment operations,

1
Article 1 (1) of MARPOL.
2
Ibid, Article 2 (2).
Regime Interaction and GAIRS 17

including for example oil-water separation in the case of bilge water,3 and the
disinfection and comminution of sewage.4 The vast majority of ship wastes, how-
ever, remain on board vessels. These residues are constantly generated due to ships
operations, and they can only be kept on board for a limited time before its discharge
becomes a necessity. The provision of “adequate port reception facilities”5 becomes
essential within the waste management process of ship wastes that otherwise would
end up in the sea.
The Parties to MARPOL, however, have been reluctant to develop the meaning
and extent of the obligation related to the provision of port reception facilities6 and
the relationship between these facilities and further downstream management oper-
ations. Such reluctance could be understood from the traditional legal approach
towards “domestic wastes,” i.e., once wastes are discharged on land, States manage
these wastes at their discretion. As further analyzed in this Chapter, the provision of
port reception facilities includes the obligation to manage ship wastes on land
because States shall not transform one type of pollution into another, i.e., marine-
source pollution to land-based pollution in accordance with Article 195 of
UNCLOS.

2 Significance of GAIRS in the Development of the Law

of the Sea and Beyond

According to Article 211(2) of the UNCLOS, the regulations adopted by Flag States
to prevent, control, and reduce ship-source pollution “shall at least have the same
effect as that of generally accepted international rules and standards established
through the competent international organization.” These international rules—also
known as GAIRS—refer to external hard and soft law norms that fulfill the following
functions. First, the reference to GAIRS operationalize the duty of cooperation
between States in the development of rules and standards for the protection and
preservation of the marine environment from the deleterious effects of pollution.7
Second, regarding ship source pollution, GAIRS represent the minimum legislative

3
MARPOL, Annex I—Oil, Regulation 30 (4) related to pumping, piping, and discharge arrange-
ment. See also, Regulation 32 “oil/water interface detector.”
4
Ibid, Annex IV—Sewage, Regulation 9 (2) “sewage systems”; Regulation 11 (1.1) “Discharge of
sewage.”
5
States have the obligation to ensure the provision of adequate port reception facilities, in relation to
the following MARPOL’s annexes. Annex I—Oil: in loading ports, ship repair yards or tank
cleaning facilities, bunkering ports. MARPOL, Annex I, Regulation 38. Annex II—Noxious Liquid
Substances (NLS) in bulk: in ports and terminals handling cargoes of Annex II and in ship repair
ports. MARPOL, Annex II, Regulation 18. Annex IV—Sewage, Regulation 12. Annex V—
Garbage, Regulation 8; and Annex VI—Ozone-depleting, Regulation 17.
6
Mitchell (1994), Ch. 6; Tan (2006), pp. 251–281.
7
Redgwell (2016), p. 172.
18 G. Argüello

requirements8 that Flag States must implement and enforce since article 211
(2) UNCLOS explicitly refers to the adoption of regulations that at “least have the
same effect” of GAIRS. This means that States still have discretion to adopt stricter
standards. Third, by the incorporation of GAIRS, UNCLOS has become a progres-
sive instrument9 that is able to cope with legal, scientific and technological devel-
opments without the need to resort to the burdensome procedure of amendments.10
Consequently, UNCLOS has become the basic framework to develop a comprehen-
sive regime for the protection of the marine environment where global and regional
treaties interact and reinforce each other. The umbrella standards provided in
UNCLOS, including GAIRS, are envisioned to promote “harmonization” and
UNCLOS is the “reference point for the validity of subsequent rules on oceans
matters.”11
Finally, GAIRS are legal mechanisms available to enhance regime interaction
between the law of the sea and other environmental law regimes. Regarding ship
source pollution, GAIRS are those rules and standards established through the
‘competent international organization or general diplomatic conference.’ It has
been widely accepted that reference in singular to “the competent international
organization” is a reference to IMO.12 The UN General Assembly in its annual
review and evaluation regarding the implementation of UNCLOS urged States to
develop integrated waste management systems and infrastructure to deal with
discharges from ships.13 The UN General Assembly also encouraged cooperation
between the COP to the Basel Convention and the IMO.14 Such cooperation has led
to enhanced coordination and further development of cross-sectoral standards relat-
ing to the management of ship wastes on land drawing upon existing expertise and
institutional capacity of both the IMO and the COP to the Basel Convention.
In 2016, the IMO revised the Manual on Port Reception Facilities.15 The manual
is of fundamental importance because it highlights that the obligation to ensure the
provision of adequate port reception facilities as established in MARPOL does not
end with the reception of ship wastes. This soft law instrument instead qualifies port
reception facilities as “adequate” if they “allow for the ultimate disposal of ship-
generated wastes and residues to take place in an environmentally sound manner.”16
What qualifies as environmentally sound has been extensively developed in the
Basel Convention. The IMO urges the parties to MARPOL to take into account the

8
Boyle (1985), p. 353.
9
Redgwell (2016), pp. 169–171.
10
Harrison (2011), p. 171.
11
Barnes et al. (2006), p. 5.
12
Franckx (2001), p. 20; Rothwell and Stephens (2010), pp. 343–344; Harrison (2011), p. 171.
13
UN General Assembly A/RES/71/257 (20 February 2017), p. 38.
14
Ibid, p. 42.
15
IMO Port Reception Facilities – How to Do It (2016).
16
Ibid, pp. 19, 21–22. Resolution MEPC.83(44) Guidelines for Ensuring the Adequacy of Port
Waste Reception Facilities, (2000).
Regime Interaction and GAIRS 19

ESM principles developed by the Basel Convention “in order to deal with common
concerns as efficient as possible by a holistic approach.”17 Thus, the IMO has taken a
bold yet cautious step towards an international policy regarding the management of
ship wastes. While recognizing that the provision of port reception facilities should
consider the integration of ship wastes into national waste management systems, the
Manual includes several alternatives for the downstream management of ship
wastes, while clarifying that specific treatment operations of ship wastes on land is
beyond the scope of MARPOL.18
Whether a soft law instrument as the Manual on Port Reception Facilities could
qualify as GAIRS is not without controversy. The difference between rules and
standards, if any, is far from settled. The International Law Association (ILA)
observes that while rules have been interpreted as treaty-based norms, “standards”
have been construed as including soft law instruments or as technical provisions
established in Annexes of MARPOL, for instance.19 Nonetheless, these guidelines
are legally relevant in the implementation of highly technical treaty law, or they
could “provide evidence of opinion juris for the possible emergence of a rule of
customary international law.”20 It is equally controversial to assess whether a hard or
soft law norm is ‘generally accepted.’ In relation to treaty norms a standard could be
high levels of ratification of a treaty. Soft law norms, however, are not subject to the
same formalities of treaty law norms, but State practice could provide assistance in
this matter and it seems immaterial whether a rule or standard is contained in a soft or
hard law instrument.21

3 GAIRS and Ship Waste Management in the Sea/Land

Interface

Ships have a timeframe within which harmful substances can be kept on board
before discharge. For this reason, States are obliged to ensure the provision of
“adequate” reception facilities for harmful substances of MARPOL’s Annexes I,
II, IV, V, and VI. As the late Professor de La Fayette explains: “[s]hip operators have
a right and an obligation to discharge certain wastes into port reception facilities,
while Port States have an obligation to provide suitable facilities.”22 While at sea,
MARPOL provides detailed standards for managing ship wastes, e.g., prevention of
waste generation, equipment on board, and discharge criteria. However, the Con-
vention does not provide substantive content concerning the obligation to provide

17
IMO Port Reception Facilities – How to Do It (2016), p. 17.
18
Ibid, pp. 16, 27 and Chapters 8 to 10.
19
Franckx (2001), p. 21.
20
Boyle (1999), p. 906.
21
Franckx (2001), p. 31; Harrison (2011), pp. 174–176.
22
de La Fayette (2009), p. 211.
20 G. Argüello

“adequate” port reception facilities. The history of MARPOL shows that its Parties
have been reluctant to establish binding standards to assess whether these facilities
are adequate. Instead, they have relied on soft law instruments developed under the
auspices of the IMO.

3.1 Ship Waste Management on Land and the Duty Not

to Transform Pollution

The IMO Manual on Port Reception Facilities provides guidelines for downstream
treatment of wastes after their discharge at port reception facilities. This instrument
assists States in complying with the obligation set in Article 195 of UNCLOS, i.e., to
avoid the transformation of one type of pollution into another. This provision has an
integrative function23 that requires cooperation and coordination between stake-
holders and legal regimes in order to prevent unintended consequences in one
environmental media, e.g., sea, while taking actions to prevent and control pollution
in another environmental media, e.g., land. The international regulation of the
environment has a predominant sectoral approach, and Article 195 of UNCLOS is
an attempt to address fragmentation.24

3.2 Environmentally Sound Management (ESM) of Wastes

In an effort to integrate port reception facilities to national waste management

systems, the Manual on Port Reception Facilities has considered the ESM principle
developed under the Basel Convention. ESM was initially embodied in the Basel
Convention and has gradually transformed into an autonomous legal principle.
Article 2 (8) of the Basel Convention defines ESM as:
taking all practicable steps to ensure that hazardous wastes or other wastes are managed in a
manner which will protect human health and the environment against the adverse effects
which may result from such wastes.

The COP to the Basel Convention from its Fifth Meeting onwards25 has been
active in promoting ESM as a pillar of the management of wastes irrespective of
whether such management has transboundary implications. As a result of such

23
Rakhyun and van Asselt (2016), pp. 481–482.
24
Cf. The vision that argues that provisions like the one established in Article 195 of UNCLOS
weaken “an entire spectrum of regulation aimed at preventing the oceans from becoming the final
repository of hazardous, persistent, and bioaccumulative pollutants. There is also considerable
danger that the anti-transfer provisions might be used to justify ocean disposal as the least
environmentally harmful option.” Teclaff and Teclaff (1991), pp. 197 and 210.
25
COP to the BASEL Convention: Decision V/1 (1999).
Regime Interaction and GAIRS 21

efforts, ESM is currently not only a policy objective or a treaty obligation exclu-
sively related to transboundary movements of wastes. In fact, several States have
included the ESM of wastes as an obligation in national waste legislation, including
for instance: Chile, Mexico, India, South Africa.26 At the EU level, article 13 of the
Waste Framework Directive 2008/98/EC provides for a general obligation that
requires States to take “measures to ensure that waste management is carried out
without endangering human health, without harming the environment.” This obli-
gation corresponds almost verbatim to the definition of the ESM of wastes as defined
by, for instance, the Organization for Economic Co-operation and Development
(OECD)27 and the Basel Convention. The incorporation of ESM in national legis-
lation is not only included in framework or general waste legislation, but also in
varied range of norms, e.g., legislation dealing with particular waste streams or
particular constituents. For instance, India has incorporated the ESM of wastes as a
general obligation to deal with e-waste.28 Some States—such as Austria, Brazil,
Canada, Finland, Germany, Japan, and United States of America—have adopted
legislation dealing with the ESM of waste containing or contaminated with persistent
organic pollutants (POPs).29
Additionally, the OECD and the COP to the Basel Convention have devoted
much effort in developing a framework for the common understanding of ESM of
wastes in general.30 The ‘core meaning’ of ESM relates to the life-cycle approach
towards wastes, i.e., prevention; reduction; re-use; recycling; recovery; disposal by
incineration; and finally landfilling. According to the Framework for the Environ-
mentally Sound Management of Hazardous Wastes and Other Wastes, several
elements contribute to a common understanding of ESM. These include:
(a) infrastructure; (b) development and implementation of the best available tech-
niques and best environmental practices; (c) legal regulations ranging from licensing
to the establishment of sanctions and liability schemes; (d) financial and
non-financial incentives; (e) involvement of stakeholders; and (f) research and
innovation.
From the development of this common understanding of ESM, what should be
acknowledged is the continuous effort of the COP to the Basel Convention to adopt

26
A summary of national legislation regarding wastes can be found at www.basel.int/Countries/
NationalLegislation/tabid/1420/Default.aspx, visited on 26 September, 2018.
27
The OECD working definition of ESM is: “a scheme for ensuring that wastes and used and scrap
materials are managed in a manner that will save natural resources, and protect human health and
the environment against adverse effects that may result from such wastes and materials.” OECD:
Guidance Manual on Environmentally Sound Management of Waste (2007), p. 8.
28
See Article 3(o) of the E-Waste Management Rules (2016). Available at www.basel.int/Coun
tries/NationalLegislation/tabid/1420/Default.aspx, visited on 26 September, 2018.
29
Secretariat of the Basel Convention: General technical guidelines for the environmentally sound
management of wastes consisting of, containing or contaminated with persistent organic pollutants
(POPs) (2014).
30
OECD: Guidance Manual on Environmentally Sound Management of Waste (2007); UNEP/
CHW.11/3/Add.1/Rev.1. (2013).
22 G. Argüello

technical guidelines for the ESM of various categories of wastes. These technical
guidelines usually focus on: (a) certain types of wastes, e.g., electronic waste,
pneumatic tires, ships; (b) wastes with hazardous characteristics as established in
Annex III of the Basel Convention, e.g., delayed toxicity; (c) wastes having certain
constituents as established in Annex I of the Basel Convention, e.g., wastes
containing or contaminated with mercury; and (d) wastes belonging to certain
waste streams as established in Annex I of the Basel Convention, e.g., waste
oils.31 These technical guidelines could certainly assist States in managing wastes
in an environmentally sound manner whether or not those wastes have been subject
to a transboundary movement. They could be particularly relevant for States that
have yet to develop national waste management plans, or those that struggle to
integrate ship wastes into national waste management.
The Manual on Port Reception Facilities developed under the auspices of IMO
suggests that guidance regarding the management of ship wastes on land can be
found in the technical guidelines adopted by the COP to the Basel Convention.32 In
order to assess to what extent these technical guidelines cover MARPOL wastes, the
COP to the Basel Convention invited the Parties to undertake such an assessment in
close cooperation with the IMO.33 The Public Waste Agency of Flanders, on behalf
of Belgium, undertook such an evaluation that shed light on how to utilize the
technical guidelines adopted by the COP to the Basel Convention in relation to ship
wastes.34
The COP to the Basel Convention in its Twelfth Meeting, held in May 2015,
adopted the Decision BC-12/16 (2015) on the “Cooperation between the Basel
Convention and the IMO.” Pursuant to this decision, the Secretariat of the Basel
Convention developed a draft “Guidance Manual on How to Improve the Sea-Land
Interface to Ensure that Wastes Falling Within the Scope of MARPOL, once
Offloaded From a Ship, are Managed in an Environmentally Sound Manner” taking
into account the Manual on Port Reception Facilities developed under the auspices
of the IMO.35 This soft law instrument devotes its attention to the downstream
management of ship wastes on land by considering the broader meaning of the ESM
of wastes. In 2017, at the Thirteenth Meeting, the COP to the Basel Convention took
note of the Guidance Manual and requested that the Secretariat continue its collab-
oration with the IMO.36

31
The technical guidelines are available at: www.basel.int/Implementation/TechnicalMatters/
DevelopmentofTechnicalGuidelines/AdoptedTechnicalGuidelines/tabid/2376/Default.aspx, visited
on 26 September, 2018.
32
IMO Port Reception Facilities – How to Do It (2016).
33
COP to the BASEL Convention: Decision BC-10/16 (2011); COP to the BASEL Convention:
Decision BC-11/17 (2013).
34
Public Waste Agency of Flanders (2015).
35
COP to the BASEL Convention: Revised draft guidance manual on how to improve the sea-land
interface UNEP/CHW.13/INF/37 (2017).
36
COP to the BASEL Convention: Cooperation between the Basel Convention and the International
Maritime Organization UNEP/CHW.13/18 (2016).
Regime Interaction and GAIRS 23

4 Port Reception Facilities

The adequacy of these facilities is a crucial first step in ensuring the ESM of ship
wastes on land in relation to the collection, storage, and handling of these wastes.
States Parties to UNCLOS and MARPOL have designed a regulatory system that
aims to prevent marine pollution by reducing discharges of harmful substances into
the marine environment. This regulatory system has two implications. On the one
hand, since their holding capacity is limited, vessels using a port or terminal have not
only the obligation but also the right to discharge residues at port reception facili-
ties.37 States, on the other hand, while exercising their sovereign right over the use of
their territory and resources, have agreed to receive ship wastes and treat them on
land without transforming one type of pollution into another as required in article
195 of UNCLOS.

4.1 The Obligation to “Ensure” the Provision of Port

Reception Facilities

Currently, the regulations in MARPOL requiring port reception facilities state in a

similar fashion that each party “undertakes to ensure the provision of adequate
reception facilities to receive harmful substances of Annexes I, II, IV, V, and VI.”
Unlike strict regulations prescribed in MARPOL and impinged directly on ship
operators, e.g., ships’ construction standards, equipment, and discharge criteria, the
obligations in relation to the funding and operation of port reception facilities remain
vague. States explicitly avoided being bound by strict regulations under MARPOL,
and “never meant to state clearly who – the states, the ports . . . should pay for the
facilities.”38 In fact, State Parties amend the Convention periodically and strongly
support on-board treatment techniques, but little has been done to establish binding
obligations in relation to port reception facilities. According to the IMO, a State
Party may provide reception facilities, but it is not an obligation imposed on a State
per se; instead a Party could choose to require port authorities and terminal operators
to provide the facilities.39 However, the obligation “to ensure” the provision of port
reception facilities goes beyond the adoption of regulations requiring operators to
fund and operate such facilities.
Recently, the Arbitral Tribunal examined the obligation “to ensure” in the South
China Sea Arbitration case. According to the Court, “ensure” is an obligation of
conduct. It requires a State to be due diligent, i.e., it must adopt “appropriate rules

37
“there are a limited number of options for dealing with wastes generated at sea. On land, there are
several options. At sea, there are only two, either: 1. discharge into the sea, or 2. discharge/
unloading into port reception facilities.” de La Fayette (2009), p. 211.
38
Tan (2006), p. 265.
39
IMO Port Reception Facilities – How to Do It (2016), p. 97.
24 G. Argüello

and measures, but also a certain level of vigilance in their enforcement and the
exercise of administrative control”40 (emphasis added). This case reproduces ver-
batim the concept of due diligence as analyzed by the ICJ in the Pulp Mills case41;
ITLOS in the Request for an Advisory Opinion Submitted by the Sub-Regional
Fisheries Commission42; and the Seabed Disputes Chamber in its advisory opinion
concerning the Responsibilities and Obligations of States Sponsoring Persons and
Entities with Respect to Activities in the Area.43

4.2 The Obligation to Provide “Adequate” Port Reception

Facilities

In addition to the obligation “to ensure” the provision of port reception facilities,
these facilities must be adequate. MARPOL does not define what constitute “ade-
quate reception facilities,” but the IMO considers that “adequacy”44 serves to
describe reception facilities with the following characteristics: satisfy the require-
ments of their users; prevent undue delays; avoid creating disincentives for using
reception facilities; contribute to the improvement of the marine environment; and
allow the “final disposal” of wastes generated on board ships on land in an
environmentally appropriate way. These characteristics are explained below:

4.2.1 Satisfy the Requirements of Ships That Usually Use the Port

Notwithstanding their size, all ports should be able to provide port reception
facilities for the types of ships using a particular port. This does not mean, however,
that a port should provide reception facilities for all types of ship wastes. It requires a
previous study consistent with the waste management strategy to determine which
type of vessels usually call to a port, and an assessment of the type and quantities of
ship wastes. Ports should carefully plan where to locate port reception facilities. If

40
Case No. 2013-19 the South China Sea Arbitration (the Republic of Philippines v. The People’s
Republic of China) (2016), para 944.
41
Pulp Mills on the River Uruguay (Argentina v. Uruguay) (2010), para 197.
42
Request for an Advisory Opinion Submitted by the Sub-Regional Fisheries Commission, ITLOS
(2015), para 131.
43
Responsibilities and Obligations of States with Respect to Activities in the Area, ITLOS Seabed
Dispute Chamber (2011).
44
Resolution MEPC.83(44) Guidelines for Ensuring the Adequacy of Port Waste Reception
Facilities, (2000); MEPC.1/Circ.834: Consolidated Guidance for Port Reception Facility Providers
and Users (2014); IMO Port Reception Facilities – How to Do It (2016).
Regime Interaction and GAIRS 25

those facilities are inconveniently located, their use is subject to complex procedures
or time-consuming, the facility cannot be considered adequate.45

4.2.2 Prevent Undue Delays of Ships at Ports

Vessels run on a tight schedule and if the use of reception facilities is time-
consuming, incentives for illegal discharges at sea increase.46 For this reason,
“adequate” also means that the use of the facility must not go “beyond the normal
turn-around time of the ship in that port.”47 The IMO recommends that the ship
operator notify the “appropriate authority” in advance before the expected delivery
of ship wastes at a port reception facility48 in order to plan the reception of ship
wastes in a timely fashion. The IMO manual on Port Reception Facilities does not
identify the authority that should be notified. If the notification system involves
several authorities or individual terminals, this system could create practical prob-
lems in the assessment of quantities of wastes that are actually received at port
reception facilities. It also creates difficulties in tracing the management of such
wastes after they are discharged to a port reception facility.

4.2.3 Avoid Creating Disincentives for Using Reception Facilities

Since MARPOL does not establish who must bear the costs of port reception
facilities, States are interested in developing cost recovery systems for the reception
and further management on land of port ship wastes. Based on the polluter pays
principle, i.e., “an economic policy for allocating the costs of pollution or environ-
mental damage,”49 ship operators should pay, at least partially, for the costs involved
in the operation of port reception facilities. The IMO’s manual on Port Reception
Facilities includes several alternatives for allocating costs of port reception facilities,
including the establishment of indirect fee, direct fee, contract fee, or mixed fee
systems.
In practice, States adopt several recovering mechanisms depending on, e.g., type
of ship, the frequency of calls of a particular kind of ship to a port, the type of wastes,
the type of cargo handled in a port, and the length of voyage since the last port of

45
Resolution MEPC.83(44) Guidelines for Ensuring the Adequacy of Port Waste Reception
Facilities, (2000), p. 7.
46
According to the IMO, “failure to establish adequate facilities is a breach of international
obligations and will increase the risk of illegal discharges from ships.” IMO Port Reception
Facilities – How to Do It (2016), p. 10. Tan mentions that “tankers will invariably resort to illegal
discharges if a visit to reception facilities will cause delay.” Tan (2006), p. 263.
47
IMO Port Reception Facilities – How to Do It (2016), p. 20.
48
This notification should be made at least 24 h in advance. The IMO has developed a Standard
Format of the Advance Notification Form for Waste Delivery to Port Reception Facilities.
49
Birnie et al. (2009), p. 322.
26 G. Argüello

call.50 For instance, in the Baltic Sea area, a direct fee is the most common recovery
system in the case of cargo residues from MARPOL, Annexes I and II, i.e., oil and
hazardous chemicals respectively.51 However, direct fees may encourage illegal
discharges. So, more resources need to be allocated for monitoring and enforcement
mechanisms. Additionally, ships could hold wastes to discharge them at cheaper
ports, which may affect ports’ competitiveness.52 According to the IMO, States
could impose “compulsory discharge for certain types of ship-generated wastes/
residues”53 to avoid ships to discharge their wastes elsewhere. Compulsory dis-
charge criteria are unusual because States face challenges not just in relation to the
reception of ship wastes, but also in terms of their management on land.

4.2.4 Contribute to the Improvement of the Marine Environment

The aim of establishing port reception facilities is to prevent and reduce marine
pollution. This is closely connected with incentives to avoid illegal discharges at sea.
At the same time, it relates to monitoring and enforcement mechanisms to punish
illegal discharges.

4.2.5 Allow the “Final Disposal” of Wastes Generated on Board Ships

on Land in an Environmentally Appropriate Way

A reception facility is adequate when it is integrated into national or regional waste

management systems. Final disposal should not be understood only as operations
without the possibility of recovery. According to Chapters 9 and 10 of the IMO’s
Manual on Port Reception Facilities, “final disposal” includes operations of
recycling, recovery.
At first glance, it is outside the IMO’s competences to deal with the management
of ship wastes after their discharge. According to Article 1 (a) of the Convention on
the International Maritime Organization, the purpose of the IMO is to provide the
institutional machinery for cooperation among States and facilitate the adoption of
highest standards in relation to the prevention and control of ship-source pollution.
In the Advisory Opinion regarding Reparation of Injuries Suffered in the Service of
the United Nations, the ICJ discussed the powers vested in the United Nations and
stated that:

50
IMO Port Reception Facilities – How to Do It (2016), pp. 161–169.
51
Ramboll: EMSA/OP/06/2011 (2012), p. 45.
52
Tan (2006), p. 256; Georgakellos (2007), p. 511.
53
IMO Port Reception Facilities – How to Do It (2016), p. 156.
Regime Interaction and GAIRS 27

[u]nder international law, the Organization must be deemed to have those powers which,
though not expressly provided in the Charter, are conferred upon it by necessary implication
as being essential to the performance of its duties.54

The IMO’s efforts to provide guidance regarding the discharge of ship wastes and
the integration of port reception facilities into national waste management plans are
justified because the legal regime adopted under the auspices of the IMO for the
prevention, control, and reduction of ship-source pollution restricts discharges of
harmful substances at sea and places a crucial role on the provision of “adequate
reception facilities.” Adequacy is closely linked with two major aspects:
(a) prevention of illegal discharges at sea; and (b) the management of ship wastes
on land to prevent the transformation of one type of marine pollution into another.
The IMO cannot prescribe standards for waste streams and effluents, but it can guide
States on how to integrate their port reception facilities into national waste manage-
ment systems.
Wastes received at port reception facilities should be included within national
waste management plans.55 Thus, States are encouraged to develop a “waste man-
agement strategy”. This strategy should follow the waste management hierarchy,
i.e., a priority order in relation to wastes that moves through the following set of
preferences: prevention; reduction; re-use; recycling; recovery; disposal by inciner-
ation; and finally landfilling.56 The waste hierarchy focuses primarily on waste
prevention, which in terms of ship wastes could be achieved through on-board
practices, on-board equipment, and ship design.57 On board practices include, for
example, garbage handling and storage, and reductions in packaging.
The waste management strategy involves several private operators and public
authorities, including port authorities, ship operators, cargo interests such as shippers
and receivers of oil and chemicals, terminal operators, waste operators, civil society
organizations, and society in general. The IMO calls for public participation58 in
order to involve different stakeholders in the decision-making processes regarding
waste management, e.g., the legislative process. Public participation gained signif-
icance in international environmental law after the United Nations Conference on
Environment and Development (UNCED) 1992. It is not surprising that treaties
predating UNCED made no reference to public participation, including UNCLOS
and MARPOL. Public participation is considered a procedural element of sustain-
able development, and in broad terms it includes mechanisms to access justice and

54
Reparation for Injuries Suffered in the Service of the United Nations, ICJ, Advisory Opinion
(1949), p. 182.
55
Resolution MEPC.83(44) Guidelines for Ensuring the Adequacy of Port Waste Reception
Facilities, (2000), para 5.11.
56
IMO Port Reception Facilities – How to Do It (2016), ch. 3.
57
MEPC.1/Circ.834: Consolidated Guidance for Port Reception Facility Providers and Users
(2014), pp. 7–8.
58
IMO Port Reception Facilities – How to Do It (2016), ch. 4.
28 G. Argüello

information, as well as participation in decision-making processes.59 At the interna-

tional level, the most prominent “regional treaty” dealing with public participation is
the Convention on Access to Information, Public Participation in Decision-Making
and Access to Justice in Environmental Matters, 1998 (Aarhus Convention). In
general, the implementation of public participation procedures requires the devel-
opment of legal, institutional, and educational frameworks. In developing countries,
public participation has been included in legislation and it also has been subject to
judicial assessment to varying degrees.60 However, if the environment does not rank
first on States’ agendas, and if environmental awareness is lacking in society, the
impact of public participation will remain limited. The incorporation of public
participation procedures in relation to ship wastes could potentially have an impact
on the legitimacy of waste regulation. Furthermore, if the expertise of several
stakeholders is considered, positive effects on the environmental status can also be
achieved.
Overall, it is desirable to have public participation procedures in place while
planning the waste management strategy. The implementation of such a strategy
requires the adoption of legal and administrative measures, the development of
technological capabilities, and the establishment of adequate infrastructure.
Among legal and administrative measures, States should establish legal standards
for waste collection, storage, handling and management operations, alongside mon-
itoring procedures, enforcement mechanisms to effectively address non-compliance,
and liability and compensation schemes.61 A workable regulatory framework should
link ship wastes to existing national legislation on waste, e.g., pollution control,
industrial and chemical control, land planning, sewage and drainage systems, pes-
ticides, and occupational and public health.62 A good example of this approach can
be found in Directive 2000/59/EC on Port Reception Facilities where “ship-gener-
ated waste” and “cargo residues” are considered wastes within the meaning of
Article 3(1) of the Waste Framework Directive. The relevance of this provision is
in linking ship wastes to land management regulation. In fact, Article 12 of Directive
2000/59/EC provides that management of ship wastes must be carried out in
accordance with the relevant EU waste legislation.
The management of ship wastes requires a licensing system63 for the providers of
port reception facilities and waste operators. This system is essential to enable public
authorities to trace the management of wastes once they are discharged from ships,
and monitor whether the operators are complying with substantive standards.
Licenses should be complemented with notification systems covering the generation,
storage, transport, and management of wastes. Procedures should also be in place to

59
Birnie et al. (2009), pp. 116–123; Ebbesson (1998).
60
See an analysis of public participation in several jurisdictions in Razzaque (2010).
61
IMO Port Reception Facilities – How to Do It (2016), ch. 3.
62
Ibid, ch. 4.
63
Ibid, ch. 3.
Regime Interaction and GAIRS 29

secure that notifications reach the designated public authority even when trans-
actions take place exclusively between private operators.
The Manual on Port Reception Facilities provides assistance on the integration of
port reception facilities within national waste management strategies, as well as the
available alternatives to collect, store, and treat ship wastes, including recycling and
final disposal operations. Downstream waste management has also been a concern
for the Parties to the Basel Convention. Over the years, the COP to the Basel
Convention has adopted numerous technical guidelines that have not only dealt
with management alternatives, but also addressed particular types of wastes, partic-
ular hazardous characteristics or constituents, and waste streams. These guidelines
could be relevant for managing ship wastes after they are discharged at port
reception facilities.
In general, the Manual on Port Reception Facilities follows closely the common
understanding of ESM developed through the Basel Convention. The foundation of
an environmentally sound waste management system is to protect the environment
and human health. The ESM of wastes requires the participation of stakeholders and
the development of regulatory schemes together with institutional and technical
capabilities considering the social and economic conditions of a particular State.

5 Compliance Challenges

The success of MARPOL in the prevention of ship-source pollution has been relative
because a persistent and well known problem with its implementation concerns the
availability of reception facilities as reported on several occasions by the IMO’s
Maritime Safety Committee (MSC), the Marine Environment Protection Committee
(MEPC), and the Sub-Committee on Flag State Implementation.64 The absence of
port reception facilities or their inadequacy relates to: (a) financial, technical, and
political restraints involved in the provision of port reception facilities; and (b) lack
of enforcement mechanisms against States that breach their obligation to ensure the
provision of port reception facilities.
Over the last four decades, inadequacy of port reception facilities has been on the
agenda of the IMO’s MEPC.65 In developing States, technical capacities are still
lacking.66 The World Bank in cooperation with the IMO commissioned a study into
the provision of port reception facilities in Sub-Saharan African Ports. It revealed
that States are reluctant to provide reception facilities not only because of investment
and operational costs, but also due to the challenges related to the management on

64
Report to the MSC and the MEPC Sub-Committee on Implementation of IMO Instruments, 3rd
session Agenda item 14 (2016); Stokke and Thommessen (2002), p. 141.
65
Hassler (2016), p. 140.
66
Lethbridge et al. (1991); Karim (2015), pp. 134–135; Tan (2006), p. 267.
30 G. Argüello

land of such wastes.67 The World Bank noticed that, in many ports, ship wastes were
poorly managed and were usually subject to scavenging operations.68 Furthermore,
wastes usually end up in drainage systems and eventually end up back in the ocean.69
The study is revealing because challenges related to the provision of port recep-
tion facilities cannot be effectively addressed in isolation without considering the
integration of reception facilities with national waste management systems. In 2006,
the IMO approved the Action Plan to Tackle the Inadequacy of Port Reception
Facilities. One of the activities of the Action Plan relates to the development of
technical capabilities of developing States, including the downstream management
of ship wastes.70
The 2006 Action Plan to Tackle the Inadequacy of Port Reception Facilities is the
most recent attempt to address some of the practical problems that users and States
face in relation to port reception facilities. The IMO’s Sub-Committee on Flag State
Implementation identified six areas of concern: (1) notification procedure between
the ship operator and the facility concerning the intention to use a certain facility;
(2) information on available port reception facilities; (3) technological challenges in
relation to ship-to-shore operation and standardization of standards for garbage
segregation; (4) revision of the type of wastes generated on board vessels, the
capacity of available port reception facilities, and methodologies to establish the
required capacity of port reception facilities; (5) revision of several IMO guidelines
and other related regulations; and (6) technical assistance for developing countries.71
As part of the Action Plan to Tackle the Inadequacy of Port Reception Facilities,
an updated version of the “advanced notification form” was adopted.72 Ship oper-
ators are encouraged to give notification at least 24 h in advance of their intention to
use a reception facility. Such notification is useful in identifying the availability of a
certain facility and avoiding possible delays. Furthermore, the provider of reception
facilities is able to plan the discharge of wastes and, if necessary, arrange special
handling requirements.73 The notification intends to provide useful information to
governmental authorities regarding the type of wastes received, the quantities that
are discharged, and their hazardous characteristics. This information is also used to
establish the required capacity and technical capabilities of port reception facilities,
and to plan for further management operations on land.
In the decades following the entry-into-force of MARPOL, developed States have
generally been able to provide port reception facilities for ships calling at their

67
Lethbridge et al. (1991), p. 2.
68
Ibid, p. 6.
69
Sadler and King (1990), p. 5.
70
Draft Action Plan to Tackle the Inadequacy of Port Reception Facilities (FSI 14/19) (2006), p. 50.
71
Ibid.
72
MEPC.1/Circ.834: Consolidated Guidance for Port Reception Facility Providers and Users
(2014), annex II.
73
Ibid, p. 8.
Regime Interaction and GAIRS 31

ports.74 This has not been the case for many developing States.75 The unintended
consequence of this development is the transfer of pollution from one place to
another. In the absence of compulsory standards that specify the location where
ship wastes must be discharged, e.g., the unloading port, ships with enough holding
capacity can choose cheaper port reception facilities. In general, the poorest coun-
tries continue to be the most affected by pollution because illegal discharges also
increase if reception facilities are not available.
Judging the availability and adequacy of port reception facilities around the globe
is a difficult task, since State Parties to MARPOL are reluctant to provide informa-
tion. Article 11 (d) of MARPOL prescribes that the Parties must communicate to the
IMO “a list of reception facilities including their location, capacity and available
facilities and other characteristics.” Reporting is a common feature in conventions
adopted under the auspices of the IMO and in multilateral environmental agreements
(MEAs) in general.76 In the case of MARPOL, for example, both the IMO and States
Parties can collectively exercise supervisory functions and exert pressure (e.g.,
naming and shaming in effect) on States that fail to implement, comply with, and
enforce their international obligations. Extensive research has been undertaken
regarding the relationship between reporting and transparency, as well as the influ-
ence of reporting on improving enforcement among State Parties.77 Most
non-compliance remedies under general public international law, including the
possibility to terminate or suspend a treaty in cases of material breach, are essentially
inadequate to deal with environmental problems because MEAs require to secure
cooperation of States in addressing environmental concerns that are transboundary in
nature. In other words, non-confrontational procedures are preferred, since termi-
nating or suspending MEAs would “primarily harm the international community,
not the defaulting State.”78 The compliance reporting rate for the year 2015 was
25%, i.e., only 38 Parties have submitted reports.79
Over the years, scholars have emphasized the need to develop alternative incen-
tives to improve compliance with MEAs.80 These incentives usually rely on super-
visory mechanisms of international organizations, closer cooperation between
several stakeholders, enhancement of transparency, e.g., standardized forms,

74
Carpenter and Macgill (2005); Ramboll: EMSA/OP/06/2011 (2012).
75
Karim (2015), pp. 134–138.
76
For instance: Article 11 of MARPOL; Article 13 (3) of the Basel Convention; Article 14 of the
Ballast Water Management Convention; Article III of the Protocol of 1988 relating to the Interna-
tional Convention for the Safety of Life at Sea, 1974 (SOLAS); Article 7 of the Kyoto Protocol to
the United Nations Framework Convention on Climate Change.
77
Wettestad (2007); Mitchell (1994), pp. 123–124; Birnie et al. (2009), pp. 242–244; Handl (1997);
Chayes and Handler Chayes (1991); Ulfstein (2008), p. 129.
78
Boyle (1991), p. 233.
79
MEPC.1/Circ.869 (2017), p. 3. The compliance reporting rate relates to the reporting of incidental
spillages, alleged discharge violations, penalties imposed for MARPOL 73/78 violations, among
others.
80
Chayes and Handler Chayes (1991), Boyle (1991) and Wettestad (2007).
32 G. Argüello

publicly available information, and shaming “lists”. On a soft law basis, the IMO has
indeed created a number of standard forms and utilized technological advances to
enhance self-regulation. Nonetheless, the success of this soft approach has been
modest. Much can be done to improve transparency and achieve the desired naming
and shaming effect. Particularly, the IMO should provide a comprehensive and
authoritative analysis of complying and non-complying ports.81 At present, the
information is scattered and provided by shipping organizations on an ad-hoc
basis. In fact, there is a perception that reporting is irrelevant, since the IMO does
not use the information received in any meaningful manner.82 Binding regulation
could be a positive step forward in addressing some challenges in respect of port
reception facilities, such as allowing developing States to provide regional reception
facilities or establishing a fund for financing the design and construction of port
reception facilities. This alternative seems, however, unrealistic given that States
have consistently failed to establish regulations in relation to port reception facilities.
Nonetheless, State Parties must consider strengthening the enforcement capabil-
ities of the IMO, including providing the IMO Secretary with the power to begin
rule-making processes,83 and to conduct auditing schemes so as to improve super-
vision and scrutiny. Since 2003, a voluntary Member State Audit Scheme was
developed to enhance the implementation and enforcement of several IMO
treaties,84 e.g., MARPOL. Audit standards are found in the IMO Instruments
Implementation Code (III CODE). This code guides States in fulfilling their obliga-
tions as flag, port, or coastal States in relation to: safety of life at sea; prevention of
pollution from ships; standards of training, certification, and watch keeping for
seafarers; load lines; tonnage measurement of ships; and regulations for preventing
collisions at sea.85 In January 2016, this voluntary audit scheme together with III
Code became mandatory in several instruments, including MARPOL.86 This initia-
tive should be welcomed because it reflects a political commitment to strengthen the
IMO and to increase its supervisory functions. If possible, the results of the audits
should be publicly available for scrutiny.

81
Tan accurately points out that “what has not been attempted to date is a detailed analysis by IMO
of the industry information provided so as to compile authoritative lists . . . ports and States are
largely immune to criticism by industry actors . . . criticism by IMO, however, cannot be so easily
ignored.” Tan (2006), p. 379.
82
Ibid, p. 373.
83
Ibid, pp. 369–373.
84
Assembly of the IMO: Resolution A. 946(23) (2003).
85
Assembly of the IMO: Resolution A.1070(28) (2013).
86
Resolution MEPC.247(66) (2014).
Regime Interaction and GAIRS 33

6 Concluding Remarks: Integration of Port Reception

Facilities with National Waste Management Systems

The connection between the adequacy of port reception facilities and waste man-
agement on land operationalizes the obligation established in Article 195 of
UNCLOS, which prohibits the transfer of pollution hazards from one place to
another and the transformation of pollution sources. The IMO as the competent
international organization has the capacity to develop GAIRS in order to prevent,
control, and remedy ship-source pollution. Such prevention inevitable includes
standards in relation to the adequacy of port reception facilities to avoid, for instance,
illegal discharges at sea. A welcomed step in this direction is the adoption of the
IMO’s Manual Port Reception Facilities. This Manual, like any other soft law
instrument, is not mandatory. However, it provides guidance to State Parties to
MARPOL as to what ensures the provision of adequate port reception facilities
including some recommendations for achieving the ESM of wastes on land consid-
ering the standards developed under the Basel Convention.
ESM as well as the obligation prescribed in Article 195 of UNCLOS have a
sectoral integration function. Sectoral integration refers to coordination between
regulations governing different environmental media, e.g., land, sea, air. Both
attempt to prevent unintended consequences in one environmental medium, e.g.,
sea, while preventing any environmental harm in another environmental medium,
e.g., land.
MARPOL imposes several obligations for the prevention of ship-source pollution
concerning the construction, equipment, and manning of ships. In addition, opera-
tional discharges at sea are severely restricted or prohibited. Although MARPOL is
not concerned with waste management on land, the accomplishment of its purpose
will be defeated without the development of standards concerning port reception
facilities given that such facilities are linked to both the prevention of illegal
discharges at sea and the management of ship wastes on land to prevent the
transformation of one type of marine pollution into another.
In the light of both the prohibition prescribed in Article 195 of UNCLOS and
ESM, the “adequacy” of port reception facilities includes not only the reception of
wastes, but also their downstream management. The interpretation of adequacy
according to the ESM principle also implies that port reception facilities must be
integrated into national waste management systems.
The development of a common framework of ESM has been fundamental in
addressing the management of wastes beyond the peculiarities surrounding the
transboundary movement of wastes. An obvious advantage of building a legal
framework from existing instruments is that one can draw upon their existing
obligations, institutional structures, control mechanisms, and financing systems. It
also contributes to the building of bridges between different regimes, enhancing
34 G. Argüello

cooperation among international institutions and other subjects of international law,

and mitigating fragmentation in international law.87
The broad formulation of ESM fostered cooperation between the IMO and the
COP to the Basel Convention to improve the management of wastes in the sea/land
interface. Such cooperation, however, remains limited. Although the IMO supports
the collaboration with the COP to the Basel Convention, the Secretariat of the IMO
has been emphatic in clarifying that the IMO is the adequate forum where State
Parties to MARPOL should interpret to what extent MARPOL applies to ship wastes
discharged to port reception facilities.88 This position could explain why the IMO
and the COP to the Basel Convention have been issuing different sets of guidelines
instead of promoting a joint forum where different actors could address common
concerns and coordinate future activities.

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Maritime Rules for Rail Carriage: China’s
Initiative to Incorporate Rules from
the Road to the Belt

Abhinayan Basu Bal and Trisha Rajput

Abstract A group of small and medium sized importers in the Chongqing Pilot Free
Trade Zone (PFTZ) using the Eurasian railway corridors connecting European
countries to China requested the Chongqing local government for creating negotia-
ble transport document for railway carriage, similar to bill of lading in maritime
transport, for financing purposes. The importers highlighted that Chinese banks are
unwilling to issue letter of credit to support the payment for their imports carried by
rail from European countries as railway consignment note is not a document of title.
As an interim measure, the Chongqing local government established a logistics and
financial intermediary that would assume the credit risk before importers can
approach banks to issue letter of credit. To find a permanent solution, the Chinese
government plans to initiate international negotiations for revising railway carriage
rules in the near future.
This chapter critically analyses from a legal standpoint whether the approach
adopted by the Chongqing local government can address the evolving trade finance
needs of importers in the Chongqing PFTZ. The chapter discusses in contextual
detail the legal and policy framework of the BRI under which the Eurasian railway
corridors are created and then draws connection between the frameworks of the BRI
and the Chongqing PFTZ. The paper examines whether there is real need to apply
maritime rules to railway carriage for purpose of obtaining letter of credit and then
analytically probes how digital infrastructures such as single windows, platforms
and distributed ledgers may be used to reduce information asymmetry between
traders and banks to increase access to trade finance. In this context, paperless
trade and supply chain finance initiatives that can be supported by the recently
adopted Model Law on Electronic Transferable Records is discussed. In conclusion,
a prognosis of legal rules that may be promulgated with greater ease to attend to the

A. Basu Bal (*) · T. Rajput

Department of Law, School of Business, Economics and Law, University of Gothenburg,
Gothenburg, Sweden
e-mail: abhinayan.basu@law.gu.se; trisha.rajput@law.gu.se

© Springer Nature Switzerland AG 2020 39

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_3
40 A. Basu Bal and T. Rajput

financing needs of Chinese importers is made taking into consideration the flexibility
allowed to the Chongqing PFTZ to test new laws that can support new businesses.

1 Introduction

Traditionally, a sizeable portion of international trade in goods is transported by sea

and many of the related business and regulatory processes depend largely on
shipping documents.1 The tender of the correct shipping documents is essential to
the fulfilment of several standard form international sale contracts and is fundamen-
tal to the operation of documentary letters of credit issued as a payment mechanism
for the purchase of goods. Among the shipping documents, a bank issuing a
documentary letter of credit generally places a high level of reliance on the bill of
lading, as most jurisdictions across the world recognize the bill as a document of title
that gives the holder the right to demand delivery of the goods from the carrier at the
port of discharge.2 This legal mechanism lends security to the bank as Article 5 of
UCP 6003 rightly points out that banks deal in documents, not in the goods or
services to which those documents relate.
With the expansion of railway corridors along the Eurasian Land Bridge4 under
the Chinese Belt and Road Initiative (BRI), attempts are being made in China to
incorporate the functions of a maritime bill of lading into a railway consignment
note. In 2017, Chinese car traders in the Chongqing Pilot Free Trade Zone (PFTZ)
who use the Chongqing-Duisburg train corridor to import cars from Europe
requested the creation of a negotiable transport document for rail carriage, similar
to bills of lading in maritime transport, for securing the underlying financial trans-
action.5 The traders highlighted the fact that banks in China are unwilling to issue
letters of credit to support the payment for their car imports as railway consignment
notes are non-negotiable documents. Railway consignment notes serve two func-
tions, namely, receipt of the goods and evidence of the contract of carriage. They do

1
A typical shipment of goods by sea would constitute an invoice and packing list issued by the
seller; a bill of lading or other transport document issued by the carrier; a survey certificate showing
quantity and quality; an insurance certificate issued by a cargo insurer and a certificate of origin
issued by a local chamber of commerce. See Murray et al. (2012), p. 2.
2
Ibid, at 190.
3
The Uniform Customs and Practice for Documentary Credits (UCP), 2007 Revision, International
Chamber of Commerce Publication No. 600 are rules that apply to any documentary credit when
parties have incorporated them into their contract.
4
For a general discussion on the China-Europe railway corridors, see Tillman (2018), https://www.
csis.org/analysis/rise-china-europe-railways, accessed 17 April 2019.
5
Similar requests as the Chongqing car traders were submitted by railway carriers in Chengdu. This
was gleaned from personal discussions with Associate Professor Guo Yu of Peking University Law
School, Beijing, China. She also mentioned about this request from railway carriers during a
presentation at the conference entitled “A Legal Roadmap for Digital Trade”, organised by the
International Chamber of Commerce United Kingdom on 11 September 2018.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 41

not serve the third function found in negotiable bills of lading, namely, as a
document of title, which is preferred by Chinese banks to obtain security when
issuing letters of credit.
In the absence of a negotiable transport document for rail carriage, a car trader in
Chongqing has to approach a financial intermediary who assumes the risks before a
bank issues a letter of credit. The intermediary, called the Chongqing Logistics
Financing Service Co. Ltd. (CLFS)6 was established by the local government in
Chongqing on 25 December 2017 to serve as a one stop shop in the delivery of
integrated financial services to traders operating in the Chongqing PFTZ. After
surveying the market for three months, CLFS decided to apply rules of maritime
law in railway carriage based on Chinese maritime, contract and property laws to
create a negotiable railway bill. In June 2018, a tripartite contractual arrangement
was reached among Chinese railway carriers, importers and banks to use a negotia-
ble railway bill that secured the letter of credit for a pilot shipment of cars from
Germany to China. This solution was welcomed by various organizations in China,
including the Ministry of Commerce, the People’s Bank of China, leading commer-
cial banks7 and numerous PFTZs. The High Court in Chongqing also extended
support and recognition to this ingenuity through organization of three conferences
on the topic and favorable comments from the Director. In the future, CLFS aim to
prepare the ground for promulgation of Chinese legislation allowing the issuing of
negotiable railway transport document similar to bills of lading and create consensus
for adoption of similar rules internationally through amendment of railway liability
conventions.8
The solution created by CLFS is indeed innovative and captures the history and
soul of using negotiable transport documents in maritime trade in addition to the
consequent practices that surround letters of credit. However, one has to be mindful
that the traders in Chongqing approached the local government to assist them in
meeting their trade finance needs after the opening of new train routes connecting
China with Europe. Aside from the complexities that may arise in implementing the
proposal of CLFS, such as, multiplicity of regimes governing carriage by rail along
the Eurasian railway corridors and the prolonged negotiations that may be necessary
to establish consensus internationally for introducing negotiability in railway con-
signment notes, it must be appreciated that the trade finance requirements of Chinese

6
http://cqlfn.com/index.html, accessed 17 April 2019.
7
Bank of China, China Merchants Bank, China Construction Bank, Agricultural Bank of China,
Industrial Bank, Industrial and Commercial Bank of China.
8
The above information is gleaned from an interview conducted by the authors with Mr. Wensheng
Zhang, Deputy General Manager and Mr. Jim Liu, Director of Development Planning of Chongqing
Logistics Finance Service Co. Ltd. on 29 December 2018 at South West University of Political
Science and Law (SWUPL), Chongqing, China. The authors conducted field research in China in
2018 using funding support from the Swedish Foundation for International Cooperation in Research
and Higher Education and University of Gothenburg. A special thanks to Prof. Yongmei Chen and
Dr. Shunag Liang from SWUPL for engaging with us on various aspects of the BRI, assisting with
translations of the Chinese text and organising interviews.
42 A. Basu Bal and T. Rajput

traders may evolve in the next few years. Today, the traders importing goods through
the railway corridors face problem in using letters of credit because of
non-negotiable consignment notes but in a few years, the traders may feel that
other types of trade finance such as trade credit9 or supply chain finance (SCF)
through receivable financing supported by transferable instruments10 would be more
suitable to support their trade when using the corridors. Therefore, the pertinent
question that arises is how can the Chongqing government promulgate and test laws
that can cater to all types of trade finance along the corridors? To engage in such a
discussion, it is instructive to first appreciate the legal framework of the BRI under
which the railway corridors are being created. It is also necessary to draw connec-
tions between the BRI and the Chongqing PFTZ that is being used as a testing
ground for adopting the laws necessary for information exchange in the railway
corridors. Since the context of the discussion is connected to the financing needs of
traders, it becomes essential to acknowledge the evolving nature of trade finance,
which over the years has been gradually shifting from intermediated trade finance to
trade credit. In financial literature, such shift is generally attributed to levels of
information asymmetry, which this chapter briefly adopts to create the context for
considering modern rules that may be promulgated and tested in the Chongqing
PFTZ. In the final discussion, testing of laws using the flexibility of the Chongqing
PFTZ is given centerstage with the spotlight shining on modern rules that may
facilitate the use of digital infrastructures such as electronic platforms, single
windows, blockchains, etc. along the railway corridors allowing for efficient trade
finance.

9
Trade credit as a form of trade finance is discussed below in Sect. 4 of the chapter.
10
Transferable instruments are financial instruments that may contain an unconditional promise to
pay a fixed amount of money to the holder of the instrument, or an order to a third party to pay the
holder of the instrument. Examples of transferable instruments include promissory notes, bills of
exchange, cheques, and certificates of deposit. They may also include chattel paper (e.g. retail
instalment sales contracts, promissory notes secured by an interest in personal property, and
equipment leases). Documents of title are documents which in the regular course of business or
financing are treated as adequately evidencing that the person in possession of such document is
entitled to receive, hold, and dispose of the document and the goods indicated therein (subject to any
defences to enforcement of the document). Examples of documents of title include certain transport
documents, bills of lading, dock warrants, dock receipts, warehouse receipts, or orders for the
delivery of goods. See “Legal issues relating to the use of electronic transferable records”, Working
Group IV (Electronic Commerce), Forty-fifth session (Vienna, 10–14 October 2011), (A/CN.9/
WG.IV/WP.115), para 3.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 43

2 The Chinese Belt and Road Initiative and Chongqing

Pilot Free Trade Zone

The BRI emanated from the foreign policy strategy announced by China’s President
Xi Jinping in 2013.11 It is inspired by the ancient silk road, the trading routes and
networks that emerged during the Han dynasty in 206 BC, for export of silk to India,
Mesopotamia, North Africa and Europe. The BRI, in spirit is similar to the ancient
silk road, but in form is much bigger and arguably better. Infrastructure development
is a crucial element of the BRI but within its scope also lies policy dialogue,
infrastructure connectivity, unimpeded trade, financial support and people-to-people
exchange.12 Physical infrastructure is currently playing a fundamental role in fos-
tering regional cooperation and development. A large number of projects are under-
way or under consideration to connect various sub-regions, including high-speed
railroads, oil and gas pipelines and telecom and electricity links.13 Chinese institu-
tions, including the Silk Road Fund, the China Development Bank and many
Chinese companies are making large investment, alongside funding provided by
international organizations such as the AIIB, the BRICS New Development Bank,
the World Bank and the Asian Development Bank. In most part, the BRI is
sponsored by the Chinese government. Currently, there are close to 70 countries
connected with the BRI but 30 countries are main participants which need critical
infrastructure. The BRI marks a radical change in China’s foreign policy as it
constitutes a new economic development model that aims to strengthen China’s
position as an economic superpower.14 However, it has been emphasized time and

11
The BRI is a combination of the Silk Road Economic Belt and the 21st Century Maritime Road.
The Silk Road Economic Belt concept was introduced by the President during his visit to
Kazakhstan in September 2013 in a speech titled “Promote People-to-People Friendship and Create
a Better Future” delivered at Nazarbayev University on 7 September 2013. The Belt refers to
economic and overland transport links which stretches from China to Europe passing through
central Asia, Russia and the Baltic States. The areas between China and Europe are connected by
railroads, highways, air routes and other means of transport. During his speech, the Chinese leader
mentioned the strategic vision of China and emphasized the close cooperation between China and
Central Asia. Later in October 2013, the President, during a speech to the Indonesian Parliament,
proposed the 21st Century Maritime Silk Road to promote maritime cooperation. The twenty-first
century Maritime Road is a network of maritime routes which includes ports in China, regions
across Asia such as the Indian Ocean, Indonesia, Middle East, North Africa and Europe. He also
emphasized the building of a close-knit China-ASEAN community. In his speech at the Indonesian
Parliament, the President also proposed establishing the Asian Infrastructure Investment Bank
(AIIB) to finance infrastructure construction and promote regional interconnectivity and economic
integration. The AIIB was subsequently established on 25 December 2015.
12
“Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime
Silk Road”, issued by the National Development and Reform Commission, Ministry of Foreign
Affairs, and Ministry of Commerce of the People’s Republic of China, with State Council
authorization on 28 March 2015 (hereinafter Vision and Actions document).
13
Interactive map of the BRI, https://www.merics.org/en/bri-tracker/interactive-map, accessed
17 April 2019.
14
Nordin and Weissmann (2018), pp. 231–249.
44 A. Basu Bal and T. Rajput

again by Chinese officials that the BRI is not an attempt to create a parallel system
which stands in competition with already existing economic and legal frameworks.15
In fact, China seeks to participate more actively in the international economic
architecture, by incorporating some of its own experiences.

2.1 An Evolving Initiative

The BRI in its current form should be understood as a flexible and dynamic process
that continues to evolve. For instance, when the BRI was announced, it only covered
two primary components—overland belt and maritime road. This has now expanded
to include cyberspace and outer space.16 Presently, the scope and intention of the
BRI can be found in political statements, policy documents and guidelines.17
However, in certain cases, the precise legal status of these policy documents and
guidelines is not easily discernible. In addition, a myriad of central, regional and
local level documents in the forms of laws, regulations, notices, circulars and
communications also contribute to the underlying framework of the BRI.18 China
has signed memoranda of understanding,19 treaties,20 and updated pre-existing
investment and trade agreements to create momentum for the BRI.21 The legal
framework of the BRI is in total contrast with the familiar structures of international
governance in the area of trade that the world is already familiar with such as the
World Trade Organization (WTO) or Free Trade Agreements (FTAs). When the
WTO was formed there was a package of documents,22 but in case of the BRI,

15
Shi (2018), p. 13; Xiaoming (2015) New Silk Road is an opportunity not a Threat, Financial
Times, 24 May 2015, https://www.ft.com/content/c8f58a7c-ffd6-11e4-bc30-00144feabdc0,
accessed on 17 April 2019.
16
Moss (2016) China One Belt and One Road Takes to Space, 28 December 2016, The Wall Street
Journal, https://blogs.wsj.com/chinarealtime/2016/12/28/chinas-one-belt-one-road-takes-to-space/,
accessed 17 April 2019.
17
There are two important documents that indicate the scope of the BRI, namely the—Vision and
Actions, note 12 above and the “Vision for Maritime Cooperation under the Belt and Road
Initiative”, released on June 20, 2017.
18
For understanding the legal landscape see Wolff et al. (2017).
19
Around 76 MOU have been signed with different countries.
20
For example, China has signed approximately 53 tax treaties with the BRI participating countries.
21
For example, the China - Association of Southeast Asian Nations (ASEAN) FTA was
renegotiated to include provisions that would enable closer integration of China and ASEAN region
especially in the context of digital infrastructures.
22
WTO agreements are the result of the 1986–94 Uruguay Round negotiations, signed at the
Marrakesh Ministerial Meeting in April 1994. Currently, there are about 60 agreements such as
the Marrakesh Agreement, General Agreement on Tariff and Trade, etc.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 45

currently there exist no such comprehensive legal structure.23 It is also different from
FTAs, where rights and obligations of participants are clearly defined and enforced
through a dispute settlement mechanism.24 In the case of FTA the legal framework is
established first. The BRI has not started from the articulation of a legal framework.
The absence of a comprehensive, concrete legal framework means that there is
flexibility in terms of legal rules and that the framework is a work in progress
which will evolve on the basis of need.

2.2 The BRI Is Based on Flexibility

It has been argued that the BRI is an attempt by China to sustain its economic
growth25 by exploring new forms of international economic cooperation with new
partners. During the first three decades of economic reform, China achieved rapid
economic growth, benefiting from a dramatic expansion of exports to and foreign
direct investment from the developed economies. With growth moderating contin-
uously over the past five years, China’s development pattern appears to have reached
a bottleneck. The BRI enables China to look westward for new economic opportu-
nities and support for economic growth for the next phase of development and
reform.26 In a nutshell, the purpose of the BRI is to solicit new business for China.
China is currently in the state of re-designing its economy and is experimenting with
new business ideas in a controlled fashion. The absence of a concrete BRI frame-
work allows its policymakers the flexibility to be responsive in terms of strategy and
business needs in the short-term. Indeed, such law-making approach is not new in
the context of the Chinese legal system. Even historically, there has always been a
visibly positive attitude towards short-term flexibility,27 over certainty and predict-
ability. The Chinese view law as a part of the superstructure of society and when
economic relations change, law should change as well.28

23
The scope of the BRI may be found from the Vision and Actions document, note 12 above.
Central, regional and local level documents in the form of laws, regulations, notices, circulars and
communications form a part of the underlying framework of the BRI.
24
For comparison between the BRI and FTA refer to Chaisse and Matushita (2018), pp. 163–186.
The BRI is contrasted with TPP on the basis that the former is not based on a formal treaty
arrangement and their organizing principles and modes of connectivity are different. The BRI is
inspired by the ancient silk routes.
25
Cai, Understanding China’s Belt and Road Initiative, 22 March 2017, https://www.lowyinstitute.
org/publications/understanding-belt-and-road-initiative, accessed 18 April 2019.
26
Mustafaga (2015); Summers (2016), pp. 1628–1643; Wen et al. (2017), pp. 36–45. It has also
been argued that the BRI is also to manage China’ excess production capacity.
27
It has been highlighted that flexibility yields uncertainty and values like certainty and legal
security are much lauded in the context of rule of law. Refer to Dickinson (2007), pp. 53–88;
Pound (1922), p. 71.
28
Xingzhong (1989), p. 29. See also Hsia and Johnson (1987), p. 10 who have stated—“Socialist
law must develop and change in accordance with the development and change of economic,
46 A. Basu Bal and T. Rajput

Most of the main BRI documents are broadly worded with principles such as
pronouncements which allow for legal flexibility. This statement can be easily
supported by perusing the Vision and Actions document of the BRI. An important
point that requires emphasis is the importance of market operation and mutual
benefit. It states that the BRI will “abide by market rules and international norms,
give play to the decisive role of the market in resource allocation and the primary
role of enterprises, and let the governments perform their due functions”. The nature
of the phrase “give play to the decisive role of the market in resource allocation and
the primary role of enterprises” is that of a general catch-all which leaves many
questions unanswered regarding the practical aspects of application of the principle.
Corne has commented on the principle-like nature of legal pronouncements of the
National People’s Congress and the State Council and argues that they exemplify
and typify the characteristic of legal drafting in Chinese law. Such drafting is
illustrative of legal flexibility that has allowed the legal system to remain viable
despite the fast-changing circumstances or local normative structures or condi-
tions.29 This discussion is especially relevant in the context of the BRI, which as
highlighted above, continues to evolve on a daily basis.
The discussion on flexibility gets more interesting if one directs attention to
PFTZs. Flexibility has been utilized as a tool to further business opportunities within
the PFTZs. One may view PFTZs as an exciting experiment for China to not just
remain a global manufacturer of goods but become a global provider of services.
One of the drafters preparing the legislation for the Chongqing PFTZ explained that
China wants to further open up its economy, but would like to do so without
exposing itself to unpredictability.30 Through the PFTZs, the opening up takes
place in controlled small areas allowing time for both businesses and policymakers
to consider the impact of opening up and also adapt to global standards. The PFTZs
are different from the older models such as supervisory zones and bonded areas and
the flexibility offers them the opportunity to be testing ground for new business and
the supporting legislation and administrative processes.

political, cultural and other conditions. This kind of change is embodied in the legislative process,
where, in order to adapt to the objective needs of development, the process of enactment, revision
and abrogation of laws and regulations is continuously undertaken”.
29
Corne (1995), p. 247.
30
This is gleaned from discussions with Professor Yongmei Chen of SWUPL. For more under-
standing on the matter see Xi Jinping, Accelerating the implementation of a free trade zone strategy,
accelerating the construction of a new model based on openness, Xinhua News Agency, 6 December
2014, http://www.xinhuanet.com/english/2018-11/05/c_137583815.htm, accessed 17 April 2019.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 47

2.3 Chongqing PFTZ Can Develop Laws in Accordance

with Business Needs

The establishment of PFTZs in large Chinese cities is an important development

which shares deep connection with the BRI. The Shanghai PFTZ was launched in
2013, followed by Guangdong, Tianjin and Fujian PFTZs in 2015, and Sichuan,
Chongqing, Shanxi, Henan and Hubei PFTZs in 2017. Establishment of twelve more
PFTZs were announced in July 2018. The PFTZs exploit the comparative advan-
tages of each region of the country; strengthen the interaction and cooperation
among the eastern, western and central regions of the country; and comprehensively
improve the openness of the Chinese economy. The PFTZs are located in SEZs and
there are overlaps in functions.31 PFTZs are intended to facilitate investment as they
relax access restrictions for overseas investors, such as qualification requirements,
equity ratio limit and business scope. There are dozens of special measures for
opening up business in six fields, namely, manufacturing, financial service, maritime
transport service, commercial trade service, professional service and technology, and
cultural service.
Apart from providing a facilitative investment setting, PFTZs are entrusted to
facilitate trade through better information exchange. The Vision and Actions docu-
ment of the BRI mentions trade facilitation under the section “unimpeded trade”,
with particular emphasis on flow of information through establishment of single-
windows, reduction of customs clearance costs and improvement of customs clear-
ance capability. Such emphasis on information connected with the physical move-
ment of goods is in conformity with the notion of trade facilitation advocated by
several international institutions.32 The flow of information through digitization of
trade processes assists businesses and governmental agencies to manage risks and
reduce transaction costs.33 The active role played by PFTZs in information exchange
increase supply chain safety and convenience, improve the coordination of cross-
border supervision procedures, promote online checking of inspection and

31
Yin (2018). http://www.rksi.org/sites/default/files/document/911/sez-2017-c-yin-chinese-ftzs-
and-their-contributions-bri.pdf, accessed 17 April 2019.
32
The WTO defines trade facilitation as ‘the simplification and harmonization of international trade
procedures, where trade procedures are the activities, practices and formalities involved in
collecting, presenting, communicating and processing data and other information required for the
movement of goods in international trade’. The United Nations Centre for Trade Facilitation and
Electronic Business (UN/CEFACT) defines trade facilitation as ‘the simplification, standardization
and harmonization of procedures and associated information flows required to move goods from
seller to buyer and to make payments.’ The Organisation for Economic Co-operation and Devel-
opment (OECD) defines trade facilitation as ‘the simplification and standardization of procedures
and associated information flows required to move goods internationally from seller to buyer and to
pass payments in the other direction’. Single windows are critical for information sharing connected
with trade and may be utilised for building profiles. All the above definitions emphasise the flow of
information connected with the physical movement of goods.
33
For a detailed discussion see Basu Bal and Rajput (2017), pp. 305–326.
48 A. Basu Bal and T. Rajput

quarantine certificates, and facilitate mutual recognition of Authorized Economic

Operators.
The PFTZs are also allowed flexibility to serve as test beds to experiment with
new businesses that may require new legal frameworks. In Chongqing, for example,
a notification of the State Council allows flexibility to the local government to
promulgate laws that furthers and develops business opportunities in the PFTZ.34
Pursuant to that notification, the local government in Chongqing has permitted
certain activities to be carried out inside the PFTZ which would otherwise have
contravened Chinese laws. For instance, to develop financing business in the PFTZ,
the following activities are permitted:
a. Bonded automobile storage and bonded goods and material financing business in
the special customs supervision area.
b. Financial leasing of aircrafts, ships and large engineering equipment by both
domestic and international companies.
c. Pilot projects for settlement and facilitation of various trade formats, such as
inland processing trade and entrepot trade for optimization of cross-border finan-
cial settlement services.
d. Foreign exchange revenue and expenditure facilitation measures that are com-
patible with cross-border transactions.
In addition, the banking and financial institutions in Chongqing PFTZ have been
allowed to cooperate with the payment institutions that hold necessary permits. The
Chongqing PFTZ can also grant more business autonomy to the banking and
financial institutions to enhance cross-border financial services and establish spe-
cialized institutions for currency exchange and credit reporting.
Based on the aforesaid notification, the local government is also permitted to
enact laws suitable to local conditions, provided they do not conflict with the
Constitution or the central laws of China.35 The notification provides normative
guidance in areas where legislation is still lacking. The formulation is made in broad
terms and the details are left to be devised and applied by the specific departments
and authorities at the local level. The notification emphasises that the relevant
departments of the local government should support the PFTZ to deepen reform,
strengthen supervision, prevent and control risks and coordinate amongst them-
selves. More importantly, emphasis is laid on “opening up trials in various fields”
and also “solve the problem of institutional guarantees in the pilot process”. What
remains unclear though is how conflict may be resolved if and when that arises
between central and local laws pursuant to the use of the flexibility? Also, what
remains unclear is whether the above notification was subjected to any enactment
procedure? If the notification is not subjected to an enactment procedure, then it can

34
See Overall Plan for the China (Chongqing) Pilot Free Trade Zone, notified by the State Council
on 15 March 2017. http://www.gov.cn/zhengce/content/2017-03/31/content_5182300.htm,
accessed 17 April 2019.
35
Wang and John (1999), p. 8.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 49

be continually changed and tweaked with passage of time. This especially brings to
fore the prospect of making changes to the notification to accommodate policy. Be
that as it may, it is clear that there is an intention to provide procedurally systematic
and substantively fair protection for businesses operating in the Chongqing PFTZ.

3 Using Maritime Rules in Railway Carriage to Facilitate

Trade Finance in Chongqing PFTZ

The Chongqing PFTZ covers an area of 119.98 square kilometres and is considered
important for the development of the western region of China. This PFTZ is
overseeing the construction of an international logistics hub, a port and an inland
open-economic highland designed to meet the goals outlined under the terms of both
the BRI and the Yangtze River Economic Belt development programme. The
ambition of the PFTZ is to establish a multimodal logistics trans-shipment centre
that offers a range of services, including international trans-shipment, consolidation
and distribution.36 This PFTZ also supports the Chongqing-Duisburg rail corridor
which is one of the several Eurasian railway corridors connecting China and Europe.
The Eurasian railway corridors are governed under two different international
legal regimes for freight transport, one through the CIM-COTIF37 and the other
through the SMGS.38 While countries in Western Europe, Central Asia and North
Africa are party to CIM-COTIF,39 China, Russia and several countries in Eastern
Europe follow the SMGS.40 There are some countries along the corridors that
participate both in the COTIF and the SMGS.41 Following the disintegration of
the Soviet Union and the expansion of trade between CIM and SMGS countries, a
stronger need to promote legal interoperability between the two regimes was felt
both nationally and internationally. This led to the effectuation of the CIM/SMGS

36
The authors visited Chongqing PFTZ in July 2018 and it was explained during the tour of the
facilities that within a few years of its establishment, the PFTZ has embraced a broad range of
activities which include innovative manufacturing and related services, commodity exchange, cloud
computing hub, trading in financial services, professional services, etc.
37
Convention concerning International Carriage by Rail 1980 (COTIF); the current version is the
Uniform Rules Concerning the Contract for International Carriage of Goods by Rail (CIM),
Appendix B to the Convention, amended by the 1999 Protocol.
38
SMGS is the abbreviation for the Russian title of the Agreement on International Railway Freight
Transportation.
39
Currently the COTIF has more than 50 members, including Germany, France, United Kingdom,
Poland, Slovakia, Romania, Turkey, Iraq, Iran, Azerbaijan, Pakistan etc. European Union acceded
to the COTIF in July 2011 by virtue of Council Decision 2013/103/EU.
40
Currently there are 28 members of the SMGS including Afghanistan, Azerbaijan, Belarus, Iran,
Kazakhstan, Mongolia, Poland, Russia, Turkmenistan, Ukraine, Uzbekistan etc.
41
The Baltic states, Poland, Slovakia, Hungary, Bulgaria, Iran, Azerbaijan, etc. participates in both
COTIF and SMGS. Russia participates in the COTIF since 1 February 2010 only with regard to two
short lines in the Baltic harbour areas.
50 A. Basu Bal and T. Rajput

consignment note in 2006 which is used for block trains, wagon groups, single
wagons or containers, in either paper or electronic format.42 The CIM/SMGS
consignment note is recognized as a customs transit document and as a bank
document. However, exporters and banks exercise caution when dealing with a
letter of credit transaction that involves a railway consignment note, because neither
exporters nor banks can use the goods as collateral as the rail carrier can deliver
goods to the consignee without obtaining the original document.43
The existing railway carriage laws were designed around non-negotiable waybills
as transport times were generally short and shippers did not have much reason to
develop elaborate trade finance practices involving carriage documents. To the
contrary and by contrast, in sea carriage, documents of title such as bills of lading
have been in use for centuries to facilitate the financing of goods while they remain
afloat on-board vessels for months, being transported across continents. The banks in
China developed their practices for letters of credit around sea transport and require a
bill of lading as security. The emphasis on negotiability for security purposes is well
developed in the sea carriage law of China and can be found in Article 79 of the
Chinese Maritime Code (CMC) which provides -
The negotiability of a bill of lading shall be governed by the following provisions:
a. A straight bill of lading is not negotiable
b. An order bill of lading may be negotiated with endorsement to order or endorsement in
blank;
c. A bearer bill of lading is negotiable without endorsement

Also, pursuant to Article 71 of the CMC, a bill of lading is a document of title and
the rightful holder of the bill can require the carrier to deliver the goods to them.
When the bill is held by a bank, it will have proprietary interest over the goods. The
precise nature of the bank’s right, as absolute owner of the goods or as a form of
security is unclear under Chinese law, but in practice banks can require carriers to
deliver the goods to them. In case of bankruptcy of a seller who has shipped the
goods and received the price, the seller no longer has title to the goods. A bank which
has subsequently received the bill of lading will be free from any claims from the
liquidator or administrator to return the goods or the bill of lading.44
Chinese banks have insisted on negotiable documents to issue letters of credit as
they perceive cross-border trade transactions as having moderate levels of informa-
tion asymmetry, and in the absence of a document of title, banks are required to set
aside higher capital as a regulatory requirement. Higher capital requirements have
often been cited as one of the prominent reasons for global shortage of trade finance
and there exists a huge gap for Asia and the Pacific.45 To avoid tying up more capital,

42
Yan and Filimonov (2018), p. 121.
43
It is to be noted that recognizing established trade practice, Article 24 of the UCP600 provides for
the issuance of credit based on non-negotiable railway consignment notes.
44
Tricks et al. (2018) Appendix 10, p. 55 https://www.clydeco.com/uploads/Files/The_Legal_
Status_of_E-bills_of_Lading_-_ICC_and_Clyde_Co.pdf, accessed on 17 April 2019.
45
DiCaprio and Yao (2017), p. 6.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 51

Chinese banks requested for the creation of a financial intermediary that would
assume the risk posed from lack of negotiability of railway consignment notes. In
response, the local government in Chongqing established CLFS that would support
traders operating from the Chongqing PFTZ, using a tripartite contractual arrange-
ment,46 provide guarantee to the banks. Such guarantee would be conditional upon
traders surrendering control of the goods to CLFS and exhibiting through proper
documentation the following:
a. the trade transaction is real and there is a genuine requirement for such transaction
to happen;
b. the trader has capacity for carrying out such a transaction;
c. the trader has prior experience in conducting such a transaction;
d. the trader does not have any adverse credit history;
e. the trader does not have any court proceedings against her/him;
f. the trader does not have any non-planned expansion and investment;
g. the trader operates regularly; and
h. the trader has deposited 20% of the transaction sum with CLFS.47
The above requirements laid down by CLFS seem reasonable to reduce risk of
repayment to the banks but they also increase the cost of accessing trade finance for
the importers. It would only be reasonable that laws are created with a vision that
eventually importers would be able to easily move to other forms of trade finance
that are cheaper than letters of credit.

4 Consideration of Different Forms of Trade Finance

in the CLFS Proposal

Generally speaking, the request from car traders in the Chongqing PFTZ may be
viewed as a request for facilitating international trade finance solutions in railway
corridors where goods cross several jurisdictions over several weeks during the
journey from Europe to China. Before one deliberates on whether the solution
proposed by CLFS would be acceptable to the international transport community,
it is imperative to understand the categories of international trade finance and
emerging trends. Such understanding may present an opportunity before
policymakers to determine which strand of lawmaking should be prioritized, trans-
port law or e-commerce law, to facilitate traders with better access to finance.

46
As mentioned in the introduction of this chapter, in June 2018, a tripartite contractual arrangement
was created between Chinese railway carriers, importers and banks to use a negotiable railway bill
that secured the letter of credit for pilot shipment of cars from Germany to China.
47
The above list is not exhaustive. These conditions were mentioned during the interview referred to
in note 8 above.
52 A. Basu Bal and T. Rajput

International trade finance is generally categorized under inter-firm trade credit

and intermediated trade finance. In inter-firm trade credit, payments are transferred
directly from importer to exporter either after or before delivery through “open
account”48 or “cash in advance”49 payment terms, respectively. In intermediated
trade finance, a financial intermediary such as a bank issues a letter of credit50 to the
importer to facilitate the trade with the exporter.51 The typical letter of credit is a
sophisticated mechanism designed to mitigate the risks borne by exporters and
importers.
Intermediated trade finance is commonly used in both low and middle-income
countries, as traders rely on the credibility of financial intermediaries rather than the
credibility of trading partners. Since intermediated trade finance comes at a cost, its
use has been declining in high-income countries. This can be discerned from the
result of a survey on country-wise relevance of payment terms conducted by the
Association of Executives in Finance, Credit & International Business (FCIB).52 The
study indicates that firms’ use of payment terms varies a lot across different
destination countries. The correlation seems to be strong between firm managers’
perceived riskiness of the destination country and the adoption of a specific payment
term. Although the letter of credit is a popular payment term for imports in China, the
overall use of letters of credit appears to be the least common payment term globally.
It has to a large extent been replaced by inter-firm trade finance in terms of open
account, which is a more competitive payment term. A most likely reason for the
popularity of open account in financially developed Northern and Western European
countries is simply because better enforcement mechanisms are generally available
in such jurisdictions that reduce the opportunity cost of adverse selection.

48
In “open account” the exporter extends a trade credit to the importer, which allows the latter to
postpone the payment for the goods typically by 30–90 days after the date of delivery of the goods.
Apart from the cost of capital, the credit risk of non-payment is borne by the exporter or his external
creditors.
49
In “cash in advance” the importer pays for goods ordered before the shipment of the goods by the
exporter. The importer is exposed to the transactional risk of non-delivery or delivery of low-quality
goods.
50
Letters of credit are mainly used to settle international trade transactions where a financial
intermediary offers trade finance against a fee. The importer’s local bank, which issues a letter of
credit assures payment after delivery and/or the exporter’s fulfillment of the obligations agreed upon
in the sale contract. The exporter commonly receives the payment via an advising or confirming
bank, which is usually the exporter’s local bank.
51
When using a letter of credit, the exposures to counterparty risks, i.e., both non-payment and
non-delivery risks for the traders are eliminated at the trading level. Since the importer’s bank
absorbs the credit risk, the exporter is exposed only to the comparatively lower risk of a bank
defaulting. Seemingly, for the fee paid to the issuing bank, the importer’s transactional risk is
reduced to the risk of receiving goods failing to meet quality requirements. Provided that these
goods are detected at the time of delivery, and consequently not be paid for, the importer’s
additional cost would then be restricted to eventual negative effects on the business in terms of
loss of sales, higher production costs, etc. For a detailed discussion on the topic see Ahn (2011).
52
Schmidt-Eisenlohr (2013).
Maritime Rules for Rail Carriage: China’s Initiative to. . . 53

Considering the evolving nature of trade finance, it is plausible that in the near
future, traders in the Chongqing PFTZ may feel that trade credit and SCF would be
more suitable to support their trade when using the railway corridors.

5 The Possibility to Monetize Receivables

The car traders in Chongqing use the Chongqing-Xinjiang railway line for parallel
imports from Europe. The term “parallel imports” refer to completely built cars
imported from overseas markets via professional channels and are parallel to cars
imported via traditional channels. Cars imported through traditional channels are
sold at registered dealers of car manufacturers who provide sales, spare parts, service
and survey (referred to as 4S dealers). The parallel imported cars are up to 20%
cheaper than those imported through traditional channels. The parallel importers
have to show sound financials for securing license in China.53 They buy cars from
exporters in Europe who are small dealers. After few years, once trust is established
between the traders, it is possible that the Chinese importers may request for open
account terms. The well-capitalized Chinese importers may be in a position to use
their own balance sheet to support the small car exporters. A number of strategies
have emerged in recent years to help traders, for example, leverage the importer’s
stronger financial position to help the exporter access low cost liquidity, so that the
exporter can then offer the importer extended payment terms. Some of these
strategies involve monetization of the importer’s trade accounts receivable. The
most common forms of trade receivables monetization include open account based
SCF and transferable instrument based SCF. Together, these two strategies are
generally referred to as reverse factoring, which is based on financial technology
to link importers, exporters, and financial institutions to improve cash flow, reduce
supply chain risk, and provide predictable return on investment for funders.54
An open account based SCF relies on the sale of accounts receivable which
requires predictable laws and a proper filing system.55 However, in China, selling
intangibles can be cumbersome and may expose the investor to additional legal risks,
such as fraud and insolvency. Also, the investor may be required to obtain lien
release from exporter’s lenders before the receivable can be sold. The existence of a
proper recording system for filing information about sale and purchase of receivables
is necessary as well. Therefore, a transferable instrument based receivables financing
programme using promissory notes or bills of exchange, governed under a chosen

53
HKTDC Research (2018) Chongqing: On Track for Europe via the Yuxinou Rail Route https://
hkmb.hktdc.com/en/1X0ADYAW/hktdc-research/Chongqing-On-Track-for-Europe-via-the-
Yuxinou-Rail-Route, accessed on 17 April 2019.
54
For a holistic discussion on SCF see Basu Bal et al. (2018), pp. 35–54.
55
For example, article 9 of the Uniform Commercial Code (UCC) in the United States provides such
predictability. Also, an investor purchasing a receivable need to record that under the UCC filing
system.
54 A. Basu Bal and T. Rajput

law, would allow mitigation of cross border legal risks, such as fraud, insolvency,
exporter’s lien, and lack of a systematic credit filing system.
In a transferable instrument-based programme, the exporter of cars submits
invoices which the buyer in China approves. Also, the exporter creates a draft or
bill of exchange or negotiable promissory note or another form of negotiable
instrument, governed under Chinese law. Once created, the instrument is then sold
by the exporter to a Chinese investor through physical embodiment of the negotiable
instrument. Since the instruments are governed under Chinese law and owned by a
Chinese investor, they are free of most foreign law constraints. In this arrangement,
the Bank of China office in Frankfurt which participated in the pilot from Europe
with CLFS or CLFS itself could become the investor. The investor takes physical
possession of the instrument upon purchase, then presents the instrument to the car
importer for payment on the invoice maturity date. It may so happen that the
creation, acceptance, assignment and presentation of the instrument are all handled
by the investor. In that case the European exporter and Chinese importer do not need
to exchange any physical documents. If all the above are to happen in an electronic
platform then modern e-commerce laws that support use of negotiable documents in
electronic form through use of electronic transferable records must be adopted in
China to facilitate such transaction.

6 Rules for Supporting Better Information Exchange

and Facilitating Access to Finance

In 2017, the United Nations Commission on International Trade Law (UNCITRAL)

adopted the Model Law on Electronic Transferable Records (MLETR)56 which can
be used as a specimen text by national lawmakers when preparing domestic law on
electronic transferable records.57 UNCITRAL undertook the task of creating har-
monized rules for electronic transferable records in 2011, to benefit the promotion of
electronic communications in international trade. Prior to that certain jurisdictions
had already promulgated national laws on the subject with different approach and
content to remove the obstacle of transferring the physical paper in original.58
However, most of these national laws are technology specific and/or allow use of
electronic records that are not functionally equivalent to the paper form. In addition,
most of these laws deal with only one type of instrument/document in separate

56
http://www.uncitral.org/pdf/english/texts/electcom/MLETR_ebook.pdf.
57
The term “electronic transferable record” is used in this paper as an electronic equivalent of a
transferable instrument (negotiable or non-negotiable) or a document of title.
58
For example, the Korea Trade Net (KTNET), which was designated as the registry operator for the
purposes of the South Korean Presidential Decree on the Implementation of the Electronic Bill of
Lading Provisions of the Commercial Act of 2008, achieves exclusive control through this title
registry.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 55

legislation. Such an approach may be effective at national level but does not promote
cross-border use of electronic transferable records and discourage new business
processes.
The MLETR covers transferable instruments such as bills of exchange and
promissory notes, and documents of title such as bills of lading and warehouse
receipts. The MLETR builds on the principles of non-discrimination against the use
of electronic means, “functional equivalence” and “technology neutrality”. Based on
the functional equivalence approach the MLETR does not affect substantive law and
party autonomy as applicable to the equivalent document or instrument. Based on
the principle of technology neutrality, the MLETR is compatible with registry-,
token- and blockchain based systems. According to the MLETR, an electronic
transferable record59 is functionally equivalent to a transferable document or instru-
ment if that record contains the information required to be contained in a transferable
document or instrument, and a reliable method is used to: (a) identify that electronic
record as the electronic transferable record; (b) render that electronic record capable
of being subject to control from its creation until it ceases to have any effect or
validity; and (c) retain the integrity of that electronic record.60 Control is a funda-
mental notion of the MLETR since it represents the functional equivalent of pos-
session of a transferable document or instrument. In particular, the possession
requirement is met with respect to an electronic transferable record if a reliable
method61 is used to: (a) establish exclusive control of that electronic transferable
record by a person; and (b) identify that person as the person in control.62 Moreover,
the MLETR enables inclusion of information in an electronic transferable record that
may not be included in a paper-based transferable document or instrument because
of its nature. The MLETR also provides guidance on assessing the reliability of the
method used to manage an electronic transferable record and on change of medium
(electronic to paper and the reverse), among other things.63 In addition, the MLETR
aims to facilitate the cross-border use of electronic transferable records by
supporting the principle of non-discrimination against the foreign origin or use
abroad of an electronic transferable record.64 Finally, the MLETR does not affect
in any manner the law applicable to transferable documents or instruments, which is
referred to as “substantive law” and includes rules on private international law.65

59
The term “electronic transferable record” is used in this chapter as an electronic equivalent of a
transferable instrument (negotiable or non-negotiable) or a document of title.
60
Article 10.
61
Article 12.
62
Article 11.
63
Articles 17 and 18.
64
Article 19.
65
The summary of the MLETR presented in this paragraph is from UNCITRAL’s website. See
http://www.uncitral.org/uncitral/en/uncitral_texts/electronic_commerce/2017model.html, accessed
on 17 April 2019.
56 A. Basu Bal and T. Rajput

Although the MLETR is a positive step forward, it is not law. Individual states
will have to decide whether to adopt it into their own law. At present Bahrain is the
only state that has adopted the MLETR in its domestic legislation.66 As a leading
international trading nation, China may wish to be an early adopter of the MLETR.
In that case, the local government in Chongqing may explore the possibility of
testing the application of MLETR in business areas such as railway transport and
trade finance based on the requests made by car importers. In that case, MLETR can
support an electronic platform for a transferable instrument based receivable financ-
ing programme to create a market-based approach for trade finance. It would also
allow China to test the MLETR in a controlled environment before deciding on
whether or not to promulgate its national law based on the UNCITRAL template.

7 Concluding Remarks

The commercial maritime law framework surrounding physical shipping documents

evolved during the sixteenth century to allow traders to dispose the goods while
remaining in the custody of the carrier. Incidentally, that legal framework also
afforded security to the lenders. Currently, with strict banking regulations on capital
adequacy,67 using that legal framework has become increasingly expensive for
exporters and importers. In addition, with the surge in pace and complexity of
international trade, the physical movement of the shipping documents from trader
to trader and/or bank to bank lags behind the movement of the goods. However, a
substantial portion of international trade still relies on physical shipping documents
and the associated legal framework because of traditional inertia. While several
attempts to reform the framework to allow use of electronic records have been made
in the past four decades, small and medium sized exporters and importers have not
seen enough value to be persuaded to make the transition.
In the past decade, international institutions such as the WTO, UNCITRAL,
UNESCAP,68 UN/CEFACT and UNECE69 have included paperless trade within
the broad meaning of trade facilitation and connected commercial and regulatory
aspects of international trade under a modern and coherent legal framework to clear
the way for e-commerce. Consequently, governments have been tasked to create the
necessary electronic infrastructure to enable business-to-government and vice versa

66
See “Bahrain enacts the UNCITRAL Model Law on Electronic Transferable Records” http://
www.unis.unvienna.org/unis/en/pressrels/2018/unisl269.html, accessed on 17 April 2019.
67
For example, Basel II is an internationally agreed set of measures adopted for the assessment of
international banks’ capital adequacy, issued by the Basel Committee on Banking Supervision in
2004. Basel III was subsequently issued in December 2010 in response to the financial crisis of
2007–09 and provides a regulatory scheme targeting governance and risk management and the
introduction of global liquidity standards.
68
The United Nations Economic and Social Commission for Asia and the Pacific.
69
The United Nations Economic Commission for Europe.
Maritime Rules for Rail Carriage: China’s Initiative to. . . 57

information exchange through establishment of national single windows. Also, it is

also possible for exporters and importers to take advantage of electronic infrastruc-
tures created and operated by private entrepreneurs such as platforms, distributed
ledgers, etc., for reliable business-to-business information exchange across borders.
The modern legal framework is also being finetuned to facilitate cross-border single
window interoperability for government-to-government exchange of information.
Overall, the electronic exchange of information across sectors can substitute the need
for physical shipping documents, support better risk evaluation, reduce information
asymmetry and create enough value to make the transition for small and medium
sized exporters and importers worthwhile.
The MLETR allows to include all information that are pertinent for cross-border
trade in a single electronic record which can then be shared with all businesses and
regulators on a need to know basis. The information contained therein would be
reliable, i.e., complete, up-to-date and authentic. It is submitted that the CLFS
initiative in Chongqing has the potential to create an information driven third-
party electronic platform which would merge commercial documentation for both
logistics and finance to promote SCF along the Eurasian railway corridors. Using the
flexibility allowed to Chongqing PFTZ, China can test new laws that are necessary to
support modern businesses related to logistics and finance along the new trade route
to Europe. If the test is successful in the Chongqing, then China can eventually
decide to implement the MLETR into its national law. In case China finds the
MLETR to be a suitable solution for expanding its businesses along both land and
sea trading routes, then the BRI can assist in spreading an already harmonised set of
rules created by UNCITRAL among countries that are its trading partners.

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A Critical Analysis of Carriage
of Passengers by Sea: Uniformity Through
International and Regional Approaches

Olena Bokareva

Abstract The purpose of the chapter is to examine and evaluate the legal regime in
relation to international sea passengers and whether it provides international unifor-
mity and adequate protection to the passengers carried by sea. The international
regime embodied in the Athens Convention relating to Carriage of Passengers and
their Luggage by Sea 1974 and the Protocol 2002 establishes carrier’s liability for
death and personal injuries arising out of the shipping incidents and in some cases
non-shipping incidents. In the context of the European Union (EU), the passengers
may also bring their claims based on the EU Regulation 392/2009 which implements
the Athens Convention 2002 and harmonises this area among all the EU Members
States. In contrast to international regime that mainly focuses on liability of the
carrier and compensation for damage, the EU regime has also elements of
consumer law.

With the advancement of sea passenger transportation and cruising to virtually all
resort destinations around the world, thousands of passengers are traveling by sea to
spend their vacation on a passenger ship. According to the data, 24.2 million
passengers chose cruises in 2016.1 It is notable that passengers’ claims arising due
to accidents on ships have been brought since the sinking of the Titanic in 1912.
Unlike carriage of cargo, transportation of passengers presents totally different risks
and liabilities for the carrier.
The outcome of any claim related to passengers depends on the applicable law
and the forum state. The applicable law that will govern a dispute will be indicated in
the ticket incorporating standard terms and conditions. It is vital for every passenger
to know its rights before planning a voyage, but as practice shows, very few
passengers do read the terms and conditions. Only in the case of an accident, it
becomes evident whether and to what extent the passenger or his relatives can be

1
Cruise Industry Overview—2017, https://www.f-cca.com/downloads/2017-Cruise-Industry-Over
view-Cruise-Line-Statistics.pdf.

O. Bokareva (*)
Faculty of Law, Lund University, Lund, Sweden

© Springer Nature Switzerland AG 2020 59

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_4
60 O. Bokareva

compensated. Whether the forum state is a party to any international convention

related to passengers could be of paramount importance. For example, passengers
traveling on the same ship, depending on the forum state and applicable law, can
receive compensation for mere delay or disappointment, while others may be left
without any compensation for the death of the relative or for a strong psychological
trauma. What aggravates the situation is that not all states are parties to a particular
convention that establishes international minimum standards of the carrier’s obliga-
tions and liabilities. In those states national law will apply to a passenger’s claim and
can lead to unpredictable outcomes and sometimes no compensation at all.
Passengers transported between the ports in two different countries can bring their
claims for accidents at sea under the Athens Convention relating to Carriage of
Passengers and their Luggage by Sea either 1974 or 2002, the EU Regime2 or
applicable national law which may or may not incorporate any of the international
conventions. Notably, both the Athens Convention 1974 and the Protocol 2002 are
now consolidated into the Athens Convention 2002 and is in force from 23 April
2014. It will be difficult to access in advance which regime will apply and therefore,
claimants or their lawyers must make a good assessment before choosing the forum.
The Athens Convention 2002 can also apply contractually in states which have not
joined it formally but through contractual incorporation, especially in cruise
contracts.
The purpose of the chapter is to examine and evaluate the legal regime in relation
to international sea passengers and whether it provides international uniformity and
adequate protection to the passengers carried by sea. International regime embodied
in the Athens Convention relating to Carriage of Passengers and their Luggage by
Sea 1974 and the Protocol 2002 establishes carrier’s liability for death and personal
injuries arising out of shipping incidents and in some cases non-shipping incidents.
As a general principle of contract law, an injured party has to be compensated for its
losses. However, international transport conventions entitle the carrier to limit its
liability for certain losses or even exclude its liability. The regime embodied in the
Athens Convention is not an exception and provides similar provisions regarding the
limitation of liability which will be discussed in more details in the following
sections.
In the context of the European Union (EU), the passengers may also bring their
claims based on the EU Regulation 392/2009 which implements the Athens

2
Regulation (EC) No 392/2009 of the European Parliament and of the Council of 23 April 2009 on
the liability of carriers of passengers by sea in the event of accidents. Other EU instruments include
Council Decision of 12 December 2011 concerning the accession of the European Union to the
Protocol of 2002 to the Athens Convention relating to the Carriage of Passengers and their Luggage
by Sea, 1974, as regards Articles 10 and 11 thereof (2012/23/EU);Council Decision of 12 December
2011 concerning the accession of the European Union to the Protocol of 2002 to the Athens
Convention relating to the Carriage of Passengers and their Luggage by Sea, 1974, with the
exception of Articles 10 and 11 thereof (2012/22/EU); and Regulation (EU) No 1177/2010 of the
European Parliament and of the Council of 24 November 2010 concerning the rights of passengers
when travelling by sea and inland waterway and amending Regulation (EC) No 2006/2004.
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 61

Convention 2002 and harmonises this area among all the EU Members States. In
contrast to international regime that mainly focuses on liability of the carrier and
compensation for damage, the EU regime has also elements of consumer law. The
new Directive (EU) 2015/2302 of the European Parliament and of the Council of
25 November 2015 on package travel and linked travel arrangements3 is applicable
from 1 July 2018 and repeals the previous Directive 90/314/EEC. The new Directive
extends its protection to those who book other forms of combined travel, including
cruises and thus might have a significant impact on EU passenger law, and interna-
tional regime related to passenger carriage and cruise shipping.

1 International Regime on Carriage of Passengers by Sea

1.1 Historical Evolution

It is conspicuous that international regime pertaining to passengers transported by

sea appeared much later than the one related to carriage of goods by sea. When the
original Hague Rules governing the liability of the carrier to cargo interests was
convened internationally in 1924 after years of consideration and drafting, passenger
carriage was still in its beginnings. At that time, it was mainly considered as a
transportation service from one place to another. Moreover, it was noted that
freedom of contract has dominated the regime related to carriage of passengers by
sea until the latter half of the twentieth century.4 Even the regime on carriage of
passengers by air embodied in the Warsaw Convention was adopted already in 1929.
Nevertheless, various attempts have been made to create an international regime
governing passengers’ rights and minimum level of protection since 1960s. How-
ever, none of these attempts succeeded.5 The first international initiative was
reflected in the International Convention for the Unification of Certain Rules relating
to the Carriage of Passengers by Sea, adopted in Brussels in 1961, entered into force
in 1965 and ratified by a small number of states. Another related convention was the
International Convention for the Unification of Certain Rules relating to the Carriage
of Passengers’ Luggage by Sea, adopted in Brussels in 1967, which never came into
force.6
At the 28th Conference of the Comité Maritime International in Tokyo one
document was drafted to replace both conventions and remove possible

3
Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 November 2015 on
package travel and linked travel arrangements, amending Regulation (EC) No 2006/2004 and
Directive 2011/83/EU of the European Parliament and of the Council and repealing Council
Directive 90/314/EEC.
4
Soyer and Leloudas (2018).
5
Ibid.
6
Berlingieri (2014), Chapter 4.
62 O. Bokareva

discrepancies between the two conventions. This solution was perceived as rational
since the creation of a single instrument pertaining to the carrier’s liability for both
the passenger and his luggage eventually could increase uniformity and international
acceptance.7 However, opinions raised by members of national maritime law asso-
ciations differed at that point. Some preferred to draft a new convention instead of
joining two existing conventions.8 Be that as it may, the first international conven-
tion governing carriage of passengers and their luggage that entered into force was
adopted on 13 December 1974. Its full name is the Convention relating to the
Carriage of Passengers and their Luggage by Sea. Since it was signed in Athens, it
is colloquially referred to as the Athens Convention. The Convention entered into
force in 1987. A number of Contracting States was 25, but later some of them
denounced the Convention and joined the Protocol of 2002.

1.2 Athens Convention 1974

According to the original Athens Convention 1974 the basis of carrier’s liability for
death and personal injury to passengers and for loss of or damage to luggage was
based on fault. The burden of proof lied with the claimant unless arose from or in
connection with the shipwreck, collision, stranding, explosion or fire, or defect in the
ship. In those case the fault was presumed. Pursuant to Articles 7–9 the limits of
liability were deemed to be units consisting of 65.5 milligrams of gold of millesimal
fineness 900 and constituted 700,000 francs for death and personal injury. Later on,
Poincaré francs were converted into SDRs (Special Drawing Right as defined by the
International Monetary Fund) by a separate Protocol adopted in 1979 which entered
into force in 1989. According to the new Protocol, the limits of liability for death and
personal injury was changed to 46,666 SDRs.
There are different opinions regarding role of the Athens Convention 1974 in
achieving uniformity in the area of sea passenger carriage. Some consider that the
Convention did not achieve worldwide acceptance, partially because the limits of
liability were too low.9 However, it must be recognised at the same time that the
Athens Convention was incorporated in the legislation of a number of countries
globally. Later on it was realised that the level of compensation is too low and needs
to be amended and updated. As a result, a Protocol to the Athens Convention was
adopted in 2002 which entered into force in 2014. The text of the Protocol was
consolidated with the main convention and will be further referred to as the Athens
Convention 2002. It must be observed that in a number of countries the original
Athens Convention 1974 still applies which might create conflict of conventions
when it is apparent that both regimes can apply to one claim.

7
O’Neill (1969), pp. 107–112.
8
Ibid., pp. 108–109.
9
Soyer and Leloudas (2018).
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 63

Despite all the difficulties surrounding the ratifications and accessions to the
Convention, it finally entered into force and gained more international acceptance
than its predecessor and attracted some 30 Contracting States, including the
European Union that joined the Convention along with its Member States. For
example, the UK is a Contracting State to the Athens Convention 2002 and
denounced the Athens Convention 1974. In contrast, the US10 has joined neither
of the sea passenger conventions. In this manner, the majority of passengers’
contracts contain US general maritime law (Federal law) as the applicable law.
Even if the US law might be favourable in some categories of claims (death of
passengers),11 it will not be that favourable in the area of psychological damage and
non-economic losses such as e.g. delays and cancellations.

1.3 Scope of Application and Salient Features of Athens

Convention 1974, as Amended by the Protocol of 2002

The general structure and salient features of the Athens Convention 2002 will be
discussed, coupled with the issue of limitation of liability pertinent to all transport
conventions. It must be noted that the Convention deals with civil liability of
carriers, limitation of liability and compensation to passengers for losses incurred
during the voyage, such as losses resulting from loss of life or personal injury or loss
of, or damage to, their property/luggage.12 In contrast to the Athens Convention
1974 which is a fault-based liability regime, the Protocol 2002 provides for strict and
fault-based liability, two tiers of limitation amounts and compulsory insurance. The
Convention makes an important distinction between a shipping and non-shipping
incident that would entail different levels of liability and compensation.
As every international convention, the Athens Convention 2002 has its limita-
tions and does not apply to any passenger carriage by sea. In particular, it does not
deal with liability arising out of a ruined holiday which is an area covered by relevant
domestic law or EU legislation on package travel. Also, according to Article 22 there
is a possibility for a State Party to exclude the application of the Convention in cases
where the carrier and the passenger are nationals of that State, and therefore there is
no foreign element.
The scope of application is found in Article 2 which states that the Convention
covers any international carriage if:
a) the ship is flying the flag of or is registered in a State Party to this Convention, or
b) the contract of carriage has been made in a State Party to this Convention, or

10
US Carnival Cruises is the biggest brand and owner of about 22 ships.
11
The law provides no compensation for the death of pensioners and children and based only on the
economic compensation which is completely in conflict with the Athens Convention.
12
Both instruments bear certain similarities but also distinctive features in terms of the liability
regime, insurance and compensation available to the passengers.
64 O. Bokareva

c) the place of departure or destination, according to the contract of carriage, is in a State

Party to this Convention.

At the same time, the Convention defines categories of passengers who fall under
the scope of the Convention. In particular Article 1(4) states:
“passenger” means any person carried in a ship,
(a) under a contract of carriage, or
(b) who, with the consent of the carrier, is accompanying a vehicle or live animals which are
covered by a contract for the carriage of goods not governed by this Convention.

It can be implied from this definition that the crew members are excluded from the
scope since their contacts pertain to the contacts of employment and not the contracts
of carriage. Another important definition provided in the Convention is a contract of
carriage. According to Article 1(2) it is “a contract made by or on behalf of a carrier
for the carriage by sea of passenger or of passenger and his luggage, as the case may
be”. This implies that it is not necessary that the passenger himself enters into a
contract of carriage. It is enough that he is covered by a contract of carriage that was
concluded on his behalf. Further in Article 1(8) the notion of “carriage” is defined as:
a period during which the passenger and/or his cabin luggage are on board the ship or in the
course of embarkation or disembarkation, and the period during which the passenger and his
cabin luggage are transported by water from land to the ship or vice-versa, if the cost of such
transport is included in the fare or if the vessel used for this purpose of auxiliary transport has
been put at the disposal of the passenger by the carrier.

It is added further that the period when the passenger is in a marine terminal or
station or on a quay or in or on any other port installation is not considered as
carriage. Also, it means that the shore excursions from cruise ships will fall beyond
the scope of the Convention. Finally, since the Athens Convention is an international
regime, the carriage must be international. As stated in Article 1(9) it means:
any carriage in which, according to the contract of carriage, the place of departure and the
place of destination are situated in two different States, or in a single State if, according to the
contract of carriage or the scheduled itinerary, there is an intermediate port of call in another
State.

Apparently this provision was inserted to extend its coverage to cruise contracts
which usually provide departure from one port and after a week or two of calling at
different ports and countries the ship returns to the same port.

2 Carrier’s Liability and Limitation of Liability

2.1 Athens Convention 2002

In the same manner as every other transport convention, the Athens Convention
contains a liability regime, its limits and exclusions. These are the most important
provisions since they point to the level of compensation for passengers’ losses.
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 65

However, it can be observed that the notion of “personal injury” envisaged in the
Athens Convention 2002 is somewhat broader than the “bodily injury” under the
Montreal Convention 1999 on air carriage13 which excludes any compensation for
non-material damage.14 This can be said as one of the major differences between the
two conventions with respect to injuries suffered. However, this can be interpreted in
various ways by the national courts in the states that ratify the Convention, and thus
might undermine a desired uniformity.
Another similarity with the Montreal Convention is the exclusivity of the cause of
action. Article 14 of the Athens Convention states explicitly that:
No action for damages for the death of or personal injury to a passenger, or for the loss of or
damage to luggage, shall be brought against a carrier or performing carrier otherwise than in
accordance with this Convention.

Compared to Article 29 of the Montreal Convention the pre-emptive effect is not

absolute; the claimant may bring a claim against the same carrier for a quality
complaint, or for loss of enjoyment, outside the ambit of the Athens Convention.15
Comparing the nature of both types of carriage, one may observe that carriage by air
is essentially transportation from one place to another for a short period of time
where the passengers are required to fasten their seatbelts and cannot move in the
aircraft during the takeoff and landing unless they do not follow the safety instruc-
tions. The sea passengers, on the other hand, are significantly free on board a ship,
and as a result, are more exposed to risks and injuries that not related to transpor-
tation and sometimes suffer injuries that are more related to hotel land-based risks.
It is a point of observation that the Convention is mandatory in its application
unlike various soft-law alternatives or contractual provision and will prevail over
any contractual terms which are clearly in conflict with the Convention’s provisions
in the same manner as the Hague-Visby Rules on carriage of goods. This is
specifically provided in Article 18 which addresses invalidity of contractual pro-
visions. It provides, inter alia, that the provisions which aim to relieve any person
liable under the Convention of liability or setting the lower limits of liability shall be
null and void. It can be submitted that this provision reiterates the goals underlying
the Convention to provide the minimum limits of liability of the carrier and to protect
a passenger as a weaker party to a contract.
The major article enshrining the carrier’s liability in Athens Convention 2002 is
Article 3 which provides:
1 For the loss suffered as a result of the death of or personal injury to a passenger caused by a
shipping incident, the carrier shall be liable to the extent that such loss in respect of that
passenger on each distinct occasion does not exceed 250,000 units of account, unless the
carrier proves that the incident:

13
Convention for the Unification of Certain Rules for International. Carriage by Air, 28 May 1999.
(ICAO Doc No 4698).
14
It was explicitly explained by the draftsmen and the leading cases from several jurisdictions.
15
Saggerson (2008), p. 562.
66 O. Bokareva

(a) resulted from an act of war, hostilities, civil war, insurrection or a natural phenomenon of
an exceptional, inevitable and irresistible character; or
(b) was wholly caused by an act or omission done with the intent to cause the incident by a
third party.

In cases when the loss is higher the above limit, the carrier is further liable unless
he proves that the incident which caused the loss occurred without the fault or
neglect of the carrier. If the loss is due to non-shipping incident, the carrier is liable if
the incident was due to the fault or neglect of the carrier. In that case, the claimant
bears the burden of proof. Another provision related to limitation of liability is
contained in Article 7 on limits of liability for death and personal injury. According
to Article 7(1) the liability of the carrier for the death of or personal injury to a
passenger under Article 3 shall in no case exceed 400,000 units of account per
passenger on each distinct occasion. However, under Article 13 the carrier might
lose its right to limit liability in case the damage resulted from an act or omission of
the carrier done with the intent to cause such damage, or recklessly and with
knowledge that such damage would probably result.
To clarify the terminology, “shipping incident” means shipwreck, capsizing,
collision or stranding of the ship, explosion or fire in the ship, or defect in the
ship.16 Another clarification provided in this article states that the liability of the
carrier under Article 3 concerns loss arising from incidents that occurred in the
course of the carriage. The burden of proof lies with the claimant. Non-shipping
incidents are not specified in Article 3, however, it can be gleaned from various case
law, that they may include food poisoning, falling from the stairs, accidents in the
swimming pool, falling overboard, and medical maltreatment. As noted before,
accidents occurred during the shore excursions are usually explicitly excluded
from carrier’s liability in the cruise contracts. An example is death or injuries during
shore excursions for which the carriers would like to exclude their liability.17 There
is no clear answer whether the courts would grant compensation for such injuries and
how far the judges will apply maritime law on land.
Another important provision inserted in the Convention is Article 23 regarding
amendments of limits. As usually known, in maritime law and other areas of
international law, it is extremely difficult to amend the existing conventions. The
procedure is lengthy and normally it requires to convene another diplomatic confer-
ence and open the discussion as to any amendments. This feature makes the
international conventions as inflexible instruments. By the time necessary amend-
ments are introduced, usually in the form of a protocol, there is a big time lapse, and
sometimes these amendments become outdated even before they entered into force.
To cope with this problem, the drafters of the Athens Convention developed a
special procedure in Article 23 of the Protocol 2002 exclusively regarding the limits

16
Article 3(5)(a).
17
See e.g. the clause in Carnival Terms and Conditions, “Carnival is not responsible for any losses,
damage, death, injuries, or claims . . . while off Carnival’s ships or tenders in any port of call. . .
Guests engage in all such activities off the ship at their own risk”.
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 67

set in Article 3(1), 4bis(1), 7(1) and 8. As previously mentioned these articles deal
with liability of the carrier for loss suffered as a result of death of or personal injury
to a passenger caused by a shipping incident, the limits set for compulsory insurance,
additional limit of liability of the carrier on each distinct occasion and limits of
liability for loss of or damage to luggage and vehicles.
According to Article 17 of the Athens Convention 2002, the claimant is given an
option to bring a claim before one of the courts, provided that the court is located in a
State Party to this Convention, and subject to the domestic law of each State Party
governing proper venue within those States with multiple possible forums:
(a) the Court of the State of permanent residence or principal place of business of the
defendant, or
(b) the Court of the State of departure or that of the destination according to the contract of
carriage, or
(c) the Court of the State of the domicile or permanent residence of the claimant, if the
defendant has a place of business and is subject to jurisdiction in that State, or
(d) the Court of the State where the contract of carriage was made, if the defendant has a
place of business and is subject to jurisdiction in that State.

The Convention also sets limits as to the time of bringing the suit, also known as
time-bar. The general rules contained in Article 16 is that actions for damages due to
death or personal injury or for loss or damage to luggage is time-barred after 2 years.
However, Article 16(3) provides a maximum 3 or 5 year limit in certain cases but not
more than that.
Examining the limits of liability the different tiers of liability, it can be submitted
that compared to other transport conventions dealing with passenger carriage, the
Athens Convention 2002 establishes rather high compensation and these amounts
are also secured with the compulsory insurance provisions under Article 4bis. These
rules are very detailed and provide additional protection to a passenger or his
descendants in case of death or personal injury. It is not intended to discuss these
provisions in great details, but it is enough to mention salient features of this article.
It is also vital to remind that the provisions on compulsory insurance were a
stumbling block for joining the convention and also raised many concerns among
the insurance sector, especially P&I clubs offering third-party liability insurance. In
order to attract more ratification, the IMO came up with a solution and drafted a
provision on reservation and the IMO Guidelines which address, inter alia, the
issues related to war and non-war insurance.
As in every other sector of shipping and maritime activity, insurance plays a
significant role also in passenger carriage. Some of the recent disasters with ferries
and cruise ships point to the necessity of additional financial protection available to
the passengers. Thus, in line with this need, special provisions were inserted in the
Protocol 2002. In brief they provide the limits of the compulsory insurance or other
financial security which is not less than 250,000 units of account per passenger on
each distinct occasion. Also, the carriers shall obtain insurance or financial security
to cover its liability under the Convention regarding death and personal injury to
68 O. Bokareva

passengers. Therefore, a relevant certificate should be issued to each ship according

to the procedure set in Article 4 bis.18

2.2 Global Limitation of Liability Under the International

Convention on Limitation of Liability for Maritime
Claims, 1976, as Amended by the Protocol of 1996

Another convention relevant to passenger claims is the Convention on Limitation of

Liability for Maritime Claims, 1976, amended by a 1996 Protocol, generally known
as LLMC 1996. It is considered that the notion of limitation of shipowners’ liability
as one of the features of maritime law and has its roots in Roman law.19 It is noted
that the term “limitation of liability” is not very accurate since its true meaning is the
“limitation of damages or compensation” which is a quantitative concept.20 How-
ever, the term “limitation of liability” is widely used in statutory and conventional
law. It implies that the shipowner is granted a privilege to limit its liability and
carries the burden of proof to show that he is entitled to it. It is also noted that
limitation is a matter of public policy, rather than law.21 Provisions of limitation of
liability are embodied in the major maritime conventions, including those governing
carriage of goods and passengers.
Article 19 of the Athens Convention refers to other conventions dealing with the
limitations of liability of owners of seagoing ships. It is evident that the relevant
convention would be the Convention on Limitation of Liability for Maritime Claims,
1976, amended by a 1996 Protocol, generally known as LLMC 1996. Among
various other issues, it provides the limits of liability also for passenger claims. As
stated in Article 7 of the LLMC Convention:
1. In respect of claims arising on any distinct occasion for loss of life or personal injury to
passengers of a ship, the limit of liability of the shipowner thereof shall be an amount of
175,000 Units of Account multiplied by the number of passengers which the ship is
authorized to carry according to the ship’s certificate.

Under the Protocol which was adopted in 1996 and entered into force on 13 May
2004 the amount of compensation payable in the event of an incident was increased.
It also introduced a “tacit acceptance” procedure for updating these amounts in the
future. Thus, the limit of liability for claims for loss of life or personal injury on ships
not exceeding 2000 gross tonnage is 2 million SDR. For larger ships, additional
amounts are used for calculation of the limitation amount. It is notable that the 1996

18
Similar legislation was adopted in the European Union reflected in Directive 2009/20/EC of
23 April 2009 on the insurance of shipowners for maritime claims.
19
Huybrechts (2010), p. 120. See Donovan (1978–1979), pp. 1000–1001.
20
Mukherjee (2009), pp. 40–42.
21
Ibid.
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 69

Protocol was also amended after some time and these amendments were adopted in
2012 and are in force since 8 June 2015. The limits were further raised so that the
limit of liability for claims for loss of life or personal injury on ships not exceeding
2000 gross tonnage is 3.02 million SDR. For larger ships, the additional amounts
were calculated; all of them were increase from the previous amount.

3 Harmonisation of Carriage of Passengers by Sea

in the Context of the EU
3.1 Implementation of the Athens Convention Within the EU

Discussion on the international regime pertaining to carriage of passengers should be

complemented by examination of the EU regional harmonisation of passenger law
and its contribution towards on-going efforts at unification of maritime and transport
law.22
It must be duly noted that the EU has actively participated in the development and
regional implementation of the Athens Convention 2002. This Convention has the
status of a “mixed agreement” in the EU law since the EU joined it along with its
Member States.23
In accordance with case-law, mixed agreements concluded by the Community, its Member
States and non-member countries have the same status in the Community legal order as
purely Community agreements in so far as the provisions fall within the scope of Commu-
nity competence.24

Thus, it follows that such agreements form part of EU law and fall within the
Court’s jurisdiction. However, these agreements also represent an act of interna-
tional law, which means that for third countries a convention still remains an act of
international law and must be interpreted pursuant to the Vienna Convention on the
Law of Treaties, 1969.
The competence to participate in transport agreements, especially in the area of
sea and air transport is granted explicitly in Article 100(2) of the Treaty on the
Functioning of the European Union (TFEU). At present, there is no case law

22
See for example, Dickerson (2003–2004), Kröger (2001), Haddon-Cave (2001) and Rosaeg
(2007–2008).
23
The Athens Protocol of 2002 allows participation of a Regional Economic Organisation. Some
elements of the Convention, i.e. relating to the jurisdiction, recognition and enforcement of
judgments, belong to the exclusive competence of the EU; thus the EU needed to become a Party
to the Convention.
24
See in particular Case C-239/03—Commission v France, para 25.Other examples of the mixed
agreements are UN Convention on the Law of the Sea, 1982 (UNCLOS), UN Framework
Convention on Climate Change 1992 and the Kyoto Protocol 1997, Protocol of 2002 to the Athens
Convention relating to the Carriage of Passengers and their Luggage by Sea, 1974, Convention for
the Unification of Certain Rules for International Carriage by Air, 1999.
70 O. Bokareva

regarding the interplay between the Athens Convention and EU legislation. How-
ever, it might be presumed that eventually the Court will have an opportunity to
consider those instruments and interpret the Convention. It will be of special interest
to follow those developments bearing in mind the EU’s favourable disposition
towards passengers. A significant number of recent preliminary rulings handed
down in the field of air transportation raised harsh international criticisms and so
far provides the only real illustration so far of how an international transport
convention is applied and interpreted in the EU legal framework.25 Thus, the cases
decided by Court of Justice of the European Union (CJEU) reveal a number of
unresolved issues with regard to the co-existence and co-operation of legal frame-
works at different levels.
It needs to be recalled that the Athens Convention 2002 was ratified by the EU in
December 2011. As a result, Regulation (EC) No 392/2009 of the European Parlia-
ment and of the Council of 23 April 2009 On the Liability of Carriers of Passengers
by Sea in the Event of Accidents was adopted to implement the Athens Convention
2002 within the Union. This Regulation governs the liability regime based on the
Athens Convention 2002 and the IMO Reservation and Guidelines for the Imple-
mentation of the Athens Convention (IMO Guidelines).26 At a closer look, it is clear
that the scope of application of the Regulation is broader than the Athens Convention
and includes a number of other issues. For example, in contrast to the Athens
Convention, the Regulation provides compensation for mobility equipment of the
disabled passengers. It also has a provision that provides immediate compensation in
the event of death in the amount of EUR 21,000 and contain obligation to inform the
passengers about their rights.
The Regulation applies to both international and national transport within the
EU. It also includes the IMO Guidelines adopted on 19 October 2006 by IMO, which
address some issues under the Convention and compensation for terrorism-related
damage. The Regulation incorporates and makes binding parts of the IMO Guide-
lines. There is also a possibility to amend a Regulation to incorporate any future
amendments that will be made to the international conventions and other
instruments.
According to Article 2, the Regulation applies to any international carriage, to
certain carriages within a single Member States, and that the Member States may
apply it to all sea-going domestic carriages. Article 3 explicitly lays down the rules
for liability and insurance and refers to relevant provisions of the Athens Convention
and the IMO Guidelines. Article 5 states that the carrier can enjoy his rights under the

25
See for example, Case C-12/11 Denise McDonagh v. Ryanair Ltd., [2013] ECLI:EU:C:2013:43,
Case C-139/11 Joan Cuadrench Moré v. KLM NV., [2012] ECLI:EU:C:2012:741, Case C-63/09
Axel Walz v. Clickair SA., [2010], ECLI:EU:C:2010:251, Cases C-402/07 and C-432/07 Sturgeon
and Others v. Condor Flugdienst GmbH and Stefan Böck and Cornelia Lepuschitz v. Air France
SA., [2009] ECLI:EU:C:2009:716, Case C-344/04 The Queen on the application of: International
Air Transport Association and European Low Fares Airline Association v Department for Trans-
port, [2006] ECLI:EU:C:2006:10.
26
IMO Ref. A1/P/5.01, Circular letter No. 2758, 20 November 2006.
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 71

International Convention on Limitation of Liability for Maritime Claims, 1976, as

amended by the Protocol of 1996 (LLMC Convention). The Regulation also intro-
duces the provision on advance payment that is not provided in the Athens Conven-
tion 2002. Article 6(1) of the Regulation states that an advance payment should
cover immediate economic needs proportionate to the damage suffered within
15 days of the identification of the person entitled to damages. In case of death,
such payment shall not be less than EUR 21,000. Notably, such an advanced
payment is not a recognition of liability by the carrier and may be offset against
any subsequent sums paid based on this Regulation.
The positive outcome of EU implementation was the application of the Athens
Convention even before it officially entered into force. It became the part of the
European legal order and the CJEU will have jurisdiction to interpret it. However,
certain difficulties remain that might create problems in the future. As opined by a
notable author, one of the difficulties with respect to implementation is that some
Member States may not denounce the Athens Convention the 1974. However, under
the principle of supremacy of EU Law, they will be bound comply with EU law and
thus apply the Athens Convention 2002.27 In such scenario, those Member States
will be facing dubious obligations under international law and the EU law. It remains
to be seen how these conflicts will be overcome in the future.

3.2 EU Legislation on Passenger’s Rights

In addition to Regulation (EC) No 392/2009 dealing with liability issues, there are
other pieces of legislation concerning passengers’ rights within the EU which will be
briefly outlined. Apart from carriage by sea, several other regulations in the area of
passenger carriage were adopted recently. These regulations deal with carriage of
passengers by air, sea and inland waterway, rail and bus and coach transport. Some
of them were adopted by means of incorporation of international conventions, which
bind the EU and its Member States, and now bind even those EU Member States that
are not parties to those conventions. This corresponds with the EU’s objective to
create a so-called passenger code in order to provide a high level of protection and
assistance to passengers at the Union level.
Another relevant regulation related the sea passengers is Regulation (EC) No
1177/2010 Concerning the Rights of Passengers when Travelling by Sea and Inland
Waterway. Unlike Regulation (EC) No 392/2009 it mainly deals with delays and
cancellations. As stated in the Preamble a high level of protection for passengers
should be provided since the passenger is the weaker party to the contract and should
be granted a minimum level of protection. It is also mentioned there that the
Regulation covers passenger services not only between the ports located in the
Member States but also outside the Union. Regulation stresses the importance to

27
Soyer (2016).
72 O. Bokareva

reduce the inconvenience experienced by passengers due to the cancellation or long

delay. The scope of application is laid down in Article 2 and covers passenger
services where the port of embarkation is located outside of the Member States if it is
operated by the Union carrier.28 This Regulation also gives a definition of a cruise,
which means “a transport service by sea or inland waterway, operated exclusively
for the purpose of pleasure or recreation, supplemented by accommodation and other
facilities, exceeding two overnight stays on board”.
Another recent EU legislation pertinent to carriage of passengers by sea is
Directive (EU) 2015/2302 on package travel and linked travel arrangements. Even
though it does not strictly apply to carriage by sea but can nevertheless apply if the
cruise is a part of the package. Thus, this new regime might be in conflict with the
Athens Convention 2002 and the Athens Regulation.
The Directive on EU on Package Travel, Package Holidays and Package Tours
90/314/EEC was the first attempt to regulate the tourist contracts at the EU level. The
Directive has been criticised for not regulating some areas.29 However, a number of
cases decided by national courts by the Court of Justice demonstrated a number of
problems with regard to interpretation of the Directive. These cases concern different
aspects of the Directive, such as terminology, the composition of a package,30 the
issues of liability and limitation of liability, whether the non-material compensation
is provided or not.31 After a number of problems were identified with the application
of the existing Directive, an agreement was reached among all stockholders to revise
the definition of package and the scope of application of the Directive to make it
more up-to-date.32
As a result, Directive (EU) 2015/2302 was adopted to replace the previous
Package Travel Directive. The Member States had 2 years to implement it in the
national legislation and is applicable from 1 July 2018. It is stressed in the Directive
that the Member States should abstain from introducing into their national law
provisions diverging from those set in the Directive in order to achieve the necessary
level of harmonisation. It extends protection of the 1990 EU Package Travel
Directive to those who book other forms of combined travel, e.g. a self-chosen
combination on a web- of a flight plus hotel or car rental. The main reason is the fact

28
‘Union carrier’ means a carrier established within the territory of a Member State or offering
transport by passenger services operated to or from the territory of a Member State.
29
EU Commission, Report on the Implementation of Directive 90/314/EEC on Package Travel and
Holiday Tours in the Domestic Legislation of EC Member States, SEC(1999) 1800 final
19 November 1999, see also Schulte-Nölke (2008).
30
Case C-400/00, Club Tour, Viagens e Turismo SA v Alberto Carlos Lobo Gonçalves Garrido and
Club Med Viagens Lda, 30 April 2002.
31
Milner v Carnival Plc [2010] 3 All ER 701, Case C-168/00, Simone Leitner v. TUI Deutschland
Gmbh & Co. KG, 12 March 2002; See also Saggerson (2008) and Grant and Mason (2012).
32
Summary of response to the consultation launched to gather stakeholders’ opinions on the
existing problems and preferred solutions in order to identify preferred policy options as part of
the Commission’s review of the Package Travel Directive, March 2010.
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 73

that because of the increasing use of the internet, many travel services became “grey
zones” and fall outside the scope of the previous Directive. Therefore, there was a
strong necessity to adopt a new Directive that would fill in the gaps and provide a
better legal regime and high protection of the consumers of this market.
One of the novelties of the Directive is the distinction of packages from linked
travel arrangements. It applies to three types of packages, such as pre-arranged
packages, customized packages and linked travel arrangements. It applies to pack-
ages offered for sale or sold by trader to travelers and to linked travel arrangement
facilitated by traders for travelers. However, there are certain limitation as stated in
Article 1(2). In cases the packages and linked travel arrangements last for less than
24 h unless overnight accommodation if included, the Directive does not apply. It
also does not apply when it is offered occasionally and on a not-for-profit basis to a
limited group of travelers and those that are purchased based on a general agreement
for the arrangement of business travel.
According to the Directive, the travel service includes carriage, accommodation,
rental cars and any other service. Moreover, the package should include at least two
different types of travel services. Due to this, it can be presumed that there is a
potential of overlapping with existing international conventions and even EU Reg-
ulations on passengers’ rights. In the view of this author, the most contentious
provision is stated in Article 14 that deals with compensation for damages. It is
provided that the traveler is entitled to compensation from the organizer for any
damage sustained by the traveler for any lack of conformity. It can be admitted that
the phrase “any damage” can be interpreted in different ways by national courts, and
might even include compensation for non-material damage, which can in turn
conflict with e.g. Montreal Convention, which does not provided compensation for
non-material damage. However, the organizer might be relieved to pay the compen-
sation if the lack of conformity is attributable to the travel or a third party
unconnected with the provision of the travel service or due to unavoidable and
extraordinary circumstances.
In order to cope with a potential conflict between the Directive and existing
international conventions or EU Regulations a provision was inserted that the
Directive will not affect the rights of traveler provided under these instruments.
Since the traveler has a choice to present a claim under any of the suitable instru-
ment, it is stated that any overcompensation should be avoided. It is submitted that
even though this provision might facilitate possible conflict of norms, it will not
solve it completely. It will be only evident once the Court of Justice interprets its
provisions in its judgments.
The Directive has already boosted a number of comments and criticisms from
various stakeholders and legal scholars.33 The implications of the new Directive
provoke further discussion and at the moment it is difficult to say whether there will
be any conflicts with the existing international regime on passengers or respective

33
The European Travel Agents’ and Tour Operators’ Associations, The Revision of the package
travel Directive: ECTAA’s Position Paper.
74 O. Bokareva

EU legislation. By now, there is hope that the new regime will be complementary
and fill in the gaps especially for European travelers and will not distort the existing
international uniformity in carriage of passengers by sea.

4 Conclusion

This chapter has demonstrated that the existing regime on carriage of passengers by
sea is complex and multifaceted. It includes international conventions, EU law and
national law of individual States. Thus, it presents difficulties for sea passengers who
will be faced with a myriad of regimes and will have to make an important choice to
present their claim in the right forum.
Answering the questions of whether the harmonisation attempts in IMO were
necessary and successful and whether the Athens Convention achieved its goal to
unify law related to passengers, it can tentatively be submitted that most likely the
question of uniformity is complex and includes many components of whether a
particular instrument promotes international uniformity or not. It is always more
difficult to achieve uniformity regarding the private law conventions which will be
finally applied and interpreted by domestic courts. A well-known fact that imple-
mentation and interpretation represent the most important elements of a successful
uniform application in all Contracting States and sometimes may be even considered
as obstacles to uniformity.34 However, a number of scholars recognised without
doubts that maritime law due to the unique character of maritime commerce always
demonstrated a striking degree of uniformity.
To conclude this chapter, it can be submitted that the Athens Convention repre-
sents a serious and well-thought initiative and has already shown worldwide support
in various states including the EU. There is hope that this Convention with all its
important provisions and features will govern the area of passenger carriage in the
years to come.

References

Books and Articles

Berlingieri F (2014) International maritime conventions volume I: the carriage of goods and
passengers by sea, 1st edn. Informa Law, London
Dickerson TA (2003–2004) The cruise passenger’s dilemma: twenty-first-century ships,
nineteenth-century rights. Tulane Marit Law J 28:447

34
Griggs (2003).
A Critical Analysis of Carriage of Passengers by Sea: Uniformity. . . 75

Donovan JJ (1978–1979) The origins and development of limitation of shipowners’ liability.

Tulane Law Rev 53
Grant D, Mason S (2012) Holiday law: the law relating to travel and tourism, 5th edn. Sweet &
Maxwell, London
Griggs PJS (2003) Obstacles to uniformity of maritime law, the Nickolas J. Healy Lecture. J Marit
Law Commer 34(2)
Haddon-Cave C (2001) Limitation against passenger claims: Medieval, unbreakable and uncon-
scionable. CMI Yearbook
Huybrechts M (2010) Package limitation as an essential feature of the modern maritime transport
treaties: a critical analysis. In: Thomas DR (ed) Carriage of goods by sea under the Rotterdam
rules. Lloyd’s List, London
Kröger B (2001) Passengers carried by sea – should they be granted the same rights as airline
passengers? CMI Yearbook
Mukherjee PK (2009) Essentials of the regimes of limitation of liability in maritime law. In: The
Admiral. Ghana Shipper’s Council, vol IV
O’Neill JW (1969) The C.M.I. Draft Convention relating to carriage by sea of passengers and their
luggage. J Marit Law Commer 1:107
Rosaeg E (2007–2008) The Athens Convention on passenger liability and the EU. In: Hamburg
studies on maritime affairs, vol 16
Saggerson A (2008) Package holiday law: cases and materials. XPL Publishing, UK
Schulte-Nölke H (ed) (2008) EC consumer law compendium – comparative analysis
Soyer B (2016) Emergence of EU maritime law. In: Patterson D, Södersten A (eds) A companion to
European Union law and international law, 1st edn. John Wiley & Sons, Inc
Soyer B, Leloudas G (2018) Carriage of passengers by sea: a critical analysis of the international
regime. Mich State Int Law Rev 26:483

Legislation

Council Decision of 12 December 2011 concerning the accession of the European Union to the
Protocol of 2002 to the Athens Convention relating to the Carriage of Passengers and their
Luggage by Sea, 1974, as regards Articles 10 and 11 thereof (2012/23/EU)
Council Decision of 12 December 2011 concerning the accession of the European Union to the
Protocol of 2002 to the Athens Convention relating to the Carriage of Passengers and their
Luggage by Sea, 1974, with the exception of Articles 10 and 11 thereof (2012/22/EU)
Council Directive 90/314/EEC of 13 June 1990 on EU on Package Travel, Package Holidays and
Package Tours
Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 November 2015 on
package travel and linked travel arrangements, amending Regulation (EC) No 2006/2004 and
Directive 2011/83/EU of the European Parliament and of the Council and repealing Council
Directive 90/314/EEC. Regulation (EC) No 392/2009 of the European Parliament and of the
Council of 23 April 2009 on the liability of carriers of passengers by sea in the event of accidents
Regulation (EU) No 1177/2010 of the European Parliament and of the Council of 24 November
2010 concerning the rights of passengers when travelling by sea and inland waterway and
amending Regulation (EC) No 2006/2004
76 O. Bokareva

Cases

Case C-400/00, Club Tour, Viagens e Turismo SA v Alberto Carlos Lobo Gonçalves Garrido and
Club Med Viagens Lda, [2002] ECLI:EU:C:2002:272
Case C-168/00 Simone Leitner v. TUI Deutschland Gmbh & Co. KG, [2002] ECLI:EU:C:2002:163
Case C-12/11 Denise McDonagh v. Ryanair Ltd., [2013] ECLI:EU:C:2013:43
Case C-139/11 Joan Cuadrench Moré v. KLM NV., [2012] ECLI:EU:C:2012:741
Case C-63/09 Axel Walz v. Clickair SA., [2010], ECLI:EU:C:2010:251
Cases C-402/07 and C-432/07 Sturgeon and Others v. Condor Flugdienst GmbH and Stefan Böck
and Cornelia Lepuschitz v. Air France SA., [2009] ECLI:EU:C:2009:716
Case C-344/04 The Queen on the application of International Air Transport Association and
European Low Fares Airline Association v Department for Transport, [2006] ECLI:EU:
C:2006:10
Milner v Carnival Plc [2010] 3 All ER 701

Other Documents

EU Commission, Report on the Implementation of Directive 90/314/EEC on Package Travel and

Holiday Tours in the Domestic Legislation of EC Member States, SEC(1999) 1800 final
19 November 1999
Summary of response to the consultation launched to gather stakeholders’ opinions on the existing
problems and preferred solutions in order to identify preferred policy options as part of the
Commission’s review of the Package Travel Directive, March 2010
The European Travel Agents’ and Tour Operators’ Associations, The Revision of the package travel
Directive: ECTAA’s Position Paper
Occupational Hazards in the Light
of the Maritime Migration Challenge

Laura Carballo Piñeiro

Abstract Maritime migration is not only testing the resilience of the international
human rights framework, but also that of the law of the sea. Whoever encounters
people in distress is under the obligation to rescue and bring them to a place of
safety. However, the political environment is moving States to refuse disembarka-
tion and thus putting a huge pressure upon merchant shipping and fishing as they
cannot immediately continue their business after rescue. This pressure has been
augmented by the fact that the line between rescue operation and maritime intercep-
tion is becoming blurred and crewmembers criminalise as migration facilitators. The
paper discusses the maritime migration challenge from the maritime professionals’
angle and the occupational hazards endured as a result of a rescue operation. While
they are collateral victims of a geopolitical matter, the legislation in place already
provides a safety net for them, but one that is not much efficient and effective on a
closer look.

1 Introduction

The significance of the maritime migration challenge can be measured in many ways
starting with the most obvious one, i.e. by counting both the number of people
arriving at destination countries and the death figure of those who have not made
it. The figure of irregular migrants and refugees arriving to Europe reached a peak in
2015 when Frontex reported about 1.55 million (Frontex 2016). That figure has
sharply decreased in 2017 pointing to a total number of 204,700 people (Frontex
2018) and 150,000 in 2018 (Frontex 2019). As to deaths, and despite of organiza-
tions such as UNITED Against Racism, The Migrant’s Files, and the Deaths at the
Borders Database committed to report them, figures are uncertain. The International
Organization for Migration (IOM) estimated that 14,469 people have lost their lives

L. Carballo Piñeiro (*)

Nippon Foundation Chair of Maritime Labour Law and Policiy, World Maritime University,
Malmö, Sweden
e-mail: LC@wmu.se

© Springer Nature Switzerland AG 2020 77

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_5
78 L. Carballo Piñeiro

at sea from January 2014 until the end of June 2017 only in the Mediterranean Sea,
being unknown the number of those who have died but whose bodies have never
been recovered (IOM 2017). These tentative figures are a good indicator that
maritime migration is not going to stop, and people will keep embarking on
unseaworthy ships either to escape from conflicts or just in search of a better life.
Remarkably, the Office of the United Nations High Commissioner for Human Rights
issued in 2009 a report on climate change and human rights according to which
150 million people are expected to be displaced from their countries due to extreme
weather (UNHCHR 2009).
Trade, fishing and other activities carried out at sea are also affected by maritime
migration. The burden of rescuing people in distress is simply allocated to any ship
that encounters a vessel in distress in accordance with the ancient law of the sea.
However, the background against which this rule is applied has changed as a result
of the abovementioned figures, making it worth exploring in which manner it is
impeding the normal operation of a ship. More specifically, this paper seeks to raise
awareness as to the impact of migration on maritime labour by elaborating upon the
occupational hazards that these professionals have to endure as a result of a search
and rescue operation.
The (in)famous MV Tampa case illustrates some of these hazards. In 2001, the
Norwegian freighter rescued 421 Afghan refugees on the search and rescue opera-
tion zone of Indonesia at the request of Australian authorities. The master headed
towards Indonesian waters following the instructions of the latter, but several asylum
seekers threatened to commit suicide for which reason the vessel changed route and
tried to reach Christmas Island. Australia strongly opposed to migrants’ disembar-
kation leaving an unprepared ship to deal with very distressed people for several
days (Willheim 2003). In addition to occupational safety and health (OSH) issues on
board, the whole operation triggered significant delays in the maritime venture that
led to amendments in international treaties dealing with rescue at sea, as examined in
the second section of this chapter.
The MV Tampa case is also remarkable because it unveils a clash between State
migratory policies and the international human rights framework. This clash has
already been subject to the scrutiny of international courts which have reminded
States that they are obliged to honour the latter also at high seas. In 1993, the Inter-
American Commission on Human Rights upheld the complaint filed against the
United States following the maritime interception of boat people and their return to
Haiti within a bilateral treaty signed by both countries to control illegal migration.
According to the Commission, the United States violated Article XXVII of the
American Declaration on Human Rights given that maritime interception did not
discriminate and thus Haitians had been returned without a proper examination of
their condition and an interview to determine whether they were entitled to the status
of refugee or not.1 In a similar case involving about 200 Afghan refugees that were

1
Inter-American Commission on Human Rights, Case 10.675, Report 51/96, Decision on merits,
13 March 1997.
Occupational Hazards in the Light of the Maritime Migration Challenge 79

rescued by the Italian Coast Guard and sent back to Libya, the European Court of
Human Rights (ECtHR) condemned Italy for infringing the European Convention
on Human Rights (ECHR), in particular the prohibition of torture and inhuman and
degrading treatment, the prohibition of collective expulsion of aliens, and the right to
be afforded an effective remedy under national law.2
Despite the mandate coming from human rights instruments, States have pre-
ferred to adjust their migratory policies. While Australia has been outsourcing boat
people’s protection to surrounding island States under the Pacific Strategy—Nauru
and Papua New Guinea—, the European Union is following a similar pattern with
regard to Algeria, Libya, Morocco and Turkey. Accordingly, migrants intercepted in
their territorial sea, or even at high seas, are sent back to so-called satellite countries,
now considered a place of safety, without taking into account whether they are
asylum-seekers or refugees. It can be safely said that national migratory policies
have taken over and led to the blurring of the distinction between search and rescue
operations and maritime interceptions. The latter casts serious doubt in terms of
human rights protection and put maritime professionals in a very difficult situation,
as discussed in the third section of this paper.
The militarization of the border is also affecting maritime labour. In addition to
physical and mental suffering, the MV Tampa’s crew had to face the economic
consequences of the delay in the maritime venture for not following Australian
instructions. However, they were not criminalised as human smugglers or traffickers
as is nowadays happening. A remarkable example is that of the fishermen from the
Tunisian city of Zarzis. While many of them have been driven out of business
because of their rescue operations, the latest blow has come when some of them,
including the president of their fishermen’s association, Mr. Chamseddine
Bourassine, has been arrested by Italian authorities to face charges of illegal migra-
tion facilitation (Tondo 2018a). The fourth section will explore this issue.
The picture so far painted is one that makes maritime professionals face serious
conflicts of interests, namely, whether to prioritize business or to rescue people in
distress and, if the latter are rescued, whether to confront State authorities in order to
deliver them to a place of safety increasing, on the one hand, the work delay while on
the other facing the risk of being criminalised. The fifth section of this paper focuses
on OSH matters arising out of rescue operations and the shortcomings of the
international framework in facing them. The paper closes with some final remarks
as to geopolitical and regulatory actions that could help to ameliorate the situation,
including the prevention and reduction of risks at work that seriously threaten the
maritime professionals’ well-being.

2
2002 ECtHR judgment Hirsi Jamaa and Others v. Italy, No. 27765/09.
80 L. Carballo Piñeiro

2 Rescue Versus Interception

Assistance to anyone in distress at sea is a rule of the sea that goes back further in
time. Humanitarian at its core, all ships are obliged by it and all people in distress
benefit from it, as enshrined in the United Nations Convention on the Law of the Sea
(UNCLOS), the International Convention for the Safety of Life at Sea (SOLAS), the
International Convention of Maritime Search and Rescue (SAR) and the Interna-
tional Convention on Salvage (the Salvage Convention).
More specifically, the ship’s master is obliged to render assistance to anyone in
danger of being lost with all possible and reasonably expected speed as long as the
rescue operation does not involve serious danger to the ship, the crew or the
passengers.3 For its part, coastal States are obliged to promote the establishment,
operation and maintenance of search and rescue services,4 helping those at sea
regardless of nationality.5 The search-and-rescue operation may involve a
non-rescue vessel, public or private, to respond to the distress call if a rescue unit
is not available in the area, and authorities might go as far as requisition of a private
vessel in the vicinity.6 Coastal States are also under the obligation of providing for
the disembarkation of rescued people at a place of safety, whenever a commercial
ship has provided assistance.7 Generally speaking, this rule seeks to benefit rescued
people as much as the commercial ship engaged in the rescue operation to the extent
that it may then proceed with minimum further deviation and thus economic losses.
Tradition has established that disembarkation is meant to happen at the next port
of call and this State will be in charge of returning the rescued person to his or her
country of origin taking advantage of diplomatic or consular channels. However, the
increase in migratory flows has seriously affected this traditional approach and more
and more coastal States refuse disembarkation to avoid irregular migration and the
costs of resettling boat people. The MV Tampa case is an excellent example of this
policy, that has been followed in other cases, also in the fishing sector. In 2006, the
crew of the Spanish-flagged fishing vessel Francisco y Catalina spotted on interna-
tional waters a small fishing boat in distress whose 51 passengers had run out of gas
and food two days ago.8 The vessel had communication problems and was unable to
reach the closest State authorities, those of Malta, thereby the crew rescued the
migrants, including one woman and her child. While heading towards La Valetta, the
ship was halted by the Maltese Coast Guard and made to wait at high seas as
diplomatic negotiations unravelled to decide migrants’ final destination. A similar

3
See Article 98(1) of UNCLOS; Chapter V, Regulations 10a and 33(1) of SOLAS; Article 10(1) of
the Salvage Convention.
4
UNCLOS and Chapter V, Regulation 7(1) of SOLAS; Articles 10(1) of the Salvage Convention.
5
See Chapter 2.4.1 of SAR.
6
Chapter V, Regulation 33 of SOLAS.
7
Chapter 1.3.2 and 2.1.2 of SAR.
8
This case was brought to the cinema by the documentary film ‘Malta Radio’ directed by Manuel
Menchón and released in 2009.
Occupational Hazards in the Light of the Maritime Migration Challenge 81

story has just occurred in late November 2018 involving 11 migrants rescued by
another fishing vessel from Santa Pola in Spain (Martín 2018).
The humanitarian and economic consequences behind all these cases have
prompted the intervention of IMO in an attempt to narrow down coastal States’
obligations and clarify the ambiguous issue of disembarkation. After lengthy dis-
cussion, SOLAS9 and SAR10 were amended in May 2004 in an almost identical
manner that reads as follows:
[Parties] shall co-ordinate and co-operate to ensure that masters of ships providing assistance
by embarking persons in distress at sea are released from their obligations with minimum
further deviation from the ships’ intended voyage, provided that releasing the master of the
ship from [these obligations] does not further endanger the safety of life at sea. [The party]
responsible for the search and rescue region in which such assistance is rendered shall
exercise primary responsibility for ensuring such coordination and co-operation occurs, so
that survivors assisted are disembarked from the assisting ship and delivered to a place of
safety, taking into account the particular circumstances of the case and guidelines developed
by the Organization. In these cases, the relevant [parties] shall arrange for such disembar-
kation to be effected as soon as reasonably practicable.11

And yet, a clear statement on where rescued people should be disembarked is

missing. As can be read, the determination of this place is now entrusted to the
country responsible for the relevant search and rescue region. To this end, the Rescue
Co-ordination Centre (RCC) shall identify “the most appropriate place(s) for
disembarking persons found in distress at sea”.12
Disembarkation would have to occur at a “place of safety” to the extent that
asylum-seekers and refugees might be within the rescued party. The IMO Guidelines
on the Treatment of Persons Rescued at Sea (IMO 2004) have provided some
guidance to this end, indicating that a place of safety is ‘a location where rescue
operations are considered to terminate’ because rescued persons’ safety and basic
human needs are covered. That may be a “place from which transportation arrange-
ments can be made for the survivors’ next or final destination”. The latter is not
necessarily ashore, but it “may be aboard a rescue unit or other suitable vessel or
facility at sea that can serve as a place of safety until the survivors are disembarked to
their next destination”. Hence, place of safety and place of disembarkation do not
have to coincide. And more importantly, the fact that a place of safety can be another
ship robs this concept of its essential meaning (Miltner 2006).
RCCs have thus an essential role in determining where to discharge ships
rendering assistance to people in distress from their obligations towards them
without further delay. RCCs are, nevertheless, State bodies, thereby the amendments
to SOLAS and SAR open the door to State-driven migratory policies and contribute

9
IMO, Adoption of amendments to the International Convention for the Safety of Life at Sea, 1974,
as amended, Rs. MSC 155(78), MSC Doc. 78/26.Add.I, Annex 3 (May 20, 2004).
10
IMO, Adoption of amendments to the International Convention on Maritime Search and Rescue
1979, as amended, Resolution MSC Doc. 78/26.add.1, Annex 5 (May 20, 2004).
11
See SOLAS, Regulation 33-1-1, and SAR, Chapter 3.1.9.
12
See SAR, chapter 4.8.5.
82 L. Carballo Piñeiro

to the blurring of the line between rescue at sea and maritime interception as
discussed by Miltner (2006). While the latter had been defined as “measures applied
by a State, outside its national territory, in order to prevent, interrupt, or stop the
movement of persons without the required documentation crossing international
borders by land, air or sea, and making their way to the country of prospective
destination”,13 the extraterritoriality component has been removed from the defini-
tion14—and thus interception might take place in a State’s territory, for example by
denying access irregular migrants to its ports—while a humanitarian element has
been awkwardly added—as interceptions might prevent people from risking their
lives at sea—. Nevertheless, the principles behind both institutions remain intrinsi-
cally divergent as rescue at sea is basically about human rights protection while
maritime interception prioritizes national security.
For our purposes, the distinction between rescue at sea and maritime interception
is relevant because the latter can only be undertaken by State authorities. Commer-
cial ships do not engage in maritime control tactics. The rescue operation might end
up serving this purpose, though, if the relevant RCC indicates the saviours to deliver
the rescued people to a place which has been determined in accordance with such
strategy. The question is, then, whether the rescue mission is accomplished if
migrants are not delivered to a place of safety in the terms of the applicable
human rights instruments as discussed in the next section.

3 Human Rights Protection at Sea

In the light of the events unfolding in many countries, it is not redundant to remind
that migrants are human beings. As such, they are entitled to human rights protec-
tion. To this end, and as already mentioned, international courts have already
confirmed that human rights conventions apply at high seas provided that the ship
flies the flag of a signatory country. Hence, ongoing private—as well as public-
owned vessels are within the international human rights framework, even when at
high seas.
Human rights protection does not oppose migratory control tactics provided that
such a protection is embedded in the strategy. Maritime interception is not an
exception in this regard. The abovementioned rulings of the Inter-American Com-
mission on Human Rights and the ECtHR condemn both the United States and Italy
because intercepted migrants were pushed back without an individual screening that
could determine whether they were entitled to human rights protection or not. While

13
UNHCR Executive Committee of the High Commissioner’s Program, Interception of Asylum
Seekers and Refugees: the International Framework and Recommendations for a Comprehensive
Approach, EC/50/SC/CRP.17 (June 9, 2000), at 10.
14
UNHCR Executive Committee of the High Commissioner’s Program, Conclusion on Protection
Safeguards in Interception Measures. No 97 (LIV) (October 10, 2003).
Occupational Hazards in the Light of the Maritime Migration Challenge 83

irregular migrants can be intercepted and sent back to their country of origin,
maritime migration is increasingly mixed as asylum-seekers and refugees are
obliged to take the maritime route as well.
Hence, boat people might be eligible for protection and access to the refugee
status in accordance with the 1951 Geneva Convention and 1967 Protocol relating to
the Status of Refugees. The former was born out of the events occurred in the
European Continent after the Second World War,15 but the New York Protocol of
1967 put an end to restrictions on its scope and made the Refugee Convention a
general and universal human rights instrument that has inspired regional ones like
the Addis Ababa Convention and the Cartagena Declaration on Refugees.
The core of the protection afforded by these instruments lies in the non-
refoulement principle, i.e. the prohibition of expulsion or return to the frontiers of
territories where life or freedom would be threatened. For example, and read in
positive terms, the EU area of justice, freedom and security16 is the safe side of the
frontier. However, how safe depends on the controversial Dublin system, nowadays
contained in Regulation (EU) 604/2013 of the European Parliament and of the
Council of 26 June 2013, establishing the criteria and mechanisms for determining
the member State responsible for examining an application for international protec-
tion lodged in one of the member States by a third-country national or a stateless
person.17 The system relies on the one-stop-shop at the country of first entrance
principle that poses an extra burden on those member States whose geographical
position situates them as Europe’s gates.
Italy is a case in point. After the sinking of a large number of unseaworthy ships
trying to reach the island of Lampedusa in 2013, the country unilaterally launched
the Mare Nostrum operation with a straightforward humanitarian purpose. More-
over, the country made a very reasonable proposal of elaborating a Migration
Compact. And yet, a few years later, Italy has moved to a defensive position with
the main objective of operations at sea being to push back refugees.
In fact, the move has reached the EU, which has been reinforcing the European
Agency for the Management of Operation Cooperation at the External Borders
(Frontex),18 now replaced by the European Border and Coast Guard,19 with a budget

15
See Refugee Convention, art. 1.B.
16
See Treaty of Functioning of the European Union and EU Charter on Fundamental Rights, arts.
77–80.
17
OJ [2013] L 180/31. The Dublin system was first established by the Convention determining the
State responsible for examining applications for asylum lodged in one of the Member States of the
European Communities—Dublin Convention, OJ [1997] C 254/1, replaced by Council Regulation
(EC) No 343/2003 of 18 February 2003 establishing the criteria and mechanisms for determining
the Member State responsible for examining an asylum application lodged in one of the Member
States by a third-country national, OJ [2003] L 50/1.
18
Frontex was first established by Council Regulation (EC) No 2007/2004 of 26 October 2004, OJ
[2004] L 349/1.
19
Regulation (EU) 2016/1624 of the European Parliament and of the Council of 14 September 2016
on the European Border and Coast Guard and amending Regulation (EU) 2016/399 of the European
84 L. Carballo Piñeiro

twelve times higher than its predecessor and more power (Andersson 2016, p. 1059).
Frontex was heavily criticized for not putting sufficient emphasis on human rights;
the new regulation, thereby, apparently tackles this important shortcoming. In
practice, the EU has developed an extremely controversial and worrisome concept
of ‘safe country’ in the terms of the Refugee Convention by granting such status to
Turkey and Libya. Neither of these countries is a signatory to the said convention nor
have they given reliable proof of being capable of dealing with asylum-seekers
(Gogou 2017; Matziaraki 2016). And yet, the Council of the European Union has
endorsed in its Malta Declaration a specific agreement between Italy and Libya
despite the political instability of the latter. Actually, Italy had already signed a
Treaty of Friendship, Partnership and Cooperation with Libya in 2008, suspended in
2011, but now revamped with a significant increase in technical and financial
support to establish immigration detention facilities, and, in particular, to facilitate
interception of migrant boats by the Libyan Navy and Coast Guards. Moreover,
similar agreements with African countries have been reached with the EU’s approval
in a move that integrates search and rescue operations within the machinery to
prevent people arriving at the EU border.
Flag States are also obliged by the law of the sea and thus, if coastal States do not
allow disembarkation, it is within the responsibility of the flag State to secure it (Rah
2009). However, flag States seem to align with the view that mixes up maritime
interception and rescue operations. In this vein, it is remarkable that Gibraltar first
and Panama later on decided to de-register the M/V Aquarius Dignitus, a vessel
operated by Medecins san Frontiers (MSF) and used in search and rescue operations
in the Mediterranean Sea, after the crew refused to deliver the rescued migrants to the
Libyan Coast Guard as requested by the Italian RCC. The Panamanian maritime
authority claimed that the registered purpose of the Aquarius was not in line with
search and rescue operations (HRAS 2019). Along the same lines, the Spanish and
Italian port authorities are refusing ships operated by NGOs to leave port because
they end up undertaking rescue operations and transporting passengers until a port
willing to disembark them (Rodríguez Martínez and Valero 2019). According to
these authorities, this is not in compliance with salvage rules, thereby these ships are
not allowed to sail until coastal States open again their ports for disembarkation. In
other words, national migration policies and maritime interception are prioritised
over human rights protection and rescue operations.
However, international human rights conventions do apply at high seas. In fact,
while the refugee status is only granted in accordance with specific grounds that are
not applicable to all migrants, other human rights’ instruments might be applicable.
The ECtHR condemned Italy for infringing the prohibition of torture and inhuman
and degrading treatment, the prohibition of collective expulsion of aliens, and the
right to be afforded an effective remedy under national law as rights enshrined in the

Parliament and of the Council and repealing Regulation (EC) No 863/2007 of the European
Parliament and of the Council, Council Regulation (EC) No 2007/2004 and Council Decision
2005/267/EC, OJ [2016] L 251/1.
Occupational Hazards in the Light of the Maritime Migration Challenge 85

ECHR. Articles 6 and 7 of the 1966 International Covenant on Civil and Political
Rights, the 1984 Convention against Torture and Other Cruel, Inhuman or
Degrading Treatment or Punishment or the 1969 Organization of African Unity
(OAU) Convention Governing the Specific Aspects of Refugee Problems in Africa
are all instrumental in supporting the obligation of not to return a person where there
are substantial grounds for believing that there is a real risk of irreparable harm. It is
needless to highlight that the risks of infringing these rights have increased with the
policy of outsourcing migration management, by making the authorities of third
countries to intercept migrants or accept them back before reaching the European
coast (Andersson 2016).
In general, only ratifying States are obliged by the abovementioned instruments.
However, some human rights such as the prohibition of torture and inhuman and
degrading treatment are enshrined in customary international law and thus all States
are responsible for their respect. The question is, nevertheless, whether maritime
professionals are to be held accountable for infringement of these rights as well,
i.e. whether they can be held responsible for not assisting migrants in distress,
including disembarking them at a place of safety.
From a public international perspective and the abovementioned human rights
framework, an answer in the negative is right to the extent that international
instruments are primarily directed towards States and not private persons, setting
aside some exceptional cases. However, States are obliged to incorporate the said
human rights protection in their legislation and this obligation reaches private
persons, of course. The correct answer is, thus, that maritime professionals might
be held accountable in accordance with a national criminal law if they do not comply
with basic human rights. In this vein, many jurisdictions construe a duty to rescue
that it is more or less restrictive depending on the tradition to which the applicable
law on board ascribes. More specifically, failures to provide assistance might be tried
as crimes within the jurisdiction of the flag State, including if rescue implies
returning a person to a place where his/her life is in danger. Nevertheless, it does
not seem as States are willing to enforce criminal law in view of the difficulties in
proving lack of legal compliance with the duty to rescue.

4 Criminalisation of Maritime Professionals

Compliance with the duty to rescue might become an issue for maritime profes-
sionals, but for the very reason of trying to comply with it as they may face charges
for migration facilitation. The risk of being taken for smugglers has dramatically
increased for seafarers and fishermen in last times. Indeed, and along with other
instances in which they are criminalised, this is becoming an occupational hazard.
As a matter of fact, the significant increase in (in)voluntary migrants has been
accompanied by a flourishing industry willing to take advantage of people’s desper-
ation and the hardening of the borders. The harder the border, the more pressing the
need to resort to facilitation services. In particular, maritime migration has become
86 L. Carballo Piñeiro

the usual means of transportation for those without resources. Against this backdrop,
the boosting of criminal activities as a result of migratory movements is a cruel fact.
In view of the significance of the problem, the United Nations has issued the
Protocol against the Smuggling of Migrants by Land, Sea and Air, and the Protocol
to Prevent, Suppress and Punish Trafficking in Persons Especially Women and
Children, both supplementing the United Nations Convention against Transnational
Organized Crime. For our purposes, it is to note the definition of smuggling of
migrants according to which it “shall mean the procurement, in order to obtain,
directly or indirectly, a financial or other material benefit, of the illegal entry of a
person into a State Party of which the person is not a national or a permanent
resident”.20 The latter highlights that this crime only takes place if it provides a
financial or other material benefit to facilitators that operate within a transnational
organized structure.
Rescue at sea followed by disembarkation at a place of safety does not fall within
the abovementioned definition. And nevertheless, there is a worrisome trend towards
criminalising all assistance to migrants regardless of whether it is made for profit or
not.21 In particular, the trend targets crews on board ships operated by NGOs. In
2004, a ship operated by the Cap Anamur relief group rescued 37 migrants in distress
and the then Cap Anamur president, the ship’s captain and first officer were put on
trial in Agrigento, Italy, in 2006 to be finally acquitted in 2009. In another case, three
Spanish firefighters and two members of the Danish NGO Team Humanity were
caught in Greece returning from a rescue mission which ended without finding
anyone. Finally, the Greek Criminal Court No 9 of Mitilene in Lesbos found them
not guilty on 7 May 2018 [Agence France de Press 2018]. Similar is the case of the
Spanish NGO Proactiva Open Arms whose ship was arrested and the master indicted
in Sicily, on grounds of having disembarked 218 boat people in Italy against the
orders issued by the Italian authorities requiring the master to transfer them to Libyan
coast-guard ships (Tondo 2018b).
Fishermen have been also criminalised. In 2011, two Tunisian fishermen faced
charges in Italy after rescuing 44 migrants and disembarking them at an Italian port
(Mangano 2011). In early September 2018, six Tunisian fishermen were detained in
Sicily, also for helping people to reach Italy (Tondo 2018b). The UN Refugee
Agency has repeatedly complained that all these trials have a very negative impact
to the extent that seafarers and fishermen restrain from rescuing people stranded at
sea. As to NGOs, all their rescued ships have been withdrawn from where they are
much needed because of the arrests and the costs therein involved.
The (thin) legal basis for cases like the above-mentioned ones can be found in the
national implementation of the Migrant Smuggling Protocol. On a regional level, the
European Union has reinforced prosecution of these crimes by issuing specific

20
Art. 3(a) of the Migrant Smuggling Protocol.
21
See The Institute of Race Relations (2017) Humanitarism: the unacceptable face of solidarity,
available at: <http://www.irr.org.uk/news/eu-member-states-in-criminalising-humanitarians-are-
feeding-europes-far-right accessed 6 May 2018.
Occupational Hazards in the Light of the Maritime Migration Challenge 87

legislation, in particular Council framework Decision of 28 November 2002 on the

strengthening of the penal framework to prevent the facilitation of unauthorised
entry, transit and residence,22 and Directive 2011/36/EU of the European Parliament
and of the Council of 5 April 2011 on preventing and combating trafficking in
human beings and protecting its victims, and replacing Council Framework Decision
2002/629/JHA.23 Supplementary to them, it is to note Regulation (EU) No 514/2014
of the European Parliament and of the Council of 16 April 2014 laying down general
provisions on the Asylum, Migration and Integration Fund and on the instrument for
financial support for police cooperation, preventing and combating crime, and crisis
management.24 In addition to this, the European Migrant Smuggling Centre (EMSC)
as a specific branch of Europol has been set up in 2016.25
Strikingly, though, the abovementioned 2002 Council Framework Directive fails
to clearly lay down that financial gain is essential to qualify smuggling as a crime. In
other works, helping migrants if interpreted in broad terms may amount to commit-
ting a crime.26 And this is what is happening in most EU member States which had
removed from the definition of human smuggling the financial gain element (van
Liempt 2016). Hence, humanitarian assistance is deemed illegal in many countries
that are, actually, prosecuting it as shown by the abovementioned cases. FRONTEX
has unfortunately started the fire by casting doubts on NGOs’ rescue efforts without
reliable evidence echoed by reputable media (Robinson 2016; Leggeri 2017).
Although most cases have been acquitted in the end, such an approach turns
criminal law into a powerful deterrent in distress situations (Gammeltoft-Hansen and
Tan 2018). The UN Refugee Agency along with others have raised their voice
against this situation. However, the evaluation of the Facilitation Package under-
taken by the European Commission in 2017 has not led to any amendment as the
latter argues lack of sufficient data indicating “actual and repeated prosecution and
conviction of individuals or organisations facilitating irregular border crossings for

22
OJ [2002] L 328/1.
23
OJ [2011] L 101/1. More information is available at a dedicated webpage: https://ec.europa.eu/
home-affairs/what-we-do/policies/organized-crime-and-human-trafficking/trafficking-in-human-
beings_en. According to Article 3(a), “Trafficking in persons” shall mean the recruitment, trans-
portation, transfer, harbouring or receipt of persons, by means of the threat or use of force or other
forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of
vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person
having control over another person, for the purpose of exploitation. Exploitation shall include, at a
minimum, the exploitation of the prostitution of others or other forms of sexual exploitation, forced
labour or services, slavery or practices similar to slavery, servitude or the removal of organs’.
24
OJ [2014] L 150/112.
25
See https://www.europol.europa.eu/about-europol/european-migrant-smuggling-centre-
emsc#fndtn-tabs-0-bottom-1.
26
Commission Staff Working Document. REFIT Evaluation of the EU legal framework against
facilitation of unauthorised entry, transit and residence: the Facilitators Package (Directive 2002/90/
EC and Framework Decision 2002/946/JHA), Brussels, 22 March 2017 [SWD(2017) 117 final], at
pp. 8–9 suggests that the lack of definition is due to the difficulties in tracing financial flows in third
countries. This reason is however unconvincing as it leaves humanitarian smugglers unprotected.
88 L. Carballo Piñeiro

reasons of humanitarian assistance across EU member states”.27 The criminalisation

risk for seafarers and fishermen is unfortunately very real.

5 Rescue at Sea and Occupational Hazards

OSH is in general a neglected field of studies despite being one of the most important
issues for worker protection. Technical prescriptions have dominated the contents of
the employer’s safety obligation in national legislations until awareness was raised
upon its organizational aspects—the development of a managerial strategy in order
to prevent and reduce dangers and risks at work—; and occupational medicine shed
light on the workers’ physical health. Nevertheless, OSH is more comprehensive
than these issues as its core objective is to achieve well-being within the work
environment. The employer’s safety obligation also covers psychophysical and
psychosocial factors at work, including the behavioural aspect of the employer-
worker-worker dynamics and worker participation as essential to comply with the
said obligation (ILO/WHO 1986).
Framed in this vein, there is still much room for research on maritime profes-
sionals’ OSH. The Maritime Labour Convention, 2006 (MLC, 2006) is a milestone
as all its provisions deal with seafarer’s well-being, specifically devoting two titles to
OSH matters. While Title 3 deals with accommodation and recreational facilities,
food and catering, Title 4 of the MLC, 2006 aims at health protection, medical care,
welfare and social security protection. The Convention concerning work in the
fishing sector, 2007 (No. 188) (C188) is somehow less specific although it covers
in Part V and Part VI similar issues as those dealt with by the MLC, 2006. In general,
both conventions articulate the employer’s safety obligation towards seafarers and
fishermen as the particularities of work at sea require a tailor-made approach in terms
of occupational hazards (Oldenburg et al. 2010). A remarkable example is piracy at
sea and its impact on maritime labour whose categorization as occupational risk has
led to the 2018 amendment of the MLC, 2006: the shipowner’s safety obligation
does not expire as a result of the seafarer’s capture, but goes beyond repatriation to
ensure his or her well-being.
Maritime migration is a diffuse risk for the time being as it is not an immediate
threat to maritime professions as piracy can be. However, the significance of the
challenge for the professions might have been underestimated as abovementioned.
There are no certain figures, but the International Chamber of Shipping (ICS) (2015)
reported that 121 ships participated in the rescue of 13,888 people only in 2016
(IMO 2016). The same report indicates that the number of merchant ships involved

27
See Commission Staff Working Document. Executive Summary of the REFIT Evaluation of the
EU legal framework against facilitation of unauthorised entry, transit and residence: the Facilitators
Package (Directive 2002/90/EC and Framework Decision 2002/946/JHA), Brussels, 22 March
2017 [SWD (2017) 120 final], at p. 3.
Occupational Hazards in the Light of the Maritime Migration Challenge 89

in SAR operations has been constant in a time where NGOs were still operating at
high seas. Now, that they are forced to withdraw from the Mediterranean Seas
because of State pressure, the involvement of merchant ships and fishing vessels
might increase. Yet, they also face the problem of disembarkation as the case of the
Alexander Maersk cargo ship illustrates (ECSA 2018). After the rescue of over
100 migrants, the 16 crew members were left to assist them for seven days until
finally Italy accepted their disembarkation.
If the topic is approached from a business perspective, the non-compliance with
the law of the sea by coastal States causes enormous financial problems. Delays
incurred in rescuing people are not compensated under the Salvage Convention that
focuses on the salvage of property (Fakhry 2016), and neither requires remuneration
from persons whose lives are saved, nor from responsible States, leaving the issue to
be decided by national law.28 Insurance may help in recovering extra cost of
bunkers, insurance, wages, stores, provisions and port charges (Stevens 2016) and
deviations to save people may not imply a breach of contract.29 However, these
provisions have been made on the assumption of immediate disembarkation keeping
delays in business at a minimum, i.e. loss of profit is not covered by insurance.
Moreover, the Salvage Convention explicitly exonerates the shipowner from
liability in the event of a breach of the master’s duty to render assistance to any
person in danger of being lost at sea.30 Hence, masters might be put under pressure to
comply with either the law of the sea or their obligations as regards to the ship
operation, and there will not be further consequences for shipowners if they opt for
the second option. In contrast, if they honour their rescue obligations, they not only
might encounter problems with their employer, but also risk to be criminalized as
human smugglers or traffickers. And yet, despite the acute conflicts of interests and
the subsequent psychological risks involved in this type of operations, and as
indicated by the UN Security Council (2018), “In the first six months of 2018,
merchant ships rescued 1329 people. Merchant seafarers continue to bravely per-
form their duties of rescue, although the presence of untrained and distressed persons
on board presents risks to both the seafarers and those they rescue”.
More specifically, the rescue of a large number of people poses issues of safety,
security and health for seafarers and fishermen. The International Safety Manage-
ment (ISM) Code deals with the rescue itself whose operation is addressed in the
vessel’s Safety Management System (SMS) within the Emergency procedures
manual. However, the rescue of a large number of people at sea is not specifically
contemplated in the SMS. As it is not in the Ship’s Security Plan (SSP) which is
binding for ships in international trade in accordance with the International Ship and
Port Facility Security (ISPS) Code. Crewmembers lack the specific training to deal
with the maritime migration challenge.

28
Art. 16(1) of the Salvage Convention.
29
Art. 4 of the Hague-Visby Rules.
30
Art. 10(2) of the Salvage Convention.
90 L. Carballo Piñeiro

The situation has not gone unnoticed by social partners. Regulation 4.3 and
Standard A4.3 of the MLC, 2006 as well as Article 32 of C188 on health and safety
protection and accident prevention provide the legal basis for employers to “estab-
lish on-board procedures for the prevention of occupational accidents, injuries and
diseases”. In setting up these procedures, companies might take into account the ICS
Guidance on Large Scale Rescue Operations at Sea, which supplements the UN
Refugee Agency Rescue at Sea: A Guide to Principles and Practice as Applied to
Refugees and Migrants. The development of the ICS Guidance is a milestone as
there is no other procedure on safety, security and health issues arising out of the
maritime migration challenge.
The ICS Guidance goes through several safety issues including checklists and
information that ought to be posted on a ship area specifically intended for rescued
persons. Nevertheless, and as pointed out by Iussich and Maglić (2018), the recovery
process of desperate people on board unseaworthy ships is very challenging for a
non-specialized crew. The Standards of Training, Certification and Watch-keeping
(STCW) Convention lays down in Section A-VI/2 Mandatory minimum require-
ments for the issue of certificates of proficiency in survival craft, rescue boats and
fast rescue boat, but towing to rescue others is not mentioned as a competence.
Reference to towing is made on the IMO Model Courses 1.23 (Proficiency in
survival craft and rescue boats) and 1.24 (Proficiency in fast rescue boats), but
only one-hour practice is allocated that is barely performed during onboard drills
(Iussich and Maglić 2018). The difficulties in the recovery process increase the
psychological pressure upon the crew.
Rescue at sea not only poses significant safety issues, but also security risks. The
ICS Guidance also takes them into account by recommending the prohibition of
weapons on board and isolation of rescued people from the crew where possible.
However, it is not only the possibility of criminals boarding the ship, but also that
conflicts on board might escalate as a consequence of the disembarkation issue.
Indeed, practice shows that the master of the rescuing ship may have a hard time
following the RCC’s orders as the MV Tampa case again illustrated; although
ordered to deliver the refugees in Indonesia, the vessel ended up trying to enter the
Christmas Islands’ port because some asylum seekers threatened to commit suicide.
In view of these problems, the ICS Guidance suggests the RCC to take into account
‘the Master’s preferred arrangement and location for disembarking or transferring
the rescued persons, mindful that rescued persons should not be disembarked or
transferred to a place where their life or safety would be at risk’. However, the trend
is going in another direction and masters left to host on board a large number of
people for longer than expected or advisable.
All in all, safety and security issues contribute to augment health issues related to
rescue at sea. First, crew members are under pressure exerted by their employers to
proceed without further delay, by the State authorities to comply with their orders,
and by the rescued people who have their own agenda. Second, they assist people
severely injured or deeply traumatised, what might have a significant impact on crew
members themselves. And third, the rescued might bring diseases on board in
addition to the hygienic issues related to host a significant number of people on
Occupational Hazards in the Light of the Maritime Migration Challenge 91

board. To this end, the crew ought to proceed to scrutinize them in order to separate
those injured or with contagious diseases from the other and the crew. However, it
has already been highlighted that neither the STCW Convention nor the Convention
for the Safety of Life (SOLAS) contain a mandatory drill dealing with this type of
procedure to handle multiple injuries and contagious persons (Iussich and Maglić
2018).
This section has gone through a number of occupational risks that may arise out
of the rescue of a large number of issues at sea. It might be a source of occupational
accidents, injuries and diseases that have to be taken into account by lawmakers and
employers. The ICS Guidance is an adequate instrument, but its value is
compromised by the fact that it is only a guidance that also contains controversial
statements, in particular the following one: ‘Fatigue may be an issue if not properly
managed after a rescue operation. Any short-term disruption to rest and work
patterns should be limited to that which is absolutely necessary’. The latter is not
going to help an exhausted and troubled crew to overcome a risky and possibly
traumatic experience.

6 Final Remarks

Psychological and physical risks as a result of the maritime migration challenge have
to be prevented and addressed. In this vein, the ICS Guidance includes a recom-
mendation on crew welfare, but simply indicating that “the Company and ship’s
plans and procedures should address this possibility, with appropriate support and
monitoring of crew members”. While it is essential to remind the employer of its
responsibilities towards the crew, other actions have to be undertaken in view of the
maritime migration challenge.
The above-mentioned figures are a good indication that maritime migration will
continue to affect trade and fishing at sea. It is also the reason why port States have
grown reluctant to accept disembarkation of boat people and increased pressure upon
crews that try it despite the odds. And the disembarkation problem has escalated to
the point that even coordinated efforts such as the EUNAVFOR Operation Sophia
are sinking in view of involved States’ discrepancies over the reception of refugees
(ECSA 2019). Nevertheless, State burden-sharing is more necessary than ever and
probably the only means to put an end to loss of lives at sea. In this vein, the adoption
by the UN General Assembly of the New York Declaration for Refugees and
Migrants and the development of a Global Compact on Responsibility Sharing on
Refugees along with a Global Compact for Safe, Orderly, and Regular Migration are
a stepping stone on the right path (Appleby 2017).
Against this backdrop, the ECSA’s Secretary General Martin Dorsman (2019) has
pointed out that “Shipowners will certainly comply with the international conven-
tions and honour their legal obligations to assist people in distress on the Mediter-
ranean. However, this must not become part of the solution”. His words come after
Germany had announced its withdrawal from EUNAVFOR Operation Sophia and
92 L. Carballo Piñeiro

indications that coastal States are not prepared to meet the solutions discussed in an
inter-agency meeting with the maritime industry on mixed migration organized by
IMO on 30 October 2017 with the participation of ITF, ICS, BIMCO, IFSMA, IOM,
UNHCR, UNODC, OHCHR and EUNAVFOR. In this meeting, the shipowners’
associations put forward the humanitarian nature of rescue operations—as opposed
to maritime interceptions could be here added—and the significance of the work
done by NGOs that has relieved merchant shipping and fishing from the rescue
obligation. However, not even 2 years after the meeting, the situation has clearly
moved in the opposed direction to the clear mandate coming from international
humanitarian and human rights law, leaving shipowners and owners of fishing
vessels to face the economic losses and crewmembers the potential occupational
hazards.
While concerted efforts at an international and regional level are essential to
alleviate the burden placed upon seafarers and fishermen by the law of the sea, the
political and socio-economic winds do not seem to blow in that direction and
crewmembers will still be required to undertake risky rescue operations without
proper training. A review of SOLAS, STCW and STCW-F Conventions along with
the ISM and ISPS Codes is advisable to prepare seafarers and fishermen for this type
of rescues at sea. Such review might not be feasible, but IMO might request
programmes to include basic training on how to handle safety, security and health
issues arising out of rescue of a large number of people at sea.
OSH matters are covered by the MLC, 2006 and C188. If accidents, injuries or
diseases occur as a result of rescues at sea, they have to be characterized as
occupational, even if they surface time after it. The main shipowners’ associations
have already acknowledged that: “The long-term psychological effect on seafarers
who have conducted large scale rescues at sea is a further matter of concern to the
industry” (IMO 2017). As mentioned above, the ICS Guidance also reminds that
shipboard programmes have to take into account the possibility “with appropriate
support and monitoring of crew members”. The point is what kind of support and
monitoring when their coverage is still not clear.
Both the MLC, 2006 and C188 address social security protection, but it is still a
national matter to be decided either by the law of the flag or the law of the seafarer’s
country of residence. In accordance with Regulation 4.5, Standard A4.5 and Guide-
line B4.5 of the MLC, 2006 as well as Articles 34 to 37 of C188, ratifying States
shall undertake steps to provide seafarers and fishermen residing in their territory
with a full coverage. However, a research on the MLC, 2006 database and the
declaration issued by ratifying States on branches of social security protection
provided in accordance with the abovementioned provisions reveals that there is
still a long way to go until full coverage is granted. Moreover, many States do not
cover seafarers residing in their territory and sailing on board foreign-flagged ships
whose protection is then in the hands of the flag State. The uncertainty as to the
applicable law to social security matters and lack of coordination among systems
only increases the vulnerability of seafarers and fishermen.
Occupational Hazards in the Light of the Maritime Migration Challenge 93

As an alternative, both the MLC, 2006 and C188 lay down shipowners’ and
fishing vessels owners’ liability in the event of sickness, injury or death.31 Note-
worthy is that this liability includes sickness and injury occurring between the date of
commencing duty and the date of their repatriation, reminding paragraph 1, letter a)
of Standard A4.2.1 of the MLC, 2006 “or arising from their employment between
those dates”. While this is a source of litigation in many countries, the occupational
nature of sickness and injuries arising out of rescues at sea should not be subject to
discussion. Article 39 of C188 is not as specific as the MLC, 2006. However, and in
light of their objectives and intrinsic connection, long term psychological or physical
effects related to rescue at sea must entitle seafarers or fishermen to medical care and
compensation, even if their employment contract had already terminated.
In order to ensure the shipowner’s liability in the event of death or long-term
disability of seafarers due to an occupational injury, illness or hazard, the 2014
amendments to the MLC, 2006 request States to set up a mandatory system of
financial security that may take the form of a social security scheme or insurance or
fund or other similar arrangement.32 It is not yet clear in which manner States are
implementing this fundamental request, but P&I clubs already provide insurance
policy to this end. The issue is now whether financial security is in place if seafarers
need to resort to them, to which end States should ensure implementation and
enforcement. In contrast, C188 lacks a similar provision.
All in all, there are some tools to meet occupational hazards arising out of the
maritime migration challenge. However, their efficiency and effectiveness depend
on a diverse number of factors in view of the many companies, seafarers and
fishermen involved in rescue operations. More importantly, they only partly assuage
the damage caused by those coastal States that avoid their responsibility in
preventing the loss of life at sea and in collaterally securing a safe and secured
navigation of the seas. The international community has already spoken against this
opportunistic behaviour without much success. It might be time for further innova-
tive actions in line with the group action brought by asylum-seekers confined in
Manus Island against Australia,33 or that of a Dutch foundation against The Neth-
erlands government for having taken too few asylum seekers from Greece compared
to the figures laid down in the EU relocation and resettlement deal of 2015 (Verhelle
2019). While these collective actions have been brought before court on behalf of
migrants, employers and/or employees might also be suitable candidates for a
redress collective action in view of the troubles that they encounter in assisting
people in distress. The concluding remark is why it is necessary to resort to such
extreme mechanisms in a matter that the law of the sea has solved centuries ago.

31
Regulation 4.2, Standards A4.2.1 and A4.2.2, Guidelines B4.2.1 and B4.2.2 of the MLC, 2006,
and arts. 38 and 39 of C188.
32
Paragraphs 8 et seq of Standard A4.2.1 and Standard A4.2.2. of the MLC, 2006 as amended.
33
Manus Island class action, Kamasaee v. Commonwealth & Ors (S CI 2014 06770).
94 L. Carballo Piñeiro

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Governance of International Shipping
in the Era of Decarbonisation: New
Challenges for the IMO?

Aldo Chircop and Desai Shan

Abstract In this chapter we discuss the challenge that the regulation of greenhouse
gas (GHG) emissions poses to the mandate and structure of the International
Maritime Organization (IMO). The discussion is undertaken against the backdrop
of the evolution of the organization since it was established. We consider the
implications of the IMO Initial GHG strategy adopted in 2018 in paving the path
to the international shipping’s contribution to mitigation in response to the Paris
Agreement, 2015. The long-term decarbonization of shipping constitutes one of the
greatest challenges the IMO has faced since it first embraced the environmental
mandate in the late 1960s and early 1970s. We argue that the IMO may have to
consider structural and functional change to meet the demands of the strategy and in
particular with respect to a possible market-based measure.

1 Introduction

When he published his classic ground-breaking work on the changing structure of

international law in 1964, the eminent Professor Wolfgang Friedmann observed the
emergence of a new international law of cooperation, best evidenced by the role
played by international organizations in facilitating the conduct of international
relations at the global and regional levels.1 Today the law of international cooper-
ation is well established and covers a vast realm of subject-matter, serviced in large
degree by international organizations. This is especially true in the fields of interna-
tional law of concern in this essay, namely those relating to ocean governance,
maritime trade and the environment. The special role played by international

1
Friedmann (1964), pp. 60–61.

A. Chircop (*) · D. Shan

Marine and Environmental Law Institute, Schulich School of Law, Dalhousie University,
Halifax, NS, Canada
Ocean Frontier Institute, Halifax, NS, Canada
e-mail: aldo.chircop@dal.ca

© Springer Nature Switzerland AG 2020 97

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_6
98 A. Chircop and D. Shan

organizations in the international law of the sea is perhaps best captured by the
concept of ‘competent international organization’, which serves to allocate and
underscore the pursuit of a rules-based order, institutionalised cooperation and the
pursuit of equity in international relations. The International Maritime Organization
(IMO) is at the centre of a constellation of international organizations concerned
with some aspect of navigation and shipping and stands out as ‘the’ competent
international organization for rule and standard-setting to facilitate international
navigation and maritime trade.2
The IMO is a specialized agency of the United Nations designed inter alia, to
provide machinery for co-operation among governments in the field of governmental
regulation and practices relating to maritime technical matters, and to encourage and
facilitate the adoption of the highest practicable standards in matters concerning
maritime safety, efficiency of navigation and prevention and control of marine
pollution from ships.3 The IMO of today is a significantly different organization
than when first established. Functionally and structurally, it has evolved in response
to social needs, events and expectations. Recently the IMO Council, under internal
pressure and calls for greater transparency,4 launched an open-ended working group
on the reform of the Council.5 And it is conceivable that further change in the IMO’s
mandate and structure might be needed in response to the growing role the organi-
zation is playing in leading the industry on the path to decarbonization.
In this essay we discuss how the IMO emerged with a basic mandate and structure
that evolved in response to external and internal pressures to better equip itself and
facilitate the quantitative and qualitative expansion and maintenance of international
maritime law. Against that backdrop we further explore the governance challenges
the IMO is facing in a contemporary setting as a result of climate change and
consider the extent to which the IMO’s current mandate and structure enable it to
address these challenges. Our focus is on decarbonization called for by the Paris
Agreement, 2015.6 We consider this issue to constitute the greatest challenge the
IMO has faced since the late 1960s, when it first embraced the environmental
mandate. We are of this view because of the long regulatory horizon of greenhouse
gas (GHG) emission reductions, the accompanying technological and economic

2
Law of the Sea Bulletin, 79–95. For a discussion of international organizations that have a mandate
with respect to some aspect of shipping, see Chircop (2017), pp. 118–121.
3
Convention on the International Maritime Organization (IMO Convention), art 1. The convention
was amended several times.
4
Access to Information, Submitted by Australia, IMO Doc C 121/3(b)/5 (19 October 2018).
5
‘Council 121st session, 19–23 November 2018’, online: http://www.imo.org/en/MediaCentre/
MeetingSummaries/Council/Pages/Council.,-121st-session,-19-23-November-2018.aspx. See Pro-
posed Terms of Reference for the Working Group on Council Reform, Submitted by Cook Islands,
Japan, Marshall Islands, Panama, United Arab Emirates, United Kingdom and United States of
America, IMO Doc C 121/3(b)/13 (19 October 2018). The expectation is for Council to submit
recommendations to the Assembly’s 31st session.
6
Paris Agreement, adopted 12 December 2015 (entered into force 4 November 2016), Adoption of
the Paris Agreement, Dec CP.21, 21st Session, UN Doc FCCC/CP/2015/L.9/Rev.1
(12 December 2015).
Governance of International Shipping in the Era of Decarbonisation: New. . . 99

uncertainties, and the potential for disproportionate impacts and inequities. We

conclude with final observations on possible further structural and functional change
in the IMO.

2 Origins and Evolution

The launching of an international organization dedicated to maritime cooperation

was a difficult challenge from the beginning. The seminal idea for the establishment
of an international organization dedicated to shipping can be traced to an interna-
tional maritime conference in 1889 in Washington, DC, where the United States
advanced a proposal to set up a permanent body to cater for the needs of the
industry.7 The proposal was rejected, in part because the industry was suspicious
of any attempt to control its activities and restrict its commercial freedom.8 This is
interesting because at that time the industry was neither globalized nor transnational
as it is today. Following the First World War, the League of Nations revived the idea
and attempted to establish an organization to address discrimination in shipping, but
failed to do so because of the outbreak of the Second World War.9 However, the idea
of establishing international organizations to facilitate inter-state cooperation did not
die, and in fact the International Labour Organization (ILO), created in 1919, was a
success story and continues today.
The establishment of the ILO reflected functionalism in action, thinking which
influenced the creation of international organizations designed to bypass state
territoriality and sovereignty by promoting cooperation on specific technical
issues.10 The functionalist approach with respect to shipping would initially take
life with the establishment of the United Maritime Authority as an advisory body to
the Allies during the Second World War and was further advanced at the United
Nations Maritime Conference in 1948 at which time the decision was made to create
a permanent international organization for shipping.11 And so the Inter-
Governmental Maritime Consultative Organization, the future IMO, was born,
created by an international convention with an initially limited mandate as a techni-
cal advisory body.12
It is hard to imagine that the IMO today with its suite of functions concerning
maritime safety, environment protection, maritime security, trade facilitation and

7
McDonald (1948), p. 1.
8
Harvey (2012), pp. 4–5. See also IMO, ‘Convention on the International Maritime Organization’,
online: http://www.imo.org/en/about/conventions/listofconventions/pages/convention-on-the-inter
national-maritime-organization.aspx.
9
McDonald (1948), pp. 3–5.
10
The principal proponent of this school of thought was David Mitrany. See Mitrany (1933).
11
Ibid.
12
IMO Convention, art 29.
100 A. Chircop and D. Shan

technical cooperation emerged from a technical consultative body. Before the IMO’s
constitutive instrument was amended, the original IMO purposes in Article 1 were
narrow, reflecting old concerns and was hardly forward-looking: ‘to provide machin-
ery for cooperation’ in ‘governmental regulation and practices relating to technical
matters of all kinds affecting shipping engaged in international trade, and to encour-
age the general adoption of the highest practicable standards in matters concerning
maritime safety and efficiency of navigation’; ‘to encourage the removal of discrim-
inatory action and unnecessary restrictions’ to ensure availability of shipping to
support world commerce; exchange of information; and provision of other matters
for consideration by the IMO. The central concern in these purposes was maritime
safety and perhaps a measure of trade facilitation, at least indirectly in terms of
advocacy for non-discrimination. At the time there was no concern with pollution
prevention, security and technical assistance to developing countries, or even to use
regulation as a tool for proactive change. After all, most developing countries
achieved their independence in the 1950s and 1960s.
The IMO’s functions were consequently and equally limited, essentially and
cryptically formulated in Article 2 as ‘consultative and advisory.’ The powers
reflected that limitation, enabling the organization to function as a clearing house:
‘to consider and make recommendations’ on matters remitted by members and UN
bodies and international organizations; provide for the drafting of conventions,
agreements, and other instruments and recommend these to member states and
intergovernmental organizations and convene conferences; provide machinery for
consultation and information exchange. Even on restrictive shipping practices,
priority was given to direct negotiations by member states and only on failure of
agreement would the IMO consider the matter. It was an organization that clearly
was to be used when deemed needed and with very little room for forward thinking.
From time to time the membership would be reminded to consider issues only within
the organization’s limited terms of reference. This would change as a result of a
series of internal and external pressures triggering far-reaching developments in the
organization itself, in the shipping industry and generally in international relations.
Soon after its creation in 1948 and eventual operationalization in 1958, there was
discord over the IMO’s mandate and composition of its principal technical organ, the
Maritime Safety Committee (MSC). Some states expressed concern with Article 1 of
the Convention because they were afraid that the organization would lead to
interference with their national maritime industries and legislation. This served to
reinforce the essentially technical and nautical concerns of the organization, includ-
ing at its first meeting in 1959. New maritime states were emerging and challenging
the interests and power bases of traditional maritime states. Major new registries
emerged, especially Liberia and Panama, and these challenged the composition of
the MSC. While already among the top ten ship registers, both states were consid-
ered ‘flags of convenience’ (open registers) and neither was elected to the committee
because others felt these states did not really own the tonnage registered under their
flags. The traditional maritime states, ostensibly the ‘beneficial owners’, dominated
Governance of International Shipping in the Era of Decarbonisation: New. . . 101

the body as gatekeepers and left the impression that the IMO was a club.13 The
matter was referred to the International Court of Justice for an advisory opinion, and
the court decided in favour of registered tonnage for the rule on composition,
handing the open registers a major victory.14 To accommodate all interests, the
composition of the MSC would start to include all member states, and the practice
continues today in all committees. With the emergence of even more newly inde-
pendent states in the 1960s, the IMO membership would increase exponentially.
In addition to the political change, the 1950s–1960s witnessed a quickening pace
of maritime technological change. The change was revolutionary: deployment of
radar for collision avoidance, refrigeration on board ships, ever larger cargo vessels
such as very large and ultra large crude carriers and large bulkers, containerization,
automatic identification system, among others. These technologies raised new issues
for ship construction, equipment and operations, requiring new standards for mari-
time safety. To cope with these changes, the IMO convened its first conference in
1960 on safety of life at sea, leading to the adoption of a fundamentally revised
maritime safety convention current at that time and since the earlier iterations of
1914 and 1948. Further amendments in the 1960s and 1970s concerned fire safety
measures, life-saving appliances and radiotelegraphy watches. These efforts
responded to the lessons learnt from major disasters and in effect continued a
trend of event-driven regulation since the first safety of life at sea convention in
1914 which was itself triggered by the loss of the Titanic.15
In 1967, the casualty of the Torrey Canyon on the coast of the United Kingdom’s
Southwest Atlantic produced the first ever massive oil spill from a supertanker. It
resulted in immense environmental damage and revealed the deficiencies in inter-
national law concerning the state’s powers to protect its coastal interests, insufficient
regulation of vessel-source pollution and liability and compensation for oil spill
damage. The casualty produced a series of major legal responses. The International
Convention Relating to Intervention on the High Seas in Cases of Oil Pollution
Casualties, 1969,16 provided the authority necessary for a coastal state to intervene
with respect to foreign ships on the high seas to pre-empt potential threats posed by
ships in similar situations. The International Convention on Civil Liability for Oil
Pollution Damage, 196917 and the Convention on the Establishment of an Interna-
tional Fund for Compensation of Oil Pollution Damage, 1971 (IOPC Fund)18
established the first ever system of civil liability and compensation for persistent

13
Gold (1981), p. 260.
14
Constitution of the Maritime Safety Committee of the Inter-Governmental Maritime Consultative
Organization (Advisory Opinion) 1960 ICJ Reports 150. See Ademuni-Odeke (2007), pp. 63–90.
15
Convention on Safety of Life at Sea, 1914.
16
International Convention Relating to Intervention on the High Seas in Cases of Oil Pollution
Casualties, 1969, followed by Protocol Relating to Intervention on the High Seas in cases of Marine
Pollution by Substances other than Oil, 1973.
17
International Convention on Civil Liability for Oil Pollution Damage, 1969.
18
International Convention on the Establishment of an International Fund for Compensation for Oil
Pollution Damage, 1971.
102 A. Chircop and D. Shan

oil accidentally spilled from a tanker registered in a state party to those instruments.
The Convention on the Prevention of Marine Pollution by Dumping of Wastes and
Other Matter, 1972, was also an offshoot and focused on the deliberate discharge of
wastes that could include ships. But perhaps the most significant instrument for the
prevention of vessel-source pollution was the International Convention for the
Prevention of Pollution from Ships, 1973 and its Protocol of 1978 (MARPOL
73/78).19 This convention was a major improvement and expanded significantly
on the earlier International Convention for the Prevention of Pollution of the Sea by
Oil, 1954 (OILPOL) which, as the title suggests, was limited in scope, whereas
MARPOL 73/78 would cover a wider ranger of wastes. Ironically, the original 1973
convention was brought into effect only after the adoption of the 1978 amending
protocol, which itself was triggered by yet another major and even larger casualty,
namely the loss of the Amoco Cadiz off the coast of France in 1978. However,
Torrey Canyon did not just result in legislative action. In due course, it influenced
major functional and structural change to enable the IMO handle new subject-matter
through the expansion of its mandate to include pollution concerns and creation of
two new committees to accompany the MSC in its work. These were the Legal
Committee tasked to advise the IMO on the increasing legal issues in its work and
the Marine Environment Protection Committee (MEPC) to add subject-matter
expertise.20
In addition to the development of a new marine environmental protection func-
tion, IMO regulatory action was also challenged to confront new, and even renewed,
safety concerns. In the 1980s a number of serious accidents occurred and were
argued to be caused by human error, with management faults identified as contrib-
uting factors. These realizations led to amendments to the International Convention
for the Safety of Life at Sea, 1974 (SOLAS),21 itself adopted after major changes
from the earlier 1960 version. In particular, in the inquiry into the loss of the Herald
of Free Enterprise, the management failure was described as ‘the disease of sloppi-
ness’.22 To address the human factors contributing to maritime casualties, in 1993
the IMO adopted the International Management Code for the Safe Operation of
Ships and for Pollution Prevention (ISM Code), which became a mandatory SOLAS
code in 1998.23 Among other efforts, this initiative recognized that human error was
often a contributing factor to maritime casualties.24

19
International Convention for the Prevention of Pollution from Ships, 1973 (not in force); Protocol
of 1978 relating to the International Convention for the Prevention of Pollution from Ships of 1973.
20
Amendments to the IMCO Convention, IMO Assembly Resolution A 358 (IX), 1975.
21
International Management Code for the Safe Operation of Ships and for Pollution Prevention,
IMO Assembly Resolution A 741 (18), 1993.
22
MV Herald of Free Enterprise (1987), p. 14.
23
International Management Code for the Safe Operation of Ships and for Pollution Prevention,
IMO Assembly Resolution A 741 (18), 1993.
24
IMO efforts also focused on standards of training of seafarers, most especially through the
International Convention on Standards of Training, Certification and Watchkeeping for
Seafarers, 1978.
Governance of International Shipping in the Era of Decarbonisation: New. . . 103

A further major functional response by the IMO was in relation to the emergence
of terrorism against shipping, a threat that was not well-captured by the traditional
understanding of piracy on the high seas. The hijacking of the cruise ship Achille
Lauro and murder of a passenger in the eastern Mediterranean in 1985 revealed gaps
in ship security in international maritime law. The IMO quickly embraced this
challenge and adopted a new security function without amending its constitutive
instrument to expand its mandate and proceeded to adopt the Convention for the
Suppression of Unlawful Acts Against the Safety of Maritime Navigation, 1988
(SUA convention).25 The maritime security function would be further developed
following the 9/11 terrorist attack on the World Trade Towers in Manhattan to
address the maritime carriage and use of weapons of mass destruction and would
lead to the adoption of a protocol to the SUA convention26 and a new SOLAS code
concerning the security of ships when in port and the security of port facilities.27
Piracy, as a separate concern from terrorism, would re-emerge as a major threat to
international shipping, especially off the coast of Somalia, the Gulf of Aden, Gulf of
Guinea, Strait of Malacca and elsewhere. Modern day piracy and armed robbery
against ships demonstrate the inadequacy of the existing international law on the
subject. While navigating piracy-prone areas, ships and their crews need almost
constant protection because of the danger of kidnapping and being held for ransom.
The response in this case required much more than IMO intervention, but at the same
time the organization had to rethink maritime safety and security with respect to this
threat and assisted the development of codes of conduct.28 Collectively, these events
would firmly entrench maritime security as a major function of IMO regulation
together with maritime safety and environment protection.
Over time, the IMO has demonstrated an adaptive capacity to also respond to
other social needs without being prodded by an external event. For example, it
expanded its structure by establishing the Technical Cooperation Committee in 1977
to support assistance to member states29 and the Facilitation Committee in 1991

25
Convention for the Suppression of Unlawful Acts Against the Safety of Maritime Navigation,
1988. This concern also related to the security of offshore installations and structures and a protocol
was adopted to address this threat. See Protocol for the Suppression of Unlawful Acts Against the
Safety of Fixed Platforms Located on the Continental Shelf, 1988.
26
Protocol of 2005 to the Convention for the Suppression of Unlawful Acts Against the Safety of
Maritime Navigation, 2005.
27
International Code for the Security of Ships and Port Facilities (ISPS Code), 2002, annex 1.
28
Sub-regional Meeting to Conclude Agreements on Maritime Security, Piracy and Armed Robbery
against Ships for States from the Western Indian Ocean, Gulf of Aden and Red Sea Areas, Note by
the Secretary-General, IMO Doc C 102/14 (3 April 2009).
29
Simmonds (1994), p. 34.
104 A. Chircop and D. Shan

(effective in 2008)30 to address maritime documentation and recent amendments to

the Convention on Facilitation of International Maritime Traffic, 1965.31
This general overview of the evolution of the IMO’s functions and structures has
served to demonstrate that the organization has been very active. From a structural
perspective, the organization enhanced inclusive participation by improving repre-
sentation in its organs and further developed its ability to address new subject-matter
by establishing new structures for emerging concerns. At the same time however,
and from a functionalist perspective, frequently IMO regulation has been event-
driven and usually triggered by maritime casualties or security threats against ships.
In retrospect, the IMO developed a relatively comprehensive maritime gover-
nance system, enabling member states to collectively address changing maritime
risks and issues. At the same time it has also attracted criticism as a laggard, usually
because of the reactive and slow pace of regulation, instead of being anticipatory and
proactive. At times the ability of the IMO to lead, rather than follow the industry, has
been questioned. The regulation of GHG emissions from ships now constitutes a
new challenge, as well as opportunity, for the IMO to address a major contemporary
problem in a proactive manner. However, is the IMO sufficiently equipped to
respond to this new challenge effectively, efficiently and equitably, or does it need
to evolve further? This leads to the second part of the essay.

3 The Climate Change Era and the Decarbonization

Challenge

In order to understand the GHG challenge the IMO faces, and the extent to which its
mandate and structure enable it to tackle the challenge, it is useful to set out the
context of climate change governance. The United Nations Framework Convention
on Climate Change, 1992 (UNFCCC)32 set out the parameters to achieve the
objective of ‘stabilization of greenhouse gas concentrations in the atmosphere at a
level that would prevent dangerous anthropogenic interference with the climate
system’.33 The shipping industry was expected to be part of the global effort and
in the Kyoto Protocol, 1997, developed states were expected to pursue limitation or

30
Amendments to the Convention on the International Maritime Organization (Institutionalisation
of the Facilitation Committee), IMO Assembly Resolution A.724(17) adopted 7 November 1991.
31
Convention on Facilitation of International Maritime Traffic, 1965.
32
United Nations Framework Convention on Climate Change (UNFCCC), 1992. We refer to the
UNFCCC and the Paris Agreement collectively in this report as the UN Climate Regime. Article 4.1
(c) of the UNFCCC requires Parties to promote and cooperate in the development, application and
diffusion of technologies, practices and process that reduce or prevent greenhouse gas emissions
from the transport sector.
33
Ibid art 2.
Governance of International Shipping in the Era of Decarbonisation: New. . . 105

reduction of GHGs from bunker fuels by working through the IMO.34 The goals of
the 2030 Agenda for Sustainable Development recognized the need for urgent action
on climate change, including the promotion of sustainable transport systems.35
The Paris Agreement adopted a core ambitious objective for the global response
to climate change, in the context of sustainable development and poverty eradica-
tion, to hold ‘the increase in the global average temperature to well below 2
C above
pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5
C
above pre-industrial levels’, including fostering low GHG emissions development
and related finance flows.36 The goal would be pursued by reflecting “equity and the
principle of common but differentiated responsibilities and respective capabilities, in
the light of different national circumstances” (CBDR-RCNC).37 The Paris Agree-
ment did not expressly address international shipping, but there was an implicit
understanding among state parties that the IMO would lead the industry to develop
its contribution to mitigation and in line with the temperature goal.
In 2009 a major IMO GHG study indicated concerns about the potential trajectory
of emissions from shipping.38 In 2007 shipping reportedly emitted 3.3% of global
CO2 emissions (international shipping accounting for 2.7%) and that by 2050
emissions could grow by 150% to 250% with world trade, assuming a business as
usual scenario. A third study completed in 2014 showed that CO2 emissions would
increase significantly.39 Although shipping’s (and especially international shipping)
contribution to GHGs appears small, in reality it is comparable to Germany’s or the
United Kingdom’s total emissions, essentially marking the industry as a major
global contributor. Regulating this industry posed special problems because of its
global and transnational nature. It was not practical to attempt to capture the
emissions of this industry in the nationally determined contributions under the
Paris Agreement.
The IMO experienced difficulty in addressing GHG emissions over a protracted
period of time. It commenced consideration of air pollution as a consequence of
concerns over oil fuel quality in the 1980s. In 1991 the Assembly adopted a
resolution40 that included air pollution among other issues and led to the amendment
of MARPOL through the adoption of Annex VI. This decision was in line with a
string of global instruments adopted to address air pollution and producing external

34
Kyoto Protocol to the United Nations Framework Convention on Climate Change, 1997, art 2(2).
35
United Nations General Assembly Resolution, Transforming our World: The 2030 Agenda for
Sustainable Development, 2015, preamble and paras 14, 31 and 27, and Goal 7.
36
Paris Agreement, 2015, art 2(1).
37
Ibid art 2(2).
38
Second IMO GHG Study 2009: Update of the 2000 IMO GHG Study—Status Report from the
Steering Committee, Note by the Secretariat, IMO Doc MEPC 59/4/4 (8 April 2009).
39
Third IMO GHG Study 2014—Executive Summary, Note by the Secretariat, IMO Doc MEPC
67/6 (1 July 2014), annex.
40
Prevention of Air Pollution from Ships, IMO Assembly Resolution A.719(17) adopted
6 November 1991.
106 A. Chircop and D. Shan

pressure on the IMO.41 In 1997 the IMO followed up on the Kyoto Protocol’s
expectation with respect to bunker fuel and by MEPC 42 in 1998 it commenced
cooperation with the UNFCCC secretariat and the Subsidiary Body for Scientific
and Technological Advice (SBSTA), one of the subsidiary bodies of the UNFCCC.
In 2000, the first IMO study on GHG emissions from shipping was produced42 and
at MEPC 47 there was a decision to commence work to develop a GHG strategy with
a focus on CO2.43 An Assembly resolution adopted in 2003 urged the MEPC to
continue work on the issue.44 Over the next several sessions the MEPC laboured
hard on the issue in plenary and working groups, exploring ideas for the overall
approach, principles to guide discussions and potential range of technical, opera-
tional and other measures.45 In particular, there was frequent sharp division on
whether shipping’s contribution to mitigation should be guided by the principle of
no discrimination and no more favourable treatment (ND-NMFT) generally guiding
the development of international maritime conventions and their enforcement
through port state control, or the principle at the heart of the UNFCCC, Kyoto and
Paris Agreement, namely common but differentiated responsibilities (CBDR), and to
which later were added according to ‘respective capabilities (RC)’ and ‘national
circumstances (NC)’. The way forward would eventually be clarified in part by the
combined CBDR-RCNC principle in the Paris Agreement and the adoption at
MEPC 70 of the Roadmap for Developing a Comprehensive IMO Strategy on
Reduction of GHG Emissions from Ships which has served to guide the organization
on its deliverables and continues to do so as work on the GHG strategy proceeds.46
Despite the difficulty of the issue, several important outputs were produced.
MARPOL Annex VI was amended to introduce Chapter 4 with provisions on the
Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Manage-
ment Plan (SEEMP), on a majority decision rather than the customary consensus.
The expectation is that all new ships will be 30% more energy efficient by 2025 than
those built in 2014. MARPOL was further amended to introduce a mandatory ship

41
For example: Convention on Long-Range Transboundary Air Pollution, 1979, amended by
Protocols to address emissions of sulphur (1985), nitrogen oxides (1988), volatile organic com-
pounds (1991), and further reducing sulphur emissions (1994); Montreal Protocol on Substances
that Deplete the Ozone Layer, 1987, amended by the Protocol of 1990 phasing out of halons and
ozone-depleting CFCs 2000, and by the Protocol of 1992 accelerating phase-outs and adding phase-
out dates for HCFCs and methyl bromide.
42
Report on the Outcome of the IMO Study on Greenhouse Gas Emissions from Ships, Submitted
by the Secretariat, IMO Doc MEPC 45/8 (29 June 2000).
43
Report of the MEPC at its 46th Session, IMO Doc MEPC 46/23 (16 May 2001), at 52–53.
44
IMO Policies and Practices related to the Reduction of Greenhouse Gas Emissions from Ships,
first adopted by MEPC, Report of the MEPC on its 49th Session, IMO Doc MEPC 49/22/Add.1
(13 August 2003), Annex 7, and by IMO Assembly Resolution A.963(23) adopted
5 December 2003.
45
Chircop et al. (2018), pp. 36–47.
46
Report of the MEPC on its 70th Session, IMO Doc MEPC 70/18 (11 November 2016), pp. 50–51;
Report of the MEPC on its 70th Session, IMO Doc MEPC 70/18/Add.1 (11 November 2016),
annex 11.
Governance of International Shipping in the Era of Decarbonisation: New. . . 107

fuel use reporting system for vessels of 5000 gross tonnage or more, with flag states
collecting data and communicating these to the IMO.47 More recently at MEPC 72 in
2018, IMO adopted the Initial Strategy for the Reduction of Greenhouse Emissions
from Ships (IMO Strategy)48 guided by a vision statement that the ‘IMO remains
committed to reducing GHG emissions from international shipping and, as a matter
of urgency, aims to phase them out as soon as possible in this century.’49 The vision
is accompanied by levels of ambition that include reduction of the carbon intensity of
ships by scaling up the EEDI, aiming at reduction per transport work by at least 40%
by 2030 and aiming towards 70% by 2050 using 2008 as the base year, and
emissions are to peak as soon as possible and decline by at least 50% by 2050
while continuing action to reduce emissions.50 The past conflicting views on prin-
ciples was resolved so that both ND-NMFT and CBDR-RCNC are included in the
strategy, together with equitable considerations, precaution and evidence-based
decision-making.51 The teeth of the strategy are the measures for the short
(2018–2023), medium (2023–2030) and long-term (2030–2050). The strategy pro-
vides an initial list of measures, with the details yet to be developed. Of particular
interest to this essay are port measures and incentives for the short-term and beyond,
and market-based measures for the medium-term and beyond, as they raise questions
concerning the IMO’s mandate and capacity. Finally, the strategy includes pro-
visions on impacts on states and barriers, supportive measures and periodic review.
It is important to note that the strategy is only ‘initial’ and that there is already a
process under way to populate and finalize it for adoption as the ‘revised’ strategy by
2023.52

4 Mandate and Structural Constraints

To date, it is fair to state that the IMO has made substantial progress in leading the
industry on the road to decarbonization, despite the protracted discussions and
divisions. However, the outputs are incipient and much more hard work is required
for an extended period to finalize and fully operationalize the GHG strategy. It is the
prospective work that raises questions as to how well the IMO is positioned, both in
terms of mandate and structure, to lead the shipping industry to deliver a

47
Amendments to MARPOL Annex VI (Data Collection System for Fuel Oil Consumption of
Ships), Resolution MEPC.278(70) adopted 28 October 2016.
48
Report of the MEPC on its 72nd Session, IMO Doc MEPC 72/17 (3 May 2018), 39–44. The IMO
GHG Strategy was adopted by Resolution MEPC.304/72 adopted 13 April 2018 (IMO Strategy).
49
Ibid para 2.
50
Ibid para 3.1.
51
Ibid para 3.2.4.
52
For the most recent update on the work of the ISWG-GHG at the time of writing, see Report of the
Fourth Meeting of the Intersessional Working Group on Reduction of GHG Emissions from Ships
(ISWG-GHG 4), MEPC 73/WP.5 (19 October 2018).
108 A. Chircop and D. Shan

commensurate contribution to the Paris Agreement and eventually decarbonize in

the second half of the century. Unlike past regulatory triggers, which essentially
consisted of events creating compelling necessity for short-term urgent action, GHG
regulation requires a regulatory strategy for the very long-term and subject to
uncertainties concerning future available technologies, usefulness of market tools,
economic impacts and ratcheting of ambitions. It is conceivable that emission targets
may have to be revised by future meetings of the Contracting Parties to the Paris
Agreement if new science provides evidence that the agreement’s level of ambition
is inadequate to meet the temperature goal. Simply placing faith in technical and
operational measures, such as ratcheting the EEDI to higher levels, is likely insuf-
ficient given the expected growth in world trade. Somehow, the strategy should
wean the industry off fossil fuels towards decarbonization. How well positioned is
the IMO to deliver on this ambitious long-term imperative?
The inclusion of port measures and incentives for the strategy’s short-term raises
an interesting question concerning the boundaries of the IMO mandate. IMO
regulation has always focused primarily on ships and ports are addressed only in a
subsidiary manner. Thus, MARPOL is clearly focused on ships and port inspection
plays a secondary role in compliance and enforcement with respect to ships. The
International Code for the Security of Ships and Port Facilities (ISPS) Code
addresses standards for security measures in ports, but again these are motivated
by the presence of and services provided to ships.53 Ports are clearly subject to a
state’s sovereignty and they do not raise the jurisdictional concerns of ships engaged
in international voyages. They are subject to exclusively national standards and
rules, which vary from state to state, and for the purposes of the Paris Agreement are
captured by the nationally determined contributions. The port state is effectively
accounting for the energy used by ships through provisioning of power from the
domestic grid. Therefore, there is an interesting question here as to the extent to
which the IMO’s environmental mandate can be interpreted to include port activities.
Clearly there is a port-ship interface which is important for the regulation of GHG
emissions from ships, such as the provision of shore-based power which helps a
ship’s ability to reduce emissions. But the provision of green ship incentives can
only be ‘encouraged’, at the most, by the IMO as anything more would step on
member states’ sovereign authority.
MBMs potentially raise another interesting question. The IMO’s mandate has to a
great extent been interpreted and applied to the adoption of technical and operational
measures for international shipping, including for the training of seafarers. MBMs
are different. They are economic measures and the options discussed in the MEPC
include, among other, a carbon levy (for example levied at source on the purchase of
bunkers and reflected on the bunker delivery note) and an emissions trading scheme
(such as a cap-and-trade system, whether restricted to the sector or linked to other
sectors).54 It is unclear how levies collected on bunker deliveries would be

53
ISPS Code, 2002.
54
Chircop et al. (2018), pp. 49–53.
Governance of International Shipping in the Era of Decarbonisation: New. . . 109

administered, as well as their eventual use or disbursement, but what is clear is that
the IMO is not set up to receive levies, which some states have characterised as
taxes.55 The IMO’s constitutive instrument does not contain express provision to
authorise this function, or for that matter to administer an emissions trading scheme.
The IMO was not designed for market intervention, but rather to provide machinery
for international cooperation for the adoption of the highest practicable technical and
operational standards. Thus, should the IMO proceed with MBMs in the strategy, it
will likely need to clarify its own legal authority to perform this function. It would
need to consider whether MARPOL, as an instrument on technical and operational
matters, is sufficient or whether a new instrument will be needed. Moreover, it would
likely need to reconsider how its current structure, secretariat functions and expertise
would be able to administer such new tasks. The IOPC Fund provides an interesting
precedent for a separate structure to collect funds for disbursement. The Fund was
established as a result of deliberations in the IMO, but it has its own legal personality
and operates independently. The IMO, as a regulator, maintains an arms’ length
relationship with the Fund that acts as an insurer.
IMO regulation has long been guided by compelling necessity, pursued through a
principled approach. Although maritime regulation has accommodated the precau-
tionary approach, by and large maritime regulation is evidence-based. The evidence-
based approach, which suits the industry’s planning and cost-structures, could limit
the IMO’s flexibility in regulating GHG emissions in the context of the uncertainties
we identified earlier. The industry’s preference for regulation based on available
technologies could be an issue, because GHG regulation should be proactive and
foster an environment for the development of new technologies, rather than be
reactive and responsive to technological availability. There needs to be a shift
from the IMO’s past history of predominantly reactive regulation, to greater proac-
tive regulation that sets the long-term path to decarbonisation.

5 Conclusion

On the adoption of the IMO Initial Strategy, which he described as addressing an

‘immense and global challenge,’ IMO Secretary-General Kitack Lim stated that the
strategy ‘sets a clear signal on how to further progress the matter of reduction of
GHG emissions from ships up to 2023. The planning exercise to implement the
Initial Strategy up to 2023 is now behind us. It is time to take a step further.’56 There
are a series of next steps to be taken, including a fourth study on GHG emissions
from ships, but the principal task is the finalization of the strategy for adoption in

55
For example, Greece, a major beneficial owner of shipping. Report of the MEPC on its 58th
Session, IMO Doc MEPC 58/23 (16 October 2008), annex 10.
56
“Next steps to deliver IMO GHG strategy’, (IMO Press Briefing, 22 October 2018), online: http://
www.imo.org/en/MediaCentre/PressBriefings/Pages/Home.aspx.
110 A. Chircop and D. Shan

2023. The revised strategy will detail measures for the short- and medium-terms,
with an indication of directions for the long-term.
In this essay we argue that the long-term challenge of regulating GHG emissions
from shipping, and especially the possible measures under consideration, will
spotlight the extent to which the current mandate and structures of the IMO are
sufficient to deliver on the strategy.
Indeed, there is already concern about the adequacy of working on the GHG issue
through existing formal working arrangements, which currently include sessional
and intersessional working groups. In the near future the MEPC is expected to
consider whether to continue its GHG work using existing formal arrangements or
perhaps establish a dedicated stand-alone group (which the committee could decide
on) or even the establishment of a new sub-committee, that would require a Council
decision, to address the volume and diversity of the tasks involved.57 The develop-
ment of the strategy was a very difficult process and we believe the detailed measures
and their implementation could produce further functional and structural stresses in
the IMO. This can be expected with respect to non-technical measures, such as port
measures and MBMs. The organization’s current regulatory mandate is focused on
the technical regulation of shipping.
There are options for managing stresses produced by strategy measures. For
example, with respect to measures and issues that are peripheral to the IMO’s
explicit mandate, they can be proposed as recommendations and in consultation
with other organizations that may be more directly concerned. This could be the case
with respect to port measures which could be coordinated with the International
Organization for Ports and Harbours. With respect to MBMs, and especially the
carbon levy or an ETS, we believe the lesson of the IOPC Funds as a separate treaty
regime is an interesting precedent and would enable the organization to maintain its
focus on technical regulation. An alternative option is to consider developing an
MBM under the umbrella of the Paris Agreement as long as there is support from
state parties. In the event that the functional and structural stresses are not easily
alleviated, the IMO may need additional powers in its mandate. The history of the
IMO shows that member states expanded the organization’s mandate and structures
to enable it address new challenges, providing ample precedent for further
institution-building in support of the long-term strategy.

57
Possible future working arrangements to support the follow-up actions of the Initial IMO Strategy
on Reduction of GHG Emissions from Ships, Note by the Secretariat, IMO Doc MEPC 74/7/1
(4 February 2019).
Governance of International Shipping in the Era of Decarbonisation: New. . . 111

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Good Faith in Maritime Law Contracts

Shatarupa Choudhury and Pallab Das

Abstract In academic and professional circles, discomfort and distrust remain

visible around the application of good faith in contracts. However, the flow of
time has shown judicial inclination towards such application in order to arrive at
just outcomes. Given the backdrop of good faith as a legal principle and the scattered
treatment of it across various jurisdictions, it is interesting to note its relevance in
maritime contracts. The chapter discusses how application of this phenomenon
impacts ascertainment of liabilities and quantum of damages through case law, and
if at all, parties are required to adopt good faith expressly in particular reference to
maritime contracts.

1 Introduction

Recognizing good faith as an intrinsic element in an individualistic pursuit of parties

in a contract is uncomfortable yet compelling at the same time. Good faith, as Cicero
described, “is the foundation of justice, truth and fidelity to promises and agree-
ments. And therefore, we may follow the Stoics, who diligently investigate the
etymology of words; and we may accept their statement that ‘good faith’ is so called
because what is promised is ‘made good’, although some may find this derivation
rather farfetched.”1
Kant, on the other hand believed, “the value of a good will thus cannot be that it
secures certain valuable ends, whether of our own or of others, since their value is
entirely conditional on our possessing and maintaining a good will. Indeed, since a

1
Cicero, De Officiis, http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Cicero/de_Officiis/1B
.
html.

S. Choudhury
Swiss Singapore Overseas Pte Ltd, Aditya Birla Group, Singapore, Singapore
P. Das (*)
National Law University Odisha, Bhubaneswar, Odisha, India
e-mail: pallab.das@nluo.ac.in

© Springer Nature Switzerland AG 2020 115

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_7
116 S. Choudhury and P. Das

good will is good under any condition, its goodness must not depend on any
particular conditions obtaining”. Thus, Kant points out that a good will must then
also be good in itself and not in virtue of its relationship to other things such as the
agent’s own happiness, overall welfare or any other effects it may or may not
produce a good will would still ‘shine like a jewel’ even if it were ‘completely
powerless to carry out its aim’.2 The moot of the hour is whether good faith is
undesirable, far-fetched, uncertain and hence must stay out of the trapezium of a
contract or whether it should be ‘intrinsic’ in its presence as a legal requirement in
contracts.
What role does good faith have in maritime law contracts? Maritime issues are in
themselves at times uncharted, immediate, heaped under a mountain of unstated
understandings and sometimes a precursor to astronomical figures of liabilities.
What would good faith do in a maritime contract is yet to be visualized in clearer
terms.
The law of contract mandates pre-contractual, contractual and post-contractual
duties, rights and risks that are assessed and allocated by parties to protect their own
interests. This envisages an altar of rights, a labyrinth of liabilities and yet a shelter in
the contract itself in all possible situations that may occur between the parties or may
be due to any extraneous factor affecting the contract. Courts in civil law jurisdic-
tions intervene to interpret terms in a just and fair manner so as to annul any kind of
absurd and unjust outcomes these terms can create by themselves. In common law,
there is certainly a recognition of ‘good faith’ even though at times the concept has
been dodged and rejected.3
However, there is no certainty as to its legal status as an independent variable to
determine the validity or invalidity of a contract as a cause of action. While civil law
jurisdictions perceive the law and economics of good faith as prevention of oppor-
tunism and unfairness,4 common law jurisdictions perceive parties as independent
and autonomous bodies responsible enough to guard their own interests, although
there have been abrupt and inconsistent deviations from this rigid stance. Further-
more, there is no unanimity over the definition of ‘good faith’. However, this
definitional inadequacy of ‘good faith’ makes it a powerful and decisive element
that could shape a legal situation for the benefit of both the parties with just
outcomes.
We shall analyse what “good faith” as a principle implies for maritime law
contracts generally and what parties could do to protect their interests in light of
the uncertainty of how the principle of good faith is treated in common law
jurisdictions. It is yet to be understood if parties should be bound by an obligation
of good faith as a stand-alone legal concept or if parties are better off without
creating an obligation for a concept that according to certain scholars and jurists
remains extraneous to the principles of contract. Good faith has been applied

2
https://plato.stanford.edu/entries/kant-moral/#GooWilMorWorDut.
3
Colombo (2012), pp. 23–59.
4
https://www.researchgate.net/publication/318012840_Good_Faith.
Good Faith in Maritime Law Contracts 117

variously by the courts according to how they have perceived it from time to time to
epitomize fairness in exceptional circumstances. Finally, we shall discuss if the
absence of good faith in maritime contracts creates chaos and what parties could
do to avoid it.

2 Analysing Good Faith: Through the Looking Glass

of Contract Law

The basic elements of honesty, fair dealing and trust constitute certain essential
ingredients of good faith. In all the vagueness of its definition, good faith is at least
known to comprise “duty to disclose” and “making true representations” as in
marine insurance law. Although the duty of good faith is recognized in marine
insurance contracts, there exists a perception that this phenomenon is not recognized
at all in contracts generally, at least in common law jurisdictions.5 The ethos of
individualism underpins the classical theory of contract law, which focuses predom-
inantly on freedom of contract.6 According to certain scholars, the doctrine of good
faith emerges outside the terms of the contract apart from the fact that it runs counter
to the individual autonomy critical to a contract.7 Good faith, a concept emerging
from altruism, is perceived to be anti-individualistic to business pursuits and
requirements. Scholars have also pointed out:
the danger in any overenthusiastic and indiscriminate embracing of good faith notions and
have maintained that a deterioration of the law of contract into “well -meaning sloppiness of
thought must be avoided so as not to disregard the fundamental moral principle of respon-
sibility for one’s own actions.”8 However they acknowledge that good faith and culpa in
contrahendo, used with restraint, are ‘residual’ categories whose existence vital to an open
system of contract justice and to a restriction of contractual freedom in the interest of its own
preservation.9

Furthermore, the economically-oriented criticisms of good faith are the entire set
of arguments that see a possible expansion of the notion as economically detrimen-
tal.10 Good faith brings in a fear-meter in the legal wall of contracts. However, this
“slippery slope” argument against good faith is questionable. The essential X and the
inevitable Y are what the legal telescope can vaguely envision at this moment. The

5
Ahmed (2010).
6
Davies (2002).
7
TSG Building Services PLC v South Anglia Housing Limited [2013] EWCH 1151 the High Court
found that no good faith obligation applied to an exercise of the right to terminate set out in the
contract. The High Court considered that the contractual requirement that the parties “act reason-
ably” and “work together individually and in the spirit of trust, fairness and mutual cooperation” did
not provide a basis for implying a duty of good faith.
8
Kessler and Fine (1964).
9
Ibid.
10
Colombo (2012), p. 24.
118 S. Choudhury and P. Das

question is whether law needs to take care of business opportunism in the forms of
asymmetric disclosure, strategic manipulation or distorted dealing. Although con-
tract law contemplates a legally enforceable agreement between “competent” parties,
who are individuals adequately guided by their own interests to honour these
agreements, yet the issue is whether unfair or absurd results within the four corners
of the contract should be avoided by the application of good faith.
At the outset, it is interesting to note how various jurisdictions have adopted or
rejected the concept of good faith in contract law. They have dealt with and differed
on the application of the good faith doctrine in contracts. In Argentine law, good
faith is mandatory to all contracts by operation of the Civil Code11 which requires
contracts to be executed, construed and complied with in accordance to what the
parties truly understood or were able to understand, acting with due care. The
German Civil Code (BGB), entered into force in 1900, establishes the need to act
in good faith. Paragraph 242 of the BGB, due to its jurisprudential importance, has
been classified as the “king” of the German Civil Code.
In French Law, the “obligation de vigilance” (duty to care) is considered to be an
obligation towards honesty and good faith. The commencement, continuation and
breaking-off of pre-contractual negotiations are free from control. They must man-
datorily satisfy the requirements of good faith.12 The freedom to contract is followed
by a specific requirement of good faith contained in it. Any failure in this regard by
the parties will entail liabilities. Article 1134 of the French Civil Code, 1804
stipulates that contracts must be performed in good faith during the pre-contractual
negotiation, formation and termination stages. Furthermore, good faith has been
made prominent in public policy. The scope of good faith stands expanded and
elevated in crystal clear words of the Code that contracts must be negotiated, formed
and performed in good faith.13 Whereas the French Civil Code, 1804 simply stated
that contracts should be performed in good faith, the reforms in 2016 have codified
case law that had extended the principle to the pre-contractual negotiations and
formation stages.14 Any action contrary to good faith may not just result in damages
but may also lead to cancellation of the contract. French jurists identified two
independent definitions for good faith; namely, “honesty in legal actions”, and “a
negligible misconception which is supported as a right”. Based on these definitions,
good faith has two separate applications. In the first one, good faith is an enforceable
rule in conclusion, execution, and interpretation of contracts; and in its second
application, good faith is used as a legal basis to justify supporting a person against
the misconception arising from that person’s lack of knowledge or awareness.15
According to Article 108 of the French Civil Code, 1804, non-provision of infor-
mation can lead to mistakes being made on the part of the deprived party and thus,

11
Lorrenzo (2014).
12
Art. 1112, French Civil Code.
13
Art. 1104, French Civil Code.
14
Rowan (2017).
15
Ibid.
Good Faith in Maritime Law Contracts 119

can prepare the ground for contract cancellation. According to Article 1116 of the
Code, deception is cited as a cause for cancellation of a contract.
Is good faith alien to the common law? This certainly is a myth. The concept has
repeatedly been treated as a legal requirement and not merely as an interpretational
tool to appreciate the purpose of the contract. The opinion of Dillion CJ that went on
to influence Leggatt, J’s decisions later, clearly showed that good faith was much
more than a legal requirement; it was a norm that lay at the heart of any contract in
common law itself.
In many civil law systems, and perhaps in most legal systems outside the common law
world, the law of obligations recognises and enforces an overriding principle that in making
and carrying out contracts, parties should act in good faith. This does not simply mean that
they should not deceive each other, a principle which any legal system must recognise; its
effect is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair’,
‘coming clean’ or ‘putting one’s cards face upwards on the table’. It is in essence a principle
of fair open dealing . . . English law has, characteristically, committed itself to no such
overriding principle but has developed piecemeal solutions in response to demonstrated
problems of unfairness.16

In the United States, section 1-304 of the Uniform Commercial Code indicates
that “[e]very contract or duty within [the Uniform Commercial Code] imposes an
obligation of good faith in its performance and enforcement.” However, the appli-
cation of good faith may not be unfathomable or overriding here as in the French
Civil Code. US scholars have concluded that the Uniform Commercial Code17
(“UCC”) and Restatement (Second) of contracts do not impose good faith obliga-
tions if a contract is not made, and most [U.S.] courts have refused to imply good
faith obligations in pre-contractual negotiations.18 Good faith is at times not
employed as a litmus test but as a filter to eliminate undesirable ingredients such
as in the so-called “excluder” analysis. Summers19 claimed that good faith was an
“excluder”; that it served to exclude a wide range of heterogeneous forms of bad
faith.20 These abstractions of the term “good faith” have led scholars, legislators and
judges to interpret “good faith” in a way that attaches numerous connotations to its
application. The excluder analysis of good faith “excludes a variety of types of
conduct characterized as involving “bad faith” because they violate community
standards of decency, fairness or reasonableness.21 In contrast, in the practice

16
Dillion CJ in Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd. [1989] 1 QB 433.
17
Burton (1994), pp. 126–156.
18
Ibid.
19
Summers (1968), pp. 195–267.
20
“That is, it was not appropriately formulable in terms of some general positive meaning-through
the specification of a set of necessary and sufficient conditions, for example; rather, it functioned as
an excluder to rule out a wide range of heterogeneous forms of bad faith”, Summers (1968),
pp. 195–267.
21
RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981). Also see The Restatement
(Second) of Contracts (Restatement) states that, “[e]very contract imposes upon each party a duty
of good faith and fair dealing in its performance and its enforcement,”. The Uniform Commercial
120 S. Choudhury and P. Das

view,22 good faith is understood in the context of its alignment with the justifiable
expectations of the parties.
Articles 1 and 2 of the Uniform Commercial Code, apply to commercial trans-
actions and make good faith an express requirement in transactions. The good faith
requirement limits a party’s discretionary freedom in contract performance and
enforcement. The context in which the contract was made and the justifiable
expectations of the parties while entering into a contract are the central fields
where in good faith operates in. This reduces any arbitrary or one sided interpretation
of the contract later in case of any dispute. This approach is called the “practice
view” of good faith because it codifies judicial practice.23
It is interesting to note the case of Dorsey Bros. v. Anderson,24 where a buyer of
snap beans was given the discretion to determine when the beans were ripe and to
calculate the price following harvest. Due to a drought, a portion of the farmer’s bean
crop was damaged. The buyer delayed harvesting of the farmer’s crop to harvest
other less-damaged beans.
As a result, the farmer’s beans were damaged even further and the eventual price
was reduced. That the buyer acted in bad faith in delaying the harvest was sufficient
for a determination of breach of contract. In this case, it was pronounced that the
buyer did not act in good faith because he did not use his discretion to the justifiable
commercial expectations of the other party. The buyer had control over that certain
condition to decide when the crop was ripe to harvest at the right time which he
chose not to do or rather neglected to do. The concept of good faith has many
connotations that can only be understood and realized in the specific context of the
case. In this scenario, a duty to be aware and act at the optimum condition of the crop
was internalized as an act to be carried out pursuant to the good faith requirement.
The buyer’s negligent omission or incorrect judgement amounted to an act contrary
to commercial sense which any party entrusted with that specific role would reason-
ably choose not to do.
Courts agree that the good faith performance obligation in these cases is the same
as the pre-existing common law obligation.25 It supposes that the distinctive mission
of a good faith performance obligation is to police a party’s exercise of contractual
discretion.26 “Instances inevitably arise where one party exercises discretion retained
under a contract in such a way as to deny the other a reasonably expected benefit of
the bargain.”27

Code’s (U.C.C.; the Code) general definition of good faith encompasses both “honesty in fact and
the observance of reasonable commercial standards of fair dealing.”
22
Practice view interpreted good faith more contextually, aligned with the expectations of the
parties.
23
See Burton (1994), pp. 1533–1564.
24
264 Md. 446 (1972), 287 A.2d 270.
25
Burton (1994), p. 1534.
26
Ibid.
27
See Rawlings, 151 Ariz. at 154, 726 P.2d at 570.
Good Faith in Maritime Law Contracts 121

Good faith was introduced into Australian law through the case of Renard
Constructions (ME) Pty Ltd v. Minister for Public Works.28 This became the
foundational reference for the concept in Australia. In Renard, Priestley JA referred
to good faith as a phrase without general meaning as it is “an excluder”. In other
words, good faith excluded heterogeneous forms of bad faith; therefore, a party
breaches its duty of good faith by acting in bad faith. In Australian law the doctrine
of good faith is essentially derived from the U.S.
Furthermore, in BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council,29 it
was held that for an implied term to be adopted into a contract it must: (1) be
reasonable and equitable to do so, (2) must give the contract business efficacy, (3) be
so obvious that ‘it goes without saying’, (4) be capable of clear expression and
reasonably certain in its operation; and (5) be consistent with the express terms of the
contract.
However, there has been a series of criticism against Priestly J’s adoption of the
excluder definition of good faith. As suggested by Baron30 (1) it would be unrea-
sonable for the courts to circumscribe [a party’s express right to terminate a contract]
by implication of a term of good faith; (2) the contract in Renard was already
“commercially effective without the imposition of the term”; (3) in the pursuit of
commercial interests, the implication of good faith would not have been obvious “at
the time of entry into contracting”; (4) it has been argued by academics that good
faith is “too amorphous to be useful” and at the time of Renard, the implied term of
good faith was not capable of clear expression, and; (5) the implied term of good
faith was “inconsistent with the rights and obligations expressed in the contract”.31
As discussed above, similar to the US approach, good faith is not very clearly
defined in Australian law. It can be argued that in Australia, identifying bad faith in
contract law is more feasible than proving good faith (or lack thereof). In the case of
South Sydney District Rugby League Football Club Ltd. v. News Ltd.32 a “core
meaning” thesis of good faith was devised. Unlike the excluder thesis adopted by
Priestley J. in Renard, Finn J. in South Sydney expressed that acting in good faith
was described in terms of loyalty to a contract.33 While the concept of good faith is
crystallized and embodied in the civil law systems, in common law jurisdictions, the
concept is highly interpretative and malleable given a particular context. This
difference in approach between the common law and the civil law is linked with a
fundamental difference in their underlying philosophical approaches.

28
(1992) 26 NSWLR 234.
29
(1977) 180 CLR 266.
30
Baron (2002), pp. 54–81.
31
Capuano (2005), pp. 29–48.
32
[2000] FCA 1541.
33
Capuano (2005), p. 31.
122 S. Choudhury and P. Das

3 Application of Good Faith in Maritime Contracts

At common law, it was believed that the doctrine of good faith has not spilled
beyond the perimeter of the law of marine insurance. Scholars take cue from the fact
that definition of good faith is not available in any of the statutes in English law
jurisdictions. Only in marine insurance contracts has good faith been recognized to
an extent by including the duty of disclosure and making true representations as its
essential ingredients. We shall observe and analyse if such treatment has been meted
out to other contracts in general and maritime contracts specifically.
In Carter v. Boehm,34 Lord Mansfield pronounced that there may be circum-
stances in which an insurer, by asserting a right to avoid for non-disclosure, would
himself be guilty of want of good faith. This was held to be an unprecedented
statement of common law.35 Section 17 of the Marine Insurance Act, 1906 embodied
good faith. This section attracted further attention in 1985, when Hirst J. in The
Litsion Pride36 held that the insurer might have a defence to the claim based upon
lack of good faith.
However, when it comes to general contracts, in the absence of a doctrine of good
faith, English law has had to resort to the implication of terms depending upon the
nature of the contract e.g., an implied duty to cooperate where the contract cannot be
performed without cooperation, or by reason of special circumstances of a particular
contract. The special facts, upon which the contingent chance is to be computed, lie
most commonly in the knowledge of the insured only; the under-writer trusts to his
representation, and proceeds upon confidence that he does not keep back any
circumstances within his knowledge, to mislead the underwriter into a belief that
the circumstance does not exist, and to induce him to estimate the risque, as if it did
not exist”.37
An era has passed since Lord Ackner pronounced that negotiations in good faith
were not enforceable in English law.38 In Walford v. Miles,39 the defendants refused
to negotiate and consequently, the contract remained undecided although there was a
contract to negotiate between the parties. The House of Lords affirmed that the
English law does not recognize a contract to negotiate or a contract to contract, and
there could be no duty to negotiate in good faith. “The central theme of English law
that is ‘adversarial’ at its core, implies that each party to the negotiations is entitled to
pursue his (or her) own interest, so long as he avoids making misrepresentations. To
advance that interest he must be entitled, if he thinks it appropriate, to threaten to
withdraw from further negotiations or to withdraw in fact in the hope that the

34
[1746] E. R. 89.
35
http://pryan2.kingsfaculty.ca/pryan/assets/File/Watterson_2008_on_Carter_v_Boehm_1766.pdf.
36
Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie [1985]
1 Lloyd’s Rep. 437 (The Litsion Pride).
37
Steyn (1991), pp. 131–141.
38
Walford v. Miles [1992] 2 A.C. 128.
39
Ibid.
Good Faith in Maritime Law Contracts 123

opposite party may seek to reopen the negotiations by offering him improved
terms”.40
However, the principle of good faith in English law is a fundamental principle
derived from the rule pacta sunt servanda and other legal rules distinctively and
directly related to honesty, fairness and reasonableness.41 This has definitely
reaffirmed that common law is in no way indifferent to the concept of good faith.
Duress, misrepresentation, fraud, unconscionable bargains are definitely frowned
upon in English law as clear bad faith. However, the development over time shows
good faith has more meaning than mere lack of bad faith. It is also observed that
despite a lush labyrinth of case law and opinions have shown that good faith is
evolving and has been sprinkled like vanilla or vinegar wherever the judiciary has
decided to intervene.
In Yam Seng,42 Legatt J., opined as follows:
What constitutes fair dealing is defined by the contract and by those standards of conduct to
which, objectively, the parties must reasonably have assumed compliance without the need
to state them. The advantage of including reference to fair dealing is that it draws attention to
the fact that the standard is objective and distinguishes the relevant concept of good faith
from other senses in which the expression ‘good faith’ is used.43

In this case, Yam Seng had not made out a claim for loss of profits, as it had failed
to prove what profit it would have made or indeed that it would have made a profit at
all if ITC had fully performed its obligations under the Agreement. However, Yam
Seng was entitled to recover damages for ITC’s breach of contract in performing the
agreement. The burden of proof lay on the defendant to show that the expenditure
would not have been recouped and would have been wasted in any event, but ITC
had not attempted to discharge the burden of showing what financial return Yam
Seng would have had if ITC had not been in breach of contract. In this case, Leggatt
J., opined that the fear of uncertainty in good faith was unjustified and that it was an
intrinsic and inherent part of contractual interpretation in the particular context. “The
fear that recognising a duty of good faith would generate excessive uncertainty is
unjustified. There is nothing unduly vague or unworkable about the concept. Its

40
Ibid.
41
Hunter (1992), pp. 172–174.
42
English law had not reached the stage where it was ready to recognise a requirement of good faith
as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there
was no difficulty, following the established methodology of English law for the implication of terms
in fact, in implying such a duty in an ordinary commercial contract based on the presumed intention
of the parties. The modern case law on the construction of contracts emphasised the contracts were
made against a background of unstated shared understandings which informed their meaning.
43
See Yamseng, [2013] EWHC 111 (QB), in so far as English law may be less willing than some
other legal systems to interpret the duty of good faith as requiring openness as “playing fair”
“coming clean” or “putting one’s cards face upwards on the table”, this should be seen as a
difference of opinion, which may reflect different cultural norms, about what constitutes good
faith and fair dealing in some contractual contexts rather than a refusal to recognise that good faith
and fair dealing are required, para 151.
124 S. Choudhury and P. Das

application involves no more uncertainty than is inherent in the process of contrac-

tual interpretation. He showed good faith as a malleable and workable concept.”44
Further, in Abu Dhabi National Tanker C.o v Product Star Shipping Ltd. (No.2)45
when considering the exercise of the discretion of a ship’s master in deciding
whether a port was dangerous. Leggatt LJ accepted that the discretion must be
exercised honestly and in good faith.
In maritime contracts, parties dabble with deeper uncertainty, steep liabilities,
hinged to sudden decisions of the Master or threaded to chains of rights and
liabilities passed in between. It is interesting to understand the application of good
faith in maritime contracts and the behaviour of the parties stuck in a dilemma. What
would good faith bring to maritime law contracts if it acted as the fulcrum towards
which parties tried to align their interests? In the performance of a contract, parties
have their own set of goals to be achieved, like two players in a game working
towards fulfilment of their tasks by employing separate strategies. Once these
strategies gravitate towards the focal point of good faith, no party would face
surprising or hidden inconveniences.
In Fulton,46 the arbitrator found that the parties had concluded an oral agreement
on the terms of ‘Addendum B’ and the charterparty had been terminated by the
owners in response to the charterer’s repudiatory breach. As to the quantum of
damages, he found that at the date of the breach there was no suitable time charter
employment for the vessel, that the owners acted reasonably in selling the vessel and
that the need to sell the vessel was caused by the breach. Accordingly, the owners
had to give credit for the difference in value, being a benefit arising from their actions
taken to mitigate their loss.
The owners claimed damages calculated by reference to the net loss of profits
during the remaining 2-year period amounting to 7,558,375 pounds. The charterers
argued that the owners were bound to give credit for the difference between the
amount for which the vessel had been sold in October 2007. The owners argued that
the difference in value was legally irrelevant. When the owners appealed before the
High Court on the point of damages, the Court allowed the appeal. As per the Court,
it was not a benefit caused by the breach. Even though the owners benefited from the
vessel sale in 2007 and that the benefit was more than the claim the owners had
against the charterers, yet the charterers were liable to pay the damages. The owner’s
action was considered as an independent commercial decision by the High Court.
However, the Court of Appeal overturned the decision of Popewell J. and reaffirmed
the arbitrator’s reasoning that the sale of the vessel contributed to the mitigation of
loss and had to be counted in. In the above case, the Owner’s free riding on the
market value of the vessel that essentially was arrived at due to the repudiation of the
contract by the charterers in 2007 was against good faith. For the benefits of an act

44
See Steyn (1991), para 152.
45
[1993] 1 Lloyd’s Rep 397, 404.
46
Fullton Shipping Inc of Panama v. Globalia Business Travel Sau (Formerly Travelplan Sau) of
Spain (The New Flamenco) [2017] UKSC 43.
Good Faith in Maritime Law Contracts 125

contributed directly or indirectly by the party in breach could not be used to

unilaterally inconvenience it.
In Aegean Sea Traders Corporation v. Repsol Petroleo SA and Another (The
“Aegean Sea”),47 the owners claimed against Repsol arguing that Repsol had
become the subject of liabilities owing to the provisions of the Carriage of Goods
by Sea Act, 1992 under one of the two bills of lading that the cargo carried. The bill
of lading contained implied terms as to “safety of the port” and implied indemnity.
The Court found it onerous to read implied terms on a party that had not become the
lawful holder of the bill of lading as the ship had broken into two at La Coruna, the
nominated port. It held:
the fact that the owners failed to deliver the cargo meant that the condition precedent to the
obligation to endorse duly delivered bills of lading had not arisen. Therefore, Repsol was not
in breach. “Repsol knew that the bill of lading should have been endorsed for ROIL and not
to them, because it was ROIL (the charterers) and not REPSOL who had purchased the cargo
and therefore never accepted the delivery or endorsement of the bill of lading to them. If the
requirement of good faith is limited to honest conduct, then it is a further pointer that the
requirements of possession as a result of completion by delivery of an endorsement must
have the consensual elements on the part of the endorsee or transferee. . .48

This case shows that good faith may not always mean parties accruing benefits. It
also means owning up to the costs when it becomes inconvenient.
In Mid-Essex Hospital Services NHS Trust v. Compass Group UK and Ireland
Ltd.49 there was no criticism by the Court of Appeal of Leggatt J.’s decision but
Jackson L.J. stated-
This is a very detailed contract, where the obligations of the parties and the consequences of
any failings have been spelt out in great detail. Commercial common sense therefore does
not favour a general overarching duty to co-operate in good faith. . .If the parties wish to
impose such a duty they must do so expressly.50

Good faith as an obligation may also be required to be capable of objective

assessment by a third party for a Court to be able to enforce it. Identifiability of a
good faith obligation can become a herculean task, leaving parties worse off in any
case, if parties do not expressly submit to it.
In Petromec Inc. v. Petroleo Brasileiro,51 the parties had agreed to negotiate in
good faith on the cost of an upgrade to an offshore oil platform. The Court of Appeal
held that an express duty to negotiate in good faith may be enforceable albeit in the
following circumstances: the obligation to negotiate in good faith is part of a
contractually binding agreement; the obligation to negotiate in good faith is an
express obligation; and the matter to be negotiated is capable of objective assessment
by a third party. The dispute was capable of objective assessment because the

47
[1998] 2 Lloyd’s Rep 39.
48
Ibid.
49
[2013] EWCA Civ 200, [2013] All ER (D) 200 (Mar).
50
https://www.newlawjournal.co.uk/content/good-faith-0.
51
[2006] EWCA Civ 1038.
126 S. Choudhury and P. Das

negotiation for the cost of the upgrade was based on an amended specification
against the original specification. Therefore, the court could identify the likely result
of negotiations in good faith.52
Furthermore, in maritime contracts, dispute resolution remains a critical clause.
Can a clause to exhaust friendly discussions to resolve a dispute hold back the other
party from proceeding towards immediate invocation of arbitration?
In Emirates,53 the Court held that the obligation to seek to resolve disputes by
friendly discussions must import to seek to do so in good faith. In traditional terms,
such an obligation goes without saying and is necessary to give business efficacy to
the contract. A time limited obligation to seek to resolve a dispute in good faith
should be enforceable. Such an agreement is not incomplete.
It does not follow however, that an agreement to undertake negotiations in good faith fails
for the same reason. An agreement to agree to another agreement may be incomplete. An
agreement to negotiate, if viewed as an agreement to behave in a particular way may be
uncertain, but is not incomplete. The objection that no Court could estimate the damages
because no one could tell whether the negotiations ‘would be’ successful ignores the
availability of damages for the loss of a bargained for valuable commercial opportunity.54

On the contrary, courts may at times retreat to decide on an agreement to

negotiate, In Itex v. Shipping,55 no payments were made by the charterers under
the Settlement Agreement and the owners sought an arbitral award. The submission
by the charterers that amicable settlement was a condition precedent to the submis-
sion of the arbitration was rejected. The Court held that the clause did not qualify as a
condition precedent and in any event, it was clear from the correspondence of the
parties that they were unable to reach an amicable settlement.
In United Group Rail Services v. Rail Corporation New South Wales,56 it was
propounded that, in the field of dispute resolution clauses, the Court ought not to
regard an obligation to seek to resolve a dispute in good faith as inherently incon-
sistent with the position of a negotiating party. It is not inconsistent where there is a
material, voluntarily accepted, restraint on the parties’ freedom of action, namely, a
promise to seek to resolve a dispute, be friendly discussions in good faith.
In Abbot Labs v. Baxter Int’l Inc.,57 the seat of the arbitration was Chicago; the
applicable law was Illinois Law. The Tribunal found that, under the Dispute Reso-
lution Agreement invoking the Original Commercial Relationship, Baxter’s pro-
posed sales of generic sevoflurane could be enjoined because they would reduce
Abbott’s revenues below monopoly levels, even though the expectation of generic
competition was not new. There stood one dissenting member who opined that the

52
Ibid.
53
Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd. [2014] EWHC 2104
(Comm).
54
Chaplin v. Hicks, ALL ER Rep 224.
55
Itex Shipping Pte Ltd v. China Ocean Shipping Co. [1989] [Q.B. (Com.Ct).
56
[2009] NSWCA 177 (3 July 2009).
57
Abbott Labs v. Baxter Int’l Inc., 315 F.3d 829, 834 (7th Cir. 2003).
Good Faith in Maritime Law Contracts 127

arbitrators were not authorized to act independently of the licensing agreement itself.
The majority also found a breach of an Illinois state duty of good faith, which the
dissenting arbitrator thought specious.58 The dissenting opinion emerged from an
American arbitrator who opined that good faith is not a part of English law and hence
cannot be applied in reading the licensing Agreement. However, the Tribunal held
that the international efficiency of the contract in question required the direct
application of the general principle of good faith.59 It held that the obligation of
good faith under Illinois Law establishes an independent cause of action under the
Agreement; and that “good faith is not only an aid in the interpretation of the
Agreements, but is a distinct legal basis for contractual commitments.”
In light of differences in the case law, although in the absence of an express
clause, it is now more likely that the courts will imply a duty to act in good faith, it
would be prudent for parties to introduce a good faith clause to the contract to avoid
the uncertainties as “in all matters [relating to this Agreement] the parties will act
with utmost good faith towards one another and will act reasonably and prudently at
all times”.60 As contracting parties to be expressly bound by good faith, the clause
must specify what good faith in the context of the contract means. It could be
specifying actions clearly required for the substantial satisfaction of the contract or
clarity of deadlines if the nature of the contract so demands. Maritime matters
demand immediate attention, care and caution such as when a ship gives notice of
readiness an hour and a half after the cancellation time, and the cancellation clause is
invoked. This clearly means cancellation as valid under the contract. But in the light
of good faith, such cancellation may sometimes be held contrary to good faith.61 The
civil law jurisdictions have good faith clearly embodied in the statues. Regardless of
jurisdiction, as a matter of caution the parties may clearly mention what could be
breach of the contract and under what conditions the contract could be cancelled or
conditions under which a breach could be atoned between the parties. Judicial
decisions may waver in determining slight and substantial breach, hence, parties
could define “substantial” and “light” breaches in their contracts as well.
The Achilleas,62 dealt with the extent to which knowledge of the likelihood of
loss in the event of breach of contract was sufficient to claim compensation from the
party in breach for any unusual loss. The charterer gave notice to terminate the hire,
and the owner found a new charterer. Until the termination, the charterers

58
https://caselaw.findlaw.com/us-7th-circuit/1361842.html.
59
Cremades (2012), pp. 761–789.
60
Berkeley Community Villages Ltd v. Pullen [2007] EWHC 1330 (Ch).
61
“German law rarely seeks to find a gap in the contract to be settled by means of constructive
interpretation. Since judges in Germany feel obliged to refer to a statutory text, they often invoke §
242 BGB, which requires them—when deciding what is due from the party rendering perfor-
mance—to apply the same standard as they apply under § 157 BGB when interpreting a contract,
namely the standard of good faith and proper commercial practice”, See, Kotz Hein, ‘European
Contract Law’, p. 236. Also see Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. (The Hansa
Nord).
62
[2009] 1 AC 61 (HL).
128 S. Choudhury and P. Das

sub-chartered resulting in the owner’s new charter getting delayed and the hire rates
dropping. The question was whether this attracted the rule that a party may recover
losses which were foreseeable.63 The charterers were not liable for the owner’s
losses in the absence of a clause making them so. Lord Brown in The Golden
Victory,64 held as follows:
It is one thing to say that the injured party, mitigating his loss as the breach date rule requires
him to do, thereby takes any future market movement out of the equation and to that extent
crystallises the measure of his loss; it is quite another to say, as the owners do here, that it
requires the arbitrator or court when finally determining the damages to ignore subsequent
events (save where the defendants can demonstrate that at the date of breach some suspen-
sive condition would inevitably and immediately have operated to cancel the contract)”.

Similarly, in Bunge SA v. Nidera,65 commercial certainty was held to be of prime

importance, even though its significance may fluctuate from one situation to another.
The House of Lords laid down the principle that where, after the date on which the
market price is to be ascertained, a supervening event occurs which shows that
neither the original contract (had it continued), nor the notional substitute contract at
the market price, would ever have been performed, the innocent party has suffered
no loss, and so can recover no damages; also, that the GAFTA default clause does
not exclude the common law principle of mitigation of loss. The compensatory
principle always trumped.

4 Conclusion

The final message is that maritime parties must be able to capture as much as they
can in the contract and to expressly incorporate the principle of good faith. Absence
of express good faith or intended good faith by parties only leads parties into
disputes which could have been avoided had there been express terms in the contract.
Doubtless, it is difficult to reach this equilibrium point through mutual cooperation
as parties tend to look at contracts microscopically which allows only unilateral
perception. Mutual cooperation instead of mutual defection help parties avoid
litigation time and expenses. As well, costs can be huge when parties have opaque
strategies to achieve. The legal requirement of good faith could definitely build a
robust system where self- interests are taken care of without trampling over each
other’s interests. There would be no opportunity for parties to rewrite or renegotiate
or exclude certain express terms in the absence of a normative good faith principle
embedded in the contract itself. Commercial prudence and legal foresight must be

63
Hadley v. Baxendale, [1854] EWHC J70.
64
The question was whether future contingencies (Gulf war in this case) should be taken account by
the court in assessing damages where a contract is terminated for an accepted repudiatory breach.
[2007] 2 Lloyds Rep 164.
65
BV [2015] UKSC 43.
Good Faith in Maritime Law Contracts 129

applied creatively and cautiously instead of leaving things open to interpretation by

the Courts. A well drafted contract can save time and money for the parties. The road
ahead is the road of good faith and maritime parties are poised to benefit immensely
if the concept is incorporated in the contracts into which they enter.

References

Ahmed B (2010) The precontractual duty of good faith. Available at http://lup.lub.lu.se/luur/

download?func¼downloadFile&recordOId¼1692656&fileOId¼1692658
Baron A (2002) Good faith and construction contracts: from small acorns large oaks. Aust Bar Rev
22(1):54–81
Burton S (1994) Good faith in Articles 1 and 2 of the U.C.C.: the practice view. William Mary Law
Rev 35(8):1533
Capuano A (2005) Not keeping the faith: a critique of good faith in contract law in Australia and the
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E/Roman/Texts/Cicero/de_Officiis/1B
.html
Colombo S (2012) Good faith: the law and morality. Denning Law J:23–59
Cremades BM (2012) Good faith in international arbitration. Am Univ Int Law Rev 27:761–789
Davies J (2002) Why a common law duty of contractual good faith is not required. Available at
http://www.austlii.edu.au/au/journals/CanterLawRw/2002/13.html
Hunter H (1992) Good faith in English law. J Contract Law 5(2):172–174
Kant’s Moral Philosophy, https://plato.stanford.edu/entries/kant-moral/#GooWilMorWorDut
Kessler F, Fine E (1964) Culpa in Contrahendo, bargaining in good faith, and freedom of contract: a
comparative study. Harv Law Rev 77:401–449. Available at https://digitalcommons.law.yale.
edu/cgi/viewcontent.cgi?article¼3735&context¼fss_papers
Lorrenzo DA (2014) The duty of utmost good faith. Available at https://www.ibanet.org/Docu
ment/Default.aspx?DocumentUid¼9716BAC9-7E74
Rowan S (2017) The New French law of contracts. Int Comp Law Q. http://eprints.lse.ac.uk/75815/
1/Rowan_New%20French%20law_2017.pdf
Summers RS (1968) “Good Faith” in general contract law and the sales provisions of the uniform
commercial code. Va Law Rev 54(2):195–267
The Hon. Mr Justice Steyn (1991) The role of good faith and fair dealing in contract law: a hair-shirt
philosophy?. Available at ubplj.org/index.php/dlj/article/download/207/233

Cases

Abbot Labs v. Baxter Int’l Inc., 315 F.3d 829, 834 (7th Cir. 2003)
Abu Dhabi National Tanker C.o v Product Star Shipping Ltd. (No.2), [1993] 1 Lloyd’s Rep 397
Aegean Sea Traders Corporation v. Repsol Petroleo SA and Another (The “Aegean Sea”), [1998]
2 Lloyd’s Rep 39
Berkeley Community Villages Ltd v. Pullen [2007] EWHC 1330 (Ch)
Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie [1985]
1 Lloyd’s Rep. 437 (The Litsion Pride)
BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council, (1977) 180 CLR 266
Bunge SA v. Nidera, BV [2015] UKSC 43
Carter v. Boehm, [1746] E. R. 89
Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. (The Hansa Nord)
130 S. Choudhury and P. Das

Chaplin v. Hicks, ALL ER Rep 224

Dorsey Bros. v. Anderson, 264 Md. 446 (1972), 287 A.2d 270
Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd. [2014] EWHC 2104 (Comm)
Fullton Shipping Inc of Panama v. Globalia Business Travel Sau (Formerly Travelplan Sau) of
Spain (The New Flamenco) [2017] UKSC 43
Hadley v. Baxendale, [1854] EWHC J70
Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd. [1989] 1 QB 433
Itex Shipping Pte Ltd v. China Ocean Shipping Co. [1989] [Q.B. (Com.Ct)
Mid-Essex Hospital Services NHS Trust v. Compass Group UK and Ireland Ltd. [2013] EWCA Civ
200, [2013] All ER (D) 200 (Mar)
Petromec Inc. v. Petroleo Brasileiro, [2006] EWCA Civ 1038
Rawlings, 151 Ariz. at 154, 726 P.2d
Renard Constructions (ME) Pty Ltd v. Minister for Public Works, (1992) 26 NSWLR 234
South Sydney District Rugby League Football Club Ltd. v. News Ltd, [2000] FCA 1541
The Achilleas, [2009] 1 AC 61 (HL)
TSG Building Services PLC v. South Anglia Housing Limited [2013] EWCH 1151
United Group Rail Services v. Rail Corporation New South Wales, [2009] NSWCA 177
Walford v. Miles [1992] 2 A.C. 128
Yamseng, [2013] EWHC 111 (QB)
Legal Aspects of Green Shipping Finance:
Insights from the European Investment
Bank’s Schemes

Jason Chuah

Abstract This chapter maps the scope of the green principles which underpin the EU
Green Shipping Finance facility and links them to wider issues of legal and contractual
competencies. It is premised on the proposition that the concept of green shipping
finance should be construed widely because the impact of greening extends far beyond
mere ship design and build but to the longer global supply chain. The challenge is that a
finance facility, however green, will always have contractual constrictions, policy
constraints and finance prudential limits. The wider theoretical framework thus entails
a questioning of the concept of “green finance” itself. Broadly speaking, should not all
financing be “green”? This paper makes two contributions. The first is to link the
concept of “green” to the legal competencies of the EIB using the green shipping
finance facility example. That stresses the importance of integrating green principles in
the legal infrastructure of the finance provider. Secondly, the research problem is, in the
main, how could a traditionally conservative and contractually closed ended finance
facility accommodate, more flexibly, the risks of green shipping for finance providers,
whether public or private. The paper evaluates how these arrangements might be better
structured and assesses the model commonly used to promote green shipping finance,
the so-called blending of public-private financing. This research is therefore intended to
be relevant for green shipping financing initiatives beyond European shores.

1 Introduction and Context

In early Spring 2018 the European Investment Bank (EIB) signed an important
agreement with ING, a Dutch commercial bank, to provide support for a range of
green investments for the European shipping market.1 The EIB and ING will each

1
http://www.eib.org/en/infocentre/press/releases/all/2018/2018-036-ing-and-eib-provide-eur-
300m-to-finance-green-shipping.htm.

J. Chuah (*)
City, University of London, London, UK
e-mail: Jason.Chuah.1@city.ac.uk

© Springer Nature Switzerland AG 2020 131

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_8
132 J. Chuah

contribute EUR 150m to the scheme. It is to encourage the promotion and delivery of
sustainable and green projects in the maritime transport sector. It is available to both
EU based operators as well as non-EU undertakings with substantial interests in the
EU.2 Indeed, this builds on a successful green ship finance pilot between the EIB and
financial institutions in France, the Netherlands and Nordic countries, and involved
the delivery of the EIB’s 750 million euro Green Shipping Guarantee (GSG)
programme back in 2017. One of the projects concerned an agreement between
the EIB and Societe Generale whereby Brittany Ferries was successfully financed to
build and purchase a liquefied natural gas powered ferry, “Honfleur”, the company’s
very first such vessel. It is scheduled to enter into service in April 2019 on the Caen-
Ouistreham (France) and Portsmouth (UK) route. Societe Generale acted as the main
arranger3 of the €142.6 million financing for the acquisition of the Honfleur ferry
commissioned by Brittany Ferries, which includes a tranche of €49.5 million fully
guaranteed by the EIB.4
Qualifying projects can range from retrofitting ships which is increasingly seen as
important in delivering the emissions controls imposed by the International Maritime
Organization (IMO),5 for instance, to the construction of new vessels which meet the
increasing regulatory standards on emissions, pollution and safety. It is inescapable
to the casual observer that the IMO has amended its regulations on emissions, ballast
water discharge, and ship design. These developments have meant that many fleets
are having to undergo change, and those changes require adequate financing. The
issue thus, of course, is access to finance in the current environment of a crunching of
credit, with newly imposed rules on capital adequacy, responsible lending and
financial innovation.
An innovation of this EIB/ING financing facility is that it does not treat inland
and ocean going operators differently. That is consistent with the recognition by the

2
Ibid.
3
As arranger, that entails bringing together various investors/financers.
4
See Societe Generale’s press release at https://www.societegenerale.com/en/newsroom/
The-European-Investment-Bank-Societe-Generale-and-Brittany-Ferries-successfully-sign-first-
green-financing-in-the-maritime-transport-sector.
5
See regulations introduced under the auspices of Annex VI to the International Convention for the
Prevention of Pollution from Ships (MARPOL Convention); Until 31 December 2019, for ships
operating outside Emission Control Areas, the limit for sulphur content of ships’ fuel oil is 3.50%
m/m (mass by mass). The 0.50% m/m limit will apply on and after 1 January 2020, as decided by
the IMO’s Marine Environment Protection Committee (MEPC 70) in October 2016. The IMO
advises that “an increasing number of ships are also using gas as a fuel as when ignited it leads to
negligible sulphur oxide emissions. This has been recognised in the development by IMO of the
International Code for Ships using Gases and other Low Flashpoint Fuels (the IGF Code), which
was adopted in 2015. Another alternative fuel is methanol which is being used on some short sea
services. Ships may also meet the SOx emission requirements by using approved equivalent
methods, such as exhaust gas cleaning systems or “scrubbers”, which “clean” the emissions before
they are released into the atmosphere. In this case, the equivalent arrangement must be approved by
the ship’s Administration (the flag State).” (page 2, IMO FAQ on the 2020 Global Sulphur Limit at
http://www.imo.org/en/MediaCentre/HotTopics/GHG/Documents/2020%20sulphur%20limit%
20FAQ%202018.pdf). Both options require extensive works to be carried out on vessels.
Legal Aspects of Green Shipping Finance: Insights from the European. . . 133

EU that pollution is a trans-boundary and trans-jurisdiction matter. This is a matter of

some interest which we shall return to.
The purpose of this chapter is to provide an elucidation of the green principles
which underpin sustainable ship financing using the Green Shipping Finance facility
as an exemplar. The implications from this research would extend beyond European
shores, as green shipping finance is gradually taking on greater prominence on the
international stage. It is premised on the proposition that the concept of greening of
ship finance should be construed broadly, as the impact of greening extends far
beyond mere ship design and build but to longer global supply chain. The challenge
of course is that a finance facility, however green, will always have contractual
constraints, policy constrictions and finance prudential limits. The wider theoretical
framework here entails a questioning of the concept of “green finance” itself.
Normatively speaking, should not all financing be “green”? This research makes
two novel contributions. The first is to link the definition of “green” to the legal
competencies of the EIB using the green shipping finance facility example. Sec-
ondly, the research problem is, in the main, how should a traditionally conservative
and contractually closed ended finance facility could and should accommodate, more
flexibly, the risks of green shipping for finance providers, whether public or private.
Hence, this chapter posits some thoughts on how these arrangements might be better
structured and tests the model adopted for green shipping financing, the so-called
blending of public-private finance, in the EU.
These matters are important not merely to the development of publicly supported
green transport financing initiatives but also for transport corridor projects elsewhere
in the world with a “green” or sustainability agenda, such as the People’s Republic of
China’s Belt and Road Initiative.

2 Literature Review, Definitions and Concepts

It is proposed at first instance to undertake a survey of the existing body of literature

on the term “green finance”. There is as expected no common definition of the term
although it is clear that in various sustainable financing facility, there may be
attempts, for commercial and/or policy reasons, to circumscribe and define the
scope of what projects are sufficiently green to qualify for financing. For example,
the UK’s Green Investment Bank requires the project to make a “positive contribu-
tion to a recognised green purpose (greenhouse gas (GHC) reduction resource
efficiency, protection of the environment and biodiversity, promotion of environ-
mental sustainability)”.6 The Green Investment Bank also provides specific criteria
for sustainable projects for offshore wind, waste, energy efficiency, biomass,

6
Green Investment Bank (2014a). Green Investment Principles http://www.greeninvestmentbank.
com/media/44647/green_investment_principles_01_1114.pdf.
134 J. Chuah

onshore wind and hydropower,7 suggesting thus that despite the preparedness to take
a broad approach to the notion of green, there is a general requirement that the
project in question should at least be recognised as green.
Commercial financial institutions have developed their own guidance on what
constitutes “green” in financing. So too have regional and national organisations.
The guidances usually are expressed as high level definitions and their open-ended
nature is intended to provide a large degree of flexibility and tolerance but could give
rise to problems of contractual interpretation.8
An immediate observation is that these criteria mainly relate to the environment;
although there are a few which address more specifically the issue of sustainability or
sustainable development whilst smaller few make mention of the idea of investments
and socio-economic considerations. Also as a UNEP Briefing Paper states:
the definition of green finance is evolving. From the financing of investments that provide
environmental benefits in climate change mitigation and adaptation, “green finance” is
evolving to include sustainable natural resource management, inclusive finance, education
and other sustainable development criteria identified by the Sustainable Development Goals
(SDGs) in the 2030 Agenda.9

The diversity or differences could be seen in technical or scientific commentaries,

as against mere policy statements. Höhne and others state that
Green finance is a broad term that can refer to financial investments flowing into sustainable
development projects and initiatives, environmental products, and policies that encourage
the development of a more sustainable economy. Green finance includes climate finance but
is not limited to it. It also refers to a wider range of other environmental objectives, for
example industrial pollution control, water sanitation, or biodiversity protection.10

Similarly, it has also been suggested:

Green finance is often used interchangeably with green investment. However, in practice,
green finance is a wider lens including more than investments as defined by Bloomberg New
Energy Finance and others. Most important is that it includes operational costs of green
investments not included under the definition of green investment. Most obviously, it would
include costs such as project preparation and land acquisition costs, both of which are not
just significant but can pose distinct financing challenges.11

The G20 Green Finance Study Group in 2016, described green finance as the
“financing of investments that provide environmental benefits in the broader context
of environmentally sustainable development”.12 The report also shows that the

7
GIB (2014b). Green Investment Policy. http://www.greeninvestmentbank.com/media/44648/gib_
green-investment-policy_1114.pdf.
8
This issue is addressed below.
9
UNEP Briefing Paper at http://unepinquiry.org/wp-content/uploads/2017/11/Greening_the_Finan
cial_System_Exploring_the_Ways_Forward.pdf; consider too the UNEP Task Force on Climate-
related Financial Disclosures (TCFD) Recommendations of June 2017 at https://www.fsb-tcfd.org/.
10
Höhne et al. (2012).
11
Zadek and Flynn (2013); Bloomberg New Energy Finance referred to in the quotation is a
research organisation on energy finance (https://about.bnef.com/about/).
12
http://www.g20.utoronto.ca/2016/green-finance-synthesis.pdf at p. 3.
Legal Aspects of Green Shipping Finance: Insights from the European. . . 135

greening of finance can occur at the level of the product or instrument in question
(e.g. green indices, green loans or green bonds), or as regards the type of financial
services in question (green insurance, green banking or green investments).13
Do definitions matter? The lack of clarity is certainly a risk for investors—defini-
tions of green finance form the basis for internal budgeting, costings, accounting and
other financial performance evaluative processes. Without the reliability of such
important financial performance data, no prudent investor would be prepared to
underwrite the unarticulated risks by offering green finance. Moreover, the global
financial system is a mutually interlinked system whereby information and commu-
nication are crucial to attract other investors and to distribute the risk (for example, by
insuring the risk to a third party or a group of third party insurers). The lack of clear
definitions thus also impacts on the formulation of a clear corporate green agenda,
which in turn leads a loss of confidence by those third party stakeholders as to the
green credentials of the financial institution in question. However, on the other hand, it
is damaging to hold to a single but narrowly defined concept of green finance.
Different economies and different sectors have different contexts and priorities
which might not be properly supported by a green finance scheme which is rather
narrow and inflexible. Take the example of “cold ironing” namely the provision of
electricity to a vessel by drawing directly from the port’s electricity supply so that the
vessel’s auxiliary engines could be switched off at port thereby reducing the burning of
carbon based fuel and consequently, the vessel’s CO2 emissions.14 The investments
needed to support the development of cold ironing or “alternate marine power”, as it is
sometimes called, could be substantial—a port side terminal for the supply of elec-
tricity, the retrofitting of ships to receive external electric power and the construction of
extra electrical capacity, conduits, and the “plug” infrastructure etc. If the “green”
criterion is applied narrowly, it would appear that such a project might well be worth
supporting. However, it is also important to assess the social and environmental cost of
the type of infrastructure needed to be built in that locality for the provision of cold
ironing. For example, if the extra onshore electricity is generated by coal powered
plants, clearly the proposed cold ironing project is not a good idea. In sum, if the green
finance terms fail to take into account the wider impact, it seems fair thus to argue that
the finance is not especially green.
It is argued that green finance should prefer neither a narrow nor a wide defini-
tion—a more useful approach is to adopt a mapping exercise involving different
interconnected areas of core and secondary activities which make a positive contri-
bution to a sustainable socio-economic and physical environment. This is perhaps
best illustrated using a diagram (see Fig. 1), derived from the UNEP:
Finance providers or facilitators, public or private, can decide how far from the
“core” of those elements which are more commonly seen as “green” to the secondary
zone. The scope of what constitutes “green” will thus always be an integrated and

13
Ibid, at 3–5.
14
That was a practice which originated at ports in California, USA.
136 J. Chuah

Clean energy

Clean coal
CCS
Efficiency
Large hydropower
Low-carbon infrastructure Nuclear
Fossil fuel power
Low-carbon base Bioenergy, Marine efficiency
stations broadband Advanced materials
Wind, Solar,
General grid efficiency
Geothermal, Green buildings
Smart/Mini grid Small hydropower Lighting
Grid integration Industrial energy
Storage efficiency
Most commonly
included
Afforestation Metro, BRT,
Reforestation Non-diesel trains

Energy and water Pollution Electric cars, Alternative

efficiency prevention, fuel vehicles
Recycling
Green agriculture
Logistics
Protected areas Wastewater Transport
Biodiversity treatment

Land Waste systems

Water supply
Least commonly
included

Pollution, waste
and water

Fig. 1 Interconnected activities making a positive contribution to a sustainable socio-economic

and physical environment (source: UNEP [http://unepinquiry.org/wpcontent/uploads/2016/09/1_
Definitions_and_Concepts.pdf at p. 8.])

holistic concept, and its notion and context could also change from time to time
depending on context and circumstances. Such a con conceptual framework has
seldom been properly accommodated in any green shipping finance initiative,
including EIB projects as we shall see below.

3 Core Contractual Undertaking with Reference to Green

Obligations

The EIB introduced expressly a set of proforma contract terms in 2014 which would
serve as a template for all their financing and financial support agreements as regards
commitments to sustainability and environmental matters.15 This four page

15
http://www.eib.org/attachments/documents/eib_standard_contractual_clauses_on_environmen
tal_information_en.pdf.
Legal Aspects of Green Shipping Finance: Insights from the European. . . 137

document sets out some of the main paradigms of environmental obligations

expected by the EIB. It is inescapable that any green shipping finance instrument
backed by the EIB would require compliance with this prevailing obligation as set
out in clause 1(a):
An EIB borrower that receives financing from the EIB for a project undertakes to
(i) implement and operate the project in compliance with Environmental Law, (ii) obtain
and maintain requisite Environmental Approvals for the project, and (iii) comply with any
such Environmental Approvals.
In the main, clause 1(g) defines “Environmental Law” as:
(a) EU law, including principles and standards;
(b) [the host state]/[national] laws and regulations; and
(c) applicable international treaties
of which a principal objective is the preservation, protection or improvement of the
Environment.

“Environmental Approval” on the other hand means any authorisation required

by “Environmental Law”. What is especially noteworthy is that the term “Environ-
ment” is to be defined contractually and it is intended by the EIB for the term and its
definition in the proforma template to be incorporated in the EIB’s green financing
instruments. Clause 1(g) defines “Environment” to “the following, in so far as they
affect human health and social well-being:
(a) fauna and flora;
(b) soil, water, air, climate and the landscape; and
(c) cultural heritage and the built environment,
and includes, without limitation, occupational and community health and
safety.”
Recalling that this is not law but a contractual term, its construction would largely
be subject to the relevant national law and EU law.16 There is emphasis on the
context of interpretation being the effects on human health and social well-being. It
might surely be contended that that is too wide and nebulous. That is perhaps the
challenging matter when trying to incorporate environmentalism into commercial
contracts. There does not seem to be a right way of construing the concept—because
trying to contain the concept defies policy. A better and certainly more pragmatic
way of looking at the concept, contractually, might be to consider what is not
enveloped by the notion rather than what is.
It is also worth noting that although any contractual term can be modified, omitted
or extended, this is essentially a commercial template. In this author’s opinion, it is
unlikely that commercially minded institutions like the EIB and its partner financial
institutions to be swift to query and re-create a different formulation.

16
This principle stems from the public international law principles on the subject; see for example
Colin and Sinkondo (1992), Schneider (1993), Mann (1959), Delaume (1962), Jenks (1962). See
also Sauter and Schepel (2009).
138 J. Chuah

4 Types of EIB Green Finance

This part of the chapter examines how the EIB system works as regards green ship
finance. The EIB has had a generally creditable record of providing financial support
to the transport sector in the EU. Indeed, the EIB proudly states that in 2017 there
had been 735 million additional passengers carried on EIB-financed transport. Not
all such transport projects of course were supported as green finance. In order to
understand better the prudential approach taken by the EIB to financial support, it is
useful to examine, at least in brief, the different forms of financing offered17:
Lending
Project loans to finance a transport project or programme with a total investment cost
in excess of EUR 25 million. The EIB does not however cover more than 50% of the
total project cost.18
Intermediated loans are offered by the EIB to local banks and other intermediate
undertakings which then lend or pass the amounts on to the end beneficiaries.19 That
works well especially when the end beneficiaries do not have the best creditworthi-
ness to acquire financing for themselves.
Framework loans allow the EIB to finance transport schemes with a total invest-
ment cost of less than EUR 25 million by combining several projects under one
loan.20
Infrastructure equity funds enable the EIB and partners to incentivise investors to
invest, usually in capital intensive investments.21

17
Information is derived from the EIB website http://www.eib.org/en/projects/sectors/transport/
index.htm.
18
See for example the development of the Dublin port which secured EUR 100 million from the EIB
in 2015 to deepen the navigation channel to allow for bigger container and cruise ships. The project
was estimated to cost EUR 230 million—as can thus be seen, the EIB’s contribution there is less
than 50%.
19
In 2015 the EIB provided financing to intermediaries in France who provided financial assistance
to home owners to retrofit their homes to meet better environmental standards. The total being
financed was approximately EUR 400 million.
20
The EIB for instance provided EUR 85m—the initial tranche of a EUR 200m loan to cover 50%
of Metro de Madrid’s investments until 2019 to upgrade and modernise its infrastructure. Source:
EU Monitor (https://www.eumonitor.nl/9353000/1/j9vvik7m1c3gyxp/vkp8g3e84xls?
ctx¼vg9pk3qd26zl).
21
In 2015, the EIB invested in a fund, the Copenhagen Infrastructure II, which targets investments
primarily in newly established (greenfield) energy-related projects mainly in Northern and Western
Europe. The EIB’s involvement and the European Fund for Strategic Investment (EFSI) guarantee
are intended to help attract private investors and other international financiers to participate in the
fund. The fund has a target size close to EUR 2bn. (https://ec.europa.eu/commission/sites/beta-
political/files/examples-efsi-financed-projects-overview_en.pdf).
Legal Aspects of Green Shipping Finance: Insights from the European. . . 139

“Blending”22
Project Bond Initiative is a joint initiative by the EIB and European focused on large
infrastructure projects,23 introduced primarily in the context of the “credit crunch”—
there has been tremendous pressure on banks’ balance sheets from higher regulatory
capital requirements resulting in a lack of responsiveness in the debt markets to
provide long-tenor lending and support large scale infrastructure schemes, where the
risks are high. It is basically a credit enhancement instrument—a loan or contingent
facility24 is given to improve the creditworthiness of project bonds (also called
senior bonds) issued by the project company.
Loan guarantee instrument (LGTT) for EU Trans-European Transport Network
(TEN-T) Projects works in tandem with a Public Private Partnership transport
project. The EIB offers a loan guarantee to underwrite the revenue risks in the
early stages of Public-Private Partnership (PPP) projects. The rationale is to attract
greater private sector financing (there seems to be a preference for commercial
banks) of TEN-T.25
Connecting Europe Facility (CEF) is perhaps the scheme which is of much
relevance to this study. That “facility” primarily involves innovative financial
instruments and a central plank of the CEF is the promotion of green finance
initiatives. The Green Shipping Guarantee Programme is a product of this scheme.

22
Blending public and private finance.
23
The EIB considers the following to fall within “infrastructure investment”:
• Essential services for the majority of the population and businesses, either relating to physical
flows in the real economy (i.e. transport, energy, broadband) or to social goods (education,
healthcare);
• Government either as a direct client (via fixed term concession) or highly proximate to the
transaction (through economic regulation);
• Long term in nature (thus requiring long term finance);
• Stable cash flows, particularly where payments are based on availability rather than demand
(which is often beyond the control of a given project); charges may be linked fully or partially to
inflation;
• Natural monopolies, either due to network characteristics/capital intensity or government policy;
• Generally low technological risk. (EIB, An outline guide to Project Bonds Credit Enhancement
and the Project Bond Initiative 2012 at p. 4).
24
In finance terminology, a subordinated instrument.
25
An example is the financing of the A11 Brugge motorway in Belgium.
140 J. Chuah

5 Legal Competence and Criteria for Green Finance Under

the EIB Schemes

Article 16 of the EIB’s statute,26 reading in conjunction with art 309 of the Treaty on
the Functioning of the EU (TFEU),27 gives the EIB competence to grant loans and
guarantees for economically productive investment projects in three areas:
• Projects for developing less developed regions
• Projects for modernising or converting undertakings or for developing new
activities called for by the progressive establishment of the common market; and,
• Projects of common interest to several Member States.
As is obvious, these are blue skies objectives set out in the statute of the bank and
must thus always guide the adoption, design and application of selection criteria for
project funding. Operationally speaking, the EIB establishes a Corporate Opera-
tional Plan which sets out a three year strategic plan which is reviewed and refreshed
every year. In this Plan is published the EIB’s evolving mission statement, priorities
(for project financing) and any relevant key performance indicators which guide the
bank’s activities.
It should also be noted that there are three pillars to EIB financing: commerciality,
economic productivity and completion of the internal market. Article 18(1) explicitly
states:
It may grant loans or guarantees only: (a) where, in the case of investments by undertakings
in the production sector, interest and amortisation payments are covered out of operating
profits or, in the case of other investments, either by a commitment entered into by the State
in which the investment is made or by some other means; and (b) where the execution of the
investment contributes to an increase in economic productivity in general and promotes the
attainment of the internal market.

All projects must thus meet these basic objectives. Crucially, whilst the latter two
objectives are obvious, it is sometimes forgotten that the EIB as a “AAA/A-1+”
bank28 operates on commercial terms. It might operate on a non-profit making
basis,29 but that does not mean it is unconcerned with commerciality. In this
connection, the EIB would itself “borrow on the capital markets the funds necessary
for the performance of its tasks”.30
Another important limitation on the bank’s powers to grant finance is that the
investments in question should “be carried out in the territories of Member States”

26
For the 2013 version see http://www.eib.org/attachments/general/statute/eib_statute_2013_07_
01_en.pdf.
27
Notably art 309, TFEU.
28
On July 31, 2018, S&P Global Ratings affirmed its ‘AAA’ long-term and ‘A-1+’ short-term issuer
credit ratings on the European Investment Bank (EIB), despite the withdrawal of the UK from the
EU. See S&P Global, Research Update (July 2018) at www.spratings.com.
29
Art 309, TFEU makes this characteristic of the bank clear.
30
Art 20(1) Statute of the EIB.
Legal Aspects of Green Shipping Finance: Insights from the European. . . 141

and “to the extent that funds are not available from other sources on reasonable
terms”.31 It is understandable how the first criterion might be somewhat problematic
to the maritime sector if it is construed narrowly and literally. It should be pointed
out that the EIB statute being part of EU law is subject to the so-called teleological
approach to the interpretation of legal provisions. It is worth recalling that
teleological interpretation in EU law does not refer exclusively to a purpose driven inter-
pretation of the relevant legal rules. It refers to a particular systemic understanding of the EU
legal order that permeates the interpretation of all its rules.32

It follows thus that the notion of “territories” would not be construed as requiring
that the project takes place on EU territories but that the investment’s benefits are felt
by EU stakeholders and that there should be some socio-economic connection with
EU based undertakings. In economic regulation jurisprudence in the EU, such as
competition law, the Court of Justice of the EU (ECJ) has taken the line that economic
effects or impact cannot be confined merely to the activities conducted in the territories
of the EU.33 It is reasoned that this approach would follow here in the determination of
the EIB’s “territorial” lending competence. Indeed, the EU Parliament and Council in
a Decision34 specifically makes reference to the EIB’s competence to finance projects
outside the EU. The EU actually sees the use of financial support as a foreign policy
tool. Recital 8 of the Decision for example states:
In its report the steering committee concluded that the EU guarantee is an efficient and
powerful policy instrument with high financial and political leverage and that it should be
maintained in order to cover risks of a political or sovereign nature. Some amendments to
Decision No 633/2009/EC were proposed in order to ensure maximum added value and
efficiency of the EIB’s external operations.

In the context of the Decision establishing an EU guarantee given to the EIB for
financing projects outside the EU, as a foreign policy tool, the EU publishes a list of
countries potentially eligible for financial support.35 In conjunction with this, the
Decision also stresses that eligibility to receive EIB financing for climate-change

31
Art 16, Statute of the EIB.
32
Per Advocate General Miguel Poiares Maduro writing in a personal capacity (see Interpreting
European Law: Judicial Adjudication in a Context of Constitutional Pluralism, Article 8 (2007)
Vol. 1, Issue 2 European Journal of Legal Studies 5).
33
The matter of extra territorial reach of EU competition law has been extremely controversial for
obvious reasons—see generally C-89/85 A. Ahlström Osakeyhtiö and others v Commission [1988]
ECR 1-5913 (Woodpulp); T-102/96 Gencor Ltd v. Commission [1999] ECR II-753 (Gencor); and
more recently C-413/14 P Intel Corporation Inc v. Commission (Intel) ECLI:EU:C:2017:632.
Indeed, the CJEU has made it plain that, as regards the application of Article 101 TFEU, that the
fact that an undertaking participating in an agreement is situated in a third country does not prevent
the application of that provision if that agreement is operative on the territory of the internal market
(judgment of 25 November 1971, Béguelin Import, 22/71, EU:C:1971:113, para 11).
34
Decision No 1080/2011/EU of the European Parliament and of the Council of 25 October 2011
granting an EU guarantee to the European Investment Bank against losses under loans and loan
guarantees for projects outside the Union.
35
Annex I to Decision No 633/2009/EC.
142 J. Chuah

mitigation under the EU guarantee could be restricted under the Climate Change
Mandate for countries that are deemed not to have committed themselves to meeting
appropriate climate change-related targets.36 Naturally, it follows that such restric-
tions of eligibility would be grounded on then applicable economic and political
assessments, including matters of human rights.37 It might be open to criticism as to
whether green shipping finance should necessarily be coloured by European ideol-
ogy or morality; however, without going into the morality debate, it could at least be
said that the presence of the EU’s political and foreign policy agenda is not hidden.
The second criterion relates to the lack of finance elsewhere on reasonable
terms—a few observations might be ventured. First, what constitutes “reasonable
terms” must be both a commercial and policy matter. It is evident in the communi-
cations of the EIB that commercial reasons and policy considerations cannot be
entirely divorced from each other.38 Secondly, the criterion for finance does not
require the project company or undertaking first to have exhausted other means of
financial support. The EIB is not, as such, a lender of last resort. The lack of finance
elsewhere is an assessment of the market rather than a requirement that the under-
taking in question must make actual attempts first as a prerequisite. In recent times,
for example, the reference by the EIB to the stricter regulatory impositions on capital
adequacy and prudential supervision suggests a sensitivity to market challenges.
Thirdly, likewise it is argued that “sources” should be construed with reference to the
market.
As regards transport finance, the EIB published a paper in 2011 setting out its
lending policy and selection criteria.39 At a general level, there are three policy
challenges for the EIB.
• the commitment to mobility of people and goods,
• commitment to the Trans-European Transport Network (TEN-T)40; and,
• commitment to the gradual incorporation of climate change considerations into its
activities.41
As regards the second and third commitments, there is immediate obvious a
concern about a tension between them. Promoting an integrated transport network
involving all modes of transport is likely to be perceived as increasing Europeans’
carbon footprint. On the contrary it could be argued that the two can be mutually

36
Recital 15.
37
Art 4 of the Decision.
38
See, for example, EIB “Transport Lending Policy” (2011) para 4 at p. 3 available at http://www.
eib.org/attachments/strategies/transport_lending_policy_en.pdf.
39
ibid.
40
The TEN-T project aim to: “establish and develop the key links and interconnections needed to
eliminate existing bottlenecks to mobility; fill in missing sections and complete the main routes -
especially their cross-border sections; cross natural barriers; and improve interoperability on major
routes”. As at 2014, €6.95 billion has been committed to 662 projects which covers all modes of
transport and transport infrastructure. (source: https://ec.europa.eu/inea/en/ten-t/ten-t-projects).
41
Supra n. [38] at p. 3.
Legal Aspects of Green Shipping Finance: Insights from the European. . . 143

complementary as efficiencies gained in transport as well as the greening of transport

could lead to a win-win outcome. That of course remains to be seen.
Be that as it may, the EIB also applies general operational criteria to maritime or
waterborne transport. Its Lending Policy Paper states:
Waterborne Transport. Lending for inland waterway, port, logistics and maritime projects
are also prioritised in support of sustainable transport solutions. Shipping projects are subject
to particular scrutiny with respect to the procurement, supplier and operating
arrangements.42

Looking specifically at the EIB green shipping finance schemes—the Green

Shipping Guarantee Programme currently has a budget of EUR 3 billion and as
per other funding schemes from the EIB, seeks to work with and through financial
institutions in the sector. Its eligibility criteria, subject generally to the EIB’s general
lending policy, will expect that the relevant investment should meet with the
Connecting Europe Facility (CEF) for Transport’s so-called horizontal priorities.
In this connection, a major horizontal priority is the Motorways of the Sea (MoS)
scheme—which is expressed to promote green, viable, attractive and efficient
sea-based transport links integrated in the entire transport chain.43 Crucially, the
MoS scheme is concerned with an integrated concept of transport—it intends to
promote new inter-modal44 maritime-based logistics chains to bring about a struc-
tural change to transport organisation, namely, door-to-door integrated transport
chains.
Under the MoS, project applicants may seek up to 30% co-financing. Two distinct
types of projects are given priority:
– maritime link based projects; and,
– projects of wider benefit.
Bearing in mind the objectives of the MoS are to create a sustainable integrated
network, projects which involve the creation and upgrading of freight transport
corridors, developing new maritime links or improving existing ones are those
which most likely be deemed to have a maritime link. Another important criterion
is that the actions or activities to be financed should include a considerable port or
infrastructure component.45 This part of the MoS criteria means that somewhat
smaller scale green maritime activities (such as the build and purchase, or build
and lease of green ships) would be excluded from the financing scheme.

42
Ibid, at p. 4.
43
Art12, Decision No 884/2004/EC of the European Parliament and of the Council of 29 April 2004
amending Decision No 1692/96/EC on Community guidelines for the development of the
trans-European transport network: Official Journal L 167, 30 April 2004 P.0001 – 0038, COM
(2004)0884); see too EC Commission White paper European transport policy for 2010: time to
decide (2001).
44
Note the deliberate use of the term “inter-modal” rather than “multimodal”, suggesting that
conceptually it envisages the involvement of several contracting carriers and several transport
documents, rather than just a single transport document and one primary carrier for the carriage.
45
Usually expected to be around 50% of the total project budget.
144 J. Chuah

Under the MoS, hence, where carriers or shipowners seek funding to help affray
the costs to comply with the provisions of the MARPOL Convention’s Annex VI
and Sulphur Emission Control Area requirements46 or the costs to improve more
generally the environmental performance of their fleet, they must be able to dem-
onstrate a particular link with EU ports or the infrastructural aspects of the MoS
priorities. For example, in the Baltic Sea Area Klaipéda-Karlshamn link project47
some funding was used to install hydraulic device for RO-RO ferries plying the route
so as to improve the quay operability for the vessels, thus reducing emission and
improving efficiency. If the funding was merely for the fitting of the hydraulic
device, despite its needfulness to improve manoeuvrability at quays and its effec-
tiveness in lowering emissions, that alone would not have been enough. The project
involved also a particular link to the two ports in question. The MoS Project
Application website states expressly:
Projects involving the retrofitting of fleets of vessels under one proposal or an aggregated
number of proposals and non-related to the specific maritime links are not supported. The
exhaust gas cleaning systems will be supported only on short sea shipping vessels operating
outside the [sulphur emission control] area.48

Vessel improvements or upgrades are thus limited to the additional efforts for
environmental objectives but could not be extended to cover the full costs of
building or acquiring any vessel. Infrastructure related facilities could be
co-financed; for example,
– high water protection devices (e.g. dikes, breakwaters, locks);
– lights, buoys, beacons; ramps, jetties, signposting;
– infrastructure and facilities up to the terminal site (e.g. for temporary storage of
loading units, facilities for drivers, facilities for shore side electricity, waste
treatment facilities, terminal handling equipment);
– intermodal terminals in ports and hinterland;
– land and sea access to port, including dredging for the purpose of MoS, rail,
inland navigation and road connecting links to the TEN-T or national land
transport networks, connections to intermodal centres;
– electronic logistics management systems;
– administration and customs facilities (e.g. VTMIS,49 reporting and information
exchange systems, administrative simplification);
– safety and security measures;
– waterways and canals to shorten sea routes;
– ways of ensuring year-round navigability, such as facilities for dredging or
icebreaking.50

46
Which came into force on 1 January 2015.
47
2008-EU-21015-P (one of the first projects under the MoS scheme).
48
https://ec.europa.eu/inea/en/connecting-europe-facility/cef-transport/cef-transport-motorways-
sea#2016%20mos; indirect access at https://ec.europa.eu/inea/en/connecting-europe-facility/cef-
transport.
49
Vessel Traffic Management Information System.
50
Supra n. [48].
Legal Aspects of Green Shipping Finance: Insights from the European. . . 145

As regards projects of the second type—notably projects of wider benefit—this is

largely construed by the EU as projects extending beyond just a discretely defined
locality or specific ports. For example, projects extending over a larger geographical
area; subject always to their relevance to the MoS priorities—including funding for
“the deployment of LNG bunkering infrastructure for ships at a wider regional scale,
system of using shore-side electricity, icebreaking, dredging operations, setting up
common IT systems, traffic monitoring and management or electronic reporting
systems”51 in the wider region.
The author’s survey of the projects funded under the last few MoS calls52 has
revealed that the EU have prioritised those projects which involve at least two ports
located in different Member States—where two ports are involved they are so-called
core ports or one core and one comprehensive port.53 There should also be at least
one maritime undertaking in the project mix and ideally, transport operators from the
hinterland. On that premise, the project application stands a better chance where
terminal operators, freight forwarders, supply chain undertakings and shipping
agents are also part of the consortia. Interestingly the MoS scheme does not
necessarily expect all members of the [extended] consortia to be applicants for the
grant; it suffices that they demonstrate that, as stakeholders and users, they are
supportive of the project as a whole.54 Moreover, it should be emphasised that as
an EU wide funding scheme, it must abide by the no-discrimination principle.55 Any
infrastructure or facility which is co-financed must thus be available to all users on a
non-discriminatory basis.
The wider benefit criterion is an important conditionality. Ships which are the
beneficiary of financial support56 from the EU will be required to contribute to
objectives of the co-funded actions in the EU area for at least 5 years after the project
end date.
Returning to the Green Shipping Guarantee Programme, co-financing too features
quite prominently. Its technical thresholds are different to those required by the MoS.
The co-financing rates are as follow:
– Up to 50% of debt financing on new vessels.
– Up to 100% of green components of retrofitting operations.
The GSGP’s financing is fixed with a ceiling of EUR 750 million. The guarantee
might be said to be a form of funded risk participation with the EIB offering a
guarantee to back senior debt, in the main but where appropriate, it could also extend

51
Ibid.
52
See reports of the projects funded since 2006 at https://ec.europa.eu/inea/en/connecting-europe-
facility/cef-transport/cef-transport-motorways-sea#2016%20mos.
53
For a list of the core ports and comprehensive ports, please see https://ec.europa.eu/transport/sites/
transport/files/modes/maritime/ports/doc/2014_list_of_329_ports_june.pdf.
54
Ibid; hence, letters of support from the industry and user groups would be viewed positively.
55
Art 18, TFEU generally.
56
The project of which must be infrastructure related, see above.
146 J. Chuah

to support subordinated debt. In green shipping finance, a guarantee scheme is

preferable to a direct loan because it requires a partnership between the investor
and the EIB. Such a partnership, it might be suggested, increases the sense of
ownership and empowerment in the project by the undertakings in question. Without
delving into too much of the technicalities, the initial step in the GSGP is the forging
of a Framework Agreement with a lead partner financial institution. That Agreement
sets out the central terms of cooperation between the partners. Those terms should
necessarily include agreed funding arrangements, the guarantee envelope, transac-
tion eligibility, the approval process, default events etc. The financial institution
might also be the main lead arranger—which entails assembling a syndicate to
provide the financial facility. The arranger also usually underwrites the financ-
ing—its preparedness to do so is enhanced by the guarantee given by the EIB. As
a requirement of its mandate from the project sponsor, the MLA will be committed to
raise the complete debt financing but syndication allows other providers to have a
share in the debt financing thus re-distributing the credit risk. From the EIB’s
perspective, syndication is useful as it brings a wider range of financial undertakings
into the project, thus ensuring that EU taxpayers’ money is properly managed
through prudential risk redistribution efforts.
Working collaboratively, as required by the Framework Agreement, the lead
financial institution will invite, process, screen and assess the feasibility and eligi-
bility of the applications. Shortlisted applications are then presented, again as
provided for by in the Framework Agreement, to the EIB for consideration and
pricing. The advantage this produces, in contrast to some other financing schemes
provided by the EIB, is that as the vetting process has been “outsourced” to the
partner financial institution making the process internal at the EIB much quicker.
The accelerated or short approval cycle also means that the EIB does not need to
appoint an extensive panel of experts, reducing also costs. Upon agreeing the final
terms between the partner financial institution and EIB, a final contract is then
entered into between the partner financial institution and the EIB, and the partner
financial institution shall proceed to conclude the transaction with the borrower
applicant. Another aspect of the arrangement which makes good prudential sense
to the EIB is the fact that under the Agreement, the partner financial institution is
ultimately responsible for “client interface”, “market interface” and transaction
control.57 The EIB stands at arm’s length to the transaction.

57
See M. Clintworth’s presentation of the EGSG in September 2018 (https://www.marinemoney.
com/system/files/media/2018-09/2.Mr_.%20Mark%20Clintworth.pdf); a similar presentation was
given by another EIB official, Francois Gaudet at https://ec.europa.eu/inea/sites/inea/files/4.green_
shipping_presentation.pdf.
Legal Aspects of Green Shipping Finance: Insights from the European. . . 147

6 Managing Project Risk

The EIB green shipping finance facility, as we can see, is thus blended finance—it
brings public and private finance together for green shipping projects. However,
blended finance or blending is merely a vehicle for financing, it does not convert a
financially unsustainable shipping project into one that is sustainable. It also does not
make an unaffordable infrastructure or activity, however green, affordable. In fact
what it could lead to is making subsidies opaque and the costs less transparent. In this
regard, the legal structures underpinning green shipping finance must make a clear
distinction between the transference of risk and risk mitigation. The two are not the
same despite a perceived overlap between them. Whilst it is entirely possible to use
EU taxpayers’ money for guarantees, mezzanine tranches and other instruments or
structures to “buy down” the risk of the project (which might be the approach taken
by the EIB as regards the Green Shipping Guarantee Programme for example), that
approach does not in reality reduce or mitigate the risk of the project. Such an
approach certainly makes the project more attractive to the private partner investor
but it does not make the project, however green, more safe—it merely transfers the
exposure or risk to the EIB (and the EU, generally speaking), namely the taxpayers.
Indeed, private financial partner institutions or private investors have never been
known to refuse to assume certain risks as long as they can hedge it and are properly
rewarded for taking it. However, that approach would result in higher cost, less
affordable infrastructural projects, from a public standpoint.
Thus, it is submitted that as the EIB’s green shipping financing plan is for the long
term, it is preferable to seek out risk allocation structures which align risk exposure
to the ability to manage that risk. In so doing, the public sector contributor, such as
the EIB, would be providing incentives to the investor or partner financial institution
in question actually to mitigate or manage the risk better. Good project structuring
actually to reduce risk would strengthen the financial fundamentals and make the
infrastructural project more affordable and public purse friendly. It would also take
into account of the risk appetites of the different parties; for example, public money
might have a longer time horizon compared to private money. As such, in a good
“blending” structure, the public financing provider could consider offering longer
tenors or deferral features in its financing structures or instruments whilst the private
financial partner institution to assume the shorter term risk. Of course, not all projects
are for the long term—in the recent shipbuilding activities supported by the EIB
Green Shipping Guarantee Programmes examined above, they were clearly
short term.
Another innovation which could be introduced to support green shipping pro-
jects, with a higher degree of risk, is for the public sector to assume the activity
risk—e.g. in an infrastructural project, the public sector institution could assume the
construction risk but subsequently “sell down” assets to private investors post
construction when those risk are no longer attendant and are in the past.
The challenge for EU green shipping finance to be underpinned by “blending”
might lie in the conservative reading of the EIB’s competencies. In the example
148 J. Chuah

above as such, the EIB would not be in a position to assume the construction risk
because the belief is that the bank was established as a financing bank (albeit a public
bank) to stand at arm’s length to its borrowers and clients. However, the law does
give the bank much room to manoeuvre. Article 18(2) of the EIB Statute whilst
stipulating generally that the bank shall not acquire any interest in an undertaking or
assume any responsibility in its management, goes on to provide for certain
exceptions:
(a) Involvement or participation is needed to safeguard the bank’s right in seeing to
the recovery of funds lent; or,
(b) Where any equity participation is considered by the Board of Governors of the
bank to be necessary58 and that equity participation is needed to facilitate the
achievement of the objectives art 309, TFEU,59 then “the Board of Directors
shall, by a qualified majority, lay down the terms and conditions for taking an
equity participation in a commercial undertaking, normally as a complement to a
loan or a guarantee, in so far as this is required to finance an investment or
programme.”60
Equity participation, as one might expect, is not common modus operandi of the
EIB but it is argued that where green financing is concerned, a matter where public
policy is vital, there may be good occasion when the EIB might consider such an
option. Indeed, it can be an excellent opportunity for the EIB to innovate even more
in its “blending” offerings as regards green shipping finance. Moreover, from a
practicality standpoint, equity participation and quasi-equity participation schemes
(such as mezzanine financing) have been known to work well in commercial
shipping finance.
It is argued that the EIB green shipping finance programme should also be used to
assist start-ups or to jump-start a green aspect of the shipping business. At present, as
revealed by a survey of the EUB transport projects most projects currently being
funded are one-off projects, even those which are the so-called “wider benefit

58
Powers to be exercised in pursuant to art 7(3)(b), EIB Statute.
59
Supra n. 27; art 309 provides: “The task of the European Investment Bank shall be to contribute,
by having recourse to the capital market and utilising its own resources, to the balanced and steady
development of the internal market in the interest of the Union. For this purpose the Bank shall,
operating on a non-profit-making basis, grant loans and give guarantees which facilitate the
financing of the following projects in all sectors of the economy:
(a) projects for developing less-developed regions; (b) projects for modernising or converting
undertakings or for developing fresh activities called for by the establishment or functioning of the
internal market, where these projects are of such a size or nature that they cannot be entirely
financed by the various means available in the individual Member States; (c) projects of common
interest to several Member States which are of such a size or nature that they cannot be entirely
financed by the various means available in the individual Member States.
In carrying out its task, the Bank shall facilitate the financing of investment programmes in
conjunction with assistance from the Structural Funds and other Union Financial Instruments.”
60
Second paragraph to art 18(2).
Legal Aspects of Green Shipping Finance: Insights from the European. . . 149

projects”.61 As we have discussed, those “wider benefit projects” are concerned with
the wider geographical benefit, and not a wider sectoral62 or policy benefit. It is
argued that if a project could be the catalyst for linked future green projects, such a
project should be properly classed as one of “wider benefit”. Although there may be
other financing schemes offered by the EIB which might be available,63 it is perhaps
counter-productive not to provide for a wider scope of green shipping finance. After
all, it is certainly convenient for applicants to be able to link various activities to a
single application for financing rather than having to make different applications for
different activities of the same central project.
The EIB green shipping finance initiative has the advantage of being structured to
respect the risk appetites of the investors. At a simplistic level, the syndication
system followed in the few examples we considered above allows for the allocation
of the appropriate risk exposure across the different investors. But it is also foresee-
able that for certain green projects, especially in shipping, where the range of
specialist investors might be limited, many investment needs may remain unsatiated.
Blending EIB money can thus play a vital role in increasing the risk appetite of
private investors by partially guaranteeing their exposure or by rebalancing their
risk-reward concerns. A 50:50 risk sharing arrangement can, in theory, double the
risk exposure that an investor is prepared to assume. It is further argued that such an
arrangement can do more than that. A risk sharing facility can help investors
re-calibrate their risk perceptions.64 As the risk perception diminishes, investor
confidence increases and the share of risk or incentive support the public finance
needs to assume can also come down.
One possible criticism of the EIB approach is that the green shipping projects
which are being lauded are large scale—the general assumption is that these projects
need substantial financing and thus would benefit from the EIB schemes. However,
the UK experience has been that there are a good number of start-ups seeking to
upscale their green shipping technology offerings65 but, other than private equity,
have limited financing options despite the “small” amounts entailed. Also, there are

61
See above, at Part 5.
62
Sectoral is used here to refer to specific sectors of industry or economy.
63
http://www.eib.org/en/products/index.htm.
64
Cooley (1977), Hoffmann et al. (2015), Hoffmann and Post (2017), Froot et al. (1993), and Weber
et al. (2005).
65
See article in City AM (5 November 2018) reporting that London-based CargoMate has devel-
oped a platform that helps containerships minimise delays in port, allowing them to sail slower and
save fuel. A company based in Hull, England, called Relmar is developing an AI-powered
maintenance platform for vessels that maximises uptime while minimising risk and cost. A new
report by think tank PUBLIC examines which technologies will transform the maritime trade sector,
and highlights 65 of the most promising maritime startups around the world. One of the key findings
of the report is that there is an opportunity to make the UK a hub for digital innovation in maritime
that will not only drive greater green efficiencies across the industry. (https://view.publitas.com/
public-1/frictionless-trade-report/page/1). However, these start ups are not always clear as to the
availability of public sector financing (such as that from the EIB, Brexit notwithstanding).
150 J. Chuah

significant challenges for start-ups to meet the criteria of some of the EIB green
shipping finance schemes.

7 Conclusion

It is undeniable that blending is likely to take on greater prominence in green

shipping finance globally, given its advantages discussed above. It is hoped that
this chapter, by analysing the scope and workability of the EIB green shipping
finance schemes, has demonstrated that in blending regard must be had to the legal
competencies of the public institution providing the financing incentives and under-
writing the risks. Additionally, the question of competency is often linked to the
institution’s green legal competency but that idea of “greenness” is often
circumscribed by wider policy and regulation.
In this connection, the EIB is empowered by its statute to provide green shipping
financial support but only on commercial terms, regardless of the predominant
non-profit making remit.66 Additionally, it must seek to help the EU to develop
economically, complete the internal market and promote its foreign policy objec-
tives.67 Leaving aside the question as to clarity in these objectives, “blending” seems
to allow the EIB to achieve its legal aims.
Blended financing has several distinct advantages in encouraging investment
from the private sector in green shipping projects. However, it has been argued in
this chapter that that is not a silver bullet, although it is most definitely an important
green finance toolkit. Blending brings together many stakeholders—which from a
sociological perspective means that more individuals are rewarded for sharing in a
green cooperative venture which in turn means greater ownership of the green
agenda in European shipping. That in itself might arguably be considered to be an
aspect of sustainability.
Of wider general interest is that the notion, concept or idea of that which is
“green” for the purposes of EIB green financing is largely given a somewhat
legalistic definition to be properly incorporated in any financing agreements between
the EIB and its partner financial institution. The EIB’s green agenda is not merely a
matter of policy, important though that may be, but also a measure or criterion of its
legal competencies. It is not empowered to provide financing support for projects
which are not green, according to its own expressed definition. However, the
definition as found in the EIB’s proforma template of standard contractual terms68
is not necessarily helpful. Although as a matter of contract, the term might be varied,
it is unlikely that the EIB and its prospective partners would to be too quick to test
and reformulate a different definition. A lesson perhaps for other public financing

66
Supra n. 27.
67
Ibid.
68
Supra n. 15.
Legal Aspects of Green Shipping Finance: Insights from the European. . . 151

bodies elsewhere globally looking to provide green shipping finance through blend-
ing might be to consider a more systemic or holistic approach, such as that found in
the UNEP taxonomy, might be helpful in ascertaining the “green” scope.
The EIB green shipping finance initiatives, despite its green credentials, are
prominently and inextricably tied to the EU’s much vaunted transport corridor
agenda. In this regard, it is also hoped that this assessment of the EIB’s green
shipping finance initiatives, which in the ultimate analysis, are a tool for furthering
European foreign policy and economic and political ideals, might provide some food
for thought for other state driven green transport infrastructure projects such as those
being contemplated under the People’s Republic of China’s Belt and Road Initiative,
another proposed transport corridor.

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When Was the Last Time You Were
Restrained by a Prince? Conservatism
and the Development of Maritime Law

Martin Davies

Abstract This chapter examines how some concepts and contractual terms used by
maritime law tend to lag far behind what is actually going on in maritime practice.
The stubborn persistence of the 1946 version of the New York Produce Exchange
time charter form, provides just one example among many. Sometimes—often—
international instruments of maritime law have been created with wholly admirable
precision to meet modern commercial needs, but have moved far ahead of maritime
practice, proving incapable of moving national laws or commercial usage along with
them. Sometimes, familiar and widely-used legal terms continue to deal with issues
that have long ceased to be of relevance in maritime practice. In short, the idea that
maritime law moves smoothly in lockstep with the needs of maritime commerce is
an illusion. Very often, maritime law either moves on its own, or it does not move at
all. The examples in this chapter are widely disparate in character, but they have one
thing in common: they are examples of maritime law at distant odds from maritime
practice.

1 Introduction

Maritime lawyers have a habit of remarking on how closely maritime law reflects the
commercial needs of the shipping industry. For example, in The Junior K,1 Steyn
J. of the High Court of England and Wales (later Lord Steyn of the House of Lords)
declined to hold that a charterparty fixture recap “subject to details” could possibly
constitute a concluded contract, because to do so would be “out of step with the way

1
Star Steamship Society v. Beogradska Plovidba (The Junior K) [1988] 2 Lloyd’s Rep. 583.

M. Davies (*)
Tulane University, New Orleans, LA, USA
e-mail: mdavies@tulane.edu

© Springer Nature Switzerland AG 2020 153

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_9
154 M. Davies

in which the shipping trade works”.2 In The Achilleas,3 the House of Lords reversed
the decision of the Court of Appeal about the amount of damages recoverable for
breach of a charterparty because, to use the words of Lord Hope, the decision of the
Court of Appeal would have created “a real risk of serious commercial uncertainty
which the industry as a whole would regard as undesirable”.4 We are often told,
reassuringly, that when maritime law moves, it moves in step with the needs of
maritime commerce.
Unfortunately, as this chapter attempts to show, that is often not true. Some-
times—often—the concepts and contractual terms used by maritime law lag far
behind what is actually going on in maritime practice. Section 3 of this chapter,
which deals with the stubborn persistence of the 1946 version of the New York
Produce Exchange time charter form, provides just one example among many.
Sometimes—often—international instruments of maritime law have been created
with wholly admirable precision to meet modern commercial needs, but have moved
far ahead of maritime practice, proving incapable of moving national laws or
commercial usage along with them. Section 2, on multimodal transportation, is an
example, as is Sect. 5, on general average. Sometimes, familiar and widely-used
legal terms continue to deal with issues that have long ceased to be of relevance in
maritime practice. Section 4, on the Both-to-Blame Collision Clause is an example.
In short, the idea that maritime law moves smoothly in lockstep with the needs of
maritime commerce is an illusion. Very often, maritime law either moves on its own,
or it does not move at all. The examples in this chapter are widely disparate in
character, but they have one thing in common: they are examples of maritime law at
distant odds from maritime practice. Many other examples could have been used.

2 Back to the Future with Multimodal Transportation

The legal problems caused by a “network” approach to multimodal transportation

have been apparent since the “container revolution” of the 1950s and 1960s. If cargo
can be carried by several different modes of transportation—road, rail, sea—in the
same shipping container, the rights of the cargo owner (or its insurer) to compensa-
tion for damage or loss may vary, depending on when and in which stage of
transportation the damage occurred. The many differences between the applicable
unimodal regimes mean that the law relating to multimodal transportation has

2
Id. at 588 per Steyn J. The Baltic Exchange’s Baltic Code 2014 for brokers on the Exchange has
printed at the bottom of every page “Our word our bond”, but it also says (much less prominently):
“It is important to note that no fixture has been concluded until all ‘subjects’ have been lifted”:
see p. 19.
3
Transfield Shipping Inc. v. Mercator Shipping Inc. [2009] 1 A.C. 61 (reported sub nom The
Achilleas [2008] 2 Lloyd’s Rep. 275).
4
Id. at 72, [29] per Lord Hope of Craighead, quoting the minority arbitrator’s reasons for dissenting
from the original decision in favour of the shipowner.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 155

always been what has been described as a “legal tower of Babel”.5 The ideal solution
is, of course, for the same regime of cargo liability to apply “door to door” to the
same item of cargo through all modes of transportation. Nevertheless, the “network”
system persists stubbornly, largely because it is not obvious why cargo being carried
as part of a multimodal international transit should be subject to a different regime of
liability from the very same kind of cargo being carried by the very same mode of
transport in a unimodal transit. For example, cargo moving by road from Antwerp to
Rotterdam would be subject to the liability regime of the Convention on the Contract
for International Carriage of Goods by Road (CMR)6; why should the same cargo in
the same truck be subject to a different scheme of liability just because it will be
loaded onto a ship in Rotterdam for ocean carriage to another country?
Attempts to produce an internationally-uniform intermodal transportation instru-
ment began as early as 1963, and continue to the present day. A veritable who’s who
of international bodies has pursued this desideratum, without success. In 1963, the
International Institute for the Unification of Private Law (UNIDROIT) published a
“draft convention on the international combined transport of goods”,7 modeled on
CMR. In 1969, the Comité Maritime International (CMI) produced a draft conven-
tion called the “Tokyo Rules”,8 which were modeled on the Hague Rules.9 In 1970,
the Inland Transport Committee of the U.N. Economic Commission for Europe
(UN/ECE) combined the UNIDROIT and CMI draft conventions into a single text
known as the “Rome Draft”, which was later modified by meetings between
UN/ECE and the Intergovernmental Consultative Organization (IMCO) (which is
now the International Maritime Organization (IMO)). The joint effort of UN/ECE
and IMCO produced a draft convention known as the “TCM draft”, using the French
acronym “Transport Combiné de Marchandises”, which was to be finalized at a
UN/IMCO Container Conference in 1972.10 Instead of finalizing the TCM draft, the
Container Conference referred the task of producing a multimodal convention to the
United Nations Conference on Trade and Development (UNCTAD), which eventu-
ally produced the U.N. Convention on International Multimodal Transport of
Goods, on 24 May 1980. Although based on nearly 20 years’ worth of work by
UNIDROIT, CMI, UN/ECE, IMCO and UNCTAD, the Convention has never come
into force, and surely never will. It needed thirty ratifications to come into force;
nearly 40 years after its adoption, it has only 11.11 The Multimodal Convention

5
Murray et al. (2012), p. 811.
6
CMR has been adopted by 55 countries, including both Belgium and the Netherlands: see United
Nations Treaty Collection, https://treaties.un.org/pages/ViewDetails.aspx?src¼TREATY&mtdsg_
no¼XI-B-11&chapter¼11&clang¼_en.
7
UNCTAD (2001), p. 8, para. 16.
8
Id.
9
Nasseri (1988), pp. 231, 235.
10
UNCTAD (2001), p. 8, para. 17.
11
See United Nations Treaty Collection, https://treaties.un.org/doc/Publication/MTDSG/Volume%
20I/Chapter%20XI/XI-E-1.en.pdf.
156 M. Davies

adopted a modified version of the network principle, imposing an overall limit of

liability on the combined transport operator unless the loss or damage could be
localized in a particular stage of the multimodal transport where a higher limit of
liability was imposed by an international convention or mandatory national law, in
which case that higher limit would apply.12
The most recent effort to bring some international uniformity to the “legal tower
of Babel” of multimodal transportation is, of course, the Rotterdam Rules, which
were adopted by the General Assembly of the United Nations on 11 December 2008,
the international Convention containing them being signed in Rotterdam on
23 September 2009.13 The Rules are the product of 7 years of drafting work by
the U.N. Commission on International Trade Law (UNCITRAL), which built on
4 years of preparatory work by CMI.14 The Rotterdam Rules also impose a modified
network system of liability for multimodal transportation involving at least one sea
leg,15 creating a uniform “door to door” regime, but also providing that if goods are
lost or damaged solely in the land stage before loading onto or discharge from the
ship, liability should be determined by reference to any international convention
applying specifically to that mode of transport.16 At the time of writing, a decade
after the Convention containing the Rotterdam Rules was made, it has been ratified
by only four of the twenty countries needed for it to come into force: Cameroon,
Congo, Spain, and Togo.17 Very few countries are taking any active steps towards
ratification. It is said that some, perhaps many, countries are waiting to see whether
the United States will ratify the Convention, but it is highly unlikely that that will
happen in the near future. Although international treaties are ratified by the President
of the United States, the U.S. Constitution provides that that can only occur with the
“advice and consent” of the U.S. Senate, which requires a two-thirds majority of
senators.18 American politics is so bitterly divided, and bipartisanship in
Washington, D.C. so rare at the moment, that it seems highly implausible to imagine
two-thirds of U.S. senators agreeing on anything at all, let alone a treaty that very
few other countries (and none of the U.S.A.’s major trading partners) have adopted.
In summary, half of the past half-century—28 of the past 56 years—has been
spent on drafting an international instrument to govern multimodal transportation, by

12
Multimodal Convention 1980, Arts 18, 19.
13
U.N. Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea
(2009).
14
Sturley (2009), p. 427.
15
Because the Convention does not apply to all international multimodal transportation, but only to
multimodal transportation involving carriage by water, it has sometimes been dubbed a “wet
multimodal” instrument: see, for example, Nikaki (2006).
16
Rotterdam Rules 2009, Art. 26.
17
UNCITRAL, Status: United Nations Convention on Contracts for the International Carriage of
Goods Wholly or Partly by Sea, available at: http://www.uncitral.org/uncitral/en/uncitral_texts/
transport_goods/rotterdam_status.html.
18
U.S. Constitution, art. II, § 2, cl. 2: “[The President] shall have Power, by and with the Advice and
Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur. . .”.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 157

four U.N. agencies (UNCITRAL, UNCTAD, UN/ECE, and what is now IMO) and
two private bodies dedicated to the unification of international law (UNIDROIT and
CMI). This is surely “maritime law in motion” in one sense. There have been many
drafts of legal instruments—the UNIDROIT draft of 1964, CMI’s “Tokyo Rules”,
the UN/ECE “Rome Draft”, the UN/ECE/IMCO “TCM Draft”—and two finalized
conventions, which surely counts as a lot of legal water under the bridge. In another,
very real, sense, there has been no motion at all. The “legal tower of Babel” remains.
If there is any international uniformity at all, it comes from the widespread use of
standard form documents such as the FBL Multimodal Transport Bill of Lading
issued by the International Federation of Freight Forwarders Associations
(FIATA),19 which reflects the UNCTAD/ICC Rules for Multimodal Transport
Documents.20 The UNCTAD/ICC Rules were issued jointly by the United Nations
Conference on Trade and Development (UNCTAD) and the International Chamber
of Commerce (ICC) in 1992, in recognition of the fact that the Multimodal Con-
vention would never come into force. The FIATA FBL was also issued in 1992. It,
too, implements a modified version of the network principle, incorporating the
Hague or Hague-Visby Rules for the carriage of goods by sea (or the
U.S. COGSA, where applicable),21 and stating both a general limit of liability
based on the Hague-Visby limit (except when COGSA applies),22 and a provision
stating that if loss or damage can be localized by identifying the mode of transport in
which it occurred, then the limit of liability compulsorily applicable to that stage
shall be applied as if a separate contract had been made for that particular stage.23
In other words, the legal position in relation to multimodal transportation is much
the same now as it was at the beginning of the container era, based on documents that
are over 25 years old, which in turn incorporate the familiar but now vintage legal
instruments, the Hague/Hague-Visby Rules and COGSA. The prodigious efforts that
have been made to make the law move—even into the late twentieth century,
let alone the early twenty-first—have come to nothing.

3 The New York Produce Exchange Time Charter

The New York Produce Exchange standard form time charter was first officially
adopted on November 6th, 1913, by the New York Produce Exchange, which was a
commodity exchange based at 2 Broadway in New York City.24 After many years of

19
The acronym FIATA comes from the French name of the association, Fédération Internationale
des Associations de Transitaires et Assimilés.
20
UNCTAD/ICC Rules for Multimodal Transport Documents (ICC Publication No. 481, 1992).
21
FIATA FBL, cl. 7.
22
FIATA FBL, cls. 8.3, 8.6(b).
23
FIATA FBL, cl. 8.6(a).
24
Healy (1983), p. 521.
158 M. Davies

slow decline, the New York Produce Exchange disbanded in the late 1960s or early
1970s,25 but the standard form that bears its name lives on 50 years later. The
original NYPE form has been revised six times, in 1921, 1931, 1946, 1981, 1993,
and most recently in 2015. Responsibility for the 1981 and 1993 versions was
assumed by the Association of Ship Brokers and Agents (U.S.A.) Inc. (ASBA),
which took over the copyright when the New York Produce Exchange ceased to
exist. Although ASBA called the 1981 version, somewhat optimistically,
“ASBATime,” the 1993 version reverted to the more recognizable name “NYPE
93.” The 1981 version also discreetly dropped the enigmatic caption that had
appeared in the earlier versions—“Government Form”—perhaps because it was
never clear which government had said what about the form. The most recent
version, NYPE 2015, reflects a much more broadly international basis of input:
ASBA was joined by joint authors the Baltic and International Maritime Council
(BIMCO) and the Singapore Maritime Foundation (SMF).26
NYPE 2015 is a fine piece of work, well drafted, with clauses specifically
addressing many issues that have arisen in the recent practice of ship operations,
such as the impact of the International Safety Management Code (the ISM Code),27
the International Ship and Port Facility Security Code of 2004 (the ISPS Code),28 the
effect of ballast water exchange regulations,29 the need to make provision for slow
steaming at charterer’s request,30 and many others. It is, truly, an all-purpose time
charter form for the twenty-first century. Unfortunately, however, time-chartering
practice seems to be wedded to legal provisions dating from the mid-twentieth
century or even long earlier. It is still the 1946 version of the NYPE form that is
most widely used in practice, even though it makes no provision for any of the
matters noted above.
In the 10 years from the beginning of 2009 to the end of 2018, there were 49 cases
reported in the Lloyd’s Reports about time charters on the New York Produce
Exchange form. In 21 of those 49 cases, the charterparty in dispute was specifically
identified as being a modified version of the 1946 form. Only six of the cases
featured the 1993 version of the form; none at all featured the 1981 version of the
form, and none (as yet) featured the 2015 version of the form. In 22 of the cases, it
was unclear which version of the form was being used by the parties in dispute, as
the report simply described the contract as being on “the New York Produce
Exchange form,” or words to that effect. It is a fairly safe bet that many, if not all,
of those 22 cases in which the version of the form was not identified were actually
concerned with the 1946 version, which is still widely regarded as the NYPE form.

25
Id.
26
BIMCO (2016), p. 3.
27
NYPE 2015, cl. 44.
28
NYPE 2015, cl. 45.
29
NYPE 2015, cl. 51.
30
NYPE 2015, cl. 38.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 159

The standard English textbook, Time Charters, by Wilford, et al., was first
published as a monograph by Michael Wilford in 1978, and it was structured as an
extensively annotated version of the 1946 version of the NYPE form, with occa-
sional comparisons to the Baltime form. The third edition of the book, in 1989, was
the first to be published after a revised version of the NYPE form had been issued,
but the book still clung to the 1946 version of the form; the new “ASBATime 1981”
was reproduced as Appendix E, but the text contained almost no commentary on the
changes that the new form had wrought to the apparently canonical 1946 text.31 The
most recent edition, the seventh, published in 2014, continues to treat the 1946
version of the form as the core text around which the book is organized.32 Obviously,
that edition was published before BIMCO, ASBA and SMF published NYPE 2015,
but it still contains very few references to the text of either the 1981 or the 1993
versions of the form, and for good reason—there are very few cases about anything
other than the 1946 version of the form.
The 1946 version of NYPE was not newly drafted after World War II. It was
merely an amendment of the 1913 form, many clauses of which simply adopted
word for word the language that had been used in nineteenth century American
charter contracts.33 To take just one example, it is now difficult to determine when
the time-honoured words “tight, staunch, strong” first appeared in a charterparty
contract, but they appear to date back at least to the early nineteenth century, and
probably earlier. The earliest case in the English Reports featuring the phrase dates
from 1809, when a charterer complained that the shipowner had failed to provide a
ship “tight, staunch, and strong, and well and sufficiently equipped, manned, &c. for
a voyage or voyages of 12 calendar months”.34 The phrase obviously migrated to the
United States during the course of the nineteenth century, because the first American
case in which it appears is a decision of the U.S. District Court for the District of
South Carolina in 1889, holding that a shipowner had not breached its obligation
under a voyage charter to provide a ship “in every respect tight, staunch, strong,
classed 100A1, and in every respect fitted for the voyage across the Atlantic.”35 The
familiar phrase “tight, staunch, strong” was one of many standard expressions
incorporated into the New York Produce Exchange form in 1913, and it remained
there for over a hundred years until the most recent version of the form, NYPE 2015,
finally replaced it with the rather less colorful, but rather more plainly descriptive
phrase, “seaworthy and in every way fit to be employed for the intended service”.36
The phrase is more than 200 years old, at a conservative estimate.
It might be objected that there is no real harm in owners and charterers continuing
to use the phrase “tight, staunch, strong” in their charterparties, rather than

31
Wilford et al. (1989).
32
Wilford et al. (2014).
33
Healy (1983).
34
Havelock v. Geddes (1809) 10 East. 555; 103 E.R. 886.
35
Card v. Hine, 39 F. 818 (D.S.C. 1889).
36
NYPE 2015, cl. 2(b), line 39.
160 M. Davies

“seaworthy and in every way fit to be employed for the intended service,” because
everyone (or perhaps that should be “everyone”) knows that it means the same thing.
However, the antique language of the 1946 form is merely the tip of the iceberg in
relation to its anachronistic deficiencies. The 1946 version of the form is woefully
deficient in other respects, particularly when compared with its very comprehensive
2015 successor. As noted above, it makes no provision for any of the features of
modern shipping practice that are incorporated into the 2015 form. To take just one
timely example, the 1946 form imposes on the ship’s master the traditional obliga-
tion to “prosecute. . .voyages with the utmost despatch”.37 It would be a breach of
that obligation for the master to accept orders from the time charterer to proceed at a
reduced speed in order to save on bunker consumption, or to arrive in port at a
specified time. Because it is increasingly common in practice for charterers to want
to give such orders, NYPE 2015 includes a slow steaming clause.38 Without such a
clause, the charterer would not be able to give such an order, and the master would
not be able to follow it if given, because the ship might then be held liable to the
holders of bills of lading for failure to carry their cargo with the “utmost despatch”.39
Similarly, and perhaps surprisingly, given that the 1946 form was issued just
1 year after the end of World War II, it contains no war risk clause. Modern war risk
clauses such as BIMCO’s Conwartime 2013 are elaborate affairs, including a
lengthy definition of “war risks” that includes many items, such as “acts of terror-
ists”, that do not qualify as “war” in the strict sense, and also making precise
provision for the respective rights and obligations of the parties in the event that
the vessel’s service is affected by the kind of hostile action that is all too common in
modern shipping practice. Unless the parties incorporate such a clause into their
NYPE 1946 by reference, any disputes about losses suffered as a result of war risks
must fall to be determined by reference to clauses not designed specifically for that
purpose.
It might be responded that it is easy to customize the NYPE 1946 form by
incorporating “stand alone” clauses such as Conwartime or others drafted by
BIMCO or (for tankers) Intertanko. That is true, but why would anyone put
themselves to the trouble of doing so, when it is not necessary? Would brokers
fixing a charter on the 1946 version of the form even be aware of all the modifica-
tions that need to be made to the form to make it ready for use in the twenty-first
century? To take a small but telling example, the 1946 form provides for general
average to be adjusted by the York-Antwerp Rules 1924. As noted below,40 the
York-Antwerp Rules have been modified six times since 1924—good luck trying to
find an average adjuster who would now be able to follow the 1924 version of the

37
NYPE 1946, cl. 8.
38
NYPE 2015, cl. 38.
39
The “slow steaming” clause in NYPE 2015 includes an obligation on the charterer to incorporate
the clause into sub charters and contracts of carriage issued pursuant to the charter, and to indemnify
the owner against any consequences of its failure to do so: see NYPE 2015, cl. 38(f).
40
See Sect. 5 below.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 161

rules. The 1946 NYPE form also specifies that the ship must have a “donkey boiler”,
and one of the options for describing the ship’s fuel consumption is in terms of “tons
of best Welsh coal”. No doubt brokers using the 1946 version of the form routinely
delete the references to donkey boilers and Welsh coal, but do they routinely delete
the reference to the York-Antwerp Rules 1924? Why would anyone choose to put
themselves in the position of having to exercise such vigilance over the anachronistic
details of the form? Unthinking conservatism seems to be the only possible expla-
nation. Whatever the explanation, chartering practice seems to be not exactly
keeping up with the times, to put it mildly.

4 The Both-to-Blame Collision Clause

The Both-to Blame Collision Clause is a common feature of standard form bills of
lading41 and also of time and voyage charterparties. BIMCO has published
recommended wording for a Both-to Blame Collision Clause,42 and such a clause
appears in the most recently published versions of the generic BIMCO forms for bills
of lading, sea waybills43 and charterparties.44 Some P. & I. Clubs recommend that
their members insert the clause into their carriage documents.45 Standard cargo
insurance policies, such as the Institute Cargo Clauses (A), provide cargo-owners
with cover against the risk of being required to pay carriers under the clause.46 In
short, the clause is ubiquitous. It seems that no-one is prepared to put to sea without
one in their contractual documentation. What does it do, though? Is it really
necessary? Or is it just an atavistic remnant of times long past?

41
All five of the largest container lines have such a clause in their bills of lading. See, for example,
cl. 23 of the Maersk Line bill of lading (available at https://terms.maerskline.com/carriage), which
incorporates the BIMCO clause (see note 42) by reference; cl. 21 of the MSC bill of lading
(available at https://www.msc.com/getattachment/a2c61e0a-90d9-4c80-89aa-686e3464e62a/
636355601931487641); cl. 15 of the CMA CGM bill of lading (available at https://www.cma-
cgm.com/static/eCommerce/Attachments/CMACGM-Terms-and-Conditions-2016-08.pdf);
cl. 24 of the COSCO bill of lading (available at http://lines.coscoshipping.com/lines_resource/pdf/
coscon_tidan_cn.pdf), which incorporates the BIMCO clause (see note 42) by reference; cl. 23 of
the Hapag-Lloyd bill of lading (available at https://www.hapag-lloyd.com/content/dam/website/
downloads/pdf/Hapag-Lloyd_Bill_of_Lading_Terms_and_Conditions.pdf) which incorporates the
BIMCO clause (see note 42) by reference.
42
The clause is available from BIMCO’s website at: https://www.bimco.org/contracts-and-clauses/
bimco-clauses. It also appears in BIMCO’s standard forms: see note 43 below.
43
See BIMCO’s Conlinebill 2016, cl. 13; Combinconbill 2016, cl. 24; Linewaybill 2016, cl. 24;
Combiconwaybill 2016, cl. 24.
44
See Gencon 94, cl. 11; NYPE 2015, cl. 33(b).
45
See, for example, North of England Protecting and Indemnity Association Ltd, Recommended
Clauses 2016-2017, p. 1 (available at http://www.nepia.com/media/410235/NORTH-
Recommended-Clauses-2016-17-.PDF).
46
Institute Cargo Clauses (A), cl. 3.
162 M. Davies

As its name suggests, the clause is designed to respond to the situation of claims
arising from a collision in which both ships are to blame. If cargo on one of the ships
is damaged, the cargo-owner (or its insurer) is usually unable to sue the carrying
ship, which can rely on the “nautical fault” defence in Art. 4, r. 2(a) of the Hague or
Hague-Visby Rules, which excuses the carrier from liability arising or resulting
from: “Act, neglect or default of the master, mariner, pilot, or the servants of the
carrier in the navigation or in the management of the ship.” Unless the collision was
caused by some unseaworthiness of the carrying ship for which the carrier was
responsible, the carrier can generally rely on the Art. 4, r. 2(a) defence to a claim
brought against it by those with interests in cargo damaged in a collision. A
navigational error by the master or crew leading to a collision is the paradigm
example of the “nautical fault” defence: a negligent act for which the carrier itself
bears vicarious, but not personal, liability. Because the carrying ship is not liable for
the damage to the cargo, the owner or insurer of that cargo must look elsewhere for
redress. The obvious course of action is to sue the owner of the other ship involved in
the collision, which was at least partly responsible for the damage suffered by the
cargo as a result of the collision.
However, the Brussels Collision Convention of 191047 introduced a system of
proportionate liability for maritime collisions, long before similar regimes were
adopted into the land-based law of torts of some countries.48 Under a proportionate
liability system, each tortfeasor can be held liable only to the extent of its respon-
sibility for the harm caused. That was the position under English law even before the
U.K. adopted the 1910 Brussels Collision Convention,49 and it was enshrined in
Article 4 of the Convention, which provides:
If two or more vessels are in fault the liability of each vessel is in proportion to the degree of
the faults respectively committed. Provided that if, having regard to the circumstances, it is
not possible to establish the degree of the respective faults, or if it appears that the faults are
equal, the liability is apportioned equally.

When the Convention applies, if there is a collision between ship A and ship B in
which ship A is 75% to blame and ship B 25% to blame, Article 4 produces the result

47
International Convention for the Unification of Certain Rules of Law with Respect to Collisions
1910 (Brussels Collision Convention).
48
For example, the states and territories of Australia introduced proportionate liability for economic
loss or property damage (but not personal injury) in the first decade of the twenty-first century: see
Civil Law (Wrongs) Act 2002 (ACT) Ch 7A; Civil Liability Act 2002 (NSW) ss 34–39; Propor-
tionate Liability Act 2005 (NT) Pt 2; Civil Liability Act 2003 (Qld) ss 28–33; Law Reform
(Contributory Negligence and Apportionment of Liability) Act 2001 (SA) Pt 3; Civil Liability Act
2002 (Tas) Pt 9A; Wrongs Act 1958 (Vic) Pt IVAA; Civil Liability Act 2002 (WA) Pt 1F. In
contrast, the U.K. still has a system of joint and several liability for property damage and economic
loss: see Civil Liability (Contribution) Act 1978 (U.K.), s. 3.
49
The Milan (1861) Lush. 388; 167 E.R. 167; Owners of Cargo of S.S. Tongariro v. Owners of
S.S. Drumlanrig (The Drumlanrig) [1911] A.C. 16. These pre-Convention cases allowed the cargo-
owner to recover 50% of its loss from the non-carrying ship, equal division in all cases being the
Admiralty rule before the Convention.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 163

that the owner or insurer of cargo damaged on ship A can recover only 25% of its
loss from ship B. If the Hague or Hague-Visby Rules apply to the carriage of the
cargo on ship A, the end result is that the cargo insurer can recover only 25% of its
loss, as it cannot recover the remaining 75% of its loss from ship A because of Art.
4, r. 2(a).
Why, then, the need for the Both-to-Blame Collision Clause? The usual answer is
that it is needed because of the position under the law in the United States,50 which
has not adopted the 1910 Brussels Convention, and which continues to adhere to the
principle of joint and several liability in maritime cases. Under U.S. general maritime
law, multiple tortfeasors are jointly and severally for the harm they cause, which
means that a cargo owner (or its insurer) may recover the whole of its loss from the
non-carrying ship in a both-to-blame collision.51 The non-carrying ship may then
recover from the carrying ship a proportion of the amount it had to pay the cargo-
owner, on the basis that its liability to the owner or insurer of the cargo on the
carrying ship was one of the losses it suffered as a result of the collision. The net
effect is that the carrying ship ends up being liable for part of the cargo-owner’s loss,
notwithstanding the protection of Art. 4, r. 2(a) of the Hague Rules.52
It was for this situation that the Both-to-Blame Collision Clause was devised. A
typical clause provides that if the carrying ship is held to be liable to the non-carrying
ship for cargo damage on the carrying ship suffered in a both-to-blame collision, the
cargo-owner is obliged to indemnify the carrier to the extent of that liability.
Returning to the example used above, the owner or insurer of the cargo damaged
on ship A can recover 100% of its loss from ship B, which can then recover 75% of
that amount from ship A,53 which can then claim an indemnity for that sum from the
cargo owner or insurer, thus closing the circle. The intended end result is the same as
under the 1910 Brussels Collision Convention and Art. 4, r. 2(a) of the Hague or
Hague-Visby Rules: ship B bears 25% of the loss, ship A bears none, and the owner
or insurer of the cargo bears 75%.
The problem with all of this is that the U.S. Supreme Court, no less, has held that
the Both-to-Blame Collision Clause is not effective in contracts to which COGSA
applies. In U.S. v. Atlantic Mutual Insurance Co.,54 the Supreme Court declared the
Both-to-Blame Collision Clause to be invalid and unenforceable in cases governed

50
For example, BIMCO’s Explanatory Notes to the NYPE 2015 Time Charter state, in relation to
the Both-to-Blame Collision Clause (cl. 33(b)): “This clause is of particular importance when the
law of the United States may apply to apportioning liability for a collision between two ships where
both ships have acted negligently to cause the casualty”: see BIMCO (2016), p. 31.
51
The Atlas, 93 U.S. (3 Otto) 302, 23 L.Ed. 863 (1876); The Chattahoochee, 173 U.S. 540; 19 S.Ct.
491; 43 L.Ed. 801 (1899); The New York, 175 U.S. 187; 20 S.Ct. 67; 44 L.Ed. 126 (1899); Allied
Chemical Corp. v. Hess Tankship Co., 661 F.2d 1044 (5th Cir., 1981).
52
Carriage of Goods by Sea Act (COGSA), § 4(2)(a), Statutory Note to 46 U.S.C. § 30701.
53
Liability for a maritime collision is apportioned by degrees of fault in the United States: see U.S.
v. Reliable Transfer Co., Inc., 421 U.S. 397, 1975 AMC 541 (1975).
54
343 U.S. 236; 72 S.Ct. 666; 96 L.Ed. 907 (1952). This case is known, but not reported, as The
Esso Belgium.
164 M. Davies

by the Hague Rules by virtue of COGSA, because it attempts to excuse the carrier
from the consequences of its own negligence, which is regarded as contrary to public
policy in the United States. Thus, if the cargo on ship A is being carried on a bill of
lading or sea waybill subject to the US COGSA, the indemnity its owner or insurer is
required to give by the Both-to-Blame Collision Clause is not enforceable. In other
words, the clause is a waste of space and ink in any bill of lading or sea waybill.
Admittedly, there are a few U.S. cases at trial-court level which hold that the
Both-to-Blame Collision Clause is enforceable in cases of “private carriage”, mean-
ing carriage under a charterparty not governed by COGSA by its own force.55
However, this does not mean that the Both-to-Blame Collision Clause is still an
essential requirement for contracts involving carriage to or from the United States,
for several reasons.
First, no appellate court of any precedential standing has ever held that the clause
is enforceable in “private carriage” cases, so its applicability in such cases is not
exactly firmly established in the United States.
Secondly, courts in the United States do not routinely apply the American
principles of joint and several liability to a “both to blame collision” involving
foreign-flagged ships. If both ships involved in a collision are flagged in Convention
countries, a U.S. court will apply the Brussels Collision Convention to determine the
division of responsibility (and hence its rule of proportionate liability), rather than
principles of U.S. maritime law.56 For example, in Otal Investments Ltd v. M/V
Clary,57 the U.S. Court of Appeals for the Second Circuit held that the Brussels
Collision Convention should be applied to apportion liability in relation to a collision
on the high seas between a Bahamian-registered ship and a Norwegian-registered
ship when the Bahamian-registered ship tried to avoid a Singaporean-registered ship,
because all three ships were registered in countries party to the Convention. The
decision was significant because the court held that the Convention requires com-
parison of both fault and causative significance on the part of the colliding ships,58

55
See, for example, Allseas Maritime, S.A. v. M/V Mimosa, 574 F.Supp. 844, 853 (S.D.Tex. 1983);
Alamo Chemical Transport Co. v. M/V Overseas Valdes, 469 F.Supp. 203, 215 (E.D.La. 1979);
American Union Transport, Inc. v. U.S. 1976 AMC 1480 (N.D.Cal. 1976); In re Complaint of
Murmansk Shipping Co, 2002 AMC 2495, 2498–2500 (E.D.La, 2002).
56
In re Seiriki Kisen Kaisha, 629 F.Supp. 1374 (S.D.N.Y. 1986) applying the Brussels Collision
Convention to a collision between a Cayman Islands-flagged ship and a Japanese-flagged ship on
the high seas); La Seguridad de Centroamerica S.A. v. MV Global Mariner, 2002 AMC 1999
(S.D.N.Y. 2002) (applying the Brussels Collision Convention to a collision between a U.K.-flagged
ship and a Cyprus-flagged ship on the Orinoco River in Venezuela); MAN Ferrostaal, Inc. v. MV
Vertigo, 447 F.Supp.2d 316, 2006 AMC 2187 (S.D.N.Y.) (applying Brussels Collision Convention
to collision between Jamaican-flagged ship and Liberian-flagged ship in Danish waters because all
relevant countries other than Liberia, including Denmark, were party to the Convention). See
generally, Morris (2007), p. 132.
57
494 F.3d 40, 2007 AMC 1817 (2d Cir. 2007).
58
To the same effect, see The Miraflores and The Abadesa [1967] 1 A.C. 826.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 165

whereas the Reliable Transfer principle of U.S. law59 requires only comparison of
degrees of fault.60
Thirdly, if the carrier of Ship A were to try to enforce the Both-to-Blame Collision
Clause to recover an indemnity from a cargo-owner or its insurer in a “private
carriage” case under a charterparty governed by U.S. law, the case would most
probably go to arbitration in New York, rather than to court. The Society of Maritime
Arbitrators, based in New York, publishes awards made under its aegis. The SMA
was established in 1963; there are no published awards of SMA arbitrations in which
a shipowner has sought to enforce a Both-to-Blame Collision Clause in a
charterparty. In short, there seems to be very little evidence that shipowners are
even trying to rely on the clause in the United States.
Fourthly (and this may explain the absence of SMA awards), many charterparties
incorporate US COGSA by means of a Clause Paramount when the charterparty is
for trade to or from the United States.61 If COGSA applies to the charterparty itself,
as well as to bills of lading issued under it (which is what the Clause Paramount in a
charterparty usually says),62 then the incorporated provisions of COGSA should
strike down the Both-to-Blame Collision Clause in that charterparty, just as much as
they do in a bill of lading or sea waybill.63
In summary, the only possible scope for application for the Both-to-Blame
Collision Clause in the United States is if: (1) the contract containing the clause

59
See above, note 53.
60
Otal Investments, 494 F.3d at 62–63. For a comparison of the Convention-based and
U.S. methods of allocation of responsibility, see Healy (2001), p. 993; Forbes and Knoll (2017),
pp. 977, 986–989.
61
See, for example, cl. 20(b) of the Asbatankvoy tanker voyage charter, which provides that: “The
carriage of cargo under this Charter Party and under all Bills of Lading issued for the cargo shall be
subject to” US COGSA (among other things).
62
See also, for example, cl. 33(a) of NYPE 2015, which provides that US COGSA “shall be deemed
to form part of this Charter Party and all Bills of Lading or waybills issued under this Charter Party.”
Incorporating COGSA into a time charter is essentially meaningless, another example of the
unthinking way in which shipping contracts adhere atavistically to established practices. Sensibly,
the 1981 version of the NYPE form did not purport to incorporate COGSA into the charter itself—
see Pritchett (1983), p. 69—but that feature of the form seems to have been dropped from later
versions.
63
Courts in the U.S. have come to exactly this conclusion about the New Jason Clause, which
provides that a shipowner may recover a general average contribution from cargo if it is guilty of
fault that would be protected from liability “by statute or contract or otherwise”. The U.S. Supreme
Court held in The Jason, 225 U.S. 32; 32 S.Ct. 560 (1912) that a contract for the carriage of goods
by sea may validly stipulate that the shipowner is entitled to a general average contribution if it is
relieved by statute of responsibility for the negligence of the master and crew that gave rise to the
general average event. The “New Jason Clause” expanded “by statute” to “by statute or contract or
otherwise” but it, too, has no effect if the “private carriage” contract in question incorporates
COGSA by reference, because COGSA prevents the carrier from contracting out of liability for its
own fault: see Gemini Navigation, Inc. v. Philipp Bros Division of Minerals & Chemicals Philipp
Corp., 499 F.2d 745 (2d Cir. 1974); Louis Dreyfus Corp. v. 27,946 Long Tons of Corn, 830 F.2d
1321 (5th Cir. 1987).
166 M. Davies

was one for “private contract” carriage under a charterparty; and (2) that charterparty
did not incorporate COGSA by reference because of a Clause Paramount; and (3) at
least one of the colliding ships was flagged in the United States. There may be some
cases that satisfy all three of these criteria (although the arbitrators of the SMA have
decided none since 1963) but they will surely be very, very, few. It seems easy to
conclude that the Both-to-Blame Collision Clause is not exactly essential, even for
trade to or from the United States.
In some contracts, the Both-to-Blame Collision Clause is not only unnecessary, it
may actually be counterproductive. The clause is often included in time
charterparties, even though it makes little sense there, given that it imposes the
indemnity obligation on the owner of the damaged goods, which is not usually a
party to the charterparty.64 Some time charterparties, such as Supplytime, which is
widely used for offshore supply vessels servicing oil and gas exploration activities,
contain “knock for knock” clauses, under which each of the contracting parties
undertakes to bear its own losses and not to seek redress from the other, no matter
who was to blame for the injury or loss sustained.65 A Both-to-Blame Collision
Clause is flatly inconsistent with such a scheme,66 but nevertheless one appears in
the 2005 version of the Supplytime form.67 The clause has been removed for that
very reason from the 2017 version of the form.68
The Brussels Collision Convention has been adopted in 83 countries, including
most countries where a “both to blame” collision case is likely to be litigated,
including Argentina, Australia, Belgium, Brazil, Canada, China, Cyprus, Denmark,
Egypt, Finland, France, Germany, Greece, India, Ireland, Italy, Japan, Malaysia,
Malta, Mexico, the Netherlands, New Zealand, Nigeria, Norway, Poland, Portugal,
Russia, Singapore, Spain, Sweden, Turkey, and the U.K.69 Although the Convention
itself contains a choice of law provision (Art. 12) stating that the Convention applies
to a collision only when “all the vessels concerned belong to” adopting countries,
most adopting countries have simply adopted the operative provisions of the Con-
vention without the threshold choice of law provision,70 and so apply the Conven-
tion’s proportionate liability rule as if it were a mandatory procedural law of the

64
See, e.g., NYPE 2015, cl. 33(b).
65
See Williams (2015) and Rainey Simon (2015).
66
See the commentary by Steamship Mutual, “Supplytime 05: BIMCO Finalises Its Revision of
Supplytime 89” (2006), available at https://www.steamshipmutual.com/publications/Articles/Arti
cles/Supplytime1205.asp.
67
Supplytime 2005, cl. 27.
68
BIMCO, Supplytime 2017 with explanatory notes (2018).
69
Comité Maritime International (2016), pp. 367–370.
70
For example, Merchant Shipping Act 1995 (U.K.), s. 187; Navigation Regulation 2013 (Austl.),
r. 15; Marine Liability Act 2001 (Canada), ss. 16, 17. The legislation in New Zealand specifically
provides that it applies to all ships, whether or not registered in New Zealand, if the New Zealand
court has jurisdiction over the case: see Maritime Transport Act 1994 (N.Z.), s. 92.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 167

forum, to be applied to any litigation in that country.71 Some countries with a

significant maritime presence that are not party to the Convention, such as
South Africa72 and South Korea,73 have adopted its provisions into their domestic
law, as have other countries such as Pakistan74 and Bangladesh,75 where collision
litigation is perhaps less likely to occur.
In short, the Convention’s proportionate liability rule applies in almost all
countries of the world where a “both to blame” collision is likely to be litigated—
including in most cases in the United States, as we have seen. Why, then, does every
contract for carriage of goods by sea have to contain a Both-to-Blame Collision
Clause? The answer is, of course, that it doesn’t, but the clause is routinely included
in carriage contracts just because it always has been, and because no-one has the
nerve to abandon it as irrelevant.

5 General Average

The York-Antwerp Rules governing the adjustment of general average began their
life as the York Rules of 1864, which were adopted by a body known as the
International General Average Congress.76 The Congress amended the rules in
Antwerp in 1877; thereafter, they were known as the York and Antwerp Rules.
The York-Antwerp Rules were revised in 1890, 1924, 1950, 1974 (modified in
1990), 1994 and 2004. The 2004 version of the Rules, which was adopted at the 38th
Assembly and Conference of the Comité Maritime International (CMI) in Vancou-
ver, did not find acceptance among the shipowning community, and many maritime
contracts continue to incorporate the 1994 version of the Rules, or even the previous
version, the 1974 version as modified in 1990. For example, four of the five largest
container shipping lines continue to refer to the York-Antwerp Rules 1994 in their
bills of lading and sea waybills; the fifth (COSCO) continues to incorporate the

71
See, for example, The Miraflores and the Abadesa [1967] 1 A.C. 826, where the House of Lords
applied the then U.K. enactment of the 1910 Brussels Convention (Maritime Conventions Act 1911
(U.K.) s. 1) to a grounding involving two Panamanian-registered ships and one U.K.-registered ship
in the River Scheldt, in Belgium. Panama is not party to the Convention, so the Convention would
not have applied according to the terms of Art. 12, but it did because of the terms of the U.K. statute.
72
Merchant Shipping Act 1951 (S.Af.), s. 255.
73
Commercial Code (R.O.K.), Art. 879.
74
Pakistan Merchant Shipping Ordinance 2001 (Pak.), s. 419.
75
Bangladesh Merchant Shipping Ordinance 1983 (Bd.), s. 376.
76
Hudson and Harvey (2010), para 2.04.
168 M. Davies

York-Antwerp Rules 1974/1990.77 Even NYPE 2015 still refers to the York-
Antwerp Rules 1994.78
The 2004 version of the York-Antwerp Rules is, thus, an example of “maritime
law in motion” that did not bring maritime practice along with it. The principal
objection to its provisions was in relation to the treatment of salvage. In the 1994
version (and its predecessors), salvage expenses were included as general average
expenditures under Rule VI. In contrast, the 2004 version of Rule VI provided that
salvage payments “shall lie where they fall and shall not be allowed in general
average”. The significance of the distinction lay in the fact that contributing values in
salvage are calculated upon successful completion of the salvage, which usually
occurs at the port or place of refuge where the ship and cargo are delivered to safety,
whereas contributing values in general average are calculated on the basis of values
at the originally-intended port of final destination, under Rule G. As well, general
average expenditures include expenses incurred after the end of the salvage, such as
repair costs at the port of refuge and any additional costs incurred in completing the
voyage from the port of refuge to the originally-contemplated destination.
Those opposed to including salvage in general average argued that inclusion of
salvage involves unnecessary duplication of the apportionment of the salvage
remuneration. Those in favour of including salvage in general average argued that
to leave salvage to lie where it falls might lead to injustice, particularly if the value of
the carrying ship or its cargo were to be diminished in some way, perhaps by another
accident, between leaving the port of refuge and arrival at the originally-
contemplated destination.
Recognizing that the 2004 version of the Rules had not been a success, CMI
resolved in 2012 to draft a new set of rules, to be adopted in 2016. The new version
of the Rules was adopted at the 42nd Assembly and Conference of CMI in
New York in May 2016. The 2016 version of the York-Antwerp Rules attempts to
find a compromise between the competing positions about whether or not to include
salvage in the general average. In the 2016 version, Rule VI restores the 1994
position, by which salvage is included in the general average, subject to an exception
for circumstances in which including salvage in the general average would be unfair.
It remains to be seen whether the 2016 version will prove to be another example
of maritime law moving on its own, without bringing maritime practice along with
it. None of the leading container lines has yet changed its bill of lading to make
reference to the 2016 Rules, although BIMCO’s suite of standard form bills of lading
and sea waybills reissued in 2016 does make reference to the York-Antwerp Rules

77
See, for example, cl. 24(1) of the Maersk Line bill of lading; cl. 22 of the MSC bill of lading
(“York-Antwerp Rules 1994 except Rule XXII”); cl. 14(2) of the CMA CGM bill of lading; cl. 23
(1) of the COSCO bill of lading; cl. 22 of the Hapag-Lloyd bill of lading. Website references for
these bills of lading are cited above, note 41.
78
NYPE 2015, cl. 25.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 169

2016.79 As noted above, the practice of using the 1946 version of the NYPE form,
which incorporates the 1924 version of the Rules, is still widespread.
If the shipping industry does continue to adhere to the 1994 version of the Rules
(now a quarter century old), other changes wrought by the 2004 version of the Rules
and continued in 2016 will be lost. Most significant among those is the new Rule
XXIII, which was introduced in 2004 and retained in 2016, and which deals with the
limitation period for making a claim for general average contribution. That limitation
period would ordinarily begin to run at the time the general average sacrifice is made
or the general average expenditure is incurred, as that is when the relevant cause of
action arises.80 Because the right to contribution arises out of the parties’ agreement
to the York–Antwerp Rules, rather than under general maritime law, the relevant
limitation period would thus ordinarily be the one applying to contract claims.
Where the claim for contribution is made by the shipowner against cargo-owners,
the relevant limitation period would, in the absence of agreement, be the ordinary
period for contract claims. In contracts governed by English law, that would be
6 years.81 Where, however, the claim is made by the cargo-owner against the
shipowner, the claim should be subject to the 1-year limitation period that governs
claims under the Hague or Hague–Visby Rules. There is English and U.S. authority
for the proposition that a cargo-owner’s contractual claim for a general average
contribution is a claim “in respect of the goods” for the purposes of Art. 3, r. 6 of the
Hague or Hague–Visby Rules, and so is subject to the 1 year limitation period from
the time when the goods were delivered or (in the event of loss) should have been
delivered.82 That is an unfortunate result, given the length of time that it can take for
the adjustment to be made, as the cargo-owner’s claim might be extinguished by Art.
3, r. 6 before the adjustment could be completed.
For that reason, the new Rule XXIII provides that any claim for general average
contribution is extinguished unless brought within 1 year after the date when the
general average adjustment was issued, but no later than 6 years after the date of
termination of the common maritime adventure. Both of those dates—the date of
termination of the common maritime adventure and the date of issue of the adjust-
ment—will always in practice be later than the date upon which the right to claim
contribution arose, so Rule XXIII effects (or attempts to effect) a thoroughgoing
change to the previously-existing position. It was continued without modification in
the 2016 version of the Rules. Obviously, this modification does not apply to
adjustments done under the earlier versions of the Rules that are still widely referred
to in standard form shipping contracts.

79
See BIMCO’s Conlinebill 2016, cl. 12; Combinconbill 2016, cl. 23; Linewaybill 2016, cl. 23;
Combiconwaybill 2016, cl. 23.
80
Castle Insurance Co. Ltd v. Hong Kong Islands Shipping Co. Ltd [1984] A.C. 226 (P.C.)
(reported sub nom The Potoi Chau [1983] 2 Lloyd’s Rep. 376).
81
Limitation Act 1980 (U.K.), s. 5.
82
Goulandris Bros Ltd v. B. Goldman & Sons Ltd [1958] 1 Q.B. 74, 105–106 per Pearson J.; Orient
Mid-East Lines Inc. v. Shipment of Rice on Board S.S. Orient Transporter, 496 F.2d 1032,
1042–1043, 1974 AMC 2593, 2606–2607 (5th Cir. 1974).
170 M. Davies

Another feature of modern general average practice that it not reflected in

standard form shipping contracts is the use of general average absorption clauses.
The process of adjusting general average can be slow and costly, particularly in
relation to container vessels, where there may be thousands of different cargo-
owners who would, in theory, be required to contribute in general average, even
though each cargo-owner’s contribution would be very small. As a result, it has
become common to include general average absorption or “small general average”
clauses in hull and machinery policies, which stipulate that the hull and machinery
insurer will pay general average charges in full up to a stipulated percentage of the
insured value of the vessel, or a stipulated dollar amount, whichever is higher. By
agreeing to absorb all of the general average costs or expenditure up to the agreed
amount, the hull and machinery insurer obviates the need for the shipowner to claim
general average contribution from the cargo owners and other interests. It is esti-
mated by expert average adjusters that about 70% of “blue water” vessels have
general average absorption clauses of some kind in their hull and machinery
policies.83 BIMCO published a standard form general average absorption clause in
2002; it issued a revised version in 2018 to accommodate the changes made by the
York-Antwerp Rules in 2016, and it now recommends that the 2002 version no
longer be used.84 The 2016 version of the Rules contains a new “small general
average” provision of its own, Rule XVII(a)(ii), which provides that cargo may be
excluded from contributing to general average if the adjuster considers that the cost
of including it in the adjustment would likely be disproportionate to its eventual
contribution.
Given that general average absorption clauses have been in widespread use for at
least 20 years, why is there no reference to their effect in standard form shipping
contracts? The general average provision in most shipping contracts simply says
“General average shall be adjusted” in accordance with the agreed version of the
Rules in some specified place. Of course, if the carrier does not claim general
average contribution because of the absorption clause in its hull insurance policy,
which will often be the case, the provisions of the relevant clause in the carriage
contract become moot, but that clause might reflect reality rather better if it were to
read something like: “If a contribution is claimed, general average shall be adjusted,
etc.” The whole point of absorption clauses is to render unnecessary the adjustment
of general average except in large or difficult cases. At one level, that could be
regarded simply as a matter between the shipowner and its hull insurer. At another
level, it could be argued that this is of enough interest to cargo-owners to be reflected
in some way in contracts for the carriage of goods by sea. Here, too, the contracts
most widely used in shipping practice are at odds with the legal reality.

83
Nigel Rogers, director of Richards Hogg Lindley, quoted by Gard, “BIMCO standard general
average absorption clause” (2003), available at http://www.gard.no/web/updates/content/53338/
bimco-standard-general-average-absorption-clause.
84
The clause is available from BIMCO’s website at: https://www.bimco.org/contracts-and-clauses/
bimco-clauses.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 171

6 Conclusion

The sarcastic title of this chapter is, of course, a reference to the phrase “restraint of
princes,” which continues to pop up in many corners of maritime law to this day. The
phrase is of obscure origin, perhaps originally from civil law sources, but it is
definitely hundreds of years old.85 On 14 October 1690, Lord Commissioner
Hutchins noted in England that: “Where a policy of insurance is against restraint
of princes, that extends not where the insured shall navigate against the law of
countries, or where there shall be a seizure for not paying of custom or the like”.86
The phrase continues to appear in the Hague or Hague-Visby Rules governing bills
of lading,87 and also in standard form charterparties,88 even in some of the most
recently-issued editions,89 including NYPE 2015.90 In marine insurance, the original
home of the phrase, the latest version of the U.K.’s Institute Cargo Clauses (A) has
dropped the “princes” and refers simply to “restraint,”91 as does the latest version of
the American Institute Cargo Clauses.92 Nevertheless, those princes trying busily to
restrain maritime commerce remain a familiar part of the language of maritime law to
this day.
This is, of course, absurd. There are not many princes left in the twenty-first
century, and those who continue to bear the title have no power (and, presumably, no
inclination) to restrain anything that a commercial ship might want to do. The
colorful old phrase has been replaced in the Rotterdam Rules by the more prosaic,
but much more accurately descriptive, equivalent: “interference by or impediments
created by governments, public authorities, rulers or people”.93 No doubt, some will
mourn the passing of the restraining princes and their resonance of the long history
of maritime law, but it is hard to dispute that the admittedly more drab phrase in the
Rotterdam Rules describes the intended effect of the exception much more clearly
and precisely.
This is a small point, admittedly, but it is emblematic of the larger point made in
this chapter. Maritime law is often wedded to the past, often the distant past, refusing
to move with the times. Sometimes, that tendency is largely harmless, as in the case
of the curious fondness for such archaic phrases as “restraint of princes” and “tight,

85
See Note, “Restraint of Princes”, 32 Harv. L. Rev. 839, 839 n.1 (1919), citing Balthazard
Emerigon, Treatise on Insurances (1783, translated from the French by Samuel Meredith,
Butterworth, 1850), p. 420, which in turn refers to the Ordonnance de la Marine, promulgated
by Louis XIV in 1681.
86
Case 158 – Note per Lord Commissioner Hutchins (1690) 2 Vern. 176, 23 E.R. 716.
87
Hague/Hague-Visby Rules, Art. 4, r. 2(g).
88
For example, NYPE 1946, cl. 16.
89
For example, Shelltime 4, cl. 27(a). Shelltime 4 was issued in 1984 and revised in 2003.
90
NYPE 2015, cl. 21.
91
Institute Cargo Clauses (A)(2009), cl. 6.2.
92
American Institute Cargo Clauses 2004, cl. 6(A)(1).
93
Rotterdam Rules 2009, Art. 17(3)(d).
172 M. Davies

staunch, and strong”. Sometimes, however, that tendency may be counter-

productive, as in the case of the rather inexplicable infatuation with NYPE 1946,
despite the development of later editions that are far superior and far better attuned to
modern conditions. At other times, maritime law (or at least the international
instruments of maritime law) forges bravely ahead despite the indifference of
maritime practice, as in the case of the Multimodal Convention 1980, the York-
Antwerp Rules 2004 or (so far) the Rotterdam Rules 2009. In short, sometimes it is
maritime law that is conservative, and sometimes it is maritime practice, but the
simple point made in this chapter is that they very often end up in different places.
To quote an immortal phrase coined by Justice Dyson Heydon (then of the New
South Wales Court of Appeal, later of the High Court of Australia): “[A]cademic
legal literature is, like Anglo-Saxon literature, largely a literature of lamentation and
complaint.”94 Because this chapter is no exception, it seems appropriate to try to end
this chapter on a positive note, finding a place where maritime law and maritime
practice, although presently far apart, may perhaps end up in harmony, if only
largely by accident. It seems as though blockchain technology may soon be able
to achieve the long-desired result of creating freely negotiable electronic bills of
lading,95 something conceived of in international legal instruments for decades96 but
never (yet) successfully implemented in practice. However, in most countries, a bill
of lading made out “To Order” has not traditionally been regarded as negotiable
because any national or international legal instrument says so97: neither the Hague,
Hague-Visby nor the Hamburg Rules say anything about the function of a bill of
lading to give the holder of the original bill the right to possession of the goods. A
bill of lading has always been transferable as “the key to the warehouse”98 only
because of “the custom of merchants”.99 Even if the practice of “merchants” changes
to use blockchain, how long will it be before the law recognizes a “custom of
merchants” to that effect?
If the law is to accommodate the advent of blockchain technology quickly,
without waiting for a “custom of merchants” to develop, it must activate one of
those dormant international legal instruments that make provision for the “holder” of
an electronic document to be entitled to demand possession of the goods that it
represents. The Rotterdam Rules 2009 is just such an instrument. Its provisions
about “electronic transport documents” are not ideal for the imminent future of
blockchain technology, because they predate its advent (for example, they speak

94
Union Shipping New Zealand Ltd v. Morgan (2002) 54 N.S.W.L.R. 690, 728, [98].
95
See, e.g., Chetrit et al. (2018), p. 56.
96
See, for example, Comité Maritime International (1990).
97
The U.S. Pomerene Act is a relatively rare exception. It gives the holder of a negotiable bill of
lading a statutory right to demand possession of the goods from the carrier: see 49 U.S.C. § 80105
(a)(2).
98
Sanders Bros v. Maclean & Co. (1883) 11 Q.B.D. 327 at 341, per Bowen L.J.
99
Lickbarrow v. Mason (1795) 3 T.R. 683; 101 E.R. 380.
When Was the Last Time You Were Restrained by a Prince? Conservatism. . . 173

of the “surrender” of the electronic document,100 which is not how things will work
with blockchain) but they may prove capable of replacing “the custom of merchants”
as the source of the legal effectiveness of an electronic bill of lading in a blockchain.
If that turns out to be the case, it will be at least one successful, if rather haphazard,
example of “maritime law in motion”. Or, most probably, not.

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Sturley M (2009) Modernizing and reforming U.S. maritime law: the impact of the Rotterdam rules
in the United States. Tex Int Law J 49:427
UNCTAD (2001) Implementation of multimodal transport rules. UNCTAD/SDTE/TLB/2
Wilford M, Coghlin T, Kimball D (1989) Time charters, 3rd edn. Lloyd’s of London Press
Wilford M et al (2014) Time charters, 7th edn. Informa
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100
Rotterdam Rules, Arts. 10(1)(a), 47(1)(a)(i).
Private Maritime Security Companies
Within the International Legal Framework
for Maritime Security

Osatohanmwen Anastasia Eruaga

Abstract This chapter considers the involvement of a particular non-state actor,

private maritime security companies (PMSCs), in the conduct of anti-piracy opera-
tions. Specifically, this chapter critiques their role and status as part of the current
broader security framework arising from a modification of the normative precon-
ception of security challenges in the post cold war era. The central argument is that
the legitimacy of PMSCs in contributing to international maritime security gover-
nance through anti-piracy measures occurs within the framework of the existing
system made up of a plurality of states and other non-state actors. Despite this
participation through roles that are similar to those of the state, it does not necessarily
constitute a challenge to the firm grip that states have over international law and
consequently the involvement of PMSCs.

Contemporary maritime security as a part and a reflection of the current broader

security framework has witnessed a modification of the normative preconception of
security challenges. Generally ascribed to the post-Cold War era, coupled with the
phenomena of globalization, privatization revolution, and the rise of new technolo-
gies, the notion of security both on land and at sea have undergone a re-direction of
focus from the Weberian imagery of traditional security threats.1 This change has
widened the notion of security and the means to address issues related to it. A
growing number of actors other than the state appear to have taken greater roles and
functions in the international system. As an outcome, systems involving interrelated
multilevel actors and decision-making processes exist within, between, and outside

1
Liss (2011), p. 323; Brooks (2000), p. 133; Jakobi and Wolf (2013), p. 5; Berube and Cullen
(2012), p. 7; Liss (2015), p. 85.

O. A. Eruaga (*)
World Maritime University, Malmö, Sweden
Nigerian Institute of Advanced Legal Studies, Abuja, Nigeria
e-mail: P1405@WMU.SE

© Springer Nature Switzerland AG 2020 175

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_10
176 O. A. Eruaga

states.2 Apart from the nation-state, private non-state security entities operating on
land and at sea have emerged as actors in the international landscape.3
This chapter examines the involvement of the private maritime security compa-
nies (PMSCs),4 in the conduct of anti-piracy operations. Specifically, the chapter
critiques the role and status of PMSCs as part of the transnational interaction pattern
in maritime security. There is wide divergence in the literature on the perceptions of
the significance of private actors in international (security) governance. A number of
scholars believe that the emergence of private actors diverts attention from the state
as the sole reference point and source of authority5 in terms of the legal application
of force and violence. This perspective contends that the participation of non-state
actors in the dynamics of the international arena—such as the establishment of
practices or norms for law-making or law enforcement activities and the provision
of security—accords them legitimate authority and at least, a quasi-formal recogni-
tion in international law.6 The contrary view asserts that their significance is an
exaggeration because law, including international law, is centred around the state.
As such, states are and remain the dominant actors in security governance.7
By examining the activities of PMSCs in three global strategic waterways, this
chapter argues that these actors have become relevant stakeholders in the maritime
security regime. Their engagement in these three strategic waterways occurs as a
result of the unfortunate reality that many states in these maritime jurisdictions do
not have adequate means to tackle the threat of piracy and armed robbery against
ships at sea. The central argument of this chapter is that the legitimacy of PMSCs in
contributing to international maritime security governance through anti-piracy mea-
sures occurs within the framework of the existing system made up of a plurality of
states and other non-state actors. Despite this participation through roles that are
similar to those of the state, there is no contradiction to the control that states have
over international law and consequently the involvement of PMSCs.
The first section of this chapter discusses the emergence and status of PMSCs as
non-state actors through a brief overview of the shifting response to the transnational

2
Hassan (2006), p. 62.
3
Liss (2015), p. 85.
4
The literature on the use of private companies in providing security in the maritime domain is sated
with debates as to the nature and scope of the companies that the industry covers. This gives rise to
the use of several terms and acronyms. See Struwe (2012), p. 590; Liss and Schneider (2015),
pp. 81–83. In this chapter, Private maritime security companies (PMSCs) denote private for-profit
actors engaged in security services in the maritime sector. On meaning of maritime security
services, see ISO 28007-1: 2015(en), 3.7. Cf with IMO Cir 1405 Rev. 2, and ISO 28007:1-2015
(en), 3.1 which defines PMSCs as ‘private contractors employed to provide security personnel, both
armed and unarmed, on board for protection against piracy.’ This definition appears to limit the
PMSC to only armed and unarmed services. However, the perceived restriction can arguably be
attributed to the fact that the documents address particular types of security service provided by the
private organisation for anti-piracy services.
5
Avant (2004), p. 156; Liss (2015), p. 86.
6
Hall and Biersteker (2002), pp. 4–5; Liss (2015), p. 86.
7
Hall and Biersteker (2002), p. 4; Liss (2015), p. 86.
Private Maritime Security Companies Within the International Legal. . . 177

security threat of piracy. The next section focuses on how PMSCs contribute to the
development of the legal regime and therefore, how they participate in influencing
the international legal regime. In this section, the chapter first critiques the legal
framework governing PMSC engagement. Following a review of the legal frame-
work governing PMSC engagement, the section goes further to consider how
PMSCs are contributing to redefining the maritime security landscape through
their roles. Section 3 recognises that the deployment of armed guards on merchant
vessels remains a challenge due to the practicalities of enforcing compliance and
control as well as regulatory deficiencies and individual concerns on the impact of
sovereignty. Although the control of their activities is difficult, it may not necessarily
be impossible. What is required is the existence of effective regulations coupled with
the capacity and capability of states to hold PMSCs responsible for violations of
these laws, if they occur. The chapter concludes by suggesting that well-considered
accommodation on the part of states concerning PMSC operations may be inevitable
if these are to maintain control over a rapidly changing maritime security seascape
and achieve the much-desired enhanced security in the maritime domain.

1 The Threat of Maritime Piracy: State Response

and the Rise of PMSCs

International trade relies heavily on the movement of goods through shipping.

Currently, shipping accounts for the transport of over 80% of goods globally.8
Maritime security threats such as piracy and armed robbery against ships are
known to disrupt the movement of vessels and their cargo and as a result, the
economies of states and the safety of the crew.9 This section focuses on the existence
of the threat in three strategic waterways. It discusses state response to the threat at a
national and international level and the beginnings of PMSC utilisation.

8
UNCTAD (2017), p. 16. The volume of trade conducted by sea expanded in volume by four
percent in 2017. See UNCTAD (2018), p. 72.
9
International law distinguishes between the threat of piracy and armed robbery against ships. See
United Nations, Convention on the Law of the Sea (UNCLOS 1982) Article.101; IMO, Resolution
A 26/Res.1025, 18 January 2010 annex 2.2. Following the definition in the strictest sense, the threat
of piracy becomes almost non-existent globally. Contemporary maritime scholars argue for an
expansion of the definition of the threat of piracy to cover persistent acts of armed robbery against
ships. Gagain (2010), p. 180; Mejia (2003), p. 153; Kao (2016), p. 1.
178 O. A. Eruaga

1.1 Setting the Scene for the Emergence of PMSCs

The Strait of Malacca, the Gulf of Aden, and the Gulf of Guinea are strategic
waterways that experience high volumes of vessel transits10 as well as attacks.
While patterns and modes of attack vary from one waterway to another, the busy
nature of the waterways creates a vulnerability that maritime criminals exploit.11
Attacks around the Strait of Malacca waters present a variety of patterns including hit
and run robberies, phantom ship piracy, and instances of kidnapping of crews for
ransom.12 Conversely, attacks in the Gulf of Aden are attributed to pirates from
Somalia who hijack vessels and crew for ransom.13 Maritime criminals in the Gulf of
Guinea engage in petro piracy, i.e., the theft of refined oil cargo, although in recent
years, the pattern of kidnapping for ransom has gained prominence.14 Even more
worrying, studies reveal that attacks within the Gulf of Guinea are mostly violent,
occurring mainly within the territorial seas and exclusive economic zones of the
littoral states.15 Despite the distinction made between these three maritime domains,
it is important to highlight that the socio-economic situations of coastal settlements
around these strategic waterways are similar. There is weak governmental oversight
in addressing criminal activities in these coastal areas. Also, both the coasts of
Somalia and Nigeria, states that suffer most from maritime crimes in the Gulfs of
Aden and Guinea respectively, have long coastlines that suffer from inadequate
naval presence.16
In contrast with Somalia, the littoral states of the Strait of Malacca and the Gulf of
Guinea have comparatively stable governments. Hence these states have been able
to, with varying degrees of success, suppress violence in these waters by engaging
state law enforcement agencies.17 A traditional state response was impossible with
respect to piracy off the coast of Somalia. Through Security Council resolution 1816,
the UN Security Council sanctioned a global effort in combating piracy off Somali
coast by all means necessary, including the conduct of counter operations within the
territorial sea of Somalia.18 Even when active law enforcement and policing oper-
ations resulted in some successes in combatting the threat of piracy, the unresolved

10
For instance, in 2017, there were about 84, 456 transits in the Malacca Strait. www.seatrade-
maritime.com/news/asia/exclusive-malacca-straits-vlcc-traffic-doubles-in-a-decade-as-shipping-
traffic-hits-all-time-high-in-2017.html. Accessed 20 December 2018. On the importance of the
waterways, see generally Liss (2012), p. 53; Liss (2013), p. 194.
11
Liss (2013), p. 195; Liwång (2017), p. 398.
12
Liss (2012), pp. 52–53; Liss (2013), p. 195.
13
Liwång (2017), p. 386.
14
Otto (2015), p. 33; https://www.maritimeprofessional.com/news/pirate-attacks-worsen-gulf-
guinea-316094. Accessed 11 April 2018; Anele (2017), p. 325.
15
Otto (2015), p. 33; Hasan and Hassan (2016), p. 180.
16
Parsons (2010), p. 164.
17
Liss (2013), p. 197; Hasan and Hassan (2016), p. 200.
18
S/Res/1816 (2 June 2008); Bile (2013), p. 163; Mejia (2012), p. 34; Mejia (2013), p. 240.
Private Maritime Security Companies Within the International Legal. . . 179

socio-economic challenges around the coasts of these states remain the true cause of
the problem.19 As a result of the foregoing, the threat of piracy and armed robbery
against ships continues to ‘wax and wane,’ while serious concerns about security
remain.20 With this perceived lack of security, especially during the peak periods of
persistent attacks, the vacuum was filled by PMSCs offering services to protect
commercial operations at sea.
Anti-piracy services were initially offered in the Strait of Malacca, before
expanding in earnest in reaction to the spate of attacks off the coast of Somalia.21
In recent times, PMSC services have surfaced in the Gulf of Guinea.22 These
commercial entities fill a vacuum created by improperly policed strategic waterways
and offer potential victims of piratical attacks an extra layer of security in addition to
that provided by states.23 Their contributions within this sphere can be theoretically
explained with the rationalist idea of resource exchange.24 PMSCs provide services
that supplement governmental capacities because they profit from such an arrange-
ment. As first and foremost commercial entities, PMSCs operate to ensure that the
provision of security services as a business remains profitable. From the various
services which they can provide, the sea-based or active services offered by PMSCs
involve the possibility of the use of lethal force against suspected pirates, through the
provision of armed guards (commonly known as privately contracted armed security
personnel or PCASP) directly on board merchant vessels or on escort vessels.25
Their presence points to the reality of the global system where non-state actors play
significant roles in international affairs.26

19
Mejia et al. (2012), pp. 360–367.
20
Hasan and Hassan (2016), p. 215.
21
Osnin (2006a), p. 195; paper presented by Osnin NA in 5th Maritime Institute of Malaysia
Conference on the Strait of Malacca: Present and Future Perspectives Kuala Lumpur 1–2 August
2006b; Ronzitti (2011), p. 43; Liss (2014), p. 196; Liss (2015), p. 87; Liss (2017), pp. 88–89.
22
Parsons (2010), p. 156; Petrig (2013), p. 670; Cullen (2012), p. 26.
23
Liss (2013), p. 199.
24
Jakobi (2016), pp. 76–77. The theory postulates that resources perceived to be the same or in
proximal categories are more likely to be exchanged. See further Brinberg and Wood (1983),
pp. 330–338.
25
On the various services which PMSCs can provide for protection against pirate attacks see Cullen
(2012), p. 26; Liss (2015), pp. 87–88, ISO 28007-1:2015, 3.7. On the categorization of the services,
see Liss (2015), pp. 87–88. Contrast with the categorization in Struwe (2012), pp. 590–595. Struwe
categorises the services into four main groups—security intelligence, security services, crisis
response and intervention on land. This chapter adopts Liss’ options of classification-active and
passive services or land and sea-based services. Apart from the simplicity, Liss’ categorisation
options offer a more encompassing classification that that caters for other forms of services that may
arise in future as well as reflects the operational distinctions of the services identified as conflicting
with the state monopoly in the legal provision of security. Furthermore, the Struwe classification
can easily be subsumed under either of Liss’ classification.
26
Ryngaert (2016), p. 186.
180 O. A. Eruaga

1.2 PMSC Anti-piracy Services: The Controversy

Surrounding Their Engagement

PMSCs engaged in providing anti-piracy measures possess a transnational and

institutionalised nature, distinct from the general private security industry on
land.27 Unlike general privatisation of security on land, the engagement of PMSCs
by merchant vessels for protection against the threat of piracy and armed robbery at
sea more often than not triggers the laws of a plurality of states with an interest in the
vessel.28 Commercial related operations at sea occur within the unique nature of
ocean-based territories to which the United Nations Convention on the Law of the
Sea (UNCLOS) ascribes certain jurisdictional rights. The flag state exercises juris-
diction over, and is responsible for, the protection of a vessel bearing its national-
ity.29 This jurisdiction extends to regulating issues relating to the use of privately
contracted armed security personnel (PCASPs) on board the vessel.30 The same
vessel may be subject to the laws of individual countries in the specific territorial and
contiguous zone in which they operate.31 In some cases, the laws of a third state,
such as the country of incorporation of the PMSC, the nationality of the PMSC
employee, the place of incorporation of the shipping company and the home state
(s) of the merchant crew may also be relevant in the case of a dispute or a violation of
rights.32
While the demand for private maritime security services is not a purely modern
phenomenon,33 they have received heightened global attention since their involve-
ment as a market response to curbing violence at sea.34 As in the case of privatised

27
Liss (2015), p. 87. For instance, the guidelines for applying risk-based quality management
systems to PMSCs (ISO 28007) provide for sector-specific recommendations, which may be the
basis for certification. There are expectations from relevant international organisations, states, and
even clients that security personnel of companies acquires some form of security certification
specific to the maritime subsector.
28
Parsons (2010), p. 178.
29
UNCLOS Article 94; Liss (2013), p. 201; Petrig (2013), p. 676; Liss (2015), p. 89.
30
M/V Saiga (No.2) (Saint Vincent and the Grenadines v. Guinea) merits (1999) 4 ITLOS Rep
132, 105. Although reference was made to persons generally, a broad interpretation of persons
would include PMSC personnel present on the vessel. See also Barnes (2015), p. 314.
31
UNCLOS Article 2, 21, 25 and 33.
32
Petrig (2013), p. 677.
33
Apart from the seventeenth-century privateers policing the high seas under the authority of
European governments, the subsequent establishment of the International Ship and Port Security
(ISPS) Code provided room for the expansion of PMSC services. See Harrelson (2010),
pp. 296–297 (asserting that use of PMSC within the maritime domain is not a new phenomenon);
Cullen (2012), pp. 26–28; Liss (2013), p. 198; Liss (2015), p. 85.
34
Various categorization of the types of services PMSCs offer exists. Liss (2015), pp. 87–88.
Contrast with the categorization in Struwe (2012), pp. 590–595. Struwe categorises the services into
four main groups—security intelligence, security services, crisis response and intervention on land.
This chapter adopts Liss’s options of classification-active and passive services or land and sea-based
services. Apart from the simplicity, Liss’ categorization options offer a more encompassing
Private Maritime Security Companies Within the International Legal. . . 181

security on land, the use of lethal force by an actor other than the state always attracts
controversy.35 There are differing views whether engaging private security under-
mines the security and sovereignty of individual states since the use of force is
traditionally viewed as an act requiring public accountability and prerogative of the
state.36 While PMSCs are increasingly sanctioned by flag states in high risk areas far
away from their territories, coastal states are reluctant to allow these actors that
engage in potentially violent actions within their territory.

2 The Role of PMSCs in the International Maritime

Security Framework

The market response of the use of PMSCs, alters the accepted norm of the past two
centuries of keeping merchant vessels unarmed.37 The focus of shipping industry
stakeholders has moved from whether PMSCs should be engaged in the fight against
maritime crime to working out ways to safely engage them.38 This section considers
the legal framework within which these non-state actors operate before considering
the role they play within the international system.

2.1 The Legal Framework Governing PMSC Engagement

A complex legal environment currently governs PMSC engagement. Diverse legal

instruments collectively form the legal framework at three distinct yet interrelated
levels—international, national and industry (self) regulation.39

2.1.1 International Legal Instruments

The current legal framework governing maritime security with respect to the threat
of piracy and armed robbery against ships in international law is found principally in
three conventions—UNCLOS; the Convention for the Suppression of Unlawful

classification that that caters for other forms of services that may arise in future as well as reflects the
operational distinctions of the services identified as conflicting with the state monopoly in the legal
provision of security. Furthermore, the Struwe classification can easily be subsumed under either of
Liss’ classification.
35
Kontos (2004), pp. 200–204; Avant (2004), pp. 154–157.
36
Kontos (2004), pp. 200–204; Avant (2004), p. 156.
37
Bürgin and Schneider (2015), p. 127.
38
Van Hespen (2014), p. 361.
39
Williams (2014), p. 347.
182 O. A. Eruaga

Acts against the Safety of Maritime Navigation (SUA) and its Protocol40 and the
International Convention for the Safety of Life at Sea (SOLAS), chapters V, and
XI-2.41 These conventions are also important to privatisation of security. The UN
Firearms Protocol,42 is also significant as the use of firearms for vessel protection is a
crucial, albeit, controversial aspect of the service provided by PMSCs. In addition to
these Conventions, the IMO has issued several guidelines to complement the
international security framework with respect to PMSC engagement.

2.1.1.1 UNCLOS

UNCLOS, as the overarching legal framework for the international governance of

the seas provides a stating point to consider the regulatory structure for PMSCs.
Notably, the Convention while providing clearly for government response, is silent
on the involvement of non-state actors in providing private services against security
threats.43 This is essentially because the use of PMSC services such as PCASPs and
escort vessels carrying armed security is a post UNCLOS development.44 However
the Convention remains very relevant to the threat response measures and activities
of PMSCs in vessel protection for two principal reasons.45 First, the absence of
reference to private actors does not preclude the general principles of self defence, a
recognised philosophy of major world legal systems.46 Persons on board a vessel
have a right to defend their person through proportionate response to mitigate a
threat. Additionally, as mentioned earlier, UNCLOS details the rights of states over
vessels within the various maritime zones. These provisions on the rights of states
contain significant aspects on engagement of PMSCs. For instance, a broad con-
struction of flag state jurisdiction47 implies specific regulation that the engagement
of PMSCS on board vessels is within the rights of the flag state.48 While the right to
regulate is clear, how a flag state enforces the regulation of PMSCs remains a
challenge as most activities of the PMSCs take place at sea, away from the view
of the state.

40
Convention for the Suppression of Unlawful Acts Against the Safety of Maritime Navigation
(SUA), signed on 10 March 1988 in Rome. Entered into force on 1 March 1992.
41
See Mukherjee and Mejia (2004), pp. 147–157; Mejia and Mukherjee (2006), p. 173.
42
United Nations Protocol against the Illicit Manufacturing of and Trafficking in Firearms, Their
Parts and Components and Ammunition (Firearms Protocol), Signed on 11 July 2001 in New York.
Entered into Force on 5 July 2004.
43
Kraska (2015), p. 179.
44
Ibid.
45
UNCLOS, Articles 21, 92, 94.
46
Kopel et al. (2007), pp. 129–130.
47
UNCLOS, Article 94(2); Barnes (2015), p. 314.
48
M/V Saiga (No.2) (Saint Vincent and the Grenadines v. Guinea) merits (1999) 4 ITLOS Rep
132, 105. References were made to persons generally because the ship is regarded as a unit for the
purpose of flag state exercising (protective) jurisdiction.
Private Maritime Security Companies Within the International Legal. . . 183

UNCLOS makes it clear that flag state jurisdiction does not preclude a coastal or
port state from also exercising jurisdiction over the vessel in territorial seas or in
port.49 In the context of maritime security and the use of PMSCs, coastal state
jurisdiction is particularly relevant from two perspectives. Ordinarily a vessel enjoys
the right of innocent passage.50 However, if the vessel conducts activities in viola-
tion of the peace and good order within a territorial sea of a coastal state, such a
vessel is subject to its criminal jurisdiction.51 Furthermore, the piracy-like threat of
armed robbery against ships, occurs within a state’s internal, archipelagic waters and
territorial sea.52 This places obligation for security within that maritime space on the
state that lays claim to it. Hence, even where a flag state allows the use and regulate
the employment of PMSCs, coastal state regulation within its territorial waters are
also very relevant on how PMSCs are able to perform the protection of vessels.
The questions of whether the presence of armed guards as well as their equipment
within the territorial waters of a state is prejudicial to the peace and good order or a
challenge the authority of a coastal state to provide security remains unsettled.53 A
lack of uniformity as to the interpretation of this query still prevails within the global
maritime community.

2.1.1.2 Convention for the Suppression of Unlawful Acts Against the Safety
of Maritime Navigation and Its Protocol

The Suppression of Unlawful Acts (SUA) and its Protocols form part of the basis for
security response beyond UNCLOS in contracting state parties, especially for other
forms of unlawful maritime acts that compromise the safety of navigation, not
contemplated by UNCLOS.54 The amendment of the original Convention and its
Protocol took place following the 9/11 terrorist attack. The Protocol of 2005 to the
Protocol for the Suppression of Unlawful Acts Against the Safety of Fixed Platforms
Located in the Continental Shelf (SUA 2005), expanded considerably several pro-
visions of the original treaty including the definition of offences covered by the
Convention,55 the master’s duties56 and when a state may board a foreign vessel.57

49
Petrig (2016a), p. 7; UNCLOS Articles 9, 27 and 218 which provide instances where a coastal or
port state may invoke its jurisdiction on a vessel not flying its flag. Art.2 emphasises the subjectivity
of coastal state sovereignty in territorial waters to international law.
50
UNCLOS Article 17.
51
UNCLOS, Article 19(1).
52
IMO, Resolution A 26/Res.1025.
53
Vijayan (2014), p. 26; Petrig (2013), pp. 681–683.
54
Menefee (2013), p. 211. For a background and an in-depth critique of SUA and its 2005 protocol,
see Mejia and Mukherjee (2006), pp. 170–191.
55
SUA 2005, Art. 3, 3bis, 3ter and 3 quarter.
56
SUA 2005, Art. 8(1).
57
SUA 2005, Art. 8bis(4).
184 O. A. Eruaga

The applicability to a wide range of offences that affect the safety of navigation58 as
well as the extensive geographical coverage59 are significant innovations in the
Convention that makes it appealing to maritime security stakeholders.60
As with UNCLOS, the Convention gives due accord to flag state authority,
control and jurisdiction over administrative, technical and social matters involving
the vessel. It equally gives due recognition to coastal state rights and jurisdiction
under the international law of the sea.61 In contrast to UNCLOS which refers only to
mitigation of security threats by government warships, the SUA Convention pro-
vides for private response to crimes. SUA Article 8 allows the master to apprehend
and deliver any person he believes has committed an offence under the Convention.
PMSCs under flag state authority may provide services on the vessel, for the purpose
of fulfilling Article 8. The Convention places an obligation on the master where
practicable to pre-notify the receiving State of his intention to deliver such person.62
Another observation with respect to conducting authorised apprehension of suspects,
is the requirement of the use of minimum force.63 However, the reference to the use
of minimum force under SUA 2005 appears to refer to its use by government law
enforcement officials for their safety or that of person on board.

2.1.1.3 International Convention for Safety of Life at Sea and the ISPS Code

The International Ship and Port Facility Security (ISPS) Code and amendments to
the Safety of Life at Sea (SOLAS) Convention64 as the foundation treaty for the ISPS
Code establishes a framework for cooperation between contracting governments,
their agencies, the shipping and port industries to detect and take preventive mea-
sures against security threats affecting ships or port facilities used in international
trade.65 The Code, enforced by flag and port state control measures, obligates
relevant stakeholders to comply at the very least, with certain mandatory security
requirements for ensuring maritime security.66 Based on these requirements, PMSCs
provide several services such as the development of security plans from security
assessments, training ship security officers and conducting appropriate drills and
exercises.67

58
SUA 2005, Art. 3, 3bis, 3ter and 3 quarter.
59
SUA 2005, Art. 4.
60
Mejia and Mukherjee (2006), pp. 181–184.
61
SUA 2005, Art 9.
62
SUA 2005, Article 8 (2).
63
SUA 2005, Article 8bis.
64
International Convention for the Safety of Life at Sea (SOLAS), 1974, Chapter XI-2.
65
For an in-depth discussion on the background to and development of the ISPS Code, see generally
Jones (2006).
66
Mileski et al. (2015), pp. 97–98.
67
Cullen (2012), p. 29.
Private Maritime Security Companies Within the International Legal. . . 185

In the context of providing personnel on board for the protection against threats of
violence as a security service, some dissent exists as to the applicable ‘command of
the vessel’ protocol in the event of a threat to security. A prevalent view is that the
PCASPs even in a situation of threat, are under the command of the master of the
vessel and as such cannot engage the use of force without his approval. This opinion
is founded on the provisions of the Code,68 and the SOLAS Convention69 which
provide specifically that the master has overriding authority and responsibility for
the security of the vessel. By implication, a clear line of superiority of the master
subsists irrespective of the existence a security threat to which a PCASP responds.
However, a contrary view hinged on general self defence principles highlights an
individual right of self defence in situations of grave danger allows for a propor-
tionate response to mitigate a threat including the use of force, even without the
master’s authorisation.70 In such situations, security personnel on board a vessel may
disobey a master’s decision to withhold the use of force against a threat or treat a
particular situation as an exemption or extenuating circumstance. The diverse
opinions create a legal conundrum which several states choose to resolve by
re-affirming clearly in national regulation, the overarching position of the master
over PMSCs on board a vessel even in security threat situations.71 The United
Kingdom in its Interim Guidance to UK Flagged Shipping on the Use of Armed
Guards to Defend against the Threat of Piracy in Exceptional Circumstances, for
instance, affirms the master’s authority. Similarly, the existing commercial contract
template (GUARDCON) also emphasises the superiority of the master’s decision on
board the vessel.72 Where parties to the contract agree, the template moves a step
further to accommodate the possibility of PCASP acting outside the orders of the
master and the conventional SOLAS and ISPS position.73

68
ISPS Code, Part A, sec. 6.
69
SOLAS, XI-2, Reg. 8.
70
On the right to individual self defence, see Ashworth (1975), pp. 282–284; Priddy and Casey-
Maslen (2012), pp. 844–845. The right to self defence or defence of others does not negate the
possibility of criminal prosecution, depending on the jurisdiction, if the amount of force is more
than lawfully necessary at the time. See Priddy and Casey-Maslen (2012), p. 845.
71
For instance, see Bahama Maritime Authority (2011) Guidance to shipowners on carriage of
armed personnel for vessel protection, Rule 3.2; UK Department for Transport, Interim Guidance
to UK Flagged Shipping on the Use of Armed Guards to Defend Against the Threat of Piracy in
Exceptional Circumstances, (Updated May 2013), Rule 5.1; U.S. Department of Homeland Secu-
rity, United States Coast Guard, Port Security Advisory (3-09), Guidance on Self-Defense or
Defense of Others by U.S. Flagged Commercial Vessels Operating in High Risk Waters, Rule 3(a).
72
Interview with Maritime Security Expert, 12 April, 2017; BIMCO (2012a) Section 4 & Annex D.
73
BIMCO (2012b) Section 4(8)(d).
186 O. A. Eruaga

2.1.1.4 UN Firearms Protocol

In addition to the international maritime security instruments, the international

framework on firearms which consists of a plurality of instruments, also influences
PMSC engagements. Of particular relevance is the Protocol Against the Illicit
Manufacturing of and Trafficking in Firearms, their parts and Components and
Ammunition (UN Firearms Protocol),74 the only legally binding global small arms
control agreement.75 The Protocol, which supplements the United Nations Conven-
tion on Transnational Organised Crimes,76 regulates the private transportation of
firearms so as to combat the illicit flow or illegal diversion of firearms, their
components and ammunition.77 The Protocol outlines procedures for the movement
of firearms, requiring all states parties to have export and import licencing measures
and authorisation as well as of procedures on international transit, for the transfer of
firearms, their parts, components and ammunition. PMSCs have to ensure through
their flag states that the movement of security weapons conform with the provisions
of the Protocol.
Notably, the Protocol relies heavily on state parties’ implementation. Factors such
as ideologies of states with respect to gun control measures and capacity to monitor
the regulatory measures on the movement of arms may cause significant disparities
in the implementation of the Protocol. These factors also affect the utilisation of
PMSC services.

2.1.1.5 The IMO Interim Guidelines

In the absence of directly applicable regulation in the international law framework,

the International Maritime Organisation (IMO) issued four interim recommendations
as shown in Fig. 1, for the employment of armed guards on vessels.78
The guidelines directed at ship-owners and ship operators,79 PMSCs,80 flag
states,81 port as well as coastal states82 are read in conjunction with other

74
United Nations Protocol against the Illicit Manufacturing of and Trafficking in Firearms, Their
Parts and Components and Ammunition (Firearms Protocol). Signed on 11 July 2001 in
New York. Entered into Force on 5 July 2004.
75
Kirsten and Stott (2008), p. 3.
76
UN General Assembly, United Nations Convention against Transnational Organized Crime:
resolution (adopted 8 January 2001) A/RES/55/25.
77
UN Firearms Protocol, Art. 2.
78
MSC.1/Circ.1405/Rev.2 (25 May 2012); MSC.1/Circ. 1406/Rev.3 (12 June 2015); MSC.1/Circ.
1408 (25 May 2012); MSC.1/Circ. 1443 (25 May 2012).
79
MSC.1/Circ.1405/Rev.2 (25 May 2012).
80
MSC.1/Circ. 1443 (25 May, 2012).
81
MSC.1/Circ. 1406/Rev.3 (12 June 2015).
82
MSC.1/Circ. 1408 (25 May 2012).
Private Maritime Security Companies Within the International Legal. . . 187

Fig. 1 Graphic representation of the development of the IMO Interim Guidelines

recommendations and guidance developed by the Organization for preventing and

suppressing piracy and armed robbery against ships.83
The provisions of the IMO guidelines reflects the position under customary law of
the sea as it relates to flag and coastal state jurisdiction over vessels.84 The Flag State
Recommendations (Cir. 1406/Rev. 3) states that whether or not, and under what
conditions a vessel embarks armed personnel and their equipment is a decision of the
flag state.85 Cir. 1406/Rev. 3 identifies with a possible concurrent jurisdiction of
coastal and port states in territorial waters.86 It enjoins flag states to make adherence
to relevant policies on the use of PCASPs, including those of port and coastal states,
as an obligation on parties.87 The Port and Coastal State Recommendation (Cir.
1408/Rev.1) requests that ‘member governments . . . should have in place relevant

83
MSC.1/Circ. 1406/Rev.3, explanation 6; MSC.1/Circ. 1405/Rev.2, explanation 5.
84
Van Hespen (2014), p. 363.
85
MSC.1/Circ.1406/Rev.3, Annex 1 par. 2.
86
MSC.1/Circ. 1406/Rev.3, Annex 1 par.4.
87
MSC.1/Circ. 1406/Rev.3, Annex 1, par.4.
188 O. A. Eruaga

policies and related procedures’ that ‘facilitate the movement of PCASP and their
firearms and security-related equipment.88 To conduct services appropriately, the
interim Guidance directed to PMSCs providing PCASP services (Cir.1443) requires
the company to acquire the necessary professional certification, insurance cover,
operational competence to employ and provide PCASP services for combating
piracy. The company also requires knowledge of the regulation and policies of the
flag state, port as well as coastal states.89
Arguably, the IMO recommendations have enjoyed a positive response as they
provide directly relevant consideration of several complexities that surround the use
of PMSC service within the maritime domain, including but not limited to identify-
ing the need of states to specify necessary professional certification, insurance cover,
operational competence as well as the relationship of the PCASP with the master
while on board a vessel. These IMO recommendations have formed the basis for
several stakeholders’ articulation on their stance with respect to PMSCs services and
how they ought to be engaged. For instance, Singaporean Guidance on the use of
Privately Contracted Armed Security Personnel90 serves to inform on Singapore’s
position on the use of armed security personnel on board Singapore registered
vessels, based on IMO’s Interim Guidance MSC.1/Circ.1405.91
However, as much as these IMO documents are welcomed, they still do not
provide adequate sector-specific recommendations to fill certain regulatory gaps.
Aside from falling short of resolving the problems arising from competencies of
states, Cir. 1405/Rev. 3 for ship owners and Cir. 1443 on PMSCs do not also meet
the needs of various stakeholders concerned about operational challenges.92 Fur-
thermore, the IMO recommendations possess an inherently non-mandatory nature
that is characteristic of international soft law instruments.93 In spite of its potential to
spur national legislation among coastal and flag states, provisions in the Interim
recommendations are not legally binding.94 States and other relevant stake holders
are only urged to utilise the guidelines as a road map to identifying and filling gaps
existing from the use of PMSCs.95 Thus the parties that the guidelines address do not
incur any liability for failure to give effect to the provisions.

88
MSC.1/1048/Rev.1.
89
MSC.1/Circ. 1443, Annex1, par. 3(3.3).
90
Shipping Circular No. 11 (2011).
91
Ibid. See also Republic of Marshall Island, Marine Notice (2016) No. 2-011-39; Antigua and
Barbuda, Department of Marine Services and Merchant Shipping (ADOMS), (2013) Cir. 2013-003.
92
Carreira Da Cruz (2017), pp. 64 and 74.
93
On meaning and characteristics of international soft law instruments see Guzman and Meyer
(2010), pp. 171–222; Chaisse and Ji (2018), pp. 477–479.
94
MSC.1/Circ. 1443, Annex1, par. 1.5; Liss (2015), p. 89; Marin et al. (2017), p. 192.
95
MSC1/1406/Rev. 3, Annex 1, par.1; MSC.1/Circ. 1443, Annex1, par. 1.5; MSC.1/Circ.1405/
Rev.2, Annex 1, pa. 1.3.
Private Maritime Security Companies Within the International Legal. . . 189

2.1.2 Municipal Regulation as Part of the International Legal

Framework

The nature of maritime trade, arising from the multi-jurisdictional character of the
maritime domain supports a consideration of municipal law of states as contributing
to the development of the international legal framework for the engagement of
PMSCs. Main stream international law theorists assert that laws made by states are
not eligible for consideration under international law unless they form part of
customary international law (general principles recognised by civilised nations).96
Their assertion stems from viewing international law as a simple legal order with
well defined boundaries between international and domestic law. Yet, we see that
sometimes, national legal phenomena in the form of policies, directives and even
legislation (such as in this context, the regulation of PMSCs), interact with and
sometimes shape frontiers beyond the state in question, somewhat blurring the
traditional view of a distinct division between the international and the domestic.97
Legal phenomena with such extraterritorial influence rather than being classified as
domestic should be considered as transnational in nature.98 This forms the basis for
discussing state regulation as an important factor in governing PMSC engagement.
Regulating the PMSC sea-based activities by state level is currently at the stage of
states sculpturing solutions to suit their specific interests.99 The capacities that
maritime stakeholders demand of their respective jurisdiction remain paramount
determinants in how states choose to regulate. Thus flag states in trying to ensure
the protection of their vessels, appear to be more willing to enact law and policies
that allow the use of PMSCs on board.100 United States,101 United Kingdom,102
Germany,103 Republic of Marshall Islands,104 Japan,105 and Belgium106 are among

96
Statute of the International Court of Justice Article 38.
97
Reimann (2004), p. 407.
98
Menkel-Meadow (2011), p. 104.
99
Bürgin and Schneider (2015), p. 131.
100
Van Hespen (2014), p. 367.
101
Maritime Security Directive (MARSEC) 104-6. This Directive undergone seven revisions since
it was issued in February 2006; National Defence Authorization Act 2010, section 3506. For a
detailed discussion on the US approach, see De Nevers (2015), pp. 154–159.
102
Department of transport (2013), version 1.2; Department for Trade (2017) Open General Trade
Control Licence (specifically applicable to use of arms in waters off the coast of Somalia only).
103
Federal Office of Economics and Export Control (BAFA) (2014) Licensing of Security Com-
panies on Board Ocean-Going Vessel; Federal Office of Economics and Export Control (BAFA)
(2014) Licence under the Weapons Act.
104
Marine Notice 2-011-39 (Rev.Aug/2016).
105
Act on Special Measures Concerning the Guarding of Japanese Ships in Pirate-Infested Waters
(2013).
106
An Act respecting various measures relating to the fight against maritime piracy (2013) Loi
portant diverses mesures relatives à la lutte contre la piraterie maritime; Belgium, Royal Decree
amending the Royal Decree of 11 February 2013 laying down maritime zones for the use of private
190 O. A. Eruaga

the flag states that allow the use of PCASPs commissioned by PMSCs on board
vessels of their nationality involved in international voyages to (some) high risk
areas.
Table 1 above provides a summary of some Flag states that allow the use of
PMSCs in areas prone to piracy attacks.
Notably, the delivery of these services occur on the high seas beyond their
territories. In contrast coastal states battling with security challenges, such as
Malaysia, Indonesia, Nigeria, Benin and Togo, demur from endorsing services that
involve the carriage of arms and ammunition on board vessels by foreign security
personnel.107

2.1.3 Industry (Self) Regulation

Industry self-regulation refer to common set of understandings among participants in

a particular industry or profession regarding specific issues which include norms of
conduct, organization and limitations on activity.108 Industry regulation of PMSCs
exists as a response to the need to create an acceptable operational standard in the use
of specific PMSC services.109 Self-regulation of the PMSC industry can be roughly
divided along the lines of multi-stakeholder initiatives and industry association
initiatives.110
There exists several multi-stakeholder initiatives geared towards the regulation of
the private security within the maritime industry.111 The Montreux Document on
pertinent international legal obligations and good practices for states related to
operations and private military and security companies during armed conflict
(Montreux document) and the International Code of Conduct for Private Security
Providers (ICC Code)112 surfaced as among the earliest initiatives of international

security guard against maritime piracy (2016) (Arrêté royal modifiant l’arrêté royal du 11 février
2013 fixant les zones maritimes pour l’utilisation de gardiennage privé contre le piraterie maritime).
107
Struwe (2012), p. 592; Liss (2012), pp. 60–61.
108
Richemond-Barak (2014), p. 779.
109
Interview with Maritime Security Expert, 12 April, 2017; Carreira Da Cruz (2017), p. 64. See
also Richemond-Barak (2014), p. 779; Percy (2012), p. 954.
110
Richemond-Barak (2014), p. 779.
111
These initiatives include the Montreux Document on pertinent international legal obligations
and good practices for states related to operations and private military and security companies
during armed conflict (Montreux document); International Code of Conduct, Association, Interna-
tional Code of Conduct for Private Security Providers, November 2010; Ship and Marine
Technology-Guidelines for Private Maritime Security Companies (PMSC) providing privately
Contracted Armed Security Personnel (PCASP) on board ships (and pro forma contract)
(ISO/28007-1: 2015); 100 Series Rules: An International Model Set of Maritime Rules for the
Use of Force (RUF); The Best Management Practice for the Protection against Somali Piracy.
112
Although the Code is open for signature by only private security companies, the principles
contained in it were developed after extensive consultation with a range of governments and
non-governmental organisations.
Private Maritime Security Companies Within the International Legal. . . 191

Table 1 Flag state position on the use of PMSC armed security personnel
Provision as it relates to allowing
Flag state security personnel on-board vessel Authority
1. Bahamas Neither prohibited nor recommended Bulletin No 128, No. 3 of 2015
2. Belgium Allowed by law An Act respecting various measures
relating to the fight against maritime
piracy (2013); Belgium, Royal
Decree amending the Royal Decree
of 11 February 2013 laying down
maritime zones for the use of private
security guard against maritime
piracy (2016)
3. China No provision under national
legislation
4. Denmark Ship owner may apply for one-year Law 116, The amendment of the
permission to hire security personnel Firearms Act and the Act on Warfare
in areas presenting a risk of acts of
piracy or armed robbery
5. Germany Armed personnel are permitted from Trade Regulation Act (GewO) Art.
PMSCs licensed according to the 31 of 4 April 2013, the Sea Surveil-
German Trade Regulation Act lance Act (SeeBewachV) of 11 June
2013, and the Implementation Act of
the Seas Surveillance Act
(SeeBewachDV) of 21 June 2013.
Federal Office of Economics and
Export Control (BAFA) (2014)
Licensing of Security Companies on
Board Ocean-Going Vessel; Federal
Office of Economics and Export
Control (BAFA) (2014) Licence
under the Weapons Act
6. Greece Security personnel and carriage of Joint Ministerial Decision
weapons allowed on-board Greek- No. 641.36-2/12 of 24 April 2012 
flagged vessels adopted in line with law no. Law
4058 of 22 March 2012
7. Hong Recommends the presence of security Hong Kong Marine Depart-
Kong personnel on board but does not ment, ‘Security and Quality Advi-
encourage the possession of firearms sory No. 14: Placing Security
Personnel on Board HK Registered
Ships’ (16 Feburary 2011)
8. Italy Vessel may utilise private personnel if Decree Law No. 107 of 12 July 2011,
vessel protection detachment (VDP) is concerning the extension of the
not available. intervention of development cooper-
Vessels must be operating in areas ation, support of peace and stabiliza-
identified by the Ministry of Defence tion processes, international missions
as high risks of the Armed and Police Forces, as
well as the implementation of the
Resolutions 1970 (2011) and 1973
(2011) adopted by the UN Security
Council; Decree of the Ministry of
Defense No. 55447 of 1 September
2011 (GU No. 212 of 12 September
(continued)
192
Table 1 (continued)
Provision as it relates to allowing
Flag state security personnel on-board vessel
9. Japan Allowed subject to the application
through a shipping company and
approval by Government through the
Ministry of Land, Infrastructure, and
Tourism
10. Liberia No prohibition on the use of firearms
or armed guards
11. Malta Neither prohibited nor recommended
but the use of personnel and carriage
of arms must comply with the provi-
sions of law
12. Marshall Private Maritime Security Companies
Island (PMSC) providing service on board
RMI registered vessels must be certi-
fied to the ISO 28007 standard by an
authorized and accredited certification
body
13. Norway The use of arms on-board a vessel
requires Norwegian government per-
mission. Permission is only granted
when sailing in, to or from certain
geographical locations
14. Panama Neither recommended nor prohibited.
The decision belongs strictly to the
ship operator or owner.
Starting January 2019, all PMSCs are
to comply with ISO 9001:2015/ISO
PAS
15. Singapore No prohibition. However, the carriage
and use of firearms onboard Singa-
porean vessels are not encouraged
O. A. Eruaga
Authority
2011), on the identification of the
international area at risk of maritime
piracy where the vessel protection
detachments (nuclei militari di
protezione) can be embarked
Act on Special Measures Concerning
the Guarding of Japanese Ships in
Pirate-Infested Waters
(Ship Guarding Act) Act No.75 of
2013
The Act consists of Orders which
may be modified if security is
required in West Africa
The Liberian Administration’s Guid-
ance Regarding 3rd Party Security
Teams, Art. 3
Legal Notice 19 of 2013, Arms Act
Cap 480, General Authorisation
(Protective Security Measures
onboard Ships) Regulations, 2013;
Legal Notice 110 of 2013 on Licens-
ing of Private Maritime Security
Companies
Regulations; Merchant Shipping
Notice 106
RMI Marine Notice MN-2-011-39:
April 2019
2011 amendment to Regulation
904/2009 Relative to Arms;
2011 amendment to Regulation
972/2004 on Ship Security
Merchant Marine Circular MMC-243
The MPA Shipping Circular
No. 11 of 2011
(continued)
Private Maritime Security Companies Within the International Legal. . . 193

Table 1 (continued)
Provision as it relates to allowing
Flag state security personnel on-board vessel Authority
16. Spain Allowed on vessels outside Spanish Royal Decree 1628/2009, on private
territorial waters based on exceptional security and weapons.
circumstances. Only Spanish PMSCs (Real Decreto 1628/2009, de 30 de
are allowed on board Spanish vessels octubre; Orden PRE/2914/2009, de
30 de octubre)
17. United Use of security personnel may be Department of transport (2013), ver-
Kingdom permitted subject to an application sion 1.2; Department for Trade
procedure (2017) Open General Trade Control
Licence (specifically applicable to
use of arms in waters off the coast of
Somalia only)
18. United The use of PCASPs is the decision of Maritime Security Directive
States the ship owner (MARSEC) 104-6. (This Directive
undergone seven revisions since it
was issued in February 2006); Port
Security Advisory (3-09); National
Defence Authorization Act 2010,
section 3506;
International Traffic in Arms (ITAR)
Regulation 22 CFR parts 120-130

significance to address regulatory gaps in engaging private security services.113

There is substantial debate as to the applicability of these documents to activities
of private security companies within the maritime domain because they address
more specifically private security companies providing military-like services in
armed conflict situations.114 In spite of the seemingly unsuitable nature of these
initiatives, their provisions maintain some relevance to the maritime context because
several of its underlying obligations, practices and concepts are transposable to the
maritime setting.115
Another prominent multi stakeholder initiative is the International Organization
for Standardization’s Ship and Marine Technology-Guidelines for Private Maritime

113
Petrig (2016a), p. 2.
114
MSC.1/Circ. 1443 (2012), Annex 2.1. The IMO describes both initiatives as not directly relevant
to the situation of piracy and armed robbery in the maritime domain and do not provide sufficient
guidance for PMSC. Because they address states relations with private security companies provid-
ing military-like services in armed conflict situations. See also Carreira Da Cruz (2017), p. 71.
Contrast with Petrig (2016a), pp. 2–20 where the author gives a maritime perspective to the
Montreux document.
115
Petrig (2016a), pp. 18–20. Notably, the ISO PAS 28007-2015, as a revision of the ISO PAS
28007-2012 no longer contains the remarks in the definitions section which stated that the IMO
‘does not believe that the International Code of Conduct for Private Security Service Providers
(ICoC) or the Montreux Document are applicable to maritime security operations. The Code and
Montreux Document are also included in the bibliography of ISO PAS 28007-2015 as relevant
documents consulted in the formation of the ISO standards.
194 O. A. Eruaga

Security Companies (PMSC) providing privately Contracted Armed Security Per-

sonnel (PCASP) on board ships (and pro forma contract) (ISO/287000-1).
ISO/28007-1 aims at providing assurance that the PMSC industry is properly
regulated through internationally accepted standards. As a sub of the Specification
for security management systems for the supply chain (ISO 28000), a publicly
available requirement for ensuring security assurance in a supply chain, ISO/
28007-1 provides sector-specific guidelines which companies can implement to
demonstrate their capability to conduct the PMSC service of providing PCASP on
board vessels.116 The standard contains a list of criteria to be used by duly accredited
bodies to assess the capability and compliance level of the company.117 Following
such audit, art. 1 recommends that a certificate stating that the full guidelines of ISO
28007-1 was utilized, be issued as a sign that the company has attained
certification.118
In conjunction with the major progress made by multi-stakeholder initiatives,
industry associations have assumed a growing role in developing and promoting
self-regulation. The Baltic and International Maritime Council (BIMCO)’s standard
contract for the employment of security guards on board ships GUARDCON pro-
vides for uniformity in contractual terms in the engagement of PMSCs.119 It pro-
vides for detailed standards required of the security company in terms of
qualification of personnel placed on board vessels, recognition of the master’s
authority throughout the voyage, insurance cover for their risk, and permit and
licenses to allow them to lawfully transport weapons.
BIMCO has also drafted a Guidance on the Rule for the Use of Force (RUF) by
Privately Contracted Armed Security Personnel (PCASP) in Defence of a Merchant
Vessel (MV). The Guide reflects how the inherent right to self defence is interpreted,
the issue of chain of command on board a vessel, graduated and proportional
response to an attack as well as post incident formalities. The Guide does not form
part of GUARDCON but could become binding if it is included specifically as part
of the Contract.
The International Association of Maritime Security Professionals (IAMSP) a not
for profit organization founded in 2010 currently “self-regulates” private security
professionals operating within the maritime domain. The Association is committed
to among other objectives, developing the appropriate sound security standards,
guidelines and practice and promote professional conduct in all aspects of the
maritime security domain.120 To achieve the set out goals, the Association issued

116
ISO 28007-1, Article 1.
117
ISO does not carry out certification. Rather the standards developed are utilized by external
certification bodies who are usually accredited by the International Accreditation Forum. For an in
depth discussion on the ISO and its potential to generate legal consequences, see Carreira Da
Cruz (2017).
118
ISO 28007-1, Article 1.
119
Williams (2014), p. 352; BIMCO Circular 5/12.
120
For more information on the mission and of the association visit http://iamsponline.org/.
Private Maritime Security Companies Within the International Legal. . . 195

the Use of Force, IAMSP-2011-01-UOF-001 v2.0 (IAMSP Rules)121 and a voluntary

‘Code of Practice’ which members commit to follow.122 The IAMSP Rules
addresses key points in the use of force standards for protection of vessels such as
the need for management oversight of rules,123 relevance of risk assessment,124
determination of the choice to use force through a chain of event procedure.125
Notably, the various industry regulation on PMSC standards are ordinarily not
averse to each other. In fact, The ISO/287001-1 makes reference to several of the
standards and recommendations contained in some of the industry codes of conducts
and guidelines. As stated earlier, industry self regulation are ordinarily not legally
binding. Hence, the relevance and capacity of industry self regulation to generate
significant legal consequences hinges on stakeholder’s acceptance and usage.126

2.2 The Role of PMSCS in International Maritime Security

Traditionally, rights and obligations within the international system are addressed to
states as the main subjects of international law since the Peace of Westphalia.127 This
position of states as the principal actors in the international arena stems from the
authority over subjects within their respective national boundaries, which gives them
the authority to interact with other states in the international system.128 Equally,
purists in international legal scholarship consider norm making and law enforcement
as falling under the exclusive preserve and authority of the state. Following this
school of thought, combating security threats, including piracy and sea robbery, is
viewed within the exclusive ambit of state responsibility.129
However, contemporary dynamics reveal that a growing number of actors,
associated with the phenomenon of globalisation appear to have taken up roles
and functions simultaneously with the state within the international maritime system.

121
International Association of Maritime Security Professionals (2011).
122
Maritime Security Professionals Voluntary Professional Code of Practice (MarSecPro).
123
IAMSP Rules, Clause 36.
124
IAMSP Rules, Clause 63.
125
IAMSP Rules, Appendix B-D.
126
Williams (2014), pp. 350–351; Carreira Da Cruz (2017). Contrast with Petrig (2016a), pp. 1–19;
Petrig (2016b) Paper delivered at the 5th session of the United Nations Human Rights Council
Intergovernmental Working Group on Private Military and Security Companies.
127
Hall and Biersteker (2002), pp. 3–4; Ryngaert (2016), p. 185; Dickinson (2006), p. 385.
128
This authority over citizens hinges on theoretical bases highlighted by scholars firmly established
as far back as the seventeenth century. See Calvin’s Case/Postnanti (1572)(77 ER 377)/(1932) 2KB
210 where Lord Cook expands on the common law tradition and original contract based on a natural
bond of allegiance between king and subject. See also Krahmann (2009), p. 2 where the author
refers to the social contract theory; Heyman (1991), p. 507.
129
Liss (2013), p. 200; Kontos (2004), p. 200; Chintoan-Uta and Silva (2017), p. 37.
196 O. A. Eruaga

2.2.1 The Law Enforcement Role of PMSCs

By providing the desired security service, PMSCs participate in the law enforcement
processes of combating piracy. Notably, PMSCs in contractual agreement to protect
potential victims engage in defence of the vessel rather than core law enforcement
activities as state agents.130 PMSCs do not actively seek out maritime criminals but
only respond to attacks in the course of the voyage. However, the distinction
between engaging in defence of the vessel and law enforcement operations at sea
becomes less rigid and clear, considering that both instances require the use of force
to combat criminal activities.
Reservations continue to exist about PMSC activities employing force at sea on
the grounds that they challenge the traditional perception of the roles of both the flag
state and coastal state to control and account for the use violence.131 The presence of
armed private security personnel at sea spells a potential increase of violence, which
is against the public interest.132 Private armed guards may overreact to threat
situation in ways that transcend the threshold of the just employment of force for
defence of self, others or property. In an encounter between the MV Avocet and a
suspicious skiff in 2011, 4 PCASPs protecting the cargo vessel fired several to
dissuade the occurrence of an attack.133 The shots described as ‘warning shots, were
fired continuously at the on coming boat. The skiff eventually crashed into the MV
Avocet because the driver of the skiff was either injured or killed.134 The propensity
to overreact to a threat situation is not a function of whether or not an armed guard on
a vessel is a PCASP. Active duty military are not necessarily exempt from fatal
mistakes or lapses in judgement, as the Enrica Lexie case reveals.135 The Italian

130
Msc.1/Circ.1405/Rev.2 (May 25, 2012).
131
Liss (2013), p. 201; Marin et al. (2017), p. 193.
132
Skaanild (2013), p. 28; Marin et al. (2017), p. 193.
133
Bockmann and Katz (2012) www.globalpolicy.org/pmscs/51600-shooting-to-kill-pirates-risks-
blackwater-moment.html. Accessed 22 December 2018; Lloyds List (2012) <https://lloydslist.
maritimeintelligence.informa.com/LL032585/Eagle-Bulk-and-Trident-identified-in-pirate-shoot
ing-video> accessed 31 December, 2018.
134
Bockmann and Katz (2012) www.globalpolicy.org/pmscs/51600-shooting-to-kill-pirates-risks-
blackwater-moment.html. 22 December 2018. Conflicting statements exists as to whether the skiff,
reported to have AK 47s and RPGs on board actually returned fire in the course of the warning
shots. This makes it difficult to conclusively assess whether the actions of the armed guard exceeded
the force reasonably necessary in the circumstance. However, the incident goes to show how easily
the use of force may be abused.
135
Notably, Italy and India provide different accounts of the events leading up to the death of the
fishermen. See In the Dispute Concerning the ‘Enrica Lexie’ Incident (The Italian Republic v The
Republic of India), Notification Under Article 287 and Annex VII, Article 1 of UNCLOS and
Statement of Claim (26 June 2015) https://indianexpress.com/article/explained/simply-put-2-kill
ings-at-sea-an-international-legal-battle/; Dispute Concerning the ‘Enrica Lexie’ Incident (The
Italian Republic v The Republic of India), Written Observations of the Republic of India on the
Request of the Italian Republic for the Prescription of Provisional Measures Under Article 290, Par-
agraph 1, of the United Nations Convention on the Law of the Sea http://www.pcacases.com/
Private Maritime Security Companies Within the International Legal. . . 197

flagged tanker MV Enrica Lexie carried Italian marines on board as members of a

vessel protection detachment (VPD) team while sailing in the Indian Ocean from Sri
Lanka towards Djibouti in February 2012. As it approached the coast of Kerala, the
marines opened fire on a vessel that they claim appeared to be a pirate vessel. Two
local fishermen died as a result, subsequently leading to the arrest of the Italian
marines by the Indian authorities. According to the Indian authorities, the fishermen
died from gun fire directed by the Italian marines towards their fishing boat.136 The
rendition of the events by India raises the possibility that Italian marines did not
adhere to the proper procedure for just employment of the use of force. A similar
situation also occurred with the tanker MV Histria Coral where a group of embarked
policemen opened fire on a small boat that was approaching the tanker. The small
boat turned out to be filled with Nigerian Navy personnel on their way to inspect
another vessel.137
There is a softening towards the opinion that PMSCs challenge the state’s
monopoly on legal violence, especially in situations where other means available
to prevent danger to people and goods at sea are evidently insufficient.138 As
highlighted earlier in this chapter,139 flag states are increasingly willing to allow
private protection on board vessels to accommodate the market response to the threat
of piracy. However, the details of how the services are provided continue to vary
among states.

2.2.2 The Norm-Making Role of PMSCs

Through their involvement in anti-piracy services, PMSCs engage in shaping the

development of rules in the maritime security framework. Direct provision of
services, advocacy, and agenda-setting serve as pathways to effectively pressure
states to consider piracy as a problem that requires more than a traditional state
response. At the time PMSC began operations in the Strait of Malacca area, there
was a paucity of laws in international and national law directed at the employment of
armed personnel on board vessels.140 Following the direct participation of security
companies such as Background Asia and the Australian based Counter-Terrorism
International (CTI) in protecting vessels transiting through the Strait of Malacca,
Malaysia and Indonesia introduced and revised existing regulations to re-nationalise

pcadocs/Response/Indias%20Written%20Observations.pdf (Written Observations of India).

Accessed 2 January, 2019.
136
Written Observations of India, 8–9.
137
Steffen (2014) http://cimsec.org/troubled-waters-use-nigerian-navy-police-private-maritime-
security-roles.
138
Liss (2015), pp. 91–92.
139
Page 18.
140
Liss (2013), p. 202.
198 O. A. Eruaga

and control the use of force in the fight against piracy within their waters.141 A
similar process of re-nationalising and control of the use of force by states such as
Nigeria and Togo occurred at the initial phase of global attention on the spate of
attacks in the region and the corresponding PMSC interest in the Gulf of Guinea
waters.
Aside from providing services, PMSCs issue statements, publish and circulate
risk assessments and reports on the threat of piracy in the Strait of Malacca, the Gulf
of Aden, and the Gulf of Guinea. These statements and documents impact the
decision-making processes of governments and businesses, as well as public per-
ception of security issues.142
The impact of PMSC involvement in the norm making process is most visible
from the events in the Gulf of Aden. The unprecedented scale of attacks off the coast
of Somalia in the Gulf of Aden resulted in a mushrooming of PMSCs scattered
around the globe wishing to take advantage of the booming security market.143 Even
though commercial vessels were already engaging their services, there was initially
stiff resistance from prominent stakeholders.144 The resistance was in line with long-
standing international practice that discouraged the arming of vessels.145 Further-
more, there was a prevailing view that the provision of security for on-going vessels
was an obligation for states.146 Through cooperation with other private non-state
actors and even states, the PMSC industry was able to push the agenda for
reassessing the position concerning the use of PMSCs in the Gulf of Aden and
providing appropriate instruments for regulating their engagement.147 For instance,
the now defunct Security Association for the Maritime Industry (SAMI) collaborated
with the Marshall Islands to champion the cause of the use of PMSCs in the Indian
Ocean at the 89th meeting of the IMO’s Maritime Safety Committee (MSC).148
There is generally tacit acceptance of the practice of deploying armed security
personnel on board vessels in certain circumstances.149 There are now several
laws—hard and soft both at international and state level—formulated as a result of

141
Liss (2007), https://www.murdoch.edu.au/Research-capabilities/Asia-Research-Centre/_docu
ment/working-papers/wp141.pdf. Accessed 22 January 2019.
142
Liss (2007), https://www.murdoch.edu.au/Research-capabilities/Asia-Research-Centre/_docu
ment/working-papers/wp141.pdf. Accessed 22 May 2018; Liwång et al. (2015), p. 201.
143
Most of them are in European countries. See Liss (2015), p. 88.
144
Affi et al. (2016), p. 939.
145
Aatstad (2017), pp. 313–331; Marin et al. (2017), pp. 192–193.
146
Affi et al. (2016), p. 939.
147
Liss (2015), p. 88; Liss (2013), p. 205.
148
Skype Interview with Maritime Security Expert (12 April 2017).
149
The Maritime Organization’s IMO’s stance over a two-year period evolved from actively
discouraging to ‘tacitly accepting the industry and flag state practice of deploying armed security
personnel on board vessels under certain circumstances.’ See http://www.imo.org/en/OurWork/
Security/PiracyArmedRobbery/Pages/Private-Armed-Security.aspx. Accessed 18 October 2018.
Similarly, prominent maritime nations such as United Kingdom, Italy and the Netherlands have
also changed their stance about the use of armed personnel onboard vessels. See Van Hespen
Private Maritime Security Companies Within the International Legal. . . 199

the strong drive for the recognition of the use of PMSCs in combating piracy.
Additionally, the absence of adequate sector-specific recommendations or state
regulation necessitated the creation of industry self-regulation to fill regulatory
gaps.150

2.2.3 The Impact of the Role of PMSCs on International

and Domestic Law

The presence of PMSCs brings about changes to the structure of the international
and domestic law framework as it relates to the protection of potential victims from
the threat of piracy. Their involvement in norm making and law enforcement-like
activities, affirm the view that roles classically identified as the exclusive preserve of
the state now involve an aggregation of complex procedures involving non-state
actors.151 Furthermore, in spite of the absence of specific international law on the
subject, the recognition by several maritime nations of these private actors as being
able to employ violence translates to an alteration to the norm that reserves the right
of the state to monopolise security services152 and challenges conventional notions
in the development of international law. The phenomenon speaks to the reality of
pluralism where territorial and non-territorial actors exercise power, opening up the
space for new forms of representation and participation.153 Scholars associated with
the New Haven school and transnational law theory characterise international law as
a process of decision making rather than one founded on formal notions of subjects
of the system, to accommodate the role of non-state actors.154 Ryngaert argues that
the notion of international law presents the possibility of plurality where national
state norms exist alongside non-state norms.155
A positive effect of the change is that globally PMSCs can, as a new tool,
contribute to securing business investments. Their contribution arguably only serves
as a temporary fix or palliative since they do not address the root causes of the
threat.156 The negative consequences of the privatization of security in the maritime
domain include the possibility of proliferation of arms at sea where they are not
properly regulated, and the possibility of undermining the public and national
security of sovereign states. The changes to international and domestic governance

(2014), p. 373. The author asserts that no open registry explicitly prohibits the use of PMSCs while
almost all European Flag states accept the use of PMSC services on board vessels.
150
Interview with Maritime Security Expert, 12 April 2017; Carreira Da Cruz (2017), p. 64. See also
Richemond-Barak (2014), p. 779; Percy (2012), p. 954.
151
D’Aspremont (2011a), p. 4.
152
Avant (2004), p. 155.
153
Ryngaert (2016), p. 185.
154
Ryngaert (2016), p. 188; D’Aspremont (2011a), p. 2.
155
Ryngaert (2016), p. 185.
156
Skaanild (2013), p. 26.
200 O. A. Eruaga

framework further raise the question of the status accorded to PMSCs and their
relationship with states in international law.

3 PMSCs as Participants in the International Maritime

Security Governance Framework: Are PMSCs Usurping
the Powers of the State?

Scholarly attention on the engagement of PMSCs as a market response to the

problem of piracy and armed robbery against ships in various waters reveal that
the involvement of PMSCs shed new light on the workings of contemporary
international law. Aspermont points to the roles played by non-state actors as
indicative of the notion that their emergence tones down state centrism in the legal
order.157 This explains why international legal scholars argue that non-state actors
are extremely relevant. The status of PMSCs in relation to the authority of the state
thus forms a crucial point, as discussions about these non-state actors intensify.
Generally, international law relies on domestic legislation to give teeth to its
provision. States regulate diverse globally related issues such as business relation-
ships, private activities and even specification of an act as a crime.158 This means
that international law as a normative system hinges states as quasi-exclusive sub-
jects. PMSCs operate within an international set-up controlled by the consensus of a
community of states. Contrary to the views of attention diversion by the emergence
of non-state actors, there is no conflict between the unprecedented influence of non
state actors and the continued dominance by states in the international system.159 In
the first instance, the ability of PMSCs to influence or operate within the interna-
tional system do not arise ex nihilo; they are granted by states.160 The private security
sector, even though existing as a market response, draws legitimacy from their
connection with the state.161 This explains why the political culture of the respective
state predominantly determines whether the commercialisation of security (flowing
from the existence of the threat of piracy and armed robbery) is allowed or not.
The changes which PMSCs cause to both national and international community
principles creates a modification of how states exercise control over the use of force
within their territories. Increased involvement by non-state actors in the international
sphere is simultaneously fuelling increased reaction by states through law and
regulation. PMSCs are now subject to tighter regulations, reflecting a continuous
state dominance over their involvement. At the time PMSCs began active participa-
tion in the Strait of Malacca in the late 1990s, national laws that clearly regulated

157
D’Aspremont (2011b), pp. 430–431.
158
Jakobi (2013), p. 140.
159
D’Aspremont (2011a), p. 5.
160
Ryngaert (2016), p. 192.
161
Liss (2012), p. 52.
Private Maritime Security Companies Within the International Legal. . . 201

their participation in the provision of armed security to vessels were sparse.162

Equally, international law on their engagement was virtually non-existent. States
subjected these non-state actors to legislation that were introduced to ensure that
operations were legally sanctioned with permits or under government oversight. A
similar process is discernable from their employment in the Gulf of Aden, with the
creation of appropriate regulation by prominent states, as well as regulations
addressing specific operational standards by the IMO and various industry
stakeholders.
From this perspective, PMSC do not usurp or bypass the states as the lawful
holders of the monopoly of legitimate force in their respective jurisdictions. They
rather operate under the authority of states. In reality, however, states may fail in
asserting control over PMSCs for various reasons such as the lack of appropriate
national regulation or the lack of capacity on the part of the state for monitoring,
compliance, and enforcement. In some cases, authorised non-state use of force may
give rise to unauthorised forms, thereby validating concerns that the existence of
PMSCs challenge the state monopoly over force. Be that as it may, operations
conducted within strict legal frameworks imply state authority over these private
actors and their activities.

4 Conclusion

An examination of the engagement of PMSCs in anti-piracy measures from the Strait

of Malacca, their presence in the Gulf of Aden up until their current struggles to
penetrate the security market in the Gulf of Guinea, makes it clear that complex
transformations both at national and international levels have continued to take place
in maritime security governance. One of the most apparent effects is the diffusion of
control to a broader variety of actors within the international system.
PMSCs as actors within the international system are governed by a legal frame-
work that reflects the multi-jurisdictional nature of the maritime domain that neces-
sitates the distribution of power to balance interests. The existing overarching
framework consisting of international instruments, state regulations, and
supplemented by soft law instruments as well as industry regulations is undoubtedly
complex. The plurality of state laws raises the suggestion that international law
specifically addressing the use of PMSC services may best regulate their utilisation.
However, in the absence of such an international legal instrument, re-addressing
regulatory and oversight mechanisms within the current complex framework would
improve and enhance PMSC engagement.
In spite of the legal complexity in regulating the use of PMSCs activities, these
entities have played significant roles in the development of maritime security
governance. There are variations in the extent to which PMSCs in anti-piracy

162
Liss (2013), p. 202.
202 O. A. Eruaga

operations have influenced the development of the legal frameworks concerning the
control of the use of force at sea within the various strategic waterways. The
variations are linked to the extent that a specific state is willing and able to open
up to and regulate PMSC activities, especially the use of force at sea. While their
presence is an exception to the norm in the case of the Strait of Malacca, their
presence in the Gulf of Aden has become the norm. The seemingly more central role
of PMSCs with their engagement in the Gulf of Aden is not as apparent in the Gulf of
Guinea. These variations point to an inference that PMSC engagement for combat-
ing piracy is not necessarily a one-size-fits-all solution. Ultimately, the level of
PMSC participation depends on how the state chooses to exercise the traditional
principles of state sovereignty or the possible development of what Prof. Ryngaert
describes as “an alternative world in which nonstate actors have acquired enhanced
normative agency.”163

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Compensation for Cargo Damage
in International Maritime Transportation:
Chinese Law Perspective

Lixin Han and Shuang Cai

Abstract The problem of scope of compensation for cargo loss or damage in

international carriage of goods by sea is of increasing significance in the current
milieu of shipping disputes. With the increase in volume of the Chinese import and
export trade, cases involving compensation for cargo loss or damage are occupying
an increasingly large proportion of judicial time in the Chinese Maritime Courts. The
determination of the scope of compensation for cargo loss or damage is crucial in
such cases, because it impacts significantly on the commercial interests of cargo
owners and carriers alike. This paper concerns the study of judicial practice in cases
adjudicated by Chinese Maritime Courts and analysis of relevant data involving the
scope of compensation for cargo loss or damage in international maritime transpor-
tation and losses which are incidental to the original bill of lading not being
presented to the carrier.

1 Introduction

In the contemporary milieu of international carriage of goods by sea, compensation

for cargo damage is of unprecedented importance in view of increasing globalization
in trade and commerce. Over 90% of Chinese trade is effectuated through maritime
transportation. Risks encountered at sea and consequent loss or damage suffered by
goods transported by ship combined with slow movements of transport documenta-
tion causing delays in the delivery of goods are increasingly frequent. As a result,
delivery of goods without surrendering the original bill of lading at the destination
port has become common practice. The domino effect is that claims for compensa-
tion for loss or damage to goods or losses caused by delivery of goods without
presentation of the original bill of lading are constantly on the rise.

L. Han (*)
Faculty of Law, Dalian Maritime University, Dalian, China
e-mail: hanlixin@dlmu.edu.cn
S. Cai
Law School, Dalian Maritime University, Dalian, China

© Springer Nature Switzerland AG 2020 207

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_11
208 L. Han and S. Cai

According to Article 50(1) of Maritime Code of the People’s Republic of China

(“CMC”), delay in delivery occurs only when the goods have not been delivered at
the designated port of discharge within the time expressly agreed upon. Since the
time of delivery of the goods is seldom expressly agreed in a bill of lading, cases of
delay in delivery are virtually unheard of in Chinese judicial practice. As such,
carrier liability for damages for delivery of the goods without presentation of the
original bill of lading is not discussed in this paper. Determination of the scope of
compensation involves resolution of the extent of loss or damage and heads of
damages, that is, items for compensation, including calculation of the amount of
compensation, the system of package limitation of liability and its exceptions. This
paper begins with the introduction of relevant provisions in the CMC. By comparing
with the relevant provisions of international conventions, the paper will attempt to
show the lack of relevant provisions on damages in the CMC and put forward some
reasonable proposals for improving and hopefully perfecting the CMC.

2 Sea Carriage Disputes in China’s Maritime Judicial

Practice

As a major trading power and shipping country, cases on compensation for damage
of goods can hardly be avoided. Thus, disputes over the contract of carriage of goods
by sea occupy a large proportion of the dockets of Chinese Maritime Courts.
Notably, in 2017, Guangzhou Maritime Court accepted 1183 maritime cases, of
which 422 were disputes involving contracts of carriage of goods by sea, which
comprised 35.7% of all the first instance maritime cases.1 Shanghai Maritime Court
accepted 3914 first instance maritime cases; 487 disputes of them related to contracts
of carriage of goods by sea or by the waters connected to sea, which comprised
12.4% of the first instance maritime cases.2 Ningbo Maritime Court accepted 2370
cases of maritime disputes in 2017, and the number of cases relating to contracts of
carriage of goods was 102, which comprised 4.3% of all the first instance maritime
cases.3 Qingdao Maritime Court received 1982 maritime cases of first instance in
2017, including 149 disputes over contracts of carriage of goods by sea or by waters
connected to the sea, accounting for 7.5% of the maritime cases of first trial.4

1
Briefing on Maritime Trials of Guangzhou Maritime Court in 2017 (http://www.gzhsfy.gov.cn/
uploadfile/files/2018/20180902/1809021115168812906.pdf). Accessed 27 November 2018.
2
Judicial Statistical Analysis of Shanghai Maritime Court in 2017 (http://shhsfy.gov.cn/hsfyytwx/
hsfyytwx/spdy1358/sftj1472/2018/03/02/2c93809961e759bb0161e79a3f880121.html). Accessed
27 November 2018.
3
Report on Zhejiang Maritime Trial in 2017 (http://www.nbhsfy.cn/court/NeiRead.aspx?id¼6908).
Accessed 27 November 2018.
4
Briefing on Maritime Trials of Qingdao Maritime Court in 2017 (http://qdhsfy.sdcourt.gov.cn/
qdhsfy/resource/cms/2018/08/2018083009224762991.pdf). Accessed 27 November 2018.
Compensation for Cargo Damage in International Maritime Transportation:. . . 209

By using Wolters Kluwer database, one Chinese maritime lawyer researched and
collected 183 judgements handed down by Chinese Maritime Courts and their
Appeal Courts relating to disputes over contracts of carriage of goods by sea or by
waters connected to the sea from January 1 to December 31, 2016. These judgements
were classified and counted according to the specific claims of the cases, as depicted
in Fig. 1.5
From Fig. 1, the first instance cases of claims for damage to goods, losses of
goods and freight payments caused by delivery of goods without presentation of the
bill of lading account for 28%, 36%, 22% respectively. In the second instance, the
proportion is about 6%, 39% and 31% respectively. Therefore, it can be seen from
both first trial and second trial cases that, three major groups of issues which arise
from contract of carriage of goods by sea are disputes over payment of freight,
damage to goods, and delivery of goods without presenting the bill of lading. All of
them involve traditional claims.
Clearly, shippers from different countries have commercial interests in the
imports and exports of Chinese goods. Shipping companies as carriers also have
such interests since they are responsible for performing the shipping contract. Since
cases which relate to compensation for damaged cargo and losses which arise from
delivery of goods without presentation of the original bill of lading affect the
legitimate interests of both domestic and foreign cargo owners and carriers pro-
foundly, therefore, Chinese Maritime Courts and corresponding Courts of Appeal
pay considerable attention to these two types of cases.

3 Scope of Compensation for Loss of Goods Under CMC

Article 46(1) of the CMC stipulates that—“during the period the carrier is in charge
of the goods, the carrier shall be liable for the loss of or damage to the goods, except
as otherwise provided for in this Section.”6 Article 55 provides the method for
calculating the amount of compensation for the loss of the goods, namely, “the

5
Wang (2017).
6
Article 51 of the Maritime Code of the People’s Republic of China 1993 provides that the carrier
shall not be liable for the loss of or damage to the goods occurred during the period of carrier’s
responsibility arising or resulting from any of the following causes: (1) Fault of the Master, crew
members, pilot or servant of the carrier in the navigation or management of the ship; (2) Fire, unless
caused by the actual fault of the carrier; (3) Force majeure and perils, dangers and accidents of the
sea or other navigable waters; (4) War or armed conflict; (5) Act of the government or competent
authorities, quarantine restrictions or seizure under legal process; (6) Strikes, stoppages or restraint
of labour; (7) Saving or attempting to save life or property at sea; (8) Act of the shipper, owner of the
goods or their agents; (9) Nature or inherent vice of the goods; (10) Inadequacy of packing or
insufficiency or illegibility of marks; (11) Latent defect of the ship not discoverable by due
diligence; (12) Any other causes arising without the fault of the carrier or his servant or agent.
The provision is mainly derived from Article 4, paragraph 2, of the Hague Rules 1924, and the
specific exemption is essentially the same.
 210

Fig. 1 Cases classified by the specific claims (source: Wang 2017)

L. Han and S. Cai
Compensation for Cargo Damage in International Maritime Transportation:. . . 211

amount of indemnity for the loss of the goods shall be calculated on the basis of the
actual value of the goods so lost. . .” “The actual value shall be the value of the goods
at the time of shipment plus insurance and freight. From the actual value referred to
in the preceding paragraph, deduction shall be made, at the time of compensation, of
the expenses that had been reduced or avoided as a result of the loss or damage
occurred.”
Thus, according to Article 55 of the CMC, the amount of compensation for the
loss of goods is calculated based on the actual value of the goods, which means the
expenses that had been reduced or avoided as a result of the loss or damage occurred
shall be deducted from the CIF price. From the vantage of the legislation, this
method of calculation is more convenient, but this Article has caused great contro-
versy in practice.

3.1 Carrier Liability for Economic Losses Besides Liability

for Loss of Goods

Economic losses caused by the loss of cargo usually include loss of market value,
loss of use value and liquidated damages that the consignor or consignee may have
to suffer. Such disputes became more prominent after the implementation of the
Contract Law of the People’s Republic of China (“Contract Law”) in October
1, 1999. Article 113 of the Contract Law stipulates that “damages to the consumer
where a party failed to perform or rendered nonconforming performance, thereby
causing loss to the other party, the amount of damages payable shall be equivalent to
the other party’s loss resulting from the breach, including any benefit that may be
accrued from performance of the contract, provided that the amount shall not exceed
the likely loss resulting from the breach which was foreseen or should have been
foreseen by the breach party at the time of conclusion of the contract.” Thus,
according to the Contract Law, the non-defaulting party may claim damages for
the benefits that may accrue from performance of the contract.
It is the more progressive regulation of Article 111 and Article 1127 of The Civil
Law of the People’s Republic of China (General Principles of the “Civil Law”). In
addition, Article 312 of the Contract Law provides “where the parties agree on the
amount of damages in case of damage to or loss of the cargos, the damages payable
is the agreed amount; if the amount of damages is not agreed or the agreement is not

7
General Principles of the Civil Law Article111 provides that if a party fails to fulfill its contractual
obligations or violates the term of a contract while fulfilling the obligations, the other party shall
have the right to demand fulfillment or the taking of remedial measures and claim compensation for
its losses; General Principles of the Civil Law Article 112 provides that the party that breaches a
contract shall be liable for compensation equal to the losses consequently suffered by the other
party.
212 L. Han and S. Cai

clear, nor can it be determined in accordance with Article 61 of this Law, it shall be
calculated on the basis of the prevailing market price at the destination when the
cargoes are or ought to be delivered. Where a law or administrative regulation
provides otherwise in respect of the measures for the calculation of damages and
of the ceiling of the amount of damages, these provisions shall be applied.” There-
fore, the Contract Law covers not only the loss and damage of the goods, but also the
loss of the market value of the goods. However, the CIF value provided by Article
55 of the CMC does not consider the loss of market value; nor does it include other
types of economic losses.
However, in practice, when dealing with cargo damage in maritime transport, the
plaintiff cargo owner will not only claim for losses of the goods, but also for
economic losses of benefits under the Contract Law. The carrier will usually defend
itself by invoking Article 55 of the CMC, which stipulates the CIF value as the actual
value, and will not agree with the claim for other economic losses. In dealing with
this controversial issue, the judgments of Maritime Courts are basically the same.
They all insist on the application of Article 55 of the CMC to calculate the cargo
damage compensation, and exclude the application of the General Principles of the
Civil Law and the Contract Law to calculate any relevant economic losses. The
anomaly is that the rationale for excluding application of the General Principles of
the Civil Law is not the same as the rationale for excluding the application of the
Contract Law.
For example, in the case of Beijing Fuyang Bank Trading Co., Ltd. v. The
International Trade Co., Ltd,8 on June 2002 the plaintiff entrusted the defendant
to carry a number of frozen boiled beans from Fuzhou to Los Angeles via its foreign
trade agent Fuzhou Foreign Trade Company (hereinafter referred to as “Fuzhou
Foreign Trade”). The plaintiff clearly told the agent that the container temperature
should be set to 18 C. The defendant received the goods and issued a clean bill of
lading. The shipper was Fuzhou Foreign Trade. Unexpectedly, the frozen container
in Xiamen port transit was powered off, resulting in cargo damage. The plaintiff
instructed the carrier to ship the goods back to Fuzhou. The Entry-Exit Inspection
and Quarantine Bureau identified that the quality of the goods did not meet the
export requirements of suitability for human consumption. Since the export of the
goods was subject to a deal under a bulk trade contract, the above incident resulted in
the US buyer altering the contract and cutting the export of 15 containers. Further-
more, not only did the plaintiff lose his profits, he also had to endure the loss of CNY
330,000 for the default of a domestic contract. Therefore, by invoking relevant
provisions in the General Principles of Civil Law and the Contract Law, the plaintiff
claimed the following losses against the defendant: (1) compensation for the cargo
loss USD 21,924, inspection fees CNY 799, other export charges CNY 1630 and the
interest calculated on the basis of corresponding interest rates on bank overdue loans
from July 4, 2002 to the date of the actual payment of the above losses; (2) the loss of
CNY 330,000 for the payment of the domestic goods supplier and the interest

8
No. 014 Judgement [2003], First Instance, Xiamen Maritime Court.
Compensation for Cargo Damage in International Maritime Transportation:. . . 213

calculated on the basis of corresponding interest rates on bank overdue loans from
July 28, 2002 to the date of the actual payment of the loss; and (3) loss of profit of
CNY 228,155.4.
The defendant argued that the CMC in this case should take precedence over
general law such as the General Principles of the Civil Law and the Contract Law.
The Xiamen Maritime Court approved the amount of compensation for the actual
loss of the goods calculated under Article 55 of the Chinese Maritime Code and
denied plaintiff’s claims for loss of benefit and other liquidated damages, etc. The
reason was that Article 55 of the CMC operates as a specialized subject of legisla-
tion, the aim of which is to take account of the relatively huge risks involved in
maritime transport. By restricting the liability of the carrier, this Article aims to
enhance the protection of the maritime transport industry. Based on the principle that
specific provisions have priority over general provisions, the plaintiff could not
recover for his economic losses by virtue of the General Principles of Civil Law
and the Contract Law.
In Zhejiang Oriental Science and Technology Import and Export Company v.
Star Ship Co., Ltd. & Ningbo Port Authority Beilun Container Company,9 a case
which also dealt with the issue of cargo damage compensation under a carriage of
goods by sea contract, the plaintiff, United Import and Export Corporation, imported
a cargo of frozen shrimps from Reykjavik, Iceland. To ship the goods from the
Canadian port of Hark to Ningbo, China, the cargo was divided into three freezer
containers by the defendant carrier. The bill of lading specified that at any time the
temperature must be maintained at minus 25 degrees (Celsius Degrees) or below.
The goods arrived at the destination port’s container yard. However, three containers
were not electrically charged during storage, resulting in damage to the frozen
goods. The plaintiff claimed for losses which included value of the goods, customs
duties, value-added tax, and loss of profits.
The defendant, Star Ship Co., Ltd. (Star) contended that firstly, the cargo damage
was caused by the fault of the container company, therefore, Star did not assume
responsibility; in addition, most of the plaintiff’s claims were indirect losses. Thus,
Star was not liable to pay compensation. The defendant container company
contended that it was not a party to the carriage of goods by sea contract; therefore,
it was not a qualified defendant. The Ningbo Maritime Court, while determining the
amount of compensation, considered that in that case, priority should be given to
Article 55 of the CMC in accordance with the applicable principles of special law
and general law. The court considered that if Article 55 of the CMC and the General
Principles of Civil Law were to be applied at the same time, two categories of losses
would be generated: one would be actual losses under maritime law and the other,
economic losses under civil law. Clearly, other relevant economic losses which arise
under civil law, contradict with Article 56 of the CMC, the aim of which is to restrict
carrier’s liability. This would undoubtedly increase the carrier’s responsibility.

9
No.218 Judgement [2000], First Instance, Ningbo Maritime Court.
214 L. Han and S. Cai

Therefore, the Ningbo Maritime Court did not support the plaintiff’s claim for
economic losses.
Another case which also concerns the breach of a carriage of goods by sea
contract, is Dalian Tianyi International Trade Co., Ltd. v. A Co.10 The plaintiff in
this case imported oil asphalt, from Bahamas (port of loading) to Tianjin Xingang
(port of discharge). The plaintiff obtained the original bill of lading and required the
defendant to deliver the goods with the original bill of lading. The defendant refused
to deliver the goods because the plaintiff had concealed the dangerous nature of the
goods. As a result, the plaintiff failed to fulfill the domestic contract and the resale
contract was cancelled according to law, resulting in the plaintiff suffering a huge
economic loss.
The plaintiff claimed that the defendant should have delivered the goods at
Tianjin Xingang port in accordance with the bill of lading; and must therefore
compensate for the loss of goods, the corresponding interest and the economic losses
that the plaintiff had suffered. The Tianjin Maritime Court held that contractual
obligations and rights of both sides were rooted in the carriage of goods by sea
contract which had been incorporated into the bill of lading. But the bill of lading did
not provide for compensation of the anticipated loss of profits and loss resulting from
breach of contract. The defendant’s obligation to fulfill the contract was restricted to
transporting and delivering the goods to the plaintiff. The expected loss of profits,
liquidated damages and other losses claimed by the plaintiff were beyond the
carrier’s reasonable foresight under the contract. Therefore, the plaintiff’s claims
for expected loss of profits and liquidated damages could not be supported.

3.2 Carrier’s Responsibility for Costs Connected to Loss

of Goods

Generally, costs incurred after the loss or damage suffered by goods include cargo
damage inspection fees, garbage disposal costs, costs of cleaning containers, etc. The
question is whether these costs should be borne by the carrier. Although, generally
speaking, the Maritime Courts are not inclined to entertain cargo owners’ claims for
economic losses, they do support their claims for other costs relating to the loss of or
damage to goods in accordance with relevant provisions of the Contract Law.
In Zhejiang Fisheries Co., Ltd. v. Shanghai Haihua Shipping Co., Ltd,11 for
example, a case which also dealt with cargo damage compensation under a carriage
of goods by sea contract, the plaintiff entrusted the defendant to transport a batch of
flowers which was worth for JPY 10, 023,350 from Shanghai to Nagoya, Japan. The
defendant’s cargo was to arrive at the port of destination on September 11, 2009, but
the goods arrived in Nagoya on 18 September, 2009. The Japanese Maritime

10
No.101 Judgement [2011], First Instance, Tianjin Maritime Court.
11
No.1029 Judgement [2010], First Instance, Shanghai Maritime Court.
Compensation for Cargo Damage in International Maritime Transportation:. . . 215

Verification Association inspected the goods, and concluded that they were a total
loss. The inspection activity generated an inspection fee of JPY 130,505 and waste
disposal fee of JPY 52,500. In order to avoid the exorbitant cost payable for breach
of contract, the plaintiff supplied the same kind of goods to the consignee JP
Company by air transportation four times, which resulted in air freight costs
amounting to CNY 43,352, sea freight of USD 2800 (amounting to CNY
18,865.84 as per CNY and USD exchange rate ratio of 1:6.7378), and the Japanese
customs clearance fee of JPY 1322, 650. The plaintiff claimed the loss of value of
goods and the related costs. The issues in dispute were:
1. whether the plaintiff had the right to sue;
2. the reason for the cargo damage and whether the defendant should be liable for it;
3. whether the plaintiff’s loss was reasonable.
The Shanghai Maritime Court held that the plaintiff was a party to the contract of
carriage. After cargo damage, as the consignee JP Company had transferred the
corresponding rights to the plaintiff, who also suffered actual losses, so in this case, it
had the right to sue. As to the reasons for the loss of goods, the Court concluded that
the plaintiff did not pay reasonable attention to the flower packaging and placing,
and it was one of the reasons that caused the cargo damage. However, the Court
decided that since the defendant was a professional carrier, he should have known
what was the shelf life of the special goods on board. After the vessel reverted due to
machinery malfunction, the defendant should have foreseen that the goods with a
limited date of use was likely to be damaged because of the long voyage schedule.
However, the defendant did not inform the plaintiff about the return of the ship; nor
did he transship the goods in time, which led to the damage. Therefore, the defendant
also was partially liable for the cargo damage. Since it was difficult to distinguish the
ratio of fault between the plaintiff and defendant, each party was to bear half of the
loss. In addition, because of the inspection fees, waste disposal costs, air freight, sea
freight, customs clearance fees, all being related to the loss of cargo, the Court held
that they should also be borne in the proportion of 1:1 under Article 113 of the
Contract Law.

4 Scope of Compensation for Damage to Goods

Under CMC

Article 55 of Chinese Maritime Code stipulates that “the amount of indemnity. . .for
the damage to the goods shall be calculated on the basis of the difference between the
values of the goods before and after the damage, or on the basis of the expenses for
the repair. . .” According to this provision, there are two ways of calculating cargo
damage. If the goods can be repaired, then the amount of damage is the repair costs;
if the goods cannot be repaired, then the amount of damage is the difference between
the value before and after the damage. The actual value of the goods is calculated on
216 L. Han and S. Cai

the basis of the value of CIF after the deduction of the expenses that had been
reduced or avoided as a result of the loss or damage occurred.

4.1 Calculation of Compensation for Damaged Goods

in Judicial Practice

In judicial practice, even if the same provision, namely, Article 55 of the CMC is to
be applied, different Maritime Courts may use different methods to calculate the
amount of damage to the goods. In the case of Senfu Company v. Hachiman Sea
Company and Japan Debao Maritime Co., Ltd.,12 the methods to calculate the
amount of damage to the goods were different in the judgements of the first instance,
second instance and retrial Courts. In this case, the Senfu Company acquired the bill
of lading and became its legitimate holder through endorsements of it. Hachiman Sea
Company was the carrier and Japan Debao Maritime Co., Ltd. was the actual carrier.
The cargo was 1400 tons of chemical phenol, priced at about USD 1530/ton. The
total value of the goods was CNY 14,668,844.40. In transit from the port of Huelva,
Spain to Qingdao, China, there was a change of chromatic aberration of the cargo.
Between October and November 2008, the market price of phenol in China experi-
enced a sharp decline. The plaintiff claimed that the two defendants must bear joint
and several liabilities for damage to the goods. Through analysis of the decisions of
the first instance, second instance, and the retrial courts, the controversial issues in
this case were:
1. whether the change of chromaticity of the phenol in the process of sea transpor-
tation constituted cargo damage;
2. if the goods were damaged, whether the two defendants should bear the liability;
3. how the amount of the cargo damage should be determined.
For first two disputes, the courts held that the change of chromatic aberration of
phenol constituted cargo damage and the two defendants should bear joint and
several liabilities. As to the determination of the amount of losses, methods of
calculation that were adopted by the three courts were very different. The first
instance court, Qingdao Maritime Court took the “cost of repair method” to calculate
the amount of compensation for the damaged cargo. Since there was a sharp decline
of the price of phenol in the domestic market, it held that it was more reasonable to
take the cost of repair which had been calculated by experts, as the standard for
calculating the compensation.
The Shandong Province Higher People’s Court adopted the “direct subtraction
method”. Since there was an expansion of loss in this case, the value of damaged
goods should be the actual value of the goods when it was handled at the port of
destination. The difference of the value of the goods before and after the damage was

12
No.7 Judgement [2013], Civil Division, Shandong Province Higher People’s Court.
Compensation for Cargo Damage in International Maritime Transportation:. . . 217

the loss of the goods. In this case, the plaintiff sold the damaged phenol at the price
of CNY 4270/ton at the port of destination which did not meet the domestic market
price of phenol CNY 4700/ton to CNY 6200/ton, The Court adopted CNY 5000/ton
as the value of the damaged goods, and total value of the damaged goods was thus
CNY 7,000,000. By applying the “direct subtraction method”, namely, the total
value of goods at the port of loading of CNY 14,668,844.4 minus that at the port of
destination equaled the amount of compensation CNY 7,66,884.4.
During the retrial, the Supreme People’s Court adopted the “depreciation rate
method” to calculate the loss of goods. The amount of compensation for the loss of
cargo was the value of the goods in the port of destination minus the value of the
damaged goods, divided by the value of the goods in the port of destination to
calculate the value of the depreciation of the goods. Finally, the depreciation rate was
multiplied by the actual value of the goods in the port of loading and other related
expenses. The Court held that the shipping time was relatively long, and the value of
the goods was vulnerable to fluctuations of the market. Notably, the actual value
calculation method which has been stipulated in Article 55 of the CMC excluded the
loss of market value. Such method is in line with the principles of causation and
reasonable foreseeability for breach of contact. Moreover, the market price of phenol
involved did not fall into the scope of the loss or damage of goods under the CMC;
thus, the carrier was not liable for loss of market value.
The opinion of the present authors is that for the irreparable damage of goods, the
“depreciation rate method” adopted by the Supreme People’s Court is most reason-
able. They also believe that the calculation method stipulated in Article 55 of the
CMC is proper and objective, that is, the actual value of the goods calculated on the
basis of the CIF value, without regard to any relevant economic losses, such as loss
of market value, loss of liquidated damage or loss of use value. If the direct
subtraction method is used, it cannot eliminate the loss of market value because of
taking the reasonable value of the goods at the port of destination as the value of the
damaged goods. On the contrary, the depreciation rate method can be used to avoid
the intervention of the market volatility effectively, and it is in line with the pro-
visions of Article 55.

4.2 Maritime Courts’ Different Standards for Determining

Value of Goods at Time of Loading

Local maritime courts calculate the amount of cargo damage according to CIF value,
based on the actual value of the goods at the time of loading. The actual value can be
identified in different ways according to various specific circumstances. In some
cases, the actual value is based on the price in the contract of sale. For example, in
Heilongjiang Agricultural and Grain Economic and Trade Limited Liability
218 L. Han and S. Cai

Company v. the Singapore Deli Gao Pat Co., Ltd.,13 a cargo damage dispute arose
from a contract of carriage of goods by sea. The plaintiff entrusted Zhonggu Grain
and Oil Group Co., Ltd. (the Company) to import palm oil. The Company and
Fengtai Group signed a contract for the sale of goods and the defendant transported
palm oil from Malaysia’s Pasir Gudang port to Huangpu. The plaintiff found that
there was a shortage of the goods and the goods were polluted by seawater at the port
of discharge. The plaintiff asked the defendant to compensate the loss. The plaintiff
claimed that the true value of the goods should be determined according to the price
of the contract which was signed by the plaintiff and the third party. However, the
court did not support the claim. Instead, it adopted the price of the contract which
was signed by the Company and Fengtai Group.
Some courts ascertain the value of the goods according to the payment made by
the plaintiff at the time of shipment. For example, in the retrial case of Chaozhou
Light Industrial Products Import and Export Companies v. Shekou Wantong Freight
Forwarders & Others which dealt with compensation for cargo damage occurring in
maritime transport,14 the Guangdong Province Higher People’s Court held that the
plaintiff Chaozhou Company’s economic losses should be ascertained according to
the actual value of the goods, vis-à-vis, the value of goods at the time of loading plus
insurance and freight. But the plaintiff did not pay the insurance premium for the
goods, nor did it propose a loss of freight. Thus, the loss should be determined
according to the payment of goods made by Chaozhou Company to the third-party
Chaozhou City Jinan Ceramics Co., Ltd.
In addition, the value of the goods can also be ascertained by the courts according
to customs declaration forms. For example, in Zhejiang Tianlong Textile Co., Ltd. v.
Korea Cruise Co., Ltd.,15 a maritime cargo transportation contract dispute case,
between February to June 2002, the plaintiff entrusted the defendant to ship cargos
from Shanghai to Mexico 7 times. The defendant issued 7 sets of bills of lading to
“Sun Ocean Express Co.” On August 23, 2002, the plaintiff asked the defendant to
return the goods to Shanghai, and the defendant agreed to take the goods on
condition that the 7 sets of bills of lading be withdrawn, but the goods were never
returned to Shanghai. After the plaintiff and its foreign trade agent Shaoxing
Tianlong Import and Export Co., Ltd. (“Tianlong Company”) repeatedly urged the
defendant, the defendant still refused to inform the plaintiff of the exact whereabouts
of the goods. Until the trial, the defendant still had not delivered the goods, so the
court presumed a total loss of the goods. Regarding the value of the goods involved,
the plaintiff provided customs declarations and commercial invoices, but the stated
values of goods on these two documents were inconsistent.

13
Heilongjiang Agricultural and Grain Economic and Trade Limited Liability Company v. the
Singapore Deli Gao Pat Co., Ltd.’ http://www.pkulaw.cn/case/pfnl_1970324837796384.html?
keywords¼%E5%9B%BD%E9%99%85%E6%B5%B7%E4%B8%8A%E8%B4%A7%E7%89%
A9%E8%BF%90%E8%BE%93%20CIF&match¼Exact, Accessed 5 September 2017.
14
No.61 Judgement [2002], Second Instance, Guangdong Province Higher People’s Court.
15
No.220 Judgement [2003], First Instance, Shanghai Maritime Court.
Compensation for Cargo Damage in International Maritime Transportation:. . . 219

The Shanghai Maritime Court held that the commercial invoice could not prove
the actual loss of the goods. This was because firstly, the commercial invoice was
unilaterally listed by the plaintiff and secondly, parties to the trade contract had not
actually reached a deal on the commercial invoice price. The record of the value of
the goods in the customs declaration had been expressly stated in both the transit
contract and the sale contract. In addition, it had been reviewed by the relevant state
authorities. Thus, it was more reasonable to take the price in the customs declaration
form as the value for the loss of the goods. Similarly, In Shanghai Chang Ying
Industrial Co., Ltd. v. Pacific International Lines (Pte) Ltd,16 the Shanghai Maritime
Court also took the CIF value in the customs declaration form to determine the
amount of cargo damage compensation.

4.3 Defects in Article 55 of CMC: Use of Value at Loading

Port for Calculation of Amount of Loss of Goods

Compared with Article 4, paragraph 5 (b),17 of the Hague-Visby Rules18 and Article
22(1),19 of the Rotterdam Rules,20 under both of which the value of cargo is
calculated according to the price at the port of discharge or the place of delivery,
the Chinese Maritime Code ascertains the value of the goods by referring to the price
at the port of loading. In international trade, the consignee usually makes use of the
goods at the place of delivery, including reselling the goods. Therefore, the value at
the place of delivery better reflects the interests of the consignee. Taking the value at
the place of delivery or discharge can make up losses which have been suffered by
shippers and consignees such as the loss of the goods themselves, or loss of market
value caused by damage or delay in delivery of the goods. The CMC provides less
protection to shippers and consignees, since under the Code, the value of the goods is
its CIF value; and it cannot compensate for any economic losses. Furthermore, if the
price of the goods at the place of discharge or the place of delivery is lower than the
price at the place of loading, the carrier will bear the adverse consequences of the

16
No.1159 Judgement [2014], First Instance, Shanghai Maritime Court.
17
Hague-Visby Rules Art. 4(5)(b): The total amount recoverable shall be calculated by reference to
the value of such goods at the place and time at which the goods are discharged from the ship in
accordance with the contract or should have been so discharged. The value of the goods shall be
fixed according to the commodity exchange price, or, if there be no such price, according to the
current market price, or, if there be no commodity exchange price or current market price, by
reference to the normal value of goods of the same kind and quality.
18
1412 UNTS 127.
19
Rotterdam Rules Art. 22 para1: Subject to Article 59, the compensation payable by the carrier for
loss of or damage to the goods is calculated by reference to the value of such goods at the place and
time of delivery established in accordance with Article 43.
20
A/RES/63/122; www.uncitral.org/pdf/english/texts/transport/rotterdam_rules/Rotterdam-Rules-
E.pdf.
220 L. Han and S. Cai

shipper’s and the consignee’s wrong judgment on the market situation thus violating
the principle of fairness.
In Trans-sea Shipping Company v. China Insurance Property Insurance Co.,
Ltd.,21 Zhanjiang Food Company of Guangdong Province (Zhanjiang Food Com-
pany) and Lei Ming Company entered into a sales contract, under which Lei Ming
Company sold 12,000 tons of bulk Indian plate-like soybean meal to Zhanjiang Food
Company. The price was USD 277/ton, C & FFO Zhanjiang, China; payment
method for the buyer was to open a 100% loan irrevocable letter of credit which
was acceptable by the seller. The parties to the contract modified the price to USD
261/ton by signing a confirmation letter. Lucky Sea Company was the carrier of the
goods and Trans-sea Shipping Company was the actual carrier. Zhanjiang Food
Company found that the cargo was damaged and short landed at the port of
discharge. PICC, the Property Insurance Company provided indemnification in
accordance with the insurance contract, and acquired subrogation rights. The cost
of the goods in this case plus freight was USD 261/ton in total was CNY 2166.3/ton
in accordance with the exchange rate of USD 1 equal to CNY 8.3 denominated by
the parties.
The court obtained the insurance proceeds of CNY 16.68/ton of the goods
according to the records in the insurance contract. Thus, the insured goods were of
11,328.3 tons and the total insurance proceeds were in the amount of CNY
11961.82. In this way, the actual value of the goods was CNY 2182.98/ton.
However, the value of goods of the same kind at that time did not exceed CNY
1850/ton. In such case, since Article 55 of the CMC stipulates that the value of the
cargo damage shall be calculated at the value of the goods at the time of shipment, if
the price at the port of destination falls, the carrier bore the market forecast loss for
the mistake. This is unfair to the carrier and has a negative impact on the maritime
transport business.

5 Limitation of Carriers’ Liability for Loss of or Damage

to Goods

Article 56 of the CMC stipulates the system of limitation of carriers’ liability. It

provides that:
Carriers’ liability for the loss of or damage to the goods shall be limited to an amount
equivalent to 666.67 Units of Account per package or other shipping unit, or 2 Units of
Account per kilogram of the gross weight of the goods lost or damaged, whichever is the
higher, except where the nature and value of the goods had been declared by the shipper
before shipment and inserted in the bill of lading, or where a higher amount than the amount
of limitation of liability set out in this Article had been agreed upon between the carrier and
the shipper. Where a container, pallet or similar articles of transport are used to consolidate
goods, the number of packages or other shipping units enumerated in the bill of lading as

21
No.80 Judgement [2001], Second Instance, Guangdong Province Higher People’s Court.
Compensation for Cargo Damage in International Maritime Transportation:. . . 221

packed in such article of transport shall be deemed to be the number of packages or shipping
units. If not so enumerated, the goods in such article of transport shall be deemed to be one
package or one shipping unit. Where the article of transport is not owned or furnished by the
carrier, such article of transport shall be deemed to be one package or one shipping unit.

Although China is not a party to any of the international conventions on carriage

of goods by sea, the provisions of this article on the limits of the carrier’s liability are
the same as those in the 1979 SDR Protocol to the Hague-Visby Rules. In practice,
local courts can accurately apply Article 56 of the CMC to calculate the carrier’s “per
unit limit of liability” to provide a reasonable explanation of Article 56 in conjunc-
tion with relevant international conventions such as Hague Rules and Hamburg
Rules to resolve the parties’ different estimations and understanding of the number
of packages of the goods under Article 56.
In Anlian Property Insurance (China) Co., Ltd. v. Shanghai (Shanghai) Interna-
tional Freight Co., Ltd. & other companies,22 a contract for the carriage of goods by
sea case, the assured of the plaintiff’s assured Shanghai Electric Alstom Baoshan
Transformer Co., Ltd. (“Shanghai Alstom”) and the defendants had signed a con-
tract, under which defendants were to transport the transformer and related equip-
ment under the PH314-01 rev00 project. On January 25, 2013, the defendant, the
Youxisi Company, issued a full set of clean bills of lading identifying port of
shipment as Shanghai, China, and the port of destination as Long Beach, USA, on
behalf of the defendant El Porter Company (both for multimodal transport opera-
tors). The defendant Zhongbo Qiankun Company was the owner of the ship
involved. After the goods arrived at the port of destination, the assured was informed
by the defendant that the surfaces of five wooden boxes loaded with spare parts had
been seriously damaged during transportation.
The plaintiff compensated the assured and acquired subrogation rights according
to law. When dealing with the defendant’s limitation of liability issue, the plaintiff
considered that the quantity of the goods specified in Article 56 of the CMC should
be the number of pieces of goods clearly stated on the bill of lading, and the gross
weight of the goods should mean the total weight of the whole lot, including the
weight of the package. The Court, in consonance with the Hague Rules and
Hamburg Rules, explained that Article 56 should be applied based on gross weight
or number of other cargo units of damaged goods, other than the total or gross weight
of the whole goods, and compared the limits of liability calculated under Article
56 to determine the amount of cargo damage.
Article 59 of the CMC sets out the conditions for the limitation of liability rights
in the following words:
the carrier shall not be entitled to the benefit of the limitation of liability provided for in
Article 56 or 57 of this Code if it is proved that the loss, damage or delay in delivery of the
goods resulted from an act or omission of the carrier done with the intent to cause such loss,
damage or delay or recklessly and with knowledge that such loss, damage or delay would
probably result.

22
No.361 Judgement [2014], First Instance, Shanghai Maritime Court.
222 L. Han and S. Cai

This provision is in line with Article 9 (e) of the 1979 Protocol to the Hague-
Visby Rules, Article 8(1) of the Hamburg Rules23 of 1978, and Article 61(1) of the
Rotterdam Rules of 2008.

6 Compensation When Carrier Delivers Goods Without

Presenting Bill of Lading

Article 71 of the CMC stipulates the definition of the bill of lading, in the following
words:
A bill of lading is a document which serves as evidence of the contract of carriage of goods
by sea and the taking over or loading of the goods by the carrier, and based on which the
carrier undertakes to deliver the goods against surrendering the same. . .

A provision in the document stating that the goods are to be delivered to the order
of a named person, or to order, or to bearer, constitutes such an undertaking.
Although the CMC does not clearly stipulate that the carrier must deliver the
goods with presentation of the bill of lading, it has become a principle and common
practice in international shipping due to the delivery certificate function of the bill of
lading. In order to meet the needs of China’s maritime judicial practice, on February
16, 2009, “[T]he Provisions of the Supreme People’s Court on Certain Issues
Concerning the Application of Law to the Trial of Cases Involving Delivery of
Goods without Original Bills of Lading (2009)” (“Provisions on Delivery of Goods
without the Bill of Lading”) was promulgated.
Article 2 stipulates—“Where a carrier, in violation of laws, delivers goods
without the original bill of lading (B/L), thus injuring the original B/L holder’s
rights under the B/L, the original B/L holder may request the carrier to bear the civil
liability for the resultant loss”. Prior to the issue of this provision, Chinese academics
had different viewpoints on the meaning of “delivery of goods without the bill of
lading”. China’s foremost maritime law expert Professor Si Yuzhuo pointed out in
his book “Monographs on Maritime Law” that “delivery of goods without bill of
lading means the carrier, the actual carrier or its agent, the employee did not take
back the original bill of lading and deliver the goods so that they cannot deliver the
goods to the lawful holder of the bill of lading”.24 There are also scholars who have
defined this as, “delivery of goods without bill of lading refers to the carrier or its
agent delivers the goods without presenting the bill of lading.”25 Others have pointed
out the purpose and consequences of delivery of goods without presenting the bill of
lading.26

23
1695 UNTS 3.
24
Si (2006), p. 35.
25
Han (2006), p. 35.
26
Kong (2001), p. 59.
Compensation for Cargo Damage in International Maritime Transportation:. . . 223

At present, in China’s maritime judicial practice, cases of claims for loss of

delivery of goods without bill of lading are very similar. Usually, the carrier
would have delivered the goods without presenting the original bill of lading to
the consignee at the port of destination, but the shipper in China would not have
received payment for the goods, and could claim for the payment made to the carrier
according to the original bill of lading. Article 6 of the Provisions on Delivery of
Goods without the Bill of Lading provides that “The amount of compensation for the
loss caused by a carrier to the holder of an original B/L due to delivery of goods
without the original B/L shall be calculated based on the value of the goods plus
freight and insurance expenses when the goods are shipped.” This provision is
consistent with Article 55 of the CMC.
In Dongguan City Baojian Paper Co., Ltd. v. Xiamen Kangjie Shun Logistics
Co., Ltd. & other which involved the release of goods without presenting the original
bill of lading,27 the plaintiff had entrusted the defendant with transporting paper
towels, from Yantian port to Miami, USA. The defendant delivered the goods
without the original bill of lading at the port of destination, and as a result, the
plaintiff did not receive the payment. The court, based upon Article 113 of the
Contract Law and Article 55 of the CMC determined the defendant’s compensation
for the loss of the plaintiff’s goods and the interest calculated on the date of payment
determined by the judgment of People’s Bank of China at the same time.
It is noteworthy that Article 4 of the Provisions on Delivery of Goods without the
Bill of Lading stipulates that the carrier’s civil liability for the delivery of goods
without presentation of bill of lading shall not be limited according to Article 56 of
the CMC. Of course, while the Provisions on Delivery of Goods without the Bill of
Lading affirms the obligations and liability of the carrier to deliver the goods with the
original bill of lading, it draws on the Rotterdam Rules, in providing the exceptions
to the carrier’s liability in Articles 7 to 10. They are as follows:
1. If a carrier is obligated, according to the provisions of the laws of the place where
the port of discharge is located stated in the bill of lading, to deliver the goods
arrived at the port of discharge to the local authority in charge of customs or port,
the carrier shall not bear the civil liability for delivery of goods without any
original bill of lading (Article 7);
2. In the case no customs declaration is made for the goods that have arrived at the
port of discharge within the time limit specified by laws and the relevant customs
collects the goods and sells them legally, or the relevant court renders a decision,
in accordance with law, to sell the goods left by the carrier, if the carrier alleges
the exemption from liability for delivery of goods, the people’s court shall uphold
such allegation (Article 8);
3. Where a carrier, according to the requirements by the consignor of a straight B/L,
suspends the shipment, returns the goods, changes the port of destination or
delivers the goods to other consignees, if the consignee who holds the straight

27
No.292 Judgement [2008], First Instance, Guangzhou Maritime Court.
224 L. Han and S. Cai

B/L requests the carrier to bear the civil liability for delivery of goods without the
original bill of lading, the people’s court shall not uphold such request(Article 9);
4. Where a carrier issues an original B/L in multiple copies, after the carrier delivers
the goods to the person who first submits the original B/L, if other persons who
hold the same original B/L request the carrier to bear the civil liability for delivery
of goods without the original B/L, the people’s court shall not uphold such
request (Article 10).

7 Conclusion

In summary, to a certain extent, there remain several unresolved questions in the

CMC, relevant legal provisions and judicial interpretation. The authors are of the
view that in the field of the scope of compensation for cargo loss or damage in
international maritime transportation, the CMC should be appropriately amended to
adopt the “principle of the price of destination” and definitively state the relationship
between Article 55 of the CMC and Article 113 of the Contract Law and other
relevant legislation.
On November 2, 2018, the Ministry of Transport published the new Draft
Chinese Maritime Code for consultation, changing the method to calculate the
value of goods in the circumstance of loss of or damage to goods. It provides that
the value of the goods shall be the value of the goods at the place of delivery or at the
time they should be delivered. The value shall be ascertained according to the
Commodity Exchange price; where there is no Commodity Exchange price, it
shall be determined according to the market price. Where there is no Commodity
Exchange price or market price, it shall be determined by reference to the usual value
of goods of the same kind and quality, which adopts the “principle of the price of
destination”.
In the case of delivery of goods without presentation of the original bill of lading,
more thorough research is required on relevant innovative provisions, such as under
the Rotterdam Rules,28 and determine whether to transplant the new provisions into
existing Chinese legislation or adopt new legislation. The maritime transport indus-
try is perhaps the most internationalized industry. Thus, relevant provisions dealing
with contracts of carriage of goods by sea under the CMC should be modified to
make them consistent and compatible with relevant international conventions. This
will help to reduce conflicts in international shipping and overcome commercial
obstacles. Reasonable and rational choices should be made by reference to relevant
and useful international conventions on maritime transportation, always giving due
regard to China’s national interests in shipping, trade and commerce.

28
Rotterdam Rules 2008 Art. 45–47. Articles 45, 46 and 47 stipulate the delivery of goods under
non-negotiable transport documents and negotiable transport documents.
Compensation for Cargo Damage in International Maritime Transportation:. . . 225

References

Briefing on Maritime Trials of Guangzhou Maritime Court in 2017, http://www.gzhsfy.gov.cn/

uploadfile/files/2018/20180902/1809021115168812906.pdf. Accessed 27 Nov 2018
Briefing on Maritime Trials of Qingdao Maritime Court in 2017, http://qdhsfy.sdcourt.gov.cn/
qdhsfy/resource/cms/2018/08/2018083009224762991.pdf. Accessed 27 Nov 2018
Han L (2006) Research on legal problems of delivery of goods without presenting the bill of lading.
Law Press
Judicial Statistical Analysis of Shanghai Maritime Court in 2017, http://shhsfy.gov.cn/hsfyytwx/
hsfyytwx/spdy1358/sftj1472/2018/03/02/2c93809961e759bb0161e79a3f880121.html.
Accessed 27 Nov 2018
Kong Q (2001) On the conditions of carrier’s delivery of goods without Bill of Lading. In:
Collection of Papers of Chinese Lawyers at Maritime Seminar, 2001. Law Press, p 59
Protocol to Amend the International Convention for the Unification of Certain Rules of Law
Relating to Bills of Lading (Hague-Visby Rules), 1412 UNTS 127.
Report on Zhejiang Maritime Trial in 2017, http://www.nbhsfy.cn/court/NeiRead.aspx?id¼6908.
Accessed 27 Nov 2018
Si Y (2006) Monograph on maritime law. Dalian Maritime University Press, p 35
United Nations Convention on the Carriage of Goods by Sea (Hamburg Rules), 1695 UNTS 3
United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly
by Sea (Rotterdam Rules) A/RES/63/122
Wang M (2017) The maritime law: large-scale report on the contract of carriage of goods by sea,
focus on the core issue!. Shanghai Goodwell Law Firm. http://mp.weixin.qq.com/s/
hk5SzPRKt4d2So02cxRbxA. Accessed 5 Sept 2017

Cases

Heilongjiang Agricultural and Grain Economic and Trade Limited Liability Company v. Singapore
Deli Gao Pat Co. Ltd., http://www.pkulaw.cn/case/pfnl_1970324837796384.html?keywords¼
%E5%9B%BD%E9%99%85%E6%B5%B7%E4%B8%8A%E8%B4%A7%E7%89%A9%
E8%BF%90%E8%BE%93%20CIF&match¼Exact. Accessed 5 Sept 2017
No.014 Judgement [2003], First Instance, Xiamen Maritime Court
No.218 Judgement [2000], First Instance, Ningbo Maritime Court
No.101 Judgement [2011], First Instance, Tianjin Maritime Court
No.1029 Judgement [2010], First Instance, Shanghai Maritime Court
No.7 Judgement [2013], Civil Division, Shandong Province Higher People’s Court
No.61 Judgement [2002], Second Instance, Guangdong Province Higher People’s Court
No.220 Judgement [2003], First Instance, Shanghai Maritime Court
No.1159 Judgement [2014], First Instance, Shanghai Maritime Court
No.80 Judgement [2001], Second Instance, Guangdong Province Higher People’s Court
No.361 Judgement [2014], First Instance, Shanghai Maritime Court
No. 292 Judgement [2008], First Instance, Guangzhou Maritime Court
Innocent Passage Under UNCLOS: An
Exploration of the Tenets, Trials,
and Tribulations

Anish Hebbar

Abstract The right of innocent passage in territorial waters available to ships of any
State is, perhaps, among the most contested of the regimes under the United Nations
Convention on the Law of the Sea, 1982 with possibly the widest range of interpre-
tation and implementation and an abundant inconsistency between theory and State
practice. This chapter explores the varied tenets and facets of the regime of innocent
passage and along the way, also examines the multifarious trials and tribulations to
which the regime is subjected around the globe.

1 Introduction

It would be no overstatement to say that the right of innocent passage in territorial

waters is, perhaps, among the most contested of the regimes under the United
Nations Convention on the Law of the Sea, 1982 with possibly the widest range of
interpretation and implementation and an abundant inconsistency between theory
and State practice. Indeed, the right of innocent passage lies at the intersection of the
two diametrically opposite theories of mare liberum1 and mare clausum2 and
represents an outcome of an eventual compromise between the two competing
theories3 first recognized in the 1958 Convention on Territorial Sea and Contiguous

1
Mare liberum which literally means ‘The Free Sea’ is the principle that the seas are international
territory and all nations are free to use it for seafaring trade. It was published in 1609 by the Dutch
jurist and philosopher Hugo Grotius.
2
Mare clausum is John Selden’s rebuttal to Hugo Grotius’ ‘Mare liberum’ and argues that a sea,
ocean or other navigable body of water is under an exclusive jurisdiction of a State and closed or
inaccessible to other States.
3
Hakapää (2013).

A. Hebbar (*)
World Maritime University, Malmö, Sweden
e-mail: AH@WMU.SE

© Springer Nature Switzerland AG 2020 227

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_12
228 A. Hebbar

Zone4 and, thereafter, transcribed in the Law of the Sea Convention done in 1982.5
The fact that the principle emerged, so to say, as a consequence of the evolution over
time in the concept of the territorial sea,6 from originally being an area construed or
rather assimilated to be the property of the coastal State with consequential freedom
to exclude nationals and vessels of any other State into a jurisdictional area with
attendant right of innocent passage to all ships of all States only adds to the
contestation. If for centuries, nations have conceded that “every Prince, [whose]
Country adjoyns to the Sea. . . has [some] portion of the Sea belonging to him in
property, as an [accession] of the Land, or appendant to it, or rather incorporated
with it, like Veins and Arteries, integral parts of the [same] Body,”7 it is quite natural
that some coastal States continue to admit it as an unavoidable limitation to coastal
State competence even to this day while modern day maritime States cherish it as
one of the cornerstones of the law of the sea.
For the purposes of providing an overview, it must be stated that UNCLOS
devotes an entire section (Part II, Section 3) to innocent passage in the territorial
sea. Apart from laying down rules applicable to all ships (Sub-section A; articles
17–26), it provides for specific rules applicable to merchant ships and government
ships operated for commercial purposes (Sub-section B; articles 27 and 28) and, to
warships and other government ships operated for non-commercial purposes
(Sub-section C; articles 29–32).8
However, when it comes to giving effect to the provisions of the Law of the Sea
Convention, the right of innocent passage is found to be incorporated in national
legislation in at least four different ways. One group of States have simply
reproduced the relevant articles of the 1982 Convention together with the list of
‘activities’ in Article 19(2), although with some variation. Another set of States have
chosen to incorporate only the definition of the right of innocent passage but not the
list of activities, apparently following upon the older 1958 Convention. A third set of
States have simply recognized the right of innocent passage, emphasizing in some
cases on its interpretation in conformity with the 1982 Convention. Then there is a
fourth group of States that implicitly recognize the right of innocent passage in
various ways.9

4
U.N.T.S. Vol. 516, p. 205. 29 April 1958.
5
U.N.T.S. Vol. 1833-A-31363.
6
Some scholars suggest that the early roots of the concept of innocent passage may also be traced to
the writings of St. Augustine, “transitus innoxius . . . quijure humanae societatis aequissimo patere
debebat” which, if translated from the Latin reads, “innocent passage . . . that according to the law
of the human society had to be left open in a highly equitable manner”.
7
IR Philip Medows, Observations concerning the dominion and sovereignty of the seas: Being an
abstract of the marine affairs of England 42 (Bell & Howell Micro Photo Division, 1970) (1689)
cited in Agyebeng (2006), pp. 377–378.
8
U.N.T.S. Vol. 1833-A-31363.
9
Hakapää and Molenaar (1999), pp. 131–145.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 229

On the one hand a Coastal State has the duty not to impair movement of vessels in
its territorial waters under UNCLOS10 and at the same time, on the other hand, ships
are expected not to engage in activities that are prejudicial to the peace, good order
and security of a State.11 But, if we are to couple the lack of uniformity and wide
variation in implementation together with the emerging trends and methods of
gradually chipping away at this valuable right, it is perhaps an opportune time to
introspect where and in which direction are these creeping jurisdictions headed and,
whether there will be a point in time, in the future when the Right of Innocent
Passage12 will be a notion that would effectively be ultimately set to R.I.P.
Innocent passage is a mature subject, discussed in several scholarly texts and
journal articles over the years. While most writings focus on one or several aspects of
the right of innocent passage, this chapter is an attempt to provide a comprehensive
and well-rounded overview, exclusively devoted to innocent passage. In the process
of doing so, it emerged that the tenets of the regime of innocent passage and the trials
and tribulations to which it is subjected could broadly be classified into six themes
or, dimensions—action, temporal, spatial, cargo, social and inherent wherein, the
spatial dimension further comprises economic, safety and environmental factors and,
the cargo dimension includes health, safety, environment and security factors, as
illustrated in Fig. 1.
This perspective and rather new understanding of innocent passage is perhaps the
highlight of this chapter’s contribution to the existing body of literature on innocent
passage. We now proceed to examine in-depth, how the right of innocent passage is
impacted in each of the different dimensions, illustrating wherever possible with
practical examples of State practice.

2 Socio-Cultural Perspectives

The Law of the Sea Convention does distinguish between freedom of navigation on
the high seas13 and transit through international straits14 and, the rights of innocent
passage and navigation in territorial waters15 and archipelagic waters16 and sea
lanes.17 However, there is an interesting socio-cultural perspective put forth by
Sam Bateman18 to explain the sensitivity of coastal States when it comes to the

10
UNCLOS Article 24, Duties of Coastal State, p. 33.
11
UNCLOS Article 19, Meaning of innocent passage, p. 31.
12
UNCLOS Article 17, Right of innocent passage, p. 30.
13
UNCLOS Article 87, Freedom of the High Seas, p. 57.
14
UNCLOS Article 38, Right of transit passage, p. 37.
15
UNCLOS Article 17, Right of innocent passage, p. 30.
16
UNCLOS Article 52, Right of innocent passage, p. 42.
17
UNCLOS Article 53, Right of archipelagic sea-lanes passage, pp. 42–43.
18
Bateman (2005), pp. 57–66.
230 A. Hebbar

Action

Temporal

Spatial EFFECT OF
IMPEDING
OR
PASSAGE THROUGH PASSAGE
TERRITORIAL WATERS LIKELY
TO BE
TREATED
Cargo NOT-
INNOCENT

Social

Inherent

Fig. 1 The six dimensions of impingement on right of innocent passage

exercise of right of innocent passage. Bateman argues that the difference between a
‘freedom’ and a ‘right’ may be marginal in English but is discernible when translated
into Bahasa Indonesia. In Bahasa, a ‘freedom’ is a kebebasan, and a ‘right’ is a hak.
Whereas a kebebasan is absolutely free, a hak invariably has this connotation of a
favour being granted wherein one who grants the favour retains the right to set forth
the conditions on the favour. This underlying understanding of right as hak is
possibly one of the reasons behind a State such as Indonesia’s high sensitivity to
the regime of innocent passage.
There is also the possibility of differences in understanding of the breadth of the
territorial seas, particularly in the case of an archipelagic State which is entitled to
draw straight baselines19 (e.g. Indonesia) and in the case of international straits
within territorial seas20 (e.g. Iran and the Strait of Hormuz).
In the former case, between December 2013 and January 2014, several Royal
Australian Navy and Australian Customs vessels entered Indonesian territorial
waters in connection with Operation Sovereign Borders apparently owing to a

19
UNCLOS Article 47, Archipelagic baselines, pp. 40–41.
20
UNCLOS Part III, Straits used for International Navigation, Section 2, Transit Passage,
pp. 36–39.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 231

difference in appreciation of Indonesia’s straight archipelagic baselines.21 Australia

was severely embarrassed and had to formally apologise for these breaches.22
As regards the latter case, Iran’s run-in every once in a while, with warships
(especially U.S. warships) and even merchant vessels, stems from a difference in
perception of rights and freedoms related to territorial seas and international straits
used for navigation. Iran’s detention of the Marshall Islands-flagged m.v. Maersk
Tigris on 28 April 2015 while transiting the Strait of Hormuz, claiming that the
vessel had violated its territorial waters, put to test the right of transit passage through
straits used for international navigation as also the right of innocent passage in
territorial waters. Even Iran’s subsequent disclosure that the vessel was seized
over a court order requiring payment of US$ 3.6 Million by Maersk Line in damages
to Iranian firm Pars Oil Products Taliyich, the company chartering the m.v. Maersk
Tigris over cargo that was allegedly not delivered,23 does not alter the breach of
obligations under UNCLOS.24
If we are to move away from the Persian Gulf in the northern Indian Ocean
towards the Pacific Ocean, the Japanese legal system regarding innocent passage by
foreign vessels as described by Atsuko Kanehara25 makes for an equally interesting
case. The Japan Coast Guard (JCG) is established for the purposes of among other
tasks preventing, detecting and suppressing violations of law at sea. Enforcement of
laws and regulations at sea, prevention and suppression of crimes at sea, detection
and arrest of criminals at sea comprises part of its main duties. It is the considered
view of the JCG that the Law of the Sea Convention provides a substantive basis for
deciding on “innocence” according to which the agency exercises executive juris-
diction against non-innocent passage of foreign vessels in the territorial sea.
We share Kanehara’s critical views on the Japanese approach emanating from the
White Paper of the Maritime Safety Agency, 1997 which are still valid and prevail to
this day. The paper states that guarding of the territorial sea is required for ensuring
Japanese sovereignty in the territorial sea against the activities of a foreign country
which are prejudicial to the peace, good order or security of Japan. This statement is
perfectly fine. It further adds that territorial sea guarding is a police activity aimed at
surveillance and control of non-innocent passage, and of malfeasance by foreign
vessels in the territorial sea which is also fine. However, these White Papers
consistently juxtapose an “illegal act” and “a non-innocent passage.” “Vessels

21
As an archipelagic State, Indonesia is entitled to draw straight baselines connecting the outermost
points of its archipelago, provided certain criteria are met. While the territorial sea normally extends
12 nautical miles from land, if straight baselines are used it can extend much further—a ship can be
well beyond 12 nautical miles from land and still be within the territorial sea of Indonesia (Bateman
2015, p. 61).
22
Wroe and Bachelard (2014).
23
Al Jazeera (2015, May 7), BBC news (2015, May 7).
24
UNLCOS Article 44 prohibits the hampering or suspension of transit passage by coastal nations.
25
Kanehara (1999), pp. 90–110.
232 A. Hebbar

which act in a suspicious manner” and “vessels which enter the territorial sea without
good reason” are also used in distinction to “an illegal act.”
More critically, what is of concern is the addition of the duty “to maintain the
public order” to the specified list of duties of the JCG while concurrently
empowering the JCG Officer to take specified preventive measures if a crime is
about to be committed, or if there are apprehensions about risk to lives, bodies and
property. Of greater concern are the newly prescribed powers to take preventive
measures based on appearances or manner of passage of a vessel which gives the
impression that a crime will be committed, or apprehensions that public order may
be seriously disturbed.26

3 Res Ipsa Loquitur

There would be no contesting the res ipsa loquitur27 case of a vessel having indulged
in an activity that is clearly prejudicial to the peace, good order and security of a
coastal State as specified in Article 19 of UNCLOS. Interpretations, however, tend to
be subjective. The United States for example, holds that the list specifying 12 types
of activities is exclusive whereas, several other coastal States tend to weigh in on the
last provision of “any other activity not having a direct bearing on the passage,” to

26
Article 18 of the Japan Coast Guard Law reads as follows:
1. 18(1) When a crime is about to be committed, or when there exist dangerous situations, such as a
natural calamity, a disturbance, destruction of construction, explosion of dangerous substances,
a Maritime Safety officer can take the following measures on the condition that there are
apprehensions about risk to lives or bodies, or about serious damage to property, and that it is
an emergency, in addition to the measures prescribed in other laws and regulations.
(a) Order a vessel to start or stop, or prevent its departure;
(b) Order a vessel to change its course, or bring a vessel to a designated port;
(c) Order the landing of the crew, passengers and those who are in the vessel, or prohibit or
restrict their landing;
(d) Order unloading, or prohibit or restrict unloading;
(e) Prohibit or restrict communication with the land or another vessel;
(f) Take restraining measures, in addition to the measures prescribed above in this paragraph,
when there are apprehensions about risk to lives or bodies, or about serious damage to property.
2. (2) A Japan Coast Guard officer can take the measures prescribed above in sub-paragraph (a) and
(b) in paragraph 1 of this Article on the condition that there are no other appropriate measures,
when judging from the appearance of a vessel, the manner of navigation and abnormal behavior
of the crew, passengers and others on the vessel, and other circumstances, it is reasonably
expected that a crime is clearly about to be committed or that there is apprehension about a
serious disturbance to public order.
Source: Law No. 75 of 1996.
27
Res ipsa loquitur n. Latin for “the thing speaks for itself”.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 233

argue that the article allows sufficient latitude to make own interpretations as to what
renders a passage not-innocent.28
A ship in need of assistance is a good starting point for a discussion on innocent
passage. It was customary for ships including foreign ships, to seek and be granted
shelter or refuge in ports, and also to take such shelter in the territorial sea or, in
roadsteads, straits, bays, river-mouths, lakes, rivers, canals, and even in ports closed
to foreign commerce and military ports, until the state of distress is over. A question
here would be whether or not an occurrence of stopping or anchoring due to force
majeure distress while a vessel traverses the territorial seas of a coastal State is
incidental to the innocent passage and integral to the meaning of innocent passage?
And, if so, why the refusal, or even the possibility of a refusal of access to a place of
refuge?29 If we are to go by the 1995 ruling of learned Justice Barr J. of the Irish
High Court of Admiralty in the m.v. Toledo30 case, as per the evolving modern
practice, States clearly make a distinction between the “humanitarian” and “eco-
nomic” aspects of distress and refusing entry to foreign ships in distress in the
territorial waters of States in which access is sought appears to be the norm rather
than the exception, especially where risk to cargo is purely economic or, in other
words, where property is in danger. Judge Barr went on to categorically reaffirm that
access to place of refuge is not an absolute right,31 until member States came
together consequent to the famous troika of incidents32—here we are referring to
the Erika, the Castor and the Prestige—and adopted guidelines at the IMO in 200333
stating that while there is no obligation on a coastal State to grant refuge, it should
nevertheless weigh all factors and risks in a balanced manner and give shelter
whenever reasonably practicable. Again, the question here would be, what if the
coastal State decides that it is not reasonably practicable? In any case, with the
exception of the EU member States that are mandated34 to grant a place of refuge,

28
Agyebeng (2006), pp. 371–399.
29
See Eric van Hooydonk (2003), pp. 403–445 for a review of four very contrasting theories on
place of refuge namely, the absolute right of access, the absolute right of refusal, balance of interests
and good management on the basis of right of access.
30
The m.v. Toledo was a Singapore flagged vessel bound for Frederica, Denmark from New
Brunswick, Canada with a cargo 14,000 metric tonnes potash, and abandoned on 21 February
1990 after she encountered heavy weather in the North Atlantic whereupon she was brought under
tow to Ireland on 23 February but refused entry by the Irish Ministry of Marine. The vessel was then
towed to Falmouth in April 1990 but ended up as constructive total loss. The owners consequently
filed a suit in Ireland.
31
Tanaka (2014), pp. 157–180.
32
The Andros Patria (December 1978), Presidiem (October 1980), Eastern Mariner I (February
1981), Stanislaw (April 1981) are amongst the lesser known vessels that were similarly faced with
refusals.
33
IMO (2004).
34
Article 20 of EU Directive 2002/59/EC and its subsequent amendment seek to address the issue of
place of refuge in EU Member States.
234 A. Hebbar

despite the IMO Guidelines, access to a place of refuge, even in the territorial seas,
appears to be largely wrapped in a shroud of mystery even to this day.35

4 Spatial Dimension

4.1 Spatial Dimension: Safety Attribution

The last two and half decades or so have been particularly testing times for the
doctrine of innocent passage given the effect of rather creeping jurisdiction created
by other treaties and regulations, especially the SOLAS Convention. Examples are
aplenty—sea lanes and traffic separation schemes,36 mandatory ship routeing sys-
tems,37 preventing breach of conditions for entering ports and, internal waters as
well as the possibility of imposing temporary suspensions,38 Vessel Traffic Ser-
vices39 and possibly marine spatial planning.
Many a times, measures introduced by a coastal State in its territorial waters or
Exclusive Economic Zone (EEZ) may practically amount to imposing of restrictions
on freedom of navigation. For example, Australia imposes several measures which
impinge on the right of innocent passage and the freedom of navigation in its EEZ
such as compulsory pilotage in the Torres Strait,40 prohibited anchorage areas
around undersea cables in the EEZ, mandatory ship reporting in areas adjacent to
the Great Barrier Reef, and declaration of the entire Australian EEZ as a submarine
exercise area.41
UNCLOS makes no reference to maritime or marine spatial planning as a
management process although some articles do cite to management in relation to
living resources of the EEZ and the high seas, and the exploitation of non-living
resources on the deep seabed. However, this does not prevent coastal states from
taking spatial planning initiatives in their maritime areas. In the territorial seas, based
on sovereignty, coastal states have full jurisdiction for zoning and marine spatial
planning. Examples of zones which at least notionally have the effect of impinging
on the passage of ships through the territorial seas include concession zones for
exploitation of non-living resources, dumping zones for dredged material, zones for

35
There are exceptions though. Denmark, for example, is known to have explicitly notified 22 places
of refuge (Ohlson 2006).
36
UNCLOS Article 22(1), Sea lanes and traffic separation schemes in the territorial sea, p. 32.
37
SOLAS Regulation V/10. Details of IMO adopted schemes are contained in IMO Resolution
A.572(14) General provisions on Ships Routeing as amended.
38
UNCLOS Article 25 (2&3), Rights of protection of the Coastal State, p. 33.
39
SOLAS Regulation V/12. For details see Guidelines on Vessel Traffic Services adopted by the
IMO vide Resolution A.857(20).
40
Breide and Saunders (2008). Also see further discussion in next section.
41
Bateman (2015), p. 62.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 235

wind farms and other energy—generating projects, zones for aquaculture projects,
marine protected areas, safety zones around ship wrecks and offshore installations.
This is besides construction activities by coastal states such as building artificial
islands and jetties, expanding harbours, etc. Ships taking passage through territorial
seas have no option, but to comply with such regulatory provisions of coastal states.
But, it must be emphasised here that not all marine spatial planning areas are
necessarily disadvantageous to the exercise of innocent passage. Sea lanes, traffic
separation schemes and routeing measures42 serve to enhance safety of navigation,
including for ships undertaking innocent passage.43 The Maritime Spatial Planning
for the German Baltic Sea EEZ which came into effect on December 10, 2009 as a
legally binding statutory ordinance44 serves as a good example for emulation.
Following analysis of ship traffic based on Automatic Identification System (AIS)
information, Germany has designated the main shipping routes as priority areas45
that must be kept free from obstacles such as wind farms. Priority areas are similarly
designated for offshore wind energy so as to not conflict with other uses and the
marine environment.46 The bottom line is that shipping is the lifeblood of the global
economy and, therefore, recognised shipping lanes not only deserve to be kept free
from obstacles when designating reservation areas but also merit special weight in
the balancing of competing interests. Rather than traffic regulation, maritime spatial
planning efforts should be directed towards protection47 of recognised traffic routes.

4.2 Spatial Dimension: Environmental Attribution

The set of derogations from the UNCLOS regime are expanding, and not limited to
the right of innocent passage alone; moreover, they appear to be burgeoning with
each passing day. Two examples cited by Breide and Saunders48 are illustrative of
the case. The first example of derogation is the requirements imposed by the 2005
EU Directive consequent to the sinking of the Prestige in 2002, which is directly in
conflict with the UNCLOS regime for pollution control. EU Directive 2005/35 on
ship-source pollution expands potential liability to additional parties beyond those

42
Ten routeing measures are relevant for MSP—traffic separation schemes, traffic lanes, separation
zones, roundabouts, inshore traffic zones, recommended routes, deep-water routes, precautionary
areas and areas to be avoided (Maes 2008, pp. 797–810).
43
Maes (2008), pp. 797–810.
44
http://www.bsh.de/en/Marine_uses/Spatial_Planning_in_the_German_EEZ/index.jsp.
45
PartiSEApate (2013).
46
For example, France is establishing offshore wind farms in its territorial seas, under the Saint-
Nazaire, Fécamp and Courseulles-sur-Mer projects, except in the Mediterranean Sea where the
floating offshore wind projects will take place in the EEZ, given significant conflicts of use in the
territorial sea (Michalak 2018, p. 456).
47
Nico Nolte. Legal aspects. BSH.
48
Breide and Saunders (2008).
236 A. Hebbar

set out in MARPOL, such as surveyors, charterers, ship managers and salvors and, in
some cases, makes no distinction between accidental and deliberate discharges.49 A
second example is Canada’s Migratory Birds Conservation Act, 2005 amending the
Migratory Birds Convention Act, 1994.50 It applies in the whole of the EEZ, and
makes it an offence for any person or vessel to “deposit a substance that is harmful to
migratory birds, or permit such a substance to be deposited, in waters or an area
frequented by migratory birds. . .”. While these are general derogations, specific
examples of derogation of the right of innocent passage ensue.

4.2.1 The Canadian Arctic Waters Pollution Prevention Act

Issues related to the extent of coastal State jurisdiction are central to the emerging
legal regime in the Arctic. In this context, the Canadian Arctic Waters Pollution
Prevention Act, 1985 (AWPPA)51 was regarded as an ambitious piece of legislation
that exceeds the requirements of international law.52 In 1986 Canada enclosed its
Arctic Archipelago with straight baselines, confirming a claim to the waters within,
including the North West Passage, as internal waters. Consequently, the regime of
passage will be determined by whether or not these are internal waters, and even if
they are found to be internal waters whether it is by virtue of Canada’s “historic
waters” entitlement or merely by virtue of the straight baseline designation of 1986.
Furthermore, the jurisdiction of the AWPPA extended to 100 nautical miles from
the coastline. The regulatory powers under the AWPPA covered design and con-
struction standards, separate waste deposit rules and special powers to create ship-
ping safety control zones, within which more extensive inspection powers applied.
More recently, the jurisdiction of the AWPPA has been expanded even further to
200 nautical miles from the coast. Also, vessel reporting is a mandatory requirement
being applied under NORDREG (the Arctic marine traffic system in Canadian
waters).53

4.2.2 Western European PSSA

The Western European Particularly Sensitive Sea Area (PSSA) is believed by some,
especially those in the industry, to be an example of a measure originally designed to

49
An industry coalition challenged the Directive in the English High Court of Justice which referred
the case to the European Court of Justice but did not yield a favourable decision (Intertanko and
Others v Secretary of State for Transport, ECJ Case C-308/06, June 3, 2008).
50
Migratory Birds Convention Act, 1994, R.S.C. 1994, c. 22, Assented to 23 June 1994 as amended
by S.C. 2005, c. 23.
51
Arctic Waters Pollution Prevention Act, R.S.C. 1985 c. A-12.
52
Breide and Saunders (2008).
53
Government of Canada, Prime Minister’s Office (2008).
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 237

protect specific and well-defined vulnerable ecosystems from identifiable harm from
shipping, now being used as a “back-door” means for increased regulation of very
extensive marine areas. According to the IMO, a PSSA is a sea area which is
identified as requiring “special protection through action by IMO because of its
significance for recognized ecological, socio-economic, or scientific attributes where
such attributes may be vulnerable to damage by international shipping activities.”54
The Western European Waters designated as a PSSA in 2004, encompass a rather
large area from the south of Portugal to the Hebrides, and waters to the west of
Ireland. Designation of an entire body of waters as a PSSA has raised concerns not
only about the use of a concept beyond its originally-intended purpose but also the
possibility of the whole concept being undermined with the attendant risk of
devaluing the significance of the other currently designated PSSAs.55

4.2.3 Compulsory Pilotage in Torres Straits

In 2006, compulsory pilotage was introduced for passage through the Torres Strait
and the Great Northeast Channel. It is a criminal offence under Australia’s national
law if a ship fails to take a pilot onboard. If a ship passes through Torres Strait
without taking a pilot and returns to an Australian port any time within 3 years, then
it is subject to a fine of AUD 250,000.56 Although the regime does not apply to ships
with sovereign immunity, given the difficulties of navigation in the area, even
warships prefer take pilots for the passage of the strait. US Navy vessels, however,
in requesting a pilot will invariably note that the request is voluntary and linked to
the mandatory pilotage scheme.57

5 The Cargo Dimension

The cargo dimension is assimilated to consist of four factors—hazardous and

noxious substances, nuclear material, proliferation, and arms and ammunition. A
discussion on each ensues.

54
Revised Guidelines for the Identification and Designation of Particularly Sensitive Sea Areas,
IMO Assembly Resolution A 24/Res.982, 6 February 2006, Annex, para. 1.2.
55
Breide and Saunders (2008).
56
Neher (2009), p. 371.
57
Bateman (2010, 2015).
238 A. Hebbar

Table 1 Coastal State rights over ships carrying hazardous cargoesa

Oppose both Germany, Italy, Japan, Netherlands, Russian Federation, Singapore, Thailand,
United Kingdom, United States of America
Ambiguous Colombia, Ecuador, Mexico, Uruguay
Prior Canada, Djibouti, Libya, Malta, Pakistan, Portugal, United Arab Emirates
notification
Prior Egypt, Guinea, Iran, Malaysia, Oman, Saudi Arabia, Turkey, Yemen
authorisation
Prohibition Argentina, Haiti, Ivory Coast, Nigeria, Philippines, Venezuela
a
Adapted from Hakapää and Molenaar (1999), and Samiotis and Grekos (2015)

5.1 Hazardous and Noxious Substances

Coastal States have for long recognized the importance of safe maritime transporta-
tion of hazardous goods through waters under jurisdiction, and the attendant socio-
economic impacts from environmental damage in the event of any casualty, with
some having reacted strongly when ships carrying hazardous cargo attempted to take
innocent passage through their territorial waters and others having refused to grant
innocent passage without permission.
The position of coastal States on the right of innocent passage of ships carrying
hazardous and noxious substances spans the entire spectrum from States opposing
both rights of prior notification/authorization or prohibitions of such shipments to
others with an ambiguous position and some others requiring prior notification or
authorization and even altogether prohibiting carriage of hazardous cargoes as
reflected in Table 1.
The objection of coastal States is not without reason though. The Mont Blanc
carrying a dangerous cargo of war explosives collided with the SS IMO to explode in
the port of Halifax Canada in 1917, not only destroying property but also resulting in
several deaths. A century later the problem persists as brought out by the Cape Ray’s
mission and the maritime transportation of Syrian chemical weapons in the Medi-
terranean in 2014.58
When it comes to transboundary movement of hazardous wastes or other wastes
through territorial waters, Article 6 of the Basel Convention, 198959 inter alia
stipulates that the State of export shall notify the State(s) of transit of any proposed
transboundary movement of wastes, and that such movement needs the prior consent
of the State(s) of transit, though Art. 4(12) states that the provisions of the Conven-
tion shall not affect in any way, the navigational rights and freedoms of all States in
accordance with international law. However, the 1996 Izmir Protocol60 to the 1995

58
Samiotis and Grekos (2015).
59
International Legal Materials 28-657 (1989). Basel Convention on the Control of Transboundary
Movement of Hazardous Waste and Their Disposal. Adopted in Basel on 22 March 1989.
60
The Protocol on the Prevention of Pollution of the Mediterranean Sea by Transboundary
Movements of Hazardous Wastes and their Disposal adopted on 1 October 1996 by the Conference
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 239

Barcelona Convention, although limited only to twenty-two Contracting Parties in

the Mediterranean, embraces a right of prior notification while rejecting prior
authorization in Article 6(4) of the Basel Convention. But flag States tend to argue
that no prior notification is needed because ships passage is innocent and not
prejudicial to the peace, good order or security of the coastal State which is possibly
in line with Article 4(12) of the Convention.61

5.2 Nuclear Material

It has been suggested that the innocent passage of ships carrying nuclear material
onboard under the Law of the Sea Convention is apparently at conflict with the
precautionary principle under international environmental law and, precedence of
one over the another. The shipping and cargo interest in maintaining secrecy of the
shipment and voyage so as to avoid a targeted piratical or terrorist attack on the
vessel is at conflict with the valid concerns of the coastal States related to the
catastrophic risk to its populace and marine environment.
The first instance of denial of passage to a ship carrying nuclear cargo through
waters of a coastal State occurred in 1992 when the Akatsuki Maru carrying 1.7 tons
of plutonium from France to Japan, was publicly prohibited by Argentina, Chile,
Portugal, South Africa, and Malaysia from taking a route through their waters,
despite the secrecy of the route and the voyage. Malaysia requires prior authorization
for nuclear-powered ships to enter its territorial seas.62 The Declaration on Ship-
ments of Plutonium, adopted as pre-emptive response to the Akatsuki Maru voyage,
bans passage of all shipments of nuclear materials through the Caribbean Sea.63
In 1995, the British flagged Pacific Pintail carrying twenty-eight logs of high-
level vitrified nuclear waste from France to Japan was faced with ban from the
Caribbean states, refusal of passage from the territorial waters of Antigua, Barbuda,
Colombia, the Dominican Republic, Puerto Rico and Uruguay and furthermore,
from the EEZ of Brazil, Argentina, Chile, South Africa, Nauru and Kiribati. After the
vessel abandoned its preferred route through the Panama Canal and charted a course
around Cape Horn, Chilean warships went to the extent of intercepting the Pacific
Pintail in their EEZ and demanding that the ship leave their waters immediately even
though the vessel was attempting to take shelter from heavy seas and severe weather
around the Cape Horn.64

of Plenipotentiaries on the Protocol on the Prevention of Pollution of the Mediterranean Sea by

Transboundary Movements of Hazardous Wastes and their Disposal, held in Izmir.
61
Hakapää and Molenaar (1999).
62
United States, Department of Defence (2016).
63
Dixon (2006), pp. 76–77.
64
Dixon (2006), p. 77.
240 A. Hebbar

But, the concerns of coastal States are not without basis. The MSC Carla carrying
eleven tons of Cesium from France to the United States sank off the Azores coast in
1997. The incident demonstrated that there may be absolutely no response from the
shipowner or the cargo interests in the event of casualty since there was no attempt at
salvage of the MSC Carla citing negligible damage from radiation leak and only
horizontal contamination over time at the sunken depth of 3000 m with no effect on
commercial fisheries. The susceptibility of nuclear ships to attacks by non-State
actors was exposed when protesting Greenpeace activists boarded the Pacific Swan
in 1998 for purposes of demonstration, while the vessel was on a transboundary
voyage carrying 30 tons of Mix-Oxide fuel containing Plutonium. There is also the
possibility that nuclear cargo may be shipped by simply falsifying records with a
view to circumvent regulations, scrutiny and attention, as in the case of falsification
of Cargo Safety Inspection Records in the shipment of Mix-Oxide containers to
Japan by British Nuclear Fuels in 1999, involving five British flagged nuclear ships
that included the Pacific Pintail and the Pacific Swan.65
A point of argument may arise from the interpretation of Articles 2266 and 2367 of
UNCLOS. A plain reading of these two articles would imply that ships carrying
nuclear materials enjoy the right of innocent passage so as long as they follow sea
lanes and traffic separation schemes, carry documents and observe special precau-
tionary measures prescribed for such ships by international agreements. The term of
art, “international agreements” in Article 23 merits examination.
Given that IMO is responsible for regulating safe carriage of nuclear material by
ships, it may be said that Article 23 refers to the IMO Agreement. However, the IMO
Code for the Safe Carriage of Irradiated Nuclear Fuel, Plutonium and High-Level
Radioactive Wastes in Flasks on Board Ships or, INF Code68 relies primarily on
achieving safeguards through standards of packaging of radioactive materials and
construction, design, and staffing of ships that transport them but does not address
notification or approval of coastal states of shipments or emergency response plans
and is, therefore, inadequate to address the dangers nuclear cargoes and ships present
to coastal states.
If enforcement were to be explored under some other IMO agreement, it has been
suggested that Article 169 of the Protocol70 of 1973 to the 1969 Intervention

65
Dixon (2006), pp. 78–79.
66
UNCLOS Article 22, Sea lanes and traffic separation schemes in the territorial sea, p. 32.
67
UNCLOS Article 23, Foreign nuclear-powered ships and ships carrying nuclear or other inher-
ently dangerous or noxious substances, p. 32.
68
IMO Resolution A.748(18) dated 4 November 1993.
69
According to Article 1 of the 1973 Protocol, coastal states may take necessary measures on the
high seas to prevent or mitigate “grave and imminent danger to their coastline or related interests
from pollution or threat of pollution by substances other than oil following upon a maritime
casualty or acts related to such a casualty, which may reasonably be expected to result in harmful
consequences.”
70
Protocol relating to Intervention on the High Seas in Cases of Marine Pollution by Substances
Other than Oil, 1973. U.N.T.S. Vol. 1313-I-21886.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 241

Convention71 affords enough latitude to coastal states to prevent ultra-hazardous

materials from passing through their waters without certain precautions. Neverthe-
less, there does exist justification within UNCLOS itself for a coastal state to use
measures to prevent a ship carrying nuclear materials from coming within its
territorial waters or EEZ. Article 22172 of UNCLOS gives coastal states enforcement
mechanisms to avoid pollution arising from maritime casualties and deals with
actual or “threatened damage” by maritime casualty “or acts relating to such a
casualty.” Here, the authority for state action is justified under both, customary
and conventional international law.73
Jon van Dyke74 has proposed various options to resolve the conflict between the
provisions of UNCLOS and precautionary principle. Incorporating precautionary
principle in the INF Code is the most pragmatic, global solution. In the absence of a
global solution, regional regimes such as the Bamako75 and Waigani76 Conventions
would be the next best option, although there would be some conflict between the
various approaches. Although it would be difficult to implement, van Dyke proposes
a third option of creating a universal shipping lane for ships carrying nuclear
materials.

5.3 Proliferation

The Proliferation Security Initiative is a non-treaty partnership between States which

aims to prevent the proliferation of weapons of mass destruction, their delivery
systems and related materials as a complement to the prevailing international arms
control arrangements such as the Treaty on the Non-Proliferation of Nuclear
Weapons, the Chemical Weapons Convention and the Biological Weapons Conven-
tion. Though it started off as a political initiative, it has been argued that the
objectives and working methods specified in the subsequent Statement of Interdic-
tion Principles have the potential for most significant implications for the law of the
sea, especially for the regime of innocent passage.77 Whereas on the one hand the
Interdiction Principles do state that PSI activities will not violate international law,
on the other hand, they call on participants to take appropriate actions to stop and/or

71
International Convention Relating to Intervention on the High Seas is cases of Oil Pollution
Casualties, 1969. U.N.T.S. Vol. 970-I-14049.
72
UNCLOS Article 221, Measures to avoid pollution arising from marine casualties, p. 112.
73
Dixon (2006), p. 94.
74
van Dyke (1996), and Dixon (2006), pp. 97–99.
75
Bamako Convention on the ban of the Import into Africa and the Control of Trans-boundary
Movement of Hazardous Wastes within Africa, 1991.
76
The Convention to Ban the Importation into Forum Island Countries of Hazardous and Radioac-
tive Wastes and to Control the Transboundary Movement and Management of Hazardous Wastes
within the South Pacific Region, 1995.
77
Winner (2005), pp. 129–143.
242 A. Hebbar

search in their territorial seas vessels that are ‘reasonably suspected’ of carrying such
cargoes to or from States or non-State actors of proliferation concern and to seize
such cargoes that are identified.78 If all 105 States that are partners in the PSI were to
act unilaterally, they would not only establish a new State practice contrary to the
law of the sea but also significantly impinge on the right of innocent passage.79
Similar would be case if flag States were to accept coastal State boarding of ships
engaged in innocent passage on the grounds of suspicion of illegal trafficking
of weapons of mass destruction and without prior permission of the flag State.
Therefore, the Proliferation Security Initiative has significant potential to impinge
on the right of innocent passage, although with noble intentions.

5.4 Arms and Ammunition

As regards passage of vessels carrying conventional arms, ammunition and parts and
components or other related material or logistical support intended for rebels,
non-State actors, or belligerent States, at first instance, coastal States would appear
to be having potentially conflicting obligations under UNCLOS and the Arms Trade
Treaty.80 UNCLOS grants the right of innocent passage to all ships regardless of the
cargo onboard or the type of trade the vessel is engaged in whereas States Party to the
Arms Trade Treaty are obliged not to authorise transfers of conventional arms under
certain circumstances (Article 2) and, to take appropriate measures “to regulate,
where necessary and feasible, the transit or trans-shipment under its jurisdiction of
conventional arms covered under Article 2.1 through its territory in accordance with
relevant international law (Article 9).”
However, a closer reading of UNCLOS suggests that at least four different
articles would support the steps taken by a coastal State to prevent passage of such
a vessel carrying conventional arms. The passage, which in any case violates the
provisions of Article 8881 according to which the high seas are reserved for peaceful
purposes, ceases to be innocent within the meaning of Article 19.282 leaving the
coastal State to exercise its discretion as per Article 25.1,83 to take measures

78
see subparagraph 4(d)(1) of the Statement of Interdiction Principles under the Proliferation
Security Initiative.
79
In August 1993, the United States suspected the Chinese flagged Yinhe of carrying thiodiglycol
and thionyl chloride—chemicals that can be used to manufacture both mustard gas and sarin nerve
gas. After much disagreeing, China permitted the vessel’s inspection in a Saudi port prior to its
docking in Iran. The inspection did not uncover any of the suspected chemicals (Winner 2005).
80
The ATT seeks to “prevent and eradicate the illicit trade in conventional arms and to prevent their
diversion to the illicit market, or for unauthorised end use and end users, including in the
commission of terrorist acts”.
81
UNCLOS Article 88, Reservation of the High Seas for peaceful purposes, p. 57.
82
UNCLOS Article 19, Meaning of innocent passage, p. 31.
83
UNCLOS Article 25, Rights of protection of the Coastal State, p. 33.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 243

necessary to prevent the passage. Moreover, the flag State would be failing in its
obligations under Article 30184 to refrain from any threat or use of force against the
territorial integrity or political independence of another State.85

6 The Social Dimension

6.1 Crew

While UNCLOS specifies a set of non-exclusive set of actions by a vessel which may
render its passage in the territorial seas of coastal State not innocent, the State
v. Yannopulous (1974) (Italy v. Greece) case in a way suggests that a coastal State
taking any measures against a vessel on innocent passage, or its crew for that matter
alleging commission of acts prejudicial to the peace and good order of the State may
be required to back up its actions with sound evidence that will withstand the
scrutiny of court. In the State v. Yannopulous case, Yannopulous a Greek national
serving as a crew member of a Cypress flagged vessel was arrested for possession of
marijuana while the ship lay anchored at a port in Italy. Consequent to the arrest,
Yannopulous was produced in court alleging that his carrying of the marijuana was a
threat to the peace and security in the shore. The Italian Court, however, acquitted
Yannopulous with honor and set him free reasoning among other things that if the
offence is committed on board a vessel, the flag state has the jurisdiction and that,
evidence that the act of Yannopulous disturbed the peace, security and good order of
the port was severely lacking.86
Criminalisation and detention of seafarers has been witnessed in a number of oil
pollution incidents such as the Erika (France, 1999), Prestige (Spain, 2002), Tasman
Spirit (Pakistan, 2003), and the Hebei Spirit (South Korea, 2007) largely on the basis
of national legislation that allows for penal sanctions in cases of pollution in the
territorial sea with no regard as to whether or not the “willful and serious” standard
had been met. This finding emerged from a study of 52 countries by the CMI87
International Working Group on the Fair Treatment of Seafarers.88 Further,
Australia, Canada, France, the United Kingdom and the United States are likely to
subject seafarers to criminal liability and penal prosecution for any incidence of

84
UNCLOS Article 301, Peaceful uses of the seas, p. 138.
85
Ebbs and Upcher (2015), pp. 3–5.
86
Ahmed (2017), pp. 21–40.
87
Comite Maritime International established in 1897 with the objective to promote by the estab-
lishment of National Associations, by conferences, by publication and by any other activities or
means, the unification of international maritime and commercial law and practice, whether by
Treaty or Convention or by establishing uniformity of domestic laws, usages, customs or practices.
88
Breide and Saunders (2008), p. 9.
244 A. Hebbar

pollution in the territorial waters even if the pollution were to be attributable to

negligence and there is no proof of willful behavior.

6.2 Privately Contracted Armed Security Personnel

Carriage of privately contracted armed security personnel (PCASP) and vessel

protection detachment (VPD) onboard merchant vessels is a complex grey area
subject to varied interpretations by coastal States as to the prejudicial nature of the
passage and its impingement, so to say, on peace, good order and security of the
coastal State.
Pirates are declared hostis humani generis or, enemies of mankind under
UNCLOS. Therefore, any onboard preventive, self-defence measures instituted by
merchant vessels to combat piracy is construed by some States as a contravention of
UNCLOS, and the vessel regarded as having breached the provisions of innocent
passage. Embarkation of PCASP, arms and ammunition are likely to be construed
within the ambit of Article 19(2) of UNCLOS, as embarkation of military devices,
especially if it involves a vessel protection detachment of military personnel.89 Ships
with embarked PCASP or VPD are required by some coastal States to give prior
notification and receive and authorization. It is for consideration if a requirement for
prior notification is an infringement on the right of innocent passage.90
While India is one among the States requiring prior notification, it stands out for
landmark cases involving both, PCASP and VPD. The m.v. Seaman Guard Ohio
serving primarily as an offshore PCASP base vessel was apprehended by the Indian
Coast Guard on 12 October 2013 for inter alia violation of Indian Arms Act, 1955.91
The entire PCASP team of twenty-five security guards alongwith ten crew members
of the vessel were arrested and spent several months in Indian custody. In a separate
incident, two Italian navy VPD onboard the Italian flagged tanker m.v. Enrica Lexie
were subjected to prolonged periods of detention in India after they ended up
allegedly killing Indian fishermen on 17 February 2012 when they opened fire on
an Indian fishing boat that they suspected of making threatening manoeuvres.

89
Eruaga and Mejia (2019).
90
Williams (2014).
91
The ship was found carrying a huge quantity of arms and ammunitions—five fire arms, 102 mag-
azines and 5682 rounds of ammunition. Further, it had illegally procured about 2000 L of diesel in
huge barrels, along with other provisions from a local boat in India’s territorial waters. (https://
www.livelaw.in/madras-hc-acquits-35-crew-members-anti-piracy-ship-mv-seaman-guard-ohio-
read-judgment/).
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 245

6.3 Refugees

Passage is innocent so long as it is not prejudicial to the peace, good order or security
of the coastal State. But if a vessel picks up tens or hundreds of persons enroute,
either recovered from the sea or from other rickety or dilapidated unseaworthy boats
and, thereafter, seeks to disembark them at the next port of call, will the voyage be
rendered non-innocent and is the coastal State entitled to take measures to prevent
disembarkation of those persons or prevent the vessel from calling at its port?92
The coastal State response is certainly linked to the scale and frequency of the
problem. The Tampa is, perhaps, one of the most famous and often cited case. This
Norwegian-registered container ship rescued 438 asylum seekers from close to
Christmas Island in Australia but within the search and rescue region of Indonesia
on 28 August 2001 and was refused permission to disembark the refugees in
Australia. A long diplomatic standoff between Australia and Indonesia ensued
while the master of the Tampa continued to remain at sea and hold his ground.
Australian military eventually boarded the Tampa, and following quick agreements,
landed the asylum seekers at ‘offshore’ detention centers in Nauru and Papua New
Guinea.93
But, not every case has a successful conclusion like the Tampa, or the Pinar E.94
As of 2017, roughly 46,000 asylum seekers and migrants have drowned in the
Mediterranean and another 2000-odd in Australian waters, owing to turnback and
interdiction policies of States enforcing securitarian rather than humanitarian
response.95 Australia and EU Member States tend to curtail traffic on the premise
that passage may be rendered non-innocent if a vessel loads or unloads persons
contrary to the immigration laws and regulations of the coastal State.96 However,
article 2797 of the UNCLOS limits such ‘necessary steps’, and in any case excludes
the exercise of criminal jurisdiction onboard a ship engaged in innocent passage,

92
There is also the case of vessel specifically sailing out to the rescue of refugees and asylum
seekers in distress at sea and bring them to a prior intended port. It would be interesting to examine
the measures taken by a coastal State in such a case from the standpoint of UNCLOS.
93
Matthews (2018), pp. 110–111; Burnside (2002).
94
In April 2009, the master of the Turkish freighter Pinar E faced an ordeal similar the Tampa, after
he picked up 140 migrants in distress at sea and attempted to enter the port of Lampedusa. Italy
refused to grant permission stating that the migrants were rescued in the Maltese search and rescue
region whereas Malta held that international law required that the rescued migrants be disembarked
at the nearest safe port, which happened to be Lampedusa. Human Rights Watch (2009).
95
Moreno-Lax (2017).
96
The United States has been running stringent alien migrant interdiction operations at sea against
refugees and asylum seekers from Haiti, Cuba, Dominican Republic, Bahamas and China (Palmer
n.d.). The European Union has worked to stem the tide of refugees from Cape Verde, Mauritania,
Senegal, Syria and Libya. Specifically, Italy has been involved in handling Libyans, and Thailand in
interdiction and turning back of Rohingyas from Myanmar.
97
UNCLOS Article 27, Criminal jurisdiction onboard a foreign ship.
246 A. Hebbar

except for the cases explicitly listed (which do not contemplate ‘boat migration’
as such).
Incidentally, opinion of the intelligentsia is fairly divided on the measures taken
by coastal States. At one end of the spectrum we have a cross-section which argues
in support of actions of the coastal States, suggesting that a vessel carrying asylum
seekers intending to request the protection of the coastal State removes the vessel
from the category of innocent passage. At the other end, we have States who take the
approach from the standpoint of humanitarian law that unless there is actual ‘load-
ing’ or ‘unloading’ of persons in breach of immigration regulations, the right of
innocent passage should continue to hold good. Then, we have yet other States who
tread the middle path in proposing that seeking asylum does accord with interna-
tional law, although there may be cases in which passage with asylum seekers aboard
may be non-innocent.98
Several other points would emerge if we were to take international humanitarian
law into consideration. Refugees must not be penalised for unauthorised entry.99
States are bound to interpret anti-smuggling/anti-trafficking provisions in keeping
with refugee law. The practices of retention at, or ejection from, territorial waters not
only neglects human rights but also violates the principle of non-refoulement, which
prohibits States from sending people to any country where they may face persecu-
tion, ill-treatment or other serious harm.

7 The Inherent Dimension

7.1 Passage of Warships Through Territorial Seas

The right of innocent passage for warships is possibly among the most controversial
of issues in the innocent passage doctrine given the diplomatic debates and interna-
tional disputes which have generated throughout the history of the doctrine.100
Many coastal states view passage of foreign ships through their territorial sea as a
potential threat to their national security. This underlying concern is believed to
have lead Japan and South Korea to limit the breadth of their territorial sea in the
vicinity of several international straits through their waters to six miles, leaving a
corridor of high seas through the straits thereby denying right of transit passage to
foreign vessels that are only able to enter the territorial sea under the more restrictive
regime of innocent passage.101

98
Moreno-Lax (2017).
99
Refugee Convention 1951, Article 31 Refugees unlawfully in the country of refuge.
U.N.T.S. Vol. 189-I-2545.
100
Zou (1998).
101
Bateman (2005).
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 247

Table 2 Restrictions on innocent passage of warshipsa

Oppose both notification and
authorization
Prior notification
Prior authorization
a
Adapted from Hakapää and Molenaar (1999)
France, Germany, Italy, Netherlands, Russian Federation,
Thailand, United Kingdom, United States
Croatia, Denmark, Egypt, Guyana, India, Indonesia, Korea
(South), Libya, Malta, Mauritius, Seychelles, Yugoslavia (FR)
Albania, Algeria, Antigua & Barbuda, Bangladesh, Barbados,
Cambodia, China, Congo, Iran, Maldives, Myanmar, Oman,
Pakistan, Philippines, Poland, St Vincent & Grenadines, Somalia,
Sri Lanka, Sudan, Syria, United Arab Emirates, Vietnam, Yemen

What happens if the territorial seas encompass international straits? It is believed

that the judgement of the International Court of Justice in the Corfu Channel case has
had positive implications for right of innocent passage of warships in international
straits within territorial seas. The case relates to the assertion by the government of
Albania that warships and even foreign merchant vessels had no right to pass
through the international straits in its territorial seas without prior permission
which was struck down by the International Court in 1949 stating that it was contrary
to both, what is generally recognized and international custom, although the Inter-
national Court of Justice did refer to the international straits.102
The maritime claims of several coastal States exceed the provisions of the Law of
the Sea Convention. State practices and procedures relating to warships that com-
monly go beyond the Convention include excessive straight baselines, requiring
prior notification for foreign military or government vessels to enter the territorial
sea, requiring consent for military exercises in the EEZ, and requiring prior permis-
sion for overflight of the EEZ and Flight Identification Region, et cetera. According
to a study, at one point of time there were about forty-five states103 requiring prior
notification of passage of warships. Albania, China, Croatia, Indonesia, Malta,
Oman, South Korea, Sri Lanka, and Vietnam are amongst countries that require
prior permission or authorisation for innocent passage of foreign warships through
their territorial seas and are routinely challenged by the United States Navy opera-
tional assertions and activities, in order to preserve the rights, freedoms, and uses of
the sea and airspace guaranteed to all nations under international law.104 Addition-
ally, Indonesia restricts stopping, dropping anchor, or cruising without legitimate
reason in the seas adjoining the territorial seas and Taiwan requires prior notification
of innocent passage by government vessels too.105 Table 2 provides an overview of
selected state practice relating to restrictions on innocent passage of warships.

102
Zou (1998).
103
Zou (1998).
104
Contrary to its current position and practice, in the early 1930s and through the Preparatory
meeting of the League of Nations as also the Hague Codification Conference up until the World
War, the United States firmly held the view that, warships required authorization by the coastal state
before entering its territorial waters.
105
United States, Department of Defence (2016).
248 A. Hebbar

7.2 The Chinese Approach

The Chinese approach of abundant caution towards innocent passage of warships in

territorial waters has been a subject of particular focus. China promulgated the
Declaration on China’s Territorial Sea on September 4, 1958 inter alia stating
that, [n]o foreign vessels for military use and no foreign aircraft may enter China’s
territorial sea and the air space above it without the permission of the Government of
the People’s Republic of China. The Declaration is further endorsed by the pro-
visions in the Law on Maritime Traffic Safety, 1984 and the Law on the Territorial
Sea and Contiguous Zone (the Territorial Sea Law), 1992. Scholars suggest that
China’s stance may be attributed to sustained, rather unpleasant historical experi-
ences. From the middle to late nineteenth century, China was faced with several
invasions from the sea by Western colonial powers owing to declining power of the
Quing dynasty. China had no respite from foreign maritime intrusions, especially by
American warships, even after the People’s Republic was founded. Besides, during
the Cold War in the fifties and sixties, all the socialist countries lead by the Soviet
Union required prior authorization for passage of foreign warships in their territorial
waters,106 and China naturally followed suit. Regardless, it is perhaps incumbent
upon China to address the inconsistency of its domestic legislation, at least conse-
quent to having ratified UNCLOS 1982 in 1996.107
While the specifics of the breadth of practice of different States could be
discussed at length, the larger perspective to be understood here is that, there
would be a context to the attitude and stand adopted by each State, rooted in history
or geo-political situation, and that such practice would not be static but vary with
time and space. The negotiations during the Law of the Sea Conference are an
indicator of the dissent among nations on the subject, and given the fact that many
coastal States do not consider themselves bound by the provisions of innocent
passage when it comes to warships, even to this day, the matter remains far from
settled.

7.3 The Case of Finland

There is this unique, and apparently unparalleled case of Finnish warships not being
able to exercise the right of innocent passage in a portion of the territorial sea of their

106
It is another matter that the Soviet Union came together with its arch rival the United States to
issue the Joint Statement on Uniform Interpretation of Rules of International Law Governing
Innocent Passage on 23 September 1989 stating that all ships, including warships, regardless of
cargo, armament, or means of propulsion, enjoy the right of innocent passage through the territorial
sea in accordance with international law, for which neither prior notification nor authorization is
required (Zou 1998).
107
Zou (1998).
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 249

own homeland. Article 5 of the 1921 Åland Convention grants warships the right of
innocent passage through those areas of territorial waters of the Åland Islands’ that
are part of the neutralised zone. However, Article 5 makes references to international
rules and usages in force that therefore sets limits to the application. The Article
indicates that Finland’s authority to enact rules that would prohibit the innocent
passage of warships through the territorial waters of the Åland Islands is restricted.
The Article is also applicable to Finnish warships, and as a result the 1921 Åland
Convention restricts a coastal State’s jurisdiction over its own territorial sea. The
possibility of prohibiting innocent passage was never properly addressed during the
1921 Conference discussions, and only Finland had expressed its view on the matter
by stating its right to prohibit innocent passage in special circumstances.108
And then, in some rare cases, a State may choose to admit that passage of its
warships in the territorial seas of another coastal State was in breach of the pro-
visions of international law. The admission by Australia is one of those exceptional
cases. The Australian Government admitted that Australian Navy or Customs and
Border Protection vessels entered Indonesian territorial waters six times during
December 2013 and January 2014 which constituted clear breaches of international
law.109, 110

7.4 Autonomous Ships and Unmanned Maritime Systems

The International Maritime Organization (IMO) has commenced work to look into
how safe, secure and environmentally sound Maritime Autonomous Surface Ships
(MASS) operations may be addressed in IMO instruments. The Maritime Safety
Committee (MSC) of the IMO is engaged in a regulatory scoping exercise to identify
current provisions in an agreed list of IMO instruments and assess how they may or
may not be applicable to ships with varying degrees of autonomy and/or whether
they may preclude MASS operations. As a second step, an analysis will be
conducted to determine the most appropriate way of addressing MASS operations
considering human element, technology and operational factors.

108
Kleemola-Juntunen (2017), pp. 239–269.
109
McAdam et al. (2014).
110
It is another matter that Australia has, for many years, been pursuing an aggressive policy of
preventing asylum seekers arriving in boats from reaching its shores. The measures range from the
more benign aerial surveillance of the sea areas, agreements with neighbouring States (Tuvalu,
Papua New Guinea) and engagement with concerned States (Thailand, Indonesia, etc.) to the
preventive and disruptive actions of turning back boats at the fringes of Australian waters and
even going after refugee boats into the waters of another State. The admitted breaches occurred in
the course of such preventive actions.
250 A. Hebbar

But even before we look at SOLAS, MARPOL, COLREGS, etc. from the
perspective of MASS, a more significant question that merits an answer or at least
some clarity is the legal status of MASS in international law. In particular, there is
not yet resolution on two key issues: can such systems be considered “ships”
(“vessels”); and if so, which MASS further qualify as warships—a term of art
which has legal significance attached to it.
Are the ships without master and crew onboard still called ships? The rules are
similar for both manned and unmanned ships. Unmanned ships enjoy the same
passage rights as other ships. Ships cannot possibly be refused access to coastal
states’ waters on that ground that they are not crewed. By extrapolation, MASS
would enjoy similar rights of innocent passage as conventional ships.111
The United States has been looking at the varied aspects associated with opera-
tions of autonomous ships for a number of years. The U.S. doctrine on unmanned
maritime systems, as they refer to these ships, appears to be emanating from an
integrated roadmap that runs from the year 2011 until 2036 and supplemented by
two masterplans, one each for the unmanned undersea and surface vehicles.112
Maritime scholars believe that the position taken by the U.S. with regard to naviga-
tional rights of unmanned maritime systems, although vague in its manner, is rather
assertive. The impression so gathered is based on the reading of the U.S. Navy
Warfare Publication (NWP). Section 2.5.2.5 of the NWP states as follows113:
Customary international law as reflected in the 1982 LOS Convention gives vessels of all
nations the right to engage in innocent passage as well as transit passage and archipelagic sea
lane passage. The size, purpose, or type of cargo is irrelevant. The same rules apply to USV
and UUV transit and navigation. USVs and UUVs retain independent navigation rights.

8 Bridges as Barriers to Innocent Passage

Last, but not the least, a bridge across an international strait is also a spatial
dimension which could be an impediment to the exercise of right of innocent
passage, perhaps. Borrowing from the work of Spadi, the bridge across the Great
Belt between Finland and Denmark and the once proposed bridge in the Mediterra-
nean Sea connecting the island of Sicily to mainland Italy could be cited as
examples.114

111
Eronen (2018).
112
More specifically, following are the three documents—The Unmanned Systems Integrated
Roadmap FY2011-2036; The Navy Unmanned Undersea Vehicle Master Plan (2004); and The
Navy Unmanned Surface Vehicle Master Plan (2007).
113
Norris (2013).
114
Spadi (2001), pp. 411–419.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 251

The Messina Straits bridge was proposed to be a 3300 m single span suspension
bridge between Sicily and Calabria, about 64–70 m above sea level, with a six-lane
carriageway and double track railway.
It is instructive to note that the exception to transit passage provided in Article
38.1115 of UNCLOS would apply if the bridge across the Strait of Messina were to
be constructed, since “the strait is formed by an island of a State bordering the strait
and its mainland” and “there exists seaward of the island a route through the high
seas or through an exclusive economic zone of similar convenience with respect to
navigational and hydrographical characteristics,” and consequently, the provisions
of Article 45116 of UNCLOS apply which prescribe a non-suspendable right of
innocent passage.
The possibility of a dispute arising from the Messina bridge has a precedent in the
objections by Finland to the construction of the bridge across the Great Belt in the
Danish strait, in particular to the bridge height of 65 m. Finland argued that the
planned infrastructure would impair the right of free passage of drill ships, oil rigs
and reasonably foreseeable future vessels.117 In the case of Italy, the 1985 Italian
Ministerial Decree prohibiting the passage of oil tankers over 50,000 tonnes through
the Messina strait could, perhaps, be deemed as a precursor to the impairment of
rights.
The closure represented by the height limit for the Messina bridge which would
similarly become an obstacle of permanent nature is clearly in contrast with the
non-suspendable right of innocent passage which applies to the area. The regime of
innocent passage would be at conflict with the bridge and would be much more
onerous to sustain for foreign ships than a temporary suspension of passage.

9 Conclusion

The regime of innocent passage is challenged in at least six different dimensions—

action, temporal, spatial, cargo, social and inherent. Figure 2 depicts the six dimen-
sions and their component factors impinging on the right of innocent passage.
The varied tenets, trials and tribulations to which a passage of a vessel through
territorial waters is likely to be subjected, in each of the six dimensions as discussed
in this chapter, is summarized in Fig. 3.
It is apparent that mare clausum is set to override mare liberum in the coming
future, even if States were to harmonise their national legislation with the provisions
of UNCLOS. On the one hand, the regime of innocent passage under UNCLOS is
beset with certain inherent ambiguities and provisions that are regarded as rather

115
UNCLOS Article 38, Right of transit passage, p. 37.
116
UNCLOS Article 45, Innocent passage, p. 39.
117
Passage through the Great Belt (Finland v. Denmark), Provisional Measures, Order of 29 July
1991, I.C.J. Reports 1991, p. 12.
252 A. Hebbar

•Threat
Action •Refuge

•Temporary
Temporal suspensions

•Economic
EFFECT OF
Spatial •Safety
IMPEDING
•Environmental
OR
PASSAGE THROUGH PASSAGE
TERRITORIAL WATERS LIKELY
TO BE
•Health, Safety, TREATED
Cargo Environment NOT-
•Security INNOCENT

•Crew
Social •PCASP
•Refugees

•Warship
Inherent
•Autonomous ship

Fig. 2 The six dimensions and their component factors impinging on the right of innocent passage

inimical to all interests involved, and on the other hand, obligations under other
treaties and multilateral initiatives are taking precedence, eroding away or, at times,
even conflicting with the rights and freedoms available under UNCLOS. Here, it
must be cautioned that the arguments presented in this chapter are only indicative of
trends which should be of concern to both, the States and shipping industry but
neither should all examples be considered as definitive violations, nor as tending to
be equally serious in the extent of their derogation from the regime of coastal State
control over foreign ships taking passage in their territorial seas.
Traditionally, security interests were a key driver for coastal State derogation
from the regime of innocent passage under UNCLOS. The evolving field of envi-
ronmental law and measures directed at preserving and protecting the environment
have been yet another motivation in recent years, although they appear to be
impinging on passage of ships in territorial waters in a much subtler way. However,
when it comes to policy on dealing with alien migrants at sea, securitized approach
appears to be swamping the more desirable, protection centered vision.
As such, innocent passage has been termed the most restrictive among the three
possible passage regimes under UNCLOS118 and, Agyebeng119 has rightly argued

118
Transit passage through straits used for international navigation and archipelagic sea lanes
passage through archipelagic waters are the other two regimes (Bateman 2005).
119
Agyebeng (2006), pp. 371–399.
Innocent Passage Under UNCLOS: An Exploration of the Tenets, Trials. . . 253

Fig. 3 Passage through territorial waters: Tenets, trials and tribulations

254 A. Hebbar

that many coastal States are ignoring the principle of pacta sunt servanda.120 As
coastal States continue to persist and succeed, in varying measures, in their endeav-
ours to claim subtle and broader powers to interfere with passage of foreign vessels
in territorial waters (and EEZ), the escalation of conflict between coastal State
control and freedoms and rights of user States is unlikely to be reversed.

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What Challenges Lie Ahead for Maritime
Law?

Måns Jacobsson

Abstract An overview is given of the harmonisation of maritime law that has taken
place since the beginning of the twentieth century. The future role of the Committees
of the International Maritime Organization (IMO) in the development of conventions
is examined. The recent decisions by the IMO Legal Committee not to develop
conventions on two subjects which are not covered by any conventions, namely civil
liability for oil pollution caused by offshore activities and recognition of foreign
judicial sales of ships, are discussed. The opening of the polar regions to shipping
has resulted in the adoption by IMO of the Polar Code and has made it necessary to
consider whether existing treaties need to be amended to take into account the
unique conditions in these regions. In addition, the emergence of unmanned ships
of various types is giving rise to a number of legal problems as regards the
interpretation of existing conventions and their adaptation to such craft. The work
carried out so far in these two fields is summarized, and a number of the legal issues
that require a solution are highlighted.

1 Introduction

Already in ancient times efforts were made to achieve a regional harmonisation of

maritime law. In the Mediterranean region steps to this end were taken many
centuries BC. From the seventh to the twelfth centuries AC the Rhodian Sea Law
(the Lex Rhodia) had an important role in the Mediterranean. The Rolls of Oleron
were widely applied in the Atlantic trade from the thirteenth century, and in the
fifteenth century the Laws of Visby were developed in the Baltic Sea area by the
Hanseatic League.
In the twentieth and twenty-first centuries a large number of treaties and other
international instruments were developed for the purpose of harmonising maritime
law. As a result, most main areas pertaining to shipping are today covered by

M. Jacobsson (*)
World Maritime University (WMU), Malmö, Sweden

© Springer Nature Switzerland AG 2020 257

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_13
258 M. Jacobsson

international legal instruments. This is perhaps not surprising since shipping is a

global trade and uniform international rules are important for all stakeholders.
The question discussed in this chapter is whether there are areas in need of further
work in international maritime law in order to meet new challenges as a result of the
developments within the industries concerned and in society at large, and in partic-
ular in the light of climate change opening the polar regions to shipping and the
emergence of unmanned ships.

2 Development of International Maritime Law

in the Twentieth and Twenty-First Centuries

Systematic work on international harmonization of maritime law did not begin until
the establishment of the Comité Maritime International (CMI) in 1897.1 Some
important maritime law conventions were prepared at the beginning of the twentieth
century. In 1910 two conventions were adopted dealing with salvage and collision
between vessels, respectively. A convention on the safety of life at sea was adopted
in 1914 in response to the Titanic disaster. Two important treaties were adopted in
1924, one on limitation of liability and the other relating to bills of lading (the Hague
Rules).2
Since the Second World War there has been a proliferation of maritime treaties,
especially after the establishment of the International Maritime Organization (IMO)
in 1958. Under the auspices of IMO, treaties have been elaborated dealing with a
multitude of subjects in the fields of public, private, and criminal law, e.g. safety of
life at sea, safety of fishing vessels, prevention of marine pollution, dumping of
wastes, control of ballast water and of antifouling systems, tonnage measurement,
prevention of collisions, training of seafarers, carriage of passengers, salvage, search
and rescue, limitation of liability, liability and compensation for marine pollution,
maritime transport of nuclear material, removal of wrecks, intervention on the high
seas in cases of pollution, suppression of unlawful acts against the safety of maritime
navigation and fixed platforms on the continental shelf, and recycling of ships.
Many of these treaty instruments were prepared by the IMO Legal Committee.
Some IMO treaties were developed by other Committees, in particular the 1974
Convention on the Safety of Life at Sea (SOLAS), prepared by the Maritime Safety
Committee (MSC), and the 1973 Convention for the Prevention of Pollution from

1
The CMI is an international non-governmental organisation the objective of which is to contribute
to the unification of maritime law. Until the establishment of the Legal Committee of the Interna-
tional Maritime Organization (IMO) in 1968, most maritime law conventions were drafted under
the auspices of the CMI, and the CMI has made valuable contributions to the elaboration of many
conventions also after 1968. With respect to the efforts over the centuries to harmonize maritime
law and the role played by the CMI see Hetherington (2014), pp. 159–182.
2
The Hague Rules were revised in 1968, and the revised version is referred to as the Hague-Visby
Rules.
What Challenges Lie Ahead for Maritime Law? 259

Ships, as amended by the 1978 Protocol thereto (MARPOL 73/78), by the Marine
Environment Protection Committee (MEPC). The Facilitation Committee (FAL)
elaborated the Convention on Facilitation of International Maritime Traffic, 1965
(FAL Convention). These Committees are responsible for revising the Conventions
within their field of competence, as required.3
Some maritime law treaties adopted under the auspices of IMO have a near
universal membership, e.g. SOLAS and MARPOL 73/78. Other Conventions have
been ratified by only a limited number of States, and some have not been ratified by a
sufficient number of States for them to enter into force.
But IMO has not been the only body within the United Nations that has developed
international treaties relating to shipping. The United Nations Convention on the
Law of the Sea (UNCLOS) 1992, which was prepared by a special conference,
contains important public law provisions concerning shipping matters. The United
Nations Conference on Trade and Development (UNCTAD) prepared the 1974
Convention on a Code of Conduct for Liner Conferences, the 1980 Convention on
International Multimodal Transport of Goods (not in force), the 1986 Convention on
Conditions for Registration of Ships (not in force), the 1993 Convention on Mari-
time Liens and Mortgages and the 1999 Convention on Arrest of Ships. In 1978 the
United Nations Commission on International Trade Law (UNCITRAL) elaborated
the Convention on the Carriage of Goods by Sea (the Hamburg Rules). The 1978
Convention eventually entered into force, but it had attracted ratification by only a
limited number of States. For this reason, UNCITRAL developed a new treaty on the
same subject matter, the 2008 Convention on Contracts for the International Car-
riage of Goods Wholly or Partly by Sea (the Rotterdam Rules), which is not yet in
force. The International Labour Organization (ILO) adopted in 2006 the Maritime
Labour Convention.4
The European Union has also in recent years legislated in the field of maritime
law, e.g. Directive 2005/35/EC (amended by Directive 2009/123/EC) on ship-source
pollution and on the introduction of penalties, including criminal penalties, for
pollution offenses, Directive 2009/20/EC on insurance of shipowners for maritime
claims, and Regulation No. 392/2009/EC on liability of carriers of passengers by sea
in the event of accidents.5

3
For a detailed analysis of the development of international treaty instruments by IMO see
Balkin (2018).
4
Development of international maritime law can take place outside intergovernmental organisations
and international treaties, as for instance the York-Antwerp Rules on general average. The first
version of these Rules was adopted in 1890, and they have since been amended many times, most
recently in 2016. The CMI has for many years been the custodian of the York-Antwerp Rules. The
Rules are widely used through incorporation by reference in contracts of carriage and have led to a
remarkable uniformity in respect of general average.
5
See Jacobsson (2012), p. 67.
260 M. Jacobsson

3 The Future Role of the IMO Committees

in the Development of International Treaties

As mentioned above, the IMO Legal Committee has over the years developed
numerous conventions and other treaty instruments in various fields of maritime
law, and many of these instruments have received widespread ratifications. The
majority of these treaties fall within the field of civil law, but some of the instruments
deal mainly with public law issues, for instance the 1989 Convention on Salvage.
The 2007 Nairobi Convention on the Removal of Wrecks is a hybrid in that it deals
with both public and private law issues. Two instruments relate to criminal law,
namely the 1988 Convention for the Suppression of Unlawful Acts against the
Safety of Maritime Navigation (SUA Convention) and its 1998 and 2005 Protocols
Relating to Fixed Platforms Located on the Continental Shelf (SUA Protocols).
Some of these treaties represented innovations in maritime law, for instance the
1969 Convention on Civil Liability for Oil Pollution Damage (1969 Civil Liability
Convention). That Convention introduced some important new features, namely
strict liability for oil pollution damage for owners of oil tankers coupled with
compulsory liability insurance and right of direct action by victims against the
insurer. The 1971 Convention on the Establishment of International Fund for
Compensation for Oil Pollution Damage (1971 Fund Convention) also broke new
grounds in international law. These Conventions were revised by Protocols in 1992.6
The intergovernmental organisations that administer the regime established by these
Conventions, the International Oil Pollution Compensation Funds (IOPC Funds),
have, through decisions on the interpretation of important provisions taken by their
governing bodies, composed of representatives of Governments of the States parties,
greatly contributed to a high degree of uniform applications of these treaties.7
The instruments developed under the auspices of the Legal Committee cover
most of the aspects of shipping that fall within its field of competence. In view of
this, and considering that the IMO Assembly has adopted Resolutions emphasizing
that new conventions and amendments to existing conventions should be considered
only if there is a clear and well-documented compelling need,8 the Legal Committee
may become less involved than in the past in preparing new treaty instruments and
amendments to existing conventions. The Committee would become involved,
however, if, as a result of the developments relating to shipping in the polar regions
or the emergence of unmanned ships (Sects. 5.1 and 5.2 below), amendments have to
be made to conventions for which it is responsible.
It is suggested, however, that the Legal Committee will also be called upon in the
future to carry out important work. It will for instance be requested to consider
up-dating limitation amounts in certain conventions by application of the so-called

6
The 1992 Fund Convention has been supplemented by a Protocol of 2003 creating a Supplemen-
tary Compensation Fund.
7
For an overview of this regime see Jacobsson (2016a, b).
8
Resolutions A.500(XII) and A.998(25).
What Challenges Lie Ahead for Maritime Law? 261

tacit acceptance procedure,9 as was the case in 2000 in respect of the 1992 Civil
Liability and Fund Conventions,10 and in 2012 in respect of the 1976 Convention on
Limitation of Liability for Maritime Claims (LLMC).11 This procedure may be used
in the future as regards the 2002 Athens Convention Relating to the Carriage of
Passengers and their Luggage by Sea.
The Legal Committee may be able to assist States in their ratification process, as
has been evidenced by its involvement, in co-operation with the IOPC Funds, in the
preparations for the entry into force of the 2010 Convention on Liability and
Compensation for Damage in Connection with the Carriage of Hazardous and
Noxious Substances by Sea (HNS Convention). The Legal Committee could also
play an important role in promoting uniform application of existing conventions. A
good example is the work carried out in 2009 on the issue of insurance certificates
for bareboat chartered ships under the 2001 Convention on Civil Liability for Bunker
Oil Pollution Damage (Bunkers Convention) which resulted in an important IMO
Assembly Resolution on the subject.12 Furthermore, the Committee could, as in the
past, contribute to finding solutions to important problems that have arisen after the
adoption of a particular convention. An example is the development by the Com-
mittee in 2006 of a proposed reservation to the Athens Convention relating to the
carriage of passengers with respect to the difficulties in obtaining insurance cover for
acts of terrorism.13 It is likely that such issues will also have to be addressed by the
Committee in the future.
It is suggested that other IMO bodies could benefit in their work from input from
the Legal Committee in the elaboration of conventions or on other issues of a legal
character to a larger extent than has been the case in the past. Reference could be
made to the legal advice given by the Legal Committee in April 2018, at the request
of the Facilitation Committee, on the status of the appendices to the FAL
Convention.14
The Legal Committee has carried out important work in the development of what
is normally known as “soft law” by preparing Guidelines in specific areas of
maritime law. Major examples are Guidelines developed together with ILO, namely
Guidelines on provision of financial security in cases of abandonment of seafarers,15
Guidelines on shipowner responsibilities in respect of contractual claims for

9
Under the tacit acceptance procedure amendments to a convention are adopted by qualified
majority by the competent IMO Committee. If the adopted amendment is not opposed by a certain
number of States parties within a specified period of time, the amendment will enter into force on a
given date for all States parties, including those that have lodged objections to it.
10
Resolutions LEG.1(82) and LEG.2(82).
11
Resolution LEG.5(99).
12
Resolution A.1055(27).
13
IMO Reservation and Guidelines for implementation of the Athens Convention, LEG.92/13,
paragraph 5.30 and Annex 5.
14
LEG 105/11 Annex 1.
15
Resolution A.930(22).
262 M. Jacobsson

personal injury to or death of seafarers16 and Guidelines on fair treatment of

seafarers in the event of a maritime accident.17 Reference should also be made to
the Guidelines on the preservation and collection of evidence following an allegation
of a serious crime having taken place on board a ship or following a report of a
missing person from a ship, and pastoral and medical care of persons affected, which
had been developed by the Legal Committee and were adopted by the Assembly in
2003.18 In 2019 the Committee prepared a draft Resolution on measures to prevent
the fraudulent registration and fraudulent registries of ships for consideration by the
IMO Assembly, and it adopted a recommendation on best practices to assist in
combatting such fraudulent actions. In 2019 the Committee further decided to
consider the possible development of a unified interpretation of the test for breaking
the shipowner's right to limitation of liability under the IMO liability conventions.19
The Committee could also in the future make valuable contributions to the devel-
opment of “soft law” in the maritime field.
The above-mentioned IMO Assembly Resolutions that establish criteria for the
adoption of new conventions and amendments to existing ones apply not only to the
Legal Committee but also to other IMO Committees. It is suggested, however, that
the character of the treaty instruments within the competence of the other Commit-
tees is somewhat different, in that these instruments to a large extent deal with
technical issues, in particular SOLAS, MARPOL and the FAL Convention. It will
most likely be necessary in the future to adopt amendments to these instruments
frequently in the light of experience and the development in the shipping industry.
Such amendments could to a large extent be adopted through the tacit acceptance
procedure referred to above and would not therefore have to be submitted to a
Diplomatic Conference followed by ratification by States.

4 Proposals for the Development of Two New Treaties

Recently Brought Before the IMO Legal Committee

In recent years proposals have been submitted to the Legal Committee that it should
consider the elaboration of two new conventions, namely one on civil liability for oil
pollution resulting from offshore activities and the other on the recognition of
foreign judicial sales of ships. However, for reasons set out below, the Legal
Committee decided not to undertake the task of developing international conven-
tions in these fields.

16
Resolution A.931(22).
17
Resolution LEG.3(91).
18
Resolution A.1091(99).
19
LEG 106/16 section 7.1 and Annexes 1 and 2 and section 13; LEG.1/Circ.10.
What Challenges Lie Ahead for Maritime Law? 263

4.1 Civil Liability for Offshore Oil Pollution

In the aftermath of two incidents in the offshore sector, the Montara incident in the
Timor Sea off the coast of Western Australia in 2009 and the Deepwater Horizon
incident in the Gulf of Mexico in 2010, it was proposed that an international
convention be developed that would govern liability and compensation for pollution
damage resulting from activities offshore.20
In this context reference should be made to UNCLOS that governs the rights of
coastal States to carry out activities related to the exploration for and exploitation of
natural resources over and above the seabed and in the subsoil (art. 193). States are
obliged to take measures to prevent, reduce and control pollution of the marine
environment (in particular art. 194 and art. 207-212) and to impose criminal sanc-
tions on those who cause marine pollution (art. 230). There are also provisions on
State responsibility.
Issues relating to civil liability and compensation are, however, dealt with in
UNCLOS only in article 235, which provides that States shall ensure that recourse is
available in accordance with their legal systems for prompt and adequate compen-
sation or other relief in respect of damage caused by pollution of the marine
environment by natural or legal persons within their jurisdiction. To this end, States
shall co-operate in the implementation of existing maritime law and the further
development of international law relating to responsibility and liability for the
assessment of and compensation for damage as well as development of criteria
and procedures for payment of adequate compensation, such as compulsory insur-
ance or compensation funds. UNCLOS does not contain any substantive provisions
on liability and compensation for marine pollution, but imposes, however, an
obligation on States to develop legislation in this regard.
In the absence of treaty instruments, liability and compensation for pollution
damage resulting from offshore activities are governed by the applicable domestic
law or by regional arrangements. Some States have very detailed legislation in this
regard (for instance Norway, the United Kingdom and the United States). Others
have no such legislation and liability issues will have to be dealt with under general
legislation or jurisprudence on civil liability.
The liability and compensation issues in the offshore sector have, however, been
addressed on a regional basis, in particular within the European Union (EU).21 As

20
A regional convention on the subject for the Baltic and North Atlantic was adopted in London in
1977, the Convention on Civil Liability for Oil Pollution Damage Resulting from the Exploration
for and Exploitation of Seabed Mineral Resources. However, this Convention never entered into
force.
21
Directive 2004/35/EC on environmental liability which deals with liability for some types of
pollution damage and applies to offshore operations in EU Member States, and Directive 2013/30/
EU on safety of offshore oil and gas operations.
264 M. Jacobsson

regards the North Sea area, there is a voluntary industry agreement, the Offshore
Pollution Liability Agreement 1974 (OPOL).22
It would appear that IMO would be the most appropriate forum to address issues
relating to liability for offshore pollution in a global perspective. In the wake of the
Montana incident, Indonesia sought to have the IMO Legal Committee develop an
international treaty on this subject. The Committee decided, however, in 201223 not
to embark on the elaboration of such a treaty regime but to develop guidance to assist
States interested in preparing bilateral or regional arrangements.24
When the issue was discussed in the Legal Committee it was argued that these
activities were not part of IMO’s mandate which was said to be confined to ship-
sourced pollution. It was also suggested that spills from offshore rigs differed from
ship-sourced oil spills, in that offshore exploration and exploitation activities were
normally carried out on the continental shelf of States and were regulated by national
law and bilateral and regional agreements, making the need for a uniform global
regime questionable.
It has been suggested, however, that these were not the real reasons behind the
Committee’s decision. Firstly, IMO’s mandate had over the years been expanded
significantly where there had been a political will to do so.25 In addition, the States
that most strongly maintained that IMO was not the proper forum for the develop-
ment of such a treaty were those with large or growing exploration and exploitation
industries that did not want such an international regime to be developed.26
Notwithstanding the position taken by IMO, it is possible that the need for a
convention on offshore liability will be reconsidered in the future. It is conceivable
that some other intergovernmental organisation could take up this subject. In 2018
the CMI approached the United Nations Environment Programme (UNEP)
suggesting that the development of such a convention may be of interest for that
Organisation, but as of 1 October 2019 no reply had been received from UNEP.
In such a prospective offshore liability convention a number of legal issues would
have to be addressed. The types of installations and craft covered by the convention
would have to be clearly defined. The kinds of damage that would fall within the
scope of the convention must be determined. The subject(s) liable under the con-
vention must be specified. There must be provisions on the basis of liability, and on
the grounds on which the subject(s) normally liable would be exempt from liability.
It would have to be decided whether the person(s) liable would be entitled to

22
As regards OPOL see Tromans (2015), p. 265.
23
LEG99/14 section 13.
24
In 2017 a guidance document was prepared by Denmark and Indonesia (LEG104/14/2). That
document did not include any substantive provisions on liability but rather contained a list of issues
that ought to be considered when bilateral and regional arrangements were developed.
25
See the 1990 International Convention on Oil Pollution Preparedness, Response and Cooperation
(OPRC), the 2009 Code for the Construction and Equipment of Mobile Offshore Drilling Units, and
the 1988 and 2005 Protocols for the Suppression of Unlawful Acts Against the Safety of Fixed
Platforms Located on the Continental Shelf.
26
Balkin (2014), p. 179.
What Challenges Lie Ahead for Maritime Law? 265

limitation of liability and, if so, how the limitation amount should be determined. A
sensitive issue would be whether liability under the convention should be channelled
to one or a few persons who is or are easily identifiable, or liability under the
convention should be imposed on everyone involved in the offshore activities who
caused or contributed to the incident. Problems relating to insurance would have to
be resolved. It would also be necessary to include provisions on jurisdiction and
enforcement of judgements. Finally, it might be appropriate to consider whether
arrangements could be made in a prospective offshore liability convention for a
system by which additional funds would be made available if the amounts actually
paid by the liable party or parties and the insurers were insufficient to compensate all
admissible claims in full.
It appears that if in the future a convention on liability for pollution damage
arising from offshore activities were to be elaborated, it would be fruitful to explore
the approach on important liability issues taken in the regime governing liability and
compensation for pollution damage resulting from tanker oil spills. This regime,
created by the 1992 Civil Liability Convention and the 1992 Fund Convention
(CLC/Fund regime), has been in operation for over 40 years and has been involved
in some 150 oil spill incidents.27 It is suggested that the experience gained from the
operation of that regime might assist the drafters of an offshore convention to find
balanced and appropriate solutions to the issues involved.28

4.2 Recognition of Foreign Judicial Sales of Ships

Vessels are arrested from time to time in different jurisdictions. Some of the arrested
ships are subject to a judicial sale for enforcement of a judgment or arbitral award or
for preservation of maritime claims without a final and enforceable judgement or
award. A number of problems have been encountered by the international shipping
industry in this regard, in particular the recognition of judicial sales of ships by a
foreign court.
The CMI started to work on this subject in 2010. A draft Convention on
recognition of foreign judicial sales of ships was approved at a CMI Conference
held in Hamburg in 2014.
The purpose of the draft Convention is to ensure that the purchaser of a ship in a
judicial sale can be confident of obtaining a clean title of the ship, free of and
unencumbered by any mortgages or similar liens or charges placed on the ship prior
to the judicial sale. Under the draft Convention the purchaser should be able, against
presentation of a suitable certificate issued by the court which conducted the judicial
sale, to delete the ship from its earlier registry and re-register it in the registry
selected by him. This would enable the purchased ship to trade freely, and to ensure

27
For an analysis of the CLC/Fund Regime, see Jacobsson (2016a).
28
See Jacobsson (2018).
266 M. Jacobsson

that the ship will realize a greater sale price to the benefit all interested parties,
including creditors and the shipowner. Consequently, the draft Convention would
promote the smooth and efficient flow of trade and a reduction in the risks associated
with such trade.29
In accordance with past practice, the CMI submitted the draft Convention to IMO
for consideration by its Legal Committee.30 Since the CMI has the status with IMO
of a non-governmental organisation, it does not have the possibility to itself present
formal proposals for matters to be included in the Committee’s work programme, so
the CMI’s submission was sponsored by the People’s Republic of China and the
Republic of Korea. The draft Convention was examined by the Legal Committee in
June 2016.
Against the background of the Resolutions adopted by the IMO Assembly
mentioned above which establish criteria for the adoption of new conventions,31
the Legal Committee considered that a compelling need for such a convention had
not been established. For this reason, the Committee did not accept to include this
subject in its work programme.32
In view of the position taken by IMO, the CMI approached UNCITRAL
suggesting that it might be interested in developing a convention dealing with this
issue. In June 2018 UNCITRAL decided to take up Cross-border issues relating to
the Judicial Sale of Ships on its work programme as one of its two priority subjects,
and a Working Group was given the mandate to study the issues involved.33

5 Future Challenges in the Light of Developments

in Shipping

It is submitted that, as a result of developments within the shipping industry,

solutions will have to be found to a number of legal issues in two areas, namely
shipping in the polar regions and the emergence of unmanned ships.

29
With regard to the work resulting in the draft convention see Bleyen (2016).
30
Proposal to add a new output to develop a new instrument on foreign judicial sales of ships;
document submitted to the IMO Legal Committee by China, the Republic of Korea and the CMI;
LEG103/11/3, dated 5 April 2016. The draft Convention is reproduced in Annex I to that document.
See also Lux (2015), p. 287.
31
See note 8 above.
32
LEG103/14 paragraph 11.15.
33
Report of UNCITRAL on its 51st session, document A.73/17 paragraph 252.
What Challenges Lie Ahead for Maritime Law? 267

5.1 Shipping in the Polar Regions

5.1.1 The Effect of Climate Change on Shipping

The climate change that has taken place in recent years has made the polar regions
more accessible to various activities, such as commercial shipping, offshore explo-
ration, fishing and tourism. The opening of new and revival of old transportation
routes in the Arctic, in particular the Northeast and Northwest Passages, has resulted
in shorter transport distances and consequently in significantly reduced costs for
commercial shipping, and these routes appear not to be exposed to maritime security
problems.34 The Northern Sea Route, which runs from the Barents Sea along Siberia
to the Bering Strait, is being explored but has not yet been used for regular traffic.
There is also substantial intra-regional traffic in the Arctic region, as well as fishing
activities, offshore exploration, operation of scientific research vessels and cruise
shipping. In the South Atlantic region there is so far only limited commercial
shipping but rather mainly fishing activities, operation of scientific research vessels,
tourism and cruise shipping. Forecasts indicate that polar shipping will expand over
the coming years.
Ships operating in the Arctic and Antarctic regions are exposed to a number of
unique risks. Poor weather conditions and the relative lack of good charts, commu-
nication systems and other navigational aids pose challenges for mariners. Cold
temperatures may reduce the effectiveness of components of the ship. When ice is
present, it can impose additional loads on the hull, propulsion system and equipment.
There is little infrastructure to support ships in transit, such as navigation aids, ports
and repair facilities. The remoteness of the areas makes search and rescue, salvage
and pollution response difficult and costly.35
The opening up of the polar regions to various maritime activities has made it
necessary to examine a number of international treaties, in both private and public
law, to consider whether they need to be amended to take into account the unique
conditions in these regions.

5.1.2 UNCLOS

UNCLOS contains an article (art. 234) dealing specifically with ice-covered areas.
States have, under that article, extensive powers to regulate international navigation
in ice-covered waters in their Exclusive Economic Zones (EEZ) for the purpose of

34
Legal and political problems have arisen due to the fact that the legal status of large stretches of
waters in Canadian and Russian areas is contested. See Chircop (2018); Skaridova and Skaridov
(2018), p. 472.
35
As regards sources of hazards of operation in polar waters, see the introduction to the International
Code for Ships Operating in Polar Waters (Polar Code) (2014), section 3.
268 M. Jacobsson

preventing, reducing and controlling vessel-source pollution.36 These powers are

significantly wider than the rights enjoyed by coastal States for other regions. Under
that Article, States may for ice-covered regions unilaterally introduce higher stan-
dards than those generally adopted through IMO, and some States have in fact done
so. It is unclear how these powers relate to the functions of IMO for the establish-
ment of international rules and standards for maritime safety, protection of the
marine environment and maritime security.37

5.1.3 The Antarctic Treaty

Large parts of the Southern Ocean are subject to the 1959 Antarctic Treaty and
associated legal regimes dealing with fisheries and protection of the environment.
The Antarctic Treaty applies to the area south of 60 South Latitude, including all ice
shelves. Under the Treaty (art. IV) no acts or activities taking place while the Treaty
is in force shall constitute a basis for asserting, supporting or denying a claim to
territorial sovereignty in Antarctica or create any rights of sovereignty in Antarctica.
No new claim, or enlargement of an existing claim to territorial sovereignty in
Antarctica shall be asserted while the Treaty is in force. Of particular interest in
the context of this chapter are Annexes IV and VI dealing with protection of the
environment and liability arising from environmental emergencies, respectively.
Annex VI (adopted in 2005) is not yet in force.38

36
Coastal States have under art. 234 the right to adopt and enforce non-discriminatory laws and
regulations for the prevention, reduction and control of marine pollution from vessels in ice-covered
areas within the limits of the EEZ, where particularly severe climatic conditions and the presence of
ice covering such areas for most of the year create obstructions or exceptional hazards to navigation,
and pollution of the marine environment could cause major harm to or irreversible disturbance of
the ecological balance.
37
As regards the relationship between UNCLOS art. 234 and IMO Conventions (in particular the
Polar Code), reference is made to Chircop (2016), pp. 281–284.
38
The original Signatories to the Treaty are the twelve countries that were active in Antarctica
during the International Geophysical Year of 1957–1958 and then accepted the invitation of the
Government of the United States to participate in the 1959 Diplomatic Conference at which the
Treaty was negotiated, namely Argentina, Australia, Belgium, Chile, France, Japan, New Zealand,
Norway, the Soviet Union (succeeded by the Russian Federation), South Africa, the United
Kingdom and the United States. These Parties have the right to participate in the Consultative
Meetings provided for in the Treaty. Forty-two other States having acceded to the Treaty are entitled
to participate in the Consultative Meetings during such times as they demonstrate their interest in
Antarctica by “conducting substantial research activity there”. Seventeen of the acceding countries
have had their activities in Antarctica recognized for that purpose. The other Non-Consultative
Parties are invited to attend the Consultative Meetings but do not participate in the decision-making.
What Challenges Lie Ahead for Maritime Law? 269

5.1.4 The Arctic Council

There is no corresponding regime for the Arctic region. There is, however, a regional
body created through the 1996 Ottawa Declaration on the Establishment of the
Arctic Council. The Council, which is essentially a political and not a regulatory
body, has as objective to promote cooperation, coordination and interaction among
the Arctic States, with the involvement of the Arctic indigenous communities and
other Arctic inhabitants on common Arctic issues.39 In 2013 the Council adopted an
Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in
the Arctic. In 2015 the Arctic Coast Guard Forum was established, designed to be an
operational entity for coordination of the use of resources. There is also an Arctic
Search and Rescue Agreement between the Council Members.40

5.1.5 Consideration of Polar Issues Within IMO and the Polar Code

The problems relating to polar shipping have been considered within IMO for a
number of years.41 IMO has declared the Antarctic a special area under MARPOL
Annexes I, II and V,42 whereas there are no similar declarations for the Arctic. IMO
has developed several Guidelines focussing on shipping in the polar regions.43 In
addition, in 2010 amendments were adopted to the 1978 Convention on Standards
for Training, Certification and Watchkeeping (STCW) that provide training guid-
ance for personnel serving on board ships operating in polar waters.
After lengthy preparations, in 2014/2015 the competent committees of IMO
(MSC and MEPC) adopted the International Code for Ships Operating in Polar

39
The following States are members of the Arctic Council: Canada, Denmark (representing
Greenland and the Faroe Islands), Finland, Iceland, Norway, the Russian Federation, Sweden and
the United States. Six organisations representing arctic indigenous peoples have status as Permanent
Participants. Observer status in the Arctic Council is open to non-arctic states, along with inter-
governmental, inter-parliamentary, global, regional and non-governmental organisations that the
Council determines can contribute to its work. Thirteen non-arctic States have observer status:
China, France, Germany, India, Italy, Japan, Netherlands, Poland, Republic of Korea, Singapore,
Spain, Switzerland and the United Kingdom.
40
National oil spill response preparedness for the Arctic States is described by Rosenberg Overby
(2015), pp. 403–408.
41
Stemre (2018), p. 232.
42
These Annexes refer to prevention of pollution by oil, noxious liquid substances and garbage
from ships, respectively. Special areas are provided a higher degree of environmental protection
under MARPOL than other areas.
43
The 2002 Guidelines for Ships Operating in Arctic Ice-covered Waters (MSC/Circ. 1056),
replaced in 2009 by Guidelines for Ships Operating in Polar Waters (Resolution A.1024(26))
which apply to both the Arctic and the Antarctic area, the 2007 Guidelines on Voyage Planning
for Passenger Ships Operating in Remote Areas (Resolution A.999(25)) and the 2009 Guidelines
for Cruise Ships Operating in Polar Waters (Resolution A.1024(26)).
270 M. Jacobsson

Waters (the Polar Code)44 and related amendments to make the Code mandatory
under both SOLAS and MARPOL.45 The Polar Code, which entered into force on
1 January 2017, covers safety, design, construction, equipment, operations, man-
ning, training, search and rescue and environmental protection matters relevant to
ships operating in the waters surrounding the two poles.46
It is generally considered that the Polar Code contains satisfactory solutions to
most issues relating to shipping in the polar regions. A number of issues that were
raised during the preparatory work were, however, not dealt with in the Code, and on
some points the Code does not satisfy some Arctic States which consider that the
standards set therein are too low.47 Work to improve the Code is being carried out
within IMO. It can be expected that the Polar Code will be updated periodically to
take into account developments and experiences in polar shipping.
Some Arctic Coastal States have national legislation which may on specific points
not be in conformity with the Polar Code and related amendments to SOLAS and
MARPOL.48 If such national legislation relates to the design, construction, manning
or equipment it may potentially be in conflict with UNCLOS article 21(2), which
provides that a costal state may apply national rules and standards to foreign flagged
vessels in innocent passage only when they give “effect to generally accepted
international rules or standards”.49
The adoption of the Polar Code should significantly reduce the need for States to
invoke jurisdiction under article 234 of UNCLOS. Some Arctic States do however

44
As regards the development of the Polar Code, see Stemre (2018), pp. 237–247. An overview of
the Code from a Danish (Greenlandic) perspective is given in Rosenberg Overby (2015),
pp. 400–403. The sufficiency of the Polar Code for polar shipping needs is discussed by Chircop
(2016), p. 284. See also Fedi and Faury (2016), p. 323.
45
Since the Code addressed both maritime safety and environmental issues, the Code and related
amendments to SOLAS and MARPOL were adopted at separate but coordinated meetings of the
MSC in November 2014 (MSC Resolution 385(94)) and the MEPC in May 2015 (MEPC Resolu-
tion 265(68)). Amendments were also made to the STCW and the related Code.
46
See also Ringbom (2017), p. 23.
47
A few examples of this criticism can be given: The Polar Code does not ban the use of heavy fuel
oil as fuel or the carriage of such oil as cargo in the Arctic, unlike what is the case for the Southern
Ocean (MARPOL Annex I, Regulation 43). It does not address the problems relating to vessels not
covered by SOLAS, such as fishing vessels. The provisions on life saving appliances are said not to
be sufficiently precise and the problems faced by radio-communications in the Arctic not having
been properly addressed. Tandem travelling (i.e. passenger ships operating in pairs) as a mean of
safety for passenger vessels is not mentioned but is actually imposed in Greenland as part of the
requirements under the 1979 Convention on Maritime Search and Rescue (SAR). See Fedi and
Faury (2016), p. 334.
48
See Chircop (2016), pp. 276, 286–290, in particular his observations on the Canadian and Russian
legislation.
49
As regards the implementation of the Polar Code into national legislation and the criticism of the
Polar Code reference is made to the following articles published in Journal of International
Maritime Law, Issue 6 (2018): Chircop et al. (2018); Rosenberg Overby (2018); Røsæg (2018);
Skaridova and Skaridov (2018); Bühler (2018).
What Challenges Lie Ahead for Maritime Law? 271

still invoke that article to justify some requirements in their national legislation that
are stricter than the Code.50

5.1.6 Consideration Within the CMI

The CMI has for a number of years taken great interest in polar issues. In 2011 the
CMI established an International Working Group with the mandate to identify for
study legal issues involving the Arctic Ocean and the Antarctic’s Southern Ocean in
view of climate change and increased shipping in the polar regions.51
The CMI Working Group has examined issues relating to load lines in polar
shipping, the application of the Convention on International Regulations for
Preventing Collisions at Sea (COLREG) in polar environments and cruise passenger
rights in Arctic and Antarctic waters, as well as the liability Annex (Annex VI) to the
Protocol to the Antarctic Treaty. Some issues concerning that Annex have been
raised by the International Group of P&I Associations (P&I Clubs).52

5.1.7 Legal Issues to Be Considered

It would go beyond the scope of this chapter to make a detailed analysis of the issues
that need to be considered in order to ensure that international maritime law is
adapted, where necessary, so as to be appropriate for shipping in the polar regions.
Some issues will however be discussed below.
The Polar Code and the related provisions in SOLAS and MARPOL are mainly
of a technical character. A number of other treaties would however also need to be
examined to establish whether they should be amended to take into account the
special conditions in the polar regions. For instance, it may have to be considered
whether special provisions in relation to polar shipping are needed in the Convention
on Load Lines and COLREG. Also treaties dealing with civil law matters ought to be
examined.
As regards civil liability for vessels-source oil spills, there is a difference between
the legal situation in the north and the south polar regions.53 In the Arctic region the
coastal States have in place legislation dealing with liability and compensation
which, with one exception, is based on conventions adopted under the auspices of

50
Chircop et al. (2018), p. 450; Rosenberg Overby (2018), p. 457; Røsæg (2018), p. 468; Skaridova
and Skaridov (2018), p. 480; Bühler (2018).
51
Chircop (2012).
52
The main providers of shipowners’ third party liability insurance are the Protection and indemnity
Associations (P&I Clubs) which are mutual insurers. The International Group of P&I Associations
is a group of 13 P&I Clubs that collectively provide liability insurance for some 90% of the world’s
ocean-going tonnage and for some 95% of the world’s ocean-going tanker tonnage.
53
Rosenberg Overby (2015), p. 360.
272 M. Jacobsson

IMO, i.e. the 1992 Civil Liability Convention,54 the 1992 Fund Convention,55 the
2003 Supplementary Fund Protocol56 and the 2001 Bunkers Convention.57 The
United States, which is not a party to any of these Conventions, has comprehensive
national legislation in this field, the Oil Pollution Act 1990 (OPA-90). Liability for
pollution caused by non-persistent oil and other substances than oil is governed by
the domestic law of the coastal States since the 2010 Convention dealing with these
matters, the HNS Convention,58 is not yet in force.
It appears that the above-mentioned treaties on liability and compensation do not
need any amendments as regards the Arctic region. Another question is whether the
amounts available for compensation under these treaties (in particular those under
the Bunkers Convention which provides for only fairly low limitation amounts)
would be sufficient in case of major oil spills in the remote Arctic region where lack
of oil combatting equipment, personnel and vessels and the severe climatic condi-
tions would make pollution response very difficult and costly.
With regard to pollution liability in the Antarctic, the legal situation is unclear.
This is due to the fact that the liability conventions referred to above apply to
pollution damage caused and measures to prevent or minimize pollution damage
taken in the territory, territorial waters and EEZ of the States parties, but do not apply
to damage caused and measures taken on the high seas. As mentioned above, no
State may under the Antarctic Treaty claim territorial sovereignty in the Antarctic.
Consequently, there are no coastal States, territorial waters or EEZ in that region. It
submitted, therefore, that these Conventions do not apply to damage caused or
measures taken in the Southern Polar region.59

54
The 1992 International Convention on Civil Liability for Oil Pollution Damage.
55
The 1992 International Convention on the Establishment of an International Fund for Compen-
sation for Oil Pollution Damage.
56
The 2003 Protocol to the 1992 Fund Convention; the Protocol has not been ratified by the Russian
Federation and Iceland.
57
The 2001 International Convention on Civil Liability for Bunker Oil Pollution Damage.
58
The 2010 International Convention on Liability and Compensation for Damage in Connection
with the Carriage of Hazardous and Noxious Substances by Sea.
59
The 1992 Civil Liability Convention (and by reference the 1992 Fund Convention and the 2003
Supplementary Fund Protocol) apply to pollution damage caused in the territory, territorial sea and
the EEZ of a State party and to measures, wherever taken, to prevent and minimize such damage
(art. II). The Bunkers Convention and the HNS Convention contain an identical provision. It has
been argued that, as a result of the inclusion of the words wherever taken, preventive measures fall
within the scope of the treaties even if the measures were taken to prevent or minimize damage on
the high seas. The generally accepted interpretation is, however, that the words such damage restrict
the application to measures taken to prevent or minimize damage that is or would have been covered
by the treaties, i.e. damage in the territory, territorial sea or EEZ. This is the position taken by the
International Oil Pollution Compensation Funds; see Claims Manual (October 2016 edition),
paragraph 1.4.4, and Guidelines for presenting claims for clean-up and preventive measures
(2018 edition), paragraph 1.11, both adopted by the 1992 Fund Assembly. See also Jacobsson
(2016a), p. 294.
What Challenges Lie Ahead for Maritime Law? 273

The legal uncertainty in respect of civil liability should be greatly reduced when
Annex VI to the Antarctic Treaty Protocol on Liability Arising from Environmental
Emergencies enters into force and its provisions have been implemented in the
national legislation of the States parties.
Under Annex VI the States parties shall require their operators who carry out
activities in the Antarctic Treaty area to undertake reasonable preventative measures
that are designed to reduce the risk of environmental emergencies and their potential
adverse impact. Such operators shall be required to take prompt and effective
response action to environmental emergencies arising from their respective
activities.
The liability regime to be created by Annex VI is very similar to that under the
1992 Civil Liability Convention which governs liability for spills from oil tankers.
An operator who fails to take prompt and effective response action shall under the
Annex have strict liability for the costs of response action taken by States parties. He
will have only very limited defences, namely that the emergency was caused by an
act necessary to protect human life, a natural disaster of an exceptional character or
an act of terrorism. The operator shall cover his liability by insurance. He is entitled
to limit liability to an amount determined on the basis of the tonnage of his vessel.60
The Annex shall not affect the right to limit liability under any applicable limitation
of liability treaty, provided the limits under such a treaty are no lower than those set
out in the Annex. Pursuant to the Annex a fund should be established to provide for
the reimbursement of reasonable and justified response costs incurred by a State
party, but there is no indication of how this fund would be financed or how it would
operate.61
Also as regards the Antarctic region, pollution response would be very difficult
and costly due to the remoteness of the area and the severe climatic conditions. For
this reason, and in view of the operator’s fairly low limitation amounts under the
Annex, it is unlikely that the amount available would be sufficient to cover the costs
of response to a major oil spill. It would be very useful, therefore, if, as envisaged in
the Annex, a fund could be established that would pay additional compensation,
when required. A positive factor is, however, that the use of heavy fuel oil as fuel or
the carriage of such oil as cargo is prohibited in the Antarctic which should prevent
spills of such oil that normally give rise to very costly response operations.62
There are also other treaties that are relevant for the protection of the environment
in the polar regions. Suffice to mention the 1990 Convention on Oil Pollution
Preparedness, Response and Cooperation (OPRC), the 2000 Protocol to the OPRC
on Preparedness, Response and Cooperation to Pollution Incidents by Hazardous
and Noxious Substances (OPRC—HNS Protocol), the 1989 Convention on Salvage

60
These limits are identical to those laid down in the 1976 Convention on Limitation of Liability for
Maritime Claims as amended by the 2002 Protocol thereto.
61
For an analysis of the issues relating to civil liability see CMI International Working Group on
polar shipping, (2017).
62
MARPOL Annex I, Regulation 43.
274 M. Jacobsson

and the 2007 Nairobi Convention on the Removal of Wrecks, as well as the 1969
Convention Relating to Intervention on the High Seas in Cases of Oil Pollution
Casualties and the 1973 Protocol Relating to Intervention on the High Seas in Cases
of Marine Pollution by Substances other than Oil. It is suggested that also these
treaty instruments ought to be examined to establish whether they need to be
amended to take into account the special conditions in the polar regions.

5.2 Unmanned Ships

5.2.1 The Concept of ‘Unmanned Ships’

The term ‘unmanned ship’ refers to a ship that has no crew members on board. There
are two main categories of such ships.
The first category comprises vessels that are controlled remotely by a controller
located either on shore or on a mother vessel using electronic computer equipment.
The controller uses either line-of sight communication or a global positioning system
to control the vessel and is assisted by cameras and censors fitted on the ship. These
vessels are generally referred to as remotely controlled unmanned craft. It could be
argued, however, that such vessels are not really unmanned, because they are
‘manned’ by individuals although these individuals are not on board the ship.
The second category comprises vessels that are pre-programmed and use a
combination of sonar radar, advanced computer software and very fast algorithms
which enable the vessel to follow a pre-programmed navigational course without any
human intervention. Vessels in this category are generally referred to as autonomous
unmanned vessels. Such vessels may be either unsupervised or supervised by a
shore-based remote controller.
These two modes of operation may be used consecutively on the same voyage.
The vessel could for instance be fully autonomous in open waters but remotely
controlled during other parts of the voyage.
This distinction between these two categories is however too simplistic. There are
in fact craft of a number of different degrees of autonomy, dependent on the extent to
which tasks traditionally carried out by crew members on board are instead
performed through machinery located outside the ship.63

5.2.2 Future Role of Unmanned Ships

It is likely that unmanned ships will play an important role in shipping in the future.
Research in this field is being carried out in a number of countries. Unmanned
vessels are at present used mainly by the marine scientific research communities and

63
For a detailed discussion of this issue see Ringbom (2019), p. 2.
What Challenges Lie Ahead for Maritime Law? 275

in the defence sector. The unmanned vessels of today are fairly modest in size but
prototypes are being developed of unmanned container carriers and passenger liners.
So far, it appears that autonomous vessels will in the beginning be used on relatively
short voyages in inland waters or close to the shore. The use of unmanned vessels, in
particular fully autonomous unmanned vessels, on longer ocean voyages for com-
mercial carriage of goods and passengers lies probably further in the future.
Unmanned vessels can provide advantages with respect to operating costs. They
may also potentially have benefits from an environmental point of view as a result of
a reduction of emissions of greenhouse gases.
Statistical data indicate that some 60% of all maritime accidents are caused by
human error.64 It has been suggested, therefore, that the use of unmanned vessels
would significantly reduce the number of such accidents. On the other hand, many
accidents are avoided by human intervention. The consequences of a maritime
accident involving an unmanned craft may also be more severe than if the ship
had been manned, since in the case of unmanned ships there would be no crew on
board who could intervene rapidly and mitigate the damage. For instance, in an
incident involving fire there would be no crew who could act as fire fighters, and in
the case of an oil spill from an unmanned vessel there would be no crew who could
intervene rapidly to combat the spill. In addition, unmanned vessels may cause new
types of maritime accidents.

5.2.3 Consideration of Issues Relating to Unmanned Ships

in Various Fora

The introduction of unmanned vessels will present many challenges from a technical
point of view, in particular as regards the safety of operation of such vessels. These
aspects will, however, not be discussed in this chapter, which will focus on the legal
issues that will have to be considered.
The legal problems caused by the operation of unmanned vessels have for some
years been discussed in the academic community.65 These issues have also been
examined by a number of governments66 as well as by the industries concerned,
e.g. by shipowners through the International Chamber of Shipping (ICS),67 by
insurers through the Insurance Institute of London and the International Group of
P&I Associations, as well as by classification societies. As will be set out below,
issues relating to unmanned ships are at present being considered within IMO and by
the CMI.

64
Chuah (2016).
65
Ringbom et al. (2016), pp. 35–55; Hooydonk (2014); Veal and Tsimplis (2017); Carey (2017);
Ringbom (2019); Chami (2018).
66
See for instance Danish Maritime Authority (2017).
67
Hamburg School of Business Administration (HSBA) (2018).
276 M. Jacobsson

In 2015 the CMI set up an International Working Group on Maritime Law for
Unmanned Craft to consider the challenges presented by ships operating without
crews. In 2017 the Working Group prepared a position paper discussing the effects
of the emergence of unmanned vessels on the regulatory maritime framework in
certain international treaties (UNCLOS, SOLAS, COLREG. STCW and MARPOL),
as well as questions of civil and criminal liability.68
In the CMI position paper it is suggested that there are three main kinds of rules to
be distinguished in this context. There are jurisdictional rules setting out States’
rights and obligations to take measures in respect of ships, and these rules are mainly
laid down in UNCLOS. In addition, there are technical rules relating to inter alia
safety, environment and training and watchkeeping standards. These technical rules
are generally adopted by special agencies of the United Nations, notably by IMO.
Finally, there are provisions of a private law character for purpose of harmonising
maritime law regarding for instance civil liability for pollution, limitation of liability,
collisions and losses relating to cargo.69
The CMI Working Group carried out an analysis of the main provisions of the
most relevant IMO Conventions to establish how these provisions could apply to
unmanned ships. This exercise resulted in the identification of three categories of
provisions, i.e. those that required amendment, those that required clarification and
those that were deemed not to require any action.70
In June 2017 the IMO Maritime Safety Committee decided to include in its work
programme a regulatory scoping exercise to establish the extent of the need to amend
the regulatory framework to enable the safe, secure and environmentally sound
operation of Maritime Autonomous Surface Ships (MASS) within the existing
IMO instruments.71
Substantive discussions of this issue were held at the MSC sessions in May and
December 2018 on the basis of numerous documents submitted by Governments and
non-governmental organisations containing observations on various aspects of the
issue. At the latter session the MSC approved a framework for a regulatory scoping
exercise and invited Member States to volunteer to lead or support the initial review
of specific instruments, and a number of States did volunteer to take part in such a
review. The purpose of the exercise is to identify problems that unmanned ships raise

68
CMI, “Position Paper on Unmanned Ships and the International Regulatory Framework”. An
abridged version of the Position Paper prepared by Veal and Ringbom (2017).
69
The CMI Working Group had sent a questionnaire to 52 National Maritime Law Associations to
establish how national laws will respond to unmanned vessels in the context of various international
Conventions, including UNCLOS and a number of IMO instruments; replies were received from
23 of these Associations.
70
A document outlining the work carried out by the CMI Working Group was presented to the May
2018 session of the MSC (MSC 99/INF.8). The following Conventions had been analysed: SOLAS,
MARPOL, COLREG, STCW, FAL, Convention on Maritime Search and Rescue (SAR), Conven-
tion for the Suppression of Unlawful Acts against the Safety of Maritime Navigation (SUA), and
Convention on Salvage.
71
MSC 98/23, paragraph 20.2.
What Challenges Lie Ahead for Maritime Law? 277

in respect of these instruments, and as a second step, to analyse possible solutions to

these problems. The intention is that the exercise should be completed in 2021. The
MSC also agreed to the development of interim guidelines for trials involving such
ships.72 These issues were discussed further at the Committee’s June 2019 session.73
For the purpose of the scoping exercise, a Working Group set up by the MSC
identified four degrees of autonomy: (1) ships with automated processes and deci-
sion support, (2) remotely controlled ships with seafarers on board, (3) remotely
controlled ships without seafarers on board, and (4) fully autonomous ships whose
operating system is able to make decisions and determine actions by itself. The
Working Group established a list of the treaty instruments that would be reviewed
(SOLAS, STCW, COLREG, Convention on Load Lines, Convention for Safe
Containers and SAR).74
In addition, in April 2018 the IMO Legal Committee decided to include in its
work programme a regulatory scoping exercise and gap analysis of conventions
under its purview with respect to Maritime Autonomous Surface Ships, for the
purpose of establishing the extent to which the international regulatory framework
should be modified to integrate the new and advancing technology of such ships. The
Committee invited delegations to submit concrete proposals for a plan of action.75 In
March 2019 the Committee approved a framework for the scoping exercise which
should deal with the treaties under its purview.76
In October 2018 the Marine Environment Protection Committee decided to
consider the matter of a regulatory scoping exercise when significant progress had
been made by the MSC.77 The Facilitation Committee decided, in April 2019, to
include such a scoping exercise in its work programme.78
It would fall outside the framework of this chapter to discuss in any detail the
various issues that will have to be considered in the context of the adaptation of
maritime law to unmanned ships. Nevertheless, in order to illustrate the difficulties
that will be encountered, some examples of pertinent questions are given below. The
legal solutions will differ dependent on the level of autonomy of the ship in various
respects, for instance as regards the level of manning, whether the bridge is
unmanned permanently or periodically, the performance of watchkeeping, the orga-
nisation and location of any remote control function, and the control over naviga-
tional decisions.79

72
MSC 100/20 paragraphs 5.23 and 5.28.
73
MSC 101/24 section 5.
74
Report of the Working Group (MSC 100/WP.8).
75
LEG 105/14 paragraph 11.11.
76
LEG 106/16 Annex 3.
77
MEPC 73/19 paragraph 2.3.
78
FAL 43/20 paragraph 19.9.
79
See Ringbom (2019), p. 2.
278 M. Jacobsson

5.2.4 Are Unmanned Craft ‘Ships’ for the Purpose of International

Conventions?

A fundamental issue relates to the concept of ‘ship’ or ‘vessel’, which in some

conventions (including UNCLOS) is not defined and the definitions that exist vary
from one convention to another.80 The definitions of ‘ship’ in a number of national
legislations also differ. The question arises as to whether ‘ships’ without any crew on
board can be regarded as ships or vessels within the meaning the international
conventions; is the presence of a master and crew on board a prerequisite for a
craft being a ship? Neither the definition of ‘ship’ in UNCLOS nor the definitions in
other international treaties make this an explicit prerequisite.
If unmanned craft are not ships for the purpose of UNCLOS, the question arises
as to whether the freedoms of the high seas and the rights of innocent passage
through the territorial sea and transit passage through straits for international navi-
gation would apply to them. It could also be maintained that in such a case the
requirements and provisions in international treaties applying to ships, e.g. those
relating to construction, equipment, manning, training and qualifications, seawor-
thiness, liability and limitation of liability, would not apply to unmanned craft. In
addition, it could be argued that if such craft were not considered to be ships, they
would fall outside the competence of IMO.81
It is submitted that unmanned craft used commercially are very similar to
conventional craft as regards construction and perform the same functions as
manned ships, e.g. to carry goods and passengers. As mentioned above, significant
problems would arise if unmanned craft were considered to fall outside the concept
of ship. There appears to be no strong reasons for unmanned craft being treated
differently than other ships for the purpose of the international regulatory frame-
work, provided they comply with the necessary safety requirements.
Assuming that unmanned craft were to be considered ‘ships‘ for the purpose of
the international regulatory framework, they would enjoy the same rights under this
framework as manned ships, e.g. navigational freedom and the right of limitation of
liability, and the restrictions of coastal states’ jurisdiction as regards foreign ships
would apply to them.
If unmanned craft were considered to be ‘ships’, they would obviously have to
comply with the requirements laid down in various maritime regulations and rules.
Here problems arise.

80
Loewe (2011).
81
For a discussion of this question see Veal and Tsimplis (2017), pp. 308–314; Daum and
Stellpflug (2017).
What Challenges Lie Ahead for Maritime Law? 279

5.2.5 Legal Issues to Be Considered

The existing regulatory framework for conventional ships has been developed on the
assumption that there is a crew on board. It is suggested, however, that it would not
be meaningful to develop a special regulatory regime for unmanned ships. Conse-
quently, it would be preferable to adjust the existing regulatory framework so as to
make it applicable to such craft. The legal issues that arise will depend on the degree
of autonomy of the vessel.
Many provisions in various treaty instruments, although not explicitly requiring a
master and a crew on board, make no sense with regard to unmanned vessels or at
least give rise to difficulties of interpretation and application, for instance provisions
relating to the role of the master,82 the manning of vessels and the training of crews.
An important issue in the context of unmanned vessels is therefore how such
provisions in the treaty instruments (e.g. SOLAS and STCW) should be interpreted
and applied.
Under UNCLOS, flag states must ensure that each ship is in the charge of a master
with appropriate qualifications in seamanship, navigation, communications and
marine engineering (art. 94(4)(b)). Could the person who operates a ship remotely
be considered as the master of that vessel and, if so, what qualifications should be
required of such an operator? Would there be any person who could be considered
the master of a fully autonomous unmanned vessel? There are provisions on
manning of vessels in UNCLOS (art. 94(4)(b)) and SOLAS (Annex, Chapter V)
that seem difficult to apply to unmanned vessels.
The question could be raised as to whether Article 94 of UNCLOS would prevent
IMO from regulating autonomous vessels. It is submitted that IMO is entitled to do
so and that pursuant to Article 94, IMO’s endorsement is a condition for the legality
of such regulations.83
Another issue is how the international uniform standards on construction, equip-
ment and seaworthiness should be applied to unmanned vessels. Problems will arise
in the application to unmanned vessels of the concept of good seamanship and
regulations in COLREG concerning look-out requirements, collision avoidance,
signalling and communications, as well as regarding the duty to render assistance
to persons in danger or distress. The question also arises how to apply the law
relating to pilotage to unmanned ships. With respect to passenger ships without a
crew on board, how would passengers be evacuated in an emergency situation?84
It should be noted that some treaties, e.g. SOLAS, leave decisions on manning of
vessels to the competent authority of the flag state, and it is not explicitly required

82
See for instance the Hague-Visby Rules that provide for certain duties relating to the cargo to be
performed by the master and the crew; these provisions could hardly be complied with if the ship is
unmanned. See also Carey (2017), p. 213.
83
Ringbom (2019), p. 21.
84
For an analysis of these questions see Veal and Tsimplis (2017), pp. 314–330; Carey (2017),
pp. 203–219; Ringbom (2019), pp. 10–14.
280 M. Jacobsson

that the crew should be located on board the ship. Unmanned ships would however
have difficulties if meeting the detailed requirements on watchkeeping in STCW.85
More fundamental legal questions arise when the role of the crew in taking
operative decisions, for instance concerning navigation of the vessel, is taken over
by technology. In such a case the technical equipment will act autonomously without
involvement of the crew, at least temporarily. Many of the technical rules do not
indicate who should take a particular decision but only specify which functions
should be performed, and it appears that the application of these rules to autonomous
vessels should not cause major difficulties from a legal point of view. A more
difficult question is whether and, if so, to what extent provisions that explicitly
require human judgment in the decision-making (e.g. certain provisions in
COLREG) could be applied to autonomous vessels.86
It would also be necessary to examine whether special provisions would be
required as regards classification of unmanned ships.87 This issue is being consid-
ered by the classification societies.88 Issues of insurability of unmanned craft will
also have to be addressed.
Another set of issues that will have to be considered is the potential civil liability
that may arise in relation to the operation of unmanned ships and related insurance
aspects. It appears that the IMO liability conventions which impose strict liability on
the shipowner (in the Bunkers Convention also on the ship’s operator, manager and
charterer), coupled with an obligation to cover this liability with insurance, could be
applied also to unmanned ships.
Special problems relating to civil liability will, however, arise in respect of
unmanned ships. What would be the legal liability of the shipowner if an accident,
e.g. a collision, occurs as a result of software problems caused by a third party, such
as the manufacturer of the automation system? Should liability be imposed on a
remote controller of an unmanned ship who has caused an incident while actually
being in command of the ship; if so, what should be the basis of the controller’s
liability (i.e. strict liability or liability based on fault) and would he be entitled to
limitation of liability? Should the manufacturer of a defective individual component
or the software designer who has caused or contributed to a maritime accident be
liable under the various treaties? Who should be liable if an accident were caused as
a result of interruption of communications between an onshore located control centre
and the vessel due to radio disturbances?
In some IMO liability conventions there are provisions channelling the liability to
the shipowner, excluding (except in rare cases) certain persons from liability,

85
For a detailed analysis of this issue see Ringbom (2019), pp. 16–21.
86
Ringbom (2019), pp. 12–14.
87
See Section 3.4 of CORE Advokatfirma, Aarhus (Denmark) and the Nordic Association of
Marine Insurers (CEFOR), Oslo (Norway) (2018).
88
DNVGL Class Guideline, Autonomous and remotely operated ships (September 2018); Lloyd’s
Register, LR Code for Unmanned Marine Systems (February 2017). International Association of
Classification Societies (IACS), Position paper on MASS. published in March 2019 on IACS.org.
uk.
What Challenges Lie Ahead for Maritime Law? 281

e.g. charters, managers and operators of the ship, as well as persons not being
members of the crew who carry out services for the ship. Should such channelling
provisions protect a remote controller, manufacturer or software designer against
liability? If liability were to fall on such a controller, manufacturer and software
designer, the distribution of liability between the shipowner and these persons would
have to be considered. Furthermore, how would the provisions on distribution of
liability in the 1910 Convention on the Unification of Certain Rules of Law relating
to Collision Between Vessels be applied in case one of the colliding vessels were
unmanned? Issues of criminal liability will also have to be addressed.
Civil liability and insurance issues are being considered within the International
Group of P&I Associations.89
It is submitted that the international community should review and update the
international legal framework so as to ensure that it will function properly and safely
in the new technological environment created by the emergence of unmanned
vessels. The conditions laid down in the IMO Assembly Resolutions for amending
existing treaties mentioned above appear to be fulfilled, i.e. that there is a clear and
well-documented compelling need.90
In such a review distinction should be made between remotely controlled
unmanned ships, on the one hand, and autonomous vessels operating without direct
human supervision and control, on the other hand. As regards remotely operated
ships, for most provisions in the treaty instruments it would probably be sufficient to
make clarifications or modest amendments, whereas more significant amendments or
additions might be required as regards autonomous unmanned ships.

5.2.6 Methods for Adapting the Regulatory Framework

An important question is which methods should be used for adapting the relevant
international treaties to the new shipping environment involving unmanned craft.91
The traditional solution would be to amend each relevant provision in the above-
mentioned instruments so as to clarify its applicability to unmanned vessels and
ensure that these provisions make sense when applied to such vessels. Under this
procedure each treaty instrument would have to be examined provision by provision,
which appears to be the purpose of the scoping exercises carried out by the MSC and
the Legal Committee, and agreement would have to be reached within the competent
bodies of IMO on all these amendments. It should be noted that a scoping exercise of
existing conventions will not address issues relevant to unmanned vessels that are
not dealt with in these treaty instruments.

89
See CORE Advokatfirma, Aarhus (Denmark) and the Nordic Association of Marine Insurers
(CEFOR), Oslo (Norway) (2018).
90
See note 8.
91
As regards methods for adapting maritime law to the emergence of unmanned vessels, see
Eder (2018).
282 M. Jacobsson

Another option would be to develop a new special convention addressing the

legal issues that relate to various types of unmanned ships. It is submitted that this
would not be a practical solution.
It has been suggested that a partial solution could be to adopt a new overriding
treaty addressing special problems relating to unmanned vessels.92 Such an overrid-
ing treaty could, for example, clarify the meaning of certain generic words and terms
for all these Conventions, for instance the terms of ‘ship’ and ‘master’, i.e. whether
these terms would apply to unmanned vessels of various types and cover shore-
based personnel, and how the regulations would apply when command and control is
exercised from the shore. If this approach were to be taken, it would not be necessary
to make amendments as regards these words and terms in each of the treaty
instruments. It is recognised, however, that it would not be easy—or rather that it
would most likely be immensely difficult—to reach agreement within the IMO
bodies and at a Diplomatic Conference on the content of such an overriding treaty.
In addition, the treaty would have to be ratified in order to be binding for a particular
State, and it would certainly take many years before most of the States parties to the
old Conventions had become parties to this new treaty.
Many of the required amendments relating to provisions of a technical character
in existing treaty instruments could probably be agreed by using the tacit acceptance
procedure, that is be adopted by qualified majority decision by the competent IMO
Committee, in which case the amendment once in force would be binding for all
States parties to the treaty. Other amendments, in particular those relating to con-
ventions in the field of civil or criminal law, would have to be submitted to a
Diplomatic Conference for adoption, followed by ratification by States parties, and
as a result it would take many years before these amendments would have universal
application.
As regards the treaties under the competence of IMO, it might be feasible to
achieve acceptable results, at least for an interim period, through Resolutions
adopted by the IMO Assembly on the interpretation or clarification of selected
provisions in the various treaties. Contrary to formal amendments of treaties, such
Resolutions would not, however, be legally binding on the States parties or on
national courts. It should nevertheless be possible by this method to arrive at a fairly
high degree of uniformity as regards the application of a large number of provisions
to unmanned ships, in particular since the decision-making in the IMO bodies is
traditionally based on the consensus principle.93
The method to use Interpretative Resolutions by the IMO Assembly could not be
applied, however, if formal amendments to the relevant treaty provisions are
required (e.g. concerning STCW watchkeeping provisions). In addition, that method
could not be used as regards provisions in UNCLOS or in other treaties that have not

92
Eder (2018).
93
Reference should be made to art. 31 of the Vienna Convention on the Law of Treaties which
provides that in the interpretation of a treaty account shall be taken of agreement between the States
parties to the relevant treaty and subsequent practise regarding its interpretation and application.
What Challenges Lie Ahead for Maritime Law? 283

been developed under the auspices of IMO. It appears doubtful whether there are any
bodies that could exercise for these treaties a role corresponding to that of the IMO
Assembly.94
As mentioned above, the conditions laid down in the IMO Assembly Resolutions
for amending existing treaties should be considered fulfilled. So far, the experience
of the operation of unmanned craft is, however, fairly limited. It might be appropri-
ate, therefore, to take some caution in adopting formal amendments to the relevant
treaty instruments already at this stage. As regards many provisions in these treaties
relevant to unmanned ships, there is a latitude of interpretation, and the competent
national authorities have a considerable flexibility and discretion concerning their
application to unmanned ships, in particular as regards remotely controlled craft.
Consideration might also be given to the development by IMO of guidelines for
existing types of unmanned craft which could be adjusted in the light of technical
developments.95
In view of the uncertainty that exists as regards the applicability and interpretation
of a large number of provisions in the international regulatory framework with
respect to unmanned ships, it is important that the work in the competent committees
of IMO is pursued. It is submitted that, due to the complexities of the issues
involved, it will often be difficult during this exercise to reach agreement between
IMO member States with varying interests in respect of shipping policy in general
and as regards unmanned ships in particular. The review of the regulatory framework
and the adoption of amendments to the relevant treaty instruments and of various
types of Resolutions will most likely take a considerable time. It is crucial that IMO
and the committees involved are given sufficient resources in terms of meeting time
and staff, and that the delegations to these committees do their homework between
meetings so that the completion of the work will not be unnecessarily delayed.

6 Concluding Observations

It should be emphasized that law is not static but should develop to take into account
changes in society and in economic and social circumstances as well as technolog-
ical developments, in order to ensure that the law meets the requirements of modern
society in a rapidly changing world. This applies equally to national laws and to
international treaties, although it is much more difficult to amend international
treaties than national laws.

94
Pending the result of the review of the international regulatory framework, various stakeholders,
mainly in the unmanned maritime industry, have commenced to prepare codes of practice for
unmanned operations. Sometimes this work is being carried out in collaboration with national
maritime authorities. Such codes could serve as interim solutions pending the result of the work
undertaken within IMO.
95
For a detailed discussion of these issues see Veal and Tsimplis (2017), pp. 331–335; Veal and
Ringbom (2017), p. 115; Ringbom (2019), p. 20.
284 M. Jacobsson

It is suggested that significant work will have to be carried out for the purpose of
adapting maritime law so as to take into account recent developments, such as the
emergence of unmanned ships, climatic changes and enhanced environmental con-
cerns. This would no doubt represent major challenges not only for States and
intergovernmental organisations such as IMO, but also for all stakeholders involved
in or affected by the shipping industry. It is important that the international commu-
nity will be able to meet these challenges.
It is not sufficient, however, that treaties are adopted and properly updated. It is
also crucial that the conventions and codes relating to shipping are correctly
implemented into national law.96 Many countries are experiencing difficulties in
this regard due to lack of personnel with the necessary expertise. For this reason,
institutions such as the World Maritime University (WMU) and the IMO Interna-
tional Maritime Law Institute (IMLI) play an important role in generating national
expertise for the effective implementation of the treaty instruments. In addition,
through its Technical Co-operation Programme IMO assists countries in building up
their human and institutional capacities. It is also imperative that these treaty
instruments and the implementing legislation are faithfully applied by national
courts and other public authorities and that the regulations and rules are respected
by all stakeholders.
In this context reference should be made to the IMO Member State Audit Scheme
which has the purpose to establish the extent to which Member States give effect to
their obligations under a number of IMO instruments. The scheme was originally
voluntary but became mandatory from 1 January 2016. At present the scheme
includes SOLAS, MARPOL, STCW, COLREG, the Convention on Load Lines
and the Convention on Tonnage Measurement of Ships, and it may in the future
expand to cover also other instruments. The scheme may contribute, in the medium
and long term, to enhancing the correct implementation and enforcement of IMO
mandatory instruments.
Only if all the conditions mentioned above are met will it be possible for IMO’s
motto of safe, secure and efficient shipping on clean oceans to be satisfied, and for
shipping to make its contribution to the fulfilment of the United Nations 2030
Agenda for Sustainable Development and the associated Sustainable Development
Goals.

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Sanctions Compliance Risks
in International Shipping: Closure of Five
Crimean Ports, the Sanctions Regime
in Respect of Ukraine/Russia and Related
Compliance Challenges

Henning Jessen

Abstract In 2014, Ukraine’s Ministry of Infrastructure issued a Directive entitled

“On Closure of Sea Ports”. This legal act has liquidated the administration of five
ports located in the territory of the “Autonomous Republic of Crimea” (as annexed
by Russia) and intends to cut those ports off from international shipping. In partic-
ular, calls to the closed ports can make owners and crews subject to legal pro-
ceedings and put vessels at risk of arrest. However, Ukraine does not exercise
effective political control over the closed Crimean ports and it can only enforce
the Directive (e.g. via detention) if a vessel calls at a closed port first and then at a
Ukrainian port.
It is unclear whether the closure has enough potential to generate any further legal
effects as any legal enforcement would also depend on a national Court’s view on
who is acting as the legitimate authority in Crimea. Further sanctions regimes as
applied both by the EU and the USA complicate the current legal situation. The
result has been characterised as “opaque”: Enforcement of those sanctions ultimately
depends on different perceptions of national States. A good example of practical
legal difficulties—arising partly also from the local “bottleneck” geography—is the
fact the vessels transiting the so-called “Kerch Strait” (off eastern Crimea) and
paying pilotage fees could technically violate the Ukraine sanctions regime although
intending to trade into the Sea of Azov which connects the Black Sea to both
Ukrainian and Russian ports.
In sum, the paper will try to highlight some of the current legal and practical
problems associated with the Ukraine sanctions regime as it is continuously inten-
sified since mid-2014. The author will both apply a perspective from public inter-
national law as well as a more “compliance-oriented” view from the perspective of

The views expressed in this paper are personal and should not be attributed to any institution.

H. Jessen (*)
World Maritime University, Malmö, Sweden
e-mail: hj@wmu.se

© Springer Nature Switzerland AG 2020 289

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_14
290 H. Jessen

trading and carrying goods by sea and of safeguarding commercial transactions from
political risks.

1 Introduction

In March 2014, followed by a short military intervention, the Russian Federation

annexed the peninsula of Crimea (a territory of about 27,000 km2 inhabited by about
2.35 million people) and took control over the adjacent sea areas, both in the Black
Sea and in the Sea of Azov which are connected via the narrow, strategically
important, Kerch Strait (off eastern Crimea). Under sovereignty aspects, Crimea
indisputably represented a part of the Ukrainian territory before 2014. However,
Russia characterized the 2014 events rather as a “re-integration” of Crimea to the
mainland of the Russian Federation, in adherence of the principle of self-
determination of peoples.1 Since March 2014, Russia administers the Crimean
Federal District de facto as two federal subjects (i.e., the peninsula’s mainland as
the “Autonomous Republic of Crimea” and, politically separated, the city of
Sevastopol).
It is not the objective of this paper to delineate the sensitive legal lines between an
externally-forced “annexation” and a self-determined “integration” under public
international law.2 Rather, the focus of the analysis is set on resulting practical
effects of the events of March 2014 for maritime trade and international shipping. It
has to be highlighted that both Ukrainian and Russian ports—some of them only
accessible through the narrow Kerch Strait—are important hubs for international
wheat, grain and corn trade as well as for trading commodities in bulk, such as metals
and minerals.3 Four years after the events of 2014, an incident on 25 November 2018
evidenced once more a significant potential for eruptions of hostilities at sea in this
area: Russian Coast Guard patrol boats intercepted and seized three Ukrainian naval
ships, including their crew members.4 In April 2019, this incident gave rise to Case
No. 26 of the International Tribunal for the Law of the Sea (ITLOS): Ukraine
initiated a prompt release of vessel procedure pursuant to Article 290 para. 5 of

1
As embodied in Article 1, para. 2 of the Charter of United Nations, see generally Tomuschat
(2006), pp. 23–45.
2
Remarkably, the legally non-binding UN General Assembly Resolution of 27 March 2014 on the
“Territorial Integrity of Ukraine” eschews the term “annexation”, see UN Res. A/RES/68/262 of
1 April 2014 68/262. However, it calls upon all States “to desist and refrain from actions aimed at
the partial or total disruption of the national unity and territorial integrity of Ukraine, including
any attempts to modify Ukraine’s borders through the threat or use of force or other unlawful
means.”
3
Ukraine’s two Sea of Azov ports handle (only) about 5% of total grain exports of the country,
while Russia handles a remarkable 40% of its grain exports through its Sea of Azov ports, the
biggest one being the port of Rostov, see Lloyds List of 26 November, 2018 (“Russia reopens
Kerch Strait to shipping after vessels seized”).
4
See a thorough discussion of the events by Kraska (2018).
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 291

the United Nations Convention on the Law of the Sea (UNCLOS).5 Ukraine
requested ITLOS—successfully—to prescribe provisional measures (i.e. the Tribu-
nal ordering Russia to the release vessels and crew), based on the sovereign
immunity of the Ukrainian naval vessels and the Ukrainian servicemen on board.
Ultimately, any future incidents of that kind could also cause immediate negative
effects on maritime trade in the region—with a significant potential for further
international repercussions.
Forming a part of Ukraine’s non-military countermeasures, on 16 June 2014, the
Ukrainian Ministry of Infrastructure issued Directive No. 255, which is entitled “On
Closure of Sea Ports”.6 This Directive liquidated the administration of five (formerly
Ukrainian-controlled) ports located in the Russian-controlled Crimean territory.7 In
particular, the Ukrainian act intends to cut those Crimean ports off from international
shipping. Vessel calls to the affected ports can make shipowners and crews poten-
tially subject to legal proceedings and put vessels at risk of public detention.
However, Ukraine does not currently exercise effective political control over the
Crimean ports. Consequently, it can only enforce Directive No. 255 itself (e.g. via
public detention) if a vessel first calls at a “closed” Crimean (Russian controlled) port
and then afterwards at a Ukrainian-controlled port. Since 2014, it is unclear whether
the Ukrainian Directive and the resulting closure has any potential to generate further
legal effects in other countries because legal enforcement by other States would
depend on a domestic Court’s view on which State currently represents the legiti-
mate public authority in Crimea. In that regard, Ukraine has started several legal
proceedings against Russia not only before ITLOS but also before the European
Court of Human Rights8 and before the Permanent Court of Arbitration9 the details
of which cannot, however, be discussed further in this paper.
Further sanctions regimes as applied both by the European Union (EU) and the
United States in the aftermath of the annexation of Crimea complicate the current

5
United Nations Convention on the Law of the Sea (adopted 10 December 1982, entered into force
16 November 1994) 1833 UNTS 3.
6
The Directive had been adopted following Resolution No. 578-p of the Cabinet of Ministers of
Ukraine (April 30, 2014) covering issues of sea and river transportation and in pursuance of general
rules provided under the Law of Ukraine, No. 1207-VII “On Assurance of Rights and Freedoms and
Legal Regime on the Temporarily Occupied Territory of Ukraine”; for further information see the
web-portal of the Ukrainian Government http://www.kmu.gov.ua/control/en/publish/article?art_
id¼247438758.
7
The five closed ports are Kerch, Theodosia, Sevastopol, Yalta and Evpatoria.
8
Ukraine v. Russia (VIII) (application no. no. 55855/18) concerning events on the Kerch Strait in
November 2018; Ukraine v. Russia (VII) (application no. 38334/18) alleging the politically
motivated detention and prosecution of Ukrainian nationals on various criminal charges; Ukraine
v. Russia (re Crimea) (application no. 20958/14); Ukraine v. Russia (re Eastern Ukraine) (no. 8019/
16); Ukraine v. Russia (II) (application no. 43800/14) on the alleged abduction of three groups of
children in Eastern Ukraine and their temporary transfer to Russia on three occasions between June
and August 2014.
9
Dispute Concerning Coastal State Rights in the Black Sea, Sea of Azov, and Kerch Strait (Ukraine
v. the Russian Federation), see https://pca-cpa.org/en/cases/149/.
292 H. Jessen

legal situation significantly. All sanctions regimes combined—in respect of the

situation discussed here—have been initially characterised and criticised as
“opaque”.10 Moreover, at least for the period of 2014 and 2016, valid statistics
evidenced that vessel calls to the “closed” (formerly Ukrainian-controlled) Crimean
ports had not slumped significantly.11 One of the reasons for this rather surprising
assessment is the fact that enforcement of any applicable sanctions ultimately
depends on different legal perceptions of national States. A good example of
practical legal difficulties—arising partly also from the “bottleneck” geography in
the region—is the problem generated by vessels transiting the Kerch Strait and
paying pilotage fees to the local (Russian-controlled) port authority. This potentially
violates applicable sanctions regimes even if the affected vessels’ destination is
another port in the Sea of Azov which connects the Black Sea to ports of both
Ukraine and Russia.
Against this backdrop, this chapter will highlight some of the current legal and
practical problems for international shipping associated with the Ukraine sanctions
regime as it has been introduced since mid-2014 and as it seems to persist now for an
indefinite future. Because of the (unfortunate) fact that multilateral and unilateral
sanctions represent a global compliance challenge for any commercial activity, a
wider perspective is taken at the end of the paper which shall extend beyond the
situation of Crimea and the Sea of Azov. The author shall apply aspects of public
international law as well as a “compliance-oriented” view, i.e., from the perspective
of trading and carrying goods by sea and of safeguarding commercial transactions
from political risks.

2 The Public Law Dimension: Changing Face of Sanctions

2.1 Preliminary Remarks

Generally, the use of economic instruments—applied unilaterally by States or

multilaterally by the international community—as a reaction to political crises is
nothing new at all.12 In fact, according to Article 41 of the UN Charter, the Security
Council has the power to impose legally binding obligations on UN Member States
to take multilateral non-forcible measures in response to a threat to international
peace and security.13 Quite often, these “non-forcible” countermeasures take the

10
See, e.g., the Lloyd’s List front page of 1 February 2016a: “Worth the Risk?”.
11
See the 2016b Lloyd’s List special report “Turning a blind eye on Crimea”, available online at
https://www.lloydslist.com/ll/topic/ukraine/.
12
This is despite the fact that the (non-binding) United Nations Friendly Relations Declaration
(2625 (XXV)) actually postulates that “[N]o State may use or encourage the use of economic,
political or any other type of measures to coerce another State in order to obtain from it the
subordination of the exercise of its sovereign rights and to secure from it advantages of any kind.”
13
See generally, e.g., Delbrück (1977); Gasser (1996), p. 871.
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 293

form of comprehensive embargo regimes which are directed to impair the institu-
tions and instrumentalities of the “target State”. The ultimate goal is to influence and
change the politics of the “target State” without having to apply any military force
against it. Historic examples of comprehensive embargoes include non-forcible
economic measures against the former South-African apartheid regime or against
the repressive military government of Myanmar (formerly “Burma”). Some States,
above all frequently the United States but increasingly also the EU, have introduced
non-forcible economic countermeasures on a unilateral basis—be it with or without
an applicable UN mandate.
However, there are also a number of other examples of economic countermeasures
applied against States which either did not generate any visible political result(s) so
far (even if the measures are consistently intensified, as, e.g., in the case of North
Korea)14 or which resulted in long-standing external policy instruments (applied
against Cuba, Libya or Iran) where the causal impact of economic countermeasures
and the desired political outcome remains doubtful. In the twenty-first century, a
surge of political instability in some parts of the word and the systematic global threat
by terrorist organisations (such as “Al Qaida” or the so-called “Islamic State”) has
resulted in a significant increase in the use of specifically targeted economic and
financial sanctions as a modern tool of foreign policy. There has been a continuous
development to apply more frequently so-called “smart” or “intelligent” sanctions
which target specific problematic regions and/or assets, outlawed products, business
sectors or even individual companies and natural persons.15 In the maritime world,
for example, “IRISL” (i.e. the Islamic Republic Iran Shipping Lines and its manage-
ment) was an explicit target of the sanctions portfolio which had been initiated against
Iran and which has been progressively reinstated on a unilateral basis by the United
States (since 2018).
As a political reaction to the Russian annexation of Crimea, “smart sanctions”
have also been introduced by the EU and the USA against certain Russian individ-
uals and entities, accompanied by purely political measures, such as the suspension
of Russia from the “Group of Eight” (G8), representing the leading industrial
countries of the Northern Hemisphere. As a result, previously existing trade and
finance restrictions have often been tightened further and companies are under
heightened public scrutiny. All in all, the enforcement of the applicable rules has
become increasingly complicated and expensive. If unilateral sanctions of different
legislators are completely uncoordinated, however, the different rules have the

14
By the end of 2018, the UN Security Council had adopted thirteen Resolutions in relation to North
Korea. For example, UN Security Council Resolution 2397 was adopted on December 22, 2017 in
response to North Korea’s launch of an intercontinental ballistic missile, reaffirming that prolifer-
ation of nuclear, chemical and biological weapons, as well as their means of delivery, constitutes a
threat to international peace and security.
15
See Burri (1998).
294 H. Jessen

potential to cause problematic extraterritorial effects which has even resulted in

cumbersome “blocking statutes” of the EU aiming to prohibit compliance with
foreign (i.e. United States) sanctions laws.16
Generally, we live now a commercial era where continuous monitoring and
compliance of virtually all business sectors with global, regional and national
sanctions regimes has become indispensable. Non-compliance can result in severe
consequences, including financial penalties and even criminal liability for represen-
tatives of the executive management of companies. Even lower financial penalties—
if combined with the loss of export privileges and a damaging impact to a company’s
reputation—have the potential to harm companies’ business activities significantly.
Shipping companies and transportation services providers are particularly affected
by this development as they represent the most important facilitators of international
trade and operating globally. In particular, the “personal” scope of application of
modern sanctions regimes is intentionally designed in an extensive manner. As a
result, it will often be impossible for any internationally-operating company to
escape the legal impacts of those public instruments—even if the respective home
country or host State has not passed any applicable sanctions legislation itself. Thus,
from a perspective of international shipping, sanctions truly represent an extra-
territorially induced compliance challenge.

2.2 EU and US Sanctions Applied in Respect of Actions

Relating to Ukraine

There are several reasons why the sanctions regime as established after the Crimean
events of March 2014 has been described as “opaque”.17 First, there are no globally
applicable sanctions in respect of any actions relating to the developments of March
2014. As a permanent member of the UN Security Council, the Russian Federation
can effectively veto against any legal steps which would compromise its legal
position. As a result, in 2014, the UN General Assembly only passed a legally
non-binding Resolution on the Territorial Integrity of Ukraine.18 Apart from bilateral
Ukrainian countermeasures, sanctions were thus unilaterally introduced by the EU
and the USA (sanctions introduced by further countries are not discussed in this
paper). The evolution of the applicable sanctions regimes will be described in the
following sub-sections, focussing in more detail on the measures introduced unilat-
erally by the EU.

16
The first blocking statute dates even back to 1996, see Council Regulation (EC) No 2271/96 of
22 November 1996 protecting against the effects of the extra-territorial application of legislation,
for further information and updates see: https://ec.europa.eu/fpi/what-we-do/updated-blocking-
statute-support-iran-nuclear-deal_en.
17
Supra, note 9.
18
Supra, note 2.
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 295

2.2.1 EU Sanctions in Respect of Actions Relating to Ukraine

On 17 March 2014—thus 10 days before the UN General Assembly passed its

Resolution on the Territorial Integrity of Ukraine—the EU Council adopted Regu-
lation EU/269/2014 concerning “restrictive measures in respect of actions
undermining or threatening the territorial integrity, sovereignty and independence
of Ukraine”.19 Also on 17 March 2014, in the context of the EU’s common foreign
and security policy, the EU Council adopted Decision 2014/145/CFSP on the same
subject.20 On the political level, already on 6 March 2014, the EU Heads of State had
identified a planned referendum on the future status of the Autonomous Republic of
Crimea as being illegal.
Regulation EU/269/2014 imposed financial sanctions on specific individuals and
entities listed in its Annex I. It serves as one of two central legal tools to implement
an EU policy of “non-recognition” towards the annexation of Crimea/Sevastopol to
the Russian Federation. The first instrument could be categorised to target, in
particular, certain individuals and entities while the second instrument has gradually
introduced far-reaching economic sanctions, even directed against Russia itself, thus
representing a new level of political escalation between the EU and Russia.21 The
applicable EU instruments have been updated regularly since 2014 and shall be
discussed in some more detail below.22

2.2.1.1 Restrictive Measures and the “Evolution” of Regulation EU/269/

2014

The first and very general version of Article 3 of Regulation EU/269/2014 allowed
the imposition of sanctions against “persons responsible for actions which under-
mine or threaten the territorial integrity, sovereignty and independence of Ukraine,
and natural or legal persons, entities or bodies associated with them”. It could be
questioned whether the initial broad formulation of Article 3 of Regulation EU/269/
2014 already fell under the proposition of “intelligent” sanctions. However, the
political developments after 2014 evidence a remarkable legal evolution of this
key provision of the Regulation which identifies the scope of persons and entities
potentially targeted by specific EU sanctions.

19
Council Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in
respect of actions undermining or threatening the territorial integrity, sovereignty and independence
of Ukraine, OJ 2014 L78/6.
20
Council Decision 2014/145/CFSP of 17 March 2014 concerning restrictive measures in respect of
actions undermining or threatening the territorial integrity, sovereignty and independence of
Ukraine, OJ 2014 L78/16.
21
For a continuously updated overview of all legal and political measures introduced by the EU see
https://europa.eu/newsroom/highlights/special-coverage/eu_sanctions_en.
22
A good overview is available at https://www.consilium.europa.eu/en/policies/sanctions/ukraine-
crisis/.
296 H. Jessen

In May 2014, Regulation EU/476/201423 (and the corresponding amendment of

Decision 2014/145/CFSP) broadened the personal scope of Article 3 of Regulation
EU/269/2014 for the first time. More specifically, sanctions could now be imposed
against parties that “obstruct the work of international organisations in Ukraine, and
natural or legal persons, entities or bodies associated with them, or legal persons,
entities or bodies in Crimea or Sevastopol whose ownership has been transferred
contrary to Ukrainian law, or legal persons, entities or bodies which have benefited
from such a transfer”.
In July 2014, via Regulations EU/783/201424 and EU/811/201425 (and, once
more, the corresponding amendment of Decision 2014/145/CFSP), the EU sanctions
regime in respect of the situation in Ukraine was intensified and substantiated
further. Since then, the “personal scope” of Article 3 of Regulation EU/269/2014
includes “legal persons, entities or bodies supporting, materially or financially,
actions which undermine or threaten the territorial integrity, sovereignty and inde-
pendence of Ukraine”; and “natural or legal persons entities or bodies who actively
provide material or financial support to, or are benefiting from, Russian decision-
makers responsible for the annexation of Crimea and Sevastopol or the destabilising
of the Eastern-Ukraine”.
Via a methodology also applicable for other “regionalised” EU sanctions
regimes26 the act enables the EU Council to impose—at short notice—further
restrictions on a wide range of stakeholders representing the Russian industry, the
Russian finance sector, and other Russian business sectors—even if those stake-
holders are themselves not directly responsible for any crimes or actions in respect of
the Crimean situation since March 2014. For example, in 2016, 23 individuals and
21 entities were added to Annex I of Regulation EU/269/2014 via Regulations
EU/810/201427 and EU/826/2014.28
By 2019, the continuously updated and extended economic sanctions of the EU—
implemented via Regulation EU/269/2014 and its amending acts after about six

23
Council Regulation (EU) No 476/2014 of 12 May 2014 amending Regulation (EU) No 269/2014
concerning restrictive measures in respect of actions undermining or threatening the territorial
integrity, sovereignty and independence of Ukraine, OJ 2014 L137/1.
24
Council Regulation (EU) No 783/2014 of 18 July 2014 amending Regulation (EU) No 269/2014
concerning restrictive measures in respect of actions undermining or threatening the territorial
integrity, sovereignty and independence of Ukraine, OJ 2014 L214/2.
25
Council Regulation (EU) No 811/2014 of 25 July 2014 amending Regulation (EU) No 269/2014
concerning restrictive measures in respect of actions undermining or threatening the territorial
integrity, sovereignty and independence of Ukraine, OJ 2014 L221/11.
26
See the EU’s global “Sanctions Map” which includes more than 30 sanctioned foreign States in
2018: https://sanctionsmap.eu.
27
Council Implementing Regulation (EU) No 810/2014 of 25 July 2014 implementing Regulation
(EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening
the territorial integrity, sovereignty and independence of Ukraine, OJ 2014 L221/1.
28
Council Implementing Regulation (EU) No 826/2014 of 30 July 2014 implementing Regulation
(EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening
the territorial integrity, sovereignty and independence of Ukraine, OJ 2014 L226/16.
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 297

months—target more than 170 Russian individuals and more than 44 Russian-
controlled entities selected for “undermining the territorial integrity or stability of
Ukraine.”29 The relevant EU sanctions comprise the freezing of their financial funds
and economic resources, and a general prohibition to make funds and economic
resources available to those parties. The wide scope of the EU sanctions regime
makes virtually any business activity with those sanctioned parties illegal. In partic-
ular, the violation of the provisions is actionable through fines and, e.g., the listing of
the violating entity itself.

2.2.1.2 Broader Economic Sanctions Imposed on Russia by the EU

Regulation EU/692/201430 imposed a first general import ban on goods originating

in Crimea and Sevastopol, and prohibiting the provision of related financing and
insurance services. These measures were further extended by Regulation EU/825/
2014.31 The legislative package concerns first, the creation, acquisition or develop-
ment of infrastructure in the sectors of transport, telecommunications, and energy,
and second, the exploitation of oil, gas or mineral resources. Additionally, an export
ban on key equipment and technology for the oil and gas industry (such as pipes and
drilling equipment) has been established.32
Remarkably, since the adoption of Regulation EU/883/2014 (July 2014),33 the
EU sanctions regime targets Russia directly. As all other EU sanctions Regulations
discussed here, this legal act has been subsequently amended and further intensified,
i.e. via Regulations EU/960/201434 and EU/1290/2014.35 The applicable sanctions

29
In 2016, for example, amendments had been affected by Implementing Regulation EU/2016/353
amending Regulation EU/269/2014 (and Decision 2016/359 amending Decision 2014/145/CFSP).
Since then, updates and amendments to the Regulations are affected (roughly) twice per calendar
year, see https://www.consilium.europa.eu/en/policies/sanctions/ukraine-crisis/.
30
Regulation (EU) No 692/2014 of 23 June 2014 concerning restrictions on the import into the
Union of goods originating in Crimea or Sevastopol, in response to the illegal annexation of Crimea
and Sevastopol, OJ 2014 L183/9.
31
Council Regulation (EU) No 825/2014 of 30 July 2014 amending Regulation (EU) No 692/2014
concerning restrictions on the import into the Union of goods originating in Crimea or Sevastopol,
in response to the illegal annexation of Crimea and Sevastopol, OJ 2014 L226/2.
32
For a detailed discussion of the measures (in German, however) see, e.g., Schwendiger and Trennt
(2015), p. 93; Brauneck (2015), p. 498.
33
Council Regulation (EU) No 883/2014 of 31 July 2014 concerning restrictive measures in view of
Russia’s actions destabilising the situation in Ukraine, OJ 2014 L229/1.
34
Council Regulation (EU) No 960/2014 of 8 September 2014 amending Regulation (EU) No
833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in
Ukraine, OJ 2014 L271/3.
35
Council Regulation (EU) No 1290/2014 of 4 December 2014 amending Regulation (EU) No
833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in
Ukraine, and amending Regulation (EU) No 960/2014 amending Regulation (EU) No 833/2014, OJ
2014 L349/20.
298 H. Jessen

scheme now comprises, e.g., a military and dual-use goods embargo, prohibiting the
sale, supply or export to persons in Russia or for use in Russia of military items listed
on the EU military list36 and dual-use items listed in Annex I to the EU Dual-Use
Regulation 428/2009.37
Especially relevant for international shipping and maritime transportation ser-
vices, the measures also include a prior authorisation requirement for the sale, supply
or export to persons in Russia or for use in Russia of technologies suited for the oil
industry for use in deep water oil exploration and production, Arctic oil exploration
and production, or shale oil projects in Russia, as well as for related technical and
financial assistance and brokering services. Finally, the EU has also introduced a
prohibition on directly or indirectly purchasing, selling, providing brokering or
assisting in the issuance of, or otherwise dealing with transferable securities and
money market instruments with a maturity exceeding 90 days, issued after 1 August
2014 by various Russian banks, and majority-owned subsidiaries and legal persons
acting on behalf or at the discretion of those subsidiaries.
However, at least one practical problem remains: This weakness relates to the
administration and enforcement of any EU sanctions regime which is currently
applied and, in fact, it has been explicitly identified by a 2016 investigation of
“Lloyd’s List Intelligence”.38 Even though EU sanctions apply on board of any
vessel flying the flag of an EU Member State, the investigations revealed that a
number of EU-flagged vessels (for example from Greece, Germany and Italy) still
frequently called at Crimean (Russian-controlled) ports. Rather surprisingly, the
report had identified for the year 2015 that foreign vessel calls to the five commer-
cially relevant Crimean ports—which are subject to the sanctions regime since 2014
had “ballooned by more than 50%” as compared to the 2014 data.39 This does not
mean that the existing EU sanctions regime is being dishonoured systematically.40
However, some rogue shipowners and operators (presumably also charterers) seem
to defy the existing sanctions law intentionally in order to take commercial advan-
tage of a flawed enforcement of the rules.41 Some “deceptive practices”, such as
ship-to-ship (STS) transfer, combined with intentional disabling of automatic iden-
tification systems (AIS) to mask ship movements, have been monitored in the region,
in some instance even resulting in a major blast.42

36
Common Military List of the European Union, OJ 2014 C107/1.
37
Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the
control of exports, transfer, brokering and transit of dual-use items, OJ 2014 L134/1.
38
Supra, note 9.
39
Ibid.
40
For example, international cruise operators have completely withdrawn their calls to the Crimean
ports of Yalta and Sevastopol since 2014.
41
See also http://www.ship-technology.com/features/featuredefying-the-law-shippers-call-at-
crimeas-closed-ports-4892632/.
42
See “Kerch Strait blast investigation shifts to sanctioned vessel operations”, Lloyd’s List (online
edition) of 22 January 2019.
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 299

To put it even more bluntly: An existing legal minefield seems to be intentionally

ignored by a few operators for the prospect of higher financial profits. What are the
legal consequences? Apparently, even though the EU Commission works towards a
more uniform application of EU sanctions legislation, the division of competencies
between the EU and its Member States on the legislative level potentially results in
inconsistent (if not inefficient) practical enforcement of the applicable rules. With
one exception,43 the EU passes the relevant sanctions legislation and these acts are
directly applicable as Regulations in all Member States. Moreover, the Court of
Justice of the EU (CJEU) ensures uniform interpretation of EU law. Nevertheless,
there are practical differences in the Member States’ interpretation, application and
enforcement of sanctions. Those differences can, e.g., materialise in the way sub-
sidiaries of listed entities are treated or in a more or less extensive interpretation of
technical legal terms (such as the term “spare parts”). Obviously, the relevant data
exchange between the EU Member States could be improved, even though the EU
Members are required to report that information to the European Commission, e.g.,
on granted or denied export licenses.
When it comes to the enforcement of sanctions-related financial and administra-
tive penalties, the prosecution of sanctions violations represents a responsibility of
the EU Members.
Generally, EU sanctions law requires EU Members to take all measures necessary
to ensure that the sanctions are efficiently implemented and properly enforced. Any
criminal penalties, thus also applying to sanctions regime violations, must be
“effective, proportionate and dissuasive”, taking into account the EU Charter of
Fundamental Rights and the jurisprudence of the European Court on Human Rights
(ECHR). However, it may be questioned whether the current EU sanctions enforce-
ment with respect to the Crimean peninsula, which is on its face directed against
Russia, works actually in an “effective, proportionate and dissuasive” manner. It
probably also reflects the political view of some EU countries that economic
sanctions are not at all the right approach in mitigating the Crimea/Sevastopol
situation and the general tension between Russia and Ukraine, taking into account
that some European trading sectors (for example, certain agricultural products) are
also negatively affected by the sanctions fallout. While there is definitely some merit
to this view, the question for alternatively efficient political and legal strategies
remains unresolved.

2.3 US Sanctions in Respect of Actions Relating to Ukraine

In the period of 6 to 20 March 2014, (then) US President Obama issued Executive

Orders No. 13660, 13661 and 13662 “blocking property of certain persons

43
Embargoes on arms and related material still require legislative implementation by the EU
Member States.
300 H. Jessen

contributing to the situation in Ukraine”.44 Under US law, these orders were based
inter alia, on the International Emergency Economic Powers Act,45 the National
Emergencies Act,46 section 212(f) of the Immigration and Nationality Act of 1952,47
and section 301 of title 3 of the United States Code. On 19 December 2014, another
Presidential executive order (No. 13685) followed, blocking not only property of
certain persons but also prohibiting certain transactions with respect to the Crimea
region.
As a result, EU sanctions and US sanctions generally follow the same twofold
approach of both targeting specific entities and persons as well introducing broader
economic sanctions. For the purposes of this paper, the exact content of all
implementing US acts and bylaws cannot be discussed in detail. The applicable
US sanctions target comparable “objects” and persons, covering asset freezes and
imposing travel bans on more than 200 individuals and entities from Russia and
Ukraine on “Specially Designated Nationals” lists. New investments, imports and
exports, financing and facilitation of sanctioned transactions are all prohibited with
regard to the Crimea region. In a comparable way as implemented by the EU via
Regulation EU/833/2014 (as amended), the United States sanctions target Russia
directly, outlawing in particular the operations of major Russian banks and oil firms,
i.e. the provision of goods and services for Russian deep-water, Arctic offshore and
shale oil exploration and production projects. In terms of scope, the US sanctions
regime applies to entities organised under US laws and their non-US branches as
well as individuals or entities in the United States, including US citizens and
permanent resident aliens—no matter where these are incorporated or located.
If at all, there are some practical differences as compared to the EU in terms of
penalties and enforcement: Just like under the applicable EU sanctions regime,
violations can lead to being added to the sanctions list. However, the US can
administer and enforce its domestic sanctions regime in a centralised manner, i.e.,
on the federal law level. Consequently, there is no additional “enforcement layer” as
represented under EU law (via the various national laws of the EU Members). In
addition, the US is arguably one of the strictest national legal orders when it comes to
domestic enforcement of sanctions by administrative and criminal penalties: Crim-
inal penalties for breaching US sanctions are up to $ 1m (per individual violation)
and up to 20 years imprisonment. For each violation, the upper limit on administra-
tive penalties is $ 250,000 or double the transaction value, whichever is greater.
Nevertheless, the 2016 Lloyd’s List Crimea investigation (as already referred to
above) had also identified “at least nine US-linked vessel calls in the second half of
2014”.48 However, it could be argued that these vessel calls took place during a

44
For further information and downloads of all applicable legal instruments, see: https://www.
treasury.gov/resource-center/sanctions/Programs/Pages/ukraine.aspx.
45
50 U.S.C. 1701 et seq.
46
50 U.S.C. 1601 et seq.
47
8 U.S.C. 1182(f).
48
Supra, note 9.
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 301

transitionary phase, just shortly after the initial setup of relevant US sanctions had
been introduced and before broader economic sanctions against Russia had been
intensified by the end of 2014.

3 The Ukraine Situation

3.1 Closure of Five Crimean Ports by Ukraine

Historically, the chief function of ports for coastal States is provision of easy access
to the oceans of the world, the availability of good harbours being a priceless
national asset that geographically disadvantaged (landlocked) countries do not
possess.49 Consequently, coastal/port States will not surrender this important asset
easily. Additionally, although there is no general right of foreign-flagged vessels to
access ports, there is a reasonable presumption, based on longstanding shipping
practice, that maritime ports shall remain open to foreign-flagged vessels50 unless
otherwise stated by the port authorities of the port in question. Indeed, an arbitrary
closure of a commercial port without any prior notification (or delayed information
relating to new entry conditions) would render coastal State internationally account-
able, at least triggering political demands to establish transparency and (legal)
foreseeability on the matter.
It has also been argued that States are under a customary duty to facilitate
maritime traffic. Yet this duty does not exist in a broad form, particularly illustrated
by the absence of a right of entry to ports, also not generally accepted under the
WTO’s General Agreement on Trade in Services (GATS). In any case, freedom of
navigation as granted by Article 87 para. 1(a) UNCLOS, brought forward sometimes
to favour a customary duty of access to ports, does not apply to the internal waters of
port States and it is reduced to a right of innocent passage in the territorial sea (Art.
17 et seq. UNCLOS). In this context, Article 25 para. 2 UNCLOS states that “in the
case of ships proceeding to internal waters or a call at a port facility outside internal
waters, the coastal State also has the right to take the necessary steps to prevent any
breach of the conditions to which admission of those ships to internal waters or such
a call is subject.” Obviously, under public international law, Ukraine has identified
Article 25 para. 2 UNCLOS as a potential legal basis for its “Closure Directive” of
2014.51 The provision is broadly drafted and gives the coastal/port State consider-
able scope for a wide variety of actions. However, UNCLOS is intentionally silent
on the issue of port closures. Ultimately, the convention does not seek to interfere
with the principle of State sovereignty. In particular, coastal/port States can of course

49
McDougal and Burke (1962).
50
See also Article 2 of the Statute on the International Regime of Maritime Ports, Dec. 9 1923,
25 LNTS 202.
51
Directive No. 255, see note 3.
302 H. Jessen

still take sovereign decisions on how to protect themselves from perceived external
threats.52 Thus, any countermeasure could also include closing domestic ports, be it
temporarily or even permanently.
Nevertheless, a response to external threats and its interpretation in relation to
UNCLOS still depends on the exact circumstances. As ITLOS has implicitly
observed earlier, any such response would be subject to general principles of
international law, such as necessity and proportionality.53 The Ukrainian govern-
ment declared the closure of the Crimean ports on the basis that the affected ports
were still sovereign Ukrainian territory. However, as Ukraine no longer exercises
effective control over that territory since March 2014, it is unable to guarantee the
navigational safety for foreign-flagged vessels around and in those ports. The actions
of Ukraine would then have to be construed in the light of whether the actions taken
in the circumstances were functionally “necessary” and legally “proportionate”.
The Ukrainian government notified the International Maritime Organization
(IMO) in May 2014 that the closure of Crimean ports to international shipping
was due to navigational risks in the area. Particularly, Ukraine argued that its port
authorities could not ensure navigational safety anymore around the ports of Cri-
mea.54 Indeed, if the “official” closing of ports was not legally possible for Ukraine
in such an extraordinary situation then the Ukrainian government could, at least in
theory, be exposed to the risk of claims based on regulatory negligence in upholding
the safety of navigation even though nothing actually suggested that the ports were
in any way physically unsafe. Moreover, there is some existent State practice on the
closure of ports, for example, Cyprus also closed its ports when Turkey annexed
Northern Cyprus.55 Additionally, the sanctions issued by the EU and the US could
also be seen as an endorsement of the Ukrainian move to close the related Crimean
ports.

52
See Rothwell (2015), p. 153.
53
M/V Saiga (No. 2) Case, International Tribunal for the Law of the Sea, implied at paras. 133 et
seq. and, more explicitly, at para. 155: “Although the Convention does not contain express
provisions on the use of force in the arrest of ships, international law, which is applicable by virtue
of article 293 of the Convention, requires that the use of force must be avoided as far as possible
and, where force is unavoidable, it must not go beyond what is reasonable and necessary in the
circumstances.”
54
See http://worldmaritimenews.com/archives/129526/ukraine-to-close-crimean-ports/.
55
In 1974, following the Turkish occupation of northern parts of the Republic of Cyprus, the Cyprus
Council of Ministers closed three affected ports (Famagusta, Kyrenia and Karavostasi, occupied by
Turkey), see Cyprus Port Authority Law 38/73. Until today, the said restrictions are still in force
with severe administrative and financial penalties being applied by Cyprus in case of any breach
thereto.
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 303

3.2 The Private Law Dimension: Commercial Problems

Generated by the Ukraine Sanctions Regime

If the ports of the Crimea are “officially closed” by Ukraine since May 2014 but
practically still open and maintained by Russia—which burdens does the law place
on those seeking to disobey the Ukrainian closure and to defy the surrounding
sanctions regimes? There is varying case law applicable in this area, centred on
the question what could render a port unsafe, in the absence of any “classic”
navigational risks, and what constitutes a “war” as opposed to other politically
sensitive situations involving a potential for hostilities.

3.3 Are the Five Closed Crimean Ports Politically Unsafe

Ports?

Under charter parties, one of the key legal obligations of the charterer is to direct the
ship only to ports, which, at the time the order is given, are assumed to be safe. To
that end, the contracts may contain express or implied safe port warranties. An
authoritative legal definition of what constitutes a safe port has been established
already since 1958, as part of the proceedings in The Eastern City56: It reads—“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.”
Where charterers nominate an unsafe port, owners are entitled to reject that
nomination on the basis that it is invalid. In the event that a valid nomination is
made but, prior to the arrival of the vessel the port becomes unsafe, under a time
charter, the charterer will be obliged to nominate a new port.57 However, under a
voyage charter, the position is less clear, particularly if it is combined with the exact
terms of a bill of lading. Unless the charter party specifically provides for it, the
charterer may not be able to change its nomination without the express consent of the
owner.58 That is why some voyage charters include so-called “near clauses” provid-
ing that a vessel shall proceed to the nominated port “. . .or so near thereto as she may
safely get. . .”59

56
Leeds Shipping v. Bunge (The Eastern City) [1958] 2 Lloyds Rep 127.
57
See Girvin (2011), p. 21.40.
58
Eder et al. (2011), art. 82, note 9-015.
59
See for example GENCON 94, clause 1: “The said Vessel shall, [. . .], proceed to the loading port
(s) or place(s) stated in Box 10 or so near thereto as she may safely get and lie always afloat, and
there load a full and complete cargo [. . .] as stated in Box 12, [. . .], and being so loaded the Vessel
shall proceed to the discharging port(s) or place(s) stated in Box 11 as ordered on signing Bills of
Lading, or so near thereto as she may safely get and lie always afloat, and there deliver the cargo.”
304 H. Jessen

Determining the safety of a port is a question of fact. However, the criteria which
have to be applied in determining whether a port is legally “safe” are matters of law.
Important factors are the type of vessel involved, the details of the charterers’
employment order and the conditions in the port at the relevant time. Additionally,
safety means both physical safety and political safety.60 A port may, therefore, be
unsafe if there is a risk for the vessel of seizure or attack, or if the vessel may be
detained, impounded, blacklisted or confiscated.61 Thus, where war risk-type situa-
tions apply, the charterer is promising a (reasonably based) forecast: When the ship
reaches the nominated port, it will be safe. Thus, the time for assessing the safety of
the port is the time at which the charterer nominates the port (i.e. it must be
“prospectively” safe).
A second legal obligation arises for the charterer in case the port should become
unsafe after the nomination has been made but before the ship reaches it. In such
situations the charterer must make a fresh nomination of an alternative safe port and
send the ship to it. If the ship has already reached the originally designated port and
the port then becomes unsafe, the charterer has a residual obligation to order it out, if
there still remains opportunity to do so. The English judgement in Ogden
v. Graham62 states that ordering a ship into a port that is closed and exposing it to
the risk of arrest may render the port in question “politically unsafe”.63 The case is
frequently regarded as authority for the proposition that a port may be politically
unsafe and this assessment has been confirmed later in the case of The Evia (No.2).64
In Ogden v. Graham, Chile had closed one of its ports (Carrisal Bojo) and a vessel
was detained by Chilean authorities in another port (Valparaiso) after it became clear
that the vessel was preparing to sail to the closed port. Remarkably, this ancient
jurisprudence could become relevant at some point in the situation of Crimea/
Sevastopol and in relation to other Ukrainian ports.
It seems, however, unclear where the limits to the principle enunciated in Ogden
v. Graham should be drawn. The threat to the owner’s proprietary interest in the
vessel was evident in Ogden although the vessel itself was in no danger of physical
harm. Generally, the risk of (later) confiscation as a characteristic of the port to
which a vessel is ordered may suffice to render it unsafe. As a result, one could argue
that the five affected Crimean ports, officially closed by Ukraine but operating under
Russian control, are politically unsafe if a charterer would nominate other
(non-Crimean) Ukrainian ports to be called in the future and if the trading history
of the vessel indicates that there have been past calls to the five affected Crimean
ports since 2014.

60
Girvin (2011), pp. 21.32–21.44; Ward (2010).
61
Ogden v. Graham, (1861) 1 B. & S. 773; 121 E.R. 901.
62
Ibid.
63
See, e.g., Girvin (2011), p. 21.44; Ward (2010), p. 497.
64
Kodros Shipping Corporation v. Empresa Cubana de Fletes (The Evia (No.2)), 2 Lloyds Law
Reports [1982], 307 (314).
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 305

3.4 The Use of War Risks Clauses with Respect to Crimean

Ports

It is quite common that Charter parties include specific provisions relating to the
outbreak of war or warlike situations. Such clauses generally provide that the
contract should be cancelled/terminated in the event of “war/hostilities/warlike
operations” breaking out, either between “two or more” in a list of specified nations
(often including Russia and “any country in the EU”), or involving the flag state of
the vessel. To cite a commonly used war risk clause, such risks include: “...act of
war, civil war or hostilities; ...warlike operations; ...blockades (whether imposed
against all vessels or imposed selectively against vessels of certain flags or owner-
ship...) by any person... or the government of any state...”.65
Just like the question of port safety, determining a state of war (including
“hostilities/warlike operations”) for the purposes of war clauses is a question of
fact. The meaning of “hostilities/warlike operations” is wider in scope than “war”.
However, it is still an open question whether the situation at the Crimean peninsula is
legally tantamount to a war or “hostilities or warlike operations”, as probably
comparable to parts of the eastern Ukrainian mainland. Incidents like the
25 November 2018 seizing of Ukrainian navy vessels could be utilized to argue in
favour of the existence of “hostilities or warlike operations”. On the other hand, the
incident did “only” affect State vessels of the two neighbouring nations and the
temporary closing of the Kerch Strait by Russian authorities did only last for less
than 24 h.66 Under a charter party perspective, it seems difficult to argue in favour of
the existence of “hostilities or warlike operations”, in particular, if the parties did not
explicitly include Ukraine in the list of specified nations and if they did not
specifically exclude the Black Sea, the Kerch Strait and the Sea of Azov from the
legitimate trading areas.
Denying the existence of a “war” or “hostilities/warlike operations”, one could
still try to argue that war risks clauses are currently of a practical relevance for
Crimean ports if the sanctions regimes of the EU and the US and the Ukrainian
closure Directive amounts to a “blockade”—in the sense as used in war risks clause
as quoted above. However, from a practical point of view the Lloyd’s List Intelli-
gence data—as referred to above and evidencing for 2014–2016 a “ballooning of
port calls”67—does not support the existence of a “blockade”. Even if the wording of
the war risk clause “...blockades (. . . imposed against all vessels ...) by ... the
government of any state...” would support the existence of a blockade from a purely
legal point of view, it seems extremely difficult to argue, given the effective control
exercised by Russia, that a full-scale blockade in the Kerch Strait or in the Sea of
Azov actually exists. As a result, the actual practical relevance of war risks clauses in

65
BIMCO War Risk Clause for Voyage Chartering (VOYWAR 2013).
66
“Russia reopens Kerch Strait to shipping after vessels seized”, Lloyd’s List (online edition) of
26 November 2018.
67
Supra, notes 9 and 38.
306 H. Jessen

respect of Crimean ports seems to be rather limited, unless the parties to a charter
party include specific Ukrainian ports or Ukraine as a whole. This assessment could
change on a day-by-day basis, however, if the tensions between Ukraine and Russia
should escalate. Above all, it does not diminish the importance of compliance with
existing sanctions regimes.

4 Conclusions

Despite the fact that many statements were given by European officials expressing
their intention to ease the economic sanctions imposed against Russia and at a later
stage lift them, the restrictions which have been introduced in 2014 remain in force.
The same applies for the United States. In fact, further Russian individuals and
entities are being regularly added to the applicable List of Specially Designated
Nationals (SDN List).68 Thus, as part of a rapidly changing business environment,
commercial operators must check the available lists on a regular basis in order to
ascertain whether an entity (such as a port operating company) or other authority is
subject to sanctions—which could severely impede the operations of vessel and
which could eventually even result in a port becoming (politically) unsafe.
The situation in Crimea is now—to some extent—unfortunately comparable to
“frozen conflicts” in other parts of the world. Particularly relevant for shipping, the
status of Crimean ports seems to resemble more and more the Northern Cypriot
situation of “closed ports”. Ultimately, commercial operators (should) know that
they have to make a choice: Basically, they have to choose one of the conflicting
parties (and their allies). As a consequence, they have to avoid the other party
completely if they seek to trade in the region—otherwise they would run a signif-
icant sanctions compliance risk. Under such circumstances, Crimean ports may be
considered politically unsafe for any particular ship having called or intending to call
at a Ukrainian port—but this assessment applies exclusively for those kinds of
vessels. Moreover, taking into account the established legal definition of a “safe
port” under charter parties, the existing sanctions compliance risk cannot at all be
deemed an “abnormal occurrence” or an unforeseeable event.
Inevitably, there is also the other side of the coin: Russia has also introduced
measures affecting the Ukrainian shipping industry (as well as other industrial
sectors) with consequent repercussions for shipowners, charterers, crew members,
and insurers. Members of the Parliament of Ukraine declared that the activities of
Russia in the Sea of Azov (including inspecting merchant vessels heading for the
ports of that area and seizing Ukrainian fishing vessels from Ukrainian ports) already
constitute a “de-facto blockade” of Ukrainian ports of the Sea of Azov, even if the
Russian authorities did not officially declare the existence of such a measure.
Unavoidably, the implementation of a de facto blockade on the Ukrainian ports by

68
See https://www.treasury.gov/resource-center/sanctions/sdn-list/pages/default.aspx.
Sanctions Compliance Risks in International Shipping: Closure of Five. . . 307

the Russian naval forces and the fact that it is not officially declared (let aside any
further countermeasures likely to be adopted if the condition worsens) has a major
impact on existing fixtures and the involved parties are left to assess whether such
event would trigger any compliance risk. Obviously, when it comes to a discussion
of the safety of ports, the key element is the establishment of “foreseeability” as
adopted in The Evia (No.2) and the consideration of the prevailing circumstances
which would be the main factor in determining whether charterers have breached
any legal obligation or not.
Ultimately, and from a compliance perspective, this analysis must conclude with
an appraisal of existing contractual solutions: At least for Time Charters, sanctions
clauses (as, for example, proposed by BIMCO, the International Group of P&I Clubs
or the International Association of Independent Tanker Owners (Intertanko) give
ship owners the right not to comply with politically sensitive charterers’ orders and
to refuse proceeding to a discharging port if, in their “reasonable judgment”, the
vessel might be exposed to the risk of sanctions.69 In such situation, ship owners are
required to advise charterers promptly of their refusal to proceed as ordered and
charterers will have the obligation to provide an alternative nomination within 48 h
of being notified by owners. In circumstances where charterers fail to issue alterna-
tive orders, owners will be entitled to discharge any cargo on board at any port they
deem safe (at charterers’ costs). In any case, and also applying for the Crimean
situation, the insertion of reasonably drafted sanctions clause can save ship owners
from having to bear the legal and factual consequences of sanctions non-compliance
in a nominated port. Since 2014, shipping companies are well-advised to place
enhanced focus on sanctions compliance and to exercise increased caution when
doing business with both Russia and Ukraine. In particular, it is advisable not to
carry out any business in the area without enhanced due diligence checks. The
inclusion of specific liability and termination clauses in charter parties is advisable
as well.

References

39 U.S.C. 1701 et seq

50 U.S.C. 1601 et seq
8 U.S.C. 1182(f)
Brauneck J (2015) Ukraine-Krise: Zu viel und zu wenig Rechtsschutz gegen
EU-Wirtschaftssanktionen. EuR Europarecht 50:498–520
Burri J (1998) Introductory paper, Expert Seminar on targeting UN financial sanctions 11. https://
www.seco.admin.ch/seco/de/home/Aussenwirtschaftspolitik_Wirtschaftliche_
Zusammenarbeit/Wirtschaftsbeziehungen/exportkontrollen-und-sanktionen/sanktionen-
embargos/smart-sanctions%2D%2Dgezielte-sanktionen/dokumente-zu-sanktionen.html
Case concerning the detention of three Ukrainian naval vessels (Ukraine v. Russian Federation),
Provisional Measures, ITLOS Case No. 26

69
See also Kharchanka (2014), p. 139 et seq.
308 H. Jessen

Common Military List of the European Union, OJ 2014 C107/1

Council Decision 2014/145/CFSP of 17 March 2014
Council Implementing Regulation (EU) No 810/2014 of 25 July 2014
Council Implementing Regulation (EU) No 826/2014 of 30 July 2014
Council Regulation (EC) No 2271/96 of 22 November 1996, https://ec.europa.eu/fpi/what-we-do/
updated-blocking-statute-support-iran-nuclear-deal_en
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Council Regulation (EU) No 269/2014 of 17 March 2014
Council Regulation (EU) No 476/2014 of 12 May 2014
Council Regulation (EU) No 692/2014 of 23 June 2014
Council Regulation (EU) No 783/2014 of 18 July 2014
Council Regulation (EU) No 811/2014 of 25 July 2014
Council Regulation (EU) No 825/2014 of 30 July 2014
Council Regulation (EU) No 883/2014 of 31 July 2014
Council Regulation (EU) No 960/2014 of 8 September 2014
Delbrück J (1977) Peacekeeping by the UN and the rule of law. In: Akkermann RJ (ed) Declarations
of principles, a quest for universal peace, vol 73. Sijthoff, Leyden
Eder B, Foxton D, Berry S, Smith C, Bennett H (2011) Scrutton on charterparties and bills of lading,
22nd edn. Sweet and Maxwell, London
Gasser H-P (1996) Collective economic sanctions and international humanitarian law, an enforce-
ment measure under the United Nations Charter and the right of civilians to immunity: an
unavoidable clash of policy goals? Zeitschrift für ausländisches öffentliches Recht und
Völkerrecht (ZaöRV) 56:871
Girvin S (2011) Carriage of goods by Sea, 2nd edn. Oxford University Press, Oxford
Implementing Regulation EU/2016/353
Kharchanka A (2014) The meaning of a good safe port and berth in a Modern Shipping World.
Urlik Huber Institute, Groningen
Kraska J (2018) The kerch strait incident: Law of the Sea or Law of Naval Warfare?, https://www.
ejiltalk.org/the-kerch-strait-incident-law-of-the-sea-or-law-of-naval-warfare/
Law of Ukraine, No. 1207-VII “On Assurance of Rights and Freedoms and Legal Regime on the
Temporarily Occupied Territory of Ukraine”
Lloyd’s List (2016a) Worth the Risk?, 1 February 2016
Lloyd’s List (2016b) Turning a blind eye on Crimea, https://www.lloydslist.com/ll/topic/ukraine/
Lloyd’s List (2019) Kerch Strait blast investigation shifts to sanctioned vessel operations,
22 January 2019
Lloyds List (2018) Russia reopens Kerch Strait to shipping after vessels seized, 26 November, 2018
McDougal MS, Burke WT (1962) The public order of the oceans, vol 90. Yale University Press,
Haven
Resolution No. 578-p of the Cabinet of Ministers of Ukraine (April 30, 2014)
Rothwell D (2015) UNCLOS navigational regimes and their significance for the South China Sea.
In: Wu S, Valencia M, Hong N (eds) UN Convention on the law of the Sea and the South China
Sea. Routledge, Abingdon, p 149
Schwendiger G, Trennt M (2015) Die Russland-Embargo-Verordnung: Wirtschaftssanktionen der
EU in der Ukraine-Krise. EuZW:93
Statute on the International Regime of Maritime Ports, Dec. 9 1923, 25 LNTS 202
Tomuschat C (2006) Secession and self-determination. In: Kohen MG (ed) Secession: International
law perspectives. Cambridge University Press, Cambridge, pp 23–45
UN General Assembly Resolution of 27 March 2014 on the “Territorial Integrity of Ukraine”, UN
Res. A/RES/68/262 of 1 April 2014 68/262
UN Security Council Resolution 2397 was adopted on December 22, 2017
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16 November 1994) 1833 UNTS 3
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et seq
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Cases

Dispute Concerning Coastal State Rights in the Black Sea, Sea of Azov, and Kerch Strait (Ukraine
v. the Russian Federation), see https://pca-cpa.org/en/cases/149/
Kodros Shipping Corporation v. Empresa Cubana de Fletes (The Evia (No.2)), 2 Lloyds Law
Reports [1982], 307 (314)
Leeds Shipping v. Bunge (The Eastern City) [1958] 2 Lloyds Rep 127
M/V Saiga (No. 2) Case, International Tribunal for the Law of the Sea
Ogden v. Graham, (1861) 1 B. & S. 773; 121 E.R. 901
Scrutton on Charterparties and Bills of Lading (2011), 22nd ed., art. 82
Ukraine v. Russia (re Crimea) (application no. 20958/14)
Ukraine v. Russia (II) (application no. 43800/14)
Ukraine v. Russia (re Eastern Ukraine) (no. 8019/16)
Ukraine v. Russia (VII) (application no. 38334/18)
Ukraine v. Russia (VIII) (application no. no. 55855/18)
Shipowner’s Implied Obligations
in a Charterparty Relating to Lien
on Cargo: English and Chinese Law
Perspectives

Shengnan Jia and Haiyang Yu

Abstract A shipowner’s lien on cargo is a built-in remedy in charterparties to counter

the charterer’s default. The so-called lien clause appears in all standard form
charterparties granting the shipowner in express terms, security on cargo in respect of
unpaid freight or hire and other amounts due. Whether this is an “absolute” contractual
right; or alternatively, an implied obligation requiring the shipowner to exercise his lien
reasonably, is the central theme of this chapter. Implied clauses requiring the shipowner
to act in a reasonable manner only provide “piecemeal” solutions. This chapter probes in
the legal notions of reasonableness and good faith in respect of their applications to lien
clauses, and also the phenomenon of contractual discretions to determine the present
state of English law. The corresponding legal issues are examined in the context of
Chinese law including relevant cases showing that reasonable responsibility is imposed
on the shipowner under Chinese law. The chapter is an exposé on the different
approaches to dealing with the same legal issue under the two legal regimes.

1 Introduction

1.1 Background

Almost every standard form charterparty,1 gives the shipowner an express security
on cargo, referred to as a lien on cargo or cargo lien, in respect of unpaid freight or
hire and other amounts due. At common law, a shipowner’s cargo lien may be a

1
This chapter concerns a voyage or time charterparty only; not a bareboat charterparty because such
a charterparty, it is the charterer not the shipowner who has possession of the cargo.

S. Jia
The City Law School, City, University of London, London, UK
e-mail: Shengnan.Jia@city.ac.uk
H. Yu (*)
Institute for Transnational Legal Research (METRO), Faculty of Law, Maastricht University,
Maastricht, Netherlands
e-mail: haiyang.yu@maastrichtuniversity.nl

© Springer Nature Switzerland AG 2020 311

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_15
312 S. Jia and H. Yu

common law lien or a contractual lien; whereas in the traditional civil law it is based
on statute and there is no concept of a contractual lien.2 The purpose of this lien is to
provide an effective remedy to the shipowner in the event of a charterer’s failure to
pay any amounts to the owner required under the charterparty. The provision in
question is referred to as a lien clause and is typical of the one found in Article 23 of
New York Produce Exchange (NYPE) 2015, which stipulates that—“[T]he Owners
shall have a lien upon all cargoes. . .belonging or due to the Charterers or any
sub-charterers, for any amounts due under this Charter Party, including general
average contributions. . .”3
When a charterer commits a breach, the shipowner as a lawful possessor of the
cargo, is entitled to exercise his legal or contractual right over it without any
intervention. The cargo lien, referred to above, is in effect a self-help remedy
afforded to the shipowner who is the innocent party at the receiving end of the
charterer’s breach. Further to that is the question whether the shipowner is obliged to
act reasonably while exercising his right of self-help.

1.2 Purpose

The principal purpose of this chapter is to examine from the dual perspectives of
English and Chinese law whether the so-called lien clause in a charterparty accom-
modates an implied duty on the part of the shipowner to act reasonably and in good
faith, otherwise known as bona fides, in the course of exercising his right. In this
context, it must be observed that the standard lien clause in different charterparties
does not expressly provide for any obligation on the part of the shipowner to act
reasonably while he is exercising his right under this clause. It is trite that the
fundamental purpose of the lien clause is to protect the shipowner’s interests in the
face of the charterer’s breach of his contractual obligation. It may be arguable
therefore, that in such instance there is no ground for the contention that there is
any obligation of the shipowner owing to the cargo owner. A subsidiary purpose of
the present investigation is to determine whether and to what extent that is a
conclusion sound and supportable by law in the English and Chinese legal systems.

1.3 Structure

The chapter first addresses the English law on the subject and then the Chinese law in
succession. Following the “Introduction”, insofar as the English law is concerned,

2
In recent years, in some civil law jurisdictions this is changing because of reconsideration of the
implication of numerus clausus so that party autonomy may apply in the system of security.
3
See also Article 8 of Gencon 1994, Article 14 (d) of Gentime 1999 and other standard forms.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 313

the first issue that is dealt with is—what exactly is the notion of self-help as a remedy
and its significance in terms of the lien clause in a charterparty. Further to that, the
discussion extends to whether there is an implied duty on the part of the shipowner to
act in a reasonable manner in the course of exercising his right under the lien clause.
This is associated with the doctrine of contractual discretion, the tenets of which are
derived from the case law. Several current English cases are examined analytically in
addressing this question. The duty of good faith is then discussed in terms of whether
there is such an implied duty in every contract as a general proposition and whether
there are wider implications of that duty applicable to a lien clause. There is
discussion on the implications of the cargo lien leading to the proposition that the
lien clause falls under the caption “contractual discretion”, which requires the
shipowner to act in good faith, with honesty and reasonableness. It is suggested
that the test of rationality rather than reasonableness should be applied.
The issue of whether there is an implied duty to act in a reasonable manner under
Chinese law is then examined. In this connection, the notion of good faith and
principle of mitigation is applied in the context of “reasonable requirements” under
the Chinese Maritime Code. The principle of good faith in Chinese law is examined
in terms of how it works in practice. Finally, conclusions emanating from the
discussions in respects of English law and Chinese law are presented.

2 Lien Clause as a Self-Help Remedy

2.1 The Notion of Self-Help4

It is generally accepted that a remedy for breach of contract can be a judicial remedy
or a self-help remedy.5 The boundary between these two types of remedies is
sometimes unclear because of different perceptions of self-help. For example, one
author contends that self-help is “[A]ny actions taken by either contracting party to
limit the harm caused by defective performance, to attempt to preserve the contract,
and to prevent non-justified termination of the contract.”6 By contrast, according to
another author, self-help is “[O]ne party’s ability to take control of an item or sum of
money in dispute without judicial intervention”.7 Another description of self-help as
a remedy is—“[L]egally permissible conduct that individuals undertake absent the
compulsion of law and without the assistance of a government official in efforts to
prevent or remedy a civil wrong.”8

4
It should be noted that the concept of a self-help remedy in Chinese law is absent. The concept of a
lien in most situations is simply understood as a type of security interests in the law of property.
5
McKendrick (2016), pp. 120–121.
6
Taylor (1998), p. 842.
7
Rubin (1997), p. 36.
8
Brandon et al. (1984).
314 S. Jia and H. Yu

Regardless of the absence of a unified perception of self-help, a lien in general is

undoubtedly a self-help remedy. As stated by Diplock LJ in Tappenden (t/a English
and American Autos) v. Artus, “lien is a self-help remedy, triggered by the perfor-
mance of work which improves a chattel of which the performer has lawful posses-
sion, and does not depend on any implied contractual term. . . lien as a remedy in
rem, requiring for its exercise no intervention by the courts”.9 In the context of this
definition, it is submitted that a lien is at once a proprietary right as well as a kind of
self-help remedy, and the lien clause in a charterparty giving the shipowner a lien on
cargo where the charterer has defaulted in some way, is no exception.10 Incidentally
in Chinese legal practice, normally, the court favours the shipowner when the cargo
does not belong to the charterer, even though according to the relevant provision in
the Maritime Code, it is provided that the charterer shall be the owner of cargo on
board. However, in the on-going revision of the Maritime Code, it is proposed that,
regardless of whether the cargo belongs to the charterer, if the cargo is transported by
the shipowner, he is entitled to detain the cargo.11
The notion of the self-help remedy in the context of the lien clause raises the
question whether the right of the shipowner in the form of the cargo lien is “absolute”
in the sense that there can be no legal impediment to its exercise; that is, whether
there are any obligations or responsibilities attached to it. That may, in the first
instance, be presumed to be the case given that the charterer is the one who is the
defaulter, but there are certain basic related precepts that must be considered before
reaching any conclusion in this regard.

2.2 Bailment

One is the concept of bailment in English property law. The carrier in custody of the
shipper’s cargo can be said to be a bailee and the law of bailment is applicable to him
in term of certain responsibilities that he must bear in respect of the cargo. Arguably,
even when he wears the hat of a cargo lien-holder, exercising his rights under the
cargo lien and at the same time enjoying the benefit of a self-help remedy, his legal
responsibilities as a bailee are not extinguished. On the other hand, it is equally
arguable that in a typical bailment scenario, the carrier is a bailee as custodian of the
cargo under operation of law whereas his right to self-help arises out of some default
on the part of the cargo owner under the contract of carriage. At any rate, in this
chapter, there is no intention on the part of the authors to delve into the law of

9
[1964] 2 QB 185 at 194–195; [1963] 3 All ER 213 at 215–216, (CA).
10
When the charterer is not the cargo owner, whether the shipowner is entitled to detain the cargo
depends on the incorporating clause and the jurisdiction where the detention takes place.
11
See Ministry of Transport of the P.R. China <http://www.mot.gov.cn/yijianzhengji/201811/
t20181107_3125036.html> accessed on 11 February 2019.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 315

bailment which may be remotely related but not germane to the central focus of the
present inquiry.

2.3 Reasonableness and Good Faith in Self-Help

Other possible constraints on the operation of the lien clause as provision of a self-
help remedy are the duty on the part of the shipowner as lienholder to act reasonably
and in good faith. Whether there are legal grounds for such assumptions are
addressed below.

3 Duty to Act Reasonably

3.1 Implied Duty

As set out in the introductory chapter, the first and central issue in the context of the
subject-matter of this chapter is whether exercising his rights under a lien clause in a
charterparty, the shipowner has an implied duty to act reasonably. An implied duty,
if there is one, must surely arise from a term implied in the contract which leads to
the question of what exactly an implied term in English contract law is. The
immediate reaction must be that it is a term that is not expressly stated in the contract
but is nevertheless recognized by the law as a term of the contract. It arises by
operation of law, to put it in shorthand. The English courts have provided well-
defined tests derived from a multiplicity of cases to establish the existence of an
implied term. The leading case in this regard is The Moorcock12 in which Bowen
L.J. held that “if one were to take all the cases, and they are many, of implied
warranties or covenants in law, it will be found that in all of them the law is raising an
implication from the presumed intention of the parties with the object of giving to the
transaction such business efficacy as both parties must have intended that at all
events it should have”. This so-called test of “business efficacy” pointing to the
presumed intention of the parties to identify the existence of an implied term was
repeated in Reigate v. Union Manufacturing Co (Ramsbottom) Ltd.13 The doctrine
of “presumed intent” postulated by Lord Denning in the following words:
[I]nstead of asking whether the parties impliedly agreed on a term, the Court recognizes that
they never agreed on it at all: because they never envisaged that such a situation would arise.
In such cases the Court seeks to find their “presumed intent”, that is what they presumably
would have agreed if they had envisaged the situation.14

12
[1889] 14 PD 64, at 68.
13
[1918] 1 KB 592.
14
Lord Denning (1979), p. 41.
316 S. Jia and H. Yu

Lord Sumner put forward a similar concept in Bank Line Ltd v. Arthur Capel and
Company15 stating that “the theory of dissolution of a contract by the frustration of
its commercial object rests on an implication, which arises from the presumed
common intention of the parties,” but his consideration seemed not to attract much
attention until Lord Denning restated the doctrine of “presumed intent” after three
decades. Lord Denning’s proposition points to the court’s prerogative to determine
what the parties presumably intended when they reached an agreement.
It may seem that presuming intent points to a subjective approach contrary to the
tenets of the common law which upholds objectivity in virtually all cases. However,
that is not quite the case because presumption of what was in the minds of the parties
when they bargained, must be done objectively. In other words, the court is not
concerned with what in fact the parties intended, but rather, what they should have
intended as reasonable businessmen. Incidentally, the “officious bystander” test
enunciated in Shirlaw v. Southern Foundries Ltd.16 Clearly reflects a requirement
of “reasonableness”. It is recognized in this context that in the field of commercial
endeavor, subjective speculation is inconsistent with the philosophical foundation of
freedom of contract or party autonomy. Contract theory provides that mutual consent
is determined by reference to objective, external acts and manifestations, not by
evidence of subjective, internal intention. This is what is embraced by common law
jurisdictions. In contrast, civil law jurisdictions apply the subjective theory under
which the actual mental assent of the parties determines the formation and interpre-
tation of a contract.17
It needs no reiteration that freedom of contract is the very bulwark of English
contract law. It is a paramount principle that courts are quick to uphold. In time
charterparty cases, for example, unless there is an express clause providing for a
charterer to extend the time of withdrawal of the vessel by the owner, the courts will
not imply the existence of any clause allowing for such withdrawal. It is a matter
open to bargain between the parties under the doctrine of freedom of contract; and
therefore, in the absence of an express clause, the court will infer that there was no
intention on the part of the parties to extend the time for withdrawal by the
shipowner.18 In a similar vein it may be submitted that in the absence of an express
clause in the charterparty, a court will not be inclined to imply into it, a duty of the
shipowner to act reasonably when exercising his right in respect of a lien clause.
However, before such a submission can be made definitively, further discussion is
necessary on this matter.

15
Bank Line Ltd v. Arthur Capel and Company [1919] A.C. 435, at 455.
16
[1939] 2 KB 206 per Lord Justice Mackinnon who held at p. 227 that “if an officious by-stander
were to suggest some express provision for it in the agreement, they (the parties) would testily
suppress him with a common “Oh, of course”.
17
See Barnes (2008), pp. 1119–1120 and 1122; Perillo (2000), pp. 429–430.
18
Scandinavian Trading Tanker Co. A.B. (Respondents) v. Flota Petrolera Ecuatoriana (Appel-
lants), [1983] 2 A.C. 694 pp. 703–704.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 317

Since the latter half of the twentieth century, English courts have considered the
question of implied terms more closely and in more detail than before. In a leading
case, BP Refinery (Westernport) Pty Ltd v. President, Councilors and Ratepayers of
the Shire of Hastings,19 the court established five criteria to examine the question of
implied terms and held that “for a term to be implied, the following conditions
(which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it
must be necessary to give business efficacy to the contract, so that no term will be
implied if the contract is effective without it; (3) it must be so obvious that “it goes
without saying”; (4) it must be capable of clear expression; (5) it must not contradict
any express term of the contract.

3.2 Reasonable and Equitable

In relation to the first criterion above, it must be pointed out that in juxtaposition to
reasonableness, the notion of what is equitable attracts two connotations; both are
correlated but distinctively different. The notion of equity in the strict legal sense in
English law is the brand of law historically administered by the Chancery courts, the
decisions of which were premised on ecclesiastical principles derived from the
canon law. These decisions purportedly generated results that were fair and just
rather than simply according to the strict letter of the law. Thus, equity is, on the one
hand, a judicial institution, and on the other, a body of law synonymous with fairness
and justice in the literal sense.20 In the first criterion mentioned above, it is submitted
that the term “equitable” is used in the literal sense; in other words, the connotation is
one of fairness.
In attempting to determine whether there is an implied duty on the part of the
shipowner in exercising his right under a lien clause in a charterparty to act
reasonably, it must be observed that in English law, reasonableness representing
the objective standard is an essential ingredient applicable across the board to any
contract; indeed, any legal transaction. As stated above, the “officious bystander”
test speaks to reasonableness in the context of what may be considered an implied
term in a contract. Be that as it may, the expression “reasonable and equitable” taken
together is fraught with potential contradiction when viewed from the vantage point
of the different parties to a contract. For instance, in the shipping industry, it is well-
known that the Baltic Dry Index (BDI) is closely connected to what the carrier
charges for transporting the goods by sea.21 But fluctuation in BDI is unforeseen.
When it appears to be descending, one carrier may be willing to carry the goods with
“zero” interest but others may not be willing to accept a lower freight. One carrier
may consider “zero” interest to be “reasonable and equitable” but another may

19
[1977] 52 ALJR 20, 26.
20
Mukherjee (2002), p. 5.
21
Schinas et al. (2014), p. 318.
318 S. Jia and H. Yu

regard it as unacceptable. In short, the subjective approach is incompatible with the

traditional objective approach to construction of a contract.22
With regard to the shipowner’s duty to act reasonably in the context of a lien
clause in a charterparty, reference must be made to three cases. One is a relatively old
judicial decision; the other two are arbitration awards. In The Lyle Shipping Com-
pany Limited v. The Corporation of Cardiff,23 the vessel in question was voyage
chartered on terms which included a lien clause. The dispute arose out of the loading
port demurrage. The shipowner claimed 22 days demurrage, but the charterer
recognized only 3 days as being subject to demurrage payment. In the end, the
court upheld 19 days demurrage. The charterer contended that the shipowner had
lost the lien because the amount he claimed was greater than what was justifiable.
Furthermore, the cargo receivers claimed that the plaintiff shipowner wanted to
“squeeze” the defendant charterers, that is, to apply extortion by exercising their
lien to get more than what they were legally entitled to receive. But Bigham
J. rejected the charterer’s argument and stated—“I do not think that was their
intention (squeeze), or that they intended to exercise the lien for anything to which
they had no right. . .the plaintiffs (the shipowner) were disposed to act reasonably.”
Clearly, in this case, reasonableness of action taken by the shipowner was factored
into the court’s decision. It would therefore appear that there is an implied duty on a
shipowner exercising his right under the lien clause to act in a reasonable manner in
doing so.
In a London Maritime Arbitration case, the shipowner and charterer contracted
for three successive periods under three separate charterparties. On grounds of
failure by the charterer to make prompt payment of sums due under each
charterparty, the shipowner exercised his lien over the cargo remaining on board
by ordering the vessel to stop discharging. The charterer took the position that the
shipowner wrongfully exercised the lien and contended that the shipowner could
exercise his lien in respect of the third charterparty without including the first two.
The value of the remaining cargo was more than the amount due in respect of the
third charterparty. The tribunal held that although the shipowners’ lien could not
extend to the two earlier charterparties, the lien over the remaining quantity of cargo
was valid.24 It is apparent that in rendering its award, the tribunal considered the
shipowner to have acted reasonably in the circumstances.
The third one is also a London Maritime Arbitration case in which the owners had
declared general average during the voyage. The master exercised a lien over the
cargo on board at the discharge port after the receivers refused to sign general
average bonds. The tribunal ruled that the lien must be exercised in “a reasonable
manner”, and that the costs of the various alternative methods of exercising the lien
must be taken into account when determining whether it had been exercised

22
Lord Neuberger (2016) Para. 16, p. 17.
23
[1899] 5 Com. Cas. 87, at pp. 97–98; see also Cooke et al. (2014) Chapter 17.26.
24
See London Maritime Arbitration 5/91, in Lloyd’s Maritime Law Newsletter (LMLN 307) A
summary award can be found in Steamship Mutual (1999).
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 319

reasonably; and in that vein, the owners must show, or at least raise a prima facie
case to show, that they acted reasonably. Its finding was that the owners had failed to
establish the impossibility or impracticability of exercising the lien ashore, or if it did
so, it would have been more expensive than to exercise the lien on the cargo aboard
the vessel. Therefore, the tribunal held that the owners failed to raise even a prima
facie case that they had acted reasonably and were not entitled to recover demurrage
during the period of exercising the lien on cargo on board.25 It is abundantly clear
from the three cases cited above, that in so far as the shipowner’s exercising of the
cargo lien is concerned, acting in a reasonable manner is a necessary ingredient. All
the tribunals in the above-noted cases took into consideration what counts as
reasonable under different circumstances. In one leading case, Marks and Spencer
plc v. BNP Paribas Securities Services Trust Company (Jersey) Limited and
another,26 it has been held that “a term should not be implied into a detailed
commercial contract merely because it appears fair or merely because one considers
that the parties would have agreed to it if it had been suggested to them. Those are
necessary but not sufficient grounds for including a term. In this case the tests of
“reasonableness” and “officious bystander” are confirmed but the test of “necessity”
is stressed by pronouncing that the court does not imply terms simply based on what
it thinks ought to be the contractual relationship between the parties.27 The court is
concerned with the presumed intention of the parties because it can ascertain their
subjective intention only through the objective evidence available before it.28 Thus,
unless there is sufficient objective evidence to show that an implied term is necessary
in the interests of fairness and business efficacy, the court will generally be disin-
clined to imply a term into the contract. It is thus submitted, that all in all, apart from
reasonableness and fairness, the test of business necessity is of practical importance
to reach an objective result.

4 Application of Good Faith Doctrine to Cargo Liens

4.1 Preliminary Observations

In the context of a shipowner exercising his right of a cargo lien under a charterparty,
a question arises as to whether apart from acting reasonably, he must also act in good
faith. A related issue is whether they are two elements of the same requirement and
therefore inextricably connected; in other words, must the shipowner act in good
faith to demonstrate that his actions are reasonable. The third prong of the issue is

25
London arbitration No. 5/92, in Lloyd’s Maritime Law Newsletter (LMLN 321, page 4), A
summary award can be found in Steamship Mutual (1999).
26
[2015] UKSC 72.
27
Ibid.
28
Ibid. at para. 66.
320 S. Jia and H. Yu

whether such a duty of good faith, assuming that it is prevalent in commercial

contracts, is to be expressly stated, or is it a duty implied in the contract. Simply,
looking at the wording of the typical lien clause as illustrated above in respect of the
NYPE standard form of charterparty and other similar standard forms, it is hardly
capable of accommodating an express requirement for the shipowner to act in good
faith while exercising his cargo lien, without a major distortion of the draft. As to
whether it can be contended that with or without an express term such a duty must be
implied, the legal meaning of the term must first be discerned and clearly understood.
In terms of English law, the decision in Yam Seng Pte Ltd v. International Trade
Corp Ltd.29 triggered discussions on whether there should be a wider implication of
the duty of good faith on contracting parties.

4.2 Definitions of Good Faith

It is trite that the phenomenon of good faith extends far beyond being just a legal
precept; it is as much a moral standard for society as it is legal principle. As such, it is
a truism that evades precise definition whether legalistically or otherwise.30 One
definition emphasizes the use of it by courts to constrain the contractual discretion
that the parties may have over a decision affecting the parties’ duties and rights.31 It
is said that parties who exercise contractual discretion must act fairly, in order to “[P]
rotect justifiable expectations arising from their agreement.”32 One commentator has
stated that good faith is a fundamental principle derived from the rule pacta sunt
servanda and other legal rules that are related to honesty, fairness and reasonable-
ness.33 It also features as an important tool in treaty interpretation.34
The doctrine of good faith has permeated the English common law in the field of
commercial contracts but unlike the United States it has not been expressly provided
for in legislation. The U.S. Uniform Commercial Code gives a definition of “good
faith” as “honesty in fact and reasonable commercial standards of fair dealing”35 and
the U.S. Restatement (Second) of Contracts, explains the meaning of good faith in
the following words:

29
[2013] EWHC 111 (QB); [2013] B.L.R. 147 per Sir George Leggatt.
30
For example, Juenger pointed out “the term. . . lacks a fixed meaning. . . because [it] is loose and
amorphous.” See Juenger (1995), p. 1254; Powers treats it as “an elusive term best left to lawyers
and judges to define over a period of time as circumstances requires.” See Powers (1999), p. 333.
31
Tetley (2004) para. IV 1).
32
Burton (2001), pp. 444–445.
33
O’Connor (1990), p. 102. It is to be noted that this is an established rule of international treaty law
expressly stated in Article 26 of the Vienna Convention on the Law of Treaties, 1969, 1155 UNTS
331.
34
Article 31(1) of Vienna Convention on the Law of Treaties, 1969 provides that “[A] treaty shall be
interpreted in good faith . . .”
35
See §1-201(20); §2-103(1)(b).
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 321

[G]ood faith performance or enforcement of a contract emphasizes faithfulness to an agreed

common purpose and consistency with the justified expectations of the other party; it
excludes a variety of types of conduct characterized as involving ‘bad faith’ because they
violate community standards of decency, fairness or reasonableness.36

The English jurist Sir George Leggatt has summarized two aspects of good faith
drawing them from the US legislation; namely, “(1) adherence to reasonable com-
mercial standards of fair dealing; and (2) faithfulness to the agreed common purpose
of the contract and to the reasonable expectations of the parties arising from it.”37 He
states, however, that this explanation is quite abstract, and it acquires more concrete
meaning only from particular cases. It is noteworthy that in the United States law, it
is the contract that imposes the duty of good faith, which means that the duty only
exists during the performance of the contract. This is consistent with the underlying
aim of not restricting the parties’ freedom of contract.38
It can be gleaned from the definitions of good faith mentioned above, that a duty
to act in good faith, whether it is express or implied, is a sound basis for the
contention that there was compliance with the requirement of reasonableness by
the shipowner in invoking and exercising his rights under a lien clause in a
charterparty. However, it is notable that in contradistinction to the above proposi-
tions, Lord Reid held in White and Carter (Councils) Ltd v. McGregor, that “it has
never been the law that a person is only entitled to enforce his contractual rights in a
reasonable way.”39 If this statement is perceived as a presupposition that good faith
is a necessary ingredient of reasonableness with respect to a party’s entitlement to
enforce his contractual rights, then it must follow that there is no duty to act in good
faith unless such duty is expressly stated in the contract. In this context, it must be
noted that enforcement of a right under the contract as mentioned by Lord Reid, is
not synonymous with performance which connotes fulfilment of obligations of both
parties to a contract and is a notion wider than invoking and exercising a right under
a contract such as in the case of a shipowner’s cargo lien in a charterparty. The verity
of the above contentions in terms of how English law continues to evolve in this field
is explored in the discussion below.

4.3 Current Position of Good Faith in Common Law

The position of the doctrine of good faith in English law is reflected in the decision of
Bingham L.J. in Picture Library Ltd v. Stiletto Visual Programmes Ltd.,40 Bingham
L.J. where he held as follows:

36
§205; See also, Leggatt (2016) para. 11.
37
Leggatt (2016) para. 12.
38
Leggatt (2016) para. 9.
39
[1962] AC 413, 431; Foxton (2017), p. 362.
40
[1989] Q.B. 433.
322 S. Jia and H. Yu

[I]n many civil law systems, and perhaps in most legal systems outside the common law
world, the law of obligations recognises and enforces an overriding principle that in making
and carrying out contracts parties should act in good faith. This does not simply mean that
they should not deceive each other, a principle which any legal system must recognise; its
effect is perhaps most aptly conveyed by such metaphorical colloquialisms as “playing fair”,
“coming clean” or putting one’s cards face upwards on the table”. It is in essence a principle
of fair and open dealing . . . English law has, characteristically, committed itself to no such
overriding principle but has developed piecemeal solutions in response to demonstrated
problems of unfairness.

It appears from the above dictum that in the common law, the principle of good
faith as an overriding principle has not been cast in concrete as in civil law
jurisdictions in relation to the law of obligations. Rather, in English law, it has
developed as piecemeal solutions to situations where unfairness has been evident in
the effectuation of contracts, namely, their performance and invocation of rights
under them.41
Following the decision in Yam Seng Pte Ltd v. International Trade Corp Ltd.,
alluded to above, there has been rising interest and discussion among scholars and
the judiciary with regard to the duty of good faith in connection with commercial
contracts. It is apparently not considered by the courts to be totally alien to English
law.42 Indeed, in fiduciary arrangements and employment contracts, English law
indubitably recognizes the application of the good faith principle although it is
contended in scholarly writings that these are simply piecemeal solutions to ensure
fairness in particular situations.43 Notably, certain EU directives have virtually
compelled English courts to give requisite weight in their judgements to the notion
of good faith.44 Some are of the unwarranted belief that the English law in this matter
is being increasingly isolated and that the future of good faith in English law is
somewhat dubious.
Compared with the loose position adopted in by English courts on the doctrine of
good faith, which is “swimming against the tide” in the words of Sir George
Leggatt,45 the United States, Canada and Australia, have all recognised it positively.
In the United States, good faith has been recognised as a legal principle for over a
century and, as mentioned above, is entrenched in legislation. In Australia and
Canada as well, the principle of good faith in the effectuation of contracts is well-
established. In Renard Constructions (ME) Pty v. Minister for Public Works,46 a
1992 decision of the Court of Appeal of New South Wales, Priestley JA held that
good faith and fair dealing in the performance of contracts is the expected legal

41
See for example, Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. [1988] 1 All
E.R. 348 at 353 (C.A.); See also Tetley (2004) para. VII, p. 13.
42
Tetley, ibid. at p. 28. Professor Tetley points out at pp. 6–7 that good faith has been an integral
part of society’s legal order since Roman law times.
43
Pugh (2018).
44
Tetley (2004), p. 28.
45
Leggatt (2016) para. 2.
46
(1992), 33 Con LR 72, 113, (NSWCA).
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 323

standard. This decision has been widely accepted in Australian case law.47 In Bhasin
v. Hrynew,48 a 2014 decision of the Supreme Court of Canada, it was acknowledged
that there is a general principle of good faith underpinning contract law, and the
specific duty of honesty in the performance of contract is a manifestation of this
principle.

4.3.1 Express Duty of Good Faith

It is evident that in the current milieu of contracts in English law, the requirement of
good faith is being increasingly provided for in express terms. A clause imposing an
express duty of good faith was considered in Berkeley Community Villages Ltd v.
Pullen in 2007.49 The clause in question provided that, “[I]n all matters relating to
this agreement the parties will act with the utmost good faith towards one another
. . .” In relation to this clause, Morgan J. upheld the imposition on the defendants “a
contractual obligation to observe reasonable commercial standards of fair dealing in
accordance with their action which related to the Agreement and also requiring
faithfulness to the agreed common purpose and consistency with the justified
expectations of the first claimant.”50 In deciding what the obligation to act in good
faith meant, Morgan J. relied on an Australian case, which cited some American
sources.
Incidental to this, at a lecture given to the Commercial Bar Association in 2016,
Sir George Leggatt, opined that “[E]nglish law recognises and will enforce contrac-
tual duties of good faith, where they are embodied in express terms of contract. . .”.51
But this observation is hardly relevant to charterparties where rarely, if ever, such
express terms appear, and decidedly never in respect of a lien clause.

4.3.2 Implied Duty of Good Faith

Flowing from the above discussion, the question then is whether good faith can be
implied in respect of a shipowner exercising his rights under a lien clause. If the
answer is in the affirmative, then it follows that a shipowner invoking and exercising
his lien, should be held liable for acts that are not considered to be in good faith, such
as excessive or unnecessary use of the security. In the case of Yam Seng Pte Ltd v.
International Trade Corp Ltd. mentioned earlier, the claimant Yam Seng Pte Ltd.
obtained certain exclusive distribution rights pursuant to a distributorship agreement.
Yam Seng terminated the agreement and alleged that the defendant International

47
Leggatt (2016) para. 15.
48
2014, SCC 71.
49
[2007] EWHC 1330 (Ch).
50
[2007] EWHC 1330 (Ch) para. 97.
51
Leggatt (2016) para. 22.
324 S. Jia and H. Yu

Trade Corp Ltd (ITC) was in breach of contract for providing false information and
for undercutting the set prices with third parties. The issue was whether the defen-
dant ITC failed to act in good faith.52 The Court held that English law had not yet
reached the stage where it was ready to recognise a requirement of good faith as a
duty implied by law into all commercial contracts, not even as a default rule;
however, there could be an implied duty of good faith in an ordinary commercial
contract based on the presumed intention of the parties.53
Evidently, there has been little support for this proposition. In her decision in
Greenclose Ltd. v. National Westminster Bank Plc,54 Madam Justice Andrews DBE
did not accept that there was a general principle of good faith. Concerning the
implied duty of good faith in commercial contracts, she held that, such a term is
“[U]nlikely to arise by way of necessary implication in a contract between two
sophisticated commercial parties negotiating at arms’ length.” In contrast, in his
judgement in Yam Seng Pte Ltd v. International Trade Corp Ltd Sir George Leggatt
had this to say in relation to the implication of such a duty:
[M]ore recently, in Attorney General for Belize v. Belize Telecom Ltd [2009] 1 WLR 1988 at
1993-5, the process of implication has been analyzed as an exercise in the construction of the
contract as a whole. . . Importantly for present purposes, the relevant background against
which contracts are made includes not only matters of fact known to the parties but also
shared values and norms of behaviour. Some of these are norms that command general social
acceptance; others may be specific to a particular trade or commercial activity; others may be
more specific still, arising from features of the particular contractual relationship.55

Be that as it may, under current judicial circumstances, it is apparent that the Yam
Seng decision does not constitute persuasive authority under English law. The
general position of courts on the implied duty of good faith is that it only applies
in cases where the contract in question is a relational one, or one of the contracting
parties has relatively less bargaining power such as in the case of employment
contracts. A wider implication of duty of good faith is not well accepted; in several
cases where the parties sued alleging breach of an implied duty of good faith and
relying on the Yam Seng decision, did not succeed.
One was MSC Mediterranean Shipping Co v. Cottonex56 where the consignee
who had title to the goods, refused to collect them from the shipowner’s containers
which were impounded by customs. Since the containers could not be returned to the
shipowner within a certain time, the shipper was liable for container demurrage
accruing each day. The shipper’s failure to return the containers amounted to a
repudiation by him, but instead of accepting it, the shipowner chose to keep the
contract alive and claim container demurrage. The containers remained stuck in the

52
[2013] EWHC 111 (QB); [2013] B.L.R. 147.
53
Leggatt (2016). See Sect. 2.2 in this Chapter where, “presumed intent” is stated to be a standard
for an implied term.
54
[2014] EWHC 1156 (Ch); (2014) 158(17) S.J.L.B. 37.
55
[2013] EWHC 111 (QB) para. 134.
56
[2015] EWHC 283 (Comm); [2016] EWCA Civ 789.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 325

port for three and a half years and the shipowner claimed demurrage of over USD
1 million, which was 10 times more than the cost of buying replacement containers.
The High Court ruled against the shipowner and held that “the innocent party cannot
exercise its power to keep the contract alive if to do so would be wholly unreason-
able”.57 The case was then brought to the Court of Appeal, Lord Justice Moore-Bick
advocated a return to the orthodox view that English law does not recognise any
general duty of good faith.58 He held that if it were so, it would be invoked so often
and it would bring uncertainty to the terms to which the parties had agreed.
In Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Ioannis Kent (AKA
John Kent),59 the court held that it was unnecessary and perhaps impossible to spell
out an exhaustive description of what the obligation of good faith involved. It held
that a summary description of it given by Allsop CJ of the Federal Court of Australia
in the Paciocco case60 was consistent with the English case law, which expounds an
obligation to act honestly and with fidelity to the bargain; an obligation not to act to
undermine the substance of the contractual benefit bargained for; and an obligation
to act reasonably and with fair dealing having regard to the interests of parties and to
the provisions, aims and purposes of the contract, objectively ascertained.
The learned judge further stated that, “[T]he obligation of fair dealing is not a
demanding one and does no more than require a party to refrain from conduct which
in the relevant context would be regarded as commercially unacceptable by reason-
able and honest people.”61 As far as the standard of fair dealing or reasonableness is
concerned, the learned judge cited Allsop CJ who opined in Paciocco v. Australia
and New Zealand Banking Group Limited (The Paciocco) that
. . . any given case must recognize the nature of the contract or relationship, the different
interests of the parties and the lack of necessity for parties to subordinate their own interests
to those of the counterparty. That a normative standard is introduced by good faith is clear. It
will, however, not call for the same acts from all contracting parties in all cases. The legal
norm should not be confused with the factual question of its satisfaction. The contractual and
factual context (including the nature of the contract or contextual relationship) is vital to
understand what, in any case, is required to be done or not done to satisfy the normative
standard.62

It can be concluded from a perusal of the above cases that in terms of the law as it
obtains, good faith introduces a normative standard for what counts as “reasonable
manner” regarding the performance of a contract provided it is ascertained objec-
tively and in the contractual and factual context of the contract in question. A
far-reaching standard is not acceptable in English law for the sake of freedom of

57
MSC Mediterranean Shipping Co v. Cottonex [2015] EWHC 283 (Comm).
58
MSC Mediterranean Shipping Co v. Cottonex [2016] EWCA Civ 789.
59
[2018] EWHC 333 (Comm).
60
[2015] FCAFC 50; See also, Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v. Ioannis
Kent (AKA John Kent) [2018] EWHC 333 (Comm) para. 175.
61
Ibid. para. 175.
62
The Paciocco para. 290; see also ibid. para 175.
326 S. Jia and H. Yu

contract and legal certainty. a wider implication for good faith in all commercial
contracts would not be acceptable in English Law; only in certain specific kinds such
as relational contracts and employment contracts. An objective standard for the
scope of such an implied duty of good faith cannot be introduced simply because
it would create legal uncertainty. Arguably, therefore, the obligation to act in a
reasonable manner cannot be based on an implied duty of good faith; and so, it is,
with respect to a shipowner’s right to exercise a cargo lien provided for in a
charterparty.

5 Contractual Discretion

5.1 Preliminary Thoughts

Discretion in reference to contracts has been described as “the hole in a doughnut - it

does not exist except as an area left open by a surrounding belt of restriction”.63 As
metaphoric as it may sound, the phenomenon of discretion appears frequently in the
domain of contracts. At the outset, it may be stated that the development of the
so-called contractual discretion in English law, may reverse the legal position on the
implied duty of good faith. The following discussion delves into what potential
changes may ensue from this possible eventuality. It is expedient to inquire into what
exactly this phenomenon means and what are its implications in relation to the
doctrine of good faith. It has been mentioned earlier that one definition of good faith
emphasizes its application by courts to constrain contractual discretion that the
parties may have over a decision affecting their duties and rights.64 Needless to
say, the discussion is not intended to meander away from the central theme of this
discourse which is the shipowner’s right to exercise a cargo lien in relation to a
charterparty.

5.2 The Notion of Contractual Discretion

In English law, there is a growing body of case law on the exercise of contractual
discretions, which could evolve into a doctrine that treats performance in good faith
as an obligation that applies to every contract, except to the extent that it is excluded
expressly or impliedly.65 Where there is a discretion, there is an obligation to

63
Dworkin (1977), p. 31.
64
Tetley (2004), p. 561, para. IV 1).
65
Leggatt (2016) para. 44.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 327

exercise it fairly and reasonably.66 Such obligations are referred to as “discretion

obligations” by one commentator.67 As alluded to earlier, given the principle of
freedom of contract and the need for legal certainty, rights and obligations of parties
to a contract are not ascertained in subjective terms. This raises the question of how
discretion pursuant to a contract should be properly exercised; in other words, how
discretion obligations are to be discharged. The same commentator has proposed in
this regard that the test of rationality instead of reasonableness be adopted by the
courts. In his view, this is a comparatively better choice as an objective test for
deciding to what extent a contractual discretion would be considered to have been
exercised honestly and reasonably in the absence of any detailed description in the
contract.68
The distinction between these two tests has been explained by Lord Sumption in
Hayes v. Willoughby,69 in the following words:
[R]easonableness is an external, objective standard applied to the outcome of a person’s
thoughts or intentions. The question is whether a notional hypothetically reasonable person
in his position would have engaged in the relevant conduct for the purpose of preventing or
detecting crime.

Lord Sumption explained that “rationality”:

[. . .] by comparison (to reasonableness), applies to a minimum objective standard to the
relevant person’s mental processes. It imports a requirement of good faith, a requirement that
there should be some logical connection between the evidence and the ostensible reasons for
the decision, and (which will usually amount to the same thing) an absence of arbitrariness,
of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse.70

Despite the contrasting explanations presented above, it is unclear whether there

is judicial support for one over the other proposition, in that particular case. Indeed, it
is apparent that reasonableness is the parameter mentioned in most cases involving
the element of contractual discretion.71

5.3 The Relevant Case Law

The legal theory of contractual discretion in English law is invariably derived from
the case law, and therefore, a probe into the leading and significant cases is
understandably essential. It is noteworthy in this context that the start of the line of

66
CVG Siderurgicia del Orinoco SA v. London Steamship Owners’ Mutual Insurance Association
Ltd (The Vainqueur José) [1979] 1 Lloyd’s Rep 557 per Mocatta J.
67
Foxton (2017), p. 362.
68
Foxton (2018) para. 44.
69
[2013] UKSC 17 para. 14.
70
[2013] UKSC 17 para. 14.
71
In this context, see Braganza v. BP Shipping Ltd. and Another [2015] UKSC 17, in particular the
judgement of Lady Hale at pp. 6–7 and paragraph 28.
328 S. Jia and H. Yu

authorities fortifying the notion of contractual discretion is relatively recent. In The

Product Star72 the shipowner refused to proceed to a particular port in the Gulf,
based on a right of discretion contained in a time charterparty. The contract provided
that the shipowner could refuse to obey the charterers’ orders to load or discharge at
a port if the shipowner or the master considered it dangerous. The trial court found
for the charterer and held that the shipowner was in breach of contract. Its decision
was upheld by the Court of Appeal which opined that based on the facts, the
shipowner had not honestly believed that the port in question was dangerous. It
held that:
[W]here A and B contract with one another to confer a discretion on A, that does not render
B subject to A’s uninhibited whim. . . . Not only must the discretion be exercised honestly
and in good faith, but having regard to the provisions of the contract by which it was
conferred, it must not be exercised arbitrarily, capriciously, or unreasonably.73

The decision in The Product Star was followed in a number of subsequent

cases.74 In Paragon Finance Plc v. Nash,75 mortgage loan agreements conferred
on lenders an express power to vary the rate of interest payable which affected the
rights of both parties, but no criteria were specified regarding how the rate was to be
fixed. The court held that the discretion of the lender to fix the rates, was subject to
implied restrictions, namely, that it was not to be exercised dishonestly, or for an
improper purpose, or arbitrarily or unreasonably. In another case, Novus Aviation
Ltd v. Alubaf Arab International Bank76 the court held that the restrictions on the
unbridled application of discretion applied:
[N]ot only when a contract confers a duty or power on one party to take a decision which
affects the interests of both parties, but whenever the contract gives responsibility to one
party to make an assessment or exercise a judgment on a matter which materially affects the
other party’s interests and about which there is room for reasonable differences of view.77

Based on these decisions, it is fair to conclude that in contracts where a party has
the right to exercise a discretion, there is an implied term requiring him to act
“honestly and in good faith” and not “arbitrarily, capriciously, or unreasonably”.
Perhaps a valid question in this context is what counts as not being arbitrary,
capricious or unreasonable? It is said that in the absence of any clear definition or
illustration of this test, an ill-defined standard may be invoked by the parties
opportunistically.78 This is obviously not desirable.

72
Abu Dhabi National Tanker Co. v. Product Star Shipping Ltd (The “Product Star”) (No 2),
[1993] 1 Lloyd’s Rep 397.
73
[1993] 1 Lloyd’s Rep 397 at p. 404 per George Leggatt L.J.
74
See for example, Paragon Finance plc v. Nash [2002] 1 WLR 685 and Socimer International
Bank Ltd v. Standard Bank London Ltd, [2008] 1 Lloyd’s Rep 558.
75
[2002] 1 WLR 685.
76
[2016] EWHC 1575 (Comm).
77
Ibid., para. 65.
78
Morgan (2013), pp. 137–148; Morgan (2015), p. 486.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 329

Incidentally and relevantly, in the recent 2014 decision of the Supreme Court,
British Telecommunications Plc v. Telefónica O2 UK Ltd.79 Lord Sumption sum-
marized this line of authority and its effect in the following words:
[A]s a general rule, the scope of a contractual discretion will depend on the nature of the
discretion and the construction of the language conferring it. But it is well established that, in
the absence of very clear language to the contrary, a contractual discretion must be exercised
in good faith and not arbitrarily or capriciously. This will normally mean that it must be
exercised consistently with its contractual purpose.80

The foregoing diction unequivocally expounds that good faith is an essential

ingredient of a contractual discretion, that such discretion must be exercised in good
faith and must be consistent with the purpose of the contract. Whereas it seems to run
counter to the age-old proposition in common law that any implied application of
good faith is incompatible with the unshakable position of the doctrine of freedom of
contract, it also seems to point to a general default rule from which the parties may
contract out.81 The principle of freedom of contract is thus left undisturbed. In the
view of the present authors, in light of the above-noted decision of the Supreme
Court, in so far as English law is concerned, in the absence of any express terms in a
contract to the contrary, good faith and reasonableness are requisite implied elements
of a contractual discretion; and, in respect of commercial contracts, an implied duty
of good faith may well evolve into a default rule.
With regard to a cargo lien in a charterparty and the exercise of it by the
shipowner, a discretion obligation translates into acceptance of an implied duty of
good faith provided it can be shown that the lien is indeed a contractual discretion. In
the opinion of the present authors, the cargo lien is a type of contractual discretion,
better referred to as a “determination discretion” from which will flow discretion
obligations requiring the shipowner to act honestly, reasonably and in good faith.82
As mentioned earlier, this commentator suggests that the rationality test is the
appropriate minimum objective standard that should be used instead of reasonable-
ness which he contends is an external objective standard. In the observation of the
present authors, this approach will preclude an implied duty on the part of a
shipowner to act reasonably in exercising his right under a lien clause.
In the opinion of the present authors, it can be argued that the lien clause is a
determination discretion. Where there is an express contractual security provision in
a charterparty, such as Clause 8 of the Gencon (1994) Form, the contract confers a
power on the shipowner to take a decision to exercise a lien on cargo. Such decision
affects the interests of both parties. Furthermore, the charterparty gives to the
shipowner the responsibility to decide reasonably how much of the cargo should
be secured. This affects the interests of the charterer and shipper and may result in
differences of view regarding what amount of cargo secured is reasonable. Arguably,

79
[2014] UKSC 42.
80
Ibid. at para. 37.
81
Ibid. at [2014] UKSC 42 para. 50.
82
Foxton (2017), p. 367.
330 S. Jia and H. Yu

therefore, the exercise of contractual discretion, whether it is based on reasonable-

ness or rationality comes into play in terms of the application of the shipowner’s
contractual security provisions in the charterparty. In light of what Lord Sumption
had to say in the two cases referred to above, the essence of the alternative
approaches taken by the courts in specific instances is much the same. Needless to
say, the shipowner will have discretion obligations when exercising his lien on cargo
meaning he will have to exercise the lien with honesty, good faith and reasonable-
ness. But that is subject to whether the lien clause gives to the shipowner an
“absolute contractual right” as distinguished from a contractual discretion. If it is
the former, then decidedly no discretion obligations arise with respect to the ship-
owner exercising his cargo lien, and no commensurate duty to act in a reasonable
manner.
Lord Jackson described the notion of “absolute contractual right” in Mid Essex
Hospital Services NHS Trust v. Compass Group UK and Ireland Ltd. (trading as
Medirest) as “[A] right arising under a contract which is not subject to either
fiduciary or discretion obligations.”83 It seems that there is no clear test for identi-
fying the differences between contractual discretion and absolute contractual right.
One consideration is, “[W]here one party’s choice arises as a result of the other’s
breach, this is indicative of an absolute right.”84 If the lien clause is held to give to
the shipowner an absolute contractual right, arguably, the legal position regarding
contractual discretion as set out in the line of authorities referred to above, would
become irrelevant and the shipowner would be under no implied duty to act in good
faith and in a reasonable manner. At any rate, it is unlikely that the lien clause enjoys
the legal status of an absolute contractual right given the paucity of case law
specifically and pointedly dealing with lien clauses in charterparties. Whether
there will be a change in the legal landscape in this field, remains to be seen.

6 The Chinese Law

6.1 Implied Obligation to Act in Reasonable Manner

in Chinese Law

Unlike English law, in Chinese law there is no distinction between express and
implied terms. The Chinese courts generally do not recognise an implied term. If the
contract does not provide a term expressly, the court tends to look at the statute law
or other legislation including, judicial interpretations and regulations. In the event
that there is no relevant law to be found, the court can consider whether a principle in
the legislation can be applied. Thus, the expression “implied duty” used in the
present discussion refers to a statutory duty or a duty provided by the principle.

83
[2013] EWCA Civ 200 para. 83, 91, 92.
84
Foxton (2018) para. 9. d.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 331

As a civil law jurisdiction, the relevant statute law, whether in the form of a code
or other legislation, is the primary source of law for the courts. Be that as it may,
historically, Confucianism has exerted a profound and enduring influence in every
walk of life in Chinese society including, its sense of values and morality extending
to law and politics. The doctrine of Mean and the concept of Li are two essentialities
enshrined in Confucianism. The former represents moderation, sincerity, honesty
and rectitude,85 its purpose being to maintain balance and harmony; the latter pro-
vides the norms of good behavior in society.86 Both these are conspicuously
reflected in modern Chinese law in two respects. First, good faith arising from the
concept of Li prevails not only as a moral standard for society but also as an
overriding legal principle governing civil acts and commercial contracts. Secondly,
absolute rights or obligations are not entrenched in the law; courts often use their
discretion to maintain a balance.
Against the above background, it is anticipated that there must have an implied
duty to the shipowner regardless of whether the statute law provide a specific
provision.

6.2 Good Faith Principle in Chinese Law

Good faith is a well-established general principle in Civil law.87 There has been no
“piecemeal solution” such as the adoption of implied terms as in English law. The
principle of good faith has been codified into legislation in most civil law countries,
such as Germany and France as well as in China.88 Unlike in the U.S., in civil law
jurisdictions, this principle is not only applicable during the performance of the
contact, but also is an underlying principle at every stage of a contract, which
includes the negotiation and formation of a contract. For example, Article 1104 of
the French Civil Code which came into effect on October 2016 for example, it
provides “[C]ontracts must be negotiated, formed and performed in good faith. This
provision is a matter of public policy.”89 It limits the freedom of contract of the
parties for public policy reasons and is an overriding principle from which parties
cannot contract out. In Chinese law, the good faith principle can be found in Article
7 of the General Rules of the Civil Law of the P.R. China (GRCLoC), which came
into effect on 1 October 2017. It provides “[C]ivil subjects engaging in civil
activities shall follow the principles of good faith, adhere to honesty and keep

85
Encyclopædia Britannica (2008).
86
Zhang (2000), p. 204.
87
China has not yet adopted a Civil Code or a Commercial Code. The Civil law contains binding
provisions pertaining to commercial transactions.
88
For example, s. 242 of the German Civil Code and Art.1104 of the French Civil Code (entered
into force on 1 October 2016).
89
<http://www.textes.justice.gouv.fr/art_pix/THE-LAW-OF-CONTRACT-2-5-16.pdf>.
332 S. Jia and H. Yu

their commitments.” It can also be found in Article 6 of the Contract Law of the
P.R. China (1999) (CLoC). The good faith principle requires each party to a contract
to exercise its rights as an “honest businessman”, which means they cannot exercise
their rights in a way that sacrifices the other party’s interest or the public interest.90
It is well-known that judge-made law is the norm in the common law system. Less
well-known is the fact that in China, as in other civil law jurisdictions, there is the
corresponding practice of judicial discretion to address lacunae and inadequacies in
the statute law which only stipulate broad principles often without elaboration or
proper interpretation. How the principle or provision is to be applied in a specific
situation is left to discretion of the court. The overriding nature of the good faith
principle enables a court to address lacunae and inadequacies in the written law.
However, where there is clear and unequivocal legislation in place, there is no room
for the operation of any overriding principle. The presumption is that lawmakers in
drafting and promulgating the written law have taken into account the overarching
reach of the principle of good faith. In such instances, the imposition of good faith by
the courts would be needless intrusion which could lead to a result unintended by the
written law and could detrimentally affect its legal certainty.91 In this regard it is
expedient to examine the CMC to glean from it whether in the context of security for
a debt and its amount, a shipowner is bound to act in a reasonable manner and in
good faith.

6.3 Reasonable Requirements in the CMC

Article 87 of the CMC provides that, “[W]here freight charges payable to a carrier,
general average to be shared, overdue fees and necessary expenses paid for cargo
with the expectation of repayment, as well as other amounts payable to the carrier are
not settled, and no appropriate guarantee is provided therefore, the carrier may have
a lien upon a reasonable amount of the cargo.”92 Besides this right of the carrier
provided in Article 87, under Article 88 the carrier is required to exercise the lien in a
reasonable ways,93 including applying for a court ruling to auction the cargo subject
to the lien where nobody claims it within 60 days following the day after its delivery

90
Liang (2011), p. 270.
91
Ibid. at pp. 270–272.
92
<https://law.wkinfo.com.cn/legislation/detail/MTAwMDAwMTQ5ODFk?q¼%E6%B5%B7%
E5%95%86%E6%B3%95&module¼&title¼%E4%B8%AD%E5%8D%8E%E4%BA%BA%
E6%B0%91%E5%85%B1%E5%92%8C%E5%9B%BD%E6%B5%B7%E5%95%86%E6%B3%
95> accessed 19 December 2018; Wolters Kluwer translation of CMC.
93
Article 88 of the CMC provides that, “[G]oods shall be preserved by a carrier in accordance with
the provisions of Article 87 of this Law and where nobody claims the goods within 60 days
following the day after delivery to the port of discharge, the carrier may apply for a court ruling to
auction; in cases where the goods are perishable, or the custodian charges may exceed he value of
the goods, the carrier may apply earlier to undertake an auction. . . .”
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 333

to the port of discharge. The provisions contained in Articles 87 and 88 together are
the “reasonable requirements”. Whether the carrier exercised its lien on cargo in a
“reasonable” manner as required by these two Articles is for the court to decide on a
case-by-case basis.
In the context of the theme of this chapter, the question arises as to whether a
shipowner under a charterparty can invoke Article 87. In terms of a voyage
charterparty, the answer must be in the affirmative. A shipowner under a voyage
charterparty can exercise a lien on cargo in accordance with Articles 87 and
88 which together comprise the requirement for him to act reasonably in exercising
his lien. In the CMC, the voyage charterparty is dealt with in Chapter 4 under the
caption “Contract of Carriage of Goods by Sea”, and the voyage charterparty is such
a contract. In accordance with Article 94 in this Chapter, where a voyage
charterparty, whether or not it is in standard form, does not provide a specific clause
pertaining to rights and obligations, or that in exercising his lien, the shipowner must
act reasonably, the relevant provisions of the chapter will apply.94 In other words, the
shipowner must exercise the cargo lien in compliance with the reasonable require-
ments of the legislation.
By contrast, whether these “reasonable requirements” apply to a shipowner under
a time charterparty is a matter for further discussion. The time charterparty is
provided for in Chapter 6 of the CMC bearing the title “Charter Party”. Given that
Article 87 is under Chapter 4, it must be assumed that it does not apply to a
shipowner under a time charterparty.
Like Article 94, in accordance with Article 127, rights and obligations between
the shipowner and charterer provided for in Chapter 6 apply when in the charterparty
in question, there are no provisions on rights and obligations or those provisions are
the same as in relevant Articles in that Chapter. This means that, whether there is a
reasonable requirement concerning the shipowner exercising his lien on cargo, must
be determined by reference to the charterparty in question. If a standard form time
charterparty does not contain any clause(s) pertaining to reasonable requirements,95
and the parties do not insert any such clause(s), the exercising of the cargo lien will
be subject to the relevant provisions in Chapter 6. In this context, Article 141 in
Chapter 6 applies, which provides that the shipowner under a time charterparty is
entitled to exercise a lien on cargo; but, unlike Article 87, it does not further stipulate
that the shipowner has a lien on a “reasonable amount” of cargo.

94
Article 94 of the CMC provides that, “in this Chapter (4) regarding the rights and obligations of
the parties to the contract shall apply to the shipowner and the charterer under voyage charter only in
the absence of relevant provisions or in the absence of provisions differing therefrom in the voyage
charter.”
95
Article 17 – Lien of Baltime 1939, as revised 2001, provides that, “The Owners shall have a lien
upon all cargoes and sub-freights belonging to the Time-Charterers and any Bill of Lading freight
for all claims under this Charter, and the Charterers shall have a lien on the Vessel for all moneys
paid in advance and not earned.”
Article 23 of NYPE 93 and Article 18 of NYPE 46 have similar provisions on lien.
334 S. Jia and H. Yu

However, it cannot be stated conclusively that the shipowner in a time

charterparty is not subject to any reasonable requirements. Whether such a ship-
owner is governed by Articles 87 and 88 is dependent on its role, that is, whether he
is the actual carrier or contractual carrier.96 If it is the former, he does not issue the
bill of lading but is in possession of the cargo, and is entitled to a lien under
Chapter 18 of the Property Law of P. R. China. As such, the reasonable requirements
of CMC Articles 87 and 88 will not apply. But, if the shipowner is the contractual
carrier who issues the bill of lading, then Chapter 4 of the CMC will apply, including
the lien provided for in Article 78 in that chapter. The reasonable requirements in
Articles 87 and 88 will apply concomitantly. However, the question arises as to the
content and standard of “reasonable requirements”. As these are not clearly stated in
Articles 87 and 88, the courts are at liberty to apply different principles at their
discretion. In the main, there are two; namely, the mitigation and fairness principles.

6.4 The Mitigation Principle

As mentioned above, the mitigation principle is the first approach to examine that
whether “reasonable requirements” are satisfied. This principle arising from the good
faith principle is provided in Article 119 of the Contract Law of P.R. China (CLoC),
where a party is in breach of a contract, the other party shall take appropriate
measures to prevent the loss from increasing. Where his failure to do so results in
additional losses, he cannot demand compensation for the additional losses. The
duty of mitigation is to encourage the innocent party to exercise his rights a way that
promotes the economic interests of the society.97 A point that needs to be made
contextually is that whereas in English law, mitigation requires the innocent party
facing a breach of contract to mitigate his losses, in Chinese law, mitigation only
applies to further losses suffered by the innocent party.98 Therefore, the rule is also
known as the “no-increase-in loss rule” in China.99 Having said that, in the opinion
of the present authors, there is no fundamental difference in the two legal systems

96
Under a chain of charterparties, it is possible that a shipowner in a time charterparty is simply a
disponent owner, that is, neither an actual carrier nor a contractual carrier. For example, A is a
shipowner who time charters the vessel to B; B time charters the vessel to C; C again voyage
charters to D. In this chain of charterparties, A is the actual shipowner; B and C through their
respective charterparties, act as disponent shipowners. A issues a bill of lading to D. B is a
shipowner in a time charterparty who is neither an actual carrier nor a contractual carrier. In this
context, the rights and obligations of B are simply subject to the sub-time charterparty between B
and C. In Chinese law, B is not entitled to exercise the cargo lien, because he does not possess the
cargo physically. An analytical discussion of this complex hypothetical scenario is beyond the
scope of this Chapter.
97
Han (1997).
98
Article 119, Contract Law of the P.R. China (1999).
99
Wang (2003), p. 660; Fang (1999), p. 200.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 335

regarding the application of the mitigation principle. In a number of cases, ship-

owners invoking their rights under a lien clause have not been fully compensated for
their failure to mitigate their losses.
The case of Compagnia Sud Americanade Vapores S.A. v. Yifan Biotechnology
Group Co. Ltd.,100 involved a contract between the claimant carrier and the shipper
for the carriage of 480 barrels of fenamiphos, which was an organophosphorus
pesticide that could easily decompose. The best sale season for the pesticide was
within two months of the date of manufacture. Upon the expiry of this period, it
would begin to degrade which would result in a significant reduction in the sale price
over time. On 14 July 2009, a leakage from the container in which the cargo was
stowed was found by the crew. The container was discharged in Singapore on
19 July 2009. Upon action being brought by the carrier before the Shanghai
Maritime Court, the court found that only one barrel of fenamiphos had leaked.
The shipper had informed the carrier about the nature of cargo. The carrier exercised
the lien on cargo but did not deal with the situation until June 2010 which resulted in
a reduction in the price of the cargo. Furthermore, the carrier failed to prove that it
was not possible to deal with the leakage at Port Chiwan in Shenzhen, but the cargo
had to be shipped to Singapore. The court held that, even though the claimant carrier
was indeed entitled to exercise the lien on cargo, the way in which it exercised the
lien led to increasing losses. The carrier was not entitled to claim to the extent of the
increased losses. The decision was clearly in line with the mitigation principle.
A similarly case was brought to the Qingdao Maritime Court in 2011.101 The
claimant was the carrier MISC Berhad and the defendant was the consignee
Shangdong Laigang Yongfeng Steel Co. Ltd. (SLYS), who delayed taking delivery
of the cargo. The carrier claimed for container demurrage. The court held that the
defendant SLYS was indeed in breach of contract for not returning the containers to
the carrier which was because it failed to take delivery of the cargo in time. SLYS
was thus liable to pay compensation to the carrier. However, the court did not accept
the whole amount of container demurrage claimed by the carrier but the amount
provided by a third-party agency, operated by the government of Qingdao, calcu-
lated according to the market price. The court held that the carrier had a duty to
mitigate its losses where the other party had breached the contract. The carrier should
have rented and used similar containers to mitigate the losses caused by the defen-
dant’s failure to return the containers. The carrier was therefore not entitled to claim
for the amount that could have been mitigated in accordance with Article 119 of
the CLoC.
The judgements in these two cases simply applied Article 87 of the CMC; and not
Article 119 (the mitigation principle) of the CLoC. This would seem to be a cautious
approach taken by the courts where there is no definitive answer. In other words,
when the Chinese courts are unable to find an unequivocal solution, they resort to
judicial silence. Having said that, it appears that Article 119 of the CLoC is the

100
(2010), H.H.F.S.C.Z.D.832.
101
MISC BERHAD v. Shangdong Laigang Yongfeng Steel Co. Ltd. (2011) Q.H.F.H.S.C.Z.D.85.
336 S. Jia and H. Yu

fundamental basis for determining whether or not “reasonable requirements” under

Article 87 of the CMC are met.

6.5 The Fairness Principle

Apart from the mitigation principle, the fairness principle provided in the CLoC is
applied to examine the carrier’s obligation. In accordance with Article 5 of that Law,
“the parties shall abide by the principle of fairness in prescribing their respective
rights and obligations.” Whereas both these precepts are considered to be general
principles in terms of the Chinese Contract Law, mitigation is distinctive in that it is
derived from good faith.102 Notably, good faith and fairness are rooted in the
doctrinal foundation of Confucianism.
In Rizhao Guanshun Logistic Co. Ltd. v. Guangdong Jinlong International
Logistics Co. Ltd.,103 a case brought to the Guangzhou Maritime Court in 2016,
there was a voyage charterparty between the claimant carrier and the defendant
consignee. The consignee failed to pay freight due on time and the carrier invoked
his contractual right by stopping discharge of the cargo, which was considered by the
court as the carrier exercising his lien on cargo. The court held that the period during
which the carrier exercised the lien on cargo should not be counted for using the
vessel by the consignee, and the period should be deducted from the total amount of
the demurrage. In a commentary written by Judge Haibin Han, who incidentally was
the Presiding Judge in this case, he cited a case decided by the Guangzhou Maritime
Court in 1993104 in which the facts were quite similar. In that case there was also a
voyage charterparty between the claimant and the defendant. There, the court held
that by stopping the discharging of the cargo, the carrier had exercised its lien clause
but had breached his duty of mitigation to avoid increasing the losses.105 Here, the
Court applied the fairness principle entrenched in Article 5 of the CLoC rather than
the mitigation principle.106
Suffice it to say in bringing this discussion to an end that under Chinese law,
when the shipowner exercises the cargo lien clause in the charterparty, he cannot
abuse his rights. This is not only a moral compulsion arising from Confucianism, but
also a legal requirement. Article 87 of the CMC entitles a shipowner under a
charterparty to a lien on cargo, so long as he meets the reasonable requirements

102
Cui (2003), p. 17.
103
(2016) Y.72 M.C.1023.
104
Metz Combi Line Ltd. v. Shantou Nanfang (Groudp) Co. (1993).
105
Han (2018).
106
Article 87 of the CMC does not apply in this case because it deals with a dispute between two
parties both of whom are Chinese and the ports in question are both Chinese ports. The application
of the CMC is restricted to cases where at least one party is a foreign entity, or the voyage is
international; otherwise the Contract Law is the applicable legislation. However, in both situations,
the nature of the cargo lien is the same which is why this discussion is necessary.
Shipowner’s Implied Obligations in a Charterparty Relating to. . . 337

imposed by Articles 87 and 88 for exercising the lien. In addressing the crucial legal
issue regarding the standard of reasonable requirements, the Chinese courts apply
the mitigation principle arising from good faith or the fairness principle to determine
whether the reasonable requirements are satisfied. It is submitted that even though
the shipowner’s duty while exercising the cargo lien is recognized in legislation, the
content of the duty is uncertain.

7 Conclusion

This chapter attempts to critically examine the legal positions in the English and
Chinese laws to determine how the so-called lien clause appearing in standard form
charterparties is treated in light of the legal principles of reasonableness, good faith
in correlation to express and implied terms in commercial contracts. In terms of
relatively recent English law, good faith was neither conclusively accepted as an
overriding principle, nor as an implied obligation applicable in respect of all
commercial contracts. However, the decision in Yam Seng Pte Ltd v. International
Trade Corp Ltd107 seemingly brought this state of the law to the threshold of
jurisprudential change. But it was not widely recognised as the ideal approach.
Freedom of contract and legal certainty are overriding principles in English law
which was the main impediment to the acceptance of good faith in commercial
contracts. It is more important that parties to a commercial contract know for sure
where they stand. The courts value the terms of the contract which the parties have
negotiated. Widening the implied duty of acting reasonably and in good faith, can
have a negative influence on the legal certainty of the contract.
Parties are free, if they so wish, to expressly require the parties to exercise their
rights under the contract in a reasonable manner and in good faith. If they intend to
require the shipowner to exercise the cargo lien in a reasonable manner, they can
expressly state that in the lien clause of the charterparty. If they choose not to include
such an express term, the courts will likely not impose an implied term to that effect.
Even if there were to be an express clause, what would constitute reasonableness
could be in doubt. With reference to contractual discretion, the courts have not yet
clearly confirmed whether the test of reasonableness or rationality should be
embraced. At any rate, the courts appear to be more protective of legal certainty
which can be easily achieved by the parties exercising their freedom of contract.
In Chinese law, the doctrine of “mean” and the concept of Li are helpful in
understanding the conduct of a party to a contract. Even if a party has a contractual
right, it should be confined. Articles 87 and 88 of the CMC provide some basic
guidance on how a shipowner ought to exercise his cargo lien. The recognized
inadequacy of the provisions is made up by the fallback position entrenched in the
mitigation or fairness principle in Chinese law which are general principles available

107
[2013] EWHC 111 (QB); [2013] B.L.R. 147.
338 S. Jia and H. Yu

to deal with specific matters in different cases. In Chinese law, mitigation is derived
from good faith which itself has long been accepted as a moral as well as a legal
standard and an overriding principle. Fairness is a necessary ingredient for creating a
harmonious society. The courts respect the legal culture of balancing the rights and
obligations of parties to ensure harmony. In this vein, good faith and fairness are
helpful in dealing with loopholes in the law and the occasional unworkability of the
mitigation principle.
Whether the English or Chinese law is more consistent with the purpose of the
lien clause and the shipowner exercising his rights under it, is a moot point because
two jurisdictions operate in their own spheres according to their distinctive legal
rationale. But notably, good faith is a common denominator. In terms of English law,
whether contractual discretion or determination discretion is the better test depends
on the objectivity of the standard evidenced by the application of reasonableness. By
contrast, there are no impediments to the application of good faith or reasonableness
in Chinese law. It can be stated in conclusion from a comparative law perspective
that regardless of the differences in the two legal systems, invariably and inevitably,
there is commonality of law and practice given that shipping is a global activity and
charterparties are predominantly in standard form containing the same lien clauses
that govern the rights of shipowners when charterers default in one way or another.

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[1977] 52 ALJR 20
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S.C.Z.D. 832
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An Exposé of Canadian “Abandoned
Vessels & Derelicts” Through a Legal
Analysis of Doctrinal Silos

Tafsir M. Johansson

Abstract “Abandoned vessels and derelicts” have been on the Canadian scene
since 2011 and in the past year or so, some of the most celebrated vessels such as
the MV Miner, the Kathryn Spirit and the MV Farley Mowat have made their way
from small online newswires to major national headlines. Although federal author-
ities have managed to dispose some of those vessels, the issue continues to remain at
the epicentre of debate and discussion. With this exposure, followed by governmen-
tal debates and discussions, surfaced the question of responsibility for managing
these so-called “abandoned vessels”, which is also sporadically referred to simply as
“derelicts”. Responsibilities associated with the management of Canadian “aban-
doned vessel and derelict” have consistently proven to be a predicament over the last
few years and a matter of debate for years among all levels of government. As all
fingers point towards the federal government and how the federal authorities can
lighten some of the load and relieve the taxpayers from incurring financial costs that
should have been borne by the owners, it has neither been possible to undertake
operations for removal nor possible to enforce preventative measures owing to the
fact that the federal laws and system have proven to be somewhat less effective and
efficient. As noted by MP Bernadette Jordan: “the responsibility for an abandoned
vessel and derelict has been batted around for years . . . but now is the time for the
federal government to step up and take a leadership role”. However, with the limited
capacity and crucial gaps and drawbacks in the federal laws and the corresponding
system, it might be quite challenging to live up to that commitment. Simply stated,
the federal laws require a number of significant amendments, the commencing point
being the implementation of a definition of “abandoned vessel and derelict” because
the existing federal laws are devoid of a rationale “black-letter” explanation of what
the term actually refers to.

T. M. Johansson (*)
WMU-Sasakawa Global Ocean Institute, Malmö, Sweden
e-mail: TM@WMU.SE

© Springer Nature Switzerland AG 2020 341

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_16
342 T. M. Johansson

1 Introduction

This chapter explores the legal essence of the term “abandoned vessel” and is
comprised of an in-depth study of relevant principles and doctrines, including
those of ownership, possession, actual possession, constructive possession, res
nullius, and occupatio that are quintessential elements of the “doctrine of abandon-
ment”. The examination and study conducted in this chapter relates to the “expos-
itory research” component of the legal doctrinal methodology used to support the
argumentative and hermeneutic approach. It is important to mention that the reason
behind the examination of relevant doctrines and principles stems from the much-
needed understanding of what “abandoned vessel” truly embodies. This is not
simply because the Canadian federal authorities currently seek to establish a formal
definition of “abandoned vessels” so that it goes beyond the definition of “wreck” as
incorporated in s. 153(a) of the Canada Shipping Act of 2001 (CSA 2001): “. . .
jetsam, flotsam, lagan and derelict and any other thing that was part of or was on a
vessel wrecked, stranded or in distress . . . [emphasis added]”; the need comes from
the question of what the appropriate title of this recurring challenge should be if the
federal authorities decide to develop regulations concerning management strategies.
It is observed by the authors that since 2012, a number of appellations have been
used by the federal authorities and the media to refer to the problem, such as
“abandoned and derelict vessels”, “abandoned vessels and derelict”, “abandoned
vessels”, “derelicts”, and “vessels of concern”. Moreover, federal surveys indicate
that these abandoned vessels also comprise wrecks, which according to the existing
laws of Canada include the term “derelict”. This has distorted the subject matter, and
as such, it is important to rely on the classical doctrines and principles, which
provide individual understanding with regard to the meaning of “abandonment”
and how it is different from the act of making a vessel derelict that indicates
“dereliction”.
Another important reason behind the development of this chapter emanates from
the fact that an abandoned vessel, although abandoned by the owner, does not cease
to be “maritime property” as long as it floats, is adrift and is in good condition. The
word “property” in the term “maritime property” indicates that as long as the vessel
is in good condition and retains its vessel-characteristics prior to becoming a wreck,
it will continue to be an instrument of “relational governance” that governs the
relationship between the owner and the vessel. For example, in the case of the MV
Farley Mowat that was abandoned for a considerable period of time in the Shelburne
Marine Terminal of Nova Scotia, it is observed that the owner was in fact identified
and served with a court order to remove the vessel. This begs the question, was it
appropriate to refer to the MV Farley Mowat as an abandoned vessel given that the
actual owner maintained ownership and constructive possession over the vessel until
finally removed and disposed of after a terrible legal battle? In other words, should
abandoned vessels that have the names and addresses of identified owners contained
in the Canadian inventory be termed as “abandoned vessels” that mainly refers to
permanently abandoned, or should they be addressed as “derelicts” that refers to a
An Exposé of Canadian “Abandoned Vessels &. . . 343

kind of temporary abandonment? The answer with regard to the most appropriate
term lies within those classic doctrines and principles that are an integral part of
property law.
The notions of “ownership” and “possession”, which are considered to be
fundamental structural elements of property law, are integral to the understanding
of the subject matter and are strong links that help to understand the concept of
abandonment, and provide the guidance to evaluate the position of the proprietary
connotation of the term “abandoned vessels” in the broad realm of law. It is also
hypothesized that this thread provides an insight into the origin of the subject matter.
Therefore, the objective of this chapter is to explore those relevant doctrines and
principles found in property law and seek the proper term to be used when referring
to this recurring challenge without distorting the legal essence. In the opinion of the
author, this is the foundation for the development of a concrete definition that will
eventually be the basis of a sound management system. In conformity with the
doctrinal method analysis, a number of primary and secondary sources have
been used.
The latter part of this chapter is a commentary on judicial decisions relating to
salvage and wreck based on the “law of salvage” and the “law of finds”. Although in
principle, those common law cases deal with ownership of wrecks and salvage
awards, from a synoptic overview of the judgments, it will become clear that
common law judges have made a commendable effort to identify whether the subject
matter of the dispute was a “derelict” taking into account the “period of abandon-
ment” and the “intention” of the finder or the salvor. In other words, this chapter
complements the judicial efforts, and is an endeavour to extract the legal essence and
the true meaning of “abandonment” from selected sixteenth, seventeenth and eigh-
teenth century common law cases. While the doctrines and legal principles provide
the fundamental understanding of ownership and possession, it is submitted that the
examination of decisions concerning the “law of salvage” and “law of finds” will
assist in the understanding of the legal essence of “abandoned vessel” through the
lens of wreck and derelict cases.

2 Abandonment: A Doctrine of Legal Principles

and Components

Legal doctrines in Western law are rooted in the Roman law. From a historical
perspective, Roman law doctrines have developed since the second century B.C.1;
and during the whole of the middle-ages, legal doctrines were perceived as scientia
juris or a “scientific discipline”, as in those times “authoritative interpretation”, not
empirical research, was the main criterion for the scientific status of a discipline.2 In

1
Notre Dame Law School (1949), pp. 43–47.
2
Van Hoecke (2011), p. 1.
344 T. M. Johansson

observing the winding history, especially if the focus is on the nineteenth century
era, it becomes clear that legal doctrines were, for a considerable period of time,
undermined and stated as missing in basic characteristics to be acknowledged as
“legal science”.3 Thereafter,4 the advent of legal psychology, law and economics and
generic developments related to the social sciences5 simply offered empirical
research and theory building in legal matters and were never developed with the
intention of replacing legal doctrines. Nevertheless, in the labyrinthine path of
development, legal doctrines have stood out in the study of law as a normative
system, “limiting its ‘empirical data’ to legal texts and court decisions”.6 Today,
legal doctrines are considered as being firmly rooted in legal principles. Whereby
legal principles tend to change or shift direction, legal doctrines are soundly
ingrained in law and have a prolonged history.
From a narrow viewpoint, legal principles exist among the “normative7 resources
used by law”.8 Although the definition of “legal principle” is deemed to be com-
plex,9 they are nevertheless, a quintessential part of legal doctrine. This term has a
well-established meaning and is known among continental law theorists as legal
dogmatics, defined as “[a] principle, esp. a legal principle, that is widely adhered
to”.10 Despite the complexity in definition, one view is that legal principles are basic
norms and are essentially a part of the same notion as legal values and legal norms.11
As such, the importance of the study of legal principles lies in the fact that it is “. . . a
well established way of legal scholarship striving for autonomy and searching for a
disciplinary proprium behind the multifariousness of norms and judgments”.12
Although the two terms, i.e. legal doctrines and legal principles, are often used
interchangeably, doctrine from a definitional angle is comprised of principles and
lies at a higher threshold; it “picks up questions from legal practice and discusses
them in a more general and profound manner”.13

3
Ibid, p. 1.
4
From the end of the nineteenth-century and in the course of the twentieth century.
5
With a focus on law.
6
Van Hoecke (2011). See also Peczenik (1984).
7
Normative refers to what is considered to be the normal or correct way of doing something, as
observed in Kagan (1998), pp. 7–8.
8
Daci (2010), p. 109.
9
Ibid., at 110. The author states that “[t]he definition of a legal principle is very difficult, since
principles sometimes are considered to be legal norms, sometimes to be general legal norms,
sometimes are be considered as standards upon which legal rules should be based”.
10
Black and Garner (2000).
11
Daci (2010). In this article, the author is of the view that legal principles “. . . can be considered as
basic norms that represent the general consensus on basic society understandings”.
12
Kant (2005), cited in Von Bogdandy (2010), p. 95.
13
Pattaro (2005), p. 2.
An Exposé of Canadian “Abandoned Vessels &. . . 345

A doctrine that embodies legal principles14 and legal rules, can also be referred to
as a “doctrine of legal principles”,15 since it is commonly recognized as being a
justification, description and explanation of legal statements.16 Undoubtedly, the
work on legal doctrines is value-laden and offers a comprehensive understanding of
the existing law,17 whereby the underlying principles that are widely adhered to and
are elemental to legal doctrines, could help extract the much required justification,
description and explanation of a legal statement. Scholars who advocate this positive
proposition concerning the convenience of legal doctrines would not deny the fact
that the principles of a doctrine could be stretched to support, justify, describe and
explain the legal status of a vessel that is no longer owned or possessed by the
manufacturer, purchaser, seller, buyer or owner—whether an individual or a com-
pany. By and large, maritime property that is abandoned by the master or owner will
inevitably float in a legal vacuum until salved or seized by concerned government
authorities. From the moment, a vessel is abandoned to the time it is identified,
marked, beached or secured, the vessel is stripped of all legal identity. Relevantly, if
the vessel is abandoned by the debtor and if the vessel suffers severe damage due to a
collision or a maritime incident that makes it unrecognizable, it is safe to presume
that all rights and property interests including “jus in re and jus in rem”18 are

14
Basic legal principles, Composite legal principles and Complex legal principles.
15
Although the term “doctrine of principles” is relevant to constitutional scholarship and confirmed
by good treatises of national constitutional law as stated in Von Bogdandy (2003) European Union
Jean Monnet Chair in cooperation with the Max Planck Institute for Comparative public Law and
International Law, Working Paper No 9/03, the term in this context mainly refers to those principles
that are essentially related to the understanding of legal doctrines, and when combined, those
individual principles as a whole provide an over-arching idea with regard to the legal elements that
constitute the doctrine in question. See also Pattaro (2005), supra note 13, where the author claims
that “[l]egal scholars with scientific ambitions sometimes present legal doctrine as an explanatory
enterprise . . .” “However, the word “explanation” often conceals the normative aspect of legal
doctrine. Thus, Jan Hellner . . . writes about many kinds of explanations. Hellner’s typology is
descriptive, and based on interesting examples. Reprocessed in a more analytical manner, it boils
down to this: “Explanations” in Hellner’s meaning can be the same as conceptual analysis of legal
concepts and rules, especially through clarification of their connections with other concepts and
rules. Explanations can also be causal. Historical explanations describe the causal links that legal
rules have with their background history, with the history of legal institutions, with the history of
society as a whole, or with the history of political, philosophical, and other ideas. Sociological
explanations of legal rules are of a similar kind, but they emphasize the present state of society, not
its history”.
16
Pattaro (2005), p. 3.
17
Ibid, pp. 4, 5.
18
The two rights i.e., jus in re and jus in rem are explained in Schoenbaum (1985), p. 515. These
rights are related to the doctrine of maritime liens and denoted as a special property interest ( jus in
re) in nineteenth century cases has led theorists to state that the action in rem is brought literally
against the vessel as the ‘offending thing’. Jus in re and jus in rem has established the maritime lien
as a subject peculiar to maritime law. Courts of common-law jurisdictions designate it as hypoth-
ecation, an inchoate right, a proprietary right whereas in France, it is known as creances privilegiees
and in Japan as “preferential rights of ships creditors”. See Tetley and Wilkins (1998), pp. 24–60.
See also Chorley et al. (1987), p. 70. Authors Chroley et al. stress the fact that maritime lien acts
independently where consent of parties or judicial process plays no role and remains affixed
346 T. M. Johansson

diminished. A wrecked vessel, for instance, would not be of any value to the creditor
or to the court. A court may find it difficult, if not impossible, to pay the creditor from
the proceeds of sale of a wrecked ship.
So, what is the doctrine of abandonment? Simply put, it is the doctrine relating to
abandonment and the principles that govern any subject matter that is relinquished,
given up or renounced. The core concept of the doctrine depends on the owner’s
intention and prerogative whereby an intention to abandon may take a realistic form
through discontinuance or by other actions that make it explicitly clear that the
owner wishes to discontinue to own or possess the property in question. These
actions could range from a unilateral transfer of ownership to sales, gifts, bequests,
releases, forfeitures, foreclosures, and adverse possession.19 Scholars of property
law who subscribe to the proposition that abandonment is a unilateral action of
ridding one self of ownership, also point to the fact that disposal of the property
should not include destruction even though it is a readily available option for the
owner to end both ownership and possession for good.20 Because abandonment in
property law requires the involvement of two parties, namely, the transferor and the
transferee whereby the destruction of a property cannot be termed as a transfer since
there is no transferee.21 In other words, to constitute abandonment in property law,
there needs to be a transfer that is unilateral. A clear expression of the term
“unilateral” can be found in Bright v Gineste (1955)22 in the following words:
[T]o constitute an abandonment in the strict legal sense there must be a parting with title that
is unilateral, the owner must leave the property free to the acquisition of whoever wishes to
claim it, and indifferent as to what may become of it. A transfer of property from one person
to another cannot be effected by abandonment, and abandonment cannot be made to a
particular individual. A relinquishment by one person to another is not an abandonment.

Although the doctrine of abandonment bears the same connotation in maritime

law, i.e. transfer of the res from one party to another; it is a doctrine that has expand
usage in the law of marine insurance. To put it succinctly, the doctrine of abandon-
ment regulates the relationship between the insurer and the insured in insurance
matters, and is closely related to the doctrine of subrogation.23 While subrogation
is a right whereby the insurer is indefatigably24 confined to the “rights of the

wherever it may go or whosoever’s hand it may fall. In short, it is fastened by law on the maritime
property from the moment of occurrence which manifests that a maritime lien has materialised. The
claims fixed firmly by a maritime lien are paid off from the proceeds of sale and this is accomplished
in priority to all other ordinary claims and mortgages. See especially The Editorial Staff of the
American Law Book Company (1948), p. 714 where it is highlighted that a maritime lien is a right
against any maritime property, whether it is against the ship herself, the freight or the accessories.
Considering the fact that it operates against any maritime property, it does not only adhere to the
procedural side, but also observes the substantive side and attributes to the substantive part of the
common law countries.
19
Jacob Strahilevitz (2010), p. 359.
20
Ibid, p. 5.
21
Ibid.
22
Bright v Gineste, 284 P (2d) 839, 842 (Cal. App. 1955).
23
Gold et al. (2003), p. 327.
24
In a strict manner.
An Exposé of Canadian “Abandoned Vessels &. . . 347

insured”,25 abandonment, on the other hand, is an action that materializes through

the issuance of a notice from the insured to the insurer.26 Similar to the philosophy of
abandonment ingrained in property law, the notice of abandonment in marine
insurance can be seen as a unilateral transfer whereby the notice from the assured
serves as a proof of parting with the title of the res. Needless to say, the intent to
transfer and actual transfer is an essential characteristics of the doctrine of abandon-
ment. But there are instances where the owner of a vessel may relinquish the right of
ownership without any regard to future possession—that can also be marked as a
form of abandonment. Although an aberration from the original concept, those
instances where there is voluntary relinquishment by the owner, no unilateral
transfer of property, no declaration of unilateral transfer, no explicit intention
whether in oral or writing of relinquishment, no intention of vesting ownership in
any other person or institution—there only remains the lapse of time that is indefinite
in nature. The vessel as such is detached from all legal rights and obligations and the
true identity of the vessel is lost somewhere on that continuum. Only then is the
anatomy of abandonment of relevance and the various doctrines, principles and rules
relative to the doctrine of abandonment need to be critically examined.

2.1 Ownership

Over the years, the word “property” has been defined in a myriad of ways.27 Whether
the historical view on property is an accurate or inaccurate, questioned or
unquestioned view of how the word “property” is viewed today—in contemporary
times, property, in its principal form, signifies ownership. With this view in mind, it
is safe to assert that ownership, which connects a property to an owner, is an
important component of the doctrine of abandonment. Property and ownership are
the two terms that have captivated theorists and philosophers for centuries whereby
the definition of “ownership” with regard to property has been the subject of much

25
Chubb Insurance Co. of Canada v Cast line Ltd., [2001] R.R.A. 765; Manning v Boston
Insurance (1962), 34 D.L.R. (2d) 140 (P.E.I. S.C); Rose v Boroisko Brothers Ltd. (1983),
41 O.R. (2d) 606, 147 D.L.R. (3d) 191 (C.A.).
26
Gold et al. (2003), p. 327 § 1.
27
Diamond (2011), pp. 44–45. Michael Diamond states that “[t]here was a wide range of views
concerning the meaning and purpose of property during the classical Greek era. Plato, for example,
believed that property was bias of jealousy and conflict. Since he wanted the state governed for the
common good, he rejected the concept of private property for rules . . . Aristotle disagrees with
Plato’s view of commonly owned property and strongly favors private ownership. He believes that
private ownership is necessary if anyone is to care for the property”. Michael Diamond also delves
into the work of great religious thinkers of medieval and renaissance Europe, both Thomas Aquinas
and Thomas More who were strict supporters of individual ownership of property. See also
Blackstone (1959). The famous pronouncement of Blackstone on property states that “[p]roperty
is that sole and despotic which one man claims and exercises over the external things of the world,
in total exclusion of the right of any other individual in the universe”.
348 T. M. Johansson

debate since the beginning of time.28 Much of the contemporary perception on

ownership is rooted in the historical legal maxim nemo dat quod non habet, a free
translation of which reads as “no one can pass to another a title which is not his to
give”.29 The basic rule of this maxim is that a person who is not the owner of a
certain property cannot confer that property on any other person except with the
permission or authority of the bona-fide owner. Disapproval, disagreement or refusal
by the true owner acts as a bar on any transfer made by any person. In other words,
any transfer made by other persons without prior approval of the owner results in that
agreement being void ab initio. In short, ownership is a strong nexus between the
true owner and the property—the general notion implied in the term is clear.
In property law, registration of the title or the deed to the property is prima facie
proof of ownership and as such, “the title should be traced back as far and as
carefully as possible that his title is as unshakable as it can be made”.30 The title
or the deed of the property mirrors a number of rights that are the fragmentations of
ownership. The classic analysis of ownership by Honoré provides an all-embracing
idea of those rights akin to property ownership, which includes, the right to possess,
the right to use, the right to manage, the right to the income, the right to the capital,
the right to security, the incident of transmissibility, the incident of absence of term,
liability to execution, the prohibition of harmful use and residuary character.31
From a general perspective, the owner of maritime property can also exercise the
aforementioned bundle of rights, whether it is the owner of a small fishing boat or the
owner of a big commercial tanker. But it should be noted that the rules on ownership
of a vessel might vary significantly from one jurisdiction to another.32 In maritime
parlance, the individuals or the owner(s) of a “shipping company”,33 whether private
or state-owned, are by and large referred to as “ship owners”.34 A ship owner aptly

28
Diamond (2009). See also Hill (2003), p. 1.
29
Hill (2003), Ibid, p. 1.
30
Ibid.
31
Honoré (1993), pp. 371–374.
32
Coles and Ready (2002). See also Gold et al. (2003), p. 53.
33
Khee-Jin Tan (2005), p. 34. The author also states “In order to operate, all ships are customarily
registered with a state registry (the flag state), thereby assuming that state’s nationality and enjoying
its protection”.
34
See Stopford (2000). Note that while at the one end of the spectrum there are companies owning
anywhere from 1 to 10 ships, at the other end of the spectrum is the large and highly sophisticated
company operating anywhere from 50 to 100 ships. Stopford at 438 states “The use of open
registers in shipping has given rise to a distinctive structure of company organization designed to
protect the ‘beneficial owner’. . . There are four active components: 1 The beneficial owner. The
ultimate controlling owner who benefits from any profits the ship makes. He may be located in his
home country or an international centre such as Geneva or Monaco. 2 One-ship company. A
company, usually incorporated in an open registry country, set up for the sole purpose of owning
a single ship. It has no other traceable assets. This protects the other assets of the beneficial owner
from claims involving the one ship company. 3 Holding company. Holding companies are often
incorporated in a favourable tax jurisdiction for the purpose of owning and operating ships. The
only assets of this company are the shares in each one-ship company. The shares in this company
An Exposé of Canadian “Abandoned Vessels &. . . 349

termed as a registered owner holds absolute right over the vessel and whether the
registered owner is a “natural person”35 or a “legal person”,36 this does not always
indicate “who actually owns the ship and where that person . . . might be located”.37
This might be an issue when it comes to owner identification in vessel abandonment
situations. Despite the drawbacks concerning owner identification, from an owner-
ship context registration is considered as prima facie evidence of the owner’s title to
the vessel.38 It also recognizes and shields the owner’s rights in rem,39 and it serves
as conclusive evidence of the nationality of the vessel. The word “registration”
points to the entry of facts and relevant information into formal public records,
and every flag State is under an obligation to keep a register of all ships flying its
flag.40 Generally speaking, documentation, flag, nationality and registration are
considered as bearing the same connotation.41 Similar to a corporation, a ship is
notionally divided into 64 shares or parts,42 and the names of the co-owners and joint
owners are entered into the register.43 Whether it is an individual, joint owners or
co-owners, registration creates a natural link between the ship and the owner. If there
is no explicit declaration of dereliction, unilateral transfer or voluntary transfer by
any of those legal persons, then they continue to remain as owners through any
vicissitudes of life.44

are held by the beneficial owner, which could be a company or an individual. 4 Management
company. Day-to-day management of the ships is carried out by another company established for
this purpose. Usually this company is located in a convenient shipping centre such as London or
Hong Kong.” In short, in closed registries the beneficial owner is relatively traceable, while on the
other hand, in open registries the beneficial owner hides behind Holding companies and/or
Management companies. See also Khee-Jin Tan, ibid (2005), p. 34 § 2, where the author states
that “. . . controversial arrangements exist whereby a ship can be owned by a company incorporated
with the sole and explicit purpose of owning that ship. By virtue of the recognition of companies as
separate entities in most legal systems, these so-called ‘one-ship’ or ‘two-dollar’ companies –the
latter term referring to the typical minimum amount placed as shareholding in a company owning to
no other assets – effectively shields the ‘real’ beneficial owner(s).
35
A natural person is a person who has a legal personality, in other words—an individual human
being.
36
A legal person can be a business entity or a public organization.
37
Gold et al. (2003), p. 53.
38
Reg v Bjornsen (1865) 12 TR 473. This case shows that inscription can be regarded as a strong
evidence.
39
Ibid.
40
Ready (1994), p. 6.
41
While “documentation” is the granting and evidencing the entitlement of the ship owner to fly the
national flag, the “flag” is the external demonstration of the nationality of the vessel and “nation-
ality” saves a vessel from floating in legal vacuum—“registration” is the conferment of nationality
on a ship.
42
Hill (2003), p. 2. Hills explains that the reason behind this division is unknown. A reason could be
that this division makes the dealings and transfer processes of ships simple and easy.
43
Gold et al. (2003), p. 154.
44
Tiberg (2004), p. 208.
350 T. M. Johansson

2.2 Possession: Actual, Constructive and Adverse

The most basic definition of “possession” can be found in Black’s Law Dictionary
where it has been defined as “[t]he simple holding of a thing, often under a contract,
with no intent of keeping it permanently”. This type of possession exists when the
possessor’s holding of the object is limited by recognition of another person’s
outstanding right which is why it is said that possession is only prima facie evidence
of ownership in the absence of a better claim.45 In other words, the possessor must
surrender his possession once the true owner returns or comes forward to assert his
claim to the property in question.46 Where a finder is in possession of a derelict, to
retain such possession, he must bear the burden of proof to show that there was no
animus revertendi on the part of the owner; and if he fails, he must surrender
possession. “The holder may be a usufructuary, a bailee, or a servant - also termed
naturalis possessio; nuda detentio; detentio; possession in fact”.47 From a general
viewpoint, possession is central to transactions between two parties involving goods.
Black’s definition of possession that is apparently based on a contractual perspective
needs further interpretation to understand its position in the doctrine of abandon-
ment. Scholars have over the years relied on the meaning and interpretation provided
by judges48 and legal writers that have in turn introduced one complex and posses-
sory term after another.49 At common law, possession is often said to be “nine-tenths
of the law” in ordinary legal parlance, which is where we start our contemporary
analysis on possession and relevant terms relating to it.
While common law judges have applied their discretion in explaining those terms
relating to possession, e.g., “physical possession”, “actual possession”, “de facto
possession”, “right to possession”, “right of possession”, “constructive possession”,
“possession in law”, “legal possession”, “rightful possession” etc., author Tay
concludes that “[t]o make confusion confounded, the distinctions are not rigidly
observed, in the course of their judgments, by the very men who have drawn
attention to them”.50 In order to untangle the contorted heap of recondite compo-
nents associated with the definition of possession,51 traditional common law writers
have insisted that “possession as a law concept”, “de facto possession”, “actual

45
Tay (1962–1964), pp. 384–388.
46
This notion is related to the “law of derelict”, which in turn, is connected to “ownership” and
“possession” in relation to property law.
47
Black and Garner (2000)
48
Referring to common law that is a system of case laws developed by judges, courts and similar
tribunals.
49
Tay (1963–1964), pp. 476–492.
50
Ibid. Tay (1963–1964), p. 476.
51
Bentham cited in ibid. Tay (1963–1964), p. 476. Stressing on the efforts of scholars, the author
states that “Bentham distinguishes physical possession from legal possession, exclusive possession
from possession in common, possession of things moveable from possession of things immoveable,
possession of services and possession of fictitious entities.”
An Exposé of Canadian “Abandoned Vessels &. . . 351

possession”, “civil possession” and “constructive possession” be kept apart and

studied separately.52 Even after the seventeenth century Bentham era, significant
efforts coupled with a quantity of thick-lensed scholarship have gone into the matter
to settle the very loose terminology of possession. Authors Pollock and Wright have
maintained a downright viewpoint based on the impression that “possession” is an
inherent right of the owner ab ovo usque ad malas53 whereby the inherent right is,
inter alia, a “right to restrain acts of interference with property”.54,55 Possession,
according to Pollock and Wright is a legal emblem that mirrors ownership and as
such, ownership and possession are two logical components that complete the
owner’s absolute right over a property. This viewpoint does have its merits and
has been further substantiated by those authors in the following words:
For the present we start with this, that any of the usual outward marks of ownership may
suffice, in the absence of manifest power in some one else, to denote as having possession
the person to whom they attach. Law takes this popular conception as a provisional
groundwork, and builds up on it the notion of possession in a technical sense, as a definite
legal relation to something capable of having an owner, which relation is distinct and
separable both from real and from apparent ownership, though often concurrent with one
or both of them. Possession, again, whether in the popular or in the legal sense, does not
necessarily concur with title. No plain man would hesitate to say that a squatter or a thief
possesses himself of the land occupied or the goods carried away; and the law says so too.
But the true owner, or some one claiming through him, ought to have the physical control of
whatever has been wrongfully occupied, and will recover it if the law be fulfilled. In other
words, the true owner or his delegate is entitled to possession; he is not possessor, but he
ought to be.56

While the physical control aspect of the property is integral to ownership and one
that needs to be demonstrated by the true owner, it should be noted that the owner
may or may not always have physical possession of the property. Physical custody of
a property may remain with another person who is not the true owner; in other words,
the other person is only in possession without title to property. In this instance,
possession has shifted from the true owner to the custodian whereas the owner still
retains the right of resuming possession from the custodian. The right of the holder or
custodian of the property demonstrates a form of legal possession over the property
and without consent or prior permission; the governing law of that State will
denounce this custodianship as “illegal”. This is based on the legal ground that the
registered owner holds the title to the property whereby the title in itself establishes
the owner’s exclusive right to determine who can act as a custodian of the property in
question. If the owner is in possession, then that would be owner-possession where
both ownership and possession are infused in a single person.57 This view would

52
Ibid. Tay (1963–1964), p. 477.
53
From beginning to end.
54
Coverdale v Charlton (1878) 4 Q. B. Div. 104; Eardley v Granville (1876) 3 Ch. D. 826.
55
Pollock and Wright (1888), pp. 22–35.
56
Ibid., p. 3.
57
Tay (1963–1964), p. 481. To explain ownership-possession, the author has cited Rudolf von
Ihering as translated by Salmond: “Possession is the objective realization of ownership. It is in fact
352 T. M. Johansson

support the suggestion that “the right of resuming possession is apt to be confounded
with possession itself”58 due to the fact that the owner is entitled by law to acquire
the “right of possession”. This may result in discerning “possession” as a “sliding
principle”—since the right to possess is different from the right of possession, and
may shift from one person to another with consent from the true owner.
The “sliding principle” or shifting nature of possession can also be explained in
terms of “physical possession”.59 Physical or actual possession establishes a de facto
form of control, which is supported by the fact that the possessor manifests a form of
active dominion over it.60 If the possessor is simply a custodian, then the owner-
possessor can at any given time reclaim possession of the property. It is then that the
de facto form of control reverts to the owner-possessor. After acquiring actual
possession of the property, the owner-possessor, if he deems it necessary, could
again transfer the de facto control to another person, this time to a different
custodian. And so the transferee until reclaimed again by the owner-possessor enjoys
de facto control over the property. While the de facto control over the property is
absolute and free from all dialectical questions, what the owner-possessor perceives
in his mind regarding the property during the period a custodian or transferee enjoys
active dominion, requires separate assessment.

what ownership is in right. Possession is the de facto exercise of a claim; ownership is the de jure
recognition of one. A thing is owned by me when my claim to it is maintained by the will of the
State as expressed in the law; it is possessed by me, when my claim to it is maintained by my own
self-assertive will. Ownership is the guarantee of the law; possession is the guarantee of the facts. It
is well to have both forms of security if possible; and indeed they normally co-exist. But where there
is no law, or where the law is against a man, he must content himself with the precarious security of
the facts. Even when the law is in one’s favour, it is well to have the facts on one’s side also . . . Beati
possidentes. Possession, therefore, is the de facto counterpart of ownership. It is the external form in
which rightful claims normally manifest themselves. The separation of these two things is an
exceptional incident, due to accident, wrong, or the special nature of the claim in question.
Possession without ownership is the body of fact, uniformed by the spirit of right which usually
accompanies it. Ownership without possession is right, unaccompanied by that environment of fact
in which it normally realizes itself. The two things tend mutually to coincide. Ownership strives to
realize itself in possession, and possession endeavours to justify itself as ownership. The law of
prescription determines the process by which, through the influence of time, possession without title
ripens into ownership, and ownership without possession withers away and dies [footnote omitted]
[emphasis added].”
58
Pollock and Wright (1888), p. 3.
59
Ibid., p. 3. The authors cite Sir. E. Perry, who by way of introduction to his translation of Savigny
ou Possession, cites a passage from Bentham on physical possession: “What is it to possess? This
appears a very simple question:– there is none more difficult of resolution, and it is in vain that its
solution is sought for in books of law: the difficulty has not even been perceived, It is not, however,
a vain speculation of metaphysics. Every thing which is most precious to a man may depend upon
this question:– his property, his liberty, his honour, and even his life, indeed, in defence of my
possession, I may lawfully strike, wound, and even kill if necessary. But was the thing in my
possession? If the law trace no line of demarcation, if it decide not what is possession and what is
not, I may, whilst acting with the best intentions, find myself guilty of the greatest crime, and what I
thought was legitimate defence may, in the opinion of the judge, be robbery and murder . . .”.
60
Ibid., p. 7.
An Exposé of Canadian “Abandoned Vessels &. . . 353

The doctrine of abandonment upholds the proposition that a property is aban-

doned only when the owner has relinquished, given up or renounced ownership.
While the transfer of de facto control to the custodian for a certain period can be
perceived as temporary abandonment, under no circumstances does it refer to a
unilateral action of ridding one’s self of ownership. Temporary abandonment would
mean that the owner-possessor could reclaim ownership of the property at any given
time and the word “abandonment” could be used to refer to the temporary transfer of
actual possession to the custodian. Although the usage of the term “temporary
abandonment” may sharply contrast with the basic philosophy of “abandonment”
and how it exists within the doctrine of abandonment, the conjunction of the word
temporary to abandonment could support the suggestion that parting with the title is
not unilateral or even considered by the owner-possessor. Moreover, it could also
mean that the abandonment period is short whereby re-claim or re-appropriation by
the owner-possessor is inevitable at any given time. Within this period of temporary
abandonment, the actual owner at all times may, in his mind, assert possession over
the property without any physical custody. In property law, this legal fiction is
“constructive possession” whereby the owner continues to enjoy absolute title, an
absolute right over anyone’s claim, and vindication in court without any reference to
physical possession.61 In short, constructive possession marks off the rights based on
title from rights based on actual or physical possession.62 As long as the owner
retains title to the property, he may enjoy the right of constructive possession until
actual and physical re-appropriation of the property takes place.
Compared with actual and constructive possession, the relative bulk of the
concept of adverse possession in legal literature is little and nascent. The main
essence of the doctrine of adverse possession is occupation by an occupier other
than the true owner of a land or a property.63 It is occupation that is adverse to
possession. This unauthorized possession is in fact acquired without consent of the
true owner. The rules associated with adverse possession is found in both “Common
law and Civil law systems”64 and is governed by the Law of Limitation, otherwise
known as “prescription or statutory limitation period”. Based on the legal system and
the statutory period, time runs against the true owner to bring an action against the
occupier.65 A thought comes to mind when emphasizing the statutory period

61
Tay (1963–1964), p. 481.
62
Ibid.
63
Depoorter (2010), pp. 183–187. See also Ellickson (1986), pp. 725–727.
64
Bouckaert and Depoorter (1999), pp. 18–19. The authors confirm that the difference between the
rule of adverse possession found in both systems is the distinction between bad and good faith
possessors. See also Callahan (1961), pp. 41–42.
65
Ibid. Callahan (1961), pp. 43–44. The author adds that “While stating that the doctrine is
fundamentally based on the operation of the Statute in limiting actions to recover the possession
of land to twelve, or fifteen, or twenty years after the cause of action arose, the law appears to be that
the statutes do not mean what they say. When they do operate, they do not merely bar the cause of
action, in the legal way of saying things; they go further and give the possessor “title” to the land.
But this will not occur, nor will the cause of action be barred, unless the activities of the wrongdoer
354 T. M. Johansson

associated with adverse possession. While the doctrine operates when an

unauthorized occupier acquires actual possession of a land or a property, could it
be that the notion of constructive possession becomes weak, even though it is an
important defense for the true owner in a claim against the occupier? While the
discussion on constructive possession has led to the understanding that: (a) it is
primarily a mental element loosely connected to de facto possession; and (b) an
immaterial yet strong connection between the owner and the property—“construc-
tive possession” in an “adverse possession” context gradually surfaces as unsub-
stantial and more illusory from the very minute the true owner is separated from
actual possession.66 If possession is the root of title, then “actual possession” is the
ground in which the root is implanted.
Similar to “possession” and its various intrinsic components that determine the
true owner in property law; judges in decisions concerning abandoned wrecks,
salvage and the law of finds have also dealt with possession, both actual and
constructive, quite extensively. Although salvage law does not correspond to title,
ownership or possession and broadly deals with salvor’s compensatory rights, the
law of finds answers questions related to ownership and possession and tries to vest
title in the most appropriate natural person who reduces abandoned maritime
property to his possession. Again, possession is an important concept when it
comes to control and management of a ship, and accountability. Whether it is an
individual owner, or joint owners who share a unity of title, or co-owners “in whom
is vested severally distinct shares in the ship, but with an undivided interest in the
whole”67—constructive possession always follows the ship i.e., the res and is a
decisive factor in rights in rem. That is why Edgar Gold et al. rightly point out:
. . . In maritime Law the rights and duties of actual owners are frequently extended to a larger
range of persons who may have chartered, or have management, operation, or control of the

have conformed to a list of explosive adjectives. In order to ripen into title, we are told, the
possession must be open, notorious, continuous, hostile, and adverse. To the uninitiated this must
sound more like grounds for divorce than property law. Sometimes it is added that it also must be
under claim of right, claim of title and color of title [emphasis added].”
66
Ibid., p. 60. The author stresses the distinguishing characteristics of actual and constructive
possession and deems constructive possession to be quite convoluted: “The word “actual” means
real, rather than potential; and it’s clear we would be in quite a situation if potential adverse
possession for, say, twenty-one years gave a title. So, on that basis, the requirement that the
possession must be actual means only that the possession must be real possession. If the statement
is taken to mean that the possession must be actual as opposed to constructive then we are in two
difficulties. In the first place, it seems to me that analysis of the phrase “constructive possession”
will bring you to the conclusion that it means either no possession or just plain possession. If it
means “no possession” then the principal proposition reads, “the possession must be possession
and not no possession.” If “constructive possession” means “possession” then we have the
proposition “the possession must be possession and not possession.” That was all “in the first
place” and probably is confusing if not fallacious. In the second place, if I’m wrong, and
constructive possession means something which is neither ordinary possession nor no possession,
then the proposition that adverse possession, to be effective to create a title, must be ordinary
possession, and not constructive, is simply not true [emphasis added].”
67
Hill (2003).
An Exposé of Canadian “Abandoned Vessels &. . . 355

ship. This is essential because in many cases the actual owner may not be in possession or
control, yet it is necessary to ensure that the ship is managed properly and that those who
manage the ship are accountable. For instance, through a bareboat charterparty (i.e., charter
by demise), the actual shipowner parts with possession and control of the ship, and the
charterer will hire the master and crew and manage the life of the ship. In several jurisdic-
tions, the bareboat charterer is allowed to re-register the ship. Shipowners frequently
augment their fleets through this and other types of chartering, instead of actually owning
more ships . . . [emphasis added]68

2.3 Res Nullius, Occupatio and Bona Vacantia

Dominium or rerum dominium is a Latin legal term that signifies “quiritarian

ownership” of a thing or property, and dominus is a generic term that is used as an
equivalent to dominium.69 Similar to the analysis put forward by Savigny, scholars
of property law support the notion that ownership is often expressed by possidere, a
free translation of which refers to “possess” or “hold possession of” whereby the act
of taking possession, the act of holding, occupying, seizing, controlling is considered
as possessio.70 There is ample historical evidence that the terms dominium,
possidere and possessio have been under constant scrutiny by scholars, lawyers,
legal writers and judges since Roman times. The objective of all such scrutiny and
examination is to clearly establish the rights of the true owner against the world at
large. Those are the rights that revolve around ownership held by a title that is
recognized by the governing law of the land, and that is the core concept of
“quiritarian ownership”—the only dominium recognized by Roman law.71 The
Roman law thus compiled and codified from earlier customs, practices, judgments
and learned writings, the core principles and doctrinal aspects of many of which have
survived the test of time and prevail today. It is also undoubtedly clear that the
complete notion of property, possession and “quiritarian ownership” would not have
developed without res i.e., the general name for anything which is the object of a
legal act whether it has an actual existence or an existence in the thoughts of a natural
person.72 Res or the property remains the core of all doctrines, principles and rules
related to property law.
In a discussion pertaining to res, one might come across a situation where the true
owner has left “the property free to the acquisition of whoever wishes to claim it”.73
As discussed earlier, a transfer of property from the transferor to the transferee does
not indicate that the transferor or the true owner has discarded the property to the

68
Gold et al. (2003), p. 154.
69
Smith (1859), p. 421.
70
“von” Savigny (1865) cited in ibid. Smith (1859).
71
Ibid. Smith (1859).
72
Ibid.
73
Bright v Gineste, supra note 258.
356 T. M. Johansson

acquisition of other natural persons. This form of transfer can be characterized by

free will, and whether or not it is a sale, gift or bequest, it does not constitute
abandonment. On the contrary, an intentional abandonment would mean that the res
is free and clear for another person to exercise occupatio. In those situations, the
doctrine of res nullius74 is commonly used to refer to an “ownerless res” that has
been abandoned by the true owner. While res has branched into a lot of ancillary
terms, e.g., res communes, res corporales, res divini juris, and res humani juris,75
res nullius out of all res related doctrines can be marked as special in so far as it has
gained significant attention in scholarly writings, legal literature and judgments.
Those scholars, legal writers and judges have thoroughly examined the full partic-
ulars of res nullius to establish property claims as well as maritime claims by an
intermeddler by occupatio i.e., ownerless things that were susceptible to private
ownership. Even today, where there exists international controversy concerning
occupatio, res nullius and its conditions and legal affects are given important
consideration to determine ownership.76 An insightful exposition of this important
doctrine is contained in the following passage from William Smith:
. . . The chief division of res is into res divini juris, and res humani juris. Res divini juris are
those which are appropriated to religious purposes, namely, res sacrae, sanctae, religiosae;
and so long as they have this character, they cannot be the objects of property. Res humani
juris are all other things that can be the objects of property; and they are either res publicae or
res privatae. Res publicae belong to the state, and can only become private property by being
deprived of this public character . . . Res universitatis are the property of a universitas, and
are not the property of any individual. The phrase res nullius is ambiguous; it sometimes
means that the thing cannot be the property of any individual, which is affirmed of things
divini juris; when applied to things humani juris, it sometimes means that they are not the
property of an individual but of a universitas; yet such things may become the property of an
individual; res hereditariae are res nullius until there is a heres. Res communes are those
which cannot be the objects of property, and therefore are res nullius, as the sea.77

In the context of the doctrine of abandonment, effective occupatio can be

paraphrased or rephrased as de facto possession.78 The active dominion aspect that
has been discussed earlier can be considered as a form of control or de facto
possession that satisfies all elements of possession in fact.79 But whether or not it

74
Adeleye and Acquah-Dadzie (1999), p. 345 where res nullius has been defined as “[p]roperty
which belongs to nobody, whether because it has never been acquired or because its previous owner
has completely abandoned it, or because in the case of Roman law, it cannot be privately owned”.
75
Ibid. This book is an authority on res terminoligies and the res related terminologies in the text
have defined in the following manner: res communes—things which belong to the public, are used
by everyone and cannot be anybody’s private property; res corporales—things that can be
perceived by the senses; res divini juris—matters of divine right and matters of divine law; res
humani juris—matters of human law.
76
Macdonell (1899).
77
Smith (1859), p. 421.
78
Pollock and Wright (1888), p. 8.
79
Ibid. According to Pollock and Wright, if a thing or a property has been subject to effective
occupatio, there are a few questions that need to be answered: “a) of what kinds of physical control
An Exposé of Canadian “Abandoned Vessels &. . . 357

is a possession in law or a matter of law depends on the situation and the opinion of
the concerned.80 As such, the thought of occupatio as de facto possession invokes
two important questions. The first question is whether occupatio was adverse to the
true owner’s right? The latter question is whether occupatio was exercised on a
property that was relinquished, given up or renounced? If occupatio was an adverse
action against the true owner’s right, then the control or de facto possession could be
termed as “adverse possession” which involves a statutory period. This form of
occupatio is a question of law since “actual possession” weighs heavier than
“constructive possession”. Since occupatio or control is the actual possession of
the property or the thing, the possession in law of that property or thing will need to
be adjudged by the court to establish true title.81 As for the second question—the
answer is quite apparent. If the property had been voluntarily abandoned, then the
legal maxim occupantis flunt derelicta would come into context. Occupantis flunt
derelicta i.e., deserted things become the property of the person who is the first to
occupy them,82 is founded in dereliction cases and formed from abandonment that is
comprised of free consent—a principle that remains at an opposite end to those
principles that constitute the doctrine of abandonment.83 Again, de facto possession
can be lost in a number of ways. It is only then the courts delve into the facts to
observe continuance or discontinuance and continuance without interference or
interruption.84 These are important actions that need to be taken into account to
understand the doctrine of abandonment with regard to a res that is considered
ownerless i.e., res nullius. In maritime law, a ship that is discarded or neglected until
the owner takes all proper and necessary actions to abandon it. Even if the discarded,
neglected or unattended ship is in peril, it does not denote the fact that it has been
abandoned. There needs to be a clear indication of abandonment intentions, other-
wise the ship remains the property of the owner and as such, does not become res
nullius.

and use the thing in question is practically capable; b) with what intention the acts in question were
done; and c) whether the knowledge or intention of any other person was material to their effect, and
if so, what that person did know and intend”.
80
Ibid.
81
This explanation contradicts the proposition forwarded by Pollock and Wright (1888).
82
Adeleye and Acquah-Dadzie (1999), p. 280.
83
Warder v La Belle Creole [Case No. 17, 165].
84
Pollock and Wright (1888). The authors clearly state “It is needless to point out further that
physical possession may be lost in various ways without any other person gaining it; but we must
carefully guard ourselves against hastily applying the same idea to legal possession. The law does
not . . . always or necessarily attach the rights of possession to physical control; and in like manner,
when physical and legal possession coincide, it does not necessarily follow that the loss of control in
fact shall involve the loss of possession in law. The continuance or discontinuance of physical
control is a fact, though not always an obvious fact; the continuity or interruption of legal possession
cannot be affirmed without applying to the facts, when ascertained, positive rules of law. Indeed, the
rules are quite different in the Roman law and the Common Law, so that the detailed comparison of
them is profitable, here as elsewhere, only when we bear in mind that each stands on its own ground
[endnote omitted].”
358 T. M. Johansson

Similar to res nullius, the doctrine of bona vacantia85 applies to ownerless

property. Originating in English law, bona vacantia refers to vacant goods,
unclaimed property and is a legal concept that is closely tied to property that has
no owner. The only difference between res nullius and bona vacantia is that the
latter includes property, which has no owner other than the Crown. In other words,
bona vacantia properties would include, e.g., property of companies removed from
the companies register, failed trusts, property of people who have passed away
without a will, property of unincorporated societies, assets of dissolved companies
that have failed to be distributed, assets of dissolved unincorporated associations that
have failed to be distributed, assets of the estates of deceased persons that have failed
to be distributed due to intestacy and a lack of known persons entitled to inherit. An
important principle of bona vacantia is that it does not apply to ships or abandoned
property where the owner is unknown or cannot be located. Although the main
principle of the doctrine revolves around ownerless property, the fact that it passes to
the Crown or common law sets it aside for the Crown, keeps bona vacantia outside
of scope of the doctrine of abandonment.

2.4 Dereliction

As discussed earlier, ownership is considered as a natural link between the owner

and the property. From time immemorial, law has given clear recognition to this
natural link. While this acknowledged link establishes an owner’s “quiritarian
ownership”86 over the property, the law also obliges an owner to relinquish all rights
in a manner prescribed by the law of the respective jurisdiction. In other words, there
needs to be a clear and explicit indication by the owner of the intention to discon-
tinue ownership. Even if the intention is unclear and the property still remains
unattended, the property in question cannot be absolutely deemed as abandoned
and therefore, the given situation does not render the property as res nullius or res
derelicta.87 Mere vacancy does not necessarily mean that the true owner of title has
abandoned it. This begs the question—how can an owner of a property convey an
explicit intention? In property law, the finder of an abandoned property needs to
confirm that the property has actually been abandoned. Before establishing a claim
on a derelict property, the finder is under an obligation to conduct a proper inves-
tigation, e.g., property tax records, land registry records, tax assessor’s records. In

85
Used interchangeably with escheat or unclaimed property. Escheat in medieval England was
considered as reversion of property to the feudal lord. Moreover, unclaimed property generally
consists of, e.g., uncashed payroll checks, uncashed payments to suppliers, uncashed dividend
checks, customer overpayments, bank accounts, wages, refunds, utility deposits, insurance policy
proceeds, stocks, bonds, contents of safe deposit boxes, that have been abandoned.
86
Ownership held by a title recognized by the municipal law.
87
Adeleye and Acquah-Dadzie (1999), p. 345. Res derelicta is defined as a property which is
deserted or abandoned and can thus be acquired by the first occupant or taker.
An Exposé of Canadian “Abandoned Vessels &. . . 359

other words, the claimant of res derelict or res nullius must provide clear and
satisfactory evidence, which firmly establishes the ground that the property so
claimed, has been abandoned. Because it is observed that quite often, non-use or
the lapse of time is not sufficient to render a property as abandoned.88 If that is the
case, then the burden of proof will lie on the finder to demonstrate that the property
was indeed legally abandoned in accordance with the principles laid out in the
doctrine of abandonment. As such, the finder must take definite steps to establish a
concrete claim and use certain facts, such as the period of abandonment, non-use,
discontinuance in tax and other relevant payments, and proceed to weaken the
natural link between the owner and the property or thing. Similar principles are
observed in maritime law where judges adjudicate in salvage and wreck cases
whereby the intention of both parties are examined and considered to estimate
whether there has been a legal abandonment on the part of the owner.

2.4.1 Legal Abandonment

When a property, whether real estate or a ship is abandoned—there tends to be a

void. The abandoned or permanently and intentionally relinquished property tends to
float in legal vacuity. Although this relinquishment is a “question of fact”,89 the law

88
See Strauch v Coastal State Crude Gathering Co., 424 S.W. 2d 677: the non-use of an easement
for 22 years was not sufficient to ascertain the intention of abandonment. See also Morgan v Fox,
536 S.W. 2d 644: unused oil field equipment on a leased premises for 4 years after the expiry of the
lease did not render those equipments as abandoned. But see Armory v Delamirie [1722] EWHC
J94, (1722) 1 Strange 505: the main question was—does a finder have a property right over what is
found against others? It has been held that the finder has a property right that is not concrete so as to
raise his right to an owner’s right. However, the new right will permit the finder to keep it from
others and against the world at large.
89
Schwartz (1950). The author’s explanations provide a clear understanding of a question of fact
that can be distinguished from a question of law from an administrative perspective. The author
states “A theory of review based upon the “law-fact” distinction assumes that there is a more or less
clear-cut division between “law” and “fact”, with the former for the judge and the latter for the
administrator. “This separation of law and fact sounds attractively simple . . . The administrative
tribunal would find the facts and the courts would not interfere unless the absence of evidence or the
perversity of the finding required them to intervene.” In fact, however, the distinction between
“law” and “fact” is not nearly so well defined as is often supposed. “The judges, who have the last
word, can confidently draw the line between law and fact; for the rest of us it is not so easy.” There is
a certain ambiguity about the terms in practice which makes it difficult in many cases confidently to
ascertain which is which prior to court decision. “Whether or not a man was walking along the
sidewalk on a certain street of a certain afternoon is a question of fact. Whether a coal hole on the
sidewalk was or was not covered is a question of fact. Whether or not the man fell into the coal hole
is question of fact. In each case, the fact is ascertainable by observation; there can be no question of
judgment or opinion. As a matter of law, however, the liability of the person or corporation
chargeable with the condition of the coal hole may depend upon whether or not it was reasonably
guarded. This will depend upon two questions. It will depend upon the physical character, location,
and surroundings of the hole, and it will depend upon whether those physical factors conform to the
standard of reasonableness which the law demands. The former is a question of fact, but what is the
360 T. M. Johansson

does not permit an intermeddler or a finder to step into the vacuity or void and mark
ownership. Hypothetically speaking, the abandonment must be in line with the
doctrine of abandonment thus, rendering the abandonment as a legal abandonment.
Although the popular notion is that all rights and interests in a property are lost by
abandonment, the title however, remains unblemished. Title to any property that has
been legally abandoned naturally vests in the intermeddler or finder who reduces it to
possession both actual and constructive. If the owner has relinquished, given up or
renounced the title by any act or public proclamation, the finder’s claim is justified
and valid. If the owner has eschewed performing any of the aforementioned actions,
the finder could reduce the property to possession through “adverse possession” and
bar the true owner from claiming title and ownership. In short, the manifestation of a
bona-fide intention to abandon something creates the regime of legal abandonment.
In maritime law, if a ship is abandoned due to an act of God, there is no relinquish-
ment or permanent abandonment of the ship.90 In those instances where there is no
hope of recovery of the ship, the owner is under an obligation to deregister the ship
as per statutory law. Even if the ship has been physically abandoned, there remains
constructive possession whereby the right of ownership is not lost through derelicto
and the ship cannot be considered as res nullius or res derelict. If all rights of
ownership are waived, then the abandonment is legal and the quiritarian ownership
is lost through the abandonment of property rights rendering the ship a res nullius.

2.4.2 Lost Property & Illegitimate Possession

While legal abandonment may result in occupation by the finder firmly founded on
the owner’s bona-fide intention to be free from all rights and privileges that are
acquired by dint of title, it is often seen that in “forgotten property”91 cases—the law
does not support the claim of the finder. Forgotten property or lost property can be
seen a property, the possession of which has been parted with involuntarily. As such,

latter? [footnotes omitted]”. See also Whitford (2001). The author distinguishes a question of fact
from a question of law in the context of damages for breach and states “The most important standard
for distinguishing questions of fact from questions of law is the general/particular distinction. If the
significance of a determination is limited to a particular case, we call it a fact issue, even though by
no means would it be considered a “fact” as that term is used in ordinary language. Consider for
example an issue that often arises in determining expectation damages for breach-in what situation
would the plaintiff be if the contract had not been broken (e.g., how much profit would she make). A
layman would term such a determination an informed guess at best, but because its significance is
limited to the case, we consider it a fact rather than a law question. Consider also a determination
about a person’s subjective intent in doing an earlier act or making an earlier expression. These
determinations require ascertaining a subjective state of mind, something not amenable to an
objective measurement of physical reality (such as the speed at which a car is traveling, which
can be measured by radar), but again because the significance of the findings are limited to a
particular case, we consider them determinations of fact rather than law.”
90
Similar to cargo claims as observed in The Antipolis 1990 (1) SA 751 (SCA), p. 757.
91
Moffat v Kazana [1969] 2 QB 152.
An Exposé of Canadian “Abandoned Vessels &. . . 361

the property that has been lost or forgotten unintentionally is quite opposite to the
principles that constitute the doctrine of abandonment. Even if the finder exercises
physical control over a forgotten or lost property, the situation cannot be classified as
legal abandonment.92 Generally speaking, the law obliges the finder to report the lost
property or try to trace the true owner. Otherwise it will constitute a form of
illegitimate possession.93 If the true owner manifests an intention not to resume
ownership and possession, it is only then the finder is free from all legal encum-
brances. But there is a thin line between legal abandonment and lost property, and
the finder must tread carefully so as to avoid any violation of statutory law.94 From a
narrow perspective, it can be considered that the true owner’s title in a lost property
case is the strongest since constructive possession still remains even though actual
possession is lost.95 In the same case, the finder’s right is comparatively weak. If the
finder loses actual possession of the lost property, the finder’s claim on the basis of
constructive possession will not be successful.96 Because property cannot be aban-
doned de jure and constructive possession functions best if the possessor holds the
title to the property.97

3 Abandoned Vessel & the Doctrine of Abandonment

While statutory law comprises statutes and codes enacted by law makers or legisla-
tive bodies, and regulatory law consists of regulations and related procedural rules
established by government departments and agencies based on statute law; cases
pertaining to maritime claims and decisions rendered by judges are of particular
importance when it comes to understanding certain terms that are not clearly defined
in the statutory or regulatory law. A certain terminology may have a myriad of
meanings depending on the focus of the interpretation and the area of concentration.

92
Hibbert v McKiernan [1948] 2 KB 142.
93
Ibid. where the collector of golf balls was convicted of theft.
94
Bridge (2002), p. 23. See also Goold (2014).
95
Ibid. Goold, p. 127.
96
Ibid.
97
Penner (2000), p. 79. The author has articulated this point and states “Abandonment is purposeful,
unlike loss. It normally involves relinquishing possession of something that is no longer wanted, in
respect of which the right of exclusive use is no longer of any value to the owner. Abandonment is a
permanent decision not to take advantage of the general duty in rem prohibiting interference in
respect of a particular thing abandoned . . . Implicit in this notion of abandonment is partial
abandonment as well as permanent and total abandonment. This is not, strictly speaking, what we
call ‘abandonment’ normally, for nothing of normative consequence is normally recognized when
we simply decide to leave off using our property for any particular period. We are naturally more
concerned with the decision to do so permanently. But clearly, if we regard the idea that a right to
exclusive use permits us to decide never to use an object of property again, then it must encompass
the lesser decision to forego using it for a day or a month or a year. Such a decision is as much a
disposition of the property as is its total abandonment”.
362 T. M. Johansson

For example, at first glance, the term “abandonment” gives a preliminary impression
that it is an action by the true owner with regard to a certain property. A mortgagor,
tax assessor or a proprietor would perceive the term as an action by the owner to
relinquish all property rights. A human rights lawyer would view “abandonment” in
terms of child abandonment that occurs when a guardian or anyone in charge deserts
a child without any regard for the child’s safety and security.98 If the term “aban-
donment” is placed within the maritime sphere, it will have different connotations. A
marine insurer will define “abandonment” in connection with a notice of abandon-
ment that generally refers to a formal notice of relinquishment by the insured ship
owner to the insurer. On the other hand, an officer of regulatory affairs engaged in
maritime operations will define abandonment with reference to the provisions
stipulated in the regulatory law developed and implemented by the respective
agency. In other words, the officer of regulatory affairs will point to “vessel
abandonment”, which at first sight gives the idea that the subject of abandonment
is a floating, adrift, submerged or partially submerged object with no owner or title.
“Vessel” when conjoined with “abandonment” shifts focus from laws associated
with land and proprietary rights and obligations—to rights, obligations and respon-
sibilities, which are governed by maritime law. Even though the regulatory law of a
State regulates or makes an effort to regulate vessel abandonment and problems
associated therewith, it is observed that the inherent principles of the doctrine of
abandonment are still germane to the understanding of “vessel abandonment”.
Because similar to a property on land, a vessel that is relinquished, given up or
renounced by the owner—floats in a legal vacuum, it is not a subject of private
dispute or a dispute that needs to be settled in court; rather it falls within the area that
concerns management of abandoned vessels. As discussed earlier, from the minute
actual possession has been renounced until the time it remains unattended,
unnoticed, and reclaimed, recovered or retrieved—the vessel is deprived of a legal
identity i.e., title or ownership. The absence of a legal identity makes the legal
vacuum more transparent. Because the law has its limits and can only prescribe the
effects of ownership and the “how” and “when” a forgotten or lost property could be
possessed by an intermeddler or finder. Moreover, during the time a property is
ownerless, the law can only designate the property as ownerless until someone takes
possession of it. In the maritime field, it is generally observed that ownership and
title coupled with rights and obligations tend to provide a vessel with a form of legal
identity simply because it is owned by someone. Similar to a land property that is
deemed abandoned, an abandoned vessel will embody generic traits of res nullius or
res derelicta whereby a natural person via occupatio and possession both actual and
constructive can once again revive the legal identity of the vessel.
In regulatory law, the general rule is that a federal officer has a right to retrieve the
vessel and act as a temporary custodian if it endangers maritime safety and security
or poses an environmental hazard in coastal areas. As a temporary custodian, the
officer is still under an obligation to find the true owner and the true owner needs to

98
Berk (1999), pp. 1–10.
An Exposé of Canadian “Abandoned Vessels &. . . 363

reclaim the vessel within a certain period after the lapse of which the vessel can be
auctioned or disposed of. But as long as the vessel exists and until the concerned
officer takes further actions, the vessel is still an “abandoned vessel” even though it
might not be res nullius in a strict legal sense. It is therefore, important to understand,
dissect and carefully analyze the term “abandoned vessel” with the help of pertinent
doctrines and principles, which can be considered as important and necessary legal
tools99 that provide guidance in the understanding of where relinquished and
discarded property is positioned in the realm of law. This analysis already exists in
the texts of judicial decisions on maritime claims whereby judges have already
conducted most of this surgical analysis on abandoned vessel in cases involving
ownership and possession of wrecks and derelicts. While regulatory law can only
encapsulate the maritime property with the term “abandoned vessel” and commence
with a brief definitional interpretation on what an abandoned vessel is, its true
meaning and essence lies in those legal doctrines and principles that are considered
by the learned judges in: (a) derelict cases and; (b) wreck cases that involved salvage
of both ship and cargo.100 The definition that is observed in regulatory law is mostly
a condensed definition to help regulatory officers to identify vessels that are aban-
doned. In theory, the term “derelict” is used in lieu of abandoned vessel and
embedded in the definition of “wreck” in regulatory law. Therefore, in order to
fully comprehend the term “abandoned vessel”, there is a need to delve into parallel
and corresponding terms i.e., derelict and wreck. Because these parallel and
corresponding terms are the only terms that can be extracted from classic cases
and judicial decisions where the term “abandoned” has been used explicitly, some-
times directly and quite often through the usage of the umbrella term “derelict”. In
these various cases, judges have made significant efforts to narrow down “aban-
doned” in terms of relevant factors by determining what to study, what knowledge to
draw on, and what to include and exclude. So, the question is—can the main essence
of “abandoned vessel” be extracted from the sixteenth, seventeenth, eighteenth and
nineteenth century common law cases concerning wrecks and derelicts?

4 Commentary: Abandonment Through the Lens of Wreck

and Derelict Cases

In its most ancient description, the philosophy surrounding “wrecks” was limited to
those portions of ship and cargo, which were cast up on land.101 In this context, the
location of the property was considered significant since the jurisdiction of the

99
These tools are the components that are found within the ambit of the doctrine of abandonment
and have been discussed in the previous chapter.
100
From a common viewpoint, judges are often compelled to look beyond the law that often tends to
be narrow and test relevant doctrines and principles to untangle overlapping layers of complexity
and highlight the true definition and characteristics of an abandoned vessel.
101
Kennedy and Rose (2002), p. 99.
364 T. M. Johansson

ancient Admiralty Court originally and exclusively extended outside the body of a
county.102 By the end of the nineteenth century, the former Admiralty jurisdiction
over wreck was used in a rather restricted sense. This restriction pertained to wrecks,
cast ashore where no prohibition was issued.103 Eventually, the Admiralty jurisdic-
tion was extended to the body of a county and the salvage jurisdiction in the case of
wreck, the ones that were formerly exercised within the framework of the common
law in the bodies of counties, was transferred to the Admiralty jurisdiction.104 In the
Admiralty Court, the definition of “wreck” gained a broader scope, and was resolved
in the Case of Sir Henry Constable.105 “That nothing shall be wreccum maris, but
such goods only which are cast or left on the land by the sea”, as referred with
approval to explanations of the term “wreck” by sir John Nicholl, has been portrayed
as a settled recourse to the complex delineation of “wreck” as observed in the ancient
descriptions.106
“Derelict”, on the other hand, often used synonymously with “abandoned”, is a
term legally applied to a thing, which is abandoned and deserted at sea by its master
and crew.107 The essence of the subject matter of derelict is preceded by the
condition that there is an “absence of hope in the recovery”108 of the vessel in
question. In addition, there must also remain the bona-fide109 intention of permanent
abandonment where the owner, the master or the crew shall “refrain from
returning”110 to the vessel that has been so abandoned. The test of “intention” is
nominally subjective and is understood as being linked to immediate voluntary

102
Ibid. at 99 § 3. The authors’ analyses emphasises wrecks, which could only be classified as such
if cast upon land coupled with the further fact that the high seas extended only to low-water mark.
This invoked the idea that the wreck could never have been within the admiralty jurisdiction.
103
Mukherjee (2002), pp. 35–36, 41, footnote 24, p. 43.
104
Ibid.
105
Sir Henry Constable’s Case (1600) 5 Co. Rep. 106a 77 E.R. 218, p219f; See, e.g., Sir Henry
Constable’s Case, 77 Eng. Rep. 218 (Q.B. 1601).
106
Ibid., Sir John Nicholl has provided a succinct distinction between ships and goods in The King v
Forty nine Casks of Brandy, 3 Hagg. 257 (1836), where it was identified that “. . . for wreccum
maris significat illa bona, quæ naufragio ad terram appelluntur: flotsam is when a ship is sunk, or
otherwise perished, and the goods float on the sea; jetsam is when the ship is in danger of being
sunk, and to lighten the ship the goods are cast into the sea, and afterwards notwithstanding the ship
perish. Lagan (rel potius ligan) is when the goods which are so cast into the sea, and afterwards the
ship perishes, and such goods cast are so heavy that they sink to the bottom, and the mariners, to the
intent to have them again, tie to them a buoy, or cork, or such other thing that will not sink, so that
they may find them again, & dicitur lig. a ligando: and none of these goods which are called jetsam,
flotsam or lagan, are called wreck so long as they remain in or upon the sea; but if any of them by the
sea be put upon the land, then they shall be said wreck”. See also Richard and Fogarty (2004).
107
Kennedy and Rose (2002), p. 103 § 1.
108
Guided by the doctrine of sine spe recuperandi.
109
The first usage of the term “bona-fide” in terms of abandoned and derelict vessels, has been
implied by Kennedy and Rose (2002). Although there is no clear nexus among the four conditions
that have been laid out by Kennedy, the bona-fide intention is used in conjugation to saving lives.
110
Guided by the principle of sine animo revertendi.
An Exposé of Canadian “Abandoned Vessels &. . . 365

actions, a notion that is quite different from quasi-derelict111 vessels. In an effort to

comprehend the role of intention in vessel abandonment or “abandoned vessel”
cases, the focus has to be on the intentions and expectations of the master and the
crew at the time when the decision of abandonment was realised.112 Whether it is the
law of finds for wrecks, or derelict law for derelicts, both113 these areas of law are
founded on the doctrine of abandonment and has a deep-rooted relation with
intention and the psychological state of mind. The question in this context is not
whether derelict falls within the category of wrecks or the value of the wreck that
was intentionally abandoned by the owner, the main focus should be on how learned
judges have understood and perceived “vessel abandonment” and rendered respec-
tive judgments. In short, the focus needs to be the question of fact and the question of
law with regard to dereliction and abandonment in those different situations.
At the end of the seventeenth century, the unique annexure of intention and
abandonment has been documented in various admiralty cases corresponding to the
“psychological state” during abandonment. However, the question of fact in those
cases did not necessarily represent the psychological state of abandonment of vessel
associated with an individual mind.114 The master and crew were considered as a
common entity, and the admiralty courts’ decisions ignored the very common fact of
shared intention, inevitably the product of mutual communication of individual
intentions. Then again, what has been exempted from these cases is the substance
of “maritime tort” from deliberate abandonment resulting in the hindrance of

111
Black and Garner (2000), p. 454. “Derelict” has been defined as a “[p]ersonal property aban-
doned or thrown away by the owner with an intent to no longer claim it, such as a boat deserted or
abandoned at sea by a master or crew”. A vessel is considered quasi-derelict when it is no longer
under the control or direction of those on board. This control over the vessel is lost without actual
abandonment.
112
See generally Kennedy and Rose (2002). Intent is often described as a mental attitude with which
an individual acts. Hence, it cannot ordinarily be directly proved but must be ascertained from
surrounding facts and circumstances. It is also considered as a state of mind with which the act is
done, committed or omitted.
113
Lipka (1970), pp. 98–110. At this juncture it is important to note that there is a close correlation
between derelict law and the law of finds discussed below. Both involve issues of possession and
prima facie ownership in common law terms. If the laws of derelict and finds are treated as
belonging to the same genre, which they are, then it is of equal importance to note that the law of
salvage in a broad sense comprises two branches; namely, finding property and saving property.
The former is particularized as the law of finds in which derelict law is subsumed. The latter, in turn,
is the essence of salvage law as it has existed as custom and practice since ancient times and has
latterly been codified and entrenched in convention law. Currently, it is the International Conven-
tion on Salvage of 1989, which has been given effect in the domestic laws of most maritime states.
114
See The Aquila (1798) 1 C. Rob. 37, 40 (Justice W. Scott states, “I say without hope of recovery,
because a mere quitting of the ship for the purpose of procuring assistance from shore, or with an
intention of returning to her again, is not an abandonment”); The Perla (1857) Swab. 230, 230–231;
The Cosmopolitan (1848) 6 Not. of Cas. Supply. xvii, xx-xxviii; The Coromandel (1857) Swab.
205, 208, 209; The Gertrude (1861) 30 L. J. Adm. 130, 131; The Zeta (1875) L. R. 4 A. & E. 460,
462; The Belgia (1941) 71 L1. L. Rep. 21, 22, The Heemskerk (1941) 70 L1 .L. Rep. 35 (where the
vessel was abandoned but the hopes and intentions of the master and crew do not appear to have
been investigated).
366 T. M. Johansson

navigational safety, marine pollution in coastal areas and damage to shoreline

property owners. Moreover, with respect to salvage, the vessel cannot be identified
as derelict or abandoned if the master and the crew were engaged in the act of
abandonment with an intention of procuring assistance, or in cases where there was a
clear intention of returning to the vessel even though the master may have given up
the entire management to salvors.115 Vessels abandoned on automatic pilot with
engines running at half speed, as in the case of The Pergo (1987),116 is prima facie a
derelict. Then again, animus derelinquendi or an abandoning intention is not appar-
ent in situations where the vessel has been captured by the enemy and afterwards
deserted by the captor.117 These cases could be considered as a conceptual deviation
of the so-called theory of “legal abandonment” where the ship owner could “aban-
don” the respective vessel to the maritime creditors and be relieved of accrued
maritime debts. This is accompanied by a renunciation of the vessel in question, to
the creditors who could have realized their claims by an executive sale of the vessel.
Legal abandonment, in this sense, does not leave a vessel or a wreck without an
owner. The vessel or the wreck is abandoned to someone, either by the owner to his
creditors or by the assured to the insurer. This can be contrasted with the notion of
dereliction or abandonment, which clearly appertains to a drifting vessel at sea
without any legal custodian. Apparently, cases from the sixteenth, seventeenth,
eighteenth, and nineteenth century has led to the submission that the core principles
and ideologies related to “abandonment” more specifically, abandonment of wrecks
and derelicts are circumstantial. Therefore, the doctrine of abandonment cannot be
termed as a ‘one-size-fit-for-all’ theory for all those cases that are based on different
circumstances. It is also observed that for derelicts and abandoned wrecks—owner-
ship is not a stand-alone doctrine. Ownership in derelict and wreck cases can only be
determined based on consideration of actual and constructive possession. These are

115
Cossman v West [1887], supra note 90.
116
The Pergo (1987) 1 Lloyd’s Rep. 582.
117
Kennedy and Rose (2002). See Bradley v Newsom, Sons and Company (1919) A.C. 16. In this
case, while on a voyage from Archangel to Hull with a cargo of timber, the steamship Jupiter was
attacked off the coast of Scotland by a German submarine, The master and crew were compelled by
force to leave the vessel and in believing that the vessel to have been sunk, the master communi-
cated the message to the owners. Eventually, the vessel was salved and brought into Leith. The
cargo owners claimed delivery of the cargo at Leigh free of freight, on the ground that the contract
of affreightment had been terminated by abandonment of the vessel. Lord Sumner of the House of
Lords held a dissenting opinion that the circumstances in which the master and the crew left the
vessel were not such as to make the vessel derelict, and the cargo owners were not entitled to treat
the contract of carriage as at end. The crucial question, according to L.C. Finlay was whether the
master and the crew abandoned the vessel without any intention of returning to her, and without a
hope of recovery. The significant point of the incident is the application of force by the enemies to
which the master and crew apparently yielded to. This is distinct from intentional abandonment in
so far as they were compelled to abandon the vessel via irresistible physical force. It was further
held that, “[t]he physical act of leaving the vessel is only one feature in such a case. Another and
essential feature, in order to make it a case of derelict, is the state of mind of the captain and crew
when they left. The question of quo animo is decisive, and the facts seem to me to show clearly that
the quitting of the ship was not under such circumstances as to make it a case of derelict”.
An Exposé of Canadian “Abandoned Vessels &. . . 367

important elements that determine ownership in salvage cases, which mostly involve
dereliction and constructive possession by the owner, and actual or constructive
possession by salvors.
Reflecting the basic tenet of the concept of “salvage”, an all-embracing defini-
tion118 can be gleaned from the dictum of Hannen J. in Five Steel barges (1890),
The jurisdiction . . . is of a peculiarly equitable character. The right to salvage . . . is a
presumption of law arising out of the property who has had the benefit of it should make
remuneration to those who have conferred the benefit upon him, notwithstanding that he has
not entered into any contract on the subject.119

The definition refers to “remuneration” following a successful salvage operation,

paid by the owner to the salvor. On the contrary, the absence of the owner changes
the position of the salvor to “owner”, as has been the case under English law and
affirmed by the Court in the case of The Lusitania (1986).120 In this case, a German
submarine had torpedoed the vessel in question on the 7th of May 1915. In 1982 i.e.,
67 years later, salvage operations were initiated. 94 items of property were rescued in
the operation and ownership of the alleged abandoned wreck surfaced as the center
of dispute. In a subsequent dispute between the British Government and the salvors,
the Court ruled in favor of the salvors’ as they had acquired title via occupation,
because it was deemed that the original owners had abandoned the property. The
three121 significant elements of salvage were evident in that part of the case and the
court subsequently observed the subtle dichotomy of the concept of “possession”
between the law of finds and the law of salvage.
Determination of the existence of the legal element of “possession” was important
to the Court in rendering its judgment on claims on cargo and personal effects that
were still submerged. This is where the court cited the classic salvage case in

118
The classic definition of salvage extracted from Kennedy and Rose (2002) (citing the definition
embodied in Five Steel Barges (1890) 15 P.D. 142.
119
Five Steel Barges (1890) 15 P.D. 142, p. 146.
120
Pierce v Bemis (The Lusitania) (1986) Q.B. 348, 388 (Justice Sheen, “[a] ship is derelict in the
legal sense of the term if the master and crew have abandoned her at sea without any intention of
returning to her and without hope on their part of recovering her”).
121
The first element is danger. See Kennedy and Rose (2002). The authors describe danger as “so
much just a cause of present apprehension, that, in order to escape out of it or to avoid it (as the case
may be) no reasonably prudent and skillful seaman in charge of the venture would refuse the
salvor’s help if it were offered to him upon the condition of his paying for it the salvor’s reward”.
The second element is voluntariness, which is a service rendered solely without any pre-existing
contractual duty. The distinction between “salvage agreement” and “contract salvage” is that the
latter gives rise to no maritime lien; and remuneration is paid according to quantum meruit or on
agreed amount. The former, on the other hand, provides for the award to be fixed by arbitration. The
final element is success based on the “no cure, no pay” principle. Success would demand that there
is an ultimate preservation of the res in question. The only exception as laid out in the case
Manchester Liners v M.V. Scotia Traders (1971) F.C. Rep. (F.C.C.T.D.), which stipulated that if
a distressed ship requests assistance, and an assisting ship renders salvage services, but it turns out
that the ship is eventually saved through some other cause, the assisting ship is still entitled to a
salvage award.
368 T. M. Johansson

determining “possession” i.e. Hener v United States (1981).122 Although the law of
salvage, like the law of finds, requires a salvor to ascertain and establish “posses-
sion” over property before asserting the right to exclude others, the Court in was of
the opinion that “possession” meant something less in salvage, than in the law of
finds.123 The basic difference is that in salvage law, the final result is remuneration
and not title to the maritime property. Another condition that adds weight to this
result is that in salvage law, the possession as such need not be continuous, rather
only to the extent that the “nature and situation” of the salvage operation permits the
continuity.124 But in the case of The Lusitania (1986), the crucial point was to
resolve the question of entitlement over cargo and personal effects, which were
maritime property in constructive possession. The law of salvage would be appar-
ently excluded because of the absence of the three elements of salvage. The Court
cited Judge Walter E. Hoffman from Wiggins v 1100 Tons, More or Less, of Italian
Marbles (1960)125 and conceded that the question of abandonment was concrete,
and the question of law was the law of finds;
Personalty, on being abandoned, ceases to be the property of any person, and thenceforth is
no man’s property, unless and until it is reduced to possession with intent to acquire title to,
or ownership of it. It may, accordingly, be appropriated by anyone. If it has not been
reclaimed by the former owner, and appropriating it and reducing it to possession with
intention to become its owner, provided, it has been said, the taking is fair.126

It seems that an innate notion attached to the concept of “abandonment” under the
common law of finds is that the property carries with it the legal fiction that the
whole world has an invariable right to the property, a status that ends as soon as the
property is reduced to actual possession.127 In Hener v United States (1981), the
court observed that the party involved had recovered much of the cargo and had
placed the rest within its possession to the extent consistent with the nature of the
cargo, and that the party was engaged in a systematic, unrelenting work to recover all
the remaining cargo from the entire area over which it was scattered.128 This was
sufficient evidence to demonstrate “intent” to “possess” via actual possession of

122
Hener v United States (1981) 525 F. Supp. 350, 354 (S.D.N.Y). In The Dantzic Packet (1835)
166 E.R. 447—the possessory rights of salvors or derelicts and non-derelicts and the rights of the
masters were examined. It was held: “ . . . where there is a set of salvors who are in actual possession
of a vessel found derelict, or who are with the consent of the master holding actual possession of a
vessel, they cannot be extruded by other persons stangers to the vessel. That is indisputable; but as
between the master and salvors, unless the vessel is absolutely derelict, and the master’s authority is
at an end, he is entitled to resume charge of the ship, to employ whom he pleases, and to take what
measures he thinks proper for the preservation of the ship . . .”.
123
Ibid. at 357.
124
Citing Eads v Brazelton (1861), 22 Ark., p. 511.
125
Wiggins v 1100 Tons, More or Less, of Italian Marbles (1960) 186 F. Supp. 452 (E.D. Va.
1960), p. 456.
126
Ibid., p. 456.
127
Ibid.
128
Hener v United States (1981), supra note 363.
An Exposé of Canadian “Abandoned Vessels &. . . 369

maritime property that was “abandoned”. The Court was dissatisfied with the
plaintiffs’ contention regarding locating the shipwreck and submerged cargo and
the ongoing engagement in possession and dominion. The uncertainty of actual
possession was conclusive and the salvor’s right to title was denied. The law of finds
precluded the Court from awarding the plaintiff title to the cargo and personal effects
of the passengers and crew that remained submerged.

5 Concluding Remarks

From a general viewpoint, “property” can be seen as an instrument of “relational

governance” since property law is “relational” in principle.129 The term “relational
governance” in the context of this sentence is used to indicate the relation that a
property can have with regard to the owner and any other person who is not the
actual owner, but merely has actual possession for a temporary period. But if the

129
The term “relational governance” is comprised of those mechanisms, which are regarded as a
means to enhance transaction-specific investments associated with less monitoring and bargaining
as indicated in Barney and Hansen (1994). It is based on trust between the two parties and has been
explained in Yu et al. (2006). The authors state, “Trust is frequently considered to be the positive
expectations one party has about another party’s intentions. That is, trust is one party’s confidence
in another’s goodwill . . . In keeping with the literature, “trust”, in this study, is made up of two
components: calculative trust, the rational component of trust, and benevolent trust, the emotional
side of trust . . . Calculative trust is preceded by the calculative process: an organization calculates
the costs and/or rewards of cheating (or not) in a particular transaction. When one partner can
deliver in the manner that it has promised, demonstrates the ability to continue the exchange
relationship, or seems capable of generating some benefit for another partner in the future, another
partner may be more willing to continue to make exchanges and to stay in the relationship [in-text
references omitted]”. See also Johnson (2007). The author states, “It is not necessary to hold all
eleven of Honoré’s incidents to be considered a per se owner of property, but some incidents are
clearly more important than others. Although it is often said that the right to possession is one of the
most important rights, it is not necessarily more important than the right to capital, which is the right
to alienate or dispose of the property. Honoré’s incidents are also naturally subsets of other
incidents. If one has a right to capital, or to exercise dominion over property, he also has a right
to use, unless he has exercised his power to give it away temporarily to a tenant. One might own the
right to receive the income from a piece of property, but not own the property itself because one
lacks the right to dispose of it. The combination of some incidents can add up to ownership rights,
depending on the context, and without all the incidents being present. Ownership can be shared in
an almost infinite variety of ways.
Thus, the concept of the bundle of separate sticks, with different “owners” holding different
sticks, meant that property ownership was a very flexible concept, largely unconcerned with the
object itself . . . Honoré’s incidents of ownership demonstrate Hohfeld’s concept of property rights
as “different sorts of rights and rights-correlatives” that may aggregate in many different ways to
explain ownership. For example, the right to capital is a legal right that is enforceable against others.
If I own the right to capital, I can convey or sell the property to somebody else; I can waste it by
refusing to maintain it and letting it fall into disrepair; I can destroy it by razing a building on my
land. These rights are not unlimited, however, because laws affect how I may convey the property,
how I waste it, or how I destroy it”.
370 T. M. Johansson

property is the subject matter of mortgage, then the discussion will fall into another
area of law. In those cases the property is pledged to the mortgagee, and even though
the mortgagor continues to have constructive possession over the mortgaged prop-
erty—the exclusive rights or the bundle of rights can be deemed as somewhat
limited. While relational governance is transaction-specific and to a great extent
based on trust, in the context of property rights, trust is also an important factor that
governs the relationship between the owner, the custodian and the property. If the
custodian has sold the property to a third person without the consent of the true
owner, then the sale is void ab initio. If the third person has stolen the property or
acquired ownership through illegal means, then the third person is said to have
acquired illegitimate possession. From an analytical perspective, this governance
aspect tends to render property with a diametric personality.
At first instance, property has a direct relationship with the owner whereby the
personality is regulated by actual and constructive possession. The latter personality
is evident when there is a shift in actual possession from the true owner to another
person entrusted with the custody of the property. In other words, the personality
shifts with temporary abandonment, but ownership still remains intact via construc-
tive possession. In both these personalities, the property is still an entity conceptu-
alized as a bundle of rights, which can be exclusively exercised by the owner.130
Academics argue that this bundle of rights gives the owner a legitimate right against
the rest of the world.131 But this legitimate right of the owner becomes complex in
cases where the property is in adverse possession, and more specifically, when the
property is abandoned in a manner so as to blur the lines between temporary
abandonment and permanent abandonment. From those cases where temporary
abandonment and permanent abandonment cannot be distinguished, it can be
asserted that the owner tends to gain an additional mental right from exercising the
“bundle of rights” that comes with ownership. This additional right can be titled
“right to abandonment” and characterized as having a subtle distinction with the
“right to capital” i.e., the power to alienate the thing that includes the power to
consume, waste, modify, or destroy it.132 If the right to abandonment is exercised in
a manner so as to render the property as permanently relinquished, given up or
renounced, then the property is a res nullius. Until the time that res nullius or res
derelict is owned by a finder by occupatio, the bundle of rights remain dormant. The
diametric personality of the property is revived the minute the finder establishes a
firm claim over the property by applying for a title of ownership through registration.
Then the finder is positioned as the true owner and the exclusive right over the
property applies against the rest of the world.
Although this “relational governance” facet mainly functions in terms of corpo-
real real property and incorporeal real property, the same doctrines and the same
principles can be used to examine vessel abandonment and its position in maritime

130
Ziff (2006), p. 2.
131
Merrill (1998).
132
Honoré (1993).
An Exposé of Canadian “Abandoned Vessels &. . . 371

law. After all, a vessel is considered as a maritime “property” and in jurisprudence,

the term is used to denote only proprietary rights in rem. This right in rem is a
privileged right of the owner and one that requires a critical examination with regard
to the law of salvage and the law of finds. Because the diametric personality of the
maritime property begins to surface in those maritime cases where the finder or
salvor tries to establish a claim based on either actual possession or constructive
possession and in some cases, both.
At this juncture, it is important to note that it has been illustrated in several
instances how derelict and wreck cases have formed a basis for the understanding of
the main essence of “abandoned vessel” and how this term can be marked with
components of legal precision through legal doctrines, rules and principles
established through longstanding usage in seventeenth, eighteenth and nineteenth
century common law cases concerning wrecks and derelicts. Arguably, however,
these cases do not provide the desired overarching definition of “abandoned vessel”
that has been relinquished, given up or renounced by the true owner simply because
a property has been and always will be an instrument of relational governance. This
is mainly because while the subject matter of those cases may be similar, the facts
and circumstances are quite dissimilar and thus, can be contrasted. However, the
question of law in those cases discussed seems to be generic, as the judges tend to
narrow down the “who owns the subject matter and who exercised effective posses-
sion”? If the maritime property is ownerless, then there is always a hypothetical
anticipation that the property will eventually be the subject matter of a new claim by
a finder who will seek to establish a claim of ownership through actual or construc-
tive possession. But until then, it is undoubtedly clear that the abandoned vessel
floats in a legal vacuum where ownership and possession does not exist. The
obscurity that dominates this legal vacuum is the main reason why there is constant
difficulty in establishing a concrete definition of “abandoned vessel”. Therefore, the
various rules and principles of the doctrine of abandonment are worthy of
consideration.
Reliance on the substance of the doctrine of abandonment is inevitable due to the
complexity that shrouds the legal rights and affects the varying degrees of possession
of a maritime property that is in the physical custody of the salvor and in constructive
possession by the true owner of title. Moreover, it is observed that prolonged
inaction by the true owner has always added an additional layer of complication
that renders cases on maritime claims very intricate. It appears that the manner in
which the courts define what is abandoned with regard to control and intention is
moderately confusing, especially in unclear cases. The courts are then compelled to
clarify the given situations by dissecting the multifarious complicated layers until
“control” and “intention” of both parties are satisfactorily discernible. Even though
the initial problems in ascertaining whether the sunken or submerged wreck is an
abandoned property are eased by observing the principles integral to salvor’s rights
or finder’s rights, prolonged inaction by the owner and sporadic actions by the salvor
or finder tends to distort “intention”, making it hard to determine whether control
was necessary. This leads to the conclusion that intention, whether animus
derelinquendi or animus revertendi, is subjective, and prolonged inaction without
372 T. M. Johansson

constructive possession makes abandonment hard to justify. Despite factual com-

plexities and convoluting nature of legal jargon, the doctrine of abandonment is an
important legal apparatus that can pierce through those multifarious complex layers
and help create a potential area for clarity in an abandonment case where the court
seems to struggle with the vast amount of differing circumstances. In short, the
doctrine of abandonment has provided the judges with a commencing point and
overall significant guidance in cases pertaining to the rights of a natural person in
relation to a vessel that is either a derelict or a wreck.
While development of a binding definition or an examination of the legal vacuum
or the “abandonment period”133 has never been the principal objective of judges
who have presided over derelict and wreck cases, it is nevertheless observed that in
most cases the subject matter of maritime abandonment is nominally reduced to the
term res derelicta or res nullius. In other words, any maritime property that is a
“derelict” can also be termed as “abandoned” and vice versa.134 This type of usage
gives the understanding that the two terms are synonymous and therefore, the
longstanding practice revolves around using the terms “derelict” and “abandoned”
interchangeably.
With a derelict, there is always a question of whether constructive possession is
absolutely renounced by prolonged inaction. So, if a vessel is intentionally set adrift
or spontaneously discarded at the dock by the owner with knowledge of conse-
quences—then the situation can be best termed as “abandonment”, marking the
vessel as an “abandoned vessel”. But if the vessel went adrift in the event of a
substantial storm and without the knowledge of the owner, then the situation would
not constitute an “abandonment”—it would be “dereliction”, similar to what has
been observed previously in forgotten or lost property situations. While in the first
situation there is a unilateral action of ridding one’s self of ownership through
explicit renunciation of actual and constructive possession, the latter situation
does not demonstrate any such action. The action was not initiated by the owner
and could be deemed as merely an act of God. Actual possession could be taken
away, but constructive possession continues as a psychological state of mind. In
those cases, if the owner makes an effort to search for the lost vessel and the finder
generously returns the vessel—the period during which the owner is deprived of
actual possession, i.e., until reclaimed by the owner and returned by the finder, there
is no legal vacuum. It is simply a period of dereliction. This is an important
distinguishing point between an “abandoned vessel” and a “derelict”. In short, if it
was abandonment pursuant to the doctrine of abandonment, then the vacuum is
apparent, and the abandoned vessel could be rescued from this legal oblivion after
claims of ownership and possession are established by the finder. Possession thus,
acts as a bar when using “abandoned vessel” and “derelict” interchangeably and to

133
Permanent relinquishment by the true owner—claim through actual and constructive possession
by the finder or intermeddler.
134
The usage of the term “derelict” could also be used to refer to a vessel that is still floating,
stranded or beached, i.e., a vessel that is not sunken or submerged. See The Pergo (1987) 1 Lloyd’s
Rep. 582.
An Exposé of Canadian “Abandoned Vessels &. . . 373

that extent, prolonged inaction by the true owner of a derelict does not render the
maritime property definitely abandoned and permanently relinquished. Prolonged
inaction with regard to a vessel is a clear dereliction and one that has been the focal
point in all derelict and wreck related judicial decisions.

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Korean Collision Avoidance Rules
and Apportionment of Liability

In Hyeon Kim

Abstract The author explains the Korean collision avoidance rules in this chapter.
It includes Korean statutory laws regarding collision avoidance rules and legal
mechanism established by the Korean Marine Safety Tribunal for apportionment
of liability. The author introduces several issues in Korea involved in the interpre-
tation of the collision avoidance rules such as legal status of anchored vessel, vessel
lying at sea, tug-barge, cuttlefish catching fishing boat, and recommend course. The
author recommends that three countries including Korea, Japan and China should
work together to unify the collision avoidance rules in order to give safe navigation
in the East Asian region.

1 Introduction

International rules regulating collision are required for vessels to avoid the collision
at sea because they often meet other vessels having different nationalities. The
International Regulations for Preventing Collision at Sea, 1972 (hereinafter
COLREG) serves this purpose. Korea, Japan and China are all contracting states
or state parties to the COLREG. Each contracting state of the COLREG must
maintain its own domestic rules in order to implement the COLREG. Accordingly,
vessels entering waters under the jurisdictions of other states should familiarize
themselves with the domestic navigational rules of that state, in addition to the
COLREG.1
Ship collisions result in damage and injury suffered by the victims who may have
claims against the shipowner of the colliding ship often attributable to the negligence

1
The substance of this chapter was originally used as speech material in the 3rd East Asia Maritime
Law Forum held on November 28, 2018 in Korea University School of Law. The author has revised
it and added text on some new developments.

I. H. Kim (*)
Maritime Law Centre, School of Law, Korea University, Seoul, South Korea
e-mail: captainihkim@korea.ac.kr

© Springer Nature Switzerland AG 2020 377

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_17
378 I. H. Kim

of its crew (navigators). The right of the victims to claim damages against the owner
is based on tort law. In essence, a ship collision is a maritime tort. Without being able
to prove negligence on part of the defendant, the plaintiff will not have a cause of
action against the defendant and will not succeed in a tort action. Negligence of the
crew in relation to the ship’s collision means that the crew did not comply with the
collision avoidance rules. The extent of the crew’s violation of the rules dictates the
extent of damages that the owner should pay. In this regard, the collision avoidance
rules have a close relationship with the law of collision liability under which
compensation may be payable to the victim.
Many collisions occur in Korean waters including the territorial seas of Korea.
According to the statistics issued by the Korean Maritime Safety Tribunal (KMST),
in 2009, for example, 87 collisions occurred within Korean territorial seas.

2 Function of Collision Avoiding Rules in the Damage

Compensation

The navigator’s breach of a duty stipulated in the collision avoidance rules may
bring about liability on his part and also the shipowner as his master. According to
the Korean Civil Code Art. 750, victims of a marine collision are entitled to claim for
damages against the wrongdoer based on tort. A “both-to-blame” collision case falls
within the description and definition of a mutually committed tort. In such a case,
both persons who contributed to the tortious act are jointly and severally liable for
the damage so caused by the co-tortfeasors under Article 760 of the Korean Civil
Code (KCC). Notably, however, in the case of a ship collision, the tort law is
modified pursuant to the collision provisions in Article 879 of the KCC. Under the
Korean law, a third party is allowed to claim the portion of a tortfeasor’s share in the
liability. Therefore, the apportionment of liability is very important in Korea. The
apportioned liability is distributed in accordance with the extent to which each party
has been in violation of the collision avoidance rules. In this regard, the collision
avoidance rules have a significant effect on the damages or compensation payable in
a collision case.

3 Collision Avoiding Rules in Korea

3.1 General

By ratifying the 1972 COLREG Convention in 1977, Korea became a contracting

state of that Convention. In addition, Korea enacted the domestic legislation known
as the Korean Marine Traffic Safety Act (KMTSA) in 1986 (a part of 2012
Korean Collision Avoidance Rules and Apportionment of Liability 379

Korean Ship Safety Act). Therefore, the 1972 COLREGS and the KMTSA (a part of
2012 Ship Safety Act) are two major governing laws in Korea with which the
navigator must comply in order to avoid collision at sea.

3.2 COLREGS

The COLREGS of 1972 is a treaty even though the word “Convention” is not
mentioned in the full title. The convention represents the single uniform set of
rules for serving the purpose of collision avoidance in navigable waters worldwide.
The Korean Constitution stipulates that a convention or treaty which is ratified by
Korea pursuant to the approval of Parliament has the same status in law as domestic
legislation. Thus, every navigator in a Korean flagged vessel must treat the 1972
COLREG as having the force and status of Korean national law.

3.3 The KSSA

This Act is not identical to the 1972 COLREG. It has a variety of applications and
includes not only collision avoidance rules but also incorporates other instruments
such as the International Safety Management (ISM) Code as well as other regula-
tions for ships’ safety besides collision. The Korean government incorporated the
COLREG into this Act as a part of the law. Almost all of the provisions are identical
to those in the COLREG. However, some special rules for avoiding collision have
been added in the Act such as the Special Traffic Safety Area regime, in which the
special collision avoidance rules are stipulated. The scope of application of the Act is
narrower than that of the COLREG in that it is applicable only within Korean
territorial waters while the COLREG is applicable in all waters where seagoing
vessels can navigate.2

3.3.1 Rules in Respect of Vessels in Sight of Each Other

The collision avoidance rules are divided in accordance with the status of visibility in
the vicinity of the vessel around the time of the collision. In good visibility, vessels
are in sight of one another. The crossing rules, head-on rules and overtaking rules are
three basic rules. When the vessels meet in a crossing situation, the vessel which has
the approaching vessel on her starboard side is a give-way vessel and the other vessel

2
The provisions in the KSSA impose obligation upon the foreign navigators to observe the
navigation rules when they sails within the Korean territorial waters or open port areas and upon
the Korean navigators to observe the navigation rules wherever they sails (Art. 3).
380 I. H. Kim

is a stand-on vessel (Art. 73; COLREG Rule 15). In a head-on situation, both vessels
should avoid the opposing vessel by turning to starboard side (Art. 72; COLREG
Rule 14). In an overtaking situation, the overtaking vessel should avoid the over-
taken vessel (Art. 171; COLREG Rule 13). The give-way vessel shall keep out of the
way of the stand-on vessel while the stand-on vessel shall keep her course and speed.
When the stand-on vessel finds herself so close that collision cannot be avoided by
the action of the give-way vessel alone, she shall take such action as will best aid to
avoid collision. (Arts. 173, 174, 175; COLREGS Rule 15, 16, 17). Accordingly,
when a collision occurs, the give-way vessel is likely to be held more responsible for
the collision than the stand-on vessel.
There are many different kinds of vessels at sea in terms of maneuvering ability
such as a general power-driven vessel, a fishing trawler vessel, a vessel at anchor or a
vessel using a sea anchor. An anchored vessel is unable to move without heaving its
anchor and thus cannot be expected to take any action to avoid colliding with another
vessel. The KSSA and COLREG include rules of priority in accordance with the
ability of a vessel to move and keep out of the way of another vessel or vessels. The
priority order is (1) vessel not under command (NUC); (2) vessel restricted in her
maneuvering ability; (3) vessel engaged in fishing; (4) sailing ship; and (5) a general
power-driven vessel. Under this rule of priority, a general power-driven vessel must
avoid an NUC vessel even if it has the status of a stand-on vessel under the general
rule. This rule is applicable for vessels in sight of one another (Art. 76; COLREG
Rule18).

3.3.2 Rules Applicable in Restricted Visibility

If visibility becomes restricted due to fog or heavy rain, the collision rules applicable
for good visibility are no longer applicable and special rules come into application.
In such a case, both vessels must avoid the other by reducing speed (Art. 77;
COLREG Rule 19). The starboard hand rule (port to port passage) means that
where a vessel has an approaching vessel on its starboard side is the give-way
vessel. It must keep out of the way of the other approaching vessel. This rule
naturally leads to a “port to port” passage even though this not specifically men-
tioned in the relevant Rule in the COLREG which simply provides that “the vessel
which has the other on her own starboard side shall keep out of the way”. If a vessel
which has the other on her starboard side turns to starboard keeping a safe distance,
both vessels will pass port to port. Port to port passage is a very important principle
of navigation; it is a fundamental rule adopted in the KSSA, and by implication in the
COLREG on the basis of another fundamental principle, namely, the “ordinary
practice of seamen”.
Korean Collision Avoidance Rules and Apportionment of Liability 381

3.3.3 Rules in Any Condition of Visibility

Rules for Narrow Channels (Art. 67; COLREGS Rule 9) and Traffic Separation
Schemes (Art. 68; COLREGS Rule 10) are two important ones which fall within the
set of Rules applicable for any condition of the visibility. The Korean government
incorporated the Special Traffic Safety Area scheme in the KSSA. According to Art.
10, the special areas were designated in the Pusan, Incheon and Yeosu areas. Vessels
navigating in these areas must follow only the designated lane. Vessels engaged in
fishing in these areas must not impede the passage of a vessel following the
designated lane.

3.4 The Open Port Ordinance Act

The Korean government adopted a local rule for safe navigation within the open port
area. The Korean Open Port Ordinance Act (hereinafter “KOPOA”) has the nature of
a special law in conjunction with the collision avoidance rules in the KSSA. The
rules in KOPOA prevail over rules in KSSA. Thus, where vessel (A) entering a port
meets vessel (B) departing the port, vessel A must give way to the vessel B,
regardless of the rules in the KSSA, that is, even if vessel A has the right of way
as a stand-on vessel under the KSSA or COLREG. It is understood that the collision
avoidance rules in the KOPOA are applicable in any condition of visibility.3

4 Current Issues in Korean Collision Avoiding Rules

4.1 Ordinary Seamanship

The KSSA did not have a provision so-called “good seamanship” or “ordinary
practice of seamen”, as provided in Rule 2(a) of the COLREGS. This provision
states that “the master shall not be exonerated from the consequences of the neglect
of any precaution which may be required by the ordinary practice of seaman, or by
the special circumstances of the case”. In the situation of a general power-driven
vessel meeting a vessel at anchor, there is no specific rule applicable under the
COLREG except that Rule 2(a) would apply in such instances. The KSSA did not
have any provision regarding the ordinary seamanship principle and thus the KMST
borrowed Rule 2(a) of the COLREGS for the application of navigation rules to the
case. The 2009 revised KMSTA incorporated the principle in Art. 39 bis (currently
Art. 96) and thus it became synchronized with the COLREGS in this respect. The

3
However, a former umpire rejects this view and argues that the rule should be applied to only to the
collision case in sight of one another.
382 I. H. Kim

KMST shows a tendency to apply the ordinary seamanship principle in several cases
such as collision involving an anchored vessel and a vessel in which a pilot is
embarking or disembarking.4

4.2 Vessel Waiting at Sea with Engine Ready

When a vessel is stopped at sea due to engine trouble, it falls within the scope of an
NUC vessel and therefore enjoys priority.5 However, when a vessel is stopped with
engines ready, there is a dispute in Korean law and practice as to whether (i) the
vessel is within the scope of a vessel restricted in her ability to maneuver or (ii) it is
simply a general power-driven vessel. The KMST supports the former view and thus
the vessel has priority over a general power-driven vessel (Central KMST 2002.6.4.
Decision No. 2002-11).6 However, this decision is under heavy criticism by several
academics and practitioners. In accordance with the COLREG, the vessel stopped at
sea with engine ready is regarded as a general power-driven vessel and thus it can be
in the status of a give-way vessel if it has the approaching vessel on her starboard
side.7

4.3 Vessel at Anchor

A vessel at anchor also has a duty to avoid collision. According to the Central
KMST, the vessel’s duty is as follows: (i) to anchor at the designated anchorage
(ii) to exhibit navigation lights and display the requisite shapes (iii) to post lookouts
(iv) to give warning signals (v) to use its engines; and (vi) to adjust the length of the
anchor cables (Central KMST Decision 1998.3.6. Docket No. 98-8).8 In Korean law,

4
M/V Ocean Trader Collision case (Central KMST Docket No. 2001-19), Korean Marine Safety
Tribunal Decision Report (2002), p. 210. See Kim (2018), p. 57.
5
Allen (2005), p. 64; Kim (2018), p. 101.
6
Healy and Sweeny (1997), p. 189; Famsworth and Young (1996), p. 55; Kim (2018), p. 232.
7
In the City of Camden case, M/V City of Camden was navigating and M/V Triton was lying at sea.
The 3rd Circuit Court of the US held that M/V Triton was in the status of the give-way vessel and
thus it should keep out of the way of M/V City of Camden. The Court imposed 100% liability upon
M/V City of Camden. 1930 AMC, 1822; However, in the Devotion II case, the fishing vessel
Mayflower was lying at sea and had the approaching Devotion II on her starboard side. The
Admiralty court rendered that the crossing rule should not be applied to the collision case involved
in the vessel lying at sea and thus the Mayflower was not in the status of the give-way vessel. See
The Devotion II [1979] 1 Lloyd’s Rep 509.
8
In the M/V Chingdao Express case, the Central KMST found that the Chingdao Express carried
out all the above precautions and thus was totally exonerated from liability.
Korean Collision Avoidance Rules and Apportionment of Liability 383

a vessel at anchor is not absolutely exonerated from liability because of the impo-
sition of the above-mentioned duties on it.

4.4 Tug-barge

There are many tug-barges carrying sand, navigating along the Korean coast. The
KMST does not admit the status of “vessel restricted in her ability to maneuver” to
tug-barges (The Central KMST Docket No. 97-26, 98-17).9 The typical case is the
combination of tug (200 tons) and barge (2000 tons) with a 200-metre tug line. It is
because tug-barges are not engaged in a towing operation that is severely restricted
in their ability to deviate from their course, that this status is not afforded. However,
in the tugboat Hyundai No. 7 case, the Korean Supreme Court gave priority to the
tug-barge in a collision case within a narrow channel (Korean Supreme Court case
2005.9.28., Docket No. 2004chu65). The Court held that the tug Hyundai No. 7 had
the status of a vessel restricted in her ability to maneuver in the narrow channel. In
this case, the tugboat Hyundai (87 tons) was towing the barge Hyundai No. 8 (1026
tons) with a towing line of 200 m. In the opinion of the present author, this Korean
Supreme Court judgment should be interpreted in a very limited way because the
collision occurred in a narrow channel rather than in the open sea.

4.5 Danger of Collision

In the COLREGS, “danger of collision” is a required ingredient for the collision

avoidance rules to be applied in the crossing and head-on situations. However, there
is no such wording in the case of an overtaking situation. One view is that the danger
of collision is required in order to apply the overtaking rule just like in cases
involving the crossing and head-on situations. The other view is that the overtaking
rule can be applied even though no danger of collision is involved where the
overtaking and overtaken vessels are approaching each other. If the former view is
adopted the overtaking rule is not easily applied; thus the overtaking vessel will be in
a more favorable position than if the latter view is adopted.

9
In the Tugboat Hyundai No. 108 case, the Hyundai No. 108 (368 tons) was towing the barge (6070
tons) with the towing line of 550 m. The Central KMST did not give any priority to the tug-barge
and applied the general rules to the case. Korean Marine Safety Tribunal Decision Report
(1999), p. 488.
384 I. H. Kim

4.6 Requirement for Vessel to Have Priority

When two vessels are approaching one another, they must show their status regard-
ing maneuverability. The COLREG impose the obligation to display the requisite
shapes or show lights when a vessel is limited in its maneuvering ability. If a vessel
does not show the prescribed lights or display the required shapes, the other vessel
may not know the status of the approaching vessel.
As mentioned above, it has been an issue as to whether a vessel with engine
trouble can be regarded as an NUC vessel regardless of whether or not the day or
night NUC signals have been displayed. In the Korean Supreme Court case
2000.11.28. Docket No. 2000chu43,10 the Court accorded the vessel that did not
display the requisite shapes, the status of a vessel restricted in its maneuverability by
stating that the opposite vessel could have known that the fishing vessel was engaged
in fishing if proper shapes were displayed; and accordingly, priority could be given.
In the view of the present author, the exception should be given in a very limited
fashion. If it is given too widely, the vessel in violation may unduly escape the
relevant sanctions.

4.7 Legal Status of Cuttlefish-Catching Vessel

In one case, a general power-driven vessel collided with a cuttlefish-catching vessel.

As a matter of usual practice, the latter vessel used a sea anchor from the bow to
resist the displacing effect of the wind. As such, it was somewhat restricted in her
ability to take avoiding action. In this case, the Central KMST considered three
COLREG priorities for cuttlefish catching vessel: that of a “vessel engaged in
fishing” according to Rule 3(d); that of a “vessel restricted in her ability to maneu-
ver” under Rule 3(g) and Rule 18; and that of a vessel bound by “the ordinary
seamanship” under Rule 2. On October 21, 2003, the Central KMST held that the
cuttlefish-catching vessel is not within the definition of a vessel engaged in fishing
under Rule 3(d) because the sea anchor is not regarded as a fishing apparatus”. It
decided that such a vessel should have priority as a vessel restricted in her ability to
maneuver under Rule 3(g) and Rule 18 because the vessel was actually restricted in
her ability to maneuver. It explained that the vessel could not move astern because
her sea anchor produced heavy tension at the bow and about 10 min would be
required to remove the sea anchor and to get the engine ready for effective action. In
conclusion, the Central KMST decided that the general power-driven vessel in this
case did not comply with Rule 18 when it did not avoid the cuttlefish catching vessel.
It seems to the author that the Central KMST gave maximum protection to the
cuttlefish-catching vessel because a vessel engaged in fishing under Rule 18 is
required to keep out of the way of such a cuttlefish catching vessel.

10
In the M/V Taeyoung Sun collision case, the KMST also rendered the decision the same as the
Korean Supreme Court (Central MST 2000.5.10. Docket No. 2000-3).
Korean Collision Avoidance Rules and Apportionment of Liability 385

4.8 Legal Meaning of Recommended Course

What is a “recommended course” is not prescribed in the collision avoidance rules in

the COLREG or the KSSA. On the other hand, recommended courses can be found
in the inland sea of Japan such as Setonaikai. According to Japanese academics, a
recommended course has the force and status of a legal provision. Thus, navigators
are required to abide by the recommended course even though it is established by
some private entity rather than the government.11
The Central KMST has rendered a decision stating that navigators sailing in the
Setonaikai should follow the route as recommended, therefore should navigate on
the starboard side of the recommended course. In this case, the M/V Samho Heron
was navigating on the port side of the route rather than on the starboard side. The
Central KMST criticized the M/V Samho Heron for not following the recommended
route. It explained that, strictly speaking, the recommended route was not of an
obligatory nature imposed by law, but it had reached that status by long repeated
practice of navigators and thus the navigator should follow it by the operation of the
ordinary seamanship rule (Central KMST 2010.9.14., Docket No. 2010-7).

5 Apportionment of Fault Ratio

5.1 Function of KMST

Damages or compensation is calculated on the basis of the apportionment or ratio of

fault of the parties involved in the collision (Art. 879). Therefore, the fault ratio is
very important under the Korean law. In practice, the fault ratio is virtually deter-
mined by the decision of the Korea Marine Safety Tribunal (KMST). The KMST
functions as an administrative tribunal acting as a fact-finding body to determine the
cause of a marine accident such as collision, fire, grounding, crew fatalities etc. It
also functions as a tribunal empowered to impose penal sanctions relating to the
licence held by a ship’s officer. This function of the KMST is authorized by the
Korean government which issues the licenses for masters and other navigation
officers serving on board vessels.
The KMST’s decisions on the cause of a marine accident have been widely
accepted by the Korean civil and penal courts. There is a provision in the KMST
Act which provides the KMST with the power to fix a contributed portion of each
party involved in the accident (Art. 4(2)). The fault ratio decided by the KMST is
separate and distinctive from a judgment rendered by the civil court. It is for the
administrative purposes; thus, the civil court is not obliged to follow the fault ratio
decided by the KMST. However, the judges in the civil court tend to rely consider-
ably on the decisions rendered by the KMST including the fault ratio.

11
Ogawa (2002), p. 80.
386 I. H. Kim

The KMST operates 4 district tribunals at Incheon, Pusan, Mokpo and Donghae.
The Central KMST is located in Sejong city.12 If there is any doubt on the decision
rendered by the district tribunal, the person involved in the case is entitled to appeal.
When the person involved in the second instance tribunal is not satisfied with the
decision rendered by the Central Tribunal, it has a right to make an appeal to the
Daejon High Court and then the Korean Supreme Court. It must be noted that these
are administrative rather than civil proceedings.

5.2 Guideline for the KMST’s Umpire Regarding

Apportionment of Collision Liability

Since 1999, the KMST has rendered decisions on the contributing fault ratio of
vessels involved in collisions in accordance with KMST Act Art. 4(2). As noted
above, the determination of the ratio is for administrative purposes. Even so, parties
involved in collisions showed the tendency to rely heavily on the KMST’s decisions
regarding fault ratio. The KMST has tried to maintain a degree of uniform applica-
tion between decisions made by its local tribunals and the central KMST; and has set
the following guidelines relating to basic cases of collision:
AA. Basic situation is that both vessels did not take any action before the collision.
From the basic ratio, the umpires are allowed to increase or decrease the ratio
appropriately in accordance with the action taken by each vessel. Negligence
which did not contribute to the collisions should not be assessed in the
contributing ratio.
BB. Collision in sight of one another
(1) In the crossing situation; Give-way vessel 65%: Stand-on vessel 35%
(2) In the head-on situation; Both vessels 50%
(3) In the overtaking situation; Overtaking vessel as a give-way vessel 80%: Over-
taken vessel as a stand-on vessel 20%
(4) In a collision between vessels with different manoeuvrability; Vessel not under
command 10%: power-driven vessel 90%
CC. Collision in restricted visibility
In a collision in restricted visibility: both vessels 50%
DD. Collision in any condition of visibility
(1) In a collision in a narrow channel;
(a) A vessel keeping as near to the outer limit of the channel which lies on her
starboard side 15%: Approaching vessel from the opposite course 85%:

12
See www.kst.go.kr.
Korean Collision Avoidance Rules and Apportionment of Liability 387

(b) When two vessels are approaching correctly but a vessel turns the key
toward the other vessel at surprise; the turned vessel 100%
(2) In a collision in a Traffic Separation Scheme; Same as the above
EE. Ordinary Seamanship case;
(1) Anchored vessel not sounding warning signal 5%: power-driven vessel 95%
(2) Vessel moored to shore 0%
The special committee established for producing the guidelines took into consid-
eration the extent of the culpability of each vessel as to whether it acted or failed to
act according to its duty imposed in the COLREG. It also referred to case materials in
relation to the apportionment of liability rendered by the civil courts. The KMST
started to apply the guidelines to collision cases as of January 1, 2007.

5.2.1 Cases Decided by the KMST with Fault Ratio

According to the KMST reports, the collision cases with particular figures of fault
ratio were decided as follows: No cases in 2002: 18 cases out of 54 in 2004: 18 cases
out of 58 cases in 2006; and 29 cases out of 50 in 2008. It shows that the KMST’s
decisions on fault ratio are increasing.

5.2.2 Fault Ratio in the KMST and Civil Court

It can be safely said that most of the decisions rendered by the KMST with fault ratio
are widely accepted by the parties involved in the collision as well as by the civil
courts in their judgments. That said, it must be noted that in several cases the civil
court did not accept the fault ratio decided by the KMST and came up with its own
judgment.
In the M/V Tae young Sun collision case, the Central KMST (2000.5.10. Docket
No. 2000-3) held that the M/V Taeyoung Sun as a general power-driven vessel
should have kept out of the way of the fishing vessel Daeo which was engaged in
fishing. Thus, M/V Taeyoung Sun should bear an apportionment of 80% of liability.
The Gwangju District Court (2002.11.15., Docket No. 2000gahap5758) accepted the
decision of the Central KMST and apportioned the 80% fault ratio to M/V Taeyoung
Sun. In the M/V Hanpo collision case, the Central KMST on 2002.1.8. held that the
M/V Hanpo had the status of a stand-on vessel; thus 40% fault ratio was imposed on
it. This decision was adopted without change by the Pusan District Court.
In the recent case of the collision between M/V Morning Express and M/V Pos
Bravery, the Central KMST apportioned the fault ratio at 50%: 50%. However, the
Seoul Central District Court (2008.10.24., Docket No. 200 gahap 15313) decided
differently from that of the KMST by imposing 65% fault on the M/V Pos Bravery
and 35% on the M/V Morning Express. The different decisions came from different
applications of the law. While the Central KMST applied the ordinary seamanship
388 I. H. Kim

principle to the case, the Court applied the crossing situation rule to the case and
decided that the M/V Morning Express was in the status of a stand-on vessel.

6 Conclusion

Collision avoidance rules have international characteristics. Vessels from three

countries, namely, Korea, Japan and China frequently meet each other at sea in
and around Korean waters. There is therefore a need for all parties concerned to
familiarize themselves with the domestic collision avoidance rules of their neigh-
boring countries. If there are any differences among the three countries’ domestic
collision rules, they will jeopardize the safe navigation of vessels. Therefore, every
effort should be expanded to unify the rules as best as possible.
Among the three countries mentioned above, Korea is the only one which
quantifies fault ratio in figures. The KMST’s guidelines will play a key role for
achieving uniformity in the legal systems to obtain fault ratios in collision cases.
Maritime law academics and practitioners from the three jurisdictions should look to
cooperate to come up with a set of uniform collision avoidance rules for domestic
law usage including apportionment rules for a rational collision liability regime in
the East Asian sub-region.

References

Allen CH (2005) Farwell’s rules of the nautical road. Nautical Institute Press
Famsworth, Young (1996) Nautical rules of the road. Cornell Maritime Press
Healy NJ, Sweeny JC (1997) The law of marine collision. Cornell Maritime Press
Kim IH (2018) Korean marine traffic law. Samwoo Publishing Co.
M/V Chingdao Express case
M/V Ocean Trader Collision case (Central KMST Docket No. 2001-19), Korean Marine Safety
Tribunal Decision Report (2002), p 210
M/V Taeyoung Sun collision case, the KMST also rendered the decision the same as the Korean
Supreme Court (Central MST 2000.5.10. Docket No. 2000-3)
Ogawa (2002) Cases of Japanese Marine Accident Decision Tribunal and Explanation. Sheisando
The Devotion II [1979] 1 Lloyd’s reports, 509
The Tugboat Hyundai No. 108 case. Korean Marine Safety Tribunal Decision Report (1999)
The Application of Human Rights
and Ethics Principles to Self-protection
Measures by the Ship Against Pirates
and Armed Robbers

Khanssa Lagdami and Aref Fakhry

Abstract This chapter looks at the way human rights standards and ethics played
their part in reshaping the understanding of what seafarers and ships could do to
protect themselves from the crimes of piracy and armed robbery at sea. The study
was built as part of a wider maritime security and defense-oriented research project
commissioned by the European Commission, entitled Protection Measures for
Merchant Ships (PROMERC), which aims to reduce the vulnerability of merchant
fleets and maritime supply lines to criminal abduction and extortion and thereby
reduce risk to mariners, shipping, and the environment, while also reducing costs.

1 Introduction

Much has been written about the re-emergence of the crime of maritime piracy,
which is considered as one of the international scourges of modern times.1 On
6 November 2018, the United Nations Security Council renewed its authorization
for international naval forces to join in the fight against piracy and armed robbery off
the coast of Somalia by adopting Resolution 2442 (2018) under Chapter VII of the
United Nations Charter.
This chapter examines the intersection in law and ethics between the right of ship
owners and crews to resort to self-protection from pirates and armed robbers at sea,
and the human rights of the latter. The matter is complex. On the one hand, it would
not occur to any reasonable person to object to the use of self-protective measures by
ships and their crews from the evil deeds of criminals. On the other hand, such
measures should be circumscribed by the values of acceptability and fairness in
modern societies.

1
Mejia Maximo Jr. (2012).

K. Lagdami (*) · A. Fakhry

World Maritime University, Malmö, Sweden
e-mail: KL@wmu.se

© Springer Nature Switzerland AG 2020 389

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_18
390 K. Lagdami and A. Fakhry

This chapter stems from a report submitted to the European Commission within
the framework of the PROMERC project. Today, the areas most affected by piracy
are West Africa, South East Asia, the Indian Ocean, East Africa, South America and
the Caribbean. Piracy may have a detrimental impact on human life and result in
substantial financial loss. The crime often encompasses acts of violence and abuses
which constitute flagrant and grave violations under criminal law. Such acts may
include abduction, prolonged detention, physical and psychological torture,
degrading treatment, as well as a transgression of the right to liberty and security.
Equally important, it has transpired that the treatment of pirates upon interception
or capture does not always comply with human right norms. The European Court of
Human Rights has ruled in this regard that French authorities had violated the rights
of suspect Somali pirates by holding them in custody for 48 h on French soil before
officially charging them with specific crimes.2 According to the European Court,
French authorities “had not sufficiently guaranteed the applicants” right to their
liberty and violated Article 5(3) (right to liberty and security) of the European
Convention, which reads: “Everyone arrested or detained in accordance with the
provisions of paragraph 1 ( c ) of this Article shall be brought promptly before a
judge or other officer authorized by law to exercise judicial power and shall be
entitled to trial within a reasonable time or to release pending trial. . .”. In addition,
the Court found that French authorities had breached Article 5(1) (right to liberty and
security).3
For this purpose, in many countries, the act of piracy is considered as a violation
of national criminal law and the emphasis has been placed upon arrest, prosecution

2
Ali Samatar and others v. France and Hassan and Others v. France. See: https://piracylaw.files.
wordpress.com/2015/01/udgments-ali-samatar-v-france-and-hassan-v-france-suspects-of-piracy-
against-french-vessels-appre.pdf.
3
Article 5—Right liberty and security:
1. Everyone has the right to liberty and security of person. No one shall be deprived of his liberty
save in the following cases and in accordance with a procedure prescribed by law:
(a) the lawful detention of a person after conviction by a competent court;
(b) the lawful arrest or detention of a person for non-compliance with the lawful order of a court
or in order to secure the fulfillment of any obligation prescribed by law;
(c) the lawful arrest or detention of a person effected for the purpose of bringing him before the
competent legal authority on reasonable suspicion of having committed an offence or when
it is reasonably considered necessary to prevent his committing an offence or fleeing after
having done so;
(d) the detention of a minor by lawful order for the purpose of educational supervision or his
lawful detention for the purpose of bringing him before the competent legal authority;
(e) the lawful detention of persons for the prevention of the spreading of infectious diseases, of
persons of unsound mind, alcoholics or drug addicts or vagrants;
(f) the lawful arrest or detention of a person to prevent his effecting an unauthorized entry into
the country or of a person against whom action is being taken with a view to deportation or
extradition.
The Application of Human Rights and Ethics Principles to Self-. . . 391

and punishment of pirates. The criminal justice response is further strengthened and
complemented by international law, particularly the United Nations Convention on
the Law of the Sea 1982 (UNCLOS)4 and the Convention for the Suppression of
Unlawful Acts against the Safety of Maritime Navigation 1988 (SUA).5
Following an overview of the international law relating to piracy, this chapter will
examine maritime piracy from the human rights and ethical perspectives. The key
point of the chapter is that human rights and ethics have just as much a role in
informing the response of the international community to the crimes of piracy and
armed robbery as do UNCLOS and SUA, which together constitute the basic legal
regime relating to such crimes.

2 The International Law Relating to Piracy

The key international legal framework relating to piracy is constituted of two main
instruments, namely: the United Nations Convention on the Law of the Sea 1982
(UNCLOS) and the Convention for the Suppression of Unlawful Acts against the
Safety of Maritime Navigation 1988 (SUA). These instruments are discussed further
on in sequence.

2.1 UNCLOS

UNCLOS sets down the responsibilities and jurisdiction of flag, coastal and port
States. UNCLOS mandates that all States have to cooperate to the fullest possible
extent in the repression of piracy, both on the high seas or in any other place outside
their respective jurisdictions.6
UNCLOS further grants authority to all States on the high seas, or in any place
outside the jurisdiction of any State, to “seize pirate ships and aircraft, or a ship or
aircraft taken by piracy and under the control of pirates, and arrest the persons and

4
United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea
Convention or the Law of the Sea treaty is the international agreement that resulted from the third
United Nations Conference on the Law of the Sea. The Convention defines the rights and
responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines
for business, the environment, and the management of marine natural resources. The Convention
was adopted in 1982 and came into force in 1994.
5
The Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation
(SUA) or Sua Act is a multilateral treaty by which states agree to prohibit and punish behaviour
which may threaten the safety of maritime navigation. The Convention was adopted by the
International Conference on the Suppression of Unlawful Acts against the Safety of Maritime
Navigation at Rome on 10 March 1988. It came into force on 1 March 1992 after it had been ratified
by 15 states.
6
Article 100.
392 K. Lagdami and A. Fakhry

seize the property on board”.7 The arresting State’s courts may decide on the
penalties to be imposed.8 It is worth noting that UNCLOS permits States to inspect
ships suspected of engaging in piracy.

2.2 SUA

In an effort to address the criminal acts at sea such as the hijacking of the Achille
Lauro,9 SUA has provided for a broad list of whereby an attack can be labeled an
‘unlawful act’ even though it may not have taken place on the high seas. The
compiled language of this framework states that ‘piracy’ may involve only the
victim’s vessel but does not use implicitly the term ‘piracy’. Despite the limitation
of this definition, SUA establishes a clear and unquestionable link between piracy
and terrorism. This liaison between these two criminal acts was done by considering
the legal language applicable to the capture of the pirates to be the same as that of
terrorists that already exist in other conventions.
Given recent acts of terrorism, the maritime industry brought SUA to light and
tried to give it a greater importance by strengthening it through amendments known
as the 2005 protocols10 which have not been fully and successfully adopted due to
the lack of necessary State ratification.

2.3 Shortcomings of UNCLOS and SUA

Despite all the extensive work that has been completed to date, the legal framework
pertaining to the piracy repression has noticeable gaps. Indeed, SUA provides a long
list of offences that does not embrace the entire types of violence made against
seafarers. In other words, for any act which is not listed, the Convention cannot be
applied as a legal means for prosecuting and punishing pirates or promoting inter-
national cooperation to combat piracy. For example, the “act of violence” expression
mentioned in Article 3(b) can be interpreted to cover hostage-taking or robbery, but
other acts such as demanding or taking ransom from the third party and selling seized
vessels for profit had not been addressed by the Convention. It is worth highlighting
that certain offences such as act of violence causing damage to the vessel or
communication of false information, must present a real threat to the navigation of

7
Article 105.
8
Idem.
9
MS Achille Lauro was a cruise ship based in Naples, Italy. Built between 1939 and 1947 as MS
Willem Ruys, a passenger liner for the Rotterdamsche Lloyd, it was hijacked by members of the
Palestine Liberation Front in 1985.
10
Mejia Maximo Jr. and Mukherjee (2006).
The Application of Human Rights and Ethics Principles to Self-. . . 393

the vessel; In the case where a ship still navigates safely after being attacked, Article
3 of the Convention would not apply.
SUA presents also some shortcomings in terms of extradition and individual
rights. As an example, a person who has been extradited from one country to another
may only be judged for the act justifying his or her extradition. In this case, States
cannot use SUA as a legal basis for extradition. In addition, there is no indication of
offence for homicide under this convention. As an illustration, Article 3 (g) touches
on cases where the killing occurs. It stipulates legal verbiage when injuring or killing
a person occurs during a seizure of a ship. However, if this abject act of murdering
innocent civilians or causing harm to a ship member is done after the seizure of the
ship has been concluded, no legal ramifications are spelled out. Thus, SUA has been
subject to several reviews.
However, the current legal framework as represented by UNCLOS and SUA
highlights some points touching human rights issues. Both instruments encourage
States to prosecute and punish pirates, but do not express any position about the
treatment of victims of piracy during their capture. Nevertheless, in most cases of
piracy attacks, victims have been subjected to inhumane and degrading treatments
such as executions, slavery and being used as human shield.11 These victims carry
deep psychological and emotional scares long after the end of their captivity takes
place. There have been several medically documented cases where victims of piracy
have suffered post-traumatic-stress (PTS) long after their release.
Although the existing legal framework on piracy does not provide full protection
to victims, other legal instruments have been produced to protect these victims from
ill-treatment and violence. For instance, the Council of Europe Convention on
Action against Trafficking in Human Beings 200512 establishes obligations not
only to prosecute and punish piracy offenders, but also provide sufficient protection
for victims of this crime. The ill treatment does not happen to the victims of piracy
only but to the pirates as well. For instance, in 2010, the US Navy released
10 accused Somali pirates who had spent more than 6 weeks in detention without
charge.13 There has also been a report where a Russian warship released several

11
For instance, on 6 April 2009 a group of Somali pirates seized a sailing yacht off the coasts of
Somalia. Five French nationals who were on board were taken hostage. One of the hostages was
shot in the head and killed by police force assault. Furthermore, a recent report of International
Commercial Crime Services says: “11.01.2015: 0500 LT: Posn: 03:44N – 004:59E, Around 63nm
SW of Bayelsa, Nigeria. Ten pirates armed with AK47 rifles boarded and hijacked a product tanker
and took hostage all nine crew. They transferred the fuel oil cargo to another vessel and two pirates
departed with that vessel. The Ghanaian navy dispatched a naval vessel to investigate as the vessel
moved into its waters. The naval boarding team arrested the remaining eight pirates. During the
incident the crew were mistreated by the pirates ” For more narrations about attacks of piracy see:
https://www.icc-ccs.org/ (accessed August 31st 2015).
12
The Council of Europe Convention on Action against Trafficking in Human Beings is a regional
human rights treaty of international human rights law by the Council of Europe. The Convention
opened for signature on 16 May 2005, and entered into force on 1 February 2008.
13
Washington Post (2010).
394 K. Lagdami and A. Fakhry

Somali pirates in an inflatable boat without navigational equipment. After some

hours, the boat disappeared on the high seas.14
All along the human rights violations, the contentious and often polarizing topic
of extraditing pirates to their country of origin or other countries where human rights
principles, such as prohibition on torture or inhuman treatment, right to a fair trial,
liberty, and security are less respected have been cited in different cases of piracy.
At this point, it should be important to highlight that SUA does contain some
significant provisions on the rights of pirates. For example, Article 7(3) gives to the
pirates the right to communicate with, and be visited by, representatives of their
States. In addition, Article 10(2) stipulates that pirates shall be guaranteed fair
treatment at all stages of criminal proceedings, including enjoyment of all the rights
and guarantees provided for such proceedings by the law of the State in the territory
of which he is present. These rights shall be exercised in conformity, directly, with
laws and regulations of the State in the territory of which the offender or the alleged
offender is present15; and indirectly with human rights norms and principles. There-
upon, domestic law about pirates’ rights differs among States. This disparity in the
regulation may raise a differentiation in the treatment of pirates depending on the
place where they are prosecuted and punished,16 which increases the risk to be
mistreated in States less favorable to human rights principles.

3 Human Rights

The current legal framework represented by UNCLOS and SUA is not comprehen-
sive with respect to protecting human rights of seafarers and pirates. In this context,
it is interesting to consider piracy not only as a criminal offence, but also as a
violation of human rights. Furthermore, the act of maritime piracy results in violation
of several basic human rights such as the right to personal liberty, the right to
security and the right to life. Torturing, mistreating or depriving victims undoubtedly
constitutes a violation of human rights.
Tackling piracy and its inhumane consequences as a violation of human rights
while leveraging the International law, the outcome for the victims might be
substantially better. The following reasons further support approaching this matter
from the Human Right fact:
• It puts victims at the center of any action against piracy. It can encourage States to
take the interests of victims into consideration more seriously as restoration of
their dignity becomes as important as prosecution and punishment of pirates;

14
BBC News (2010).
15
Article 7 (4), SUA.
16
Obokata (2013), p. 23.
The Application of Human Rights and Ethics Principles to Self-. . . 395

• Under human rights framework, there is no need to categorize various acts into
piracy, armed robbery at sea, those, which threaten the maritime security, and
those, which do not.
• Its emphasis on victimization means that all of these acts can equally be regard-
less of where they take place or the types of act involved, provided that they
breach relevant norms and principles.17
The international human rights instruments have fuelled these considerations. For
instance, the ICCPR places a clear duty in relation to victims’ access to remedies.
Article 2(3) reclaims that States have to ensure that any person whose rights or
freedom as herein recognized are violated shall have an effective remedy. Similar
provisions exist in the European Convention on Human Rights and in the American
Convention on Human Rights.
The European Court of Human Rights affirmed on 12th July 2008, in the case of
Medvedyev and Others v. France,18 which can be transposed to the case of piracy,
that States are obliged to ensure to everyone within their jurisdiction their basic
rights and freedom guaranteed by the international instruments on human rights. The
court asserted that France had breached its obligation to conform to human rights as
stipulated in Article 5 (1) of ECHR. The court justified this position by considering
that the legal norms cited as a reason for the detention of persons intercepted under
the combat against drugs trafficking did not constitute the conditions of deprivation
of the liberty on the ship and therefore the authorities did not offer an adequate
protection from arbitrary interference to the right to liberty.
This case, has undoubtedly given a different vision to actions taken by States in
the combat against piracy. Thus, States may be required to justify the lawfulness of
the arrest of suspect buildings, the confiscation or the destruction of materials and
arms, and conform to human rights conventions. Furthermore, they have to justify
the conditions of arrest, the transfer and the detention of pirates alleged in order to
judge them, extradite them, or to transfer them to a third country. The obligations
arising from the international human rights dictate to States some of their behavior.
Combating piracy and other act of violence at sea must be treated not only under
current legal framework arising from the international law of the sea, but also by
adhering to the international human rights conventions. These two frameworks are
complementary to each other and leveraging both of them should yield dividend and
a positive outcome for the captives.

17
Ibid, 23-24.
18
This case concerns the capture and detention of people in the high seas in the case of drug
trafficking.
396 K. Lagdami and A. Fakhry

3.1 Human Rights Applicable for Seafarers

Seafarers are exposed to such risks at the hands of pirates as physical attacks, abuse,
exploitation, ill-treatment, detention, abandonment and other injustices. These risks
are in addition to the natural hazards of the sea, to which they are exposed.
The present section will emphasize the focal issues currently affecting seafarers in
the event of attack or armed robbery by pirates. Furthermore, it will address the right
to a safe and secure place of work, the right to information, and the right to withdraw
from unsafe zones.

3.1.1 Self-defence

The shipmaster and crew have an individual right to defend themselves against all
types of attacks. Self-defense is defined as a right to life. The right to life, as
eloquently and adequately stated in Article 3 of the Universal Declaration of
Human Rights (UDHR),19 is the first human right. It has been “defined” as a
fundamental human right by the well-known instruments of human rights protection
following World War II.
The notion of Right to Life has a special position in the hierarchy of legal norms
and was confirmed in the UDHR in a prominent place where it is stated in Article
3 in very simple and clear terms that “Everyone has the right to life, liberty and
security of person”. This article asserts that all men and women are equal and that
they are endowed with certain inalienable rights which are life, freedom and security.
These rights seem empirically to be universal, indivisible and all express one
ultimate right: the right to exist with dignity.20 However, this supremacy of the
right to life above others rights is also stated under ICCR (Article (2)), ECHR
(Article 15 (2)) and the ACHR (Article 27 (2)).
The right to life also includes the right not to be unjustly killed by another human
being. It is strictly forbidden to intentionally cause the death of a person. Starting at
birth, a person’s dignity must be respected and requires, above all, the safeguarding
of his right to live. Article 6 (1) of the International Covenant on Civil and Political
Rights (ICCPR)21 states: “Every human being has the inherent right to life. This right

19
UDHR: Universal Declaration of Human Rights is a declaration adopted by the United Nations
General Assembly in Paris on 10 December 1948 as a common standard of achievement for all
people and all nations. See: http://www.un.org/en/documents/udhr/.
20
Article 1 of the Universal Declaration.
21
ICCPR: International Covenant on Civil and Political Rights : A multilateral treaty adopted by the
United Nations General Assembly on 16 December 1966, and enforced as of 23 March 1976. It
committed its parties to respect the civil and political rights of individuals, including the right to life,
freedom of religion, freedom of speech, freedom of assembly, electoral rights and rights to due
process and a fair trial. See: http://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx.
The Application of Human Rights and Ethics Principles to Self-. . . 397

shall be protected by law. No one shall be arbitrarily deprived of his life”.22 The
reference to “inherent” emphasizes the high moral position of the right to life.
“Arbitrarily”23 depriving someone life is to prohibit him/her from the right to be
part of human society.24
The Convention for the Protection of Human Rights and Fundamental Freedoms
recognizes that persons have a right to life, and also to protect their own life, and the
lives of others from criminal use of force. The text reads in its Article 1:
1. Everyone’s right to life shall be protected by law. No one shall be deprived of his
life intentionally save in the execution of a sentence of a court following his
conviction of a crime for which this penalty is provided by law.
2. Deprivation of life shall not be regarded as inflicted in convention of this article
when it results from the use of force which is no more than absolutely necessary:
(a) in defense of any person from unlawful violence;
(b) in order to effect a lawful arrest or to prevent the escape of a person lawfully
detained.
Thus, the text Article 2 reveals that it covers not only the case of intentional
killing but also exceptions where the “use of force” is permitted and may result in the
denial of life. Thus, the use of force depends on two principles: the principle of
necessity and the principle of proportionality.
1. Principle of necessity: The use of force must be “absolutely necessary” for the
attainment of one or more of the functions declared in sub-paragraphs (a) to (c) of
the second paragraph of Article 2:“A stricter and more compelling test of
necessity must be employed than that normally applicable when determining
whether State action is “necessary in a democratic society” under paragraphs 2 of
Articles 8 to 11 of the Convention. In particular, the force used must be strictly
proportionate to the achievement of the permitted aims.”25
2. Principle of proportionality: Even if this principle does not appear in the text or
the Article, it is clearly established in the jurisprudence of the European Court of
Human Rights. In fact, “the force used must be strictly proportionate to the
achievement of the permitted aims”.26
For this purpose, States have not only the duty to refrain from causing death in an
intentional and irregular manner, but also to take necessary measures to protect the

22
Other Conventions state the same legal rules: conventions for the protection of human rights:
European Convention on Human Rights (EHCR) (1950), Article 2; American Convention on
human Rights (1969), Article 4; African Charter on Human and People’ Rights, Article 4; the
Islamic Universal declaration of Human Rights, Article 1.
23
Which means: illegally or unfairly.
24
Tomuschat (2010), p. 3.
25
See : McCann and Others v. UK, 27 September 1995, §§ 148-149.
26
Ibid.
398 K. Lagdami and A. Fakhry

lives of those within their jurisdiction, including through the establishment of a

concrete criminal legislation based on an enforcement mechanism.27

3.1.2 The Right Not to Be Subjected to Torture or Ill Treatment

The shipmaster and crew have also the right to not be subject to torture or ill
treatment which can be caused by pirates or any other criminal individual. Article
5 of the Universal Declaration of Human Rights (UDHR), 1948 proclaims that: “No
one shall be subjected to torture or to cruel, inhuman or degrading treatment or
punishment”. Prohibition of torture and other forms of ill treatment is among the
most unequivocal principles of human rights protection. The right not to be
subjected to cruel or unusual punishment or torture is “absolute and can never be
justified in any circumstances28”.
Inspired by The Universal Declaration, a number of international human rights
instruments condemn torture in their texts. The European Convention on Human
rights (ECHR) states in its Article 3:“No one shall be subjected to torture or to
inhuman or degrading treatment or punishment”. In 1966, the International Cove-
nant on Civil and Political Rights confirmed the same principle but codified the first
binding provision on the prohibition of torture in its Article 7: “No one shall be
subjected to torture or to cruel, inhuman or degrading treatment or punishment. In
particular, no one shall be subjected without his free consent to medical or scientific
experimentation”.
Emphasizing the prohibition of torture in international and regional human rights
law treaties reflects the consensus of the international community to banish torture
outright. Thus, this prohibition is non-derogeable even in times of war, internal
political instability or any public emergency.29 Each individual State has an obliga-
tion to prevent torture of its citizens and others under its jurisdiction. It touches to
respect, to protect and punish any violation of human rights principles.30 This means
that States should take positive measures to prevent torture and other forms of
ill-treatment. According to article 2.1 of the United Nations Convention, “(e)ach

27
Related to this point, the European Court of Human Rights has observed that “Governments have
failed to submit any comments regarding the proportionality of the level of force used by the police,
the organisation of the police action and whether an adequate legislative and administrative
framework had been put in place to safeguard citizens against arbitrariness and abuse of force”
See case of Wasilewska and Kalucka v. Poland, 23 February 2010. See also the cases of L.C.B.
v. UK, 9 June 1998; Osman v. UK, 28 October 1998; Anguelova and Iliev v. Bulgaria, n
55523/00,
26 July 2007.
28
Office of the High Commissioner of Human Rights/ OHCHR (2010), p. 1.
29
Ibid.
30
The Inter-American Court of Human Rights recognized in the case of Velasquez Rodriguez that:
“States must prevent, investigate and punish any violation of the rights recognized by the Conven-
tion” (para 166), Velasquez Rodriguez case (29 July 1988); Inter-American Ct.H.R (Ser.C.) No. 4
(1988).
The Application of Human Rights and Ethics Principles to Self-. . . 399

State Party shall take effective legislative, administrative, judicial and other mea-
sures to prevent acts of torture in any territory under its jurisdiction”, while article
16 requires that “(e)ach State Party shall undertake to prevent (. . .) other acts of
cruel, inhuman or degrading treatment or punishment”.
Thus, it is the responsibility of each State to ensure the protection of rights of its
citizens and any person under its jurisdiction or on in its territory. This protection
needs conviction, integrity, plans, strategies, education and proper implementation.

3.1.3 The Right to a Safe and Secure Workplace

The act of piracy violates seafarers’ rights by bringing the risk of attack and hostage-
taking into their workplace. The International Labour Organization (ILO) adopted
the Maritime Labor Convention 2006, which states in Article IV (1): “Every seafarer
has the right to a safe and secure workplace that complies with safety standards.”
Additionally, the International Covenant on Civil and Political Rights (ICCPR)
declares in its Article 9(1): “Everyone has the right to liberty and security of person.
No one shall be subjected to arbitrary arrest or detention.”

3.1.4 The Right to Information31

The ship owner shall inform the seafarers if the vessel is bound to or may enter any
high risk area.32 If this information becomes known during the period of the seafarer
employment on the vessel, the Company shall advise the seafarers immediately.

3.1.5 The Right to Withdraw from Unsafe Zones33

If the vessel enters a high risk area, the seafarer shall have the right not to proceed to
such area. In this event the seafarer shall be repatriated at company’s cost with
benefits accrued until the date of return to his/her home for the port of engagement.
The seafarer shall have the right to accept or decline an assignment in a high risk
area without risking losing his/her employment or suffering any other detrimental
effects.

31
ITF-IMEC IBF International collective bargaining agreement, 2015–2017.
32
See Annex 1: IBF List of warlike and high risk designations, with main applicable benefits (as of
1st July 2014).
33
Ibid.
400 K. Lagdami and A. Fakhry

The seafarers might be entitled to additional compensation and benefits

depending on the susceptibility to piracy of the zones they operate in.
The references to “high risk area” in the above paragraphs are taken from the
2015 to 2017 IBF Framework TCC Agreement, which was negotiated by the
International Transport Workers Federation. In its Article 17.4, the Agreement
provides: “In addition to areas of warlike operations, the IBF may determine High
Risk Areas and define, on a case-by-case basis, the applicable seafarers’ benefits and
entitlements, as well as employers’ and seafarers’ obligations. In the event of any
such designations the provisions of Articles 17.1 and 17.2 shall apply. The full
details of any Areas so designated shall be attached to the CBA and made available
on board the vessel.”
It is noteworthy that the Best Management Practices for Protection against
Somalia Based Piracy reads: “The High Risk Area defines itself by where pirate
activity and/or attacks have taken place. For the purpose of BMP the High Risk Area
is an area bounded by Suez and the Strait of Hormuz to the North, 10
S and 78
E.
(Note - the UKMTO Voluntary Reporting Area is slightly larger as it includes the
Arabian Gulf). Attacks have taken place at most extremities of the High Risk Area.
Attacks to the South have extended into the Mozambique Channel. A high state of
readiness and vigilance should be maintained even to the South of the Southerly
limit of the High Risk Area.”
It may be argued that this leaves the definition of “high risk area” hanging and not
subject to a tight objective framework, as ultimately it will result from negotiation
between the parties to collective agreements. One possible approach worth consid-
ering is to link the definition to the insurance companies’ war committee
declarations.
Finally, it should be said that the 2015–2017 IBF Framework TCC Agreement
does not cover all seafarers. Nevertheless, it provides a noteworthy albeit insufficient
protective regime to those seafarers that are subject to its provisions.

3.2 Human Rights Applicable to Pirates

The series of sequential events that take place during a typical anti-piracy operation
include surveillance for collecting evidence and quantifiable intelligence, the
boarding of the suspected vessel, the capture of the suspected pirates aboard the
vessel, the trial of these suspects in the flag State, and the impugnation of the
suspected pirates. The authorities, during this process, often seize the suspected
vessel which is considered a private property. Each stage of this operation is
supported by different Articles of European Convention of Human rights including
Article 3 and 8. However, each execution of these procedures can be challenged in
The Application of Human Rights and Ethics Principles to Self-. . . 401

the court of law as the legal language of the conventions contains limitations and is
subject to interpretation and debate.

3.2.1 Gathering Evidence

Part of the due diligence performed by the authorities prior to the seizure of a
suspected vessel is the gathering of evidence that demonstrate illegal activities
carried out by the suspected pirates. This intelligence gathering includes emails,
telephone communication through use of wiretapping, video recording, and bank
account tracking to review possible illegal financial transactions.
Although the court views the intelligence gathering as a method in line with
Article 8 since it seeks the protection of national security and the greater good of the
people, it must ensure that this measure is managed adequately to ensure abuse is
curtailed if not avoided. Although this process is often supervised by an impartial
judge who ensures fairness and effectiveness of the data gathering, it would be
reasonable to ask to which extent this qualified authority can order the surveillance.
What if this judge decides to run surveillance not only on the suspected vessel but all
ships in the vicinity?
Despite the good intention of this process, such surveillance method can be
construed as a violation of the human right fundamental whereby a person’s property
is protected under Article 8 of the ECHR.
Pirates and suspected criminal caught in high sea and who are tried in the judicial
courts of the flag State enjoy the same rights as the citizen of the State. Therefore
their human rights must be preserved and any information gathering about them
must adhere to the State’s legal framework that guarantees the protection of their
privacy.

3.2.2 Interception and Boarding

When authorities suspect members aboard a vessel or a ship of wrongdoing or illegal

activities that might harm other nearby vessels, they take the action to board and
search the ship which is considered a private property and is protected under Article
8. Although they might have proof beyond reasonable doubt, some degree of force is
often utilized to ensure the takeover of the necessary vicinity of the ship. Such action
might result in ending a suspected criminal’s life thus violating Article 2 of ECHR
which clearly prohibits intentionally depriving someone’s life unless it is more than
necessary.
Another aspect of the interception that is worth noting is that once aboard the
vessel, the authorities might be inclined to negotiate the release of the hostages, a
proposition that is utterly against the position of the European governments and is
perceived to be illegal.
402 K. Lagdami and A. Fakhry

If boarding and interception are permitted without proper supervision of impartial

judges, could the responsible authorities to leverage this permission to board any
vessel regarding of the existence of an imminent threat?

3.2.3 Detention

The natural step in this process is to arrest the suspected pirates and provide them
with the same rights and privileges as the citizen of the flag State. But foremost, their
rights and reason for their arrest must be communicated clearly and efficiently. This
communication might occur in their native language so that the cause of their arrest
and their right to a lawyer and fair judgment is fairly understood. Furthermore,
suspected privates have the right to a competent lawyer.

4 Ethical Justification of Countermeasures

Ship operators often adhere to the Best Management Practices (BMP) guidelines
published by MSCHOA. They register with MSCHOA and submit, prior to reaching
high risk area, the Vessel movement form. They also report accordingly to the
UKMTO who acts as the intermediary between shipping vessels and naval forces
in the region. However, despite their precautionary measures and risk assessment,
ship operators are frequently faced directly with the imminent threat of pirates at sea.
They may find themselves in a situation where they must execute recommended
countermeasures in order to ward off or repel pirates and armed robbers attempting
to reach their vessels.
This is simply because naval forces cannot possible guard the entire vast shipping
lanes. Although it is evident that the use of force be that lethal or non-lethal, can be
an effective method for deterring the aggressor and keeping the pirates off the vessel,
it must be used in accordance with the Universal Human Rights declaration and the
EU HC charter along with other international treaties.
This section addresses a subset of non-lethal piracy countermeasures. For each
relevant countermeasure described here within, the respective human rights and
ethical explanations have been detailed as to aid the seafarers in understanding the
implication that might be associated with each of these measures. The extensive set
of countermeasures provided within this section is categorized into the following sic
phases: (1) Plan, (2) Communicate, (3) Avoid, (4) Deter, (5) Defend.
The Application of Human Rights and Ethics Principles to Self-. . . 403

4.1 Plan

4.1.1 Right to Information34

The right to information35 is entrenched in the International Labor Law and

European human rights36 as well as the ITF framework.37 Having the proper data
and knowledge about the work area and its associated risk is a pivotal right to any
employee. Such Information is necessary for making sound judgment and sensible
choices. Having gathered enough parameters and historical data for example about a
particular hot zone will better prepare seafarer in avoiding or deterring piracy and
infuse added vigilance while traversing such area. Although historical data is not
predictive of future outcome, such information would make the crew more aware of
the danger and help them be ready in dealing with a possible imminent threat at sea.

4.1.2 Company Guidance to Master-Ship

In accordance with International Transport Federation (ITF) framework agreements,

at the time of the assignment, the Company shall inform the Seafarers if the vessel is
bound to or may enter any high risk area. If this information becomes known during
the period of the Seafarers’ employment on the vessel, the Company shall advise the
Seafarers immediately.38

34
The counter-measures concerned: Gather information on situation; Knowledge of number
of attacks in same month of previous year(s); Knowledge of number of released vessels in area.
35
See Right to information for seafarers in document of reference: Ethics and human rights in the
field of piracy, page: 39.
36
Article 10—Freedom of expression
1. Everyone has the right to freedom of expression. This right shall include freedom to hold
opinions and to receive and impart information and ideas without interference by public
authority and regardless of frontiers. This article shall not prevent States from requiring
the licensing of broadcasting, television or cinema enterprises.
2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be
subject to such formalities, conditions, restrictions or penalties as are prescribed by law
and are necessary in a democratic society, in the interests of national security, territorial
integrity or public safety, for the prevention of disorder or crime, for the protection of
health or morals, for the protection of the reputation or rights of others, for preventing the
disclosure of information received in confidence, or for maintaining the authority and
impartiality of the judiciary.
37
Article 17.1 states: “A warlike operations area or high risk zone will be designated by the IBF.
The list of such IBF designated areas will be available in the ITF’s website and amended from time
to time. An updated list of the Warlike Operations areas shall be kept on board the vessels and shall
be accessible to the crew”. 2015–2017 IBF Framework TCC Agreement (ITF).
38
Article 17.2 states of 2015–2017 IBF Framework TCC Agreement (ITF).
404 K. Lagdami and A. Fakhry

4.1.3 Crew Training

Crew training is not only included in the core ILO fundamentals and MLC 2006 but
is considered a substantial element of focus in the eye of the IMO as well. Such
training is a core standard recognized internationally and pays dividend to ship-
owners. Employees who are properly trained can develop necessary knowledge and
skills on how to carry out risk assessment, understanding piracy threats and current
patterns. Adequate training can equip seafarers with appropriate measures for
avoiding, delaying or deterring piracy attacks and armed robbery. Crew training
enables employees to assess implications of a potential attack and how to defend the
ship. Training typically involves on-board exercises and drills on how to implement
anti-piracy strategies.

4.2 Communicate and Stay Informed

The right to be informed is deeply rooted in the EU Human Rights Charter and
eloquently stated in Article 11 whereby a person has “[the] right to receive and
impart information and ideas without interference by public authority . . .”.
It is imperative that the up to the minute information regarding pirates’ location
and their zone of operations be leveraged when planning the voyage route of a ship
so as to take appropriate mitigating actions which may include avoiding High Risk
Areas. Warnings from Navy and Military forces about these events are frequently
dispatched and this information should be gathered and acted upon.39 Equally
important, ship operator must subscribe to receiving the latest information and
advice from organizations like MSCHOA, the UKMTO, and NATO Shipping
Center. Having this crucial information at hand should assist ship operator prevent
and avoid collision with imminent threats at sea by pirates and armed robbers.

4.3 Avoid

4.3.1 Increase Speed/Rerouting

Seafarers’ work safety is protected under the stringent regulations of the MLC 2006.
Increasing speed to over 18 knots might be an effective and proper way to deter
pirates and ensure a safer operation zone. However, with such a countermeasure
comes the risk of a potential collision. The vessel could as a result lose its ability to
fully control its forward motion. Furthermore, good seamanship would require that

39
Mention could be made here of Maritime Liaison Office (MARLO) Bahrain, which issues regular
advisory bulletins.
The Application of Human Rights and Ethics Principles to Self-. . . 405

account be made for the level of visibility and obstructed views. It is also important
to underline the consideration of the surroundings such as a channels or the prox-
imity to other vessels whereby the hydrodynamic forces tend to pull the vessel off its
course.
Under the International Regulations for Preventing Collisions at Sea, Rule 6:
“Every vessel shall at all times proceed at a safe speed so that she can take proper and
effective action to avoid collision and be stopped within a distance appropriate to the
prevailing circumstances and conditions.” This Rule could give rise to arguments
against increasing speed in certain circumstances.
Despite the advantage that increased speed might render during a piracy encoun-
ter, it is imperative to note that vessel operators might be liable for damages caused
by excessive speed as this might be perceived as reckless and irresponsible under the
general law of liability.

4.3.2 Region Avoidance40

The Seafarer shall have the right not to proceed to such area according to the ITF
Framework.41 In the event of an unfortunate event occurring, the Seafarer shall be
repatriated at Company’s cost with benefits accrued until the date of return to his/her
home or the port of engagement.42 The Seafarer shall have the right to accept or
decline an assignment in a high risk area. However, the seafarer might be faced with
a situation where refusing an assignment is not possible. There are several steps for
avoiding these high risk areas of which are published as Best Management Practices
by MSCHOA for avoiding Somali Led piracy.
Equally important is being connected with organizations like The UK Maritime
Trade Operations (UKMTO). The UKMTO office in Dubai acts as the first point of
contact for ships in the region is absolutely essential in the effort of avoiding high
risk areas. UKMTO uses this information to help Naval/Military forces to maintain
an accurate picture of merchant shipping.

4.4 Detect

4.4.1 CCTV

One of the core arguments against CCTV, as one of surveillance materials, is that is
poses a threat to privacy, which is of value to the individual and to society. However,
the use of CCTV as piracy countermeasure might be classified under exceptions

40
See document of reference: Ethics and human rights on the field of piracy, page: 39.
41
ITF Standard Collective Agreement.
42
ITF Standard Collective, Paragraph 20.
406 K. Lagdami and A. Fakhry

allowing the use of surveillance to prevent crime and any other security threat.43
According to EU Council Decision on surveillance of sea external borders: “the
purpose of border surveillance is to prevent unauthorized border crossing, to counter
cross-border criminality and to apprehend or take other measures against persons
who have crossed the border illegally”.44
In fact, once an attack is underway and pirates are firing weaponry at the vessel, it
is difficult and dangerous to observe whether the pirates have managed to gain
access. The use of CCTV coverage allows a degree of monitoring of the progress of
the attack from a less exposed position. In this case the aim of the use of CCTV is
detecting pirates who are believed to pose a threat to the ship and to the seafarers on
it.45 Equally important, the use of CCTV might be legally justified by necessity.
Article 8 of the European Union Convention on Human Rights,46 for example, states
that-
there shall be no interference by a public authority with the exercise of this right [to privacy]
except such as is in accordance with the law and is necessary in a democratic society in the
interests of national security, public safety or the economic well-being of the country, for the
prevention of disorder or crime, for the protection of health or morals, or for the protection of
the rights and freedoms of others.

However, an European Parliament study on CCTV highlights concerns, going on

to make a series of recommendations:
The introduction of CCTV, creates a profound asymmetry of power between the watcher and
the watched: Not only are citizens watched by an unknown and unseen eye whose gaze they
can neither challenge nor avoid, but data about them is increasingly extracted and automat-
ically processed, in ways they have not given their consent to or even have any knowledge.
And the camera’s gas does not fall equally on all citizens, often those deemed “suspect “
merely on the basis of appearance, rather than objective behavior, are subject to exclusion
particularly from the semi-public space of the shopping mall and transportation
facilities. . .citizens should be made aware that their presence in an area is subject to video
surveillance. For then, in the knowledge they are being monitored by cameras, they can
consciously decide how to conduct themselves. . .

43
Kevin Macnish: Surveillance ethics, The Internet Encyclopaedia of Philosophy (IEP), See: http://
www.iep.utm.edu/surv-eth/.
44
EU Council Decision on surveillance of sea external borders. Preamble, recital (1).
45
BMP3 (Best Management Practice 3: Piracy off the Coast of Somalia and Arabian Sea Area,
Version 3, June 2010, p. 22.
46
Article 8—Right to respect for private and family life.
1. Everyone has the right to respect for his private and family life, his home and his
correspondence.
2. There shall be no interference by a public authority with the exercise of this right except
such as is in accordance with the law and is necessary in a democratic society in the
interests of national security, public safety or the economic well-being of the country, for
the prevention of disorder or crime, for the protection of health or morals, or for the
protection of the rights and freedoms of others.
The Application of Human Rights and Ethics Principles to Self-. . . 407

The study goes on to recommend the following:

citizens should have the right to expect that their image not be divulged to any third parties
without their consent, except where this is exceptionally required for the prevention and
detection of a specific crime;
Citizens should have a right to be assured that systems are necessary, operating fairly and
in accordance with the laws and administrative rules that govern their use. This requires that
they be subject to independent licensing, audit and inspection and not just registration, and
that the authorities have sufficient personnel to undertake their duties. The results of
licensing and inspections should be made public47

The ethical views expressed above may pose a challenge to the widespread and
unbridled use of CCTV, whether on land or at sea, especially in relation to EU
vessels.

4.4.2 Optimize Radars

The principles governing the use of CCTV are mainly the same as those governing
the use of radars. Use of such sensors to trigger alert not detailed enough to raise
privacy issues. The advancement in Radar technology such as Thermal Imaging,
360 Panoramic Field of View, Automatic Intrusion Detection and Tracking, and
Gyro Stabilization48 have allowed the Maritime industry to act on information more
accurately and promptly during sea voyages and allowing ship operators to avoid hot
zones area. Similar to the use of CCTV, the digital world, although holds and
delivers great promises, raises big valid and justifiable concerns regarding the
privacy of the citizen which is protected by different international laws including
the Human Rights conventions and the European Union Human Rights charter.

4.5 Deter
4.5.1 Use of Non-lethal Weapons49

Non-lethal weapons have been described variously as soft-kill weapons, less-than-

lethal, sub-lethal weapons, among other terms. All of these terms intend to indicate
the difference between these weapons and conventional weapons.50 The purpose of

47
European Parliament (2009), pp. 17–18.
48
For more information, see: http://www.hgh-infrared.com/Applications/Security/Self-Protection-
of-Ships-Antipiracy.
49
In this phase Promerc project suggests the NLW follow: water pumps, sound devices (ship’s horn/
thunder flashes/flash bangs), long range acoustic device, foam spray (ox blood), crew noise, laser
devices, pendulums, dye markers (red), razor wire, water spray, netting (metal—chicken wire)
(alternatively to the razor wire), electrified barriers, water spray.
50
As critics point out, NLW can be lethal, but they are not intended to be so.
408 K. Lagdami and A. Fakhry

these weapons is not intended to kill but rather incapacitate or temporarily disable
the aggressor.51 This device can protect a vessel from armed robbers and repel or
constrain the aggressors without great or permanent injury. Such weapons encom-
pass stun gun, Tasers, tear-gas, entangling nets, and rubber bullets. Technological
advancements hold the promise of delivering non-lethal weapon that employ sound
and microwaves. Amongst the greatest advantages of using these non-lethal devices
is simply the fact that they don’t kill the aggressor and therefore preserve the life of
the attacker. The injuries which are inflicted are generally reversible.52
Non-lethal weapons can arguably be perceived as both ethical and unethical. On
the one hand, these weapons force the ship operator to make a more calculated
decision to defend the ship and not a rushed move that can result in human loss. They
eliminate the unnecessary and permanent suffering and might lead to a peaceful
conflict resolution during a ship attack. The use of non-lethal weapons in self-
defense during pirate attacks undoubtedly and indirectly uphold the fundamental
UNUDHR that is the Right to Life.
On the other hand, such equipment can have unintended lethal effects on the
recipient especially when not used in accordance with Human Rights guidelines.
Amnesty International, for example, has documented numerous incidents where the
use of non-lethal weapon resulting in abuse, human rights violations,53 torture when
the recipient is in the custody of the perpetrator.54

4.5.2 Photographs

Taking pictures of suspected pirates has been proven effective in stopping imminent
threats. There have been numerous accounts where such measure has prevented
armed robberies from taking place. Furthermore image processing and face recog-
nition software could provide tremendous value to ship masters in identifying
realistic threats.

51
Lewer and Davison (2015).
52
Kaurin (2010), p. 102.
53
See about the right to not be subject to torture or ill treatment in the document of reference: Ethics
and human rights on the field of piracy, page 19.
54
Amnesty International (2015).
The Application of Human Rights and Ethics Principles to Self-. . . 409

The fundamental rights to privacy and to the protection of personal data are
enshrined in the EU charter of Fundamental rights and EU Treaties. In fact, Article
1 of the EU Charter states that “Human dignity is inviolable. It must be respected and
protected”. Article 8 “Respect for private and family life”55 and the Data Protection
Directive56 further highlight the importance of this right.

4.5.3 Unarmed Guards

Use of unarmed guards allows the ship-owner to provide extra trained personnel to
manage the response to pirate attacks. Unarmed guards may employ other counter-
measures such as night vision devices and stand extra lookout watches. Provision of
unarmed guards may be seen as a better response than failing to provide any
personnel support. The addition of unarmed guards adds additional persons at risk
of death, injury or being taken hostage in case of armed pirate attack. In at least one
instance, unarmed guards jumped overboard after attack by armed pirates.57

4.5.4 Armed Guards

Use of armed guards is the definitive countermeasure which has been proven to
prevent ships from being captured during pirate attacks. Providing that armed guards
are properly vetted, trained and operating under legally and ethically examined rules
for the use of force, armed guards are the countermeasure most likely to keep a ship
and its people safe from attack. No ship carrying trained armed guards has been
captured by pirates. If allowed by the flag state, and in line with a ship-owner’s
ethical values, armed guards may be the most efficacious countermeasure.

55
Article 8—Right to respect for private and family life
1. Everyone has the right to respect for his private and family life, his home and his
correspondence.
2. There shall be no interference by a public authority with the exercise of this right except
such as is in accordance with the law and is necessary in a democratic society in the
interests of national security, public safety or the economic well-being of the country, for
the prevention of disorder or crime, for the protection of health or morals, or for the
protection of the rights and freedoms of others.
56
The Data Protection Directive (officially Directive 95/46/EC on the protection of individuals with
regard to the processing of personal data and on the free movement of such data) is a European
Union directive adopted in 1995 which regulates the processing of personal data within the
European Union. It is an important component of EU privacy and human rights law. On 25 January
2012, the European Commission unveiled a draft European General Data Protection Regulation that
will supersede the Data Protection Directive.
57
Duda and Szubrycht (2009).
410 K. Lagdami and A. Fakhry

4.6 Defense: Use of Non-lethal Weapons58

The right to life is entrenched in the core of UDHR Article 3 “Everyone has the right
to life, liberty and security of person”. It is unquestionable that ship operator have the
universal right to defend themselves against threats and armed robbers at sea. Doing
so through the use of non-lethal weapons can be an effective measure against
aggressors.
Notable, the development of non-lethal weapons has given rise to crucial ques-
tions concerning the use of force in the case of self-defense. Although these
legitimate weapons inflict less harm that is generally reversible, they can be per-
ceived as armament symbolizing violence and abuse. These non-lethal weapons
have historically proven to be effective when defending a ship against pirate attacks.
In its practicality, the use of these weapons is an integral countermeasure that is
embodied in the extensive list provided by PROMERC; one must be cognizant that
executing such countermeasure must be done with extreme prudence given the fact
that Article 2(4) of the United Nations Charter forbids the unnecessary and dispro-
portionate use of force.
Although the non-lethality of devices such as stun guns and irritant sprays are less
harmful than conventional lethal weapons, it is possible that they could be abused
and inflict greater impact on the recipient. These weapons must be used in accor-
dance with the International Standards. It is also important to recognize that some
jurisdictions forbid their use all together.

5 Conclusion

Combating the growing phenomenon of piracy while protecting the lives of the
seafarers and conforming to the different human rights conventions proves chal-
lenging. The fundamental gap that exists in the legal language when addressing
piracy could be bridged through amendments which would have to be accepted by
the different States to ensure conformity. As more piracy cases are brought to court,
observers and concerned authorities will enhance existing procedures and compile
new ones to better address issues resulting from the abject act of piracy. The
maritime industry and all the pertaining conventions will continue to attempt
standardizing the respective operating procedures across the multitude of economic
zones but creating homogeneity will be challenging as the concept of ethics and
human rights are subject to interpretation from one culture to another.
Faced with increasing numbers of pirate attacks and disruption to trade, countries
have intensified their efforts to combat this phenomenon. Naval forces and advanced
registration systems have been put in place to control shipping lines and aid vessels

58
In this phase, NLW concerned are: rubber ball grenade/sonic gun/pepper spray/taser
gun/compressed air cannon/water cannon.
The Application of Human Rights and Ethics Principles to Self-. . . 411

to make their journey safely. World maritime organizations and industry experts
have assembled best practices and techniques to follow when attempting to ward off
armed robbers and pirates at sea. These recommendations include the list compiled
by in PROMERC project and outlined in this document.
Given this newly heightened security environment, ship Masters have been
trained to take appropriate measure to safeguard the vessel and its crew. They are
familiar with effective techniques for defending their vessels and keeping pirates
from coming on board. Such defense mechanism constitute their fundamental right
and no logic can defy their willingness to stay safe.
Nevertheless, applying these effective and recommended countermeasures to
protect the vessel and its crew can present legal challenges to the commonly adopted
framework such as the UNDHR, EUHR and other international treaties. It is
important to recognize that the use of some of these practices runs the risk, at
times, of compromising and abusing the fundamental rights and freedoms embodied
in the core values of democratic nations and adopted by the majority of the
international community.
It is imperative to remember that, although self-defense is a ship master’s right, it
must be conducted within the legal framework and not compromise any of the
Universal Human Right articles. After all, we must not forget that the standards on
international human rights have been the results of controlling violence, extreme
behaviour and abuse.

References

African Charter on Human and People’ Rights

American Convention on Human Rights (1969)
Amnesty International (2015) The human rights impact of less lethal weapons and other law
enforcement equipment. https://www.amnestyusa.org/sites/default/files/human_rights_impact_
less_lethal_weapons_doha_paper.pd
BBC News (2010) Freed Somali pirates ‘probably died’ - Russian source, 11 May 2010, http://
news.bbc.co.uk/2/hi/8675978.stm
Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation (SUA)
Data Protection Directive (Directive 95/46/EC)
Duda D, Szubrycht T (2009) The Somali Piracy new or old challenge for international community.
In: Weintrit A (ed) Marine navigation and safety of sea transportation. Taylor & Francis,
London
European Convention on Human Rights (EHCR) (1950)
European Parliament (2009) A review of the increased use of CCTV and video-surveillance for
crime prevention purposes in Europe, April 2009, http://www.statewatch.org/news/2009/apr/
ep-study-norris-cctv-video-surveillance.pdf
International Covenant on Civil and Political Rights (ICCPR), http://www.ohchr.org/en/
professionalinterest/pages/ccpr.aspx
Islamic Universal Declaration of Human Rights
ITF Standard Collective Agreement
Kaurin P (2010) With fear and trembling: an ethical framework for non-lethal weapons. J Military
Ethics 9:100–114. http://www3.nd.edu/~cpence/eewt/Kaurin2010.pdf
412 K. Lagdami and A. Fakhry

Lewer N, Davison N (2015) Non-lethal technologies- an overview, Disarmament forum, http://

www.peacepalacelibrary.nl/ebooks/files/UNIDIR_pdf-art2217.pdf
Macnish K “Surveillance ethics”, The Internet Encyclopaedia of Philosophy (IEP), See: http://
www.iep.utm.edu/surv-eth/
Mejia Maximo Q Jr (2012) Maritime piracy – a multi-dimensional issue. Swedish Maritime
Administration, Norrköping
Mejia Maximo Q Jr, Mukherjee PK (2006) The SUA Convention, 2005: a critical evaluation of its
effectiveness in suppressing maritime criminal acts. J Int Maritime Law 12(3):170–191
Obokata T (2013) Maritime piracy as a violation of human rights: a way forward for its effective
prevention and suppression? Int J Hum Rights 17(1):18–34
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Leiden
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28 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/05/28/AR201005280
4108.html?noredirect¼on

Cases

Ali Samatar and others v. France, https://piracylaw.files.wordpress.com/2015/01/udgments-ali-

samatar-v-france-and-hassan-v-france-suspects-of-piracy-against-french-vessels-appre.pdf
Anguelova and Iliev. v. Bulgaria, n
55523/00, 26 July 2007
Hassan and Others v. France, https://piracylaw.files.wordpress.com/2015/01/udgments-ali-samatar-
v-france-and-hassan-v-france-suspects-of-piracy-against-french-vessels-appre.pdf
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L.C.B. v. UK, 9 June 1998
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Osman v. UK, 28 October 1998
Velasquez Rodriguez Case (29 July 1988)
Wasilewska and Kalucka v. Poland, 23 February 2010
Blockchain and Bills of Lading: Legal Issues
in Perspective

Huiru Liu

Abstract This chapter examines the basic concept of the new blockchain technol-
ogy, also known as distributed ledger technology (DLT), as a decentralized system
analogous to a ledger in which transactions are recorded. The focus of the chapter is
on the application of blockchain technology to the traditional bill of lading which
bears the characteristics of being at once evidence of the contract of carriage between
the carrier and shipper, a receipt given by the carrier for taking the goods, and a
document of title facilitated by the bill being a chose in action and a negotiable
instrument. How these characteristics may be retained through the use of blockchain
technology is the essence of the discussion. The chapter concludes with a critique of
the blockchain concept alluding to its efficiency on the one hand and its operational
downsides on the other. It also points to the traditional conservatism of the shipping
industry in terms of its acceptability and proposes an approach that combines
traditional business practices with the positive aspects of blockchain technology to
bills of lading.

1 Introduction

1.1 Background

In earlier times, shipping could be described as a “three in one” operation. The

shipowner, the cargo owner and the master of the ship were usually the same
individual. In other words, the shipowner was also a merchant of goods who
navigated his own ship. In that era, the “three in one” entity kept a record of cargo
in a book that came to be known as the “book of lading”. It must be recognized that
the word “lading” is old English virtually unknown to the common parlance of
modern times, but it continues to be used as a well-established maritime term, the
meaning of which can be gleaned from the word “loading” and the often-used word

H. Liu (*)
World Maritime University, Malmö, Sweden
e-mail: p1507@wmu.se

© Springer Nature Switzerland AG 2020 413

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_19
414 H. Liu

“laden” in reference to a vessel loaded with cargo. In due course, the shipowner, to
expand his business, made his ship available for the carriage of cargo belonging to
other merchants who required from him a receipt for the goods shipped on board.
The book of lading as record of cargo in and out of the ship was the pre-curser of the
modern cargo manifest. In time, both the shipowner and the merchants ceased to
travel on the ship and the book gave way to a “bill” in the fourteenth century.
Excerpts from the book were delivered to the shipper in the form of a bill which was
the progenitor of the modern bill of lading. The practice of a separate document
representing a receipt, and later, an embodiment of the terms of the contract for the
transportation and delivery of the goods, became a part of the commercial codes of
continental Europe and the English common law. This was the origin of the bill of
lading as it is known today in terms of its two characteristics, namely, serving as a
receipt and as evidence of a contract of a carriage.
The function and purpose of a bill of lading was examined by the Shipping
Committee of the United Nations Conference on Trade and Development
(UNCTAD) through a Working Group established for that purpose in 1969. Through
the deliberations of this Committee, the definition of “bill of lading” was established
as a document evidencing the loading of goods on a ship.1 At any rate, the extant
form of bill of lading is, first of all, described as a receipt issued by the carrier to the
shipper acknowledging the shipment of goods on a particular vessel destined for a
specific port or received for shipment in the custody of the shipowner. This function
of the document also describes the condition and quantity of the cargo when shipped.
Secondly, the bill of lading is a memorandum of the terms of the contract of carriage
which in effect is evidence of it, assuming that the contract itself would have been
entered into at an earlier date. Thirdly, the bill of lading is a so-called “document of
title” enabling the receiver or the consignee to take the delivery of the goods at their
destination. Alternatively, the holder of the bill can, by endorsement, assign the bill
of lading to another entity regardless of the fact that the goods itself are not
physically in his possession but is in the carrier’s custody.2 Originally, the bill of
lading only operated as a straight bill; in other words, as a document that was not
negotiable such as in the case of a waybill. Subsequently, the practice of negotia-
bility of a bill of lading became entrenched in maritime commerce and remains the
prevailing position today.
The transactional pattern of trade is manifested through the co-existence of two
commercial contracts, namely, the contract of sale respecting the goods and the
contract of carriage, together signifying a trilateral legal relationship. The seller/
shipper contracts with the buyer/consignee which is effectuated through the contract
of carriage with the carrier. Incidentally, credit for financing of the transaction is
provided by the bank through the mechanism of a letter of credit.3

1
Ibid, p. 299.
2
Ibid, p. 300.
3
Ibid.
Blockchain and Bills of Lading: Legal Issues in Perspective 415

In terms of commercial maritime law, it is well recognized that a bill of lading is a

chose in action underlying which is a chose in possession representing the cargo.4
The carrier who has the physical possession of the goods promises to deliver only to
the holder of the bill of lading. That means that possession of the bill of lading
generates exclusive control over the goods, namely, constructive possession of the
goods.5 Thus, being “a symbolic key to the warehouse”,6 possession of a bill of
lading is tantamount to possession of the cargo itself. Transfer of the bill of lading
therefore equals constructive delivery of the goods. The transfer of the paper bill of
lading through the process of endorsement, which is an assignment of the rights
prevailing in the bill of lading, is the instrumentality through which title to the goods
is transferred even today. Even though the electronic bill of lading was devised
decades ago to improve the efficiency of the paper bill, it failed to replicate its
function as an instrument representing the possession of goods until the advent of the
blockchain technology and its application to smart contracts.
The basic concept of the new blockchain technology, also known as distributed
ledger technology (DLT), is that it is a decentralized system analogous to a ledger in
which transactions are recorded. The ledger or blockchain consists of blocks that are
connected to each other as transactions occur. It is maintained simultaneously across
a network of computers or servers. These are referred to as nodes. The blockchain is
a continuous and complete record of all transactions that are grouped together into
blocks comprising the chain. A new block is added if the parties in a blockchain
network agree on the new transaction. It can be only verified if all nodes on the
network confirm its validity. One usefulness of the blockchain is that being a self-
maintained database akin to an operating system, “smart contracts” can be written
into it. Information regarding the transactions can be stored automatically and traced
without the intervention of an intermediary entity such as a financial institution or a
centralized authority or a third party. Only members who are specifically authorized
can have access to the blockchain and are known within the network.7
The connection between blockchain and bills of lading as envisaged in the present
work is that the blockchain concept can resolve problems of efficiency arising with
respect to paper bills and also those relating to transfer of title that arise in other
forms of electronic bills of lading. However, the blockchain bill of lading as a smart
contract is less than perfect given its own legal deficiencies.

4
Dromgoole and Baatz (1998), p. 549.
5
Ibid.
6
Sanders v. Maclean (1883), 11 QBD 327, at p.341 where Bowen L.J. described a bill of lading as
“a key which in the hands of a rightful owner is intended to unlock the door of the warehouse,
floating or fixed, in which the goods may chance to be”.
7
McKinlay et al. (2018).
416 H. Liu

1.2 Purpose and Structure

Against the above background, the central purpose of this chapter is to analytically
examine how the blockchain technology and its extended application of the smart
contract apply to bills of lading and identify the pros and cons. An auxiliary purpose
is to look at the concept of the smart contract as an extended application of
blockchain technology to bills of lading. Following the introduction, there is a
relatively detailed discussion of the features of blockchain and its extended appli-
cation to smart contracts assuming that the bill of lading as it prevails in the current
milieu of maritime commerce can be considered to be such a contract. The discus-
sion leads into an examination of the pros and cons of such envisaged development
to determine the legal viability of introducing the blockchain concept to the func-
tional use of the bill of lading. As the discussion unfolds, it will become apparent that
there are several facets to the application of blockchain technology in terms of legal
issues and legal consequences. In conclusion, the veracity of the application of
blockchain to bills of lading will be commentated on highlighting the flaws and
whether and to what extent, the existing legal framework may be altered to accom-
modate the infusion of the blockchain methodology to bills of lading.

2 Concept of Blockchain Technology

2.1 Definition and Nature

There is no established definition of the term but it can be described simply as a

decentralized peer-to-peer ledger of securely-stored transactions.8 In that sentence,
“ledger” means a simple database capable of storing information on transactions. A
decentralized ledger means that such information is stored with multiple copies on
numerous computers connected to a common network without central authority,
controlling party, or single server. Each computer in that common network is called a
“node” and network is formulated when all nodes operate under the same set of
rules, namely, the protocol embodied in computer code. The expression “peer-to-
peer” implies that all nodes are connected via the internet and they communicate
directly rather than through a centralized authority, or intermediary. The traditional
transaction system is centralized with a controlling body recording, validating and
authenticating all transactions. There is only one ledger and it is under the control of
the central body, be it a bank, government or other intermediary. By contrast, in the
decentralized network, every node holds a synchronized ledger.
Notably, those transactions may involve many varieties of value such as currency
(money, stocks or bonds), proof of ownership of assets, tangible (goods, property or
energy) and intangible (votes, identity, ideas or personal data). Value in the

8
Iansiti and Lakhani (2017).
Blockchain and Bills of Lading: Legal Issues in Perspective 417

blockchain world is represented by “tokens”9 which represent a particular asset or

utility which is usually placed on top of another blockchain. Tokens can represent
basically any assets that are tradeable; they range from commodities to loyalty points
to other cryptocurrencies.10 There are two common categories; namely, “utility” and
“security” tokens. Utility tokens are essentially cryptocurrencies that are used for a
specific purpose, such as purchasing buying particular goods or services. A security
token often represents ownership in an underlying actual asset such as traditional
stocks and bonds.11 Information regarding the transactions is securely stored by
using cryptography or other techniques to create secure and immutable records of
them.12
In simplistic terms, how blockchain actually works can be illustrated as follows:
If, for example, A wishes to transact with B on a blockchain basis, A establishes a
transaction by first creating and then digitally signing it with a private key proving
A’s ownership. The transaction is then broadcast in the network for validation by
nodes based on the blockchain protocol. Once validated, the transaction is included
into a block which is propagated on to the network. The newly-created block
becomes a part of the ledger and is linked cryptographically to the immediately
previous block, leading to a chain of blocks. The linkage is the “hash” (explained
below) pointer.13
The digital nature of the ledger signifies that blockchain transactions can be
linked to computational logic which in essence means they can be programmed.
Thus, users can set up algorithms and rules that instigate transactions between nodes
automatically.14 Based on blockchain technology, parties can transact values or
assets without an intermediary. This removal of reliance on a third-party can serve
to establish business relationships between the parties involved who can agree to
deal directly with each other. Hence, a so-called “smart contract” (explained below)
can be devised in the manner of a computer code placed and operating on top of a
blockchain containing a set of parameters under which parties to the smart contract
agree to interact with each other. If and when the pre-determined parameters are
fulfilled, the agreement is automatically implemented.

9
Au and Power (2018), p. 8.
10
Aziz (2017).
11
McKeon (2018).
12
Kinthaert (2016).
13
Bashir (2018), pp. 23–24.
14
Iansiti and Lakhani (2017).
418 H. Liu

2.2 Key Features of Blockchain Technology

2.2.1 Decentralization

Blockchain creates a certain degree of trustworthiness among the parties concerned

which is attributable to their pseudo-anonymity. Transactions are secured and the
need to use third-party trust brokers, or other intermediaries such as banks is
eliminated. Furthermore, the removal of the intermediaries empowers and enables
entities at all social strata from the individual to the corporate to operate in friction-
less and instantaneous peer-to-peer trade on a global scale.15 In sum, blockchain
technology has the potential to advance the speed and lower the cost of doing
business by simplifying operations and reducing the need for human intervention
through automated processes, and by virtually eliminating any human error.

2.2.2 Transparency

Every transaction and its associated value are visible to anyone who has access to the
blockchain system. Each node or user on a blockchain has a unique character
alphanumeric address that identifies it. Transactions occur between the blockchain
addresses.16 The ledger is synchronized to all nodes and all transaction information
is available to every user identified by their blockchain addresses. Regarding their
real-life identity, users can choose to remain anonymous or provide proof of their
identity to others. The system permits peer-to-peer transactions precluding the
necessity for centralized verification of the data. It can be a public system where
anyone may have access to the blockchain, or a private one, where only persons with
private “keys” may have such access.

2.2.3 Immutability

Once a transaction is entered in the ledger and the accounts are updated, the records
cannot be altered, because they are linked to every transaction record that was
entered previously which explains the term “chain”. Various computational algo-
rithms and approaches are deployed to ensure that the recording on the database is
permanent, chronologically ordered, and available to all others on the network.17
Each block showing all transactions appearing in the package, contains a reference to
the block preceding it denoted by the term “hash” which is the essence of immuta-
bility. If any part of the block or any transaction within it is altered, and then
subjected to the same algorithm, such action will engender a different hash and the

15
Ibid.
16
Ibid.
17
Ibid.
Blockchain and Bills of Lading: Legal Issues in Perspective 419

block will cease to be valid. It is thus exponentially more difficult to alter a prior
entry in the ledger.

3 Concept of Smart Contract

Initially, blockchain technology was applied in the domain of finance and was
mainly concerned with banks and banking. The technology advanced in tandem
with the introduction of the infamous digital currency known as “bitcoin”. Subse-
quently, new blockchain technologies evolved, such as Ethereum, which provides a
platform allowing for the operation of “smart contracts”18 There is no universally
established and accepted definition of smart contract but according to the pundits in
the field, they are essentially coded instructions that enable “self-execution” of
transactions. This is made possible by the fulfillment of certain pre-defined condi-
tions which activates the “execution” of the smart contract.19 It is submitted by the
author that the term “execution” in the present context is nothing but jargon
associated with the concepts of blockchain and smart contracts. In terms of contract
law, it is a misnomer in view of the fact that “execution” means the act by which a
contract is entered into by the parties. It is further submitted that what is meant in the
context of blockchain and smart contracts is its performance and the consequences of
compliance with it or failure to comply. Thus “self-implementation” is a more
appropriate term descriptive of this function.
The self-implementation function can be typically exemplified by the instance of
a marine insurance contract conjoined with a smart contract under which, proceeds
can be automatically paid to the assured upon the eventuality of an insured risk such
as the sinking of a ship. A smart contract utilizes the basic principle often referred to
as “if/then” meaning that if the insured risk materializes, then indemnification is
automatic; that is, the proceeds of insurance are paid without further ado. It is a
transparent process which is immune to any external intervention or control by any
entity. In effect what happens is that a traditional paper contract is transformed into a
computer code which is then stored, replicated, supervised and monitored by the
network nodes, arguably in a virtually flawless manner as no human control can be
exercised over the contract.
In practical terms, the documentation pertaining to the transaction is uploaded on
to a blockchain, and the consequent negotiations and actions taken by the parties are
recorded which are then approved by the system enabling the contract to be
performed and the obligations under it to be fulfilled. It is advanced by the pro-
tagonists of the smart contract that the system is efficient, secure and virtually free of
any possibilities for human error to occur, or at least that is reduced immensely.
Furthermore, the smart contract eliminates the need for any intermediaries, human or

18
Bashir (2018), p. 28.
19
Ibid.
420 H. Liu

otherwise, and at the same time, provides for encryption of all information so that the
transaction is adequately safeguarded.20 Hence the term “smart contract”.
Even so, despite all its perceived advantages and benefits, it is submitted that a
smart contract is surely not a contract in the legal sense to which rules of contract law
can be applied even in basic terms. Rather, it is simply a facilitating device or one
which provides improved efficiency for the performance of the terms as they may
appear in a traditional contractual instrument. At any rate, whether or not whether the
appellation “smart contracts” is plausible or even justifiable, is debatable. Needless
to say, the use of the term “contract” in that phrase inevitably points to the traditional
associated legal concepts of offer and acceptance, certainty and consideration,
without which there can be no contract recognizable at law. These do not appear
to be of any relevance to coded computer programs. Consequently, it attracts the
question of application of traditional contract law over smart contracts. While the
term “smart contract” is arguably a misnomer, another piece of jargon at best,
incompatible with any notion of a contract in the traditional legal sense, it is
conceded that the device enables a smoother and faster transaction saving time and
costs together with the added dimensions of safety, security and certainty.
Blockchain technology provides the natural platform for the operation of smart
contracts which simply comprise computer codes. A smart contract is in essence a
program that is event-driven and operates on top of a replicated, shared ledger
capable of assuming custody over assets appearing on it. In the context of bills of
lading, the bill as a token on the blockchain would be the smart contract under which
goods are carried by sea. A smart bill of lading can be used to render automatic
implementation or performance of a paper bill of lading.21 This assertion leads us
into the discussion below.

4 Blockchain, Smart Contracts and Bills of Lading

Innovative prowess among those in the know can well lead to the invention of a
digital record system for bills of lading which can self-check and identify discrep-
ancies that may arise.22 Among the anticipated advantages that such a development
can produce is a streamlining of the outcomes of its functions. For example, the
negotiability function of the traditional bill of lading is germane to sea-borne
commerce. But documentation in shipping generally, remains voluminous and
cumbersome consisting of multiple bills of lading, letters of credit, contracts of
sale and charter parties.
Given multifarious payment procedures combined with transmission of docu-
ments among numerous parties, it is ostensibly uncertain that paper bills of lading

20
Xuereb (2018).
21
Lin (2017).
22
Warner (2017).
Blockchain and Bills of Lading: Legal Issues in Perspective 421

The blockchain based B/L as a token

Carrier Consignee/Buyer

Goods

The blockchain based B/L as a token

The blockchain based B/L as a token
Shipper/Seller

Fig. 19.1 Flow chart illustrating the functioning of blockchain-based bills of lading

will reach the consignee before the goods arrive at the port of destination. To address
this anomaly, electronic bills of lading came into vogue some decades ago
spearheaded by private entities and organizations in the shipping industry. However,
they are not in widespread use due to difficulties in replicating the “document of
title” or negotiability function of paper bills of lading. Indeed, there is no existing
electronic device ensuring flawless delivery of goods to an authorized receiver. The
new blockchain technology-based bill of lading is believed to be the solution.23
It is therefore apt to enquire whether blockchain technology and its extended
application to smart contracts may well resolve these deficiencies, if the bill of lading
can be considered as possessing the traits of a smart contract. In that context, it must
be recognized that there are serious downsides to the concept of the smart contract
itself, which in the case of the bill of lading, may be magnified several-fold. This is
discussed later in this chapter.
The first application of blockchain was in the financial field, the object being to
circulate monetary value in the forms of coins. A prime example of this is the
Bitcoin. It is also possible to exploit such technology to exchange non-monetary
tokens, be it tangible or intangible proprietary interests such as ownership, security
rights, copyrights or a transferable document such as a smart contract. In the context
of this chapter, as shown in Fig. 19.1, a paper bill of lading can be coded into a smart
contract on the blockchain which stipulates that if the receiver is the rightful holder
of the blockchain-based B/L, then he is entitled to receive the goods in question. The
carrier issues the token in the form of a smart contract; namely, the bill of lading, and
then transfers it to the seller and thereafter to a third-party.24
Due to its hash function (explained below), the blockchain technology can be
utilized to enable possession of the document of title which other forms of electronic
bills of lading cannot. The blockchain-based bill of lading as a token remains unique

23
Ibid.
24
Takahashi (2016), p. 204.
422 H. Liu

and therefore can be possessed and transferred in the same way as the paper bill of
lading.
As mentioned above, blockchain technology facilitates the utilization of smart
contracts which can be automatically implemented and performed provided certain
criteria are fulfilled. The criteria are coded into the contract and their existence within
the blockchain network precludes the need for any confirmation of the transaction by
an intermediary. They are thus self-implementing contracts. Within the context of
the present discussion, a bill of lading, commonly used to ensure the performance of
the carrier to release cargo to its holder, may fit the description of a smart contract
because it can be easily coded into programmed instructions. However, several legal
issues arise due to uncertainties regarding how smart contracts may be enforced
given that the performance is pursuant to codes inserted into the contracts compatible
with use through computers.
A major downside is that there may not be provision for dispute resolution
through arbitration in the event of a dispute given that performance is automatic.
Among other things, the basic elements of a contract, that is, offer, acceptance,
consideration and certainty, are not determinable which would constrain the func-
tionality of a bill of lading portrayed as a smart contract.25 This is elaborated in the
discussion on the legal framework of the traditional bill of lading and that of
blockchain and smart contracts recognizing the verity that with regard to the latter,
the legal implications must pertain to how the law evolves in light of the rapid
technological advancements.

5 Blockchain Bill of Lading and Other Electronic Bill

of Lading Compared

The principal challenge regarding the development of electronic bills of lading as

distinguished from the traditional paper bill of lading, is the replication of its
functions within a secure electronic environment simultaneously with the assurance
that electronic records and data messages have the equivalent recognition in law as
the original paper bill.26 An important characteristic of the paper bill of lading is that
its holder has the exclusive right to take delivery of the goods covered by it. In other
words, physical possession of the original bill of lading is tantamount to physical
possession of the goods. Security in maritime trade was manifested in the bill of
lading being in a particular form, and when attached to an insurance policy or
certificate that merchants and bankers alike would consider as evidence of posses-
sion of the goods. Thus, the carrier and the underwriter bore liabilities that were
coterminous. Furthermore, the original bill of lading serves as a document of title

25
McKinlay et al. (2018).
26
UNCTAD (2017).
Blockchain and Bills of Lading: Legal Issues in Perspective 423

raising the question whether this unique function is replicated in the electronic bill of
lading.27 The matter is elaborated below.
In past decades, several attempts have been made to digitize bills of lading
through such mechanisms as Bolero 6 and essDOCS.28 However, electronic bills
of lading, except for blockchain-based ones, are not transferable because they are not
possessable. A negotiable document has to remain unique which is essential to
guarantee that the holder of that document is exclusively entitled to claim the
performance of the obligation, in the context of bills of lading, delivery of cargo.29
This is difficult to fulfill by an electronic bill of lading because it can be copied to
create an indistinguishable duplicate.30 Thus, transfer of a bill of lading is usually
effectuated by physical handover of it to the consignee. By its very nature, delivery
of a paper bill of lading is different from that of an electronic bill of lading.31 The
negotiability of a bill of lading requires it to be “to order”. An electronic bill of lading
that is not driven by blockchain is usually transferred together with a separate third-
party registry to identify the rightful owner of the cargo.32 This mode requires
control over the registry carried out by a centralized party and a system to verify
the integrity of the electronic bill of lading. Such a bill makes reference to the
registry where the identity of the person with control of the cargo can be found.
However, that reference does not render the electronic bill of lading “a symbolic key
to the warehouse”33 per se because it is not possessable; and therefore, its holder
cannot exercise constructive possession over the goods.
Being in the forefront of cutting-edge technology, blockchain applications to sea
carriage transactions enable possession of the document and the underlying goods
whereas other forms of electronic bills of lading are unable to do so. Simultaneously,
the function of the traditional bill of lading serving as a document of title is
maintained. A blockchain bill of lading, by using the techniques of timestamping
and cryptography, is able to identify an authorized transfer and invalidate subsequent
unauthorized transfers in the process. This makes blockchain bills of lading quite
unique in character. Moreover, the holder of a blockchain bill of lading, namely, the
person in possession of it, has at his disposal, the remedies arising from legal
possession as well as the contractual remedies arising from the right to control the
blockchain bill of lading. This being so, it is possible for a blockchain bill of lading
to replicate the practical as well as the legal objectives inherent in a paper bill of
lading.34

27
UNCTAD Secretariat (2003).
28
See http://essdocs.com.
29
Takahashi (2016), p. 204.
30
Ibid.
31
Van Maanen and Regtien (2018).
32
Ong (2018), p. 4; Takahashi (2016), p. 209.
33
Sanders v. Maclean (1883), 11 QBD 327, at p. 341; See also Ong (2018), p. 12.
34
Ong (2018), p. 12.
424 H. Liu

Block 2 Block 3
Block 1

Hash: ef456 Hash: gh789

Hash: ab123
Transaction Transaction
Transaction
Previous Hash: Previous Hash:
Previous Hash:cd0
ab123 ef456

Fig. 19.2 Diagrammatic depiction of cryptographic technique of hashing used to ensure security

In a paper bill of lading, the right to possess it enables the person identified on the
face of the bill of lading to take delivery of the goods by surrendering it to the carrier.
In other words, as mentioned earlier, the person in possession of the bill of lading is
effectively in possession of the goods because he is entitled to the have access to
them whether they are located on board the ship or stored in a warehouse. In the case
of a blockchain bill of lading, the person in possession of it uses a symbolic key to
unlock the door of the warehouse to take physical possession of the goods.35
In terms of transfer of possession and exercise of contractual rights, the transfer of
possession of the bill of lading transfers the right to possess as well as the right to
control the goods. In the instance of a paper bill of lading, the right to bring suit is a
contractual right provided for in the bill which can be transferred typically through
assignment or subrogation clauses. However, any act of delivery, or act of indorse-
ment and delivery, can also transfer contractual rights of suit, subject to satisfaction
of the statutory requirements for lawful possession of the bill of lading. Through the
mentioned provision, transfer of possession is perfected and it enable the transferee
or indorsee to become a party to the carriage contract which he was not originally,
when the parties entered into it.
In the blockchain scenario, possession is transferred through the cryptographic
process of hashing which is a secure cryptographic technique to transform input data
into hash value in the form of a fixed string of alphanumericals.36 To prevent
tampering, the hash value must be visible to observers on the outside although the
actual item of data remains invisible. The security of hashing is maintained because
it is only a one-way movement. Even though it is possible to transform data into a
hash value, it is impossible to use the hash value to obtain the original data, making it
impossible to reverse the transfer process so that the possession of the blockchain bill
of lading is reverted.37 The decentralized computer network, namely, the nodes, will
compute the unique hash once a block is created. As shown in the Fig. 19.2 below,
each individual block is recorded by an alphanumerical hash value of its own and

35
Ibid, p. 20.
36
Ibid, p. 23.
37
Ibid, pp. 23–24.
Blockchain and Bills of Lading: Legal Issues in Perspective 425

also refers to the hash value of a previous block. The chain is therefore built up
through this consecutive process. Each block so created is permanent as any attempt
to alter the hash in a block can be detected by all previous blocks and be rejected.

6 Legal Implications of Blockchain Bill of Lading

6.1 General Legal Framework

Some of the challenges faced when seeking to replicate the legal functions of a paper
bill of lading in an electronic bill of lading, relate to the document of title function of
the bill. Being a document of title, the bill of lading has embedded in it, elements of
both property and contract law. Possession of a paper bill of lading indicates that the
holder is a party to the relevant contract evidenced by it and therefore has the right to
enforce it to gain physical possession of the cargo underlying the paper instrument.
But where the contract is evidenced by an electronic intangible instrument which,
strictly speaking, cannot be physically possessed, laying claim to the goods under-
lying it becomes a serious problem in the circumstances. Added to this notional
difficulty, there is also the problem of replicating the signatures of the parties
concerned. Signatures primarily serves the purpose of confirming that the contents
of a document are true and authentic as made by the parties to the agreement. They
also serve as assurance of the consent of the parties committing themselves to
comply with the conditions stated therein.
The multifarious rules governing different types of contracts were developed
when paper contracts were the norm and the rules so established were naturally
compatible with paper as the medium for entering into them. Paper was the means
envisaged through which representations were made, contractual stipulations com-
municated and records were kept although it is conceded that much of that is
obsolete today with revolutionary changes in communications and related technol-
ogy. Needless to say, these changes have had a profound impact and influence on
contemporary seaborne trade and commerce and the business of shipping.
In past decades, several attempts have been made to utilize electronic bills of
lading. Until recent times, some shipping companies have reportedly been exploring
the use of blockchain technology in devising new forms of electronic bills of lading,
such as the CargoX.38 However, this technology has not yet experienced widespread
use in the shipping industry and the likelihood of this changing anytime soon is
rather remote. There are several legal issues and practical challenges at stake
including the assurance of interoperability.39 New devices will have to be created
to incorporate substantive contractual clauses, and processes regarding blockchain
and smart contract use in information technology systems will have to be replicated

38
See https://cargox.io/welcome/.
39
Takahashi (2016), pp. 207–210.
426 H. Liu

in blockchain bills of lading. Furthermore, there must be sufficient monitoring of

developments in blockchain technology, especially with regard to legal issues and
infrastructure implications, to ensure that identity authentication, privacy protection
and protection of financial data are adequately maintained.

6.2 Regulatory Framework

An international regulatory development relevant to the legal recognition of Elec-

tronic Transferable Records (ETR) is the recent finalization of the deliberations of
the United Nations Commission on International Trade Law (UNCITRAL) Working
Group IV on Electronic Commerce. The end product is a Model Law on Electronic
Transferable Records (MLETR) adopted in July 2017.40 The model law contains,
inter alia, the definition of an Electronic Transferable Record. Such record must
contain data and information identifying it as the functional equivalent of a trans-
ferable document or instrument, such as for example, bills of lading, receipts,
certificates and other documents used in shipping. The model law consists of four
sections; namely, General Provisions (Articles 1–7); Provisions on Functional
Equivalence (Articles 8–11); Use of Electronic Transferable Records (Articles
12–18); and Cross-border Recognition of Electronic Transferable Records (Article
19). It also sets out requirements to ensure the singularity and integrity of an
electronic transferable record, and its amenability to control from its very inception
until it ceases to have any effect or validity; in particular, requirements for its
transferability.
UNCITRAL has been dealing with various legal matters regarding the electronic
transferable record since 2017. They include issues relating to identity management
and trust services as well as contractual aspects of cloud computing.41 It is evident
that throughout the development of the Rotterdam Rules42 and the MLETR,
UNCITRAL has maintained the fundamental principles of technology neutrality
and functional equivalence.43 The former holds that the law should not discriminate
between different technologies, that is, the law should neither require nor assume the
adoption of a particular technology,44 enabling the use of various models whether
based on registry, token, distributed ledger or other technology.45 There is no
mention of blockchain technology in the Rotterdam Rules or their travaux

40
The full text is available at UNCITRAL (2018).
41
Schedule of meetings of Working Group IV since 1997, published on the UNCITRAL website,
http://www.uncitral.org/uncitral/en/commission/working_groups/4Electronic_Commerce.html.
42
United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly
by Sea, 2008.
43
Takahashi (2016), p. 207.
44
UN General Assembly (2011), p. 10, para. 35.
45
UNCITRAL (2018), p. 23, para.18.
Blockchain and Bills of Lading: Legal Issues in Perspective 427

preparatoires but that does not mean its application is excluded in the practical
effectuation of the convention. Indeed, it may be quite the opposite given the
provisions relating to right of control in chapter 10, transfer of rights in a negotiable
transport document or negotiable electronic transport records (NETR) in chapter
11 and in chapters 3 and 8 of the convention. The principle of functional equivalence
requires that only an electronic record that fulfills the essential functions of a paper
document can replace the latter.46 Thus, electronic bills of lading other than
blockchain-based ones are not able to replace paper bills of lading, given their failure
to function as documents of title.
In the MLETR, generic rules are provided that can apply across the board in
respect of any ETRs including models based on tokens and distributed ledger or
blockchain technology. In other words, it can be said that the use of blockchain bills
of lading is facilitated by the MLETR. Even though there is ostensible legal
recognition of ETRs, it does not imply that they must be used or be accepted. Indeed,
use of any ETR in general requires express consent but such consent need not be
stated in any particular form of words or portrayed otherwise in any standard form.
There can be inference of consent gathered from the prevailing circumstances
including the conduct of the parties concerned. The rationale for this can be gleaned
from the explanatory notes to the MLETR providing that a requirement for explicit
consent may create unnecessary and unreasonable obstacles to the use of electronic
transport documents.47 In the view of this author, that would include electronic bills
of lading whether or not they are viewed as blockchain-based smart contracts.48
It may be concluded that even though it is apparent from the instruments
discussed above that technological neutrality and their functional equivalence are
already there which can easily accommodate the use of blockchain and smart
contract concepts, there is still room for further improvement given that certain
issues have emerged from these technologies that have remained unresolved.
Notable in this context is that under English law, the definition of “bill of lading”
in the Carriage of Goods by Sea Act 1992, does not cover electronic documents. This
means that in that jurisdiction, the rules governing transfer of title and the right to sue
in that respect do not apply to electronic bills of lading; neither would they apply to
blockchain-based bills of lading as smart contracts. Digital transactions including
digital signatures would not be recognized under such a legal regime. The otherwise
automatic application feature of such bills of lading would be useless unless there is
law reform in this area.

46
Takahashi (2016), p. 207.
47
UNCITRAL (2018), p. 33, para.64.
48
Ong (2018), p. 10.
428 H. Liu

6.3 Legal Issues: Pros and Cons of Blockchain and Smart

Contracts

6.3.1 Preliminary Thoughts

It is often said, quite rightly so, that whereas technology advances in leaps and
bounds, the law is pathetically slow to catch up if it ever does. This is particularly
true for the field of shipping given that the shipping industry is known to be fairly
conservative when it comes to change. Some are of the view that common law
jurisdictions are better placed to deal with this since the common law is simply a
“process of adapting human systems to technological change”. It is more conducive
to accommodating new technology to replace old ones and “adapt them rapidly and
competently”.49 That said, it is popular belief that blockchain technology and the
concept of smart contracts are about to revolutionize and redefine business and
commercial practices. While this may well be true, it is recognized that there are
numerous legal issues with which the world shipping community must contend.
In the context of sea carriage of goods and in particular the element of bills of
lading, there are several pros and cons or upsides and downsides associated with the
use of blockchain technology and application of the smart contract concept to bills of
lading. These are outlined below accompanied by a discussion briefly addressing
each of the relevant issues in succession. As regards the pros, the basic premise is
that legal issues and problems can be resolved by the use of blockchain bills of
lading as smart contracts. The cons are mainly to do with incompatibility with
established legal norms in international sea carriage of goods law. One fundamental
con is that there are multiple nodes scattered worldwide in any blockchain. Users can
be anonymous with hidden identities, leading to difficulties with identifying the
liable party.

6.3.2 Documentation Problems

One commentator is of the view that among several advantages that can be gained
from blockchain, there are a number of major areas of importance, all concerning
documentation pertaining to sea carriage of goods. She opines that delays in
discharging of cargo are mainly attributable to lack of proper documentation. This
is particularly relevant to perishable goods where delays can result in partial or even
complete loss of the cargo. Cargo can be released by the carrier pursuant to a letter of
indemnity without the need for any further documentation. Payment-related docu-
ments such as letters of credit often suffer from deficiencies caused by human error.
There are numerous incidents of documents being misrepresented or forged. All of
these can be eliminated or at least reduced by the use of blockchain.50

49
Tapscott and Tapscott (2017), p. 23.
50
Lin (2017).
Blockchain and Bills of Lading: Legal Issues in Perspective 429

It is the trite law that delivery of cargo may be made only upon surrender or
presentation of an original bill of lading. Under present practices, the seller issues the
bill of lading which may take weeks to be delivered to the owner of the cargo, who
then uses it to claim possession of the cargo. With blockchain technology, legal and
commercial problems arising from this traditional use could be mitigated if not
resolved.
In instances where the original bill of lading arrives after a vessel does at the
discharge port, there may be commercial pressure to deliver the cargo without
surrendering the original bill of lading. Such pressures are greater when there is a
tight delivery schedule or where the cargo contains perishable goods. Succumbing to
such pressure, parties may execute a letter of indemnity to deliver the cargo. Such
situations give rise to unwanted legal risks. A smart contract bill of lading would be
helpful in these circumstances given the fast delivery and speed of data transmission.
Hence, under a blockchain bill of lading, problems of delays in discharging of cargo
and ensuing demurrage charges are less likely to occur.51
It is of paramount importance that information appearing on a mate’s receipt and
correspondingly on the bill of lading be consistent. This is often not the case and the
responsibility for it is frequently laid on the master of the ship. Several problems are
likely to arise when there are discrepancies between the mate’s receipt and the bill of
lading. In such potential circumstances, the use of the blockchain bill of lading is
useful for accurately clausing the bill of lading and the mate’s receipt. If this is to
become the norm, relevant personnel must be adequately trained in the basics of a
smart contract and its use in the context of the blockchain bill of lading.

6.3.3 Transparency

In a survey conducted in late 2017 it was revealed that shippers expressed major
complaints regarding containerized cargo including lack of real-time visibility at any
point in the supply chain, in particular, in instances of transshipment of cargo and
intermodal transportation. That result demonstrates the types of issues that
blockchain technology could be used to address. Other complaints were lack of a
centralized system of space allocation which is apparently handled by local offices,
and no system for the quick adjustment of supply chain routes in the event of
disruption at some point of the supply chain.52 Transparency in shipping operations
is not simply a matter of responding to customer needs in the transportation chain;
today it is as much, if not more, a matter of compliance with regulatory regimes put
in place for combatting such things as corruption, unlawful activities such as
trafficking of contraband and human as well as violations of environmental regula-
tions. These are issues of legal concern which also detrimentally affect the reputation
and standing of the parties in the business. These can be satisfactorily addressed by

51
Tricoli (2018).
52
Russ and Water (2018).
430 H. Liu

resort to the blockchain which bears the synchronized characteristics of a

decentralized system complete with immutability which is of benefit to all parties
to a transaction. Blockchain provides real-time, tamper-proof, definitive information
regarding consignments including their locations, condition and history.
It must no doubt be conceded that expanded transparency attracts higher account-
ability. Information cannot simply be communicated by one party in the chain to its
immediate counterpart but is shared by all parties to the transaction simultaneously.
The information in question does not only address customer complaints but also
legal concerns, especially regulatory requirements. An essential aspect of transpar-
ency is that every user has access to all information in the system concurrently and in
the same way, and the accuracy of it can be verified by any participant making the
whole transaction and process distinctly visible and trustworthy.53

6.3.4 Security and Documentary Fraud

In the current milieu of paper bills of lading, producing fraudulent bills is not a very
difficult task. As explained earlier, a key feature of blockchain architecture is its
immutable character which virtually guarantees that nodal data on the blockchain
cannot be altered. Furthermore, blockchain networks can be set up as private
networks requiring permission to enter. Network access can thus be restricted
whereby security is considerably heightened. Thus, instances of issuing fraudulent
bills of lading can be reduced as well as the circulation of indefinite copies of bills of
lading giving rise to potential fraud. The built-in cryptographic protection system in
blockchain bills of lading make them virtually tamper-proof. The use of a private key
for signing into each transaction which is in the possession of each participant in the
blockchain bill of lading, makes for a high degree of protection. Signing into every
transaction requires each participant to conform to several requirements during the
process and the blockchain technology provides for every participant to log in which
potentially prevents such unlawful activities as money-laundering and makes the
system conducive to greater transparency. Each transaction requires public time-
stamping and is inherently revision-proof as a part of the architecture of the
technology.

6.3.5 Jurisdiction and Governing Law

Among the cons, one is the issue of jurisdiction. Because it is a decentralized system
without any fixed single location, it becomes important to be able to determine the
law and the jurisdiction that governs the technology, and the data stored in the
system, especially where the processing of the data can be instigated from anywhere.

53
Ibid.
Blockchain and Bills of Lading: Legal Issues in Perspective 431

The lack of clear provisions in the smart contract, on governing law and jurisdiction,
brings into the forefront several difficulties.
One is identifying the governing law in the event of a dispute. In a paper bill of
lading, the governing law is provided for expressly; as well there is a jurisdiction
clause. In the absence of such clauses, conflict of laws problems will invariably arise.
The situation would be no different in the case of a blockchain bill of lading. To
avoid such eventuality, it is imperative that governing law and jurisdictional clauses
are built into a blockchain-based bill of lading as a smart contract. Clear dispute
resolution terms containing the governing law and jurisdiction clauses must be
encoded into the smart contract before any automated implementation can take
place. The best practice is for parties to agree at the outset to record in ordinary
language the intended exclusive governing law and jurisdiction in appropriate
clauses because smart contract codes simply provide for automatic performance of
contract terms written in ordinary language.54
Another related issue is the status of arbitration clauses in a blockchain bill of
lading. It is uncertain as to how an arbitral tribunal would treat an arbitration clause
becoming defective due to error in its coding. If the matter goes to court, whether
there will be a ruling in support of arbitral or judicial proceedings is a question mark.
A common law court will probably look into whether the parties intended to refer
disputes to arbitration. Needless to say, documentation that may serve as evidence
and corroboratory material should be preserved carefully to meet such eventuality.
Finally, with regard to the issues of governing law and jurisdiction, blockchain
and smart contract-based transactions and instruments may well be subject to the
jurisdiction of any node on the blockchain network. It will no doubt be potentially
difficult to identify the proper jurisdiction under established principles of conflict of
laws if there is a dispute. The problem will be compounded if there are ancillary
contracts. In such case, their term should be woven into the agreement of the parties
on governing law and jurisdiction. It should be borne in mind, however, that
exclusive law and jurisdiction are often subjected to legal challenge. This author
subscribes to the proposition that the absence of a physical jurisdictional connection
will prompt a court to assert jurisdiction despite the existence of an exclusive
jurisdiction clause.

6.3.6 Liable Party

It would be well-nigh impossible to apportion liability in the event of unanticipated

circumstances such as hacking or a systemic glitch whether in the blockchain itself
or in the smart contract. These cannot be easily envisaged; therefore, it would be
useful to have a paper contract specifying possible risks and the apportionment of
liability which should be applied in such eventuality.55 Such problems can arise with

54
Lin (2017).
55
Ibid.
432 H. Liu

the blockchain bill of lading or the smart contract basis of the system where self-
implementation according to a set of injected instructions is the framework under
which it operates. Given that the system precludes any control by a particular entity
in the chain, the question of liability become crucial in the event of system failure.
There are those who fallaciously believe that coding is error-free. That is not the
case; also, platforms that provide for the system may suffer failure of operation.
There may be problems relating to programming of the smart contract. Erroneous
programming inevitably leads to liability issues involving contributory negligence of
parties concerned and associated problems of apportionment of liability. If, for
example, there is a fire outbreak in a hold of a ship, destroying the cargo, it may
be allegedly due to negligence of the shipboard crew, or also attributable to the
shipper not providing adequate information to the carrier on the inflammable
characteristics of the cargo. Given the rigidity inherent in the parameters of a
blockchain bill of lading, it may be impossible to quantify and apportion liability
if both parties are found to be at fault.

6.3.7 Security and Cybercrime Risks

No doubt security precautions are built into the blockchain bill of lading, but they
still involve such things as the need for signatures and logging in by each participant
in the transaction. As tamper-proof as the system might seem to be, there is always
the possibility of cybercriminals intervening and causing major havoc as has been
proven in instances of theft of cryptocurrencies.

7 Conclusion: Proposal for Consideration

Blockchain technology has evolved as a revolutionary development in the current

climate of economic upturns and downturns. It is seemingly adaptable to global trade
and commerce to bring about positive changes by providing a secure device to pay
for goods in a seamless fashion and, in the case of blockchain bills of lading, can
transfer title through the utilization of a smart contract overlying the blockchain.
Unfortunately, however, contract clauses cannot be incorporated into its architec-
ture, and therefore, blockchain is unable to deal with events occurring during the
actual movement of goods. In a contract for the sale of goods as well as a carriage
contract, an important feature of the terms of these contracts is how potential
eventualities are to be handled during their performance.
The engagement of blockchain technology in the business of sale of goods and
their maritime carriage, whether through charterparties or simply by the use of bills
of lading, is still in a state of infancy despite the huge technological advances
engendered by the system. Several significant matters of concern have remained
unaddressed in blockchain use given the absence of appropriate contract clauses.
Typical examples are those concerning force majeure and dispute resolution
Blockchain and Bills of Lading: Legal Issues in Perspective 433

including the applicable law and jurisdiction in respect of the contract. Regarding
charterparties, without express provisions addressing such matters as cargo liens,
demurrage and dispatch, notice of arrival, fuel consumption and speed of the ship,
parties to the contract would be left exposed to numerous potential liabilities.
Furthermore, sellers, buyers, shipowners and charterers usually have their own
standard form contract terms designed for a particular transaction. Whether these
can be retained in a blockchain-based transaction is a legitimate concern. Presum-
ably, the blockchain can be suitably configured to accommodate these and other
matters mentioned above but that has not yet been demonstrably established.
The traditional paper contract is indisputably the basis for a smart contract. That
would include a blockchain bill of lading. Initially, there must be a written paper
contract before a transformation into code form can take place to facilitate the
activation of the smart contract. If a coding error is made in the transformation
process, legal problems are bound to arise. This is associated with the technological
fact that a smart contract is self-implementable which, on the one hand can be
viewed as an advantage, but on the other hand, because it is unstoppable once the
pre-programed conditions are satisfied, it can pose a serious downside. In such a
situation, it is quite conceivable that a party who suffers a wrong from such
technological error will take legal against the other party who is ostensibly innocent;
as well proceedings may be initiated by the wronged party against the entity
responsible for the coding operation.
As alluded to earlier, blockchain technology has not yet been fully embraced by
the world maritime industry, and it is uncertain whether the shipping sector charac-
terized by its conservatism will abandon its traditional trade practices and readily
take on board the new, revolutionary technologies of the blockchain and smart
contract which are yet to prove their tenacity. There are still many doubts and
uncertainties surrounding the inviolability of data privacy, authentication of identi-
ties of contractual parties and security of data protection, especially of financial
information. The most significant factor is how regulatory authorities around the
world will view these developments, as advanced as they may be technologically;
and most importantly perhaps, whether any universal standardization of shipping
practice can be achieved with regard to their application to bills of lading.
On the flip side of the coin, what is on offer in terms of blockchain technology and
the smart contract is options that are likely to translate into higher efficiency in the
shipping business. In the common law system, the phenomenon of case law juris-
prudence would appear to provide the kind of flexibility needed to enable the law to
readily accept technological changes and break new ground as in the case of a
blockchain bill of lading. The common law tradition fosters and facilitates this sort of
creativity. Recognizing this verity, the optimum approach is possibly a combination
of the newly advanced technology with traditional business practices and time-tested
patterns and norms. In this regard, it has been suggested that the intended objective
may be accomplished by means of a “divided document” approach comprising on
the one side, a replica of the traditional elements of the bill of lading, and on the
other, elements of a coded program providing for automatic self-implementation;
both sides to be inter-connected. In a blockchain bill of lading, if the blockchain
434 H. Liu

infrastructure is separable from the contractual aspect of the transaction, the smart
contract will essentially operate as an implementation device under which once there
is compliance with the terms of the contract by one party, there will be automatic
performance by the other.
Whether such a proposition is achievable in practice is a big question mark which
only the technology pundits can answer perhaps with help from the maritime legal
community. In the opinion of the present author, whether this is inevitable or is likely
to happen or will fail entirely, only time will tell.

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Environmental Challenge in Port
Development: The Legal Perspective
in Cross-Disciplinary Research

Lars-Göran Malmberg

Abstract During recent years, there has been an increasing number of vessels
calling at Swedish ports. According to figures from UNCTAD the overall growth
in international seaborne trade went up 4% during 2017/18. Almost half of this is
from dry bulk commodities. Global container trade went up 6.4% from 2016 and the
prospect for growth globally is 4% in 2018. The growing number of ships in port is
not just a positive outcome. Increased numbers of vessels generate traffic to and from
ports, which in turn cause problems regarding emissions, noise, and congestion. The
discussion in this chapter concentrates on different measures suggested or already
taken to reduce port emissions, from a global and regional perspective, and possible
adaptation to a Swedish context. The text discusses what possible means are there at
the disposal of port operators, municipal decision-makers and the government to
combat emission in and around ports.

1 Introductory Remarks

The title of this book, Maritime Law in Motion, is very well formulated. Recent
research shows that there is a new approach towards understanding maritime
activities and international seaborne trade. Even if the main object of this work is
aimed at law, the complexity of present maritime operations calls for interdisciplin-
ary research. Some of the latest projects carried out by researchers from the Univer-
sity of Gothenburg and Chalmers University of Technology comprise the subject
areas of logistics, industrial economy, applied IT, marine technology and law.
Interdisciplinary research calls for close coordination between the different
research disciplines and there are two ways of dealing with this. The more favourable
of the two is also the more demanding one, and calls for different research elements
working together and presenting their findings in shared publications. In this kind of
cooperative work, what is most beneficial is that there is a common understanding of

L.-G. Malmberg (*)

School of Business, Economics and Law, University of Gothenburg, Gothenburg, Sweden
e-mail: Lars-Goran.Malmberg@law.gu.se

© Springer Nature Switzerland AG 2020 437

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_20
438 L.-G. Malmberg

the problems researched and that the members of the research group acquire a fuller
understanding and perception of the different problems being investigated. The other
methodology is exemplified by researchers of the group conducting independent
inquiries by themselves. There is no more coordination than simply the putting
together of different work packages presented individually. In the worst case sce-
nario, the coordinators lack oversight of the research carried out by the individual
groups leading to overlaps among different work packages remaining undetected.
A recent project funded by the Swedish Innovation Agency VINNOVA in 2016
and reported to the fundraiser in 2019, researched the possible impact of environ-
mental differentiated dues and incentives in ports on development of transport to and
from the ports. In this project,1 the IVL Swedish Environmental Research Institute
took the lead and the research group, IVL, Gothenburg University2 and VTI3
designed and conducted the studies. In this case the research groups worked indi-
vidually and with no coordination in the way that the findings from one group was
not shared in its concluding stage until the final report was submitted.4 The purpose
of the research was described as a task “to examine from an interdisciplinary
approach how environmental differentiated dues and incentives in ports can reduce
the environmental impact caused by all transport modes that call at the port”.
This chapter is based on the findings from the aforementioned project. Taking
Sweden as a role model for the continuing discussion is relevant from many
perspectives and for various reasons. First, the Swedish coastline is one of the
longest in Europe. It spans from the north of the Gulf of Bothnia through the Baltic
Sea, the Sound between Sweden and Denmark through the Kattegat and into
Skagerrak ending at the Swedish-Norwegian boundary at Grisbådarna; a total of
2400 km. A second reason is that when it comes to land boundaries, Sweden is
adjacent only to Norway and Finland. A third reason is that Swedish import and,
more importantly, its export, relies heavily on seaborne trade. The Swedish industry
has traditionally leaned towards heavy mechanical industry, paper and pulp industry
associated with timber and, of course, the iron ore and steel industries. According to
the information gleaned from Ports of Sweden5 the actual figures regarding dry bulk
over quay in 2017 was 40,432,000 tons and wet bulk 38,165,000 tons.

1
This project was titled Environmental differentiated port dues, decided by VINNOVA on the 1st of
November 2016, the final report is by the time of writing this contribution still in progress for
publishing.
2
The research group from Gothenburg University comprised of researchers from the three depart-
ments from the School of Business, Economics and Law.
3
VTI is Swedish National Road and Transport Research Institute.
4
It is thereby difficult to find a red line through report it is sooner a report with a number of
contributions that at a time contradict each other. This contribution to Maritime Law in Motion will
bring some of the findings and draw some conclusions from a legal perspective.
5
Ports of Sweden is an industry and employers’ organization comprising 60 port companies and
over 4000 employees. Practically all Sweden’s port companies are members. As an industry
organization, Ports of Sweden represent also around 15 port administrations through co-operation
agreements. https://www.transportforetagen.se/In-English/Association-ports-of-Sweden/2019-01-
09.
Environmental Challenge in Port Development: The Legal Perspective in. . . 439

Thus, the ports of Sweden invariably play a vital role in the advancement of
Swedish society and industry. During the last several years, vessels calling at
Swedish ports have been increasing rapidly in both numbers and size, and there is
growing concern over emissions from ships and other environmental impacts on the
community. According to figures recently released from the United Nations Con-
ference on Trade and Development (UNCTAD), the overall growth in international
seaborne trade increased by 4% during the reviewed period.6 The total volume
reached 10.7 billion tons which according to UNCTAD was an additional 411 mil-
lion tons. It was calculated that almost half of this were dry bulk commodities.
Briefly, therefore, it could be said that the global container trade went up by 6.4%
and dry bulk cargo by 4.0% which is an increase from 2016 figures.7 The UNCTAD
forecast estimates a 4% growth in world sea trade in 2018. From a Swedish
perspective the growth in 2017 was levelled at 175 million tonnes which was a
2% increase.8 Figures from the Swedish authority Transport Analysis show that
there is an upward trend in goods handled through ocean trade in 2018.
The growing number of ships calling at ports is not a positive outcome only. The
increasing number of vessels generate traffic to and from ports, which in turn cause
problems of emissions, noise, and congestion. Over the years, several Swedish cities
have introduced restrictions in areas where heavy traffic in excess of 3.5 tons in
terms of vehicular size and emission control. Since the beginning of this century,
Stockholm introduced a congestion fee for all vehicles in 2006 and Gothenburg
followed in 2010.
The following discussion focuses on the different measures suggested or already
taken to reduce port emissions, from both a global perspective and a regional, i.e. an
EU perspective, and a possible adaption in a Swedish context. Questions to be
addressed are, what possible means are there at the disposal of port operators,
municipal decision-makers or the government to combat emission in and around
ports. The main question relates to whether a fee or incentives are the best solutions
or whether other ports have better alternatives. The ingredients for this research have
been selected from the aforementioned VINNOVA project.
In the contemporary milieu, maritime legal research requires a cross-disciplinary
approach. It is obvious focusing simply on legal issues is insufficient for an adequate
understanding of the problem from a holistic viewpoint. Participation by researchers
from other disciplines broadens the view and vantage point of the issue to be
examined and affords a wider perimeter of inquiry. In some recent studies,
researchers from the disciplines of law, industrial economy and logistics have been

6
The edition of the UNCTAD REVIEW OF MARITIME TRANSPORT 2018 covers data and
events from January 2017 until June 2018. According to the foreword in the report: “(w)here
possible, every effort has been made to reflect more recent developments.” See page viii Note,
(UNCTAD/RMT/2018).
7
See UNCTAD/RMT/2018 page x Executive Summary.
8
See Transport Analysis Maritime transport 2017, https://www.trafa.se/globalassets/statistik/
sjotrafik/sjotrafik/2017/statistikblad-sjotrafik-2017.pdf. Downloaded 2019-01-07.
440 L.-G. Malmberg

able to provide a more complete insight and analysis of transport related problems.9
An inquiry into environmental problems in ports is no different. When it comes to
finding grounds for incentives or introducing a fee structure to minimize emissions, a
legal and logistics dimension is not enough. Recent studies carried out by scholars in
economics show that there are several measures available to tackle the problems but
there are policy and political implications and dimensions which call for
consideration.10

2 Constitutional Issues

One key element of the present work is the discussion on the introduction of fees as a
means to reduce emissions from different transport modes in ports. As the
VINNOVA research mainly circulate around Swedish ports, a short background to
how fees are handled from a legal perspective should be in order. It is important at
the outset to stress that fees can be considered a tax with all the attendant procedural
difficulties in the Swedish Parliament11 relating to taxation. In the VINNOVA
project, a several delegates favoured an introduction of fees for traffic reduction in
ports during certain hours to avoid congestion and emissions.
From a constitutional viewpoint, fees can be exacted by the local municipal
government pursuant to a decision made by it, but a decision regarding taxation
must be made by the Parliament. The procedure to obtain parliamentary acceptance
is complicated to say the least. A proposal on a new tax must be introduced to the
Parliament through a proposition from the Government and after deliberations in the
Parliament the Act may be passed. First, there must be the political will to set the
proposal in motion. Further to that, the rather complicated constitutional process for
a tax proposal beginning from the time the directive is issued by the government to
the committee12 progressing onward to the decision made by the Parliament. The
overall time would be not less than 2 years.
From the very start of the VINNOVA project, fees were a key element to create
incentives to reduce emissions from vessels and vehicles. As indicated, the issue of
the fee is difficult from a legal standpoint. There has been over the years different

9
Bergqvist and Monios (2018), Gong and Cullinane (2018).
10
Sterner and Coria (2016).
11
The Swedish Parliament is called the Riksdag. The word “Parliament” is used in the text for the
benefit of English readers.
12
These committees involving tax related matters normally consist of Members of Parliament and
external experts in the related field. After the delivery of the Committee’s report, it is circulated to
different government bodies and institutions for review before a proposition is set, comprising both
the committee report and the review remarks all commented on by the responsible Minister. The
proposition is then tabled in Parliament. It is reviewed once more and commented on by the
Committee dealing with taxation matters in the Parliament. This report will form the basis of the
proposal on which the Parliament will vote.
Environmental Challenge in Port Development: The Legal Perspective in. . . 441

Table 1 Containers and vehicles transported

Port No of ships to port Containers Cargo vehicles Personal vehicles
Gothenburg 6408 1023,460 548,937 338,477
Stockholm 8128 104,800 472,127 1297,502
Trelleborg 4790 0 744,570 388,992
Karlskrona 1000 278 145,195 115,888

solutions to avoid the borderline problem between tax and fee. In both Stockholm
and Gothenburg a congestion tax has been introduced; the decision regarding it has
been taken by the Parliament and provided for in an Act. In the same manner, several
infrastructure projects have been supported by infrastructure fees, but to avoid any
debate over whether or not this is a tax, the legality of the fee is handled through the
adoption of an Act by the Parliament. A more thorough discussion regarding the
question of tax or fee is presented below.

3 Research on Environmental Differentiated Port Dues

From the perspective of reduction of emissions regarding port operations there must
be a split between maritime operations and land operations. As stated above, traffic is
increasing in both areas, even on a global scale. This also means that different ports
around the world would construct different ways to combat emissions, not only as air
pollution but also particles from the exhaust fumes and the road surface. Another
problem to be addressed is noise from both traffic and vessels.
The first area of interest is with regard to vessels calling at ports. In the
VINNOVA project, a number of Swedish ports participated as reference groups.13
These ports were selected from criteria based on the number of vessel calls made to
the port and the significance of their impact on the environment in the port city.
Gothenburg was chosen for hosting a large port in a relatively large city. The port of
Trelleborg, in the south of Sweden, was invited to participate for having a large port
in a small city. The ports of Stockholm and Karlskrona are more or less the same, the
difference between them being the size of the city hosting the port.
Looking at the number of vessels calling at the different ports provides the
following figures counting containers and vehicles transported on the vessels (See
Table 1)14:
These figures provide an indication of the level of transported goods that will be
in transit through the four cities as well as an indication of the number of vessels

13
The following ports participated in the project—Gothenburg, Stockholm, Trelleborg and
Karlskrona.
14
Figures in the table are broken out from statistics from Swedish Ports from 2017. https://www.
transportforetagen.se/ForbundContainer/Svenska-hamnar/Branschfragor/Hamnstatistik/
Hamnstatistik/. Downloaded 2019-02-09.
442 L.-G. Malmberg

calling at the respective ports. The difference between the four cities in this matter is
that Trelleborg and Karlskrona encounter the same vessels all the time as they are
foremost RoRo/RoPax ports.
As to the project participant ports, a short description of the four should be in
order. The ports are all wholly owned by the municipality but operated through a
municipality—controlled company. In one case, that is, the Port of Karlskrona, the
port company operating the ferry port is divided between the municipality-owned
company and the ferry operator where the later has a majority of the shares. In the
case of the Port of Gothenburg and Port of Trelleborg, the port authority is concerned
only with the part that is used for commercially operated vessels,15 while in the case
of the Ports of Stockholm and Karlskrona, all quays are part of the municipality-
owned Port Company.
From the Port of Trelleborg, three different ferry operators utilize their vessels
going to six different destinations with 30 arrivals/departures each day. In all,
13 different ferries call into the port and all ferries are of rather recent built. The
port which is situated more or less in the centre of the city, is now expanding and
moving towards the east of the city. In Karlskrona one ferry operator operates four
ferries going to one destination in Poland. The port of Karlskrona is situated just
outside the city and the traffic to and from the ferries do not have a big impact on the
city from an emission standpoint. The Port of Stockholm is more diversified than the
ones mentioned above. First, the whole port owned by the Municipality of Stock-
holm is divided into three different ports, where one is situated in another munici-
pality. Even the ports in Stockholm are split from each other. One is in the centre16 of
Stockholm with ferries traversing to Alandia and Finland which are visible to the city
population, while the other is located somewhat off from the city centre.17 In this
area, the oil terminal and the container terminal are located. The Port of Gothenburg
is also a wholly owned company of the municipality. The port has been focusing on
commercial berths only. Today, it provides the ferry services to Germany and
Denmark; it is close to the city centre. The oil, container and RoRo terminals are
outside the city close to the industrial areas on the island of Hisingen.
Of the four ports discussed in the project, only two have diversified traffic flowing
into the port from the seaside. These are the Ports of Gothenburg and Stockholm.
The Port of Trelleborg has some bulk cargo vessels calling into port but on a very
limited scale.18 By and large, all varieties of vessels call at the Port of Gothenburg,
but pure dry bulk carriers are rarely seen. Basically, all the different kinds of cargo
coming in and going out must be transported to and from the port either by rail or
road. From a European perspective, this is a limitation as canal vessels traversing the
European rivers and coastal sea traffic are virtually non-existing in Swedish waters.

15
This omits the quays that takes on fishing vessels, leisure crafts.
16
Stadsgårdskajen.
17
Värtahamnen.
18
These vessels operate with either merchandise for the agriculture sector or oil to support the
bunker industry.
Environmental Challenge in Port Development: The Legal Perspective in. . . 443

Another matter that complicates transport to and from hinterland terminals is that the
Swedish railroad system is facing congestion problems. It is notable that all Swedish
ports in the study already have or are planning to establish, combi-terminals.
Looking at the structure of fees already aimed at vessels calling at ports, it is
found that there is already quite a few, based on different activities required by the
port authority.19 There is commonality when it comes to the different fees that the
ports charge from the ship owner. There is a basic fee based on gross tonnage, fees
that relate to different kinds of wastes generated during the vessel’s voyage to the
port, such as sludge and bilge water and other forms of waste. Since recent years,
there has been a need to be able to take scrubber waste as well. From the calculated
fee based on the gross tonnage (GT) on the vessel, a discount is given based on the
vessel’s point acquired in the Clean Shipping index.20 The Port of Gothenburg has in
its list of discounts stated that environmental discount is given under the prerequi-
sites that the vessel has a registration in accordance with the rules for the ESI21 or
alternatively, the CSI.22 Vessels using LNG will be provided with an extra rebate on
20 % in Port of Gothenburg.23
From an EU perspective, there seems not to be any problems with issuing both
fees and discounts depending on the vessel’s environmental class. In the preamble to
the EU Regulation from the 15th of February 2017 regarding “establishing a
framework for the provision of port services and common rules on the financial

19
The Port of Stockholm describes the basic dues for vessels calling at the port in the following
words: Harbour dues for vessels are levied each time a vessel puts into port. Vessels with a gross
tonnage (GT) below six (6) are exempt from dues. If a vessel calls at the port and uses a dock or pier,
which does not belong to the Port of Stockholm, the harbour dues listed above will be reduced. The
same discount applies to vessels on domestic routes carrying sand or grain or vessels which are
lying at a buoy without calling into berth within the port area. From January 1st, 2012 the fee is
always calculated on the GT without regard to possible deduction for segregated ballast tanks and
calculated on a minimum of 500 GT. For barges, the vessel dues are calculated on the gross tonnage
of the barge excluding tugboat/pusher. Taken from the official price list publicized on internet.
https://www.portsofstockholm.com/siteassets/prislistor/2019/sh-prices-and-terms-2019-version-
2019_1.pdf. Downloaded 2019-02-09.
20
In the tariff from Port of Stockholm this is described in the following way: The Port of Stockholm
offers environmental rebates for vessels affiliated with and certified according to an environmental
index (currently the Clean Shipping Index (CSI)). The vessel receives the rebate based on GT and
call in accordance with the table, where the index score is calculated as the total sum of the
allocated/verified points in the SOx, NOx and CO2 categories. Vessels that are not operating
regular liner services must send a copy of the certificate to Ports of Stockholm when submitting
the ship’s notification form. Taken from the official price list publicized on internet. https://www.
portsofstockholm.com/siteassets/prislistor/2019/sh-prices-and-terms-2019-version-2019_1.pdf.
Downloaded 2019-02-09.
21
www.environmentalshipindex.org.
22
www.cleanshippingindex.com.
23
Regarding the LNG vessels information regarding the use of LNG should be reported to Port
Control Port of Gothenburg on the first time it makes call to the port. https://www.
portofgothenburg.com/about-the-port/greener-transport/environmental-discount-on-the-port-tariff/.
Downloaded 2019-02-09.
444 L.-G. Malmberg

transparency of ports”24 the following statement is of importance for the discussion

to follow:
The full integration of ports in seamless transport and logistics chains is needed to contribute
to growth and a more efficient use and functioning of the trans-European transport network
and the internal market. This requires modern port services that contribute to the efficient use
of ports and a climate favourable to investments to develop ports in line with current and
future transport and logistics requirements.25

It is in many ways obvious that the EU Commission is aware of the difficulties to

maintain unrestricted competition in the European ports as the member states depend
heavily on the ports for import and export of goods. Even so, the Commission
stresses the need for transparency regarding port services and fees.

4 Incentives Regarding Port Developments

4.1 Sea Side Incentives

In the UNCTAD Maritime Review for 201826 it is stated that global seaborne trade is
doing well. It is understood that this is supported by an upswing in the world
economy during 2017. It may be considered to be the fastest growth in the last
5 years, expanding by 4%. Global containerized trade went up another 6.4%.
Prospects for seaborne trade are, according to UNCTAD, positive with a prospect
for 2018, a projected growth of another 4%.
With an expected growth in shipping and trade of this size, there will follow an
increase in the amount of traffic to and from the ports. The big question is how this
increase regarding both shipping and land side transports, is to be handled. Looking
at the solutions found in other parts of the world, the problem is the same. Increased
traffic, whether on land or at sea, increases environmental problems. The way to
handle it is different, based on the examples of countries like the United States and
Australia which have relatively easier ways to support shippers and haulers, to
change their behaviour patterns, compared with countries tied to the rules engen-
dered by the European Union regarding free movement of goods, services and
labour. Any form of discrimination or favours given to certain actors are strictly
banned.

24
REGULATION (EU) 2017/352 OF THE EUROPEAN PARLIAMENT AND OF THE COUN-
CIL of 15 February 2017 establishing a framework for the provision of port services and common
rules on the financial transparency of ports, Official Journal of the European Union, L
57, 3 March 2017.
25
Preamble Point 1, Official Journal of the European Union L 57/1.
26
The report is set as 2018 but reflects the findings from 2017. See https://unctad.org/en/
PublicationsLibrary/rmt2018_en.pdf. Downloaded 2019-02-09.
Environmental Challenge in Port Development: The Legal Perspective in. . . 445

In a report of the VINNOVA project, a study entitled “Port Initiated Incentives

and Fees for more Sustainable Transport from a Hinterland Perspective”,27 a number
of different modes to facilitate sustainable development of road transport to and from
ports from an environmentally sound perspective is described. In the report by
Gonzalez-Aregall and Bergqvist, references are made to an OECD report of
2011.28 One key point mentioned in the introduction to this OECD report is a
statement regarding competition and constraints facing ports from two different
perspectives. They are constraints emanating from other modes of transport (inter-
modal competition) and from other ports (inter-port competition). It was held that
when assessing how great the strength of these constraints are, the degree of
substitutability between them must be consider. In other words, can road transport
be substituted for maritime transport, or could one port be substituted for another
port?
In European waters there are many ports that operate as hubs for incoming and
outgoing cargo on shipping routes to and from Europe. The goods that are in transit
in the ports must be moved either to or from a hinterland terminal. Alderton
discusses the development of large ports to hubs when intermodal transportation
started and when larger and faster container vessels started to ply the ocean routes.
To and from these hubs, containers were moved with the help of feeder vessels or
inland transportation modes.29 The European Commission generated a report in June
2017 named, “Study on differentiated port infrastructure charges to promote envi-
ronmentally friendly maritime transport activities and sustainable transportation”. In
this report, it is stated that the Commission had conducted a study in which the
objective had been to assess various options of differentiated port infrastructure
charges that had been applied in different ports. The charges in the study are only
those that reflect criteria relating to the environment or sustainability. In the study,
three different objectives were looked into, namely, (a) Updating information and
data of EU and worldwide existing practices’ inventories, (b) Examining the benefits
and costs, including the economic aspect and environmental potential, of certain
schemes, and identifying good practices, (c) Developing recommendations and
guidelines for the voluntary application of environmental charging principles in
European ports.
In some studies carried out within the EU prior to the report of 2017, there is a
White Paper from 201130 and a Communication from the Commission Ports: an

27
Gonzalez-Aregall and Bergqvist (2017).
28
See http://www.oecd.org/regreform/sectors/48837794.pdf. Downloaded 2019-02-09.
29
See Alderton (2008), p. 7.
30
See WHITE PAPER Roadmap to a Single European Transport Area—Towards a competitive and
resource efficient transport system https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?
uri¼CELEX:52011DC0144&from¼EN. Downloaded 2019-02-10.
446 L.-G. Malmberg

engine for growth31 from 2013. In Regulation 352 from 2017,32 a framework for the
provision of port services and common rules on the financial transparency of ports is
established. In a way, much of the discussions carried out and reflected in the
previous documents from the Commission are visible here. The first statement in
the regulation clearly calls for a different approach from the EU. It states that there is
a need for full integration of the European ports to form a seamless transport and
logistic chain. This would facilitate growth and a more efficient use of both the
Trans-European Transport Network and the internal market. Furthermore, they stress
the importance of the ports to contribute towards a “climate favourable to invest-
ments to develop ports in line with current and future transport and logistics
requirements”.33 A reference to the Commission’s communication of 23 May
2013 entitled ‘Ports: an engine for growth’ is also made.34 It is especially stated
that preparation must be made for addressing those challenges that the maritime
industry will face in the coming future and it is urged that efficiency and the
sustainability of transport and logistics chains must be improved. Furthermore, it
is indicated that actions must be taken to simplify administrative procedures set out
in the communication of 2013. In addressing the regulation, it is clarified that the
Regulation should not be interpreted in such way that it would prejudice Member
States’ rules governing the system of property ownership which are applicable to
maritime ports. Furthermore, the Regulation should allow for different port struc-
tures in Member States.
Incidentally and notably, in one bullet point in the preamble to the regulation is a
statement regarding port operators.35 It is observed that ports in general are set in a
limited geographical area, which would have relevance to how many providers of
port services could be accepted to operate in the port. Therefore, it is recognized that
in certain cases there could be a limitation imposed on what could be a right to
establish an operation in the port. In the preamble it is stated that such limitation
should be based on one or more of the following criteria; the scarcity of land or
waterside space, the characteristics of the port infrastructure or the nature of the port
traffic, or the need to ensure safe, secure or environmentally sustainable port
operations.
There are some important matters that warrant discussion regarding Regulation
2017/352. First and perhaps foremost, it is stated that the regulation is just a
minimum standard. In this regard, two articles in the Regulation are worth mention-
ing. In these, there is a split between port service charges and port infrastructure

31
See https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri¼CELEX:52013DC0295&
from¼EN. Downloaded 2019-02-10.
32
REGULATION (EU) 2017/352 OF THE EUROPEAN PARLIAMENT AND OF THE COUN-
CIL of 15 February 2017 establishing a framework for the provision of port services and common
rules on the financial transparency of ports, Official Journal of the European Union L 57/1.
33
See the first bullet point in REGULATION (EU) 2017/352.
34
See the second bullet point in REGULATION (EU) 2017/352.
35
See bullet point 19 in REGULATION (EU) 2017/352.
Environmental Challenge in Port Development: The Legal Perspective in. . . 447

charges. Article 12 regulates the port service charges which are divided into three
parts. The first deals with charges emanating from a service provider who operates
under a public service obligation. The provision states in part as follows:
The charges for the services provided by an internal operator under a public service
obligation, the charges for pilotage services that are not exposed to effective competition
and the charges levied by providers of port services, referred to in point (b) of Article 6(1),
shall be set in a transparent, objective and non-discriminatory way, and shall be proportion-
ate to the cost of the service provided.36

Looking at the words “internal operator” and “public service obligation”, in the
above provision, it must be observed that they fall within the rules in Articles 6 and
7. In the operations of a port there are some services such as pilotage which must be
executed. In some ports, this service is provided by a private contractor; in others, by
a governmental operator. Regardless of whether it is a public or private operator,
both fall under a public obligation and must be executed when the service is
requested or if pilotage is compulsory. Another such obligation is with regard to
assistance with hawsers during docking. It is provided in the Article that any opening
for the provision of such service is excluded from competition, which in terms of
ordinary EU regulation is rather unusual. In the second paragraph there is a reference
to a further opening for port service charges being integrated into other payments,
such as port infrastructure charges. But as stated in the paragraph, it must be in a
transparent, objective and non-discriminatory way.
In Article 13, regarding port infrastructure charges the present author finds
paragraph three of importance for the rest of this study. It states as follows:
In order to contribute to an efficient infrastructure charging system, the structure and the
level of port infrastructure charges shall be determined according to the port’s own com-
mercial strategy and investment plans, and shall comply with competition rules. Where
relevant, such charges shall also respect the general requirements set within the framework
of the general ports policy of the Member State concerned.37

It is interesting that the ports own commercial strategy and investment plans are
giving room when setting the charges in addition to compliance with competition
rules. It gives port operators some room for deciding on charges. What might be
understood from the regulations, is that a port is free to set charges for different
activities performed for services provided to ship operators. It appears whatever the
ports in the VINNOVA project are charging follows a typical format which has been
discussed earlier. What remains to be considered is the manner in which port
authorities and port operators can act to reduce emissions from vessels and traffic
to and from the port area.

36
See article 12 paragraph 1 REGULATION (EU) 2017/352.
37
See article 13 paragraph 3 REGULATION (EU) 2017/352.
448 L.-G. Malmberg

4.2 Land Side Incentives

In the study carried out by Gonzalez-Aregall and Bergqvist38 mentioned above, a

survey over different projects in ports to reduce emissions and congestion was
carried out. They made a survey to be able to consider as many case studies as
possible. After using the relevant sources39 they selected 7740 different cases that
could prove to have a potential for drawing some conclusions. Out of these, a total of
160 different initiatives were considered for the study. Their study is further based on
container ports. From this study a couple of these initiatives will be presented in
more detail in this chapter.
The ports that Gonzalez-Aregall and Bergqvist studied were from the United
States, Australia, New Zealand and Europe. It is important to add here that port
regulation is perhaps not easy to compare from a straightforward perspective.
European rules of non-discriminatory actions are obstacles to certain incentives
taken in the US. Their study is based on five different case examples; namely,
(1) on air emission goal, (2) on acoustic emission goal, (3) on land congestion
goal, (4) on modal shift and (5) on intermodal incentive.41 These incentives mirror
some of the suggestions put forward in some of the reports from the work packages
presented in the final report of the aforementioned projects.
From the study that Gonzalez-Aregall and Bergqvist carried out, three examples
will be reviewed briefly. First, is the examples of the Ports of New York and New
Jersey and is referred to as the “Truck-replacement program”. The aim of it is to
reduce the number of heavy polluting trucks frequenting the port area. Through this,
the port is supporting the replacement of older so- called Drayage Trucks. According
to the Port Authorities of these ports, there is a mandate to replace the old trucks and
allow funding for two new trucks with a grant which covers up to 50% of the cost.42
Coupled to this program is a registration in the Port Truck Pass which is a tool in the
Clean Truck Program. Such registration must be made before the date of the entry
into the port. In this way, the port authorities support the replacement of older trucks
with newer ones with more environmentally sound engines. How such a program
would fit into a port in Sweden will be dealt with later.

38
Port Initiated Incentives and Fees for more Sustainable Transport from a Hinterland Perspective.
39
Sources used by Gonzalez-Aregall and Bergqvist was BestFact case studies, Green Ports project,
IAPH database, OECD report (2011; 2012), World Port top hundred ranking. See the report page
17.
40
The authors made the following remark in a footnote on how the 77 ports were chosen:
“Specifically, it has been considered 44 potential cases of the top hundred container port worldwide
ranking (including a total of 148 port authorities) and 33 of IAPH database and other sources.”
See p. 17.
41
See pp. 20–22.
42
It is a maximum level of 25,000 US$. At the time of the report was written 429 cases of
replacement was carried out between 2010 and 2013. According to Gonzalez-Aregall and Bergqvist
the successfulness in the program this was prolonged for 4 more years.
Environmental Challenge in Port Development: The Legal Perspective in. . . 449

The second example from the study regards the problem with congestion. The
study comes from the Port of Los Angeles and Long Beach in the United States. In
short, this program aims to set up night and Saturday shifts at both ports through a
Traffic Mitigation Fee during peak hours. This incentive is known as the Pier Pass
Program. The incentive works on the basis of getting the truck operator to use so
called off-peak shifts. The extra cost that the port authority will have to incur for the
extra shifts is covered by fees from a congestion pricing model.43 The above-
mentioned Pier Pass Program partly refunds the fees in respect of those containers
that leave/arrive at the terminal in the off-peak hours. Under the program, importers
or exporters are charged USD 20 per TEU.
The third case concerns modal shift and the program referred to comes from the
Port of Oakland, United States. This is about introducing a Heavy Weight Corridor
which was implemented in 1993. Under the program, the Chief of Police designates
new roadways and controls, and directs trucks to specific routes in the city without
using residential streets. As an add-on to this, there is a requirement by the Port
Authority for truck drivers to present a special port vehicle permit when entering the
port. Otherwise, drivers are denied access to the port.44
The examples given here are taken from the report by Gonzalez-Aregall and
Bergqvist which illustrate the possibilities to direct vehicles in a direction to reduce
emissions and traffic congestion. In those examples, the different programs bring
forward an incentive to follow the aspirations of the program, which is cleaner air
and less traffic during an unwanted time of the day. The big question is whether it is
possible to emulate this in a European context. In the appendix to the report, there is
documentation showing different projects that have been identified, but there is no
further elaboration by the authors. Some of these projects have a stronger bearing
towards the outcome of this chapter contribution than perhaps the three discussed
above.

5 The Swedish Perspective

As mentioned above, in the project on incentives and fees to reduce environmental

problems in ports, some suggestions were put forward in some of the five different
work packages. It was clear that the research carried out on vessel operations and
slow steaming only resulted in a recommendation for further research.45 Important to

43
This fee is called Traffic Mitigation Fee (TMF) and it is required for most cargo movement during
peak hours (Monday through Friday, 3 a.m. to 6 p.m.). According to figures from the Port Authority
of Los Angeles and Long Beach published in 2017, more than an average of 60,000 trucks per week
have been diverted to the off-peak shifts since 2005. See p. 22 of the report.
44
See p. 22 of the report and the information that was acquired from the Port Authority of
Oakland, 2017.
45
The major reason for a recommendation for further research was that the time and money
allocated were not sufficient to take on more than initial studies.
450 L.-G. Malmberg

note is that the more frequent users of ports are RoRo and RoPax ferries which
already seem to follow recommendations regarding slower speed and also
connecting to land electricity to avoid using auxiliary engines to provide for elec-
tricity while in port. There are too many uncertainties in the findings from the work
packages dealing with vessel-induced emissions.
What has gained more attention has been emission and congestion problems
related to vehicles operating to and from the port. Looking at the figures regarding
vehicles transported by vessels to and from ports, Gothenburg counts 548,937,
Stockholm 472,127, Trelleborg 744,570 and Karlskrona 145,195.46 These figures
relate only to vehicles transported by RoPax ferries. To these figures must be added
the number of vehicles that transport containers and semi-trailers to RoRo-vessels.
This is another uncertainty as figures are not available for the full effect of a study on
environmental impact and the level of congestion. Nevertheless, the focus on efforts
to combat pollution and congestion was presented by researchers from both IVL and
VTI47 and the means discussed relates to two different areas.
In the first model, the following proposition is made in the form of a congestion
fee for trucks. The fee is charged upon entering the port, similar to the TMF from the
port of Los Angeles and Long Beach. The proposal is connected to container
terminals and aims at peak-hour traffic.48 During those hours, the fee would be
SEK 200 at each entry. According to the model suggested the fee would be the same
regardless of which truck or how it is loaded. The other fee would be an environ-
mental fee. Once again, there is a port gate entry fee; this time, a differential
depending on the classification and environmental performance of the trucks engine.
Entering the gates will generate charges on SEK 200 per entry and it is mandatory for
all trucks. Then there will be a discount of 50% if the truck is fitted with an Euro-6
engine and 100% if it is an electric/hybrid vehicle or a gas vehicle (CNG/LNG/
Dual Fuel).
These are basically good suggestions. The only crux is that they are not fees. A
common denominator for a fee is that there is a correlation between what is paid and
what the payor gets for the money charged. In reality this is a tax. The setup of the
system as described, involves a three-fold discussion on how it can be made
possible, and perhaps made legal, as follows:
Purpose: The purpose is to achieve environmental improvement measures by favouring
trucks with high environmental performance, thereby lowering local emissions of pollutants
such as nitrogen oxides (NOx), Hydro carbons (HC) and particles (PM).
Who collects charges: The terminal operator.
Who pays the fee: The fee is paid by the driver directly at the port gate, either in cash or
by card.49

46
Figures are derived from statistics on Swedish Ports from 2017, see also footnote 15 above.
47
IVL Swedish Environmental Research Institute and VTI—Swedish Road and Transport Research
Institute.
48
Peak hours is at weekdays between 6:30–9:00 p.m. and at 2:00–6:00 a.m.
49
Argued by the authors of the text as: “similar to existing system for infrastructure fees in Europe,
i.e. bridge and road charges”—but far from the Swedish adopted system where a congestion tax or
Environmental Challenge in Port Development: The Legal Perspective in. . . 451

A similar approach is discussed regarding a congestion fee in the way it is

collected and payable through the agent and the driver. The problem here as
described earlier is that it does not work as a fee in terms of basic Swedish
constitutional principles.50 In the report to VINNOVA the authors Sallander and
Rendahl criticize the discussion on fees based on the following:
The first action carried out by the authors’ is to classify the proposed fee.51
Furthermore, it is not enough to look at the national source but also at the EU
legal source that has an effect on the classification. It is also clearly pointed out that
in which way a charge is named, has no effect on its classification. This brings us
back to the fact that a fee could be considered a tax and therefore must be decided by
the Parliament. If the same fee or charge could be decided as an excise duty in the
form of a toll, it limits the right to introduce it to the EU legislator.52
By just looking at the Swedish perspective on the matter of fees and taxes, there
has been enough discussion already that tax is decided by the Parliament. But when
it comes to a fee it could be decided by the municipality. If a fee could be considered
as such, the following has to be fulfilled: it must be paid on a voluntary basis, it must
be reciprocal to a direct and specific counter-performance and finally the fee must be
equivalent to service provided by the municipality.53 If any of those prerequisites are
absent, then it is a tax. There is a clear element of mandate in the suggestions put
forward.
Another problem of introducing fees at the gates of the port of trucks entering the
area is the division between port ownership and port operator. In two of the four
ports examined, namely, Gothenburg and Stockholm, the container terminals are
operated by individual operators. In this respect both ports administer the respective
container terminals in the same way. The fees collected by the port are vessel
operational fees only. When it comes to terminal activities and fees related to that,
the Port Administration leaves that to terminal operators. Although, in the tenancy
agreement between terminal operators and Port Administration there is a fee added
to the tenancy calculated on the number of cargo entities lifted over the rail. A cost
that is, of course, transferred to the shipper or cargo owner from the terminal
operator. In the latter relation, this is not a fee decided by a public authority. But

infrastructure fee is collected by the Swedish Transport Board. The tax or fee is sent as a payment
slip by mail.
50
The legal discussion in the project on this item is carried out by Assistant Professor Ann-Sohpie
Sallander and Asssociate Professor Pernilla Rendahl, under section 3.4.2.3 Step 3: Identification of
the most relevant legal difficulties. In Environmental differentiated port dues—Final report, Styhre,
L., von Bahr, J., Bergqvist R., Bäckström, S., Gonzalez-Aregall, M., Hult C., Jivén, K., Karlsson,
R., Malmberg, L-G., Parsmo R., Rendahl P., Romson, Å., Sallander A-S., Sköld, S., Sterner, T.,
Vierth, I., Winnes, H. IVL Swedish Environmental Research Institute 2018 (to be published 2019).
51
In this case a discussion on a classification of the suggested “fee” as whether it is a tax, a fee, a
duty or charge having an equivalent effect.
52
The authors points out that “Charges having equivalent effect to a toll are forbidden by the EU
Treaty”.
53
See the Municipality Law 2 Chap 6 §.
452 L.-G. Malmberg

as the port area is operated by an individual operator it becomes difficult to impose

on him an obligation to collect a “fee”. He might not be interested as both the
congestion problem and the environmental problem is a problem for the municipal-
ity. As has been discussed above, there are already congestion taxes and environ-
mental bans on older trucks exceeding 3.5 tons in both Gothenburg and Stockholm.
In the VINNOVA project the focus has been on the container ports but in all of
the four ports, the majority of vehicles operate through the RoRo and RoPax ferries.
In all of the ports, these ferries have grown in both size and numbers. They are the
ones that generate most of the garbage and other wastes. They are in need of
electricity during their time in port and electricity is normally generated through
the use of auxiliary diesel engines or through port land-based electricity. A survey
conducted shows that there has been a reluctance from the side of the vessel operator
to connect to land electricity due to the short port calls. Emissions from vessels’
auxiliaries could be a matter for a port fee.

6 Outlook in Europe

Experience with the VINNOVA project shows that the use of fees might not be the
best way to combat environmental problems in ports. From an EU perspective there
are a number of ports that face the same problems as Swedish ports. The findings of
different projects indicate that that a fee based system has not been developed yet.
Most ports try to find other ways to deal with the problem. From the survey
mentioned made by Gonzalez-Aregall and Bergqvist, there are several projects
emanating from ports within the EU.
Taking Amsterdam, Antwerp and Hamburg as examples,54 there are similarities
in that all three ports have access to different modes of transportation to divide the
traffic flow from the roads. A common denominator is to reduce the emissions from
road traffic. The way that these ports have moved is to attempt to acquire a modal
shift from road to an alternative means of transport. Such a project is the Amsterdam
Barge Shuttle which has been active since 2008 and aims at moving cargo from ships
and terminals to other terminals using inland waterways. The Actors (Leader/
Participants) are Port Authorities, Terminal Operators and Service Operators. The
basic aim is to reduce land congestion, and pollutants including CO2, Nox and
PM.55
Another Amsterdam project is the Intermodal Planner. It is a tool to deal with land
congestion planning and the modes of transports are barge, rail and short sea
transportation. The project functions as a digital platform between transport opera-
tors and container terminals. In Antwerp, the main projects look at rail transport for
shifting traffic from roads. Two of the four projects build on incentives and are

54
The complete survey is in the Annex 1. Summary table of all case studies, pp. 35–46.
55
Short for atmospheric particulate matter from the emission from diesel engines.
Environmental Challenge in Port Development: The Legal Perspective in. . . 453

dedicated infrastructure projects. One is the Liefkenshoek Tunnel and the other is the
Iron Rhine rail road. Rail tunnel is set to promote rail freight over all, the other is a
very old project between freight railway connecting the port of Antwerp (Belgium)
and Mönchengladbach (Germany). It was reopened in 2015 but there have been
difficulties with it as the Netherlands have launched arguments against it. Hamburg
has a rather large number of projects going on mainly to handle congestion. The
geographical position of Hamburg, especially during the Cold War period, with the
East German border being close to the city resulted in all roads through the German
Bundes Republic running from the south to the Baltic coast line more or less going
through the city. One of these projects is the Port Road Management Centre, used as
a tool and based on technology which supports drivers to be able to switch to
alternative routes in time to make more efficient traffic flows on the existing road
network. The project has been going on since 2011 and is aimed at port authorities
and port users.

7 Analysis of Findings

Viewed in terms of an international and regional outlook, and compared with the
project on Environmental differentiated port dues, there are some differences. First,
all ports in Europe are more closely connected to hinterland terminals through
waterborne traffic on barges or coastal vessels, a phenomenon that is not present
in Sweden. Secondly, the rail road system in Europe is also more extended than in
Sweden. The common denominator is the road system linking cities together which
is about the same and there are the same problems with emissions from trucks and
road congestion. It leads to the conclusion that the projects already operational in
Europe could have a bearing on solutions to problems in Swedish ports which have
road management on their agendas. One of the aforementioned projects on Port
Road Management Centre could be an option. The different projects outside Europe
has a freer attitude towards subsidies than is possible under the EU umbrella.
In European ports like Hamburg, Rotterdam and Antwerp, the sheer size makes it
possible to have more than one operator in the terminals. Rotterdam could in a
simplified manner be said to have three major ports, Maasvlakte, Emmhaven and
Waalhaven. There is enough room in these three ports for more than one operator but
still the space is not unlimited. The Maasvlakte port has four major container
operators. If this is to be compared with Gothenburg and Stockholm, there is room
for only one operator. In the same manner, tugboats and pilots are not under any
competition, a situation that is accepted under the rules in EU Regulation 2017/352.
In the same manner, the different fees that are allocated for incoming and outgoing
vessels are all under the acceptance of the EU regulation; and as such, is the discount
that is provided if the vessel meets the environmental emission limits rules for the
ESI or the CSI, so long as these discounts are transparent and go for all other fees,
even if they are merged together.
454 L.-G. Malmberg

As mentioned earlier, it is not possible to introduce new fees from a congestion or

emission point of view. First, there is a lack of legal acceptance to call it a fee. It is
not possible to make a demand of a private operator such as the container terminal
operator, to charge a fee imposed by the municipality. The municipality cannot
impose such a fee as it is most likely a tax. The major problem facing a regulator
when it comes to combatting emissions and congestions, is the geographical position
of the port. Alderton expresses this in the following terms:
• Ports tend to be large civil engineering undertakings with huge sunk cost. They
also tend to last much longer than the vehicles that use them. If a ship owner
makes a mistake in the type or size of ship he buys he can usually recoup his
losses by selling his mistake. A port manager will usually find it more difficult
and costly to dispose his mistakes.
• A ship is an entity, whereas a port is simply a collection of activities. This makes
it more difficult to talk about ports in general. A small ship has many technical
and operational feature in common with a large ship but it is sometimes difficult
to see what a small fishing port in a developing country has in common with, let’s
say, Rotterdam.56
Of the four ports in the project only two of them have a reasonable possibility to
develop in a way that emissions and congestion can be combated or controlled; in
this case, the Cities of Trelleborg and Karlskrona. In both these cities, there is a
possibility of further development of the roads leading to the port in such a way that
congestion could be avoided. In the case of both Gothenburg and Stockholm, the
port is set so that the roads more or less lead through the city centres.

8 Final Words

This contribution to Maritime Law in Motion has perhaps not been so much on
Maritime Law itself, but has pointed out the increasing importance of ports and port
administrations when environmental questions are to be addressed from the maritime
community. It is no longer possible to view regulatory and administrative maritime
law simply from the looking glass of the terminal berth and out to the high seas. The
logistical connections between vessels, ports, land transport and hinterland ports
become more of an interconnected system. Legal research has therefore to adapt
itself to developments taking place further inland from the port. Legal researchers
must also prepare themselves to participate in projects of a multi-disciplinary nature.
As the present author has indicated, multidisciplinary work puts high demands on
the coordinator of the research project but at the same time it brings new dimensions
to the research of the participants.

56
Alderton (2008), p. 4.
Environmental Challenge in Port Development: The Legal Perspective in. . . 455

In this project the outcome from the legal perspective was on how to find
solutions to reduce emissions and congestions due to the increased traffic to and
from ports. The lesson learnt was that the four participating ports had different
problems with vehicles driving to and from the port. Their biggest problem in
Gothenburg, Stockholm and Trelleborg was in the routes in the cities. City planners
in Trelleborg are now rerouting with new roads and entry gates to the port to reduce
traffic in the city of Trelleborg. In both Gothenburg and Stockholm large infrastruc-
ture projects are going on but the position of the ports and the rail and road network
in the cities still brings the traffic flow through parts of the city that continues to
create congestions.
The final outcome of this project funded by VINNOVA is that it leads the legal
researchers to match a number of research areas under new labels. It has become
visible that when port developments are discussed and legal instruments are intro-
duced to make environmental efforts possible, more disciplines have to engage in
forming research groups. There are more challenges to be researched from a
multidisciplinary perspective and vantage point. It is both challenging and truly
inspirational.

References

Alderton P (2008) Port management and operations. Informa, London

Bergqvist R, Monios J (2018) Green Ports, Inland and seaside sustainable transportation strategies.
Elsevier, Amsterdam
Communication from the Commission, Ports: an engine for growth, https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri¼CELEX:52013DC0295&from¼EN
EU WHITE PAPER, Roadmap to a Single European Transport Area – Towards a competitive and
resource efficient transport system https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?
uri¼CELEX:52011DC0144&from¼EN
Gong S, Cullinane S (2018) Finance and risk management for international logistics and the supply
chain. Elsevier, Amsterdam
Gonzalez-Aregall M, Bergqvist R (2017) Port initiated incentives and fees for more sustainable
transport from a Hinterland perspective, Working Paper Series Logistics and Transport
Research Group No. 2017:2
Port of Gothenburg, https://www.portofgothenburg.com
Ports of Stockholm, https://www.portsofstockholm.com
Ports of Sweden, https://www.transportforetagen.se/In-English/Association-ports-of-Sweden/
Review of Maritime Transport 2018, UNCTAD/RMT/2018.
Sterner T, Coria J (2016) The economics of environmental policy behavioral and political dimen-
sions. EE Publishing, Cheltenham
Transport Analysis Maritime transport 2017, https://www.trafa.se/globalassets/statistik/sjotrafik/
sjotrafik/2017/statistikblad-sjotrafik-2017.pdf
Taxation and Ship Management: A
Canadian Case Study

F. Mikis Manolis and Ron L. Bozzer

Abstract In 1991, Canada began implementing changes to its tax regime with
respect to international shipping activities, which were designed to address a steady
erosion of shipping knowledge, expertise and shipping-related job opportunities in
Canada. These changes represented a unique market-driven approach that sought to
create an attractive financial environment for international shipping operations in
Canada. Under this new tax regime, international shipping corporations were per-
mitted to establish and maintain operations in Canada without being subject to
Canadian corporate tax liability. A central element of this initiative was the elimi-
nation of the so-called “mind and management” test. After more than two decades
since the initial implementation of these changes, it is clear that a significant number
of international shipping corporations have relocated and established themselves in
Canada and particularly so in Vancouver, Canada’s Pacific hub—which is now
described as among the world’s leading maritime centres exerting competitive
pressure globally.

1 Introduction

Beginning in 1991, Canada implemented a series of changes to its tax regime

applicable to international shipping activities designed to address a number of trends
faced by many nations, including traditional maritime nations. These trends included
a steady erosion of shipping knowledge, expertise and related job opportunities
arising from the increasing dominance of open registry vessels or so-called “flags
of convenience” in the business of international shipping.1 Underlying these changes
was an acknowledgment that, in order to preserve and enhance maritime know-how,

1
For a thorough discussion of the policy background underlying these legislative changes, see
Brooks and Hodgson (2005).

F. M. Manolis (*) · R. L. Bozzer

DuMoulin Boskovich LLP, Vancouver, BC, Canada
e-mail: mmanolis@dubo.com

© Springer Nature Switzerland AG 2020 457

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_21
458 F. M. Manolis and R. L. Bozzer

skills and job opportunities within Canada, Canada would need to create an attrac-
tive financial environment for international shipping operations in Canada.2
The approach adopted by Canada was unique and differed from other strategies
considered and in use elsewhere, including the tonnage tax approach considered and
employed by various European countries and the European Union. The tonnage tax
approach typically ties fiscal alleviation or tax relief to requirements such as the
operation of vessels with a specific flag or flags or demonstrating that the effective
management of vessels is carried out within a particular jurisdiction.3 Unlike the
tonnage tax approach, Canada did not seek to tie tax relief to Canadian flag
requirements, establish specific management locale requirements or impose vessel
ownership restrictions. In similar fashion, Canada did not attempt to establish an
international ship register aimed at competing with open registries like the Norwe-
gian International Ship Register established in 1987. Instead, Canada adopted a
market-driven approach and sought to encourage its maritime services industry and
job creation by permitting international shipping corporations to establish and
maintain operations in Canada without being subject to Canadian corporate tax
liability. Central to this initiative was the elimination of the common law “mind
and management” test and the establishment of a tax regime, which had few, if any,
equivalents amongst developed countries. The background from which this unique
initiative sprang and the principal elements of the ensuing tax regime are described
below.

2 Background: The Common Law Setting

Generally speaking, the applicability of Canadian tax law and policy depends on
residence, regardless whether the taxpayer is an individual or a corporation. Accord-
ingly, a corporation’s place of residence is a key consideration in determining
whether it is liable to pay Canadian tax on its world-wide income.4 As the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) does not set out an exhaustive definition of
residence, jurisprudence, as it often does in the common law world, filled the gap in
the legislative scheme.

2
In blunt terms, Canada needed to reduce cost differentials between Canada and other jurisdictions.
3
Brooks and Hodgson (2005), pp. 152–157; European Commission (1997). The tonnage tax
approach also contemplates taxation based on notional profit calculated on the net tonnage of
ship operations not actual profit, which is generally attractive as it predictable, easily calculated and
gives rise to low levels of taxation. See again Brooks and Hodgson (2005), pp. 152–157.
4
In this regard, section 2(1) of the Income Tax Act provides that “[a]n income tax shall be paid, as
required by this Act, on the taxable income for each taxation year of every person resident in
Canada at any time in the year.” Pursuant to, inter alia, section 248 of the Income Tax Act, “person”
includes “any corporation. . . .”
Taxation and Ship Management: A Canadian Case Study 459

Following the long-standing and often cited precedent of the House of Lords in
De Beers Consolidated Mines Ltd. v. Howe,5 Canadian courts have adopted and
developed a test that normally fixes the residency of a corporation in the jurisdiction
“where the central management and control abides.” Typically, central management
and control is found to rest with the corporation’s board of directors and, therefore,
the residence of the directors is a paramount consideration.6 While the “mind and
management” test might, at first blush, appear to be a straightforward question of fact
that ought to give rise to consistent results, its application has historically given rise
to uncertainty. Much of this uncertainty relates to the emphasis that might be placed
by a court on either de jure or de facto control.
For instance, in Yamaska Steamship Co. Ltd. v. Minister of National Revenue,7
the Tax Appeal Board held that a Canadian corporation was not resident in Canada
for tax purposes on the grounds that it was entirely controlled from England by its
sole beneficial shareholder who resided in London such that “[m]erely a de jure
control prevailed in Canada.” This finding was made despite the fact that the
corporation was incorporated in Canada and had a Canadian Board of Directors.8
In contrast, the Exchequer Court of Canada in Bedford Overseas Freighters Ltd.
v. Minister of National Revenue,9 took a different approach. While the Court
accepted the proposition that significant management decisions can be taken by
someone who is not a director such that the place where that person resides may be
determinative of the residence of a corporation, a de jure approach was preferred
over evidence of de facto control outside of Canada.10
In Bedford Overseas, the corporation was incorporated in Canada where three of
its five directors resided. The corporation was beneficially-owned by non-resident
shareholders, two of whom were also directors. The principal beneficial owner of the
corporation was a Greek citizen who resided in Greece and New York and spent
considerable time in London and who had only been to Canada as a visitor for short
periods of time. The principal beneficial owner provided general instructions to his
Canadian counterparts to attend to the administration and management of the
corporation in so far as action was required in Canada by the corporation’s repre-
sentatives and would from time to time instruct them and provide funds to the
corporation as required. The vessels owned by the corporation were managed from
London by a separate entity controlled by the principal beneficial shareholder.
On these facts, Kerr J. of the Exchequer Court accepted that it was the principal
beneficial shareholder who made major decisions regarding the handling of the

5
[1906] A.C. U.K. 455.
6
See Landbouwbedrijf Backx B.V. v. The Queen, 2018 TCC 142, paras. 32–35.
7
1961 CarswellNat 271, 28 Tax A.B.C. 187.
8
In this case, the corporation’s sole asset was the S.S. Yamaska, which carried freight primarily
between England and West Africa.
9
[1970] C.T.C. 69, 1970 CarswellNat 236.
10
See, for instance, Zehnder & Co. v. Minister of National Revenue, 1970 CarswellNat 237, 1970
CarswellNat 318, [1970] Ex. C.R. 390.
460 F. M. Manolis and R. L. Bozzer

corporation’s affairs in Canada and that its Canadian directors implemented instruc-
tions from him regarding the handling of the corporation’s affairs in Canada.11
Despite these findings, the Exchequer Court held that the control and management
of the corporation was exercised by its Canadian directors. As a consequence, the
Exchequer Court held that the corporation was subject to Canadian tax liability. In
this regard, Kerr J. held as follows at paragraphs 51 to 53:
51 . . .the residence of a company is not determined by or dependent upon the residence of
one or more of its shareholders; nor, despite the influence that shareholders may have over
the affairs of a company by virtue of their share ownership and power to remove directors
and put persons in their place who agree to their policy, do the powers of shareholders as
such invest them with the management and control of the company’s business, for the
directors are not the agents of the shareholders or bound to comply with directions given by
them and the responsibility of the directors and officers of the company is to the company
itself and their duties are controlled by the rules and constitution of the company.
52. However, the management and control of a company can be actually exercised otherwise
than by its directors and otherwise than under or according to the authority of its constitution,
as, for example, in Unit Construction Co. Ltd. v. Bullock (supra), where African companies
which, it was admitted, had residence in Africa and whose directors resided there, were held
by the House of Lords to be resident in England as well, because they were actually managed
and controlled from England by the directors of their parent company, and such management
and control was a fact affecting their residence even although it was exercised irregularly and
was not authorized by the constitution of the companies.
53. In Bedford’s case the management of the business of the company and the controlling
power and authority over its affairs were vested in its Canadian directors and they exercised
that power and authority in Canada, albeit in large measure to carry out Marchessini’s
instructions and policy decisions made elsewhere by him. In Canada they executed agree-
ments and attended to business and legal affairs of the company which were required in
connection with and were essential to the company’s business venture of owning and
operating the vessels. In my view, the evidence that I have outlined and the facts that have
been admitted show that management and control of the company and attention to its
interests and affairs were exercised and given to a substantial degree, de jure and de facto,
within Canada, by its Canadian directors from the incorporation of the company up to and
including its 1964 taxation year. Consequently, in my view, Bedford was a person resident in
Canada during its 1964 taxation year within the meaning of Section 2(1) of the Income Tax
Act and was properly assessed for tax by virtue of Section 105A (1) of the Act.

Given that international shipping is an industry where most corporations pay little
or no tax whatsoever, it is perhaps not unsurprising that the Canadian government
and consultants reviewing Canada’s approach to international shipping matters in
the mid-1980s identified the “mind and management” test and the uncertainty it
engendered as a constraint on the development of international shipping business
and international shipping centres in Canada.12 This conclusion sparked 3 years of
debate culminating in amendments to the Income Tax Act by way of Bill C-18, which
received royal assent on December 17, 1991.

11
Bedford Overseas, paras. 12 and 49.
12
Brooks and Hodgson (2005), pp. 147–149; J. Seymour & Associates (1989); Transport
Canada (1985).
Taxation and Ship Management: A Canadian Case Study 461

3 Canada’s Current Tax Regime and International

Shipping: The Principal Elements

The tax regime applicable to international shipping established under the Income Tax
Act in 1991 and by way of subsequent amendments has two principal elements. The
first element relates to the manner in which income is derived. The second element
relates to the residency and characteristics of the income earner. While the amend-
ments introduced in 1991 were amended in 1998 and most recently in 2014, the core
and essential aspects of the regime have remained consistent and intact since 1991,
that is, corporations incorporated outside of Canada engaged in international ship-
ping can manage and operate their international shipping business in Canada without
being subject to Canadian taxation on their business income, including world-wide
income.
With respect to the first element, section of 81(c) of the Income Tax Act stipulates
as follows:
81(1) Amounts not included in income
...
There shall not be included in computing the income of a taxpayer for a taxation year,
...
(c) ship or aircraft of non-residents
the income for the year of a non-resident person earned in Canada from international
shipping or from the operation of aircraft in international traffic, if the country in which the
person is resident grants substantially similar relief for the year to persons resident in
Canada. . . .13

“International shipping” is defined in this context as:

. . .the operation of a ship owned or leased by a person or partnership (in this definition
referred to as the “operator”) that is used, either directly or as part of a pooling arrangement,

13
Prior to 2014, this provision read as follows:
(c) the income for the year of a non-resident person earned in Canada from the operation of a
ship or aircraft in international traffic, if the country in which the person is resident grants
substantially similar relief for the year to persons resident in Canada. . . .
The current provision and its predecessors do not appear to have received significant judicial
consideration. The only decision that appears to have addressed the provision is the decision of the
Tax Court of Canada in Sutcliffe v. R., 2005 TCC 581, 2005 CarswellNat 4241. In that case, the
respondent suggested inferentially that section 81(1)(c) of the Income Tax Act provided a commer-
cial airline pilot a tax exemption in relation to international flights. That suggestion was rejected by
the Court in the following terms:
103. The problem with this argument is that the general legislative scheme for the taxation of
operators of ships and aircraft is not the same as the scheme for the taxation of employees
engaged in transportation. There is no one overall scheme of taxation applicable to trans-
portation. If Parliament had intended that a similar taxation regime apply to operators and to
pilots, it would have provided for it.
This holding suggests, of course, that employees of international shipping corporations cannot
avail themselves of the same tax exemptions available to their employers.
462 F. M. Manolis and R. L. Bozzer

primarily in transporting passengers or goods in international traffic — determined as if,

except where paragraph (c) of the definition “international traffic” in this subsection applies,
any port or other place on the Great Lakes or St. Lawrence River is in Canada — including
the chartering of the ship, provided that one or more persons related to the operator (if the
operator and each such person is a corporation), or persons or partnerships affiliated with the
operator (in any other case), has complete possession, control and command of the ship, and
any activity incident to or pertaining to the operation of the ship, but does not include
(a) the offshore storing or processing of goods,
(b) fishing,
(c) laying cable,
(d) salvaging,
(e) towing,
(f) tug-boating,
(g) offshore oil and gas activities (other than the transportation of oil and gas), including
exploration and drilling activities,
(h) dredging, or
(i) leasing a ship by a lessor to a lessee that has complete possession, control and command
of the ship, unless the lessor or a corporation, trust or partnership affiliated with the
lessor has an eligible interest (as defined in subsection 250(6.04)) in the lessee. . . .14

Of particular note among the exclusions set out in the definition of “international
shipping” is the final listed exclusion in subsection (i), which ostensibly excludes
bareboat chartering to a party unrelated to the corporation from qualifying as
international shipping.15 This exclusion is arguably consistent with the intent of
the overall scheme of the amendments to the Income Tax Act in that bareboat
chartering does not necessarily involve the operation or management of ships by
an operator who, as a consequence, might be in a position to bring ship management
expertise, skill and employment opportunities to Canada.
“International traffic” is defined, in turn, as follows:
. . .in respect of a person or partnership carrying on the business of transporting passengers or
goods, a voyage made in the course of that business if the principal purpose of the voyage is
to transport passengers or goods
(a) from Canada to a place outside Canada,
(b) from a place outside Canada to Canada, or
(c) from a place outside Canada to another place outside Canada. . . .16

14
Income Tax Act, s. 248(1). Prior to 2014, the Income Tax Act did not refer to or define
“international shipping” but instead, as mentioned above, referred to the “operation of a ship” in
international traffic. This addition and the amendment of section 81(1)(c) of the Income Tax Act
appears to have stemmed from confusion as to what specific activities were encompassed by the
term “operation of a ship”, which was not defined in the Income Tax Act. See, for instance, Canada
Revenue Agency, 31 March 1993, External T.I. 9304475 and Brief from Teekay Shipping (Canada)
Ltd. (2011)—http://www.ourcommons.ca/Content/Committee/411/FINA/WebDoc/WD5138047/
411_FINA_PBC2011_Briefs/Teekay%20Shipping%20(Canada)%20Ltd%20E.html. Accessed
27 December 2018. See also Minister of Finance, Explanatory Notes Relating to the Income Tax
Act, Excise Tax Act, Excise Act, 2001 and Related Legislation, October 2014—https://www.fin.gc.
ca/drleg-apl/2014/bia-leb-oct20-1014-n-eng.asp. Accessed on 27 December 2018.
15
Income Tax Act, s. 248(1) and Minister of Finance (October 2014).
16
Income Tax Act, s. 248(1).
Taxation and Ship Management: A Canadian Case Study 463

By virtue of these provisions, income earned by way of international shipping

activities is exempt from taxation in Canada if earned by a corporation that is not
resident in Canada even if that corporation’s mind and management is located in
Canada. Given that the definition of “international shipping” sets out specific
exclusions, it stands to reason as a matter of legislative interpretation and the
application of the expressio unius est exclusio alterius maxim that the Parliament
of Canada intended this list of exclusions to be exhaustive. Accordingly, a great
number of activities incidental to the operation of a ship in international traffic would
appear to qualify as international shipping for Canadian tax purposes.17
Prior correspondence between the Canada Revenue Agency, formerly Revenue
Canada, and the Vancouver International Maritime Centre regarding the “operation
of ships” language formerly set out in sections 81(1) and 250(6) of the Income Tax
Act is to similar effect.18 That correspondence indicated that an international ship-
ping corporation would be considered engaged in the operation of ship for tax
purposes when the corporation:
• owns and crews ships and transports cargo or passengers for its own account;
• charters ships it owns and crews to another party;
• charters ships from and crewed by another party when it has the right and
responsibility to arrange the transport of cargo or passengers for its own account;
• charters ships from another party and crews the ships itself and arranges the
transport of cargo or passengers for its own account;
• charters ships from another party and crews the ships itself and then charter the
ships to another;
• engages in a combination of the above-mentioned activities; or
• engages in other ancillary activities integrated with the above-noted business for
its own account including:
– raising capital and debt financing;
– overseeing new construction, acquisitions and dispositions;
– crewing and catering;
– performing repairs and maintenance;
– arranging insurance;
– marketing;
– negotiating charters;
– arranging voyages and soliciting cargo and passengers; and
– stevedoring.19
The second element of Canada’s international shipping tax regime is aimed
directly at the “mind and management” test and its elimination in the context of

17
See, for instance, Sullivan (2008), p. 244.
18
See Hodgson and Brooks (2003), pp. 46–47.
19
Hodgson and Brooks (2003), pp. 46–47.
464 F. M. Manolis and R. L. Bozzer

international shipping. In this vein, section 250(6) of the Income Tax Act provides as
follows:
250(6) Residence of international shipping corporation
For the purposes of this Act, a corporation that was incorporated or otherwise formed
under the laws of a country other than Canada or of a state, province or other political
subdivision of such a country is deemed to be resident in that country throughout a taxation
year and not to be resident in Canada at any time in the year, if
(a) the corporation
(i) has international shipping as its principal business in the year, or
(ii) holds eligible interests in one or more eligible entities throughout the year and at no
time in the year is the total of the cost amounts to it of all those eligible interests and
of all debts owing to it by an eligible entity in which an eligible interest is held by it,
by a person related to it or by a partnership affiliated with it less than 50% of the
total of the cost amounts to it of all its property;
(b) all or substantially all the corporation’s gross revenue20 for the year consists of any one
or more of
(i) gross revenue from international shipping,
(ii) gross revenue from an eligible interest held by it in an eligible entity, and
(iii) interest on a debt owing by an eligible entity in which an eligible interest is held by
it, by a person related to it or by a partnership affiliated with it; and
(c) the corporation was not granted articles of continuance in Canada before the end of the
year.21

20
The Canada Revenue Agency’s position and policy is that the expression “substantially all” as
used in the Income Tax Act means 90% or more. See Canada Revenue Agency, Summary Policy,
September 3, 2003 (Revised November 23, 2005) Ref. no. CSP-S16—https://www.canada.ca/en/
revenue-agency/services/charities-giving/charities/policies-guidance/summary-policy-s16-substan
tially.html. Accessed on 29 December 2018.
21
Prior to 2014, this provision read as follows:
(6) For the purposes of this Act, a corporation that was incorporated or otherwise formed
under the laws of a country other than Canada or of a state, province or other political
subdivision of such a country shall be deemed to be resident in that country throughout a
taxation year and not to be resident in Canada at any time in the year, where
(a) the corporation
(i) has as its principal business in the year the operation of ships that are primarily used
in transporting passengers or goods in international traffic (determined on the
assumption that the corporation is non-resident and that, except where paragraph
(c) of the definition “international traffic” in subsection 248(1) applies, any port or
other place on the Great Lakes or St. Lawrence River is in Canada), or
(ii) holds throughout the year shares of one or more other corporations, each of which
(A) is a subsidiary wholly-owned corporation of the corporation as defined by
subsection 87(1.4), and
(B) is deemed by this subsection to resident in another country other than Canada
throughout the year,
Taxation and Ship Management: A Canadian Case Study 465

Of some interest and note is the fact that section 250(6) of the Income Tax Act
precludes a corporation incorporated in Canada from qualifying as non-resident in
Canada. The reasons for this appear to be twofold. First, requiring the corporation to
be incorporated elsewhere simplifies that task of determining the residency of the
corporation outside of Canada for tax purposes. Second, when the prospect of an
exemption for an international shipping business enterprise located in Canada was
proposed in 1985, Canada’s Department of Finance took the position that creating
such an exemption would set an unacceptable precedent.22 Deeming the corporation
to be resident in the country of its incorporation and requiring incorporation outside
of Canada provided an elegant solution that appears to have mollified the Depart-
ment of Finance’s concerns.23
In 2014, the Canadian government introduced further changes to section 250 of
the Income Tax Act to address, inter alia, partnership and trust arrangements, provide
regime flexibility and allow for joint venture and pooling arrangements, the indirect
ownership of vessels and service providing entities within an international shipping
group.24

and at no time in the year is the total of the cost amounts to the corporation of all
of those shares less than 50% of the total of the cost amounts to it of all its property;
(b) all or substantially all the corporation's gross revenue for the year consists of
(i) gross revenue from the operation of ships in transporting passenger or goods in
international traffic,
(ii) dividends from one or more other corporations each of which
(A) is a subsidiary wholly-owned corporation of the corporation as defined by
subsection 87(1.4), and
(B) is deemed by this subsection to be resident in another country other than
Canada throughout each of its taxation years that began after February 1991
and before the last time at which it paid any of those dividends, or
(iii) a combination of amounts described in subparagraph (i) and (ii). . . .
This iteration of section 250(6) was introduced in 1998 to address and allow for the use of
holding companies and single-purpose or single-ship corporations by international shipping corpo-
rations. See Hodgson and Brooks (2003), p. 35.
22
Brooks and Hodgson (2005), p. 149. In this regard, the Department of Finance was concerned that
the fiscal and tax changes being proposed had no counterparts among OECD countries. See
Hodgson and Brooks (2003), p. 92; Elliott (1994), pp. 77–79.
23
Brooks and Hodgson (2005), p. 149.
24
See, for instance, Vancouver International Maritime Centre, “Canadian Incentives”—http://
vancouverimc.org/canadian-incentives/. Accessed 29 December 2018 and Economic Action Plan
2014 Act, No. 2, S.C. 2014, c. 39. These provisions include the following:
250(6.01) Partner’s gross revenue [international shipping]
For the purposes of paragraph (6)(b), an amount of profit allocated from a partnership to a
member of the partnership for a taxation year is deemed to be gross revenue of the member
from [the] member’s interest in the partnership for the year.
250(6.02) Service providers
466 F. M. Manolis and R. L. Bozzer

4 Institutional and Other Initiatives

As part of the overall scheme to attract international shipping operations to Canada,

the Canadian government and, in particular, the Province of British Columbia also
set about various initiatives to encourage and facilitate the movement of international
shipping operations to Canada. Perhaps chief among these initiatives was and is the
funding of the Vancouver International Maritime Centre whose stated purpose is to
promote, foster and encourage the development of Vancouver, British Columbia as a
location for the ownership, central control and management of international shipping

Subsection (6.03) applies to a corporation, trust or partnership (in this subsection and
subsection (6.03) referred to as the “relevant entity”) for a taxation year if
(a) the relevant entity does not satisfy the condition in subparagraph (6)(a)(i), determined
without reference to subsection (6.03);
(b) all or substantially all the gross revenue of the relevant entity for the year consists of any
one or more of
(i) gross revenue from the provision of services to one or more eligible entities, other
than services described in any of paragraphs (a) to (h) of the definition “interna-
tional shipping” in subsection 248(1),
(ii) gross revenue from international shipping,
(iii) gross revenue from an eligible interest held by it in an eligible entity, and
(iv) interest on a debt owing by an eligible entity in which an eligible interest is held by
it or a person related to it;
(c) either the relevant entity is a subsidiary wholly-owned corporation (as defined in
subsection 87(1.4)) of the eligible entity referred to in paragraph (b) or an eligible
interest in each eligible entity referred to in paragraph (b) is held throughout the year by
(i) the relevant entity,
(ii) one or more persons related to the relevant entity (if the relevant entity and each
such person is a corporation), or persons or partnerships affiliated with the relevant
entity (in any other case), or
(iii) any combination of the relevant entity and persons or partnerships described in
subparagraph (ii); and
(d) all or substantially all the shares of the capital stock of, or interests in, the relevant entity
are held, directly or indirectly through one or more subsidiary wholly-owned corpora-
tions (as defined in subsection 87(1.4)), throughout the year by one or more corpora-
tions, trusts or partnerships that would be eligible entities if they did not own shares of,
or interests in, the relevant entity.
250(6.03) Service providers
If this subsection applies for a taxation year, then for the purposes of subsection (6) and
paragraph 81(1)(c),
(a) the relevant entity is deemed to have international shipping as its principal business in
the year; and
(b) the gross revenue described in subparagraph (6.02) (b)(i) is deemed to be gross revenue
from international shipping.
Taxation and Ship Management: A Canadian Case Study 467

firms.25 In this regard, the Vancouver International Maritime Centre provides advice,
information and assistance to international shipping companies interested in
establishing, expanding or retaining shipping operations on Canada’s West Coast.26
In a similar vein, the Canadian government and the provincial government in
British Columbia put into place a special initiative to facilitate the movement of key
management employees to Vancouver and other areas of British Columbia by way of
expediting permanent residence applications for such key employees.27 Such initia-
tives have been made available to international shipping corporations demonstrating
an intent to establish a base of operations in Canada and create new employment
opportunities for Canadians. In addition to amending the Income Tax Act, the
Canadian government enacted consequential amendments to several other pieces
of legislation, including the Customs Act, R.S.C. 1985, c. 1 (2nd Supp.), in order to
achieve legislative consistency and to distinguish between international and domes-
tic shipping activities for tax, duty and cabotage purposes.28

5 General Conclusions and Evaluation

There can be little doubt that Canada’s tax-driven strategy has achieved the goal of
attracting international shipping corporations to move their operations and manage-
ment to Canada with Vancouver being the primary, though not exclusive, choice for
such relocation.29 While substantive data is difficult to come by, the information that
is available, anecdotal and otherwise, suggests marked success.30
Within the first 5 years of the 1991 amendments to the Income Tax Act, 14 inter-
national shipping companies moved their head offices to Canada.31 In 2002, an
estimated 25 international shipping groups were operating as international shipping

25
See Vancouver International Maritime Centre, “About Us” – http://vancouverimc.org/about-us-
vancouver-international-maritime-centre/. Accessed 29 December 2018. The Vancouver Interna-
tional Maritime Centre is funded, in part, by both the Canadian government and the Province of
British Columbia.
26
Vancouver International Maritime Centre personnel also consult with federal and provincial
governments regarding the legislative regulatory framework required to enhance the development
of the international shipping sector in Canada. See Vancouver International Maritime Centre,
“About Us” – http://vancouverimc.org/about-us-vancouver-international-maritime-centre/.
Accessed on 29 December 2018. In this regard, it is generally understood that Vancouver Interna-
tional Maritime Centre personnel were instrumental in persuading the Canadian government to
enact the changes to the Income Tax Act described herein.
27
Hodgson and Brooks (2003), p. 34.
28
Hodgson and Brooks (2003), p. 34.
29
Hodgson and Brooks (2003), pp. 41–43.
30
As Hodgson and Brooks note, many international shipping corporations are circumspect and
protective of information relating to their operations for competitive reasons. Hodgson and Brooks
(2003), p. 41.
31
Teekay Shipping (Canada) Ltd. (2011).
468 F. M. Manolis and R. L. Bozzer

corporations in Canada.32 Currently, these corporations include significant global

players like Seaspan Corporation and the Teekay group of companies, each of whom
own and operate substantial fleets.33 Currently, Canada and Vancouver, in particular,
is now meaningfully included in the discussion of global maritime centres. In this
regard, a recent report on the leading maritime capitals of the world described
Vancouver and Canada’s tax regime in the following terms:
Apart from Singapore, no city has a more attractive policy framework than Vancouver,
according to the experts’ assessments of their own cities. This is not by coincidence.
Vancouver, with a strategic location on the Pacific rim of Canada, has a clear aspiration to
become a global maritime HQ/management center through broad tax incentives for shipping
and auxiliary services. Favorable policy framework, supportive government, and attractive
living conditions, are attractiveness factors that probably will lead Vancouver to climb on the
rankings of maritime cities in the years to come.34

In similar terms, a recent study commissioned European Community Ship-

owners’ Association included the following commentary:
Singapore, Hong Kong, Dubai, Shanghai and Vancouver are the centres selected for a
benchmarking of the attractiveness to shipping activities. While most of them are still
minor centres in terms of global market shares, compared to the EU member states as a
whole, they experience high growth rates and are named the main competitors to the EU for
location of strategic, commercial and operational shipping activities.
...
The EU and its member states are competing against Singapore and Hong Kong on most
accounts (flagging, operations and ownership), whereas the competitiveness pressure from
Vancouver is focused mostly on location of management activities related to ownership.35

One can imagine that, given the relatively modest role played by Canada in
international shipping in the mid-1980s when changes to Canada’s fiscal and tax
regime were under consideration, the prospect that a Canadian city some 30 years
later would be described as among the world’s leading maritime centres exerting
competitive pressure on others might have seemed a far-fetched but welcome
aspiration.
From a tax revenue perspective, conclusions regarding the success of Canada’s
initiative are necessarily speculative. If tax exemptions are considered “lost” reve-
nue, such losses can be offset by tax revenue from taxes on personal income arising
from newly-created Canadian jobs created by international shipping corporations
and taxes on non-international shipping corporations involved in the increased
economic activity generated in Canada by international shipping corporations.
Data relating to these matters does not appear to exist. Nonetheless, at an intuitive
level, it would seem more than reasonable to assume that Canada’s approach to the

32
Hodgson and Brooks (2003), p. 93.
33
See Seaspan Corporation, Operating Fleet - https://www.seaspancorp.com/fleet-summary/operat
ing-fleet/ and Teekay, Fleet – https://www.teekay.com/about-us/fleet/. Both accessed on
30 December 2018.
34
Jakobsen et al. (2017), p. 35.
35
Monitor Deloitte (2017), p. 13.
Taxation and Ship Management: A Canadian Case Study 469

taxation of international shipping corporations has had a positive impact from an

overall tax revenue perspective given the modest level of international shipping
ownership and activity in Canada prior to the 1991 amendments to the Income Tax
Act. Lastly, it should be noted and emphasized that having international shipping
corporations situate in Canada brings with it other important benefits, including job
creation and international shipping industry knowledge and expertise. Such knowl-
edge and expertise is arguably a key and necessary element to further development
of Canada’s shipping industry, internationally and domestically.

References

Literature and Other Sources

Brooks MR, Hodgson JR (2005) The fiscal treatment of shipping: a Canadian perspective on
shipping policy. In: Cullinane K (ed) Shipping economics. Elsevier, Amsterdam
Canada Revenue Agency (March 31 1993) External T.I. 9304475
Canada Revenue Agency. Summary Policy, September 3, 2003 (Revised November 23, 2005)
Elliott W (1994) Competitive edges: the politics of ports and shipping. In: Lamson C (ed) The Sea
has many voices: Oceans policy for a complex World. McGill-Queen’s University Press,
Montreal
European Commission (1997) Community guidelines on state aid to maritime transport, 97/C
205/05 5.07.1997
Hodgson JR, Brooks MR (2003) Recent developments in international shipping policy and their
implications for Canada, unpublished. http://maryrbrooks.ca/wp-content/uploads/2012/03/
HodgsonBrooksFinal.pdf
J. Seymour & Associates (1989) Vancouver, an International Centre for Maritime Commerce: Final
report. Asia Pacific Initiative Advisory Committee, Transportation Task Force
Jakobsen EW, Mellbye CS, Osman MS, Dyrstad EH (2017) The Leading Maritime Capitals of the
World 2017, Menon Publication No. 28/n.d.2017, p 35. https://www.menon.no/wp-content/
uploads/2017-28-LMC-report-revised.pdf
Minister of Finance, Explanatory Notes Relating to the Income Tax Act, Excise Tax Act, Excise
Act, 2001 and Related Legislation, October 2014. https://www.fin.gc.ca/drleg-apl/2014/bia-leb-
oct20-1014-n-eng.asp
Monitor Deloitte, EU shipping competitiveness study: International benchmark analysis, February
2017. https://www.ecsa.eu/sites/default/files/publications/2017-02-23-Deloitte-Benchmark-
Study-FULL%2D%2D-FINAL.pdf
Ref. no. CSP-S16. https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/
policies-guidance/summary-policy-s16-substantially.html
Seaspan Corporation, Operating Fleet – https://www.seaspancorp.com/fleet-summary/operating-
fleet/
Sullivan R (2008) Sullivan on the construction of statutes, 5th edn. LexisNexis, Markham
Teekay, Fleet – https://www.teekay.com/about-us/fleet/
Teekay Shipping (Canada) Ltd., Brief from Teekay Shipping (Canada) Ltd. (2011) http://www.
ourcommons.ca/Content/Committee/411/FINA/WebDoc/WD5138047/411_FINA_PBC2011_
Briefs/Teekay%20Shipping%20(Canada)%20Ltd%20E.html
Transport Canada (1985) Task force on Deep-Sea shipping: report to the Minister of Transport,
G.K. Sletmo, Chairman
470 F. M. Manolis and R. L. Bozzer

Vancouver International Maritime Centre, “About Us” – http://vancouverimc.org/about-us-vancou

ver-international-maritime-centre/
Vancouver International Maritime Centre, “Canadian Incentives” – http://vancouverimc.org/cana
dian-incentives/

Case Law

Bedford Overseas Freighters Ltd. v. Minister of National Revenue, [1970] C.T.C. 69, 1970
CarswellNat 236
De Beers Consolidated Mines Ltd. v. Howe, [1906] A.C. U.K. 455
Landbouwbedrijf Backx B.V. v. The Queen, 2018 TCC 142
Sutcliffe v. R., 2005 TCC 581, 2005 CarswellNat 4241
Yamaska Steamship Co. Ltd. v. Minister of National Revenue, 1961 CarswellNat 271, 28 Tax
A.B.C. 187
Zehnder & Co. v. Minister of National Revenue, 1970 CarswellNat 237, 1970 CarswellNat
318, [1970] Ex. C.R. 390

Legislation

Customs Act, R.S.C. 1985, c. 1 (2nd Supp.)

Economic Action Plan 2014 Act, No. 2, S.C. 2014, c. 39
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
The Evolution of Seafarer Education
and Training in International Law

Michael Ekow Manuel and Raphael Baumler

Abstract This chapter discusses the regulation of the education and training of
seafarers in an international context under public international law. A brief look is
taken at the history of seafarer education and training followed by a substantive
treatment of the approaches and regulatory efforts of States in this respect. The
shortcomings of a wholly national approach are discussed and the rationale for an
international law approach presented. While the international approach has had
many benefits in an increasingly globalised world, it has not been without chal-
lenges. The evolution of the international legal framework, particularly that of the
STCW Convention 1978, as amended, is presented together with some related
challenges in international law. The issue of sovereignty as a primary challenge to
international law, and how this sovereignty may be perceived as being increasingly
eroded is discussed. Finally, new/future challenges and how they could impact
seafarer education and training and international law, are discussed.

1 Introduction: Historical Evolution of Seafarer Education

and Training

The education and training of seafarers has a long history beginning from the dawn
of humanity. From the age of reliance on oars and then sails and the use of handheld
lead lines, seafarer competence and how to achieve it has been germane to the
development of water-based transportation. It has always been recognized that the
seafaring profession is one of immense danger, resulting from the nature of the work
and the harsh environmental context within which it is undertaken.
Given the risks associated with the maritime venture, the movement by sea of
homo sapiens around the globe not only demonstrates the adaptive skills of the
species but also its seafaring abilities. Archaeological works suggest open-ocean

M. E. Manuel (*) · R. Baumler

World Maritime University, Malmö, Sweden
e-mail: mem@wmu.se; rb@wmu.se

© Springer Nature Switzerland AG 2020 471

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_22
472 M. E. Manuel and R. Baumler

crossing thousands of years ago1 and the early human settlement of places as far
afield as the Americas, Australia and the Pacific islands shows that seafaring skills
such as celestial navigation, the reading of wind and water patterns, and the tracking
of the behaviour of birds, fish, and whales have been shared by many seafaring
communities.2 Early navigators needed to collect, share, and mentally retain large
amount of knowledge in informal and non-standard ways. In these ancient times, the
lack of instruments and documented resources to support navigation required
enhanced observation skills and memorising abilities. In such contexts, on-the-job
training, mentorship and experience-sharing were vital for the transmission of
cognitive, as well as psychomotor and affective skills.3 Navigation required and
still requires experience and knowledge as well as affective and physical capacities
to adapt to the unique maritime context—both in terms of the harsh physical external
environment and the specific nature of the profession.4
During the middle ages, a nautical revolution5 triggered by tide computation, the
compass, portolan charts and the astrolabe, required additional education.6 Further-
more, the conquest of the Atlantic7 and European expeditions modified the range and
nature of ship operation from coastal navigation to long open-ocean crossing, the
latter requiring the expansion of traditional seafaring skills. The eagerness to harvest
the benefits of sea-based commerce and an increasingly national predatory mentality
boosted European fleets which, in turn, required more seafarers with better educa-
tion. One manifestation of this need to enhance navigational skills, was the collec-
tion of nautical knowledge organized by Henry the Navigator and his successors in
1419, with the intention/goal of merging science and experience. All this occurred in
national settings where the development of laws, regulations, and instructions for
maritime education evidenced an evolution towards more formalization and central-
ized governmental control. France is an epitome of this evolution, where the first
major public efforts to enhance/control the training of seafarers and particularly
shipmasters and ‘pilots’ resulted in the creation of an examination board in 1584. It is
noteworthy that it is the political will to entrench maritime commerce and develop
superior naval protection8—as part of the re-organization of the State initiated by
Cardinal Richelieu (1585–1642) and Jean-Baptiste Colbert (1619–1683)—which
influenced national maritime policy and its consequential educational component.
The Cardinal Duke of Richelieu established the first naval academy in 1627 and
with the promulgation of a maritime act in 1629, he imposed on maritime cities the

1
Strasser et al. (2010), p. 145.
2
Paine (2014), p. 18.
3
Buchet and Balard (2017).
4
Buchet et al. (2017).
5
Ibid.
6
Paine (2014).
7
Braudel (1992).
8
Larrieu (2010).
The Evolution of Seafarer Education and Training in International Law 473

appointment of professors of hydrography delivering free maritime education.9

Despite this act, maritime institutions developed only during the period
1665–1681 when about a dozen maritime schools, both for shipping and navy,
were recognized. The final link in the process to establish a national maritime
education system came with the 1681 “Ordonnance de la Marine” (Maritime
Act).10 This comprehensive legislation addressed maritime education directly (for
example in Book 1 title VIII about the tasks and qualifications required for pro-
fessors of hydrography) or indirectly by establishing binding examinations by peers
for shipmasters to be taken after the completion of at least 5 years at sea. “Pilots” on
ships (today’s “officers of the watch”) were also required to have some sea experi-
ence before taking the examinations.
Interestingly, a study of this period also shows that other facets of a maritime
education and training system were also present: instructions were given to ensure
the learning abilities of those willing to join schools (1670), school inspections were
implemented and there was a differentiation of education for those with or without
sea experience (1680). Importantly there was a complaint process relating to fraud-
ulent practices in respect of examination boards (1672).11 By 1681 a system of
compulsory examinations for seafarers was entrenched in France.
Other traditional maritime nations showed similar trajectories for the develop-
ment of administrative and legal systems for seafarer education, training and certi-
fication. The alleged creation of a school for navigators attributed to the Portuguese
King Henry the Navigator in 1419 has been alluded to earlier.12 In 1503 and 1552, a
school for pilots and then a nautical academy respectively, were established in
Seville, Spain. An official examiner of mates was appointed in 1619 in the Nether-
lands and naval officers’ exams were introduced in the UK in 1677 by Samuel Pepys
(of the English navy and a Member of the UK Parliament).13 In 1701, Peter I
launched a school of mathematical and navigational sciences in Moscow. By the
middle of the seventeenth century, national governments had become primary
stakeholders in public seafarer education, training and certification systems and
going on into the eighteenth century, many public navigation schools were well
established. All this was in a context of national sovereignty and jurisdiction. As in
the case of France, the creation of such systems of seafarer education, training and
certification coincided with (or more appropriately was triggered by) the political
will to enhance commercial maritime and naval power. The systems were, generally-
speaking, characterised by principles relating to the blending of experience and

9
Ibid.
10
Isambert and Taillandier (1829).
11
Larrieu (2010).
12
The existence and exact nature of Henry the Navigator’s “school of navigation” is disputed by
academics (see Randles (1993)). What is not contested is the fact that during this era in Portuguese
maritime history, concerted state efforts were made to advance a national system of maritime
education, training and certification.
13
A relatively detailed description of the developments in the UK context is given in
Kennerley (2002).
474 M. E. Manuel and R. Baumler

education, examinations, qualifications of teaching staff, differentiation of training,

consideration of competency levels for recruitment, inspections to improve quality
standards, and the identification of fraudulent practices.
These fundamental elements—which still form the core of modern seafarer
education and training systems—were particularly obvious during the transition
from sailing ships to steam-powered ship propulsion (a transition not unlike the
current technological disruption in ship operation). Engineers and technicians who
were more situated in a shore-based industrial context, had to be “drafted” into the
maritime industry to “man” these new mechanically propelled ships. This change in
paradigm entrenched even more the need for the elements mentioned above.14
These developments were further strengthened with the replication of such
systems in other jurisdictions and geographical locations e.g. the “Escuela Nautica
de Manila” founded in 1820 by Spain as a colonial power in The Philippines, five
Swedish navigation schools established in Malmö, Gothenburg, Gävle, Kalmar and
Stockholm in 1841 and similar institutions in Croatia in 1849.
In summary, the development of seafarer education and training, was driven by
the need to sustain shipping assets in a national context and to strengthen the
maritime power of nations as well as respond to disruptors in technology (in that
context, from sailing “technology” to a mechanical one).

2 The “Internationalization” of Seafarer Education

and Training

Following the concretization of clear national boundaries and territorial integrity of

States, and the notion of the right of States to—in the spirit of the Grotian doctrine of
“mare liberum”15—freely sail to and trade with every other nation, maritime com-
merce/trade increased along with a better evolution of notions of liability and
accountability with respect to a global commons. As the development of ships and
seafaring gathered pace, the need for seafarers’ education and training to be situated
in a more formal governance setting became stronger. Such education and training
and the systems, institutions and the regulatory frameworks that supported them,
however, continued to retain a wholly national character and the impetus for the
further development of these systems were always national in character and con-
trolled by nation States.
However, it would not be long before the international character of the maritime
industry would become increasingly obvious and form an impelling drive for a
supranational framework. The global nature of the maritime industry has always

14
Woodman (2009).
15
Hugo Grotius’ ideas and contribution to international law were well established through his works
“Mare Liberum” and “De Jure Belli ac Pacis”. They formed the beginnings of the modern legal
regime of the High Seas.
The Evolution of Seafarer Education and Training in International Law 475

been evident to various degrees and dates back to when nations (in their most
primitive forms) started to trade with each other across water bodies. It remains
one of the most globalized of contemporary industries—if not the most globalized.
Nevertheless, while the “traditional practice of seamen” transferred from “seaman to
seaman” through years of on-the-job experience (in such professional areas as
meteorology, cargo handling, ship safety, navigation and basic seamanship) had
sufficed as training of seafarers for decades, the world was moving towards a more
structured approach to international regulation covering seafarer education and
training. The industry’s true nature as an international one with an international
labour market, geographical and physical nodes and scope, ownership, operation,
management and financing, was becoming more pronounced and was increasingly
perceived as requiring more “formalized internationalization” in its regulation.
This trend towards “formalized internationalization” was evidenced by the pro-
mulgation of the first international collision regulations (Articles) which were
endorsed by thirty countries and which influenced the education and training of
seafarers with learning outcomes not limited to national settings. For centuries, there
had been only customary rules for preventing collisions at sea. Such rules had
limited statutory power at an international level, in particular to help adjudicate
collision incidents. These first rules emanated from two London Trinity House rules
which were incorporated in the UK Steam Navigation Act of 1846. Subsequently
and in consultation with the French Government, the UK Board of Trade drew up a
completely new set of rules for both sailing and steam ships which came into
operation in 1863 and by 1864 had been adopted by thirty nations.16,17 Thereafter,
two international maritime conferences—Washington D.C in 1889 and Brussels in
1910—further modified the rules and entrenched their codification resulting in their
gaining the status of treaty law when “they were incorporated into Annexes to the
Final Acts of the SOLAS conferences of 1929, 1948 and 1960”.18 In 1972 the
International Regulations for the Prevention of Collision at Sea was adopted and
came into force in 1977. With subsequent amendments, it remains a very clear
expression of the internationalization of the regulation of the content of seafarer
education and training.
However, with specific reference to the substantive issue of the regulation of
seafarer education and training as a whole, the first interventions at the international
level occurred in the context of the International Labour Organization (ILO).19 The
relevant international law instruments agreed within the ILO framework were the
Officers’ Competency Certificates Convention, 1936 (No. 53) and the Certification

16
Cockroft and Lameijer (2012).
17
Plant (1996).
18
Ibid.
19
The ILO, established in 1919 as a result of the Peace Treaty of Versailles ending World War I,
predates the United Nations system as it exists today and was formed to “reflect the belief that
universal and lasting peace can be accomplished only if it is based on social justice” (https://www.
ilo.org/global/about-the-ilo/history/lang%2D%2Den/index.htm). In 1946, after the demise for
League of Nations, the ILO became the first specialised agency of a new United Nations system.
476 M. E. Manuel and R. Baumler

of Able Seamen Convention, 1946 (No. 74). The former specified a global require-
ment for officers on ships to be trained and certified, the first international instrument
to do so. The Convention entered into force on 29 March 1939 and was ratified by
37 States with 13 subsequent denunciations. It required, among other things, that:
No person shall be engaged to perform or shall perform on board any vessel to which this
Convention applies the duties of master or skipper, navigating officer in charge of a watch,
chief engineer, or engineer officer in charge of a watch, unless he holds a certificate of
competency to perform such duties, issued or approved by the public authority of the
territory where the vessel is registered.

and that “exceptions to the provisions of this Article may be made only in cases of
force majeure”.20
Furthermore, the Convention required, per the following paragraphs,21 that:
1. No person shall be granted a certificate of competency unless--
(a) he has reached the minimum age prescribed for the issue of the certificate in
question;
(b) his professional experience has been of the minimum duration prescribed for
the issue of the certificate in question; and
(c) he has passed the examinations organised and supervised by the competent
authority for the purpose of testing whether he possesses the qualifications
necessary for performing the duties corresponding to the certificate for which
he is a candidate.
2. National laws or regulations shall--
(a) prescribe a minimum age to have been attained by and a minimum period of
professional experience to have been completed by candidates for each grade
of competency certificate;
(b) provide for the organisation and supervision by the competent authority of
one or more examinations for the purpose of testing whether candidates for
competency certificates possess the qualifications necessary for performing
the duties corresponding to the certificates for which they are candidates.
3. Any Member of the Organisation may, during a period of 3 years from the date of
its ratification, issue competency certificates to persons who have not passed the
examinations organised in virtue of paragraph 2 (b) of this Article who
(a) have in fact had sufficient practical experience of the duties corresponding to
the certificate in question; and
(b) have no record of any serious technical error against them.
While the ILO Conventions 53 and 74 were the first substantive attempts in an
international forum to require that national laws and administrative systems regulate

20
Article 3 of ILO C53 on Officers’ Competency Certificates.
21
In Article 4 of the Convention.
The Evolution of Seafarer Education and Training in International Law 477

the attainment of and certification for competency of seafarers, they set no standards
for competence regarding what seafarers had to know, understand or have
proficiency in.

3 The Role of the Development of Open Registries

It is noteworthy that from the early 1900s till the promulgation of the early conven-
tions described in the preceding section, other geopolitical factors were beginning to
significantly affect the global shipping industry and the competence of the labour
force that crewed ships. The evolution of seafarer education and training in interna-
tional law cannot be discussed without the examination of the role and place of “flags
of convenience” (FoCs)22,23 sometimes called “flags of necessity” or “open regis-
tries”. This phenomenon, while present much earlier in history,24 took on new
prominence in the early 1930s based on its perceived economic benefits to ship-
owners and the resisting representations of the International Transport Workers
Federation (ITF) to the ILO.25
As has been discussed earlier, many traditional maritime nation States had
developed comprehensive national systems of seafarer education and training,
underpinned by significant maritime histories as well as comprehensive legal and
administrative frameworks. In the nature of national governmental control, these
systems were often hinged on high-levels of taxation and administrative require-
ments, limitations on the national character of ship crews and what was often
perceived by shipowners as “expensive unionized” crew. The manifestation of the
phenomenon of FoCs challenged the form of national control that developed in
traditional maritime nation States.
Economic gain for both the shipowner and the jurisdiction was imperative.26
Countries perceived to have relatively little maritime histories and limited maritime
knowledge and skill base, and characterised by lax systems of administrative
governance as well as lower taxation levels, were becoming more attractive to ship

22
The term itself is not universally deemed to be appropriate, being used only by a segment of the
industry, as it is considered by some to be pejorative. Indeed, it is not in use as a legal term under
UNCLOS (see Wiswall (1996)). It is not used in official text of the IMO.
23
The problem of “flags of convenience” revolves round the legal concept of “genuine link” and its
determination/definition and implementation. The United Nations Convention on the Law of the
Sea (UNCLOS), in its article 91 states that “Ships have the nationality of the State whose flag they
are entitled to fly. There must be a genuine link between the State and the ship”. Furthermore, article
94 requires that “Every State shall effectively exercise its jurisdiction and control in administrative,
technical and social matters over ships flying its flag”. Additionally, every State is required by that
article to “take such measures for ships flying its flag as are necessary to ensure safety of life at sea”.
In the specific context of this chapter, such measures include the manning and training of crews.
24
Metaxas (1981).
25
Argiroffo (1974).
26
Wiswall (1996).
478 M. E. Manuel and R. Baumler

owners and managers from the traditional maritime nations, leading to more and
more tonnage moving from traditional flags to open registries for “convenience”.27
Such movements allowed ship owners/managers to bypass stricter shipowner
“home” national regulations relating to seafarer education and training, among
others, and to employ labour from diverse countries (sometimes ununionized) at
much lower wage rates and conditions than would have been required for labour
from their own traditional maritime nations.28 While some viewed these trends as
undermining the maritime industry (and still do) others saw in it the opportunity to
increase the profitability of ship operation.29 Wiswall notes, for example, that the
pejorative nature of the term “flags of convenience” is “fostered as such by the
interests which have lost advantage from the moves toward free market competition
and unrestricted transfer of shipping capital – the maritime unions, shipbuilders and
government-tied shipowners of both the developed and some of the remaining
centrally-controlled economies”.30 The International Federation of Transport
Workers (ITF) has an unambiguous position against FoCs.31
The debate about the (de)merits of the FoCs is not relevant here. Suffice it to say
that there remained a perception that there exists a positive correlation between
cheap labour and low standards i.e. the cheaper the labour, the lower the standards of
competence evidenced. While this has not been necessarily empirically proven, there
may be some logical rationalization of and anecdotal evidence for this perception.
Irrespective of the view one takes, an undeniable consequence of the FoC phenom-
enon was that crew from many different countries—some of which countries were
significantly resource-constrained in respect of seafarer education and training—
with very different levels of competence and the education/training that underpinned
that competence, found themselves operating ships in international waters. Indeed,
the supply of the world’s maritime labour shifted significantly to less-endowed and
resource-deprived jurisdictions. This supply was fed by a demand for labour
irrespective of nationality arising from increased use of FoCs where substantial
economic advantage could be gained by the beneficial shipowners. This led to a
rising sentiment that there was the need for an international framework that man-
dated the meeting of minimum standards to which all national maritime education
and training systems could be held accountable irrespective of nationality.

27
Sampson (2004).
28
Ibid.
29
Luo et al. (2013).
30
Wiswall (1996).
31
See http://www.itfglobal.org/en/transport-sectors/seafarers/in-focus/flags-of-convenience-cam
paign/.
The Evolution of Seafarer Education and Training in International Law 479

4 The Route to the Status Quo of International Law

Relating to Seafarer Education and Training

In addition to the effect of FoCs as discussed previously, a number of internationally

conspicuous and high-publicity accidents in the mid to late twentieth century further
highlighted the need for an international legal framework beyond that established in
the context of the ILO. With these accidents came an increased focus on “the human
element” in the context of the International Maritime Organization (IMO).32 As has
been stated, despite the merits of the first attempts at codifying requirements for
seafarer education and training at the international level, the relevant instruments did
not specify the content and standards for such training or the criteria for certification.
Global uniformity was increasingly sought for training outcomes, certification
processes and authentication mechanisms, and language use.
As part of the evolution of this thinking and activities in that direction, a
resolution of the 1960 International Safety of Life at Sea Convention (SOLAS
1960) called on Governments “to take all practicable steps to ensure that the
education and training of seafarers in the use of aids to navigation, ship’s equipment
and devices was sufficiently comprehensive and kept up to date”.33 An ILO-IMO
Joint Committee on Training was set up and produced a “Document for Guidance”
in 1964. This document was further expanded/supplemented in 1975, 1977 and
1985. Work for comprehensive global standards resulted in a draft convention in
1969 and to a decision by the IMO Assembly in 1971 to establish international
standards for watchkeeping, training and certification for seafarers. This led to an
international conference in 1978 (with delegates from 72 countries), the outcome of
which was The International Convention on Standards of Training, Certification and
Watchkeeping for Seafarers (STCW 1978). The Convention established minimum
standards for State Parties to meet or exceed. It did not address crew adequacy
(in terms of numbers) which, while being an essential corollary for safety at sea, fell
outside the specific remit of crew competency.34
The adoption of the STCW Convention in 1978 substantiated the belief that
maritime education and training for a global industry must meet global standards. In
legal terms, the Convention is a public international law instrument and is in nature
technical, regulatory and preventive. Unlike the ILO C53 before it, which only
indicated that Parties “prescribe a minimum age”, the STCW Convention specified

32
The International Maritime Organization was set up by Convention in 1948, originally as the
Inter-Governmental Maritime Consultative Organization. The Convention came into force in 1958
and the name changed in 1982. As a specialized agency of the United Nations, the Organization’s
mandate is covered in the Convention that set it up (The Convention on the International Maritime
Organization).
33
A detailed description of the history of the STCW Convention (up to 1995) can be found at http://
www.imo.org/en/OurWork/Safety/Regulations/Documents/STCW97.pdf.
34
Crew adequacy, in terms of numbers, is covered by Regulation 14 of Chapter V of the Interna-
tional Convention on the Safety of Life at Sea (SOLAS) as amended.
480 M. E. Manuel and R. Baumler

this minimum age in many cases as well as standards for medical fitness, seagoing
service and examinations. It is noteworthy, that specific minimum ages had earlier
been considered in the ILO setting with ILO C007 (the Minimum Age (Sea)
Convention, 1920).
The STCW 1978 Convention, further, sought to set out mandatory minimum
knowledge/training requirements, the first international convention to do so. It also
set mandatory minimum requirements to ensure continued proficiency and the
updating of seafarers’ knowledge. The convention entered into force on 28 April
1984, 12 months following acceptance by 25 States, with combined fleet constituting
not less than 50% of world tonnage of ships of gross tonnage of 100 or above.
However, with time, the 1978 Convention was challenged for having a number of
significant shortcomings. It was deemed to have too much ambiguous language,
primary among which was the term “to the satisfaction of the Administration”.35
Many standards, including medical standards, length of seagoing experience, exam-
inations, competency of trainers and assessors were left to the “satisfaction of the
administration”, leading to what was referred to as “the impossible situation of
proving that a standard was not to the satisfaction of the Administration”.36 Addi-
tionally, there was an absence of specific competence requirements and no uniform
and globally accepted processes of control and verification either by port States or
the IMO itself. From an educational philosophy perspective, its comprehensiveness
was also limited by the fact that it had an undue focus on the cognitive aspects of
education with relatively little focus on the affective and psychomotor domains of
education, although seafaring, like many other vocational domains, requires sub-
stantial demonstration of performance-based skills and not just mental knowledge.
This was compounded by the trend toward reduced crew on board ship and higher
mobility of seafarers resulting in challenges with on-the-job training, a necessary
corollary for shore-based seafarer education and training. Other shortcomings were
that the 1978 Convention had no simulator requirements although radar simulators
had been in existence since the late 1950s and that certificates issued by non-Parties
could be accepted by Party States.
Amendments to the convention in 1991 and 1994 addressed the Global Maritime
Distress and Safety System (GMDSS) and tankers respectively, but the substantive
issues remained until 1995, when a major revision brought in significant additions
and structural improvements in both legal and structural/textual layout terms. In the
1995 major revision, the text of the substantive Convention was retained, but
fundamental amendments were made to the annex of the Convention. All technical
requirements were transferred to a new Seafarers’ Training, Certification and
Watchkeeping (STCW) Code which was made up a mandatory Part A and a Part
B for guidance. Specific skills and competences were clearly outlined in this Code
together with the required knowledge, understanding and proficiencies, methods of

35
“Administration” here referring to the national jurisdiction in charge of the operationalizing of the
convention requirements in a national setting upon ratification.
36
Morrison (1997).
The Evolution of Seafarer Education and Training in International Law 481

demonstrating competence and criteria for evaluating competence. The amendment

focused on verifiable, detailed and explicit competence and enhanced control pro-
cedures. It defined specific responsibilities for flag States and companies employing
seafarers as well as administrations issuing and recognizing certificates. It further
required the implementation of a Quality Standards System, the use of simulators for
specific competences, better mechanisms for the mitigation of fraudulent certifica-
tion and addressed the qualifications for trainers, assessors and examiners. In a bid to
make Parties more accountable to each other, they were also required to send
information regarding their compliance with the Convention to the IMO, pursuant
to which a panel of “competent persons” would review the information for evidence
that the Parties were giving “full and complete effect” to the Convention.37
The 1995 amendments entered into force on 01 February 1997 with a transition
period up to 01 February 2002. Following the amendments of 1995, yet still more
gaps were found, this time in light of industry changes and technological advances.38
An international conference in Manila, The Philippines, in 2010 considered draft
amendments to the Convention and made changes to incorporate mechanisms aimed
at the reduction of fraudulent practices, the establishment of common medical
standards, and the rationalization of revalidation and training in modern technology
including Electronic Chart Display and Information Systems (ECDIS) and emerging
engineering concepts. Training requirements for electro-technical officers and able
seafarers (deck and engine) were included and leadership and teamwork competence
requirements enhanced. The distinction between safety and security training require-
ments were made clearer, the possibility of using modern training methods like
distance and web-based learning recognized and mechanisms introduced for the
avoidance of alcohol and substance abuse. The 2010 Manila amendments entered
into force in 2012 with a transition period up to 01 January 2017.
This non-exhaustive treatment of the amendments from 1995 to 2010 indicates
how comprehensively the global maritime community has sought to address the
education and training of seafarers in international law, primarily through the agency
of the IMO. Other amendments since 2010 include:

37
Under Regulations I/7 and I/8 of the convention. Evidence of a positive independent evaluation
submitted by a Party would put that Party on a list disseminated by circular from the Maritime
Safety Committee (MSC) of the IMO. Revisions of MSC.1/Circ.1164 gives “information related to
reports of independent evaluation submitted by Parties to the International Convention on Standards
of Training, Certification and Watchkeeping for Seafarers (STCW), 1978, as amended, confirmed
by the Maritime Safety Committee to have communicated information which demonstrates that
Parties are giving full and complete effect to the relevant provisions of the Convention”—the
so-called “White List”.
An example of this circular (revision 18) can be found at http://www.imo.org/en/OurWork/
HumanElement/Documents/MSC.1-CIRC.1164-REV.18.pdf.
38
In 2006, the IMO Standards of Training and Watchkeeping (STW) Subcommittee of the MSC
stated that “A comprehensive review of the STCW Convention and STCW Code is needed, in order
to ensure that the Convention meets the new challenges facing the shipping industry, including but
not limited to, rapid technological advances today and in years to come”.
482 M. E. Manuel and R. Baumler

• 2014—The introduction of definitions and regulations relating to verification and

compliance to allow for the implementation of an IMO mandatory audit scheme;
• 2015—The introduction of training requirements per the International Code of
Safety for Ships Using Gases or Other Low-flashpoint Fuels (IGF Code);
• 2016—The introduction of training requirements per the International Code for
Ships Operating in Polar Waters.
The STCW Convention, 1978, as amended is today the primary international
instrument for the training and certification of seafarers. It has, at the time of writing,
165 Contracting States constituting 99.03% of world tonnage. It is one of four
substantive public international law instruments for the regulation of the maritime
industry, three of which emanate from the IMO and the fourth from the ILO.39
A number of other international law instruments may be deemed to be relevant to
the education and training of seafarers. These instruments are briefly described
below.
1. United Nations Convention on the Law of the Sea (UNCLOS)
UNCLOS requires that as part of its duties as a flag States in respect of the High
Seas, a Party to the convention “shall take such measures for ships flying its flag as
are necessary to ensure safety at sea with regard, inter alia, to: . . . the manning of
ships, labour conditions and the training of crews, taking into account the applica-
ble international instruments”, that “each ship is in the charge of a master and
officers who possess appropriate qualifications, in particular in seamanship, navi-
gation, communications and marine engineering, and that the crew is appropriate in
qualification and numbers for the type, size, machinery and equipment of the ship”
and that “the master, officers and, to the extent appropriate, the crew are fully
conversant with and required to observe the applicable international regulations
concerning the safety of life at sea, the prevention of collisions, the prevention,
reduction and control of marine pollution, and the maintenance of communications
by radio”.
2. The International Convention on Safety of Life at Sea (SOLAS)
SOLAS requires that “Contracting Governments undertake, each for its national
ships, to maintain, or, if it is necessary, to adopt, measures for the purpose of
ensuring that, from the point of view of safety of life at sea, all ships shall be
sufficiently and efficiently manned”. The sufficiency of manning relates to the
adequacy of numbers of personnel on ships (evidenced by a safe manning certificate)
while the efficiency of manning refers to the competency of individual crew mem-
bers (evidenced by certification under STCW ’78, as amended).

39
The other three are: from the IMO, the International Convention for the Prevention of Pollution
from Ships 1973, as modified by the 1978 and 1997 Protocols (MARPOL), The International
Convention for the Safety of Life at Sea, 1974 and its Protocol of 1988; and from the ILO, The
Maritime Labour Convention, 2006, all as amended.
The Evolution of Seafarer Education and Training in International Law 483

3. The Maritime Labour Convention (MLC), 2006

The MLC, 2006, addresses “training and qualification” in its regulations with the
purpose of ensuring that “seafarers are trained or qualified to carry out their duties
on board ship” and that:
1. Seafarers shall not work on a ship unless they are trained or certified as
competent or otherwise qualified to perform their duties.
2. Seafarers shall not be permitted to work on a ship unless they have successfully
completed training for personal safety on board ship.
3. Training and certification in accordance with the mandatory instruments adopted
by the International Maritime Organization shall be considered as meeting the
requirements of paragraphs 1 and 2 of this Regulation.
The relevant primary “mandatory instrument” indicated in paragraph 3 may be
deemed to be the STCW Convention 1978, as amended. The Maritime Labour
Convention, 2006, which is now recognized as the seafarers’ “bill of rights” works
in tandem with the STCW and helps level the operational playing field for
shipowners.
4. Miscellaneous instruments of different legal standing and for different contexts of
ship operation
A number of instruments continue to relate to the education and training of
seafarers, including:
• The principles of safe manning and other such resolutions from the IMO;
• The International Telecommunications Union Radio Regulations relating to the
operation of equipment in the Global Maritime Distress and Safety System
(GMDSS);
• Different codes for context/subject/ship-specific operations, for example, manda-
tory codes40 like the International Management Code for the Safe Operation of
Ships and for Pollution Prevention (ISM) Code, the International Ship and Port
Facility Security (ISPS) Code, the International Code for the Safe Carriage of
Grain in Bulk (the Grain Code), the International Maritime Solid Bulk Cargoes
(IMSBC) Code, the International Maritime Dangerous Goods (IMDG) Code and
the International Code for Ships Operating in Polar Waters (the Polar Code). The
training requirements for these Codes are mentioned in the STCW Convention.
There are also recommendatory codes, for example, the Code of Practice for
the Safe Loading and Unloading of Bulk Carriers (BLU) Code, the Code of Safe
Practice for the Carriage of Cargoes and Persons by Offshore Supply Vessels
(OSV) Code among others.

40
Codes, in general, like resolutions, have the status in law of recommendatory instruments (soft
law) often treated as guidance without the mandatory force of law. However, in many cases the
contents of codes become mandatory when referred to in the text of mandatory instruments such as
Conventions (hard law) and compliance with their contents required by these “hard law”
instruments.
484 M. E. Manuel and R. Baumler

Altogether, the current legal and administrative framework at the international

level is viewed as representing minimum standards. Arguably, legal instruments like
STCW ‘78 should ideally not to be seen as the ceiling to which jurisdictions should
aspire, but the foundation from which they should build; they are the minimum to
which all jurisdictions agree. While in an international context such as the IMO, this
minimum may well be the only realistic/pragmatic mandatory outcome possible, it
does not necessarily mean that the minimum standards are to be equated with
optimum standards or best practice.

5 Challenges to the International Legal and Administrative

Framework of Seafarer Education and Training

The complexity of regulating, implementing, monitoring, evaluating and controlling

educational activities and outcomes at a national level is significantly exacerbated by
their elevation to an international level particularly in a public international law
context. Despite the significant work undertaken by the global maritime community
to create standards for the education, training, assessment and certification of
seafarers, there remains considerable variety between the abilities of different coun-
tries to meet international standards and to oversee optimum legal and administrative
systems.
The causative factors for the continuing discrepancy between idealised desires
and reality may include the nature of the Organization41 itself. The IMO is, in
essence, not a de facto enforcement body; it faces great difficulties in the generation
and application of sanctions. Any enforcement powers it may have across board are
derived from the sovereign States (individually and collectively) who constitute its
membership. States are reticent to rescind sovereign control of activities that occur in
their jurisdiction. This is the case even when such activities (such as curricula,
learning activities, quality control measures) impact on other States and this
explains, to a degree, the weak enforcement provisions and terminology often
employed in the Organization’s legal instruments. This, together with resource
limitations (particularly in terms of human, institutional and financial resources),
constitutes a challenge to the fashioning and implementation of conventions as a
whole.
However, one observes a gradual drift towards higher levels of enforcement in
international law. This may be due to “the creeping erosion of sovereignty”, for want
of a better term. In the context of the regulation of seafarers’ education and training,
there has been a trend (arising from deliberations among the membership of the
IMO) towards allowing the international body to exert more control over national
activities. This is quite clear from the evolution of the STCW Convention discussed
earlier. As indicated earlier, the 1978 original was liberal in its use of the term “to the

41
i.e. the IMO.
The Evolution of Seafarer Education and Training in International Law 485

satisfaction of the Administration” which term demonstrated the rather hard limits
established in respect of national sovereignty. There were little to no means of
external control and verification. The 1995 major revisions, however, introduced
significantly more controls by other Parties and a requirement to report information
the IMO (through its Secretariat)—a kind of quasi-vetting by soft control, that
ensured that prima facie, a Contracting Government was giving effect to the
Convention. Subsequently, given concerns that member States of the IMO were
not implementing the requirements of the Conventions they had ratified,42 a volun-
tary audit scheme was set up. It is a sign of the creeping erosion of sovereignty that
this voluntary scheme has since become mandatory through amendments to a
number of Conventions that mandate the IMO Instruments Implementation (III)
Code. These amendments include a requirement for “verification of compliance”43
per the requirements of the III Code and the IMO Member State Audit Scheme.44
It is expected that the transparency required by this audit scheme and the potential
reputational and economic consequences as well as possibilities of technical coop-
eration support, will be a deterrent (or incentive as the case may be) for States to fulfil
their international obligations in the implementation of the requirements of ratified
conventions. To some, the existence of the many safety nets in maritime regulations
reflected the lack of trust that sovereign States, acting in their primary capacities as
flag States, would or could always meet their obligations. Such safety nets as port
State control, inspections, audits etc. while possibly restricting sovereign expression,
do help to increase confidence in what may otherwise be a rather unruly legal
environment.
In the pragmatic reality of today’s international regulation of the education and
training of seafarers, this international “command and control” approach may be
deemed to be essential. The prescriptive approach, which has characterized the
setting of international standards in the maritime industry so far, may be argued to
have benefits and to have led to better safety at sea,45 although some data may
suggest the contrary.46
For one thing, prescriptive regimes represent an easier way to legislate, to have
common standards globally, legal certainty and easier checking of compliance.
However, in their nature they tend not to be comprehensive enough to cover the
unique contexts of complex ship operation. The earlier approaches to seafarer

42
Ratification, per se, has not, relatively speaking, been a problem for the IMO. SOLAS has been
ratified by 164 countries (99.18% of world tonnage), MARPOL has 157 ratification (99.15% of
world tonnage) and STCW has 164 Contracting Governments (99.18% of world tonnage). The
issue of concern is the implementation efforts (or the lack of them) that should follow ratification.
43
The 2014 amendments to the STCW Convention incorporated a new Regulation I/16 which
requires that “Every Party shall be subject to periodic audits by the Organization in accordance with
the audit standard to verify compliance with and implementation of the present Convention”.
44
Resolutions A.1070(28) and A.1067(28) respectively.
45
Kokotos (2013), Butt et al. (2013), Allianz Global Corporate & Specialty (2017) and
Dyrcz (2016).
46
Eliopoulou et al. (2016).
486 M. E. Manuel and R. Baumler

education and training, particularly from the traditional maritime nations, tended to
address broader educational outcomes and skills than the focus of the current more
prescriptive regimes. It is interesting that “competence” was defined in 2002 by the
Dutch Higher Education Council as the potential to handle new, unexpected situa-
tions that one has not been specifically trained in. In such contexts, seafarers were
more equipped with analytical abilities and a broadmindedness that encouraged the
generation and maintenance of a safety culture beyond mere compliance with
externally imposed regulations.
As has been argued elsewhere,47 law is not the only—and certainly not always the
best—mechanism for social behaviour optimization and professional performance.
Broad education, markets and intrinsically-generated motivation and value systems
are perhaps more reliable as long-term factors for the optimization of social behav-
iour. Ultimately a significant element of national self-regulation (as opposed to
extrinsic prescriptive regulation) is required. Not understanding and considering
this in the education of seafarers, creates the potential for over-prescriptive regula-
tion and an undue emphasis in the international milieu on training at the expense of
other important factors. As has been noted from research conducted by
Bhattacharya,48 “it appears that in the maritime industry there is a disproportionate
level of interest in developing seafarers’ competence, training and motivation”
which may disguise the relative importance of other issue such as manning levels,
shipowner/manager resource allocation, a consideration of seafarer participation in
safety and security of job tenure. Of course, this is debatable, given the economic,
environmental and safety costs of accidents caused by a lack of operator capabilities,
but such accidents can be caused by any or all of the other issues mentioned. In short,
when addressing the “human element”, one should not restrict oneself to education;
the wider organizational context of ship operation and management is also an active
contributor to optimum safety and environmental protection.
The question does remain as to how international legislation can overcome the
resistance offered by sovereignty without comprising the integrity of sovereign
states and their right to self-determination and rule and without drifting into over-
regulation in a prescriptive manner. It is essential, in this light, that the global
maritime community, understanding the limitations of international law, do not
regard the STCW Convention (and others like it) as the “be all and end all”, but
strive to build excellence on the foundation it provides.
Other issues confronting seafarer education and training in an international
context have implications for international law. A selection of these are discussed
below.
The 1995 amendments to the STCW Convention saw the IMO introduce the
notion of “fitness for duty” “for the purpose of preventing fatigue”. Not necessarily

47
Schuck (2000), Stanton-Ife (2018) and Frohnen (2015).
48
Bhattacharya (2009).
The Evolution of Seafarer Education and Training in International Law 487

the same as medical fitness,49 the fitness for duty provisions50 address the impair-
ment of seafarers’ ability to work due to fatigue. The 2010 Manila amendments
extended the notion of “fitness for duty” to include provisions to prevent drug and
alcohol abuse. By requiring minimum rest periods only for watchkeeping personnel
(1995 amendments) and later also for “those whose duties involved designated
safety, prevention of pollution and security duties” (2010 amendments),51 the IMO
responded to casualty investigation findings which demonstrated that fatigue was a
contributing factor in numerous high-profile industrial and maritime accidents
including Herald of Free Enterprise in 1987 and Exxon Valdez in 1989.
The IMO move to regulate working time as part of seafarer competence standards
seems counter-intuitive as this field belongs to the ILO scope of work to promote
working conditions and occupational safety and health (OSH). However, it can be
argued that IMO’s role/mandate to enhance safety of ships covers the need to address
fitness for duty as a competency52 issue and as a corollary to the SOLAS require-
ments for sufficiency and efficiency of manning.53 Indeed, the phrase “the danger
posed by fatigue OF seafarers” (emphasis added) used in Section A-VIII/1 para-
graph 1 of the STCW Code, illustrates the restricted nature of the regulation. Its
purpose is to protect the ship and related assets from “fatigued seafarers” with
impaired cognitive abilities. This wording obviously differs from a phrase such as
“the danger posed by fatigue TO seafarers” which implies the need to protect both
individuals (primarily) and the ship from the effects of fatigue, thus bringing into
view occupational health and safety, an area covered more properly by the Maritime
Labour Convention, 2006. Moreover, STCW focuses on “those whose duties
involve designated safety, prevention of pollution and security duties” which
reduces the scope of the Convention to crew considered vital for safe ship conduct.
By narrowing its approach of fatigue to ship safety, the IMO disconnects working
time from occupational safety and health and welfare.54

49
Covered by Regulation I/9 of the Convention.
50
Found in Regulation VIII/1 of the Convention and in the accompanying Sections A-VIII/1 and
Section B-VIII/1 in the STCW Code.
51
Section A-VIII/1 of the STCW Code.
52
The notion of competency in work performance is not original to the STCW Convention. The
notion is drawn management theory in general and has been described as those characteristics
including “knowledge, skills, aspects of self-image, social motives, traits, thought patterns, mind-
sets, and ways of thinking, feeling and acting” that when used, whether singularly or in various
combinations, result in successful performance. (See Dubois and Rothwell (2004)).
53
SOLAS Regulation V/14.
54
This approach, however, raises other issues/challenges. By introducing the notion of “hours of
rest”, the IMO appears not to have integrated the ILO’s earlier attempts to address hours of work
and manning at sea. With the entry into force of the 1995 amendments, the STCW became the first
instrument to address (partially) working time specifically for seafarers (by regulating hours of rest).
From 1936 to 1958, the ILO had strived to regulate working time of seafarers using its working time
norm established in 1919: 8-h day and 48-h week (ILO Convention No. 1). However, none of the
maritime instruments adopted during this period reached entry-into-force thresholds. The introduc-
tion of minimum rest periods as a reference system for working time in the maritime domain
488 M. E. Manuel and R. Baumler

Another challenge to regulation in education in general relates to the affective

domain of learning. Common to the determination of all educational outcomes are
the use of three domains.55 They are the cognitive, psychomotor and affective
domains. For successful ship operation, the affective domain is just as essential as
are the other two as an educational outcome. This domain describes the development
of emotional traits such as feelings, degree of acceptance or rejection, values,
appreciation, enthusiasm, motivation and attitudes. It focuses on the learning out-
comes covering those issues that relate to, arise from or influence feelings or
emotions or an individual’s inclination to act or refrain from acting in a certain
manner due to personal convictions, quality of character and of conscience.56 The
affective domain with its associated learning outcomes is a difficult area to regulate.
The competences addressed by the STCW Convention as amended, are predomi-
nantly cognitive and/or psychomotor in essence, and though the 2010 amendments
saw the inclusion in the STCW Code of elements such as leadership and managerial
skill, they do not cover in appropriate detail, the wider scope of the affective domain
which would include professionalism, ethical behaviour, cultural/diversity sensitiv-
ity/awareness, environmental consciousness, team behaviour etc.57 While the impor-
tance of these have been recognized, there remains ambiguity as to how they lend
themselves to international regulation.
Yet another important issue that faces the international regulation of seafarer
education is its traditionally reactive nature. Historically, the regulatory framework
of the IMO has been reactive, piecemeal and predominantly based on prescription
and the checking of compliance.58 A philosophical reorientation to the formulation
of international law in the case of the IMO has been its efforts to be more integrative
and proactive in regulation-making, with an increased focus on risk evaluation and
management.59 In the case of safety of life at sea this has led to discussions of formal

affected the development of post-1995 regulations such as ILO C180 on Seafarers’ Hours of Work
and the Manning of Ships Convention, 1996, the MLC, 2006 and ILO C188 on work in fishing,
2007. While the ILO’s efforts to regulate hours of work had been justified by the need to protect
workers against the detrimental effects of long working periods, the ILO 1996 Seafarers’ Hours of
Work and the Manning of Ships Convention (C180) disrupted the 1919 norm by introducing
standards plausibly inspired by IMO requirements. While the ILO and IMO provisions in respect
of seafarers are now relatively similar, they arguably differ substantially from the original ILO
principles. This original ethos, apparently recalled in Regulation 2.3 paragraph 3 of the MLC, is
undermined by the provisions laid down subsequently in paragraph 5 which allow national
standards to set limits: hours of work of 14 h in any 24-h period and 72 h in any 7-day period
(maximum); and hours of rest of 10 h in any 24-h period and 77 h in any 7-day period (minimum).
These “debatable” discrepancies and challenges are not the focus of this chapter and are
discussed in other fora.
55
Bloom et al. (1956).
56
Manuel (2005).
57
Resolution 7 of the 2010 STCW Manila Conference included in Attachment 3 to the Final Act of
the Conference refers to such professionalism.
58
Rasmussen (2016).
59
Ibid.
The Evolution of Seafarer Education and Training in International Law 489

safety assessment and a more proactive consideration of the human element through
the “Human Element Analysis Process” (HEAP). The application of this paradigm
and related tools in the specific context of seafarer education and training is not
obvious. The framework remains predominantly prescriptive, with training being
multiplied for any new task or area of focus that arises and needs to be addressed on
board ship. As an example, one can contrast the reaction of the maritime industry
with other industries like aviation, when a post-911 world required significant
increase in security on ships. In most other industries, a well-trained cohort of
security personnel would have been drafted to ensure security. In the case of the
maritime industry, an already burdened crew were tasked to become the new “ship
security officers” with additional training which had cost implications for finances
and time. This regulatory approach to work on board ship has led to the incessant
compounding of what a seafarer should know, the training required to know this and
the associated cost to the seafarer and sometimes the shipowner. Unlike for many
other professional contexts, the maritime industry’s approach to regulation of edu-
cation and training has—understandably, perhaps—led to significantly high levels of
diversity of trainings and high recurrence of such training for revalidation of
certificates.60 The current legal and governance framework allows for the multipli-
cation of training and certification which leads to a financial burden on seafarers. In
many cases such training has to be undertaken during the seafarers’ vacation time
with significant negative implications for fatigue and seafarer’s health and social
welfare. It also allows for the provision of seafarer education and training services to
take on a severely commercial and business ethos and model, which does not always
augur well for the achievement of the desired learning outcomes.
It may be argued that this multiplication of training, in and by itself, is limited in
its ability to comprehensively address the competence issues that face the industry.
Nevertheless, with clear signs of increased quantification of outcomes—aspects of
which have been called variously “the tyranny of metrics”,61 “the McDonaldization
of society”62 and “governance by numbers”63—it does not seem likely that the
global community will deviate from a path towards an increased number of pre-
scriptive regulations. In parallel, the bid to subject more and more elements of the
education and training of seafarers to measurable outcomes for international legal
control will lead to more erosion of sovereignty.

60
Table B-I/2 in Section B-I/2 of the STCW Code, is an indicative table of the number of certificates
required under different regulations of the STCW Convention. They number about 14 (any seafarer
will possess anywhere up to 8 certificates at any one time not counting the myriad of company
specific training and associated certification.
61
Muller (2018).
62
Ritzer (2018).
63
Supiot (2017).
490 M. E. Manuel and R. Baumler

6 New Challenges and Opportunities for the Future

It is now common knowledge that the beginning of the twenty-first century has been
characterised by unprecedented information technology development, particularly as
regards digitalization. The effects (including negative ones) of an increasing tech-
nological society have been discussed in-depth elsewhere.64,65 Suffice it to say here
that this development is impacting all areas of the global economy, not least
shipping. The possibility of maritime autonomous66 vessels becoming a reality to
one degree or another is today virtually unquestioned although its positive impacts
are debated. Indeed, there have already been at least two successful tests carried out,
firstly of a remotely controlled vessel67 and then a fully autonomous vessel.68 While
the ocean-wide use of fully autonomous vessels remains debatable, there is little
doubt that vessels with some level of autonomy higher than exists today, will be a
reality in the short to medium term, even if they are operated only in near-coastal
waters. Like all other contemporary disruptors, this new digital trend presents not
only new opportunities but also significant technical, social and legal challenges.69
In the context of this chapter, the legal challenge to international regulation of the
education and training for the operation of ships with different levels of autonomy is
relevant. Current descriptions of autonomous operations, categorize such operations
at different levels—from a level with no automation, through different levels of a
mixture of human and autonomous technical control, to a fully autonomous (with no
possibilities of human intervention on board).70 One can argue that the regulating of
seafarer education and training for the lower levels of autonomous ship operation
may be adequately covered by the existing international legal framework (with the
usual periodic amendments). However, when it comes to the levels where humans
are not present on board—where either the vessel is operated remotely or fully

64
Ellul (1964).
65
Ford (2015).
66
The word “autonomy” (and variants such as “autonomous) has historically been used to refer to
human will and decision making. For better or for worse, it has been appropriated in the current
technological society to refer to human-made machines which work without the direct intervention
of the human being at the operational level.
67
See https://www.rolls-royce.com/media/press-releases/2017/20-06-2017-rr-demonstrates-
worlds-first-remotely-operated-commercial-vessel.aspx.
68
See https://www.rolls-royce.com/media/press-releases/2018/03-12-2018-rr-and-finferries-demon
strate-worlds-first-fully-autonomous-ferry.aspx.
69
For a contribution to the discussion about legality and liability of remote-controlled vessels, see
an analysis undertaken during the European Commission-funded Project “Maritime Unmanned
Navigation through Intelligence in Networks (MUNIN)”. See (http://www.unmanned-ship.org/
munin/wp-content/uploads/2013/11/MUNIN-D7-2-Legal-and-Liability-Analysis-for-Remote-Con
trolled-Vessels-UCC-final.pdf).
70
For example, Lloyd’s Register’s Autonomous Levels indicated in their “Design Code for
Unmanned Marine Systems”. The list was somewhat revised in 2018, but the original 2017, reflects
the dominant thinking in the industry.
The Evolution of Seafarer Education and Training in International Law 491

autonomously—this legal framework is woefully inadequate. The current paradigm

is built on the notion of humans operating ships (with specific flags) which use the
high seas and then enter the Exclusive Economic Zones (EEZ), Contiguous Zones or
Territorial Seas of other States. In an international law context, the hard-law regu-
lation of the training of such persons is eminently defensible. However, when the
individuals operating a ship are not physically on that ship as it traverses the high
seas and/or enters the waters falling under the jurisdiction of other States, it raises
many and significant legal questions regarding the education and training of such
individuals.
To give an example, maritime pilots other than deep-sea pilots (including river
and harbour pilots) are indispensable to shipping. They—together with the standard
crew of ships—ensure the safe navigation of ships from berth to berth. However,
there is no international “hard law” legal instrument regulating the training of such
pilots. This is because their work happens almost entirely in the context of national
sovereignty (in EEZ and territorial waters—the power of sovereignty increasing
landward). Because of their operational context, the international maritime commu-
nity has only recommended what could be considered appropriate training in a
resolution of the IMO.71
Another example is the international regulation of the qualification of instructors,
assessors and supervisors under the STCW Convention. Undeniably, and as clearly
demonstrated in the past,72 the qualifications of instructors, assessors and supervi-
sors is critical to the success or otherwise of the achievement of the learning
outcomes and standards required for optimum ship operation. This is recognized
by the Convention. However, unlike the seafarers, these instructors, assessors and
supervisors do not operate in an international setting where they carry out their work
in other jurisdictions. They remain and work in the sovereign boundaries of their
own States. Accordingly, the ability to explicitly regulate their training and qualifi-
cations at an international level is weakened. The current relevant regulation in
respect of such training in the STCW Convention is stated as follows73 (emphasis
added):
Each Party shall ensure that those responsible for the training and assessment of competence
of seafarers, as required under the Convention, are appropriately qualified in accordance
with the provisions of Section A-I/6 of the STCW Code for the type and level of training and
assessment involved.

Section A-I/6 as referenced in the quote above states that:

Each Party shall ensure that instructors supervisors and assessors are appropriately qualified
for the particular types and levels of training or assessment of competence of seafarers either
on board or ashore, as required under the Convention, in accordance with the provisions of
this section.

71
Resolution A.960(23) on Recommendations on Training and Certification and on Operational
Procedures for Maritime Pilots other than Deep-Sea Pilots.
72
Larrieu (2010).
73
Regulation I/6 of the STCW Convention, 1978, as amended.
492 M. E. Manuel and R. Baumler

The section then includes a footnote, suggesting that “the relevant IMO Model
Course(s) may be of assistance in the preparation of courses”.74 It is obvious that the
regulating of those who oversee and are responsible for the training and assessment
of competence is done at a far less stringent level than it is for the ship operators
actually on-board ship.75
In the case of the international regulating of remote ship operators, it remains to
be seen how international law could/will be applied to their education and training,76
given that they will operate from sovereign jurisdictions.

7 Conclusion

Maritime accidents and other evidence of limitations in seafarer competence have

not disappeared. In the words of Sampson,77 this has “ensured a sustained political
concern with standards of maritime education and training” that stakeholders are
being forced to respond to.
Shipping still facilitates 80–90% of world trade by volume and has been
described as the “lifeblood of world trade”.78 In similar vein, the human element
on ships—the seafarers—are the lifeblood of shipping. Despite the introduction of
increasingly sophisticated technology, the maritime industry will continue to depend
on maritime operational personnel. The future “seafarer”, while not necessarily cast
in the mould of the traditional and contemporary seafarer, will nevertheless have
operational control of a vessel, whether onboard or ashore. Seafarer education and
training must therefore continue to attract global attention and efforts to optimise its
outcomes.
The international community and the application of international legal frame-
works will continue to be the best context within which to discuss and generate
regulation to oversee the operations of a global industry such as the maritime
industry is. As has been stated, “modern ship safety, labour and environment
protection arrangements pose international problems that require international solu-
tions”.79 As long as trade between jurisdictions separated by vast ocean spaces is

74
IMO Model Courses themselves are only recommendatory in legal character.
75
Other examples include the stringent application of training requirements for the IMDG Code in
respect of the handling of dangerous goods (mainly mandatory under SOLAS) on board ship, while
only a Circular (MSC1/Circ.1216) on “Revised Recommendation on the Safe Transport of Dan-
gerous Cargoes and Related Activities in Port Areas” is the limit of international regulating of the
same handling of dangerous goods in ports.
76
The IMO has commenced a scoping exercise to determine, among others, the legal implications of
Maritime Autonomous Surface Ships (MASS).
77
Sampson (2004).
78
See http://www.ics-shipping.org/ics-film%2D%2D-international-shipping-lifeblood-of-world-
trade.
79
International Commission on Shipping (2000).
The Evolution of Seafarer Education and Training in International Law 493

required, and as long as that trade requires the carriage of large volumes of cargo, the
maritime industry will be relevant and should be well adapted to the increasingly
globalized and technological world including through the international law instru-
ments which help govern it. Irrespective of their location (whether remotely ashore
or onboard), the people who operate ships will have to be educated in a paradigm of
lifelong learning that accommodates the rapid changes characteristic of the twenty-
first century. The international regulatory regime for the education and training of
seafarers must contend with rapidly changing influences on shipping that require
increased sustainability of efficient operations, safety, security and speed in a world
where sovereignty remains a reality. If this regime is to lead and/or adapt appropri-
ately in this context, it must be proactive and just as dynamic and adaptable.
However, if the international legislative framework is unable to perform as expected,
it will be increasingly challenged by national and regional actions to exclude
sub-standard shipping.80
It remains imperative that global attention is given to matters that influence
seafarer education and training—how it is conducted, resourced, verified and
improved and in the particular context of this chapter, importantly, how it is
regulated.

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Coastal, Flag and Port State Jurisdictions:
Powers and Other Considerations Under
UNCLOS

Emmanuel Kofi Mbiah

Abstract The manifestations of the state as a public law entity reveals itself in many
ways. One particular way in which it does so is through the powers of control,
legislative and enforcement jurisdiction that is afforded the State through customary
international law and public law treaties. The United Nations Convention on the Law
of the Sea, in its codification and crystallization efforts, takes cognizance of the
practice of states having due regard to historical antecedents. The practice of States
have evolved over time. The practice, coupled with the increased use of technology,
has undoubtedly impacted the application of the international rules in respect of the
coastal, flag and port state jurisdiction. In recent times, the rules have been
interpreted to take account of evolving developments. This paper deals with the
zonal and functional approaches as expressed through UNCLOS. The zones of the
internal waters, territorial seas, contiguous zone, exclusive economic zone and the
high seas beyond national jurisdiction as captured by UNCLOS are dealt with in
relation to the functional underpinnings that gird the demarcation of the zones. The
coastal State’s powers of legislation, jurisdiction and enforcement are examined in
the light of modern considerations and so are the issues attendant to port and flag
State jurisdiction. Recent pronouncements of the International Tribunal of the Law
of Sea is cited to shed light on the functional approach to the utilization of the zones
and the limits of the powers of the coastal State.

E. K. Mbiah (*)
Ghana Chamber of Shipping, Shipman Consult, Accra, Ghana

© Springer Nature Switzerland AG 2020 495

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_23
496 E. K. Mbiah

1 Introduction

In the international law of sea as depicted in UNCLOS,1 there are several manifes-
tations of the “State” as a public international law entity. Among others, these are the
coastal State, flag State and port State as the principal ones.2 This chapter examines
the rights, powers and jurisdictions accorded to States by UNCLOS under the three
incarnations of the State as referred to above and delves into certain aspects of them
to the extent warranted by the context. Both legislative as well as enforcement or
regulatory jurisdictions are considered in the discussion to facilitate a rounded
appreciation of the phenomenon of jurisdiction under UNCLOS. The examination
is set against the historical background of the evolution and ascension of the Grotian
doctrine of the 1600s which eventually suffered contraction in relatively recent times
with the rise and expansion of territorialism mainly triggered by the discoveries of
near-coast natural resources.
In terms of the attributes and jurisdictional consideration of the coastal State, the
zonal and functional approaches adopted by UNCLOS are discussed including the
internal waters, territorial seas, contiguous zone, the exclusive economic zone and
the continental shelf, in light of their relationships to the high seas. In the discussions
on the flag and port State characterizations of States, the legal notions of ship
nationality, registration and flag are touched on and the concept of port State control
(PSC) is highlighted. The main thread of the chapter as a whole is the inter-
connectivity among the three main designations of States under UNCLOS, namely,
coastal, flag and port State. A summary is presented in conclusion.

2 The Coastal State

2.1 Preliminary Observations

A deeper appreciation of the jurisdiction of the coastal State in international maritime

law as well as the responsibility, rights and obligations as they developed over time,
are better set within the historical context of freedom of the seas—(mare liberum) as
opposed to the diminution of freedom of the seas (mare clausum). Since time
immemorial, coastal States have recognized and used the seas as a bulwark and
shield for the defence of their landmass and territory. The seas were also recognized
as navigational routes for the purpose of conquest of new territories and trading
hence the quest to have as much of it unfettered for unhindered navigation and the
exploitation of its resources.3 The quest for the defence of the land territory and the

1
United Nations Convention on the Law of the Sea, 1833 UNTS 3; 21 ILM 1261 (1982).
2
UNCLOS also deals comprehensively with island states, archipelagic states, land-locked and
geographically disadvantaged states and other characterizations.
3
Bordin (2002).
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 497

sovereignty of the coastal State led to the so-called canon-shot rule which restricted
the control and jurisdiction of the coastal State with respect to foreign vessels to three
nautical miles.
It was not until the late 1950s, following from the first Conference of the United
Nations on the Law of the Sea that coastal States sought wider limitation of the
freedom of the seas culminating in the subsequent declaration of the 12 nautical mile
limit of the coastal States territorial waters. Since the adoption UNCLOS in Montego
Bay, Jamaica in 1982, the control obligations, responsibilities and jurisdiction of the
coastal State has now been better expressed through in most instances a codification
of customary international law expressed through the opinio juris.
In dealing with the coastal State, the UNCLOS, ascribes to the coastal State,
rights, including juridical rights and responsibilities in accordance with the various
maritime zones, spelt out clearly in the UNCLOS. These are (a) Internal Waters
(b) Territorial Sea (c) Contiguous Zone (d) Exclusive Economic Zone
(e) Continental Shelf and (f) The High Seas (beyond national jurisdiction).4
By virtue of the UNCLOS, specific legislative and enforcement powers have been
provided for in respect of the coastal State depending on the maritime zone in
question.

2.2 Internal Waters

As the name suggests, internal waters are waters enclosed within the territory of the
coastal State. Being within the territory of the coastal State, the enjoyment of the full
powers of sovereignty which a state possesses under international law are applicable.
In this regard, the coastal State has powers for the enactment of appropriate legis-
lation to safeguard and exercise its sovereignty. Thus, acts of a foreign vessel that
impugn the territorial sovereignty of the coastal State are subject to the laws and
regimes of the coastal State. It is pertinent to note that where the waters described as
internal waters have been so designated as a result of the drawing of straight
baselines enclosing waters which hitherto were not so designated, the right of
innocent passage is to be granted to foreign vessels for navigation through those
waters.5 Thus, with the exception of the right to innocent passage for foreign ships
where previously unenclosed waters have gained the character of internal waters, the
coastal State has the power to exercise its full sovereignty for the sake of peace, good
order and security and can take action against foreign vessels that disturb or seek to
disturb such peace and security.6

4
MV Saiga case (Saint Vincent and the Grenadines); ITLOS case No. 1 1997 and 2 [1999] http://
www.itlos.org/startz-en.ntml.
5
This therefore acts as an exception to the unrestrained powers of sovereignty of the coastal State in
Internal Waters. UNCLOS Article 8(1).
6
Churchill and Lowe (1988), p. 55.
498 E. K. Mbiah

2.3 Territorial Sea

The territorial sea stretches from the baselines on the coast into the sea to 12 nautical
miles having been accepted under the United Nations Convention on the Law of the
Sea.7 States had begun to claim more than 3 nautical miles which was the canon-shot
rule8 under customary international law, hence the agreement of 12 nautical mile
territorial sea by UNCLOS. The territorial sea is considered as part of the territory of
the coastal State and hence the enjoyment of sovereignty by the coastal State. Even
though the coastal State enjoys sovereignty within its Territorial Sea, in line with the
freedom of navigation, the sovereignty of the coastal States is subject to the right of
innocent passage of foreign vessels.9 The passage through the territorial sea by all
ships including warships and sub-marines is recognized under UNCLOS.
The passage of warships must not disturb the peace and good order of the coastal
State and submarines must navigate on the surface and show their flag. Passage is
defined as innocent of it is not prejudicial to the peace, good order or security of the
coastal State.10 There are a number of activities which make passage non-innocent
and which are spelt out in UNCLOS. Even though the list is not exhaustive it forms
the basis of determining whether the passage of foreign submarines, other under
water vehicles and ships in the coastal States territorial waters is innocent or
non-innocent.11
The activities include:
(1) Military activities
(2) Activities contrary to the coastal State’s customs, fiscal, immigration or security
regulations
(3) Pollution
(4) Fishing activities
(5) Research or survey activities
(6) Any act of propaganda aimed affecting the defence or security of the coastal
State,
(7) Any exercise or practice with weapons of any kind and the omnibus protection
(8) Any other activity not having direct bearing on passage.
One of the earliest decisions of the International Court of Justice with respect to
innocent passage is the Corfu channel case. On October 22nd 1946, two British
cruisers and two destroyers, entered the Corfu Strait. The channel was in Albanian
waters. One of the destroyers the Saumarez struck a mine while passing through the
channel and got severely damaged. The destroyer, the Volage, while towing the
Saumarez struck another mine and was also seriously damaged. Forty-five British

7
UNCLOS Articles 2, 3 and 4.
8
Based on the distance travelled by a cannon shot fired from the coast.
9
UNCLOS Article 13.
10
UNCLOS Article 19(1).
11
UNCLOS Article 19.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 499

officers and sailors lost their lives and forty-two others were wounded. It was the
contention of Albania that foreign warships and merchant vessels required prior
authorization before being allowed passage through Albanian waters. Britain
claimed that the passage was innocent and did not require prior authorization.
The ICJ held that the United Kingdom had the right of passage through interna-
tional straits and that the passage was innocent even though four warships were
involved. It is to be noted that this decision of the International Court of Justice is
premised on the fact that the waters concerned are properly characterized as Inter-
national Straits. The negotiations at the third United Nations Conference on the Law
of the Sea concerning straits were as intricate as they were delicate.12 In the final
analysis and as a compromise for accepting the 12 nautical mile Territorial Sea, four
categories of straits were outlined. These were:
1. Straits governed by long-standing special conventions
2. Straits with central corridors of high seas or EEZ
3. Straits subject to the regime of innocent passage
4. Straits subject to the regime of transit passage
Each of these categories spells out the rights and duties of the coastal State in line
with other provisions of the Convention.

2.4 Contiguous Zone

The concept of the contiguous zone was part of the intricate and delicate balance
achieved during the negotiation between the proponents of limited fetter and the
proponents of a much wider fetter limiting the freedoms of the coastal State. Coastal
States claim to sovereignty and the need to deal with economic crimes at sea
supported a claim of 24 nautical miles as territorial sea where the coastal State
would have full sovereignty. As a compromise and to yield to some of the demands
of coastal States, a zone contiguous to the territorial sea was established and referred
to as the contiguous zone. The zone permits the coastal State to enforce its laws with
respect to taxes, immigration, sanitation, phytosanitary inspections and other forms
of crimes committed at sea which are detrimental to the economic and security
interests of the coastal State.
In effect, while the coastal State exercises its so—called sovereign powers in the
contiguous zone, the zone generally has the character of High Seas, allows freedom
of navigation and measures 24 nautical miles from the baselines from which the
breadth of the territorial sea is measured.
The contiguous zone permits the coastal State to enforce its phytosanitary,
immigration, customs and fiscal laws within the zone contiguous to the territorial
sea. It is contentious whether the establishment of the zone is not superfluous as the

12
See UNCLOS Articles 4 to 45.
500 E. K. Mbiah

24 nautical miles is part of the Exclusive Economic Zone. A zone which also has the
character of High Seas as far as the superjacent waters are concerned but within
which a coastal State may enforce its economic and fiscal legislation with respect to
customs, immigration, illegal bunkering etc. It may however be said that the level of
enforcement of the fiscal regime as well as issues of immigration and customs
procedures are closely linked with the economic and security rights that appertain
to the coastal State in view of the proximity of the zone to the territorial sea.
Thus, in effect, even though it is contained within the EEZ of 200 nautical miles,
it has a special character when it comes to the enforcement of the coastal State’s
fiscal and security laws as opposed to the general resource rights enforceable under
the regime of the EEZ. Within the contiguous zone, the coastal State can board and
search vessels where it has strong suspicions and belief that such a vessel was
committing or about to commit a crime with respect to the powers of the coastal
State enunciated in Article 33. The same may not be said of the coastal States powers
as regards the EEZ.13

2.5 Exclusive Economic Zone

The powers, rights and obligations exercisable by the coastal State are provided for
under Part V, Articles 55 and 56 of UNCLOS. The zone is often referred to as a zone,
sui generis meaning, “of its own kind” as it is not akin to any of the other zones
deliberated upon earlier under the various Conferences of the United Nations on
issues of law of the sea. It was indeed a new creation under the United Nations
Convention on the law of the sea (UNCLOS) 1982.
It is a hybrid regime established by compromise as coastal States sought to
acquire and protect economic rights beyond the 12 nautical mile territorial sea.
Thus, it does not provide the coastal State with sovereignty over the zone but rather
sovereign rights which are permissive of freedom of navigation. The right exercis-
able by the coastal State in the EEZ may be placed under three categories.
(i) Sovereign rights for the exploration and exploitation of natural resources.
Secondly, the provisions of UNCLOS14 clothes the coastal State with jurisdic-
tion in matters relating to the establishment and use of artificial Islands,
installations and structures,
(ii) Marine scientific research
(iii) The protection and preservation of the marine environment and

13
See the m.v. Saiga case, p. 2.
14
UNCLOS Article 56 1(b).
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 501

(iv) Jurisdiction over other rights & duties provided by the convention.15 The
coastal State is enjoined by the provision of section 56 (2) to have due regard
for the rights of other states in the EEZ.
Article 55 describes the EEZ as “an area beyond and adjacent to the territorial sea,
subject to the specific legal regime established in this part under which the rights and
jurisdiction of the coastal State and the rights and freedoms of other states are
governed by the relevant provisions of this Convention”. The rights of the coastal
State in the EEZ are more particularly spelt out in Article 56. Article 57 provides the
extent of the EEZ. It states: “The Exclusive Economic Zone shall not extend
200 nautical miles from the baselines from which the breadth of the territorial sea
is measured”.
In examining the rights of the coastal State under Article 56, it is also necessary to
look at Article 246(1) which provides coastal States with the powers to regulate,
authorize and conduct marine scientific research in the EEZ and on their continental
shelf.16 The Uniqueness of the EEZ lies in the fact that the sovereign rights of the
coastal State pertain only to the resources of the zone rather than to the zone itself.17
It needs be pointed out that even though the EEZ has the character of the high
seas, no state can conduct marine scientific research in the EEZ without the consent
of the coastal State.18 The consent of the coastal State may not however be unrea-
sonably withheld. There could also be implied consent with the necessary condi-
tions.19 On issues dealing with the resolution of conflicts with respect to the EEZ,
UNCLOS provides in Article 59 as follows: “In cases where this convention does
not attribute rights or jurisdiction to the coastal State or to other states within the
EEZ, and a conflict arises between the interests of the coastal State and any other
state or states, the conflict shall be resolved on the basis of equity and in the light of
all the relevant circumstances, taking into account the respective importance of the
interests involved to the parties as well as to the international community as a whole.
Within the EEZ the coastal State has the exclusive right to construct and to authorize
and regulate the construction and operation of artificial islands, installations and
structures for economic purposes.
As indicated earlier, the EEZ is a zone sui generis. In this respect therefore other
states also have rights within the EEZ and it therefore becomes imperative that these
are recognized by the coastal State in order to avoid conflicts. Under UNCLOS,
foreign states shall enjoy some of the freedoms of the high seas set forth in Article
87. These include:

15
UNCLOS Article 56.
16
This must be read together with Articles 238–304 which amongst others deals with the obligations
of states to foster international cooperation and peaceful ends.
17
Phillips (1977).
18
UNCLOS Article 246.
19
UNCLOS Articles 252 and 253.
502 E. K. Mbiah

(1) Navigation.
(2) Overflight.
(3) Laying a sub-marine cables and pipelines.
(4) Other internationally lawful uses of the sea related to those freedoms.
It is also important to note that by virtue of article 58 of UNCLOS, articles 88 to
115, which apply to high seas can be applied to the EEZ where they are not
incompatible with the articles pertaining to the EEZ. Thus, in view of the fact that
the superjacent waters of the EEZ is characterized as high seas, the rights of the
coastal State are restricted to the exploitation of economic resources while other
states are afforded through the provisions of UNCLOS non-economic rights in
the EEZ.

2.6 Continental Shelf

Article 77 of UNCLOS spells out the rights of the coastal State over the continental
shelf. It provides the State with sovereign rights for the purpose of exploring and
exploiting its natural resources. It is important to note that these rights are exclusive
as no other country may explore or exploit the resources without the consent of the
coastal State. Furthermore, the convention provides that the rights enjoyable by the
coastal State with respect to its continental shelf do not affect the legal status of the
superjacent waters or the airspace above those waters and the rights of the coastal
State must not interfere with the freedom of navigation.

2.7 High Seas

It is important to note that in the development of the law relating to the use of the sea,
the quest for unlimited freedom reigned supreme. This was borne out of the
development of custom with respect to the use of the seas for its resources,
navigation and for purposes of security. The concept of the maritime commons
and the need for preservation and conservation led to a reformulation of the rules
regarding the uses of the sea.20 As coastal States clamoured for more jurisdiction and
control over the waters adjacent to their coasts, the fundamental principle of freedom
of the seas was diminished.
Even though the fundamental principle of freedom of the seas was diminished,
the freedoms relating to what was later characterized as the high seas remained
unfettered.21 The freedoms include:

20
Pardo (1982).
21
UNCLOS Article 87.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 503

(i) navigation and overflight.

(ii) freedom to lay sub-marine cables and pipelines
(iii) to construct artificial Islands and other installations permitted under interna-
tional law,
(iv) to fish and
(v) to engage in marine scientific research.
In the spirit of the high seas being the common heritage of mankind, UNCLOS
provides that the high seas “shall be reserved for peaceful purposes.”22 In effect, “no
State may validly purport to subject any part of the high seas to its sovereignty”23
Within the framework of the common heritage and freedom of the seas, “every State
whether coastal or landlocked, has the right to sail ships flying its flag on the high
seas.24 This provision establishes the right to navigation on the high seas by all States
and with that establishes the very important concept of exclusive jurisdiction of the
flag State on the high seas.
The jurisdictional reach of the coastal State does not extend to the high seas
except where there is a criminal act committed by a national of the coastal State in
which case the coastal State may exercise jurisdiction concurrently with the flag
State. Thus, if an offence is committed on board a vessel, it is the flag state which has
jurisdiction to institute proceedings. Article 97 provides that “no arrest or detention
of the ship even as a measure of investigation shall be ordered by any authorities
other than those of the flag State”. Even though the exclusive jurisdiction of the flag
State is entrenched in international maritime law, there are exceptions that would
enable the coastal State have jurisdiction in offences committed on the High Seas.
The coastal State would have jurisdiction if it has reasonable grounds to suspect that
a vessel is engaged in piracy (hostis humanis generis), slave trade, unauthorized
broadcasting or if it has reasonable suspicion that the vessel is without nationality.25
Furthermore, by virtue of Article 111 of UNCLOS the coastal State, where it has
good reason to believe that a ship has violated the laws and regulations of the coastal
State may engage in hot pursuit. It is however important to note that the hot pursuit
may only be undertaken when the foreign ship is within the territorial sea or
contiguous zone of the coastal State and may continue outside of those waters if
the pursuit is uninterrupted. The coastal State may also exercise the right of hot
pursuit in the exclusive economic zone mutatis mutandis. On the high seas, there is
freedom of navigation for all vessels subject only to the exclusive jurisdiction of flag
State.26 In recent times, some countries have had cause to report to the International
Maritime Organization (IMO) incidences of flag theft whereby vessels not registered
under their jurisdiction have been using their flags. IMO is thus taking steps to curb
this creeping menace.

22
UNCLOS Article 88.
23
UNCLOS Article 89.
24
UNCLOS Article 90.
25
UNCLOS Article 120.
26
UNCLOS Article 87.
504 E. K. Mbiah

Under Article 110[1] of UNCLOS warships can on the high seas board another
vessel if that vessel is without nationality or failing to show its flag. A vessel can also
not change its flag during a voyage or at a port unless it has carried out a transfer of
ownership or has been re-registered in an appropriate registry.27
The Judicial Committee of the Privy Council in the case of the m.v. Asya, a ship
with illegal immigrants on board was sighted by a British naval vessel outside
Palestinian territorial waters while it was flying no flag. The ship was escorted to a
Palestinian port where an application for forfeiture of the ship was granted by the
District Court of Haifa. The decision was upheld by the Supreme Court of Palestine
whereupon the owner appealed to the Privy Council. In determining whether the
forfeiture of the vessel to the state of Palestine was lawful, the Privy Council stated
per Lord Simonds: “To satisfy this test the appellant has invoked the doctrine which
is called “the freedom of the open sea” alleging that under the shield of that—
doctrine the Asya was entitled to, whatever the mission, the right to sail the open sea
off the coast of Palestine. Their Lordships cannot assent to the proposition that any
such right, unqualified by place or circumstance, is established by International law”.
They add “For the freedom of the open sea, whatever those words may connote, is a
freedom of ships which fly and are entitled to fly the flag of a State which is within
the comity of nations. The Asya did not satisfy these elementary conditions. No
question of comity nor of any breach of international law can arise if there is no state
under whose flag the vessel sails”.
Where a coastal State or for that matter any state grants its flag to a vessel, the
vessel assumes its nationality and hence there must be a genuine link between the
flag State and the vessel.28 As indicated earlier, the coastal State’s right of hot pursuit
for infringement of its laws ceases when the vessel being pursued enters into the
territorial waters of another state. International law frowns upon use of excessive
force during hot pursuit as pointed out in the case of The I’ m Alone. Here a British
ship registered in Canada but which was controlled and managed by citizens of the
United States was sunk by the U.S Coast Guard. The ship which was suspected of
smuggling liquor into the United States was ordered to stop outside U.S territorial
waters of 3 nautical miles but declined. The I’ m Alone was then pursued by the
Walcott and after two days joined by the Dexter which eventually fired shots into the
hull and sunk the I’ m Alone leading to the death of one crew member while the rest
were rescued.
Upon adjudication under an Agreement between Canada and the U.S the tribunal
ruled that the sinking was illegal and the US was directed to pay damages to Canada.

27
The Asya case, cited as Naim Molvan v. Attorney-General for Palestine (Asya Case), 1948 App
Cas 351 (P. C.), 81 LI. L. Rep. 277.
28
UNCLOS Article 91. It is however not clear what is meant by “genuine link” as the Convention
does not explain it. See also the United Nations Convention on Conditions for the Registration of
Ships 1986 which incidentally did not garner sufficient ratifications to enable its entry into force.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 505

The right of hot pursuit is now well established under international law as
indicated earlier.29 The right is however subject to a number of conditions which
the coastal State must take regard of. These include:
i. The pursuing state exercising the right of hot pursuit must pay due regard to the
equality of States principle enshrined in Article 2(4) of the United Nations
Charter.
ii. The ship may only pursue the suspected offending ship to a distance of 12 nau-
tical miles from its territory.
iii. The pursuit may only be continued outside the territorial sea or the contiguous
zone if it has been continuous and uninterrupted.
iv. An order to stop must have been declined or refused.
v. Pursuit may only be exercised by warships, military aircraft, or ships or aircraft
clearly marked as being on governmental service.
vi. Pursuit should cease when the ship enters its territorial waters or the territorial
waters of another state.
As pointed out by Lord McNair, “when a foreign ship outside territorial waters
sends boats into territorial waters which commit offences there, the mothership
renders herself liable to seizure by reason of these vicarious operations”. Apart
from customary international law, the right of the coastal State whose territory is
infringed upon is also protected by the UNCLOS30 and the principle applies perforce
to the contiguous zone and the exclusive economic zone.
It is important to note that within the EEZ,31 the coastal State is enjoined by the
provisions of UNCLOS to promote the optimal utilization of the living resources in
the EEZ. The provisions of UNCLOS also set rules for the coastal State with respect
to anadromous stocks, catadromous species and highly migratory species.32 The
coastal State is also enjoined by UNCLOS to protect and preserve the marine
environment33 and the convention provides measures to prevent and control pollu-
tion of the marine environment.34
Where a coastal State requests a warship to leave its territorial waters and the
warship disobeys, the coastal State can take the necessary steps, including “a degree
of force proportionate to the threat which the continuing presence of the ship
represents” to compel them to leave. Indeed as pointed out by Churchill and
Lowe, “States enjoy a general right of self - defence in international law and if
they are facing imminent attack from foreign vessels in their territorial sea and have

29
UNCLOS Article 111.
30
UNCLOS Article 111 (1) and (4).
31
UNCLOS Article 61.
32
UNCLOS Articles 66 and 67.
33
UNCLOS Article 192.
34
UNCLOS Articles 194 and 211(1).
506 E. K. Mbiah

no other means of protection, they may use any necessary force in order to defend
themselves”.35
A classic case recently dealt with by the International Tribunal of the Law of the
Sea (ITLOS) is the m.v. Saiga case. Here a dispute arose between Saint Vincent and
the Grenadines in respect of the arrest and detention of the ship m.v. Saiga which was
flying the Saint Vincent and the Grenadines flag. As a flag State, Saint Vincent and
the Grenadines contended that the action taken by Guinea in forcibly arresting the
ship and its crew and detaining them run contrary to the provisions of the Law of the
Sea Convention and were thus a flagrant breach of Guinea’s obligations to the flag
State. Grenadines contended that the arrest was unjustified as the m.v. Saiga was
engaged in lawful activities outside the territorial sea of Guinea, that the laws on
which Guinea based its actions were at variance with the relevant provisions of the
convention and that Guinea had used unreasonable force in arresting the ship
contrary to the applicable provisions of the law of the sea and under
international law.
Guinea contended that the arrest of the ship was lawful under international law as
codified in the UNCLOS as the ship was engaged in activities in the “customs
radius” of Guinea that were prohibited under its national laws. Guinea also claimed
that although the ship was arrested outside its territorial sea, the arrest was in exercise
of hot pursuit as provided for under Article 111 of UNCLOS. Guinea also defended
the use of force by reason of the fact that the m.v. Saiga failed to obey the orders of
the enforcement agencies and that in the circumstances the force applied was
necessary and reasonable.
Before the substantive suit could be heard on its merits, St Vincent and the
Grenadines sought provisional Measures from the Tribunal as it contended that the
vessel flying its flag had been unduly detained. The Tribunal in granting the
Provisional Measures ordered the prompt release of the vessel and its crew members,
the posting of a reasonable bond by Saint Vincent and the Grenadines equivalent to
the amount of oil discharged and an amount of $400,000.
In determining the substantive case on its merits, the Tribunal found for a fact that
the m.v. Saiga was bunkering outside the territorial sea of Guinea but within its
Exclusive Economic Zone. After consideration of all the facts, the tribunal ruled that
with respect to the right of Guinea to arrest the ship, although the coastal State has
the right to enforce its laws against ships operating in its waters, there are limits to the
exercise of such powers in particular areas.
The Tribunal found that Guinea was not entitled to apply its customs laws to a
ship which was operating outside its territorial waters and contiguous zone. It noted
that by applying its customs laws to a customs radius which includes parts of the
EEZ it had acted in a manner at variance with the provision of the convention.
Consequently, the arrest and detention of the vessel, the prosecution and conviction
of its Master, the confiscation of the cargo and the seizure of the ship were contrary
to the Convention.

35
Churchill and Lowe (1988), pp. 83–84.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 507

With respect to the claims of hot pursuit by Guinea, the Tribunal found that
Guinea had stopped and arrested the m.v. Saiga in circumstances which did not
justify the right of hot pursuit in accordance with the convention. On the issue of the
use of force, the Tribunal was of the view that Guinea had used excessive force
during the arrest endangering human life and violated the rights of Saint Vincent and
the Grenadines under international law.
The Tribunal further noted that “although the law of the sea convention does not
contain express provisions on the use of force in the arrest of a ship, international law
which is applicable by virtue of Article 293 of the Convention requires that the use of
force must be avoided as far as possible and, where force is unavoidable, it must not
go beyond what is reasonable and necessary in the circumstances”. The Tribunal
also found that the coastal State had jurisdiction to apply its customs laws in its EEZ
only in respect of artificial Islands, installations and structures36 and not “in respect
of any other parts of the Exclusive Economic Zone. . . .”37

2.8 Ports

The regime of ports is not spelt out in UNCLOS in respect of the powers of the
coastal State. Article 11 provides for ports as part of the delimitation of the territorial
sea. For the purpose of delimiting the territorial sea, the outermost permanent
harbour works which form an integral part of the harbour system are regarded as
forming Installations and artificial Islands and shall not be considered as permanent
harbour works. In effect therefore UNCLOS does not make specific provisions with
respect issues of entry into port by foreign ships. This may be due to the fact that a
great majority of coastal States with ports are party38 to the convention on maritime
ports.
Thus, entry into ports is by reciprocity with the conditions set out with respect to
internal waters and territorial seas applicable.

2.9 Regime of Warships

Article 32 of UNCLOS provides for immunities of warships and other government

ships operated for non-commercial purposes. The only exceptions to this rule would
be instances in which the warship exhibits a hostile and confrontational posture,39 in

36
UNCLOS Article 60(2).
37
ITLOS Ruling, para. 127.
38
Nigeria and Ghana are parties to the Convention and Statute on the International Regime of
Maritime Ports [Article 2] 1923 Dec 9, 1923 LNTS 202; The Navigable Waterways Convention.
39
Corfu Channel case.
508 E. K. Mbiah

which case the coastal State may exercise its right of self-defence under international
law. Where no such provocation or infringement of the coastal States rights occur, it
would be against UNCLOS to deny foreign warships the right of immunity when
they are navigating in internal waters or when they call at a port.40 The coastal State
cannot even intervene if the matters on hand concern crew members of a warship and
has no direct effect upon the coastal State when an offence is committed on the
vessel.
Even though the general right of immunity exists under UNCLOS, the coastal
State may provide regulations and guidance as to the duration of stay of warships in
internal waters as well as conditions for stay within the internal waters. The consent
of the coastal State is thus necessary for the entry of a warship into internal waters.41
Where a warship infringes the laws of the coastal State as provided for under
UNCLOS, the coastal State may require it to leave its “territory” immediately42 and
when the warship fails to do so, in the view of some writers43 the coastal State may
use the necessary force to compel it to do so. This is however not provided for under
UNCLOS. One can only infer from the guiding principles underpinning the devel-
opment of the Convention that the position of Churchill and Lowe is in accord with
international law. The issue that arises is what kind or amount of force is justifiable
and whether it can be exercised regardless of the might of the State infringing the
laws of the coastal State.

2.10 Criminal Jurisdiction of the Coastal State

In order to assume criminal jurisdiction, the effects doctrine must be applicable

i.e. the effects of the crime committed should affect the coastal State or its national.
The circumstances under which the Coastal State may invoke jurisdiction include:
(1) If the crime committed on board the ship would affect peace good order and
security of the coastal State.
(2) If assurance of the local authorities have been requested by the Master or a
Consul of the flag State.
(3) Illicit trafficking of narcotics drugs or psychotropic substances.44

40
Naya International Treaties; The case of NML Capital Limited Vs the Republic of Argentina.
41
Barcelona Convention and Statute on the Regime of Navigable Waterways of International
Concern; Convention and Statute on the International Regime of Maritime Ports 1923.
42
UNCLOS Article 30.
43
Churchill and Lowe (1988).
44
UNCLOS Article 27.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 509

Where for any of the offences committed by a foreign ship, the coastal State has
the capacity to effect an arrest and where pursuit has begun in the territorial sea, the
coastal State may exercise the right of hot pursuit to the High Seas.45

2.11 Legislative Powers of the Coastal State

In accordance with the UNCLOS,46 the coastal State may pass legislation for:
(i) The safety of navigation including traffic separation schemes.
(ii) Laws to protect navigational aids facilities & installations including oil rigs.
(iii) Regulate the protection of pipelines and cables.
(iv) Fishing activities.
(v) Preservation of the environment and control of pollution.
(vi) Activities of marine scientific research.
(vii) Apply its customs fiscal, immigration and sanitary laws.
It is important to add that that UNCLOS requires any such legislation developed
or passed by the coastal State to be made public.47 While UNCLOS recognizes that
the coastal State may pass and enforce these laws, it nevertheless states that the laws
should not lead to a denial of innocent passage for foreign vessels and should not
invoke discriminatory practices.
In spelling out the duties of the coastal State, the coastal State is prohibited from
levying charges on foreign vessels for passage through their territorial waters but
may do so if it renders services.48 The coastal State is also enjoined under
UNCLOS49 to warn others of any dangers to navigation in its territorial sea of
which it has knowledge. Where passage is deemed to be non-innocent, UNCLOS
has prescribed measures that may be taken by the coastal State. These may include
temporal suspension of the innocent passage of foreign ships in specific areas of its
territorial sea, especially for security purposes.50 Action taken by the coastal State
shall not block access to a strait as happened between America and Iran in the Strait
of Hormuz.

45
The cases of the SS Lotus and Enrica Lexis provide detailed discussion of issues on concurrent
jurisdiction of the flag State and coastal State.
46
UNCLOS Article 21(1).
47
UNCLOS Article 21(3).
48
The Australian Maritime Safety Act 1990; AMSA.
49
UNCLOS Article 24.
50
UNCLOS Article 25.
510 E. K. Mbiah

2.12 Concluding Remarks

It is clear from the discussion above that the hitherto free seas concept very much
unfettered in the realm of the maritime commons has yielded largely and indeed
positively to a fettered regime reflective of the commons as a common heritage of
mankind. In the years leading to the enunciation of UNCLOS, the freedom of the
seas reigned supreme. It is however clear that with the coming into force of the
UNCLOS, the powers of the coastal State have increased even though the freedom of
navigation which is the paramount reason for the assertion of freedom of the seas has
been largely maintained. This was at the heart of the delicate balance that the Third
UN Conference on the Law of the Sea sought to achieve.
Now the coastal State has substantial powers with respect to an increased space of
territorial sea and limited rights over a 200 nautical mile stretch including rights over
the resources in its continental shelf. The coastal State’s powers to legislate with
respect to certain areas of the sea, to assume jurisdiction and to exercise responsi-
bility for pollution is now immense. While the coastal State’s powers in this regard
has increased, there nevertheless is established by the convention a fair balance
between rights and responsibilities as well as the need to keep the seas open for
navigation, the laying of sub-marine cables and marine scientific research. This
complements the extensive rights of all states, Landlocked, geographically disad-
vantaged or otherwise provided by the regime of the high seas.

3 The Flag State

3.1 Preliminary Observations

As stated by one commentator:

Symbols are sacred things, and one of the chief that every man holds dear is the national flag.
Deep down in our nature is the strong emotion that swells the heart and brings the tear and
makes us follow the flag and die around it rather than let it fall into the hands of an enemy.
This is no new emotion, no growth of a few generations, but an inheritance from ages before
history began.51

From very early times, the flag, a symbol of nationhood, has served as a means of
identity for ships and has thus provided them with their nationality. It is from that
nation which provides it nationality that—it derives its legal status, for it is bound by
laws of that nation with respect to its registration and operations. As with individ-
uals, so is the ship, once it takes on the nationality of the state of registry. Nationality
comes with rights and responsibilities as pointed out by the ICJ in the Nottebohm
Case. The Court in that case reasoned that “[N]-tionality is a legal bond having its

51
Gordon (1915).
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 511

basis as a social fact of attachment, a genuine connection of existence, interests and

sentiments, together with the existence of reciprocal rights and duties”.52 Apart from
giving identity to the ship, the flag also provides the ship with the protection of the
state whose flag it flies and in very early times served as a means of warding off the
enemy.53

3.2 Flags of Convenience or Open Registries

Even though the genesis of flags of convenience is traceable to the early 1920s and
the period immediately after the second world war, the historical antecedents date
back to the era when Roman and Greek ships used the flags of the other countries to
secure trading advantages. The example is cited of British owned merchant ships
trading in the Mediterranean flying the flags of other countries as insurance against
capture.54
As indicated earlier, in the 1920s a number of US ships were registered under the
Panamanian flag to avoid prohibition restrictions. Furthermore, immediately after
the Second World War, the dire economic situation forced merchant ships to run on
shoestring budgets and they sought avenues to cut down cost. Most of these
merchant ships found solace in open registries that were prepared to offer their
flag without the known restrictions associated with the traditional maritime coun-
tries. The new registries offered massive tax holidays, minimum or no regulatory
oversight. No restrictions on crew nationality, minimum legal formalities, no polit-
ical interference and simple mortgage arrangements. All these made it possible for
the ownership of single ship companies and led to cost reduction for ship owners.
With time, most of these new registries which offered their flag for convenience
relaxed all forms of restrictions and enabled substandard ships and rust buckets to
trade on the oceans.
In view of the increasing relaxation of controls and regulation, a good number of
these ships were involved in accidents leading to huge loss of lives and property. The
concerns of the international community heightened and with the formation of the
IMO, rules were tightened with respect to the operations of these ships. Some of the
well—established registries improved upon their oversight and regulatory require-
ments but by and large the flags of convenience were treated with derision until very
recent times when due to international regulation and stricter enforcement mecha-
nisms the situation has seen some marked improvement.
The tightening of the rules through arrangements such as port State control
although strengthened the control mechanisms, was not far-reaching as to deal

52
Nottebohm Case (Liechtenstein v. Guatemala) (1955), ICJ Reports 4-27. P.23.
53
See in general Mansell (2009), pp. 13–14.
54
See Seafarers Rights International, Flag State Responsibilities and Seafarers Rights http//
seafarersrights.org/.
512 E. K. Mbiah

with the economics of flagging out. Consequently, some traditional maritime nations
desirous of keeping their maritime traditions have resorted to the use of “interna-
tional registers”. This is usually from a traditional maritime country that offers its
flag for foreign tonnage, often located in its home state or in some offshore location
with which it is associated as a previous colony or “vassal” state. Every ship is
expected to sail under one nationality only.
In view of the fact that the flag provides the ship its nationality, enormous powers
are granted to the flag State under customary international law and these have
subsequently been codified in international conventions. Flag States are expected
to have oversight and control of the safety of the ships to which they have offered
their flag. Specific obligations relating to penal jurisdiction, the exercise of control in
respect of accidents involving the vessel and carrying out investigations into marine
casualties including the use of equipment are within he powers of the flag State.
The international rules and regulations by which flag States are expected to carry
out their responsibilities as flag States are to be found in conventions of the IMO,
ILO and UNCLOS. Even though these international instruments have provided
some essential regulatory framework for flag States which if strictly adhered to
would perforce ensure, safer shipping on clean oceans, the controls have not been
adequate. Hence the introduction of other measures such as Port State Control.
Flag States have sometimes shirked their responsibilities when ship owners have
failed to live up to their obligation of protecting seafarers’ rights in cases such as
piracy and armed robbery at sea where the seafarers have become victims. In view of
the established principle of freedom of the seas, ships remain free to traverse waters
that are not part of the internal waters or the territorial sea. Thus, in order not to create
anarchy or chaos, international law instruments have been developed for the exercise
of that freedom in a reasonable manner. One of such international law rules pertains
to the flag State’s powers of control over ships registered under its flag.

3.3 Roles, Powers and Responsibilities of the Flag State

In examining the instruments that set out the rules, powers and obligations of the flag
State, UNCLOS remains paramount. In Article 91, it defines a flag State as: “the
State in whose territory a ship is registered”. Ascribing nationality to ships is one of
the most important means by which order is maintained at sea. Indeed the “law of the
flag doctrine. . . provides that a merchant ship is part of the territory of the country
whose flag she flies and that actions aboard are subject to the laws of the flag
State”.55
In some situations, there would be concurrent jurisdiction between the flag State
and the coastal State. The law of flag State doctrine is in large measure applicable to

55
Definition of “law of the flag”, Duhaime’s Law Dictionary, Duhaime.org.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 513

ships while they sail on the high seas; where the sail in coastal waters they may be
subject to under certain circumstances to the law of the coastal State.56

3.4 Duties of the Flag State

Article 94 (1) provides the general duties of the flag State and matters over which it
may exercise jurisdiction. It provides that “every State shall be required to effec-
tively exercise its jurisdiction and control in administrative, technical and social
matters over ships flying its flag”. The conditions for the grant of a State’s nationality
to ships for the purpose of registration in its territory and the right to fly its flag is
provided for in Article 91 of UNCLOS. The requirement of a genuine link between
ship and State is not explained.57 The vexed question whether a genuine link is a
prerequisite for the effective implementation of flag State duties still lingers on.
States that grant their flags to ships are expected within the framework of
UNCLOS to maintain a register of ships containing the names and particulars of
the ship flying its flag.58 The flag State is also mandated to take such measures with
respect to ships flying its flag that would ensure safety at sea. Safety at sea is
considered paramount to ships navigating the seas and hence more detailed pro-
visions are set out by the convention for the flag State. The safety measures include:
(a) the construction, equipment and seaworthiness of ships;
(b) the manning of ships, labour conditions and the training of crews, taking into
consideration the applicable international instruments.
The applicable international instruments are the Conventions, Protocols,
Codes, and other instruments churned out by IMO such as SOLAS,59
MARPOL,60 the Load Lines Convention,61 the STCW62; COLREGS63 and
those produced by the International Labour Organisation such as the Maritime
Labour Convention 2006.64

56
See Lauritzen v. Larsen 5 U.S. 571 (1953).
57
United Nations Convention on the Conditions for the Registration of Ships provides the basis for
the use of the words “genuine link” but which never entered into force.
58
UNCLOS Article 94 (2) (a).
59
International Convention for the Safety of Life at Sea (SOLAS), 1184 UNTS 278.
60
International Convention for the Prevention of Pollution from Ships, 1973 (MARPOL), 12 ILM
1319;1340 UNTS 184.
61
International Convention on Load Lines, 1966, 640 UNTS 133.
62
International Convention on Standards of Training, Certification and Watch-keeping of Seafarers,
1978, 1361 UNTS 2 as amended in 1995 and 2010 (Manila Amendments).
63
Convention on the International Regulations for Preventing Collisions at Sea, 1972, 1050 UNTS
16.
64
45 ILM 792 (2006).
514 E. K. Mbiah

(c) the use of signals, the maintenance of communications and the prevention of
collisions.
The provisions of Article 94 do not provide extensive details with respect to
enforcement of the conditions by the flag State. It is therefore buttressed by Article
217 of UNCLOS which deals with enforcement by flag States. It requires flag States
to ensure compliance by vessels for which they have granted the use of their flag by
strict adherence to international instruments passed by the IMO, ILO and similar
international organizations. Beyond calling for adherence by the ships to which the
flag has been granted, it also requires that the flag State “shall provide for the
effective enforcement of such rules, standards, laws, regulations, irrespective of
where a volition occurs”. This provision is important as it underscores the promi-
nence of exclusive flag State control and jurisdiction over the vessels flying its flag.
In ensuring that the enforcement measures are effective, flag States are enjoined
by the Convention to ensure that ships are not permitted to sail until they have
complied with the rules as mentioned above. Article 217 goes further to give teeth to
the provisions of Article 94 by charging flag States to ensure that in compliance with
the international instruments, ships flying their flags carry on board the required
certificates and they are also enjoined to carry out periodic inspection to ensure that
the certificates are in conformity with the actual condition of the ship.65
The power to carry out investigations where a vessel flagged by a flag State
commits a violation of the rules and standards set by the requisite international
organization is also given to the flag State. In this regard, the provisions of UNCLOS
also enjoin States to provide assistance and offer cooperation while also meeting the
request of flag States.66 Furthermore, at the written request of any State, the flag State
is enjoined to investigate alleged acts of violation committed by vessels to which
they have granted their flag. It goes further to provide that where the flag State is
satisfied that a prima facie case has been established, the flag State shall proceed
without delay to institute the proceedings in accordance with their laws. In practice
however, this has sometimes generated some controversies especially in cases where
Masters of ships have been placed in detention or custody even before the flag State
is informed of the violation.67 Flag States are also required to inform the requesting
State as well as the competent international organization of the action taken and its
outcome. The information is to be made available to all States.
As indicated earlier, there is usually an unwillingness or sometimes due to a lack
of capacity of the flag State to carry out thorough investigations of maritime
casualties. This has led to situations where affected or requesting States especially
in instances of grave pollution incidents quickly criminalize seafarers without due
regard to their obligations under the international convention. Sometimes flag States
are loath or slow in carrying out stringent investigations for fear that ship owners

65
UNCLOS Article 217(3).
66
UNCLOS Article 217(5).
67
Hebei Spirit December 2007; the Prestige and the Erika.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 515

may withdraw their vessels from their registry where they are seen not to offer the
protection for which they registered their vessels with them in the first place. In order
to deal with the concerns of improper casualty investigation by flag States, the IMO
in 2008 adopted a new code of International Standards and Recommended Practices
for Safety Investigation into a Marine Casualty or Marine Incidents i.e. the Casualty
Investigation Code.
Even though this Casualty Code has been widely embraced there have been
various reports by member States to the IMO that the Code had not been followed
in one casualty investigation or the other. The Convention also provides that where
laws of the flag State adopted through acceptance of international rules & regulations
are breached by vessels flying its flag, the flag State shall apply severe sanctions to
discourage further violations. Unfortunately, the practice for a number of Flag of
Convenience registers have shown otherwise.68
It is important to add that the convention also provides for States, where they have
clear grounds to believe that proper jurisdiction and control with respect to the ship
has not been exercised, to report the facts to the flag State which is then enjoined to
take necessary action to remedy the situation.69 Article 95 grants complete immunity
to warships operating on the high seas from the jurisdiction of any state except the
flag State. Flag States still set their own standards and conditions for the registration
of ships.
A number of measures have thus been put in place to ensure that the flag State will
live up to its responsibilities. Indeed, in a bid to uphold effective enforcement of
standards, the flag State is required to ensure that its domestic law grants jurisdiction
to the courts to enforce the standards and rules with respect to the social adminis-
trative and technical matters for the purpose of providing teeth for domestic enforce-
ability. The international community had hoped that the United Nations Convention
on Conditions for the Registration of Ships 1986 would have entered into force to
compel registries to adhere to a standard format for the registration of ships.
Unfortunately, that convention never saw the light of day.
There still remain issues of identification of the beneficial owners of ships as
name plate companies are still entered into ship registries without enquiry as to who
the beneficial owners are. It has therefore been always difficult to trace who the
beneficiary owners are in the event of violations of international law. To solve the
existing problems, the genuine link theory requiring the mind and management of
the ship should be invoked. The flag States which have served as bulwarks of
anonymity should be compelled to put in place appropriate structures for verification
of the corporate structure of the shipping companies and not only the registered
owner. It is only in a limited set of circumstances that the non-flag State may exercise
jurisdiction and enforcement powers over the ship while it is on the high seas.70

68
Negligent Masters have either been left off the hook or been given menial sanctions.
69
UNCLOS Articles 217 (6) and (7) give detailed provisions.
70
UNCLOS Article 99 deals with the suppression of slave trade, the right of visit by warships in
such circumstances; UNCLOS Articles 110 (1) (b). The sort of slavery envisaged by UNCLOS is
516 E. K. Mbiah

3.5 Concluding Remarks

The legal notion of the flag state embracing such important matters as the nationality
of ships and the process of registration through which it is acquired, are indispens-
able facets of public international maritime law. The role, responsibilities and duties
of the flag state which are circumscribed by IMO and ILO conventions and compli-
ance with their provisions are extremely important for the smooth operation of global
shipping. In this respect, the phenomenon of the open registry or flag of convenience
is a significant factor in the contemporary milieu of shipping. All flag states,
regardless of their denomination, should subscribe to the relevant international
convention instruments and comply with their requirements without exception.

4 The Port State

4.1 Preliminary Observations

Fundamentally, the powers of jurisdiction, control and enforcement ascribed to the

coastal State naturally inure to the benefit of the port State, for the port State is
essentially a coastal State. The nature of the powers of the port State are akin to the
powers of the coastal State with respect to its internal waters as almost invariably, the
port is located in internal waters.71 The port State would thus have powers of
sovereignty which the coastal State has. Despite this seeming superfluous overlap,
the UNCLOS makes provision for the port State.72
A closer examination of the provisions of UNCLOS with respect to the port State
would reveal that the port has peculiar characteristics because of which it is clothed
with enforcement jurisdiction. Its enforcement jurisdiction is particularly associated
with the control of marine pollution from vessels as it would have the capacity to
prevent a pollution prone vessel from sailing.73 MARPOL 73/7874 provides for
cooperation in the detection of violations and the enforcement of the provisions of
the convention through appropriate practical measures of detection, environmental
monitoring, adequate procedures for reporting and accumulation of evidence to
complement the powers of the flag State in this respect.

akin to what happens today with respect to the trafficking of women and children. It is however
doubtful if these provisions would be adequate in dealing with the new menace of human
trafficking; Protocol to Prevent, Suppress and Punish Trafficking in Persons Especially Women
and Children which supplements the United Nations Convention against Transnational Organised
Crime (2000).
71
UNCLOS Article 8 provides for what constitutes internal waters with the requisite exceptions.
72
UNCLOS Article 218 deals with the enforcement powers of port States.
73
UNCLOS Article 219 deals with measures relating to seaworthiness of vessels to avoid pollution.
74
MARPOL Article 6 (1).
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 517

Under port State control, a ship would normally be detained when she is found to
be dangerously unsafe, have not complied with requirements in respect of crew and
also in respect of the marine environment. Apart from the provisions of the IMO,
ILO and rules of other competent bodies, UNCLOS also provides for enforcement
by port States.75
Indeed, the powers of the port State lie in the fact that there is no obligation for it
to accept vessels into its domain without a prior approval or authorization. It also
retains the power to “establish particular requirements for the prevention, reduction
and control of pollution of the marine environment as a condition for the entry of
foreign vessels into their ports or internal waters or for calls at their offshore
terminals”.76 UNCLOS makes provision for port States or off-shore terminals to
undertake investigations and where the evidence so warrants institute proceedings in
respect of discharge from that vessel outside internal waters, territorial sea or the
EEZ of that State. The convention prohibits the holding of proceedings in respect of
another State with respect to discharges in its internal waters, territorial sea or
exclusive economic zone unless requested by the State that suffers the violation.
The convention also provides that when a vessel is voluntarily within a port or at
an offshore terminal of a State, that State shall as far as practicable, comply with
requests from any State for investigation of a discharge violation believed to have
occurred in, caused, or threatened damage to the internal waters, territorial sea or the
EEZ of the requesting State. The same applies with respect to requests from the flag
State. It also enjoins the port State to transmit the records of the investigation to the
coastal State or flag State as the case may be.

4.2 Port State Control

Port State control is an internationally agreed practice whereby foreign ships are
subjected to the verification of their condition when in national ports to ensure the
ship and its equipment complies with standards and requirements set by international
instruments. These international instruments are those agreed to by the international
community within the framework of international institutions such as the IMO and
the ILO and lately WHO. These checks would also seek to verify whether the ship is
manned, maintained and operated in accordance with the requisite international
instruments. The right and jurisdiction of the port State to conduct inspections of
foreign vessels is not only derived through agreements but also as pointed out earlier,
from the sovereignty of the coastal State. In line with its sovereignty, the coastal
State may enact legislation for the protection of its marine environment including

75
UNCLOS Article 218.
76
The acceptance of foreign vessels into ports is essentially a matter of reciprocity largely guided by
the 1923 Convention and Statute of the International Regime of Maritime Ports, concluded in
Geneva on 9th December 1923, 58 LNTS 285.
518 E. K. Mbiah

ports and terminals. In effect the right of the coastal State to inspect foreign vessels is
derived from its sovereignty, international law and by mutual agreement.
Lloyds Register in line with its commitment to transparency publishes informa-
tion on port State detention performance of Lloyds Register Classed fleet. As pointed
out at its website, this helps the industry to recognize recurring risks and improve
safety by highlighting those items that are hazardous to operations and yet contin-
ually produce detention.
As publicized on its website, the data provided include:
1. Detentions by ship type (oil tankers bulk carriers, container, passenger, LNG,
general cargo etc.)
2. Detentions related to ship, flag State.
3. Detentions by ship age by the detaining country.
4. League table of most prominent recurring deficiency items.
This data is indeed very useful for the industry and helps towards ensuring that
ship managers are conversant with the nature of the problems that frequently occur
and how to remedy them for safe shipping on clean oceans. It is to be noted that port
State inspection of foreign ships when in port was meant to be a backup for flag State
implementation. Over the years however, through practice, these have been shown to
be very effective in curbing substandard shipping. In order to foster the wide
implementation of port State control, the IMO has put in place measures to ensure
regional cooperation as well as the conclusion of regional agreements in this
respect.77 This has become necessary to avoid the multiplicity of inspections of
various ports and to direct attention to substandard ships.
It is common knowledge that the primary responsibility for ensuring ship safety
and the setting of standards and inspection to ensure compliance are duties of the flag
State. It is however worth mentioning that as a safety net, port State control has
proven to be effective in identifying substandard ships and helping to rectify
revealed shortcomings.
Because shipping is global in nature, port State control is in-effective if restricted
to only a particular region of the globe. Consequently, currently, there exists nine
regional Agreements on port State control for which memoranda of understanding
(MOU’S) have being signed by countries within a region. These include for Europe
and the North Atlantic, (The Paris MOU), Latin America (Acuerdo de vina del Mar),
(Caribbean MOU), West and Central Africa (Abuja MOU), the Black sea region
(Black Sea MOU), the Mediterranean (Mediterranean MOU) and Indian Ocean
(Indian Ocean MOU) and the Riyadh MOU. The United States Coast Guard
maintains the tenth port State Control Regime.
Indeed in Europe, over time, there has been a conversion from an informal and
loose arrangement of the Paris MOU into an obligatory precept where various EU

77
IMO Resolution A. 682 (17).
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 519

Directives capture the tenets of the Memorandum of Understanding and give it

regulatory and enforcement powers.78
Generally, under port State control, where inspections reveal deficiencies a
number of actions may be taken including the following:
1. Deficiencies can be rectified within 14 days for minor infractions.
2. Under specific conditions, deficiencies can be rectified when the ship arrives at
the next port.
3. Deficiencies must be rectified before the ship can depart the port.
4. The ship may be detained.
In order that inspections are not discriminatory and do not delay ships unduly
while in port, the IMO has provided procedures for conducting port State
inspections.79
It is also worth noting that IMO has provided guidance with respect to applicable
conventions and how they should apply with respect to port State control inspec-
tions. Some of the conventions include the SOLAS Protocol, MARPOL 73/78,
STCW and the Anti-fouling convention.80
It is important to mention that with respect to the key conventions mentioned
above, the no favourable treatment clauses are applicable, hence non-State parties
where they do not have the relevant certificates would be subjected to inspection
with a view to ensuring compliance with the tenets of the conventions.
For the purpose of guidance to port State control inspectors, the generality of
inspections may be carried out to ensure some or all of the following:
(i) Navigate safely
(ii) Handle and monitor the condition of the cargo
(iii) Operate the engine room safely
(iv) Maintain proper propulsion and steering
(v) Fight fires effectively
(vi) Abandon ship readily if need be
(vii) Prevent pollution of the environment
(viii) Maintain adequate stability
(ix) Maintain adequate watertight integrity
(x) Communicate effectively in situations of distress
(xi) Provide safe and healthy conditions on board.

78
EU Directive 2009/16/ EC of the European Parliament and of the Council of 23rd April 2009 on
Port State control.
79
See IMO Resolution A. 1052(27) of 2011, updated from time to time.
80
International Convention on the Control of Harmful Anti-fouling Systems on Ships, (Anti-
Fouling Convention), 2001, IMO Doc. AFS/CONF/26.
520 E. K. Mbiah

4.3 Compliance with International Conventions

Port State control inspections are not to be carried out in a vacuum. Various
conventions of the IMO, the International Labour Organisation (ILO) and to some
extent the World Health Organisation (WHO) have provided the requisite frame-
work for the conduct of port State control. This is to curb the exercise of unfettered
discretionary power that would create unnecessary administrative burden for ships
while in port. The Conventions have thus served as a restraining factor for excesses
of port State control officers.
In respect of MARPOL, for the purposes of compliance with the relevant pro-
visions of MARPOL, port State control officers may look out amongst others, for the
adequacy or otherwise of oily—water filtering equipment, control systems for
monitoring oil discharges, sufficiency of slop tank capacity for the intended voyage,
the availability of oil and cargo record books etc.
Inspections may also be carried out by port State control officers in order to
ensure compliance with the Load Lines Convention. In this regard, they may look
out for the water integrity and seaworthiness of the vessel arising out of exposure to
the elements e.g. corrosion, conditions of the hatches and the water-tight integrity of
the doors, overloading of cargo, and clarity with respect to draught marks.
Port State control inspection may also be carried out to ensure compliance with
SOLAS. In this respect, they may look out for the effectiveness and efficiency of the
electrical, machinery and propulsion systems, adequacy and effectiveness of bilge
pumping mechanisms, the amount of oily water in bilges and the general cleanliness
of the engine room. They may also carry out inspection under SOLAS to ensure the
availability and adequacy of life saving equipment, the capacity to deploy same,
availability of updated charts and Notices to Mariners, availability of fire fighting
equipment, fire alarms and information on fire drills, appropriate and effective radio
communication systems, minimum safe manning requirements as well as compe-
tences of the crew.
Vessels are also expected to comply with the provisions of the STCW Conven-
tion. In this respect, port State control officers are expected to carry out inspection of
the relevant crew certificates, adequacy of arrangements with respect to watch-
keeping, minimum safe manning requirements in accordance with the MLC inspec-
tion to ascertain the availability of stores and victuals for the intended voyage and
satisfy themselves regarding the level of sanitation and general cleanliness and
climatic conditions on board and ways for disposal of garbage.
The Collision Regulations (COLREGS) is also one of the international conven-
tions that can form the basis of port State control inspections. In respect of the
collision regulations they may carry out inspection to ascertain the sufficiency of
shapes, navigation lights, sound signals etc. Indeed, compliance with international
conventions is at the heart of port State control inspections. Inspections may also be
carried out to ensure compliance with the International Ship Management (ISM) and
the International Port and Ship Facility (ISPS) Codes.
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 521

4.4 Concluding Remarks

There is no gainsaying that efforts of port States and the exercise of port State control
inspections have greatly contributed to enhanced maritime safety and security and
prevention of marine pollution.81 Port State control has indeed come to complement
the efforts of the flag State in the efforts towards efficient and safe shipping on clean
oceans.82
Port State Control is a dynamic concept. As new conventions are developed by
the IMO and other international bodies, aimed at facilitating international shipping
and ensuring the safety and security of ships as well as the protection of the
environment, the template for inspection would change to take account of new
developments.83

5 Summary and Conclusion

In this chapter, an attempt has been made to provide an overview of the three roles of
the State, namely, the coastal State, flag State and flag State roles, under UNCLOS in
terms of the rights, powers and jurisdictions that may be exercised. Under the caption
“The Coastal State”, the discussion is focused on the various maritime zones
appurtenant to the coastal State and also to the high seas. Among other things, the
discussion extends to the regime of warships and the immunities enjoyed by them vis
a vis the coastal State’s rights and jurisdiction, including those pertaining to internal
waters and ports. The regime of ports and the coastal State’s criminal jurisdiction are
also addressed. In the discussion on flag States, the notion of the “flag” in interna-
tional law is explained and the roles, responsibilities, duties and powers of the flag
States are outlined. The phenomenon of flags of convenience or open registries, as
they are now called, is addressed in relation to the duties and responsibilities of then
flag State under UNCLOS and various other international maritime conventions. The
role of the port State is set out in UNCLOS, SOLAS and MARPOL, among other

81
Preamble to Assembly Resolution A. 1052 (27) 2011.
82
www.abujamou.org provides detailed information on inspections as well as data which encom-
passes, the number of inspections, deficiencies, detentions, type of ships, flag etc.
83
Recent Conventions such as the International Convention on the Control of Harmful Anti-fouling
Systems on Ships, (Anti-Fouling Convention), 2001, IMO Doc. AFS/CONF/26, the International
Convention for the Control and Management of Ships’ Ballast Water and Sediments, (Ballast Water
Management Convention) 1991, 30 I.L.M. 1455, International Convention on Liability and Com-
pensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by
Sea, (HNS Convention), 35 I.L.M. 1406 and The Hong Kong International Convention for the Safe
and Environmentally Sound Recycling of Ships, 2009 (the Ship Recycling Convention or the Hong
Kong Convention, http://www.imo.org/en/OurWork/Environment/ShipRecycling/Pages/Default.
aspx, all have provisions for compliance that would have to be taken cognizance of under port
State control.
522 E. K. Mbiah

instruments. The discussion emphasizes the port state control regime as an indis-
pensable tool for ensuring compliance by foreign ships with international require-
ments and standards.
The overall aim of the chapter is to afford the reader an understanding and
appreciation of the coastal State, flag State and port State regimes under UNCLOS
and other international maritime law instruments through an analytical examination
and references to case law and other material pertinent to the topic. All these three
regimes are well-entrenched in the substantive and regulatory components of the
public law in the maritime field and it is anticipated that readers will derive some
benefit from the text presented in this chapter.

References

Assembly Resolution A. 1052 (27) 2011

Bordin A (2002) Coastal State’s Jurisdiction over Foreign Vessels, 14 Pace Int’l l Rev. 27. https://
digitalcommons.pace.edu/pirl/vol14/iss-1/2
Churchill RR, Lowe AV (1988) The law of the sea. Manchester University Press
Convention and Statute of the International Regime of Maritime Ports, concluded in Geneva on 9th
December 1923, 58 LNTS 285
Convention and Statute on the International Regime of Maritime Ports 1923, League of Nations,
Treaty Series, https://treaties.un.org/doc/Publication/MTDSG/Volume%20II/LON/PARTII-20.
en.pdf
Convention and Statute on the Regime of Navigable Waterways of International Concern, 1921,
League of Nations, Treaty Series, https://treaties.un.org/doc/Publication/MTDSG/Volume%
20II/LON/PARTII-17.en.pdf
Convention on the International Regulations for Preventing Collisions at Sea, 1972, 1050 UNTS 16
Duhaime’s Law Dictionary, Duhaime.org, Oxford LibGuides
EU Directive 2009/16/ EC of the European Parliament and of the Council of 23rd April 2009 on
Port State control
Gordon WJ (1915) Flags of the World. Frederick Warne & Co, London
Hebei Spirit December 2007
IMO Resolution A. 1052(27) of 2011
IMO Resolution A. 682 (17)
International Convention for the Control and Management of Ships’ Ballast Water and Sediments
2004, IMO Doc. BWM/CONF/36
International Convention for the Prevention of Pollution from Ships, 1973 (MARPOL), 12 ILM
1319;1340 UNTS 184
International Convention for the Safety of Life at Sea (SOLAS), 1184 UNTS 278
International Convention on Liability and Compensation for Damage in Connection with the
Carriage of Hazardous and Noxious Substances by Sea (HNS) 2010, http://www.
hnsconvention.org/Documents/2010%20HNS%20Convention%20Consolidated%20text_e.pdf
International Convention on Load Lines, 1966, 640 UNTS 133
International Convention on Standards of Training, Certification and Watch-keeping of Seafarers,
1978, 1361 UNTS 2 as amended in 1995 and 2010 (Manila Amendments)
International Convention on the Control of Harmful Anti-fouling Systems on Ships, 5 October
2001, IMO Doc. AFS/CONF/26
Lauritzen v. Larsen 5 U.S. 571 (1953)
Liechtenstein v. Guatemala (Nottebohm Case) (1955), ICJ Reports 4-27
Coastal, Flag and Port State Jurisdictions: Powers and Other. . . 523

Mansell JNK (2009) Flag state responsibility: historical development and contemporary issues,
Chapter 2 “Concept of the flag state”. Springer, Berlin
MV. Saiga case (Saint Vincent and the Grenadines); ITLOS case No. 1 1997 and 2 [1999] http://
www.itlos.org/startz-en.ntml
Naim Molvan v. Attorney-General for Palestine (Asya Case), 1948 App Cas 351 (P. C.), 81 LI.
L. Rep. 277
Pardo A (1982) Mary Victoria White, The Common Heritage of Mankind: An Assessment,
14 CaseW.Res. J.Int’l L 509. https://scholarlycommons.law.edu/jil/vol-14/iss3/6
Phillips OM (1977) The dynamics of the upper ocean, 2nd edn. Syndics of the Cambridge
University Press
Protocol to Prevent, Suppress and Punish Trafficking in Persons Especially Women and Children
which supplements the United Nations Convention against Transnational Organized Crime
(2000)
Republic of Argentina v. NML Capital, Ltd., 573 U.S. _ (2014)
Republic of Italy v Union of India (Enrica Lexis), PCA Case No. 2015-28
Seafarers Rights International, Flag State Responsibilities and Seafarers Rights, http://
seafarersrights.org/
The Australian Maritime Safety Act 1990
The Case of the S.S. Lotus, France v. Turkey, http://www.worldcourts.com/pcij/eng/decisions/
1927.09.07_lotus.htm
The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of
Ships 2009, IMO Doc. SR/CONF/45
United Kingdom of Great Britain and Northern Ireland v. Albania (Corfu Channel), https://www.
icj-cij.org/en/case/1/judgments
United Nations Convention on the law of the Sea, 1833 UNTS 3; 21 ILM 1261 (1982)
Air Pollution, Climate Change, and Port
State Control

Maximo Q. Mejia, Jr.

Abstract This chapter examines the vital role that port states play, through inspec-
tions under the regime of port state control, in the reduction of air pollution and the
mitigation of climate change, particularly by ensuring ships’ compliance with Annex
VI “Regulations for the Prevention of Air Pollution from Ships” of the International
Convention for the Prevention of Pollution from Ships (MARPOL), 1973, as
amended. This chapter also revisits the effectiveness of port state control as a
compliance mechanism within the context of MARPOL Annex VI.

The shipping industry is at the cusp of the so-called “2020 sulphur cap,”1 with
arguably one of the most far-reaching implications from a marine environmental
protection standard to be implemented in decades—a standard that limits the sulphur
content of fuel oil used on board ships to no more than 0.50% m/m (mass by mass).
This global standard enters into force in the year 2020 and leaves more than 70,000
ships with, in the main, few choices for compliance: (a) switch from high-sulphur
fuel oil (HSFO) to very-low-sulphur fuel oil or compliant fuel blends (0.50%
sulphur), marine gas oil (MGO), or distillates, (b) retrofit vessels to use alternative
fuels such as LNG or other sulphur-free fuels, or (c) install exhaust gas cleaning
systems (scrubbers), which allow ships to operate on regular HSFO.2 Regardless of
the option, it is generally accepted that compliance with the cap “will significantly
reduce the amount of sulphur oxides emanating from ships and should have major

1
Regulation 14.1.3 of Annex VI of the MARPOL Convention stipulates that the sulphur content of
any fuel oil used on board ships operating outside designated emission control areas shall not
exceed 0.50% m/m on or after 1 January 2020 (the current sulphur standard stands at 3.5% m/m, in
force since 2012). The International Maritime Organization (IMO) affirmed this through Resolution
MEPC 280(70) following the 70th session of its Marine Environment Protection Committee held in
October 2016. See IMO (2016a).
2
Topali and Psaraftis (2019), p. 4; DNV GL (2019), p. 3; Vierth et al. (2015), p. 126.

M. Q. Mejia, Jr. (*)

World Maritime University Malmö, Sweden
e-mail: mm@wmu.se

© Springer Nature Switzerland AG 2020 525

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_24
526 M. Q. Mejia, Jr.

health and environmental benefits for the world, particularly for populations living
close to ports and coasts.”3 However, it is also argued that such measures will lead to
modal backshift,4 higher costs for maritime transport, increased freight rates, diffi-
culty for shipping in absorbing the increase in costs, uncertainty on the impact of a
greater demand for marine fuels on diesel prices in general, and the transfer of
production facilities, among others.5
The 2020 sulphur cap is but one of a number of measures introduced by the
International Maritime Organization (IMO) through Annex VI “Regulations for the
Prevention of Air Pollution from Ships” of the International Convention for the
Prevention of Pollution from Ships (MARPOL), 1973, as amended, to prevent ship-
sourced air pollution by limiting exhaust gases (sulphur oxide (SOx) and nitrous
oxide (NOx)) and other ozone depleting substances as well as controlling green-
house gas (GHG) emissions (mainly carbon dioxide (CO2), among others). The
latest IMO-commissioned study6 on greenhouse gases estimates that international
shipping was responsible for 816 million tonnes of GHG emissions in 2012,
representing 2.1% of the global total. The study also estimates that international
shipping produces around 18.6 million tonnes of NOx and 10.6 million tonnes of
SOx annually, representing 13% and 12% of global totals respectively.7
Annex VI contains the standards in MARPOL that directly prescribes the obli-
gations of states to minimize, reduce, control, and curtail harmful emissions to the
atmosphere from their ships. In meeting its implementation obligations, flag states
apply first and foremost the statutory ship inspection and survey regimes connected
with the registration and certification of ships.8 However, a combination of the
prevalence of open registries and the international character of shipping means that
the majority of ships seldom, if at all, call at ports in the states whose flags they fly. In
contrast, all ships regularly enter foreign ports in the normal course of business to
load or discharge cargo, take in bunkers and provisions, change crew, or carry out
maintenance and repairs, among others. Flag state measures are therefore
complemented by port state efforts, through port state control (PSC), that enable
verification of continued compliance by ships outside the regular flag state

3
IMO (2019e).
4
That is, a movement in the opposite direction of the goal of shifting long distance road transport to
more environmental friendly transport modes such as shipping. See Holmgren et al. (2014).
5
Vierth et al. (2015), and Cullinane and Bergqvist (2014).
6
The Third IMO Greenhouse Gas Study 2014; IMO (2015).
7
Ibid., pp. 1–2.
8
Statutory surveys are announced activities in which ships are notified in advance that government-
appointed surveyors are scheduled to inspect or survey the vessel for the purpose of certification.
They emanate from international conventions and are conducted by or on behalf of flag states. Also
included are statutory inspections which normally relate to domestic regulations rather than
international conventions; surveys and inspections are distinguished from each other in some
jurisdictions depending on the level of detail involved and the qualification of the inspecting officer.
See Mejia et al. (2007), p. 411.
Air Pollution, Climate Change, and Port State Control 527

inspection, survey, and certification regime.9 Because inspections by flag state are
normally scheduled, they “are not well positioned to regulate ongoing operational
matters, such as fuel use or ongoing engine emissions” whereas port states, through
random PSC inspections, “have the capacity to monitor such requirements on a
regular basis.”10 Port states are in this sense better suited to inspect whether ships in
their daily mode of operations comply with IMO-adopted air pollution and climate
change mitigation standards and measures.
This chapter examines the important role port states play in the reduction of air
pollution and the mitigation of climate change, particularly by ensuring ships’
compliance with Annex VI of MARPOL through inspections under the regime of
port state control. This chapter includes a review of the legal bases for port state
control as well as its potential effectiveness as a enforcement mechanism within the
context of MARPOL Annex VI.

1 Port State Control: Background and Legal Bases

The inspection of vessels calling at foreign ports is not a recent phenomenon; it has
been a feature of enforcement in modern international maritime law from as early as
1929 version of the International Convention for the Safety of Life at Sea
(SOLAS).11 Port state control was eventually institutionalized in the early 1980s
when eight north European states agreed that, in order to engender uniform port state
enforcement, no less than a regionally coordinated inspection regime would suffice.
Institutionalization and regionalization came as a response to growing frustration
with numerous flag states “unable to adequately perform their mandated duties of
ensuring that ships flying their flag comply fully with international safety standards
formulated under the auspices of the International Maritime Organization (IMO) and
the International Labour Organization (ILO).”12 Also, as has happened far too often,
a series of marine casualties and accidents led to a public outcry for more stringent
regulations for ship safety and protection of the maritime environment,13 and
became a strong catalyst for the establishment of regional PSC agreements.14
The first regional port state control regime was borne out of the Hague Memo-
randum of Understanding (MoU) of 1978, reinforced four years later by the more
comprehensive Paris MoU of 1982. Greeted initially with suspicion,15 the

9
Lagdami (2016), p. 313.
10
Marten (2016), p. 95.
11
Graziano et al. (2018b), p. 230.
12
Cariou et al. (2007), pp. 243–244; Mejia (2005), p. 17.
13
Graziano et al. (2018b), p. 230.
14
Amoco Cadiz (1978), Aegean Sea (1992), Braer (1993), Estonia (1994), Erika (1999) and
Prestige (2002) among others.
15
Graziano et al. (2018a), p. 98.
528 M. Q. Mejia, Jr.

recognition of its potential prevailed over skepticism and led IMO in 1991 to invite
“Governments to consider concluding regional agreements on the application of port
state control measures in co-operation with the Organization and to provide infor-
mation on any such regional agreements concluded and the action taken to imple-
ment their provisions.”16 MoUs were established in other regions from the 1990s
following the success of the Paris MoU.17 There are at present nine regional
agreements in operation worldwide: the Tokyo MoU (Pacific Ocean), Acuerdo de
Viña del Mar (South and Central America), Caribbean MoU, Mediterranean MoU,
Indian Ocean MoU, Abuja MoU (West and Central Atlantic Africa), the Black Sea
MoU, and Riyadh MoU (Persian Gulf).
The key to any effective regional port state control agreement is the commitment
of each contracting state to inspect a regionally-agreed minimum ratio of the foreign
vessels calling its ports for compliance with the international safety standards
stipulated in the MoU.18 Port state authorities inspect ships for their compliance
with standards for design, construction, operation, equipment, maintenance, and
manning. Ships found with serious deficiencies risk substantial delays, penalties,
and even detention.19 The threat of detention and the consequential costs that could
run into the tens or even hundreds of thousands of dollars provide the greatest
incitement for shipping companies and their ships to demonstrate continuing com-
pliance. Indeed, the “strategic objective [of port state control] must be to produce” a
strong enough disincentive to non-compliance “by improving both the apparent and
the actual chances of the ship being inspected, improving the detection rate amongst
ships inspected, and increasing the financial and other disincentives to being found
to be operating a substandard vessel.”20
The exercise of port state control is firmly anchored in international maritime law.
The United Nations Convention on the Law of the Sea (UNCLOS), 1982, and a
number of IMO and ILO conventions, contain explicit provisions on the matter.

1.1 UNCLOS

Art. 94 (Duties of the flag state) lays bare the vital role that port states play when
foreign states are remiss of their duties in exercising control over ships flying their
flag. It provides that a state other than the flag state, when such a state “has clear
grounds to believe that proper jurisdiction and control with respect to a ship have not
been exercised may report the facts to the flag state.”21 Art. 219 (Measures relating to

16
IMO (1991).
17
Hare (1997), p. 571.
18
Ibid., pp. 578–579.
19
McDorman (1997), p. 229.
20
Cuttler (1995), p. 199.
21
UNCLOS, Article 94(6).
Air Pollution, Climate Change, and Port State Control 529

seaworthiness of vessels to avoid pollution) contemplates for the port state to

determine the seaworthiness of foreign ships and impose measures such as detention
of substandard vessels. Art. 219 specifies that states that have
ascertained that a vessel within one of their ports or at one of their off-shore terminals is in
violation of applicable international rules and standards relating to seaworthiness of vessels
and thereby threatens damage to the marine environment shall, as far as practicable, take
administrative measures to prevent the vessel from sailing. Such states may permit the vessel
to proceed only to the nearest appropriate repair yard and, upon removal of the causes of the
violation, shall permit the vessel to continue immediately.22

Art. 231 (Notification to the flag state and other states concerned) establishes the
port state’s obligation to notify the flag state “of any measures taken. . . against
foreign vessels, and shall submit to the flag state all official reports concerning such
measures.” It also requires that the same information be immediately communicated
to the “diplomatic agents or consular officers and where possible the maritime
authority of the flag state.”23 Art. 218 (Enforcement by port states) regulates the
conduct of investigations and subsequently the institution of proceedings against
ships found in violation of discharge regulations under a number of different
circumstances.24 Art. 226 (Investigation of foreign vessels) enshrines some basic
tenets in the conduct of port state control such as prompt release, avoiding undue
delays, limiting inspections to the examination of certificates and related documents,
and laying down the principles for clear grounds for conducting a more detailed
inspection.25

1.2 IMO and ILO Conventions

Port state control provisions are also found in a number of IMO and ILO conven-
tions. In SOLAS, these are found in Chapters I, IX, XI-1, and XI-2. Chapter I
(General provisions), Regulation 19 (Control) provides that “Every ship when in a
port of another Contracting Government is subject to control by officers duly
authorized by such Government in so far as this control is directed towards verifying
that the certificates.” Chapter IX (Management for the safe operation of ships),
Regulation 6.2 (Verification and control) specifies that, “A ship required to hold a
certificate issued pursuant to the provisions of regulation 4.3 shall be subject to
control in accordance with the provisions of regulation XI/4.” Chapter XI-1 (Special
measures to enhance maritime safety), Regulation 4 (Port state control on opera-
tional requirements) provides that, “A ship when in a port of another Contracting
Government is subject to control by officers duly authorized by such Government

22
UNCLOS, Article 219.
23
UNCLOS, Article 231.
24
UNCLOS, Article 218.
25
UNCLOS, Article 226.
530 M. Q. Mejia, Jr.

concerning operational requirements in respect of the safety of ships, when there are
clear grounds for believing that the master or crew are not familiar with essential
shipboard procedures relating to the safety of ships.” Finally, Chapter XI-2 (Special
measures to enhance maritime security), Regulation 9 (Control and compliance
measures) provides for a duly authorized officer, as part of a regular PSC inspection,
to verify that there is a valid International Ship Security Certificate (ISSC) on board.
The port state control provisions in MARPOL are found in Articles 5 and 6, as
well as specific regulations in all of its six Annexes. Article 5 (Certificates and
special rules on inspection of ships) deals with inspections to verify that there is on
board a valid certificate, while Article 6 (Detection of violations and enforcement of
the convention) provides for inspections to verify whether a ship has discharged any
harmful substances in violation of MARPOL. The six Annexes contain provisions
that establish a state’s jurisdiction to inspect ships calling in its ports where there are
clear grounds for believing that the master or crew are not familiar with essential
shipboard procedures relating to the prevention of pollution by oil,26 noxious liquid
substances,27 harmful substances,28 sewage,29 garbage,30 and prevention of air
pollution from ships.”31 Regulation 10 of Annex VI also provides that, in relation
to Chapter IV, PSC inspections “shall be limited to verifying, when appropriate, that
there is a valid International Energy Efficiency Certificate and Statement of Com-
pliance related to fuel oil consumption reporting and on board.” Regulation
11 (Detection of violations and enforcement) of the same Annex also establishes
the port state’s jurisdiction to inspect foreign ships for the purpose of “verifying
whether the ship has emitted any of the substances covered by this Annex.”
The PSC provision in the International Convention on Standards of Training,
Certification and Watchkeeping for Seafarers (STCW), 1978, as amended, is found
in Article X (Control), which declares that foreign ships “are subject, while in the
ports of a Party, to control by officers duly authorized by that Party to verify that all
seafarers serving on board who are required to be certificated by the Convention are
so certificated or hold an appropriate dispensation.”32 Regulation 5.2.1 (Inspections
in port) of the Maritime Labour Convention (MLC), 2006, as amended, provides that
foreign ships calling in the port of a state party may be inspected “for the purpose of

26
MARPOL, Annex I (Regulations for the prevention of pollution by oil), Regulation 11 (Port state
control on operational requirements).
27
MARPOL, Annex II (Regulations for the control of pollution by noxious liquid substances in
bulk), Regulation 16.9 (Port state control on operational requirements).
28
MARPOL, Annex III (Prevention of pollution by harmful substances carried by sea in packaged
form), Regulation 9 (Port State control on operational requirements).
29
MARPOL, Annex IV (Prevention of Pollution by Sewage from Ships), Regulation 13 (Port state
control on operational requirements).
30
MARPOL, Annex V (Prevention of Pollution by Garbage from Ships), Regulation 9 (Port state
control on operational requirements).
31
MARPOL, Annex VI (Regulations for the Prevention of Air Pollution from Ships), Regulation
10 (Port state control on operational requirements).
32
STCW, Article X.
Air Pollution, Climate Change, and Port State Control 531

reviewing compliance with the requirements of this Convention (including seafarers’

rights) relating to the working and living conditions of seafarers on the ship.” It
further specifies that, “Each Member shall accept the maritime labour certificate and
the declaration of maritime labour compliance required under Regulation 5.1.3 as
prima facie evidence of compliance with the requirements of this Convention
(including seafarers’ rights). Accordingly, the inspection in its ports shall, except
in the circumstances specified in the Code, be limited to a review of the certificate
and declaration.”33
The International Convention on Load Lines (LL), 1966; International Conven-
tion on Tonnage Measurement of Ships (TONNAGE), 1969; the International
Convention on the Control of Harmful Anti-fouling Systems on Ships (AFS),
2001, and; the International Convention for the Control and Management of
Ships’ Ballast Water and Sediments (BWM), 2004, all contain provisions stipulating
that foreign ships are subject to inspection by duly authorized port state control
officers, ensuring that such control is exercised as far as is reasonable and practicable
with a view to verifying that the ship carries the appropriate LL/TONNAGE/AFS/
BWM certification on board.34
Because of its essential function as a complementary mechanism for enforcing
global shipping standards outside the regular flag state inspection and certification
procedures, the regime of port state control has variably been characterized as the
institutionalization of third-party control35 and the last safety net.36 However, aside
from compensating for the negative effects of the constant pressure exerted by
commercial competition on shipping companies and flag states, PSC inspections
also unintentionally perform an important risk assessment and management func-
tion. PSC inspections generate public information that afford private and public
sector maritime stakeholders additional data for assessing a particular vessel’s safety
record as well as a general understanding of the “factors that explain the likelihood of
having a substandard vessel, that is, a vessel whose probability of being detained
(by port state control) for being hazardous to safety, health or the environment is
high.”37

33
MLC, Regulation 5.2.1.
34
LL, Article 21; TONNAGE, Article 12; AFS, Article 11; BWM, Article 9.
35
Mejia (2005), p. 16.
36
Özçayir (2009), p. 201.
37
Cariou et al. (2012), p. 656.
532 M. Q. Mejia, Jr.

2 PSC in the Context of Air Pollution Prevention

and Climate Change Mitigation

There are numerous provisions in both UNCLOS and MARPOL Annex VI that
reinforce the above general provisions on port state control in the context of air
pollution prevention and climate change mitigation.

2.1 UNCLOS

UNCLOS has specific provisions relating to the prevention of pollution by ships

from or through the atmosphere38 They also serve as the launching pad for the
enforcement of such prevention through port state control.39 Article 212 below
prescribes a number of obligations on states party with respect to air pollution
from ships, both at the national and international levels.
Article 212
Pollution from or through the atmosphere
1. States shall adopt laws and regulations to prevent, reduce and control pollution of the
marine environment from or through the atmosphere, applicable to the air space under
their sovereignty and to vessels flying their flag or vessels or aircraft of their registry,
taking into account internationally agreed rules, standards and recommended practices
and procedures and the safety of air navigation.
2. States shall take other measures as may be necessary to prevent, reduce and control such
pollution.
3. States, acting especially through competent international organizations or diplomatic
conference, shall endeavour to establish global and regional rules, standards and
recommended practices and procedures to prevent, reduce and control such pollution.40

Art. 212 is complemented by Art. 222, which sets out state obligations to enforce
regulations on air pollution by ships.
Article 222
Enforcement with respect to pollution from or through the atmosphere
States shall enforce, within the air space under their sovereignty or with regard to vessels
flying their flag or vessels or aircraft of their registry, their laws and regulations adopted in
accordance with article 212, paragraph 1, and with other provisions of this Convention and
shall adopt laws and regulations and take other measures necessary to implement applicable
international rules and standards established through competent international organizations
or diplomatic conference to prevent, reduce and control pollution of the marine environment

38
Mukherjee presents a diagram indicating how article 212 serves as the foundation provision for
MARPOL Annex VI; see Mukherjee (2007), p. 475.
39
Xu (2007), p. 419.
40
UNCLOS, Article 212.
Air Pollution, Climate Change, and Port State Control 533

from or through the atmosphere, in conformity with all relevant international rules and
standards concerning the safety of air navigation.41

2.2 MARPOL Annex VI

Annex VI of MARPOL embodies the commitment of states, through the IMO, to

implementing UNCLOS Art. 212(3) above, which calls for establishing “global and
regional rules, standards and recommended practices and procedures to prevent,
reduce and control” air pollution from ships. As mentioned earlier, MARPOL Annex
VI aims to achieve this by limiting exhaust gases (sulphur oxide (SOx) and nitrous
oxide (NOx)) and other ozone depleting substances as well as controlling green-
house gas (GHG) emissions (mainly carbon dioxide (CO2), among others). Annex
VI was adopted at IMO in 1997 and entered into force on 19 May 2005.42 MARPOL
Annex VI, as amended, contains 4 chapters and a section of appendices. Chapter I
(General) specifies the ships to which the regulations apply, then provides relevant
definitions, exceptions and exemptions, and equivalents.
Chapter II (Survey, certification, and means of control) establishes initial,
renewal, intermediate, annual, and additional surveys. The surveys are undertaken
“to ensure that the equipment, systems, fittings, arrangements and material fully
comply with the applicable requirements”43 of Annex VI and should lead to the
issuance of the International Air Pollution Prevention Certificate,44 International
Energy Efficiency Certificate,45 and Statement of Compliance—Fuel Oil Consump-
tion Reporting. Chapter II also contains Regulations 10 and 11 on port state control
on operational requirements, detection of violations, and enforcement already
presented in the previous section of this paper.
Chapter III (Requirements for control of emissions from ships) prohibits instal-
lations that contain ozone depleting substances or hydro-chlorofluorocarbons on
board ships, depending on their date of construction, through Regulation
12 (Ozone depleting substances). Regulation 13 (Nitrogen Oxides (NOx)) provides
for progressive tiered reductions in NOx emissions from marine diesel engines
depending on the date these engines were installed on ships. It also provides for
the testing, survey, and certification of marine diesel engines for compliance with
relevant emission values of NOx by reference to the mandatory NOx Technical Code
2008. Regulation 13 also introduces the designated the emission control areas

41
UNCLOS, Article 222.
42
IMO (2019c).
43
MARPOL, Annex VI, Regulation 5.
44
For ships of 400 gross tonnage and all platforms and drilling rigs.
45
For ships of 400 gross tonnage.
534 M. Q. Mejia, Jr.

(ECAs) or so-called nitrogen emission control areas (NECAs).46 Regulation 14 (Sul-

phur Oxides (SOx) and particulate matter) sets out the general requirement that the
sulphur content of any fuel oil used on board ships shall not exceed 0.50% m/m on
and after 1 January 2020. It also sets out the more stringent standard of 0.10% m/m
on and after 1 January 2015 for ships navigating within specified ECAs or so-called
SECAs.47 Regulation 15 (Volatile organic compounds (VOCs)) obliges states that
regulate tanker VOC emissions in their ports to do so within the framework of the
regulation. Regulation 16 (Shipboard incineration) provides that shipboard inciner-
ation shall be allowed only in a shipboard incinerator and prohibits the incineration
of specified substances. Regulation 17 (Reception facilities) obliges states to ensure
their ports make available facilities adequate to receive ozone depleting substances
and exhaust gas cleaning residues from ships using their repair ports and ship-
breaking facilities.
Regulation 18 (Fuel oil availability and quality) requires states to “take all
reasonable steps to promote the availability of fuel oils which comply with this
Annex and inform the Organization of the availability of compliant fuel oils in its
ports and terminals.”48 It also entitles the port state to require a ship found to be
non-compliant with fuel oils standards to present a record of the actions taken to
attempt to achieve compliance and provide evidence that it attempted to purchase
compliant fuel oil in accordance with its voyage plan. This exercise is necessary for a
state to determine the appropriate action to take, if deemed necessary. In terms of
quality, Reg. 18 requires that fuel oil for combustion purposes delivered to and used
on board ships be free of inorganic acid or any added substance or chemical waste
that is harmful to personnel, or contributes overall to additional air pollution.
Chapter IV (Regulations on energy efficiency for ships) comprises amendments
to MARPOL Annex VI adopted in July 2011 for the reduction of GHG emissions
from ships. It requires technical measures through the Energy Efficiency Design
Index (EEDI) for new ships and operational measures through the Ship Energy
Efficiency Management Plan (SEEMP) for all ships.49 The ship’s EEDI come in two
components, the attained EEDI (Regulation 20) and the required EEDI (Regulation
21). The attained EEDI is calculated for each individual ship “and shall indicate the
estimated performance of the ship in terms of energy efficiency”50 while the required
EEDI is a reference value that represents the highest value of EEDI allowable for a

46
ECA means an area where the adoption of more stringent mandatory measures for emissions from
ships is required to prevent, reduce and control air pollution from NOx or SOx and particulate
matter or all three types of emissions. An area that imposes only special NOx requirements, and
regular standards for the other two emission types, is often referred to as a NECA.
47
Sulphur emission control area, i.e., an area that imposes only special SOx requirements, and
regular standards for the other two emission types.
48
MARPOL, Annex VI, Regulation 18.
49
Rony et al. (2019), p. 5; Karim (2015), p. 109.
50
MARPOL, Annex VI, Regulation 20.
Air Pollution, Climate Change, and Port State Control 535

specific ship type and size. Regulations 21 provides that attained EEDI
required
EEDI, i.e., “the attained EEDI must be equal to or below the required EEDI.”51
Regulation 22 requires each ship to carry on board a ship energy efficiency
management plan (SEEMP), which also comes in two parts. Part I is a program
that sets out the framework, specific measures, goals, implementation system,
operational measures, monitoring tools, and self-evaluation and improvement mech-
anisms that will “improve the energy efficiency of a ship in a cost-effective man-
ner.”52 Part II specifies the methods to be used in collecting data for submission to
the IMO Ship Fuel Oil Consumption Database,53 i.e., fuel oil consumption by fuel
oil type in metric tonnes.54 As the SEEMP may be linked to a broader corporate
energy and safety management policy, a shipping company may choose to integrate
SEEMP within a ship’s safety management system (SMS).55
Together, the combined design and operational measures presented by EEDI and
SEEMP are expected to result in a reduction of total ship carbon emissions by
180 million tonnes per year by 2020 and by more than 390 million tonnes by 2030.56

2.3 PSC’s Essential Role

The above general overview of the obligations and responsibilities of states in

relation to MARPOL Annex VI affords an idea of the magnitude and complexity
of the work facing flag states vis-à-vis air pollution and climate change mitigation
measures for ships. The main challenge is that while flag states may be undertaking
inspection, survey, and certification procedures, it still remains a fact that many flag
states, because of the nature of shipping, will not be able to control or inspect the
status of actual operational safety levels of ships in-between statutory inspections. In
that sense, port states will have no choice but to carry the main burden for enforce-
ment of air pollution and climate change standards such as the looming the
now-looming low-sulphur regulations.57 For instance, a vessel with Annex
VI-compliant fuel during its scheduled flag state survey might thereafter, in the
course of the voyage, switch to non-compliant fuel. If the ship never calls in any of
the flag state’s ports, then only “port state control inspections have the capacity to
monitor such requirements on a regular basis.”58

51
Fakhry and Bulut (2018), p. 17.
52
IMO (2019a), and Nguyen (2019), pp. 165–166.
53
Pursuant to MARPOL Annex VI, Regulation 22A.
54
IMO (2016b).
55
Under SOLAS, Chapter IX and the International Safety Management (ISM) Code.
56
Wright (2013).
57
Bloor et al. (2015), p. 338.
58
Marten (2016), p. 95.
536 M. Q. Mejia, Jr.

Many continue to appeal for port states to take up the slack and tighten port state
control and introduce initiatives beyond the current PSC inspection regime. Some
call for “broadening coastal states’ prescriptive and enforcement jurisdiction, par-
ticularly in the EEZ” and even empowering non-state actors against substandard
shipping.59 They call upon port states to strengthen control over foreign shipping by
requiring vessel monitoring system (VMS) and voyage data recorder (VDR)) data as
a condition for entry into port, taking action against stateless vessels, applying
general conservation laws to ships,60 and using criminal or administrative law to
penalize ships that engage in unlawful acts such as furnishing false information.61
The frustration becomes plain when one considers that even when a serious
violation is discovered through PSC inspection, port state action may still be limited
only to imposing fines and endorsing the case to the flag state for further investiga-
tion and possible prosecution. It will always be a worry that shipowners are
constantly balancing the probability of their ships being found substandard, and
the actual cost of compliance.62 Nonetheless, as port and coastal states stand to lose
the most in terms of marine pollution, port state control will always remain an
essential part of the safety and marine environmental protection regulatory frame-
work in shipping.

3 PSC Implementation and Effectiveness

The implementation of PSC in the context of Annex VI is guided by recommenda-

tions adopted at IMO as well as procedures agreed at the regional PSC MoU by its
member states. While such recommendations and procedures are designed to
enhance harmonization in the conduct of inspections, member states and regional
MoUs continue to face numerous challenges in increasing the effectiveness of port
state control.

3.1 Implementation

The IMO offers some useful recommendations and guidance in exercising port state
control in the context of MARPOL Annex VI. Foremost of these are Resolution
MEPC.181(59) (2009 Guidelines for port state control under the revised MARPOL
Annex VI) and Resolution A.1119(30) (Procedures for port state control, 2017).

59
Karim (2015), p. 146.
60
Such as the United States’ Lacey Act of 1900 (16 U.S.C. §§ 3371–3378), which prohibits trade in
wildlife, fish, and plants that have been illegally taken, possessed, transported, or sold.
61
Molenaar (2007), pp. 246–247.
62
Becker (1998), pp. 639–640.
Air Pollution, Climate Change, and Port State Control 537

MEPC.181(59) and A.1119(30) both offer basic guidance on the conduct of PSC
inspections for Annex VI and promotes a harmonized approach among inspectors
worldwide. At the commencement of an inspection, port state control officers
examine the following certificates and documents where applicable63:
• International Air Pollution Prevention (IAPP) Certificate;
• Engine International Air Pollution Prevention (EIAPP) Certificate;
• Technical File for each applicable marine diesel engine;
• Depending on the method used for demonstrating NOx compliance for each
applicable marine diesel engine:
– Record Book of Engine Parameters for each marine diesel engine;
– Documentation relating to the simplified measurement method; or
– documentation related to the direct measurement and monitoring method;
• Approved Method File;
• Written procedures covering fuel oil change over operations where separate fuel
oils are used in order to achieve compliance;
• Approved documentation relating to any installed exhaust gas cleaning systems,
or equivalent means, to reduce SOx emissions;
• Bunker delivery notes and associated samples or records thereof;
• Copy of the type approval certificate of any shipboard incinerator installed on or
after 1 January 2000;
• Ozone Depleting Substances Record Book;
• VOC Management Plan; and
• Any notification to the ship’s flag Administration issued by the master or officer
in charge of the bunker operation together with any available commercial docu-
mentation relevant to non-compliant bunker delivery.
Inspectors are expected to accept a ship’s certificates as prima facie evidence of
compliance with the relevant Annex VI standards. However, should a port state
control inspector observe clear grounds “for believing that the condition of the ship
or its equipment do not correspond substantially with the particulars of the certifi-
cates or the documents, the (inspector) should proceed to a more detailed inspec-
tion.”64 Should the inspector observe and discover in the course of a more detailed
inspection that a serious departure from the standards such that it constitutes a

63
IMO (2009), Chapter 2; IMO (2017), Appendix 12.
64
IMO (2009). According to sec. 2.1.7 of MEPC.181(59) clear grounds to conduct a more detailed
inspection include evidence of the following: (1) missing or clearly invalid certificates; (2) docu-
ments required by the Annex missing or clearly invalid; (3) absence of principal equipment or
arrangements; (4) presence of equipment or arrangements not specified in the certificates or
documents; (5) PSCO’s general impressions or observations that serious deficiencies exist in the
equipment or arrangements; (6) master or crew are not familiar with essential shipboard operations
relating to the prevention of air pollution, or that such operations have not been carried out;
(7) quality of fuel oil, delivered to and used on board the ship, appears to be substandard; (8) receipt
of a report or complaint containing information that the ship appears to be substandard.
538 M. Q. Mejia, Jr.

serious and unreasonable threat of harm to the marine environment, then the
detention of the ship may be warranted. The following deficiencies are listed in
sec. 2.3.2 of MEPC.181(59) as indicative grounds for detention:
• Absence of a valid IAPP Certificate, EIAPP Certificates or Technical Files;
• A marine diesel engine that is not compliant with the NOx emission limit;
• A marine diesel engine (more than 5000 kW and a per cylinder displacement at or
above 90 L), with certified Approved Method, but for which an Approved
Method is not installed;
• A marine diesel engine that is not compliant with the SOx limit;
• Non-compliance with SOx and particulate matter control requirements while in
an ECA;
• A non-compliant incinerator installed on board ship; and
• Master or crew unfamiliar with essential procedures regarding operation of air
pollution prevention equipment.65
In Appendix 2, Resolution A.1119(30) adds the following two to this indicative
list:
• Absence of a valid IEEC (International Energy Efficiency Certificate); and
• Absence of a Ship Energy Efficiency Management Plan (SEEMP).66
To provide a focused demonstration of how Annex VI might be implemented by
port state authorities, the Paris MoU on Port State Control and the Tokyo MoU on
Port State Control held the Joint Concentrated Inspection Campaign (CIC) on
MARPOL Annex VI from 1 September to 30 November 2018. The CIC set out to
determine the level of MARPOL Annex VI compliance within shipping, increase
awareness in the industry as to the importance of compliance, inform shipping of the
significant position that the matter occupies on the agenda of member states of both
MoUs, and “underline the responsibility of the Port State Control regime with
regards to harmonised enforcement of compliance with the requirements of
MARPOL Annex VI, thus improving the level of compliance and ensuring a level
playing field.”67
While the Paris MoU has yet to release the preliminary results of their part of the
joint CIC, the Tokyo MoU has already some of theirs. Of the total of 6604 ships
inspected by Tokyo MoU member states during the CIC some 176 ships (2.14%)
ended up being detained, whereof 4 (0.06%) were a direct result of the CIC.
Panamanian ships made up 1817 or 27.51% of the inspections, while there were
649 Hong Kong ships (9.86%), 620 Marshall Islands ships (9.39%), and 620 Libe-
rian ships (9.39%). The most notable deficiencies found during the campaign were
related to maintenance of the ozone-depleting substances record book (121 deficien-
cies, i.e., 1.83%), availability of bunker delivery notes (118 deficiencies, i.e.,

65
IMO (2009).
66
IMO (2017).
67
Paris MoU on PSC & Tokyo MoU on PSC (2018).
Air Pollution, Climate Change, and Port State Control 539

1.79%), and crew member familiarity, training, and capability in operating a ship-
board incinerator or thermal waste treatment device installed as an alternative
arrangement (93 deficiencies, i.e., 1.41%).68

3.2 Effectiveness

In spite of the earlier skepticism, it is clear that port state control has now become an
integral and effective element of the global enforcement regime for international
safety, security, and marine environmental protection standards for ships. During its
early years, as with any new regime, it was impossible to discern how its objectives
were to be eventually achieved. Four decades hence, it can be shown that port state
control have motivated an increasing number of open registries to tighten their
standards, professionalize their operations, and strengthen compliance and
enforcement.
Many indicators point to the effectiveness and positive influence of the port state
control regime. For instance, not only have regional MoUs seen a fall in deficiency
and detention rates,69 they have even witnessed a reduction in marine casualties. One
study calculated the total loss rate in shipping as having decreased steadily from 6.09
per thousand in 1973 to 1.61 per thousand in 2003.70 Another econometric study
suggests the potential effectiveness of the PSC inspection regime by observing a
positive correlation and effect between the initial and successive inspections
conducted on board a given vessel.71 A number of studies also show that flag states
are taking port state control black- and grey-listing seriously, because shipping
companies are also becoming more selective and adept at using PSC statistics in
boardroom decision-making. Ship performance at PSC inspections have now
become part of charterer due diligence,72 shown to be a significant factor in a
shipowner’s choice of flag registry or classification society,73 and resulted in greater
difficulty for ships to engage in port-shopping.74 Of particular interest to this
Chapter is the finding that “Specific deficiencies in relation to the requirements of
MARPOL, recorded under both the Paris and Tokyo MOUs, have decreased.”75
Nonetheless, the regional PSC inspection regimes continue to operate under a
number of weaknesses, challenges, and limitations, not least in the particular context
of MARPOL Annex VI where there are mixed reviews as to the comprehensiveness

68
Tokyo MoU on PSC (2019).
69
Bang (2008).
70
Li and Zheng (2008), p. 66.
71
Cariou et al. (2007).
72
Özçayir (2009).
73
Cariou and Wolff (2011), p. 174.
74
Bang (2008), pp. 726–727.
75
Bang (2008), pp. 758–759.
540 M. Q. Mejia, Jr.

of its coverage. For instance, some contend that the goal-based approach, while
allowing for creativity and flexibility, may turn into a weakness when applied to the
EEDI and SEEMP. It may be argued that it would be unreasonable “to expect port
state control inspectors to verify a ship’s actual EEDI methodology and character-
istics, simply because of the sheer diversity in designs that may be adopted by
individual ships” or “to check the exact underpinnings of the methodologies and
processes adopted in the SEEMP for each particular ship.”76 Even the positive side
of PSC inspections influencing shipowner’s choice of flag registry or classification
society could be counterbalanced by the suggestion “that PSC actions give rise to
opportunistic behaviour among shipowners operating relatively bad vessels.”77
Aside from the lack of PSC officers, uniformity and harmonization in carrying out
inspections is another constant bane of PSC MoUs. At the end of the day, the
outcome of any inspection is heavily dependent on the professional judgement of
the PSC officer who, afflicted with the human condition, will understandably be
unable to attain perfect objectivity. It would not come as a surprise that “both
detention for non-compliance. . . and detection of non-compliance will vary from
officer to officer, port to port and nation to nation”78 and potentially “distort the level
playing field within the region.”79 Some other persistent challenges facing PSC
inspection regimes are short turnaround times of vessels, remote port locations,
corruption, lukewarm enforcement by some states, the fact that port state control
MoUs are not binding agreements, and resource availability.80 Public sector budgets,
including those for maritime administration functions, are undergoing constant
review and reduction.81 This has an impact not only on the acquisition of high
cost technological solutions such as remote SOx emission monitoring systems or
“sniffers” as well as the construction of expensive laboratories, but also on the
associated training and technical competence of PSC inspectors.82

4 Conclusion

Shipping occasionally faces imputations that it is responsible for emissions of

inordinately significant amounts of air pollutants and greenhouse gases. These
accusations unfortunately focus on absolute emissions figures rather than the pro-
portional share of shipping taken in the context of the amount of cargo it carries.
Comparisons have been made between CO2 emissions from ships and those from

76
Fakhry and Bulut (2018), pp. 26–27.
77
Cariou and Wolff (2011).
78
Bloor et al. (2015), pp. 343–344.
79
Graziano et al. (2018b), pp. 230–231.
80
For instance, the case of the Mediterranean MoU, in Lagdami (2012), pp. 25–26.
81
Bloor et al. (2015), pp. 343–344; Metzger (2016).
82
DNV GL (2014).
Air Pollution, Climate Change, and Port State Control 541

housing, agriculture, industry, and automobiles.83 In one instance the IMO’s 2nd
GHG study was used to imply insouciance in shipping by comparing the aviation
industry’s CO2 emissions of 650 million tons a year as being marginally over half
shipping’s emissions of 1.12 billion tons a year (based on data up to the year 2008).84
Industry reaction was understandably forceful.85 Indeed, such insinuations are
patently unfair when provided the context that shipping carries more than 80% of
world trade by volume compared to aviation’s share of 0.5%.86 A simplistic arith-
metic calculation reveals that while shipping produced 14 million tons of CO2
emissions for every 1% of total world trade volume during the period covered,
aviation produced 1.3 billion tons of CO2 to carry the same volume. Taken from
another angle, the air transport industry produced 14.8 tons of CO2 emissions to
carry 1 ton of freight, while shipping produced only 0.14 ton of CO2 emissions to
carry 1 ton of freight. The United Nations Conference on Trade and Development
(UNCTAD) “Review of Maritime Transport, 2008” puts it thus:
. . . it is estimated that, on average, a container ship (3,700 TEU) consumes 77 times less
energy than a freight aircraft (Boeing 747-400), about 7 times less than a heavy truck and
about 3 times less than rail. Equally, a ship (3,700 TEU ship) is reported to emit over
40 times less CO2 than a freight aircraft (Boeing 747-400) and about 4 times and 31 per cent
less CO2 than a heavy truck and rail, respectively. Shipping’s fuel and carbon efficiency per
unit of weight and distance means that any increase in fuel costs and any cost pressure
resulting from climate-led initiatives will likely have less impact on the cost of moving trade
by sea compared to other modes of transport. This is particularly relevant when considering
the critical nature of shipping for international trade, in particular long haul.87

In other words rather than being an indictment of the environmental performance

of shipping, the more than one billion tons of CO2 emissions from shipping annually
is a reflection of the global population’s consumption needs and wants. Shipping
remains the most environmentally sustainable means of servicing these needs and
transporting goods between the world’s ports. Nevertheless, relative ratios are small
comfort if nothing is done to arrest the alarming absolute emissions figures for all
modes of transport. Shipping must continue to control air pollution and GHG
emissions.
The maritime sector has gained significant strides since the 1980s when IMO’s
Marine Environmental Protection Committee (MEPC) agreed to include the issue of
air pollution in its work programme following a call by North Sea states to initiate
action, “leading to improved quality standards of heavy fuels and to actively support
this work aimed at reducing marine and atmospheric pollution.”88 Today, 93 states
representing 96.70% of world shipping tonnage are contracting parties to MARPOL

83
Snyder (2005), p. 1065.
84
Bellona (2008).
85
Brownrigg (2008).
86
ICAO et al. (2017), and ATAG (2008).
87
UNCTAD (2008), pp. 28–29.
88
IMO (2019b).
542 M. Q. Mejia, Jr.

Annex VI.89 The newly-released EnviSum study on the impact of stricter emissions
standards for ships in the Baltic Sea area90 vindicates the concerns of the 1980s and
demonstrates the immediate positive impact brought about by reducing harmful
emissions. The study estimates that the regulations have not only prevented
500–1000 premature deaths in the Baltic every year, they has also improved the
environment and health in countries further away.91 The regulations, imposed in
2015, accompany the declaration of the Baltic as a sulphur emission control area
(SECA)92 where all ships are subject to a maximum of 0.1% sulphur content in the
fuel used.
The Baltic Sea area SECA and the EnviSuM study demonstrate the importance of
port state control in the enforcement of ship safety, security, and marine environ-
mental standards, including MARPOL Annex VI. Since a preponderance of ships
engaged in inter-regional trade in the Baltic are presumably flagged in non-Baltic
states, these operate mainly beyond the scrutiny of flag inspectors as these call in
Baltic ports. In as much as only “PSC inspections offer a candid snapshot of the
actual status of operational safety aboard the vessel,”93 ports offer the optimum
venue not only for enforcement, but also data collection. Port states, through the PSC
inspection regime, play an important and effective complementary role in the
credible enforcement of Annex VI standards on international shipping, a sine-qua-
non for environmentally sustainable world trade and commerce.

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ausnewma30&i¼94
McDorman TL (1997) Port state control: a comment on the Tokyo MoU and issues of international
law. Asian Yearb Int Law 7:229–241
Mejia MQ Jr (2005) Evaluating the ISM Code using port state control statistics. Published licentiate
thesis, Department of Design Sciences, Lund University, Lund, Sweden
Mejia MQ Jr, Mukherjee PK, Akselsson R (2007) The ISM Code in the context of Swedish Port
state control statistics. Ocean Yearb 21:405–426
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Molenaar EJ (2007) Port state jurisdiction: toward comprehensive, mandatory and global coverage.
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emission solutions. WMU J Marit Aff 18(1):165–195. https://doi.org/10.1007/s13437-018-
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Karppinen A, Veecken J, Alhosalo M, Myskow J, Kowalak P, Bäck E, Nguyen H, Molnar P,
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International Convention for the Safety of Life at Sea (SOLAS), 1974, as amended
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International Convention on the Control of Harmful Anti-fouling Systems on Ships (AFS), 2001
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International Safety Management (ISM) Code
Maritime Labour Convention (MLC), 2006, as amended
United Nations Convention on the Law of the Sea (UNCLOS), 1982
A Century of Piracy Treaties: An Overview
for the Future

Samuel Pyeatt Menefee

Abstract This review of treaties and agreements dealing with piracy over the last
century (1918–2018) will emphasize major advances, showing how approaches to
the problem have been modified and what different initiatives may mean for the
future. Discussion of draft piracy codes will be followed by a review of the Treaty
Relating to the Use of Submarines (1922), the Convention on Duties and Rights of
States in the Event of Civil Strife (1928) and the Nyon Agreement (1937). Relevant
provisions in the International Law Commission Draft (1956) and the Geneva
Convention on the High Seas (1958) will be considered, as will piracy provisions
of the 1982 Convention on the Law of the Sea and the Convention for the Suppres-
sion of Unlawful Acts Against the Safety of Maritime Navigation (1988) and its
Protocol. A showcasing of Asian agreements (early cooperative frameworks and the
1985 Regional Cooperation Agreement on Combating Piracy and Armed Robbery
Against Ships in Asia) will be followed by sections dealing with African agreements
(the 2009 Djibouti Code of Conduct, the Jeddah Amendment of 2017, and the 2013
Code of Conduct).

1 Introduction: A Century of Piracy Treaties

Piracy remains a problem in today’s world. The treaty background for this survey
will be considered before reviewing several agreements and major international
treaties dealing with piracy over the last century, starting with the end of World
War I on November 11, 1918 and ending one hundred years later. Many of these
documents have been discussed at greater depth in prior works, but the emphasis
here will be on highlighting major changes and accomplishments in a way to
showcase the changes in the treatment of piracy during this period. An attempt
will be made to show how various approaches were modified or lead to others and
what all these developments may mean for anti-piracy approaches in the future.

S. P. Menefee (*)
Center for Oceans Law and Policy, University of Virginia, Charlottesville, VA, USA

© Springer Nature Switzerland AG 2020 547

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_25
548 S. P. Menefee

2 Background: Bilateral and Multilateral Treaties

of the Eighteenth and Nineteenth Centuries

Prior to the First World War, piracy tended to be a matter for bilateral treaties. Most
of these represented agreements between Great Britain (including the British East
India Company), France, or the United States with other countries—including other
“Western” states, Arab sheikdoms, and Malay sultanates.1 The practice was, how-
ever, multilaterally condemned at the 1815 Congress of Vienna2 and was also
referred to (“Piracy as commonly known and defined by the Law of Nations”) in
the 1902 Treaty for the Extradition of Criminals and for Protection Against
Anarchism.3
Cognate problems also attracted a certain amount of multilateral attention during
this period. In 1823, President Madison proposed an International Convention for
Maritime and Commercial Neutrality to the great powers, which would have banned
the practice of privateering had it been adopted.4 The Treaty of Paris of 1856, which
ended the Crimean War, outlawed privateering,5 but only for those who signed or
acceded to the document. (The United States’ failure to do so came back to haunt it
during the American Civil War, the only major belligerent use of privateers after
1854.)6 “Multilateral treaties combatting the slave trade . . . [were] also of signifi-
cance because of analogies with piracy in state municipal laws.”7
In this period, piracy “as commonly known and defined by the Law of Nations”
really represented the views of a few maritime superpowers, and indeed was not
defined in international multilateral treaties. Concrete definition aside, however, it is
clear that most states had a general idea of the sort of conduct that was being
prohibited, and that even at this early period, piracy was serving as a template to
outlaw or control analogous behaviors such as privateering and slave trading.

2.1 Draft Piracy Codes

1924 saw an attempt by the League of Nations to codify certain aspects of interna-
tional law. In considering piracy, the relevant subcommittee noted that,

1
See Rubin (1998), pp. 452–454; Menefee (1995), p. 5.
2
Menefee (1995), p. 6; United Nations (1960), p. 266, para 81.
3
Treaty for the Extradition of Criminals and for Protection Against Anarchism, at 185; Menefee
(1990), p. 136.
4
Menefee (1995), p. 6; Colombos (1962), p. 472.
5
See generally Stark (1897).
6
See Menefee (1987), p. 206 n. 13.
7
Menefee (1995), p. 6. See also Menefee (1990), pp. 134–136.
A Century of Piracy Treaties: An Overview for the Future 549

[i]n addition to piracy by the law of nations, States have occasionally, by treaty or in their
internal law, established a piracy by analogy which has no claim to be universally recognized
and must not be confused with true piracy; the assimilation in question can only create a sort
of piracy under internal law and from the point of view of the countries which make them.
The acts dealt with are of a grave nature, it is true, but they do not constitute a danger to the
shipping and commerce of all nations indiscriminately . . . on the international point of view,
the acts come within the competence only of the country in which they are punishable. No
country making a capture can cite them as the basis of a claim to international competence
nor can they justify actual capture by a foreign State, unless there is a convention which
expressly provides otherwise.8

The subcommittee consisted of only a Japanese and a Chinese member,

suggesting that contemporary piracy was viewed as being a regional (east Asian)
problem.9 Nonetheless, a report was delivered to the Committee in January of 1926,
which was amended and circulated to governments for comment.
[T]he eight articles of the ‘Draft Provisions for the Suppression of Piracy’ . . . reflect the
assumption that there is a single conception of ‘piracy’ in the international legal order
reflecting a stable natural law . . . .” Despite responses by several governments, doubts
arose as to whether piracy was a pressing issue. The topic was not mentioned in the League’s
resolution of 27 September 1927 dealing with the Codification Conference “and nothing
more came of . . . [the] Report or the documentation it provoked.10

At the same time, the League’s initiative,

prompted the faculty of the Harvard Law School to organize its own research effort to
contribute to the Codification Conference . . . . The result . . . was a full draft Convention of
19 articles . . . . [T]he drafters of the Convention regarded it as not merely codifying, but also
as blending the international law of ‘piracy’ into the system of legal relationships that they
believed applied in the world of their time . . . [I]ts function, [was] as an aid to the attempts of
the time to ‘codify’ the rules of international law as they ought to exist rather than as they
could be shown to exist by an examination of theory and past practice.11

While it has been noted that the Harvard draft “must be evaluated on its own
merits as a legislative proposal, and cannot be supported as a reflection of a scholarly
analysis of precedent and theory,”12 the Draft deserves recognition for its seminal
role in the post-war work of the International Law Commission.”13 While not the
first draft codes dealing with piracy, the League of Nations’ and more particularly,
the Harvard draft initiatives showcase the problems of creating and molding inter-
national anti-piracy agreements and the tension between existing international norms
on the subject and the need/desire to deal with emerging problems and activities.

8
Report of the Sub-Committee of the League of Nations Committee of Experts for the Progressive
Codification of International Law, League of Nations, Doc. C. 196 M. 70 1927V at 118–119 (1927),
quoted in Joyner (1974), p. 64; Menefee (1987), p. 197.
9
See Menefee (1995), p. 7.
10
Id.
11
Rubin (1988), pp. 306–309.
12
Id., at 313.
13
Menefee (1995), p. 7.
550 S. P. Menefee

2.2 The Treaty Relating to the Use of Submarines (1922),

the Convention on Duties and Rights of States
in the Event of Civil Strife (1928), and the Nyon
Agreement (1937)

During World War I, there was some discussion as to whether German submarine
attacks on non-combatants constituted piracy.14 This controversy obviously
influenced discussions at the 1922 Washington Conference on the Limitation of
Naval Armaments.15 The resulting Treaty Relating to the Use of Submarines
analogized such prohibited behavior to an act of piracy: “any person in the service
of any Power who shall violate any of these rules, . . . shall be deemed to have
violated the laws of war and shall be liable to trial and punishment as if for an act of
piracy . . .”16
The Latin American initiative which resulted in the 1928 Convention on Duties
and Rights of States in the Event of Civil Strife, dealing with maritime crimes such as
insurgency or mutiny, noted that “[t]he declaration of piracy against vessels which
have risen in arms, emanating from a Government, is not binding upon the other
States.”17 This statement seems to have arisen from the consideration of numerous
nineteenth and early twentieth century South American insurgencies,18 but repre-
sents an early discussion of the topic in a multilateral forum.
During the Spanish Civil War, several neutral ships suffered attacks by
unidentified submarines, generally believed to be German and/or Italian. In one
month in the summer of 1938 alone, some eighteen such attacks were recorded. The
Nyon Agreement analogized such actions to “acts of piracy.” The Conference
resolved on effective steps being taken . . . based on the rules on submarines laid
down in the London Naval Treaty of 1930 and reaffirmed in the Naval Protocol of
November 1936. The patrolling warships of the signatory Powers . . . operating
within specified areas of the Mediterranean, were authorized to counter-attack and,
if necessary, destroy submarines actually engaged in attacking any merchant vessel
not belonging to either of the conflicting parties. The same action was to be taken
against any submarine found so close to the scene of an actual attack that there was
no reasonable doubt of her guilt.19 While this drew in part on the World War I
discussions noted above, it also represents a reversion to nineteenth century debates
concerning the elimination of the slave trade.

14
See Menefee (1987), p. 196; The German-American Submarine Controversy; Colombos (1962),
pp. 404–405; Hackworth (1941), pp. 690–991.
15
See Menefee (1995), p. 6.
16
Id. See also Treaty Relating to the Use of Submarines (Washington, 6 February 1922) art. 3, in
Ronzitti (1988), p. 345; Rubin (1998), p. 316.
17
Menefee (1995), p. 6. See also Convention on Duties and Rights of States in the Event of Civil
Strife, art. 2; Rubin (1998), p. 320.
18
See Menefee (1990), pp. 193–195.
19
Colombos (1962), p. 415.
A Century of Piracy Treaties: An Overview for the Future 551

Immediate post World War I problems were approached and “solved” by the
application of a “piracy by analogy” view. This had the advantage of applying a
recognized universal norm, but the disadvantage of utilizing one which had never
been accurately and conclusively defined. The needle was successfully threaded by
either allowing disagreeing states to “opt out” or, more successfully, by closely
defining the actual prohibited activity.

2.3 The International Law Commission Draft (1956)

and the Geneva Convention on the High Seas (1958)

Preliminary work done on piracy by the International Law Commission during the
1950s was based in large part on Harvard Law School’s Research on International
Law draft on piracy.20 According to Myres McDougel and W.T. Burke, this
discussion was influenced by Chinese nationalist interception and seizure of vessels
and cargo bound from Communist Chinese ports. The Soviet bloc argued that action
by warships and by individuals seeking political ends, could constitute piracy, and
cited the Nyon Agreement as precedent. In the end, the Commission voted to retain
the words “for private ends” in the definition of piracy.21
The 1958 Convention on the High Seas, in turn, relied on the International Law
Commission draft, with the ensuing discussions a general microcosm of the ILC
debates. Opposition to the draft generally took two tacks. One was that “‘piracy no
longer constituted a general problem, and its suppression was already the subject of
numerous international treaties with which the Commission’s articles might con-
flict.’”22 The second (Soviet bloc) approach backed the approval of a single article
requiring States “‘to take proceedings against and to punish acts of piracy, as defined
by present international law, and to co-operate to the fullest extent in the repression
of piracy.’”23 It was argued that the definition of piracy:
did not accord with existing rules of international law and failed to enumerate all the
categories of acts which were encompassed by that concept. Furthermore, the definition
erroneously included acts committed on terra nullius, and . . . [excluded] attacks made in the
territorial sea or on the mainland by vessels coming from the high seas and afterwards
escaping thither. Finally, the most serious omission was the failure to mention piracy for
political reasons. In fact, the notion of piracy put forward . . . was an obsolete one, and no
attempt had been made to legislate for the dangerous forms which it could take at the present
time. Though it would have been desirable to elaborate a new definition, that would be
impossible in the time available; hence the joint amendment had been drafted to cover all
acts of piracy that were liable for prosecution under the municipal laws of all States.24

20
See Rubin (1998), p. 349.
21
Menefee (1990), p. 198.
22
Menefee (1995), p. 26.
23
Id. (footnote omitted).
24
Id.
552 S. P. Menefee

Changes from the ILC Draft included the addition of aircraft to the definition of
piracy and the expansion of seizures to include “other ships or aircraft on govern-
ment service authorized to that effect.”25
The 1958 Convention, as the climax of the League of Nations, Harvard draft, and
ILC draft, represents the first multilateral convention to coherently deal with the
topic of piracy, a new approach. Unfortunately, continuing problems with defining
the crime and the generally-opposed positions of the Soviet Bloc and Free World
states served to limit the success of this treaty and foreshadowed the problems of
future multilateral agreements on the topic.

2.4 The Convention of the Law of the Sea (1982)

Piracy was not one of the areas stimulating major debate during the Third United
Nations Conference on the Law of the Sea. Most of changes from the 1958
Convention on the High Seas therefore resulted from jurisdictional shifts created
elsewhere in the treaty. The greatest difference between the two conventions lies in
the geographic area covered; the advance in national jurisdictions in the 1982
document means that a smaller area is governed by the Convention than by its
1958 counterpart.26 (Rubin notes only one other significant change, requiring “other
ships or aircraft” allowed to seize a pirate to be “clearly marked and identifiable as
being on government service and authorized to that effect.”)27
It is hard to know whether the lack of revision in the 1982 Convention was due to
general satisfaction with the 1958 regime, a decision to reserve fire for other
conflicts, or a realization that the “nationalization” of major areas of the sea, in
which many such attacks had occurred, automatically reduced the importance of the
issue. The Soviet Bloc-Free World split of the 1958 Convention had been partially
superceded by the growing influence of the Third World, but it is perhaps most
useful to view the provisions in toto as a stealthy victory for coastal States. While the
1982 Convention does not appear to represent much of a change on piracy, in reality
it represents a major transfer of responsibility, and as such, an implicit check on the
budding internationalism of the Convention on the High Seas.

25
Id., at 28–29.
26
See Menefee (1995), pp. 31–35; Menefee (2009).
27
Rubin (1998), p. 372.
A Century of Piracy Treaties: An Overview for the Future 553

2.5 The Convention for the Suppression of Unlawful Acts

Against the Safety of Maritime Navigation (1988) [SUA
Convention] and Protocol

The 1988 SUA Convention and its Protocol, which deals with fixed platforms, was
one result of the 1985 hijack of the Achille Lauro. Rather than including “unlawful
acts against the safety of maritime navigation” within the concept of international
piracy, it followed what Prof. Tullio Treves has called a “sectorial approach,”
“identifying particular offenses . . . and working out specific international instru-
ments for their suppression.”28 Rear Admiral Baumgartner of the USCG described
the agreement as “designed to ensure that appropriate action is taken against persons
committing unlawful acts against ships, including, among other acts, the seizure of
ships by force; acts of violence against persons onboard ships; and the placing of
devices on board a ship which are likely to destroy or damage it.”29 While the
Convention focused on the problem of maritime terrorism rather than that of piracy,
its act-specific nature covers both areas. A revision, which added additional acts, was
a response to the attack on the World Trade Center but did not materially affect
coverage of problems related to piracy. The prosecute or extradite provisions of SUA
proved particularly useful in connection with piracies off the Horn of Africa; it has
been noted that (with the exception of Ethiopia, Eritrea, and Somalia) all States
within a thousand nautical miles of the Gulf of Aden are signatories.30
Although SUA is a multilateral treaty in the tradition of the 1958 Geneva
Conventions and the United Nations Convention on the Law of the Sea, it represents
a break with prior attempts to refashion piracy law. Rather than redefining the crime,
with all the baggage that that process would carry, the Convention has concentrated
on fighting piracy through the criminalization of specific activities disapproved of by
the international community.

2.6 Asian Agreements: Early Cooperative Frameworks

and the Regional Cooperation Agreement on Combating
Piracy and Armed Robbery Against Ships in Asia
[ReCAAP] (2005)

A series of some two hundred piratical attacks occurred in the straits of Malacca and
Singapore in 1991; on several occasions the attackers manipulated maritime

28
Menefee (1995), p. 46.
29
Statement of RADM William Baumgartner on International Piracy on the High Seas before the
Subcommittee on Coast Guard & Maritime Transportation, Committee on Transportation &
Infrastructure, U.S. House of Representatives, February 4, 2009.
30
Id.
554 S. P. Menefee

boundaries to their advantage, avoiding pursuit by fleeing into foreign waters.31 The
result was movement toward inter-state trans-boundary agreements covering the
Straits of Malacca and Singapore.32 At the 20th Indonesia-Malaysia general border
meeting, in January, 1992, agreement was reached to allow police personnel from
Indonesia, Malaysia, and Singapore to travel aboard merchant ships transiting the
straits. Some further believed “that Malaysia and Indonesia have taken the decision,
in principle, to permit jurisdiction to ‘overlap’ when forces are engaged in anti-
piracy operations.”
Subsequently, on 29 July, it was announced that under the bilateral agreement,
“Indonesia and Singapore . . . will allow their navies and marine police the right of
hot pursuit of pirates into each other’s territorial waters.” “[V]essels from the two
countries would inform each other and come to the assistance of the other when
pursuit is likely to cross territorial boundaries.” Additionally, a joint coordinating
committee composed of high level officers would hold regular meetings to review
progress. . . . . On August 1, Indonesia and Malaysia announced the prospective
establishment of a body “to coordinate all marine enforcement activities in the Straits
of Malacca.” “The machinery will give focus to keeping the straits safe from pirates,
the authorities said, adding that details had to be worked out.” Subsequently, the
Deputy Prime Minister of Malaysia, noted that ‘Malaysia will discuss with Indonesia
and Singapore . . . ways to guarantee safety for maritime traffic in the straits . . . .” A
similar vision of tri-partite cooperation on security measures was advanced by . . . an
Indonesian Minister, who –
suggested the three countries co-ordinate in mounting patrols of the strait.” At the same time,
bilateral cooperation against piracy in the region was extended when Indonesia and the
Philippines agreed to assist each other “in the prevention of piracy and oil pollution. The
Indonesian-Malaysian task force envisioned in the August communique became reality in
December, when the two nations agreed “to set up a Maritime Operation Planning Team
(MOPT) ‘It is hoped that with the setting up of this body, the safety and security of maritime
borders can be better handled.’ [P]iracy was one of the problems it would deal with.”33

A Conference on Combating Piracy and Armed Robbery Against Ships, proposed

by the ASEAN + 3 Summit Meeting in 2000, was held in October of 2001.34 One
session of this meeting discussed medium and long-term visions of a regional
cooperation framework. Participants shared the view that in light of the current
situation where the number of the piratical cases was still increasing despite the
various efforts made by countries and organizations concerned, it was necessary to
explore a new approach in order to solve the piratical problems and to consider
developing a regional cooperation agreement for the more effective implementation
of counter measures against piracy and armed robbery against ships. Participants

31
See Menefee (1995), p. 60.
32
Id. at 60–62.
33
Menefee (1995), pp. 60–62 (footnotes omitted).
34
Chairman’s Concluding Statement for Asian Cooperation Conference on Combating Piracy and
Armed Robbery against Ships.
A Century of Piracy Treaties: An Overview for the Future 555

also shared the view that the modality of such an agreement should be subject to
further discussion and that [an] experts working group to develop the agreement
should be convened at an appropriate time among the countries and international
organizations represented here in this Conference.35
The resulting ReCAAP agreement,36 was billed as the “first regional government-
to-government pact for cooperation against piracy and armed robbery at sea in
Asia,”37 and aimed “to enhance communication and information exchange among
member countries.”38 Structurally, it is made up of twenty-two articles; an introduc-
tion (Arts. 1–3), the establishment of an Information Sharing Center (Arts. 4–8),
cooperation through this Center (Arts. 9–11) and generally (Arts. 12–16), and final
provisions (Art. 17–22).39
Signatories included Bangladesh, Brunei, Cambodia, the Peoples Republic of
China, India, Japan, South Korea, Laos, Myanmar, the Philippines, Singapore, Sri
Lanka, Thailand and Vietnam.40 Malaysia and Indonesia, did not sign the agree-
ment.41 It has been speculated that Malaysia withheld its support because of the
established presence of the Piracy Reporting Centre in Kuala Lumpur,42 while
Indonesia’s hesitations were arguably connected to its reputation as a piracy “hot
spot.” “Officials in both countries expressed doubts about the planned operational
procedures of the center . . . .”43 Whatever the reason, having countries bordering the
important Malacca Strait fail to join the organization has put some strain on both
ReCAAP and the ISC.44 “Gradually, however, Indonesia and Malaysia became
supportive of the Japan-initiated multilateral program . . . .”45 In 2008, both nations
attended the meeting of the ISC Governing Council, raising hopes they may

35
Id.
36
Factsheet on the Regional Cooperation Agreement on Combating Piracy and Armed Robbery
Against Ships in Asia (RECAAP), at 2. See also ASEAN: Boost for anti-piracy measures.
37
ASEAN: Boost for anti-piracy measures. See also “Factsheet on the Regional Cooperation
Agreement on Combating Piracy and Armed Robbery Against Ships in Asia (RECAAP), at
1 (noting that it “is the first regional government-to-government agreement to promote and enhance
cooperation against piracy and armed robbery in Asia”).
38
ASEAN: Boost for anti-piracy measures.
39
Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships
in Asia.
40
See Press Release: The ReCAAP Information Sharing Centre establishes itself as an authority on
piracy and armed robbery against ships, and develops as the focus of anti-piracy co-operation
in Asia.
41
ASEAN: Boost for anti-piracy measures (“Representatives from Malaysia and Indonesia were
conspicuously absent from the early ReCAAP meetings, and neither government ratified it”).
42
Id. (“Malaysia had an institutional conflict of interest with the new center since Kuala Lumpur is
home to the International Chamber of Commerce International Maritime Bureau’s Piracy Reporting
Center in Asia”).
43
Id.
44
See id. (“This raised understandable concerns about the effectiveness of the multinational
network”).
45
Id.
556 S. P. Menefee

eventually join. ReCAAP was finalized in Tokyo on November 11, 2004,46 opened
for signature on February 28, 2005, and entered into force on September 4, 2006.
The Agreement has also attracted the interest of external countries with substantial
shipping interests in the region; Norway (August 31, 2009), Netherlands (July
3, 2010), Denmark (November 20, 2010), the United Kingdom (May 2, 2012),
Australia (August 3, 2013), and the United States of America (September
22, 2014) have all subsequently acceded to the agreement.47 To date, neither
Malaysia or Indonesia have joined.
A unique mixture of an area regime having both regional and international
members, ReCAAP has paved the way for other area agreements with a more
discreet international footprint. It implicitly suggests a diminishing in importance
for universal treaties and a move toward more regional agreements. Additionally, the
establishment of an Information Sharing Centre represents a “bricks and mortar”
innovation with ramifications for many future agreements.

2.7 Early African Agreements: The Djibouti Code of Conduct

(2009) and the Jeddah Amendment (2017)

The Djibouti Code of Conduct concerning the Repression of Piracy and Armed
Robbery against Ships in the Western Indian Ocean and the Gulf of Aden (the
Djibouti Code of Conduct) came into force on January 29, 2009. In addition to
providing a structure for communication, cooperation, and coordination, signatories
agreed to assist in the investigation, arrest and prosecution of those reasonably
suspected of having engaged in acts of piracy and armed robbery against ships, the
interdiction and seizure of suspect ships and property, the rescue, care, and repatri-
ation of affected persons and property, and “the conduct of shared operations – both
among signatory States and with navies from countries outside the region.”48
Djibouti Code of Conduct signatories included:
• Djibouti
• Ethiopia
• Kenya
• Madagascar
• Maldives
• Seychelles
• Somalia

46
Association of Southeast Asian Nations. But see ASEAN: Boost for anti-piracy measures, which
states “an agreement was signed in November 2004.”
47
See generally ReCAAP News Releases.
48
The Djibouti Code of Conduct.
A Century of Piracy Treaties: An Overview for the Future 557

• United Republic of Tanzania

• Yemen49
Subsequently eleven more nations acceded:
• Comoros
• Egypt
• Eritrea
• Jordan
• Mauritius
• Mozambique
• Oman
• Saudi Arabia
• South Africa
• Sudan
• United Arab Emirates.50
The Jeddah Amendment to the Djibouti Code of Conduct, resulting from a
meeting on January 10–12, 2017, broadened the scope of the original Code “to
address wider maritime security issues, as a basis for sustainable development of the
maritime sector.”51 The signatory States are called on to cooperate to the fullest
possible extent to repress transnational organized crime in the maritime domain,
maritime terrorism, illegal, unregulated and unreported (IUU) fishing and other
illegal activities at sea. The transnational organized crime referred to in the Code
includes arms trafficking; trafficking in narcotics and psychotropic substances;
illegal trade in wildlife; crude oil theft; human trafficking and smuggling; and illegal
dumping of toxic waste.52 Essentially this Amendment expanded the Djibouti Code
to reflect the broader sort of coverage of activities found in the 2013 Code of
Conduct covering west and central Africa.
The agreements represent a largely-successful attempt to institute a local arrange-
ment between regional states without the inclusion of major non-regional maritime
nations—a further step away from prior overarching international agreements. The
Jeddah Amendment suggests the possibility of cross-fertilization between piracy
treaties and the further development of this into a regime with benefits available to
the signatories.

49
Id.
50
Id.
51
Djibouti Code of Conduct: The Jeddah Amendment to the Djibouti Code of Conduct 2017.
52
Id.
558 S. P. Menefee

2.8 Later African Agreements: The Code of Conduct

Concerning the Repression of Piracy, Armed Robbery
Against Ships, and Illicit Maritime Activity in West
and Central Africa [2013 Code of Conduct] (2013)

The Code of Conduct concerning the repression of piracy, armed robbery against
ships, and illicit maritime activity in West and Central Africa, also referred to as the
2013 Code of Conduct, was developed by the Economic Community of Central
African States (ECCAS), the Economic Community of West African States
(ECOWAS) and the Gulf of Guinea Commission (GGC), with the assistance of
IMO, pursuant to United Nations Security Council resolutions 2018 (2011) and 2039
(2012), which expressed concern about the threat that piracy and armed robbery at
sea in the Gulf of Guinea pose to international navigation, security and the economic
development of states in the region.53
An initial meeting held in Benin in March of 201354 was followed by the formal
adoption of the Code of Conduct in Yaoundé, Cameroon on June 25th the same
year.55 Signers include:
• Angola,
• Benin,
• Burkina Faso,
• Burundi,
• Cameroon,
• Cape Verde,
• Central African Republic,
• Chad,
• Congo,
• Côte d’Ivoire,
• Democratic Republic of the Congo,
• Equatorial Guinea,
• Gabon,
• Gambia,
• Ghana,
• Guinea,
• Guinea Bissau,
• Liberia,
• Mali,
• Niger,
• Nigeria,
• Sao Tome

53
West and Central Africa Regional Agreements and Information Sharing.
54
Id.
55
Id.
A Century of Piracy Treaties: An Overview for the Future 559

• Principe,
• Senegal,
• Sierra Leone,
• Togo.56
“In contrast to the initial Djibouti Code of Conduct which focused primarily on
piracy, the West and Central Africa strategy contains a comprehensive regional
maritime security framework to counter not only piracy and armed robbery against
ships, but other illicit maritime activities as well, such as Illegal, Unreported, and
Unregulated (IUU) Fishing, drug smuggling, etc. [m]aking it much broader in scope
. . . .”57 It is expected “to stimulate economic development in the countries that are
Party to it, develop sustainable fisheries sectors and promote the overall enhance-
ment of West Africa’s maritime sector.”58 This most recent anti-piracy agreement
has expanded the ambit of services available to member states and has in turn had an
effect on prior treaties. It suggests an evolving regional approach to fighting the
crime, blended with less of a focus on the traditional international crime.

3 Conclusion: An Overview and the Future

The century from 1918 until 2018 saw: (1) the rise and fall of attempts to univer-
salize the crime of piracy, followed by (2) a geographically-reduced field of oper-
ation and, more recently, (3) a more regionalized approach. This last tack would
appear to be the currently-preferred format for dealing with the problem, but the
long-term vitality of agreements such as ReCAAP, the Djibouti Code of Conduct,
and the 2013 Code of Conduct, will depend upon the continued satisfaction of all
major stakeholders in the process. Future regional agreements may be anticipated if
major recurring problems in semi-enclosed areas (such as the Caribbean, the Med-
iterranean, or even the Bay of Bengal) exist, if external stakeholders exert enough
pressure to find solutions, and if the creation of such anti-piracy regimes benefit at
least some local stakeholders (such as maritime professionals and government
elites). Just as the SUA Convention’s concentration on prohibited actions rather
than piracy or maritime terrorism resulted in advances in maritime security, so the
practice of “bundling” anti-piracy initiatives with potential solutions to other mari-
time problems may succeed in making remedial action more palatable to locals.
While it is beyond the purview of this paper, the updating and—to a certain degree—
standardization of domestic piracy law and successful prosecution of perpetrators are
other factors which could add to the success of the current regionalized approach.

56
Code of Conduct Concerning the Repression of Piracy, Armed Robbery Against Ships, and Illicit
Maritime Activity in West and Central Africa.
57
Id.
58
Id.
560 S. P. Menefee

References

ASEAN: Boost for anti-piracy measures. Retrieved October 27, 2008, from http://www.siiaonline.
org/?q=programmes/insights/asean-boost-anti-piracy-measures
Association of Southeast Asian Nations. Retrieved November 15, 2010, from http://www.
globalsecurity.org/military/world/int/asean.htm
Chairman’s Concluding Statement for Asian Cooperation Conference on Combating Piracy and
Armed Robbery against Ships. Retrieved October 27, 2008, from http://www.mofa.go.jp/
policy/piracy/state0110.html
Code of Conduct Concerning the Repression of Piracy, Armed Robbery Against Ships, and Illicit
Maritime Activity in West and Central Africa. Retrieved January 12, 2019, from https://www.
prc.cm/files/17/26/ec/8acea8ec3a597473a76bd03c76140019.pdf
Colombos CJ (1962) The international law of the sea, 5th edn
Convention on Duties and Rights of States in the Event of Civil Strife (Havana, 20 February 1928),
46 Stat. 2749, T.S. 814.
Djibouti Code of Conduct: The Jeddah Amendment to the Djibouti Code of Conduct 2017.
Retrieved January 12, 2019, from www.imo.org/en/OurWork/Security/PIU/Pages/DCoC.aspx
Factsheet on the Regional Cooperation Agreement on Combating Piracy and Armed Robbery
Against Ships in Asia (RECAAP). Retrieved October 27, 2008, from http://app.mot.gov.sg/
data/fs_06_04_20.htm
Hackworth GH (1941) Digest of international law 2. U.S. Government Printing Office, Washington,
D.C.
Joyner ND (1974) Aerial hijacking as an international crime. Oceana/A.W. Sitjhoff, New York/
Leiden
Menefee SP (1987) Terrorism at sea: the historical development of an international legal response.
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measures to prevent terrorism, 2nd edn. ICC Publishing S.A., Paris, pp 191–220
Menefee SP (1990) The new “Jamaica Discipline”: problems with piracy, maritime terrorism and
the 1982 Convention on the law of the sea. Connecticut Journal of International Law 6:127–150
Menefee SP (1995) Contemporary piracy and international law. Institute of Marine Law, University
of Cape Town, Cape Town, R.S.A. (Special Publication # 19)
Menefee SP (2009) International Legal Framework (UNCLOS, SUA & UN Resolutions): how
adequate are they in tackling piracy? Paper prepared for presentation at panel, “Legal Issues, at
Kuala Lumpur Conference on Piracy and Crimes at Sea,” organized by the Government of
Malaysia, Kuala Lumpur, 18 May 2009
Press Release: The ReCAAP Information Sharing Centre establishes itself as an authority on piracy
and armed robbery against ships, and develops as the focus of anti-piracy co-operation in Asia.
Retrieved November 15, 2010, from http://www.recaap.org/news/pdf/press/2nd%20GC%
20Press%20release%20revised%20(28-2-08).pdf
ReCAAP News Releases. Retrieved January 12, 2019, from www.recaap.org/resources/ck/files/
news
Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia.
Retrieved November 1, 2008, from http://www.mofa.go.jp/mofaj/gaiko/kaiyo/pdfs/kyotei_s.pdf
Ronzitti N (ed) (1988) The law of naval warfare: A collection of agreements and documents with
commentaries. Martinus Nijhoff, Dordrecht/Boston/London
Rubin AP (1988) The law of piracy, 1st edn. Naval War College Press, Newport, Rhode Island
Rubin AP (1998) The law of piracy, 2nd edn. Transnational Publishers, Inc, Irvington-on-Hudson,
New York
Stark FB (1897) The abolition of privateering and the declaration of Paris. Privately Printed, New
York
Statement of RADM William Baumgartner on International Piracy on the High Seas before the
Subcommittee on Coast Guard & Maritime Transportation, Committee on Transportation &
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Infrastructure, U.S. House of Representatives, February 4, 2009. Retrieved May 14, 2009, from
http://www.uscg.mil/cgjournal/message.asp?Id=118
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Security/PIU/Pages/Content-and-Evolution-of-the-Djibouti-Code-of-Conduct.aspx
The German-American Submarine Controversy, reprinted from The Round Table (June 1916),
493–534.
Treaty for the Extradition of Criminals and for Protection Against Anarchism, January 28, 1902, art.
1 § 111(5), Martens Nouveau Recueil (ser. 3; 1941) 6.
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Publication, New York
West and Central Africa Regional Agreements and Information Sharing. Retrieved January 12,
2019, from www.imo.org/en/OurWork/Security/WestAfrica/Pages/Code-of-Conduct-against-
illicit-maritime-activity.aspx
Windfall in the Law of Subrogation: Marine
Insurance in Motion

Proshanto K. Mukherjee

Abstract The doctrine of subrogation is germane to the law of marine insurance and
is intimately associated with the centrality of the principle of indemnity under which
the assured is entitled to be fully indemnified by the insurer under the insurance
policy but not beyond that amount so that the assured does not profit from his loss. In
juxtaposition to indemnity, subrogation allows the insurer to “step into the shoes” of
the assured after indemnifying his loss, and bring action against the responsible
third-party to recoup what he has paid to the assured and prevent the latter from
“double-dipping” or getting paid twice; once by the insurer and then by the perpe-
trator of the loss, which is in line with the principle of indemnity. But on occasion
subrogation may engender a windfall. This chapter examines how such circum-
stances are treated by reference to English and American case law and relevant
scholarly literature. It provides a critique of the leading cases and concludes that they
are inconsistent, lacking in any definitive pronouncement of the law within the ambit
of insurance, marine or otherwise.

1 Introduction

Marine insurance is old law that is still very much in motion. Its progenitor is the
practice of bottomry or pledging of a ship against a loan and its cargo counterpart
known as respondentia. It is a practice of ancient vintage, recorded in the annals of
maritime history as dating back to the period of the Babylonian Code of Hammurabi
(1600–2000 B.C.), and the Hindu Code Manu Samhita (900 B.C.).1 There is
evidence of a similar practice known as foenus nauticum in the Greek maritime
law of the times inherited from the Rhodian Sea Law.2 In bottomry, if the ship sank,

1
Mukherjee (2002), pp. 11–12; Gold et al. (2003). See also Reddie (1841), pp. 482 and 493.
2
Mukherjee (2002), p. 12.

P. K. Mukherjee (*)
School of Law, Dalian Maritime University, Dalian, China
e-mail: pkm@wmu.se

© Springer Nature Switzerland AG 2020 563

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_26
564 P. K. Mukherjee

the lender bore the loss, and in that sense, stood in the position of an insurer. The
practice is still in vogue in certain parts of the world.
Marine insurance law is based on a contractual relationship between the insurer,
the provider of insurance and the assured, the owner of the property which is the
subject of the insurance contract. There are a number of doctrines that govern marine
insurance law; the first and foremost among them concerns the adage that an
insurance agreement is a contract of indemnity which means that while the insurer
indemnifies the assured for a loss caused by an insured peril, the assured can never
recover from the insurer more than the value of his loss. In other words, “the assured
must not make a profit at the expense of the insurer”.3 In the classic English case
Castellain v. Preston,4 the court upheld this as a fundamental principle and stated
that “. . .the assured, in case of a loss against which the policy has been made, shall
be fully indemnified, but shall never be more than fully indemnified. . .”5
The doctrines of indemnity and subrogation are germane to the present discourse
and are closely intertwined. In juxtaposition to indemnity, subrogation allows the
insurer to “step into the shoes” of the assured after indemnifying his loss, and inherit
the latter’s rights, remedies, benefits and advantages.6 He can bring action against
the third-party responsible for the loss, and thereby recoup what he has paid to the
assured.7 This prevents “double-dipping” by the assured, that is, getting paid twice,
once by the insurer and then by the third-party, which is in line with the principle of
indemnity. It may happen on occasion, although not frequently, that there is more
money “in the pot” as it were, than the amount of the pecuniary loss suffered by the
assured. This could happen in particular circumstances, as will be illustrated through
the relevant case law. Such instances give rise to the phenomenon of “windfall”
which is the central theme of this chapter; it raises the question—who gets to keep
the surplus? The discussion will elaborate on the principle of subrogation by
reference to scholarly works and the Marine Insurance Act 1906 of the United
Kingdom, and other related factors including restitution, unjust enrichment and
their correlation with windfall. The issues associated with windfall will be analyti-
cally examined through a perusal of English and American cases identifying prob-
lems of contradiction and inconsistency with principles of equity and potential
conflict between certain decided cases and some fundamental principles of marine
insurance. The critique of the case law will include propositions for judicial consid-
eration of alternatives in conclusion.

3
Gaskell et al. (1987), pp. 519–520.
4
(1883), 11 QBD 380.
5
Ibid. at p. 386.
6
Khurram (1994), pp. 114–115.
7
Gold et al. (2003), p. 327. See also https://www.oxbridgenotes.co.uk/revisionnotes/law-aspects-
of-obligations/samples/6-dot-subrogation.
Windfall in the Law of Subrogation: Marine Insurance in Motion 565

2 Subrogation

2.1 Subrogation and Indemnity

The notion of subrogation at Roman law is construed as the replacement of the

actions of one official by those of another. In other words, it is the substitution of one
party by another.8 The corresponding common law equivalent is that the insurer pays
the debt of the assured who then surrenders his rights in favour of the insurer. Thus,
by subrogation, the insurer acquires all the rights, claims and defences of the assured,
in other words, just about anything. This was confirmed in North of England Iron
S.S. Insurance Association v. Armstrong9 where the court referred to “[T]he right of
an insurance company to collect literally anything the insured could have recovered
. . .”. It is said that “the general purpose of subrogation is to facilitate placement of
the financial consequences of loss on a party primarily responsible in law for such
loss”.10 Subrogation is justifiable on the basis that it seeks to ensure that liability
rests on the party that is most appropriate for bearing it. Undoubtedly, that is the
perpetrator or wrongdoer responsible for the loss as opposed to the insurer whose
liability is only secondary.
As is well articulated by Professor Rose:
The underlying purpose of a contract of indemnity insurance is the provision of an agreed
indemnity to an assured for a loss. The “doctrine of subrogation” is often used to describe a
series of related principles which can be best understood as having two major functions. The
first is to prevent the assured from being over-indemnified under the contract of insurance for
the loss insured against, at the expense of the insurer. The second is to facilitate recoupment
of the insurer for the indemnity paid to the assured – often though not invariably, at the
expense of the party responsible for causing the loss.11

Subrogation is provided for in the Marine Insurance Act, 190612 in section 79 as

follows:
1. Where the insurer pays for a total loss, either of the whole, or in the case of goods
of any apportionable part, of the subject matter insured, he thereupon becomes
entitled to take over the interest of the assured in whatever may remain of the
subject-matter so paid for, and he is thereby subrogated to all the rights and
remedies of the assured in and in respect of that subject-matter as from the time of
the casualty causing the loss.
2. Subject to the foregoing provisions, where the insurer pays for a partial loss, he
acquires no title to the subject-matter insured, or such part of it as may remain, but
is thereupon subrogated to all rights and remedies of the assured in and in respect

8
See Bybee (1979), p. 154.
9
(1870), L.R. 5 Q.B. 244.
10
Horn (1964), p. 24.
11
Rose (2012), p. 561.
12
6 Edw 7 c 41.
566 P. K. Mukherjee

of the subject-matter insured as from the time of the casualty causing the loss, in
so far as the assured has been indemnified, according to this Act, by such payment
for the loss.
In Castellain v. Preston,13 Brett L.J. referred to the doctrine of subrogation as a
“fundamental rule of insurance law”, and held that “... as between the underwriter
and the assured the underwriter is entitled to the advantage of every right of the
assured, whether such right consists in contract, fulfilled, or unfulfilled or in remedy
for tort . . . or in any other right, whether by way of condition or otherwise, legal or
equitable. . .”.14 The expansive nature of this statement is reflected in the words
“every right” in respect of contract and “any other right” in respect of tort; and
further, whether the right is legal or equitable, or is by way of condition or otherwise.
A further paraphrasing of the dictum of the learned judge leads to the conclusion that
it is of no consequence whether the right has been already exercised or it has simply
accrued, and regardless of whether it could be enforced by the insurer, so long as the
insured loss is diminished. The very categorical nature of the statement renders the
right of subrogation of the insurer as absolute as can be imagined, seemingly leaving
no room for any exception. It is of virtually watertight consistency with the under-
lying rationale for the rule of indemnity. Whether that is ideal will be explored later
in the chapter.

2.1.1 Subrogation, Restitution and Unjust Enrichment

In the event of a shipowner suffering a loss, he would be entitled to bring suit against
the person who caused the loss and recover damages. If the subject-matter of the
loss, namely the ship, was insured, and the loss he suffered was attributable to an
insured peril, he would be entitled to be indemnified by the insurer under his
insurance contract. Pursuant to the doctrine of subrogation, the insurer, after paying
the assured, would then have a right of action against the perpetrator who caused the
loss or damage. If the assured shipowner is able to recover damages from the
perpetrator and also receives indemnification from his insure, he would be obtaining
double recovery for a single loss. In other words, he would be unjustly enriched at
the expense of the insurer. The object of the law is to prevent that from happening.
Subrogation is in effect a restitutionary measure designed to prevent unjust enrich-
ment.15 Thus, any proposition providing the assured recompense beyond a full
indemnity, would be manifestly wrong.16
The insurer’s right of subrogation is closely associated with his right of recoup-
ment. The latter will arise when the assured obtains double recovery for his loss; one

13
Supra, note 4.
14
Ibid. at p. 388.
15
Bybee (1979), pp. 146–147.
16
Supra, note 4 at p. 386.
Windfall in the Law of Subrogation: Marine Insurance in Motion 567

from the insurer and the other from damages paid by the perpetrator of the loss. He
will thus be over-indemnified for a single loss which can be countered or made right
by the insurer exercising a right to recoup the money he paid to the assured from the
perpetrator of the loss, which in essence is subrogation.

2.1.2 Subrogation, Indemnity and Gift

A leading case in this field is Burnand v. Rodocanachi17 in which underwriters had

insured cargoes under valued policies. Upon destruction of the cargo caused by the
U.S. Navy cruiser Alabama, the insurers paid the amount of the insured value to the
assured cargo owners, which were lower than the actual value of the cargo. Later, the
US Congress passed legislation setting up a fund for compensating victims who the
insurers had not reimbursed, or if they did, it was insufficient. The Act in question
did not provide for any monies to be paid to the insurers for payments they had made,
but the insurers claimed subrogation, nevertheless. In the appeal to the House of
Lords, the apex court decided that the payment from the fund was not meant to
reduce the indemnity paid by the insurers but was rather a gift to victims; it did not
give rise to any rights in favour of the insurers.
The insurers based their arguments on two grounds. One, that having paid for a
total loss under the insurance contract, they had become entitled to any amount given
to the defendants by the United States Government through the fund; and two, in
terms of established principles of marine insurance law, the assured having received
payment for a total loss is required to surrender to the insurers, the remains of the
ship, which has become vested in the insurer, as well as all incidental benefits
associated with it. The payment from the fund was given entirely for the lost cargo
and was in the nature of salvage as if the cargo was not really destroyed but was
recaptured by the Government and returned to the cargo owners. In rejecting the
contentions of the insurers, the House of Lords held that payments from the fund
were a gift from an extraneous source and did not give rise to any such rights as were
pleaded by the insurers. The court also stressed that the payment was a gift because
there was no obligation on the part of the U.S. Government to make any payments to
the assured, but it was simply a charitable or gratuitous act. Neither was the money
paid as restitution or as a subscription to indemnify those who had suffered war
losses and had not been indemnified through any insurance. Furthermore, the
legislation expressly precluded plaintiff insurers from making any claims whether
in their own names or in the names of the assured.

17
(1882), 7 App. Cas. 333 4 Asp. M.L.C. 576. Another older case involving the effect of gifts on
subrogation is the South African Stearns v Village Main Reef Gold Mining Co. (1905), 10 Com Cas
89. Cited in Odeke (2017), p. 23.
568 P. K. Mukherjee

2.1.3 Subrogation and Abandonment

In virtue of subrogation, the insurer, after indemnifying the assured under the policy,
acquires the rights and remedies of the assured in the subject-matter of the insurance.
The entitlement of the assured to those rights and remedies are independent of
ownership or proprietary interest in relation to the insured property. By contrast,
abandonment, which occurs only as a consequence of a constructive total loss of the
insured property, bestows on the insurer, ownership of the insured property giving
him all the rights and remedies associated with ownership.18 The doctrine of
abandonment operates on a different legal basis and is peculiar to the law of marine
insurance.19 To put it succinctly and in proper perspective, subrogation confers only
a right of action whereas abandonment results in ownership. The concepts are related
but are distinctively different as illustrated by the House of Lords’ decision in the
Glen Line case20 There are several other decided cases on this topic.

3 Windfall
3.1 English Case Law

In the context of the present discussion, the position of English law regarding the
doctrine of subrogation is provided explicitly in the Marine Insurance Act 1906 and
explained adequately through scholarly works including leading text books and
published articles. But the related phenomenon of windfall is not expressly
addressed in the legislation; nor is there a huge amount of academic discussion.
Furthermore, the case law is rather sparse, consisting of a singular elaborate and
comprehensive case in the English jurisdiction which is discussed below following
an analytical examination of an earlier decision which focuses on the correlation and
interaction between subrogation and abandonment and is tangentially relevant to
windfall.
In the case of Attorney General v. Glen Line Ltd. and the Liverpool & London
War Risks Insurance Association, Ltd.21 insurers paid for a total loss in respect of the
ship Glenearn captured in Hamburg when World War I broke out. The owners
abandoned the ship in favour of the underwriters. At the end of the war, the ship was
returned to the owners who sold it and accounted to the insurers for the sale proceeds
which were three times higher than what the underwriters had paid by way of
indemnification under the insurance policies. Subsequently, the German authorities
paid a large amount of compensation to the former owners in respect of damage and

18
Khurram (1994), p. 115.
19
See Marine Insurance Act 1906, sections 60-63.
20
infra, note 21.
21
(1930), 37 Ll. L. R. 55 (HL).
Windfall in the Law of Subrogation: Marine Insurance in Motion 569

injury inflicted upon their property, rights and interests, including the loss of use of
the ship. The underwriters and the British Government as reinsurers laid claims
against the compensation paid to the owners. The Crown represented by the Attor-
ney General of the Government contended that its right to recover the money was in
respect of a proprietary right incidental to the ship’s ownership. The insurers were
entitled to it by virtue of their rights of subrogation pursuant to s.79 of the Marine
Insurance Act. The House of Lords held that the compensation was paid in virtue of
the application of “exceptional war measures;” it was personal to the shipowners and
was neither for the benefit of insurers nor the Government. The monies paid to the
owners was not in respect of the loss of the ship suffered by them but rather, in
respect of the loss of profits which they might have reasonably expected to earn from
the use of the ship had it not been captured and detained. Therefore, the insurers were
not entitled to the monies by reason of the payment they made for a total loss under
the insurance policies of the ship.
In the observation of the present author, the decision bears a noticeable resem-
blance to the judgment in Burnand v. Rodocanachi discussed above, in one con-
spicuous aspect. In effect, the House of Lords in Glen Line treated the compensation
paid by the German authorities as being in the nature of a gift personal to the
shipowner, which precluded the Crown and the insurers from laying any claim to
it. In the further observation of this author, the compensation received by the owners
was ostensibly in the nature of a windfall as it was surplus to the indemnification
paid by the insurers. In such a typical factual situation, the question raised is—who is
entitled to the windfall, that is, the surplus over and above the amount of the
indemnification? The Government and the insurers argued that the compensation
amount enured to their benefit under the principle of subrogation, but the court
decided otherwise. The decision in this case, in terms of the conclusion reached by
the House of Lords on this particular issue, served as an important precedent for what
is probably the most prominent English case in this field discussed below.
The facts of Yorkshire Insurance Co. Ltd. v. Nisbett Shipping Co. Ltd.,22 are
contained in the judgment rendered by Diplock J. (as he then was) as follows: The
steamship Blairnevis owned by the defendant shipping company Nisbett Shipping at
all material times, collided with the H.M.C.S. Orkney belonging to the Canadian
Government. The collision took place in the Irish Sea on 13 February 1945. Later,
the same day, the vessel beached in the River Mersey and became an actual total
loss. The Blairnevis was insured with the plaintiff company Yorkshire Insurance and
others for 12 months from 27 June 1944 for the sum of pounds sterling £ 36,888 of
which £ 2523 was underwritten by Yorkshire. In the policy, the ship was valued at £
72,000 and the balance of that value was covered by other policies on similar terms
as the subject policy. The plaintiff and subscribers to all other policies including the
policy in question are herein collectively referred to as “the insurers”. The assured
gave notice of abandonment on 15 February 1945 which was not accepted. There-
after, the vessel having become an actual total loss, the insurers, on 20 April, 1945

22
[1961] 1 Lloyd’s Rep 479 (Comm Ct).
570 P. K. Mukherjee

paid to the defendant assured, the amount of £ 72,000 for the total loss of the
vessel.23
On 19 September 1946, the assured, with the insurers’ approval, brought pro-
ceedings against the Canadian Government in the Exchequer Court of Canada
claiming damages for the loss of the vessel. The amount of the claim was quantified
and expressed in Canadian dollars. The Exchequer Court held that the
H.M.C.S. Orkney was exclusively to blame. Subsequently, the matter went on
appeal to the Supreme Court of Canada on an issue of limitation of liability, and
thence to the Privy Council. On 25 July 1955, the Privy Council set aside the
judgment of the Supreme Court and restored the judgment of the Exchequer
Court. Eventually, following negotiations between the parties concerned, it was
agreed that the actual value of the vessel at the time of the loss was, in round figures,
£ 75,500 which was converted into Canadian dollars at the current rate of exchange
prevailing at the date of the collision, and which amounted to Canadian dollars
336,040 in round figures. In May 1958, this amount was paid to the assured in
Canada but meanwhile in 1949, the pound had suffered a devaluation resulting in an
overpayment in Canadian dollars when it was paid to the assured of around £ 55,000
more than the £72,000 paid by the insurers and about £ 51,000 more than the value
of the £ on the date of the loss.24
The stark question raised before the court was who was entitled to the windfall,
that is, the amount of £ 55,000.25 The amount of £ 72,000 was paid back to the
insurer as the amount to which it was subrogated but the insurer claimed the amount
in excess as well, in other words, the full amount received by the assured. In
addressing that issue, Diplock J. posed the question in an elaborate fashion in the
following words:
The question of principle involved can, I think, be stated thus: Where an insurer pays for a
total loss of the subject-matter insured and the assured, in the exercise of his remedies in
respect of that subject-matter, recovers from a third party an amount which exceeds the sum
so paid by the insurer, can the insurer recover from the assured the amount of that excess.

In explaining his view, he referred to the decision of Brett L.J. in his classic
judgment in Castellain v. Preston26 where the learned judge had held that a contract
of insurance being a contract if indemnity, the term “subrogation” in relation to a
marine insurance contract was simply a convenient way to refer to terms which are to
be implied, whereby upon indemnifying a loss, the insurer was to be “fully indem-
nified but never more than fully indemnified”.27 In the view of Diplock J., the only
terms that should be implied are those that would give business efficacy to the
contract; which would be essential for ensuring that the assured does not receive
from the insurer any amount greater than the actual loss suffered by him. If the

23
Ibid at pp. 481–482.
24
Ibid.
25
Ibid. at p. 482.
26
Supra, note 4.
27
Ibid. at p. 483 referring to the Castellain v. Preston judgment at p. 386.
Windfall in the Law of Subrogation: Marine Insurance in Motion 571

assured recovers from a third party before the insurer has paid, any sum greater than
the loss, he cannot recover anything from the insurer anyway because he has not
suffered any loss, but there is nothing to suggest that the insurer can recover from the
assured, the excess amount. He then went on to say:
In my view, the doctrine of subrogation in insurance law requires one to imply in contracts of
marine insurance only such terms as are necessary to ensure that notwithstanding that the
insurer has made a payment under the policy, the assured shall not be entitled to retain, as
against the insurer, a greater sum than what is ultimately shown to be his actual loss.28

Further on in his judgment Diplock J. opined that the matter turned on the
meaning of “subrogated to all the rights and remedies of the assured in and in
respect of that subject matter as from the time of the casualty causing the loss” in
s. 79(1) of the Marine Insurance Act 1906, and in elaborating on what he perceived
to be the natural meaning of those words, he remarked that “. . .the insurer’s rights
. . . are limited to recovering any sum which he has overpaid; he cannot recover more
than he has in fact paid;”29 and if there is any proposition that “an insurer can recover
from an assured by way of subrogation a sum greater than he has paid, it is in my
view inconsistent with the reasoning of the Court of Appeal in Castellain v. Preston
and Others.”30 The court held in finality that the assured was entitled to the benefit of
the windfall and in reaching that decision, Diplock J. referred to the much older case
of King v. Victoria Insurance Co.31
In bringing to closure the discussion on this case, and risking reiteration, it is to be
stressed that Diplock J. held the insurer to be disentitled to any sums more than what
he had paid under the policy. The profit in this case was not made at the expense of
the insurer but resulted from extraneous circumstances.32

3.2 American Cases

In subrogation law, two alternative scenarios can arise in the context of windfall.
One, as illustrated in the case of Yorkshire Insurance v. Nisbett, is where the insurer
has fully indemnified the assured in the event of his ship suffering a mishap resulting
in a loss. If damages are recovered from the tortfeasor, the assured gets to keep the
windfall. The other scenario is where the assured has not received the equivalent of
the actual value of the ship from the insurer even though the latter has paid the
amount equivalent to his full commitment under a valued policy. The assured sues
the tortfeasor and recovers damages which arguably represents a windfall. The

28
Ibid at p. 483.
29
Ibid at p. 484.
30
Ibid. at p. 485.
31
[1896] A.C. 250.
32
See Gaskell et al. (1987)), pp. 520–521.
572 P. K. Mukherjee

question arises as to who is entitled to it. This was precisely the situation in the
American case The Livingstone.33
In that case, the ship Livingstone owned by the assured was involved in a collision
which resulted in its sinking. The insurer paid to the assured, the amount of $25,000
in accordance with a valued policy. Subsequently, the assured recovered from the
tortfeasor the amount of $37,500 which was the actual value of the ship. After
$25,000 was paid to the insurer from the amount received from the tortfeasor, the
balance of $12,500 (representing a windfall) was claimed by both the insurer as well
as the assured. The insurer contended that it was entitled to the balance as it was a
part of all the rights of the assured to which it was subrogated. The assured took the
position that it was entitled to be compensated for the uninsured loss.34 The Second
Circuit court held in favour of the assured owners clarifying that subrogation-
does not permit one party to secure an unfair advantage over the other; it does not permit the
insurer to speculate, or profit or drive an unconscionable bargain. When he is paid in full
equity requires the return of the balance to the insured in payment of his uncompensated
loss.35

The court went on to say, in essence, that equity did not permit the insurer to get
his hands on “an enormous profit from the transaction.”36 The factual situation in
this case clearly illustrated that if the remedy given by the court were otherwise, the
insurer would have profited directly at the expense of the assured which would have
been contrary to the principle of indemnity entrenched in insurance law.37
Another earlier case on point is The St. Johns38 where the court as per the dictum
of District Judge Brown held as follows:
If the amount recoverable from the wrongdoer, after payment of the damage claims of third
parties, were in excess of the amount paid by the underwriters to the assured, no doubt that
excess would belong to the latter; since the insurer’s right of subrogation in equity could not
extend beyond recoupment or indemnity for the actual payments to the assured.39

Notably, this American case was cited with approval by the English court in
Yorkshire Insurance v. Nisbett per Diplock J. elaborately discussed earlier.40
There are a number of non-shipping cases in United States jurisdictions that are
relevant to the present discussion on windfalls in relation to rights of subrogation.
One among them is Carolina Casualty Insurance Co. v. Local 612, International
Brotherhood of Teamsters.41 This case involved a dispute between a company and a

33
130 F. 746 (2nd Cir.), 194 U.S. 637 (1904).
34
See Bybee (1979), p. 148.
35
Supra, note 33 at p. 749.
36
Ibid at p. 751.
37
Bybee (1979), p. 148.
38
101 F. 469.
39
Ibid. at pp. 474–475.
40
See supra, note 22 at p. 486.
41
136 F Supp. 941 (N.D. Ala. 1956).
Windfall in the Law of Subrogation: Marine Insurance in Motion 573

labour union in relation to which certain vehicles were damaged. The plaintiff
insurance company paid a claim in respect of the damaged vehicles and then brought
an action against the union seeking compensatory and punitive damages. The court
rejected the plea for punitive damages on the basis that subrogation rights only apply
for giving indemnity, and without any further consideration of that proposition in
terms of its justification or origin, rejected the claim.42
One that addresses the windfall issue more pointedly is another non-shipping
American case, namely, Urban Industries, Inc. and Others v. Thevis.43 The decision
in that case was comparatively different and one in which the court declined to
follow the rule set in the Carolina Casualty case. The factual situation was that the
defendant hired two individuals to set fire and burn down a building belonging to the
plaintiff who was his competitor. After being indemnified for the loss of its property,
the plaintiff company Urban industries together with four insurance companies
brought proceedings against Thevis. Urban sued for lost profits for which it had
not received any compensation and the insurance companies sued on the basis of
their subrogation rights in respect of the losses of property. Each plaintiff received
judgment comprising compensatory, as well as punitive damages in very large
amounts. Notably, this was a court decision in the state of Kentucky where there
was no policy restricting recovery of damages over and above compensatory dam-
ages in respect of a claimant in subrogation.44

3.3 Critique of the Leading Cases

The outcomes in Yorkshire v. Nisbett and The Livingstone are virtually identical,
namely, that the insurer is precluded from recovering a profit if the assured is
deprived of his indemnity. However, the converse of this proposition is also to be
noted as a verity, that is, that in the instance of a contract of indemnity, any reduction
or diminution of the amount which the indemnifier must pay, or has paid already, if
afterwards “anything which diminishes the loss comes into the hands of the person to
whom he has paid it, it becomes an equity that the person who has already paid the
full indemnity is entitled to be recouped by having that amount back.”45 It would
seem that the dicta in Yorkshire v. Nisbett and The Livingstone on the one hand, and
the holding in Burnand v. Rodocanachi on the other, are in contradiction in so far as

42
See Bybee (1979), p. 152 where the author remarks that the rule regarding indemnity comes from
cases such as The Livingstone where the assured obtained only partial indemnification from the
insurer.
43
No. C 75-0342 L(A) (WD Ky, (1978).
44
See commentary of the author in Bybee (1979), p. 153.
45
Burnand v. Rodocanachi supra, note 17 at p. 339.
574 P. K. Mukherjee

the application of the principle of indemnity is concerned in juxtaposition to that of

subrogation.46
In commenting on Yorkshire v. Nisbett, the court in a subsequent case opined that
the pound sterling must always be treated as a pound in essence, without regard to
such things as its exchange rate or its purchasing power. In that vein, the court held:
A pound is always a pound: so that whatever the exchange rates between the pound and any
or all other currencies; and whatever may happen between one date and another to the
internal purchasing power of the pound, in the eye of the law a pound today is the same as it
was yesterday or a year ago or ten years ago.47

The decision seems rather parochial and without regard to the realities of the
financial world where the vagaries of currency fluctuation in certain circumstances
may well be the order of the day dictating the norm, which can neither be categor-
ically ignored by the “eye of the law”; nor can the law lead to inequity. In that case,
the court went on to say:
If it were otherwise, I could see strong ground for the argument that the guarantors were not
fully indemnified by receiving in 1968 the same number of pounds as they had paid out in
1966. But as the law stands, they must be regarded as having been fully indemnified.48

In light of the above, the rule enunciated in Yorkshire v. Nisbett may be construed
as meaning that the party entitled to subrogation can recover only exactly what he
paid; and no more than that, not even interest, even though in numerous other
English cases interest payments have been awarded to the party entitled to subroga-
tion.49 If Yorkshire v. Nisbett is so construed, the decision would be contrary to and
inconsistent with those cases, which certainly would not reflect rationality of the law.
Viewed from a different perspective, decisions in cases like Yorkshire and Living-
stone also, perhaps unwittingly, point to a pro-assured judicial bias. There seems to
be a general revulsion towards insurers getting more into their coffers through
subrogation than what they paid by way of indemnification; and that sentiment
may well be justified from the viewpoint of legal policy, but in appropriate cases,
“double dipping” by the assured is also not desirable, which is what subrogation was
designed to prevent. As remarked by one commentator:
“Yorkshire is one case in which payment of an excess to the insurer would have been
justified by principles basic to subrogation. By deciding that the insurance company was
entitled to only what it had paid, the court allowed
Nisbett Shipping to benefit from the insurance and the tortfeasor’s payment”.50

The defendant Nisbet Shipping in that case received £ 72,000 in 1945 for the loss
of their ship and enjoyed the use of those funds for 13 years until in 1958 it received

46
See Bybee (1979), p. 148, in particular, footnote 16 at that page.
47
L. Lucas Ltd. v. Export Credits, [1973] 2 All E.R. 984 (C.A.); [1974] 2 All E.R. 889 (HL).
48
Ibid.
49
See Bybee (1979), p. 150.
50
Bybee (1979), p. 151.
Windfall in the Law of Subrogation: Marine Insurance in Motion 575

a windfall of £ 55,000. As rightly pointed out by the commentator mentioned above,

that amount was indubitably excessive being contrary to the basic tenet of subroga-
tion which was created for restitutionary purposes. Indeed, in the later payment made
in 1958, no account was taken of the interest that would have been earned on the £
72,000 paid earlier in 1945. In essence, Yorkshire having paid £ 72,000 in 1945
recovered only the same amount in 1958 without being awarded any interest, which
apparently is the norm in subrogation cases in England. Thus, “Nisbett Shipping was
unjustly enriched at the expense of Yorkshire Insurance”.51 In the circumstances, the
solution would have been for the Canadian Government to pay the equivalent of £
72,000 so that Yorkshire would have been indemnified without Nisbett making a
windfall profit. But that way, the Canadian Government would have been relieved
from full responsibility for the collision which would be contrary to the inherent
principle of subrogation to make the responsible party liable for its wrongdoing and
the resulting loss.52
Incidental to the Yorkshire Insurance and Urban Industries cases, and in stark
contrast to them, is the decision in the older English case of Armstrong53 involving a
valued policy where the value of the insured ship was stated as £ 6000. When the
ship sank, the tortfeasor paid the £ 6000. Later, the assured shipowner was able to
recover £ 9000 which was the actual value of the ship. The court held, in essence,
that if a shipowner chooses to insure his ship at a fixed value rather than leaving the
contract as an ordinary, (unvalued policy), namely, “simply one of indemnity to the
extent of the real value, and if thereby any benefit accrues to the underwriters, the
underwriters must be entitled to it”.54 The Armstrong case has been approved,
dismissed or distinguished in several English and American cases.55
Further examination of the grounds which formed the basis for the decisions in
Yorkshire Insurance and the American case Urban Industries reveals other obser-
vations and issues which are relevant to this critique. In whose name can the insurer
exercising subrogation rights bring action against the tortfeasor is one issue. Under
English law, it is imperative that the insurer sue in the name of the assured from
whom he has acquired that right. This rule was affirmed in the relatively older case of
Simpson & Co. v. Thomson.56 If this were not so, insurers would have been able to
recover under rights not derived from subrogation, which could also lead to claim-
ants coming out of the woodworks invoking some kind of proprietary interest in the
ship as the insured property. In other words, virtually “anyone having a relationship
with the assured” could potentially claim that he suffered some kind of damage or
injury.57 As evident in the American law, by contrast, the subrogated insurer is

51
Ibid.
52
Ibid; see specifically footnote 28 at p. 151.
53
Supra, note, 9.
54
Ibid. at p. 250.
55
See Bybee (1979), footnote 47 at pp. 154–155.
56
(1877), 3 App Cas. 279.
57
See Bybee (1979), footnote 51 at p. 156.
576 P. K. Mukherjee

required to bring suit in his own name presumably because the assured might
become disinterested once he was indemnified by the insurer. Under the law and
practice of Kentucky, the relevant jurisdiction in the Urban Industries case, and in
the federal courts, such suit is required to be brought by the “real party in interest” in
his own name. Interestingly, in that case, there were multiple insurers who fit that
description and thus were entitled to the windfall arising from the grant of punitive
damages.58
The decision in Urban Industries awarding compensatory and punitive damages
to the insurers being consistent with the basic tenets of subrogation, had a certain
ring of appeal to it as both the assured and the insurers were indemnified, and the
legal liability fell on the tortfeasor. Notable in this context is that subrogation as a
concept is a product of equity, the object of which is to secure fairness and justice in
substance regardless of the form in which it appears. Thus, it is always subject to
equitable principles so that no injustice is inflicted on others. Subrogation as an
equitable principle is not inconsistent with punitive damages, the purpose of which is
to impose liability on the tortfeasor for his actions that are repugnant to the law; it
serves as a civil sanction and a deterrent. Thus, the award of punitive damages was
well justified, and not doing so would have led to unjust enrichment of the tortfeasor.
Equity calls for flexibility in approach where it leads to a goal that is desirable.59 In
Yorkshire Insurance, even though no punitive damages were awarded, Diplock
J. seemingly contemplated that the insurer would claim such damages. In this regard,
it must be noted that the major difference in the factual circumstances between the
Urban Industries and Yorkshire Insurance cases is that in the former, the act of the
tortfeasor in burning down the plaintiff’s property was akin to a criminal offence,
whereas in the latter, the excess amounts in question resulted from changes in the
exchange rate of the British pound vis a vis the Canadian dollar.
Be that as it may, flexibility also has its downsides. If there is unbridled flexibility
regarding who can get the benefit of a windfall in a subrogation case, or whether the
court should award punitive damages, it will give rise to uncertainty in the law which
is undesirable at all times. Needless to say, however, certainty in the law is not
always there. How serious a problem legal uncertainty might pose is indeed a
thought-provoking question. In the view of one commentator, the cost of uncertainty
in the law in the field with which the present discussion is concerned, is relatively
low in comparison with other alternative risks.60 In his observation and opinion, if
the Yorkshire Insurance case were to be strictly followed, then the assured would
always recover the windfall, that is, the excess amount consequential to the suit,
regardless of who initiated it, and would enjoy its benefits without incurring any

58
See Bybee (1979), p. 155, in particular, footnote 49 at that page where several federal court cases
are mentioned.
59
See the American case Flannary v. Utley, (1887), 3 S.W. 412 at p. 413 and Bybee (1979)
at p. 157.
60
Bybee (1979), p. 158.
Windfall in the Law of Subrogation: Marine Insurance in Motion 577

litigation costs which could be quite substantial.61 As it happened in that case, the
litigation costs were borne by the plaintiff insurer at least initially, pursuant to an
agreement reached between the parties in dispute. Indeed, the court expressly
recognized the existence of it and was content to ignore the issue of costs incurred
in the litigation between the assured and the Canadian Government.62 For the sake of
argument, it could well have been a situation in which the insurers would have had to
bear the litigation costs in the absence of any mutual agreement. In such a hypo-
thetical instance, if the assured was awarded the windfall as it did in the Yorkshire
Insurance case, it would have secured for him a double benefit which, at least
arguably, would be inequitable and contrary to the rationale and principles embed-
ded in the doctrine of subrogation. On the other hand, under a fixed rule devoid of
flexibility, if all available excess amounts would invariably be for the insurer under
subrogation, the assured, even if he suffered directly as a result of the acts of the
tortfeasor, would be deprived of any benefit to be derived from punitive damages if
such damages were to be awarded.
Despite varieties of limitations placed on parties to an insurance contract to
protect the principle of indemnity, problems continue to persist in common law
court decisions. One problem is the failure of the courts to provide a precise
definition of windfall. Courts tend to use terminology such as “profit”, “excess”
and “surplus”,63 to depict the same notion. According to one author, the use of these
terms is inappropriate and confusing because “profit”, “excess” and “surplus” can all
be distinguished from windfall. The same author also mentions the concept of
windfall sharing; however, it is not clear how that concept is different from windfall
apportionment unless sharing means the apportionment is on an equal basis.64 The
present author postulates that “windfall” is a term of art which should be used to
signify what can otherwise be stated as “extra benefit” in plain language. This would
foster uniformity of understanding.

4 Conclusion

In this chapter, an attempt has been made to analytically examine the phenomenon of
windfall as it pertains to the application of the doctrine of subrogation in insurance
cases, particularly of the marine insurance variety, in the English and American
jurisdictions. Associated scholarly literature is referred to throughout the discussion.
In some ways, this subject-matter may be characterized as unfinished business
lacking in a definitive pronouncement of the law within the ambit of marine
insurance as there are cases which go both ways in terms of who should be entitled

61
Ibid.
62
Supra, note 22 at p. 338.
63
Odeke (2017), pp. 22–23.
64
Ibid, at p. 27.
578 P. K. Mukherjee

to a windfall; the assured or the insurer. That said, it is evident that the courts have
allowed the assured to retain windfall on numerous occasions resulting in unjust
enrichment of the assured thus undermining the essence of the doctrine of indemnity.
In these cases, typically, the assured enjoys double recovery; that is, he receives
indemnification from the insurer and also compensation from the wrongdoer or
tortfeasor. In this regard, it must be appreciated that this is predominantly a common
law matter so that the law must be discerned and derived from the case law
jurisprudence.
In terms of English law, there is the Marine Insurance Act 1906 which purports to
be a codification of the law of marine insurance providing the basic legal framework.
In it, section 79 speaks to subrogation and sections 60 to 63 deal with abandonment
which is closely related to subrogation. Aside from that, marine insurance law is
equally strongly based on contracts, which in the current milieu are largely in
standard forms.
Focusing on the subject of windfall in the present context, it is suggested by one
scholar that due consideration should be given to the position of the insurer in a
subrogation situation65 with which the present author agrees. It is rightly observed
that in most cases the courts have ruled in favour of the assured for the grant of
windfall amounts; however, that judicial stance in some cases, if followed strictly,
could lead to a conflict with the fundamental tenets of the doctrine of subrogation
which are aligned and allied with another indispensable doctrine, namely that of
indemnity under which an assured is not permitted to be over-indemnified so that he
makes a profit from his loss. There should, therefore, be a degree of flexibility
injected into the legal regime governing subrogation and windfall whereby no
rigidity should be imposed on the question of recovery of windfall by an insurer.
It is submitted in unison with the scholar cited above that as decided in the Urban
Industries case, once the assured is properly indemnified, the court should flexibly
adjust the equities among the assured, the insurer and the tortfeasor according to the
circumstances of the case. Be that as it may, one must not lose sight of the
inescapable fact that the Yorkshire Insurance case is the leading authority in terms
of English jurisprudence in the matter of windfall associated with subrogation, and
that the law of marine insurance continues to be in motion.

References

Bybee JS (1979) Profits in subrogation: an insurer’s claim to be more than indemnified. BYU Law
Rev 1979:145. Available at https://digitalcommons.byu.edu/lawreview/vol1979/iss1/3
Gaskell NJJ, Debattista C, Swatton RJ (1987) Chorley and Giles’ shipping law, 8th edn. Financial
Times Pitman Publishing, Upper Saddle River
Gold E, Chircop A, Kindred H (2003) Maritime law. Irwin Law, Toronto

65
Bybee (1979), p. 160.
Windfall in the Law of Subrogation: Marine Insurance in Motion 579

Horn RC (1964) Subrogation in insurance theory and practice. S.S. Huebner Foundation for
Insurance Education, University of Pennsylvania, Philadelphia
Khurram R (1994) Total loss and abandonment in the law of Marine Insurance. Journal of Maritime
Law and Commerce 25:95
Marine Insurance Act, 1906, 6 Edw 7 c 41
Mukherjee PK (2002) Maritime legislation. WMU Publications, Malmo
Odeke A (2017) Windfall in marine and export credit insurance policies in Anglo-american and
other common law jurisdictions: Additional exception or simply a further limitation and
modification of indemnity and subrogation? Eur Insur Law Rev 4:22–36
Reddie J (1841) An historical view of the law of Maritime Commerce. William Blackwood 7 Sons
M.DCCC.XL1, Edinburgh
Rose FD (2012) Marine insurance law and practice, 2nd edn. Informa Law, London

Cases

Attorney General v. Glen Line Ltd. and the Liverpool & London War Risks Insurance Association,
Ltd., (1930), 37 Ll. L. R. 55 (HL)
Burnand v. Rodocanachi (1882), 7 App. Cas. 333 4 Asp. M.L.C. 576
Carolina Casualty Insurance Co. v. Local 612, International Brotherhood of Teamsters, 136 F Supp.
941 (N.D. Ala. 1956)
Castellain v. Preston (1883), 11 QBD 380
Flannary v. Utley, (1887), 3 S.W. 412 at p. 413 and Bybee (1979) at p. 157
King v. Victoria Insurance Co., [1896] A.C. 250
L. Lucas Ltd. v. Export Credits, [1973] 2 All E.R. 984 (C.A.); [1974] 2 All E.R. 889 (HL)
North of England Iron S.S. Insurance Association v. Armstrong (1870), L.R. 5 Q.B. 244
Simpson & Co. v. Thomson, (1877), 3 App Cas. 279
The Livingstone, 130 F. 746 (2nd Cir.), 194 U.S. 637 (1904)
The St. Johns, 101 F. 469
Urban Industries, Inc. and Others v. Thevis, No. C 75-0342 L(A) (WD Ky, (1978)
Yorkshire Insurance Co. Ltd. v. Nisbett Shipping Co. Ltd., [1961] 1 Lloyd’s Rep 479 (Comm Ct)
Ship Nationality, Flag States
and the Eradication of Substandard Ships:
A Critical Analysis

Reshmi Mukherjee

Abstract This chapter proposes to eliminate the notion of ship nationality and with
it, the flag states responsibility of supervision and enforcement of ships to ensure that
they are not substandard. It proposes that this can be achieved without sacrificing
safe, secure and environmentally friendly shipping. Although it is a radical propo-
sition, and it may be perceived to be impossible to achieve in practice, it is submitted
that in theory at least, it is thought-provoking and may well have some merit. Several
issues are discussed including an analysis of the interrelationship between ship
nationality and registration. An examination of the notion of a substandard ship is
presented and it is pointed out that it is not simply a matter of regulatory maritime
law, but that there are important economic considerations as well. The discussion
extends to an analysis of the regimes of flag state, port state and coastal state
jurisdiction and their correlation in the context of substandard ships. In conclusion,
it is asserted that by removing the notion of ship nationality, substandard ships can
be eradicated by the use of other existing devices.

On the high seas, the territorial character impressed on the ship by its flag is a fiction as
accurate for purposes of jurisdiction as a fiction can ever be.

G. John Colombos (1967)—International Law of the Sea 6th Edition, p. 285,

quoting Westlake International Law—2nd Edition, Vol. I, p. 179.

1 Introduction

Ship nationality is a fiction of law; it is conferred on a ship through the process of

registration. Without nationality, a ship on the high seas would, metaphorically
speaking, be floating in a legal vacuum. Thus, in terms of law, nationality is
substantive whereas registration is procedural. Also, nationality in relation to

R. Mukherjee (*)
Legal Division, Powys Council, Brecon, Wales, UK

© Springer Nature Switzerland AG 2020 581

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_27
582 R. Mukherjee

ships, is a part of public international law and registration is its administrative

counterpart. Connected to the above, the flag state of a ship is the state whose
nationality is held by the ship at any given time and the notion of the flag is at once a
visible and symbolic manifestation of the ship’s nationality. It is the law of the flag
state that operates exclusively on board a ship on the high seas.1 This is an important
observation given that shipboard life is a microcosm of life on terra firma.
Merchant shipping has been a pivotal force in international commerce since the
genesis of trade. It is said that if one can dominate the seas, one can dominate the
world’s commerce, and in essence the world. This was an overt consideration
underlying mare liberum in medieval times.2 Today, over 80% of world trade is
conducted via the high seas.3 Over the past decades, there has been ongoing concern
accompanied by debate and discourse among public and private interests involved in
shipping on the issue of substandard ships instigated by a blame culture. Ships are
sub-standard when they are unsafe, unseaworthy or environmentally unsound; or
there is lack of security protection from piratical or other unlawful acts at sea.
This work is primarily about the role of the flag state in relation to substandard
ships. The starting point is a discussion on the legal notion of ship nationality in the
international law of the sea covering the doctrine of genuine link, drifting into its
connection with ship registration and the types and varieties of currently prevailing
ship registries. It must be appreciated that the notion of nationality and registration of
ships are intimately associated with both ownership and ownership structures
pertaining to ships. This interrelationship is examined in contextual detail.
It is recognized that almost all regulatory maritime conventions impose duties and
responsibilities on flag states and require them to enforce the conventions against
ships and personnel connected to shipping. It is also recognized as a matter prelim-
inary to the work as a whole that the basic legal framework relating to ships and
shipping, including the public international law of ship nationality, the regulatory
law of maritime safety, crewing of ships and vessel-source pollution, is to be found
in the relevant provisions of the United Nations Convention on the Law of the Sea,
1982 (UNCLOS)4 which incorporates the applicable customary international law. It
is primarily the International Maritime Organization (IMO) that sets the regulatory
standards for maritime safety relating to ships and vessel-source pollution through
treaty instruments generated by it. Corresponding standards relating to seafarers
operate largely through International Labour Organisation (ILO) instruments,
mainly the Maritime Labour Convention of 2006.5
Against the above background, the discussion moves into the arena of substan-
dard ships, the legal responsibility for them and whether there should be a shift or
re-distribution of that responsibility given the commercial and economic reality of

1
Mukherjee and Brownrigg (2013), p. 203.
2
The doctrine of mare liberum or freedom of the seas is attributed to the treatise of that name written
in 1609 by the Dutch jurist Hugo de Groot or Grotius (Latin).
3
Stopford (2009).
4
1833 UNTS 3.
5
45 ILM 792.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 583

the times. Finally, a summary of the findings of this analytical probe are presented
together with propositions for possible law reform to achieve a better rationalized
international regime circumscribing the responsibilities of interested parties towards
the eradication of substandard shipping.

2 Nationality, Registration and Ownership of Ships:

Overview of the Law
2.1 Nationality and Registration

Although the terms “nationality” and “registration” are sometimes used interchange-
ably, there are distinctions between them in terms of legal concepts. These must be
addressed and examined carefully in relation to the element of ship ownership which
involves both these phenomena. Needless to say, the notion of the flag and the role of
flag state are germane to the investigation with which we are concerned.
A fundamental principle in terms of public international law is the freedom of
utilization of and unrestricted access to the high seas by any vessel of any nationality.
However, owners and operators of ships must comply with certain established rules
of international law. These rules are enforced by the individual states whose vessels
travel through non-territorial waters to ensure that the freedom of the high seas is not
exercised in a way that may lead to a situation of abuse. One such rule is that a state
whose nationality is held by a ship has jurisdiction over it on the high seas. Another
rule is that a ship sailing on the high seas must have singular nationality, in the
absence of which it would be assimilated to a stateless ship to which no rights at
international law would be accorded.6
The notion of ship nationality is based on the premise that ships must be governed
by a legal regime when it sails on the high seas and the flag is the visible sign or
symbol of the ship’s nationality which allows it to enter and exit foreign ports.
Consequently, the law of the state whose flag the ship flies is the governing law of
the ship and all those who are on board at any given time.7 Thus, criminal acts
committed on board are offences under the penal law of the ship’s nationality or flag
state. Similarly, births and deaths occurring on board are subject to the flag state laws
pertaining to those matters.8 In essence, therefore, a ship that flies a flag and
possesses nationality is likened to a “floating island”. In the S.S. Lotus case, it was
held that, “...a ship on the high seas is assimilated to the territory of the State the flag
of which it flies, for just as in its own territory, that State exercises its authority upon
it, and no other State may do so.”9 Moreover, the governing law of the flag state

6
Ready (1998), p. 1; UNCLOS 1833 UNTS 3, Article 92(2).
7
Gaskell et al. (1987), p. 19.
8
Ibid.
9
The Steamship Lotus (1927) P.C.I.J. Series A, No. I0; 2 Hudson, W.C.R. 23.
584 R. Mukherjee

applies not only within its own territorial seas and on the high seas, but also in the
territorial seas of another state.10 It must be noted, however, that dual jurisdiction
may apply to the ship when it is situated in the territorial sea or even internal waters
of a littoral state. In other words, coastal state and flag state jurisdiction may apply
concurrently. For example, if there is a violation of a ship-source pollution provision
under the MARPOL Convention11 committed in the territorial seas of a coastal state,
the ship may be prosecuted under the law of the coastal state, and also separately
under the law of the flag state which is a party to MARPOL. In this branch of
international law, the concept of double jeopardy is non-existent.12
In United Kingdom law, prior to the Act of Union, the English Admiralty had
jurisdiction over crimes committed on the high seas as well as in, “all waters below
low water mark where great ships can go”.13 This jurisdiction continues to apply to
all British ships in relation to crimes committed on board. The Theft Act 1968
applies in such an instance, irrelevant to the fact that s. 36 stipulates that the Act does
not apply to Scotland or Northern Ireland.14 Without nationality, a ship is not only
unprotected by any law, but it is unable to enter and exit ports for trade or any other
purpose. In the United Kingdom, the master of a ship must first make a declaration of
nationality of the ship to a customs officer before clearance is given for that ship to
proceed to sea.15 A ship may be detained if it attempts to proceed to sea without
clearance. The consequences of a ship without nationality at sea is evidenced in
Naim Molvan v. Attorney General for Palestine16 where the flagless vessel Asya was
arrested 100 nautical miles off the Palestinian coast. Forfeiture was ordered by the
Palestinian court regardless of the fact that the vessel was arrested on the high seas.
The Privy Council on appeal concluded that freedom on the high seas does not apply
to a vessel without nationality.17 Reference was made to the following passage from
Oppenheim’s International Law:
In the interest of order on the open sea, a vessel not sailing under the maritime flag of a State
enjoys no protection whatever, for the freedom of navigation on the open sea is a freedom for
such vessels only as sail under the flag of a state.18

Whereas nationality is a substantive matter, the procedural device through which

it is conferred and evidenced is ship registration. This is the act of entering the ship in
the public records of the state that confers its nationality. The practice of registration
of ships stems from Roman Law and the maritime codes of the City States of

10
Gaskell et al. (1987), p. 20.
11
International Convention for the Prevention of Pollution from Ships, 1973 and its Protocol of
1978, 12 ILM 1319 (1973), 1340 UNTS 61; 17 ILM 546 (1978).
12
Mukherjee (2019).
13
See Oteri v. The Queen [ 1977] 1 Lloyd’s Rep. 105, at p. 108.
14
Gaskell et al. (1987), p. 20.
15
See United Kingdom Merchant Shipping Act 1995, s. 6(1).
16
The Asya (1947) 81 Ll.L.R 277 (P.C.).
17
Ready (1998), p. 2.
18
Lauterpacht (1955), p. 546.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 585

medieval Italy where the names of the ship, her owner and her tonnage were
registered.19 In England, before 1786 there were no central government records of
ship registration in the British Isles although ships began to be registered in the
middle of the seventeenth century.
Today, states with maritime interests continue to maintain registers for the
purpose of recording the particulars of the vessels on which they confer nationality.
The requirements and preconditions needed by a ship to register and consequently
obtain nationality are determined by the individual states.20
Ship registration incorporates both public and private functions.21 The difference
between public law and private law was first determined in the Justinian Institutes.
There it was asserted that, “public law is that which has to do with the constitution of
the [Roman] state; private law, that which has to do with the individuals”.22 The fact
that registration provides a notion of nationality is a public law function. The public
law perception of the ship is a, “. . .floating community carrying with it the sover-
eignty of the State whose flag she flies. . .”23 Included among the public law
functions of registration are the following:
• the allocation of a vessel to a specific State and its subjection to a single
jurisdiction for the purposes, for example, of safety regulation, crewing and
discipline on board;
• the conferment of the right to fly the national flag;
• the right to diplomatic protection and consular assistance by the flag State;
• the right to naval protection by the flag State;
• the right to engage in certain activities within the territorial waters of the flag State
– for example, coastal fishing or trading between the ports of the flag State
(cabotage);
• in case of war, for determining the application of the rules of war and neutrality to
the vessel.24
The public law function is reflected in Article 94(1) of UNCLOS which provides
that, “. . .Every State shall effectively exercise its jurisdiction and control in admin-
istrative, technical and social matters over ships flying its flag.” Article 94(3) pro-
vides that “Every State shall take such measures for ships under its flag as are
necessary to ensure safety at sea. . .”
In private law, the ship is viewed as moveable property, upon which the individ-
ual may have rights that require protection by the law.25 Private law functions in the
context of registration include:

19
Ready (1998), p. 2.
20
Ibid.
21
Liverpool Borough Bank v. Turner (1860) 29 LJ Ch 827.
22
Ready (1998), p. 6.
23
Ibid, p. 7.
24
Ibid.
25
Ibid.
586 R. Mukherjee

• the protection of the title held by the registered owner, and

• the protection of the title and the preservation of priorities between persons
holding security interests over the vessel, such as mortgages.26
The United Kingdom Merchant Shipping Act 1894 defined a ship according to
ownership rather than by registration, although it required that all British ships be
registered under the Act.27 However the effect of the provision was to achieve
registration for all British owned ships, unless the vessel was owned by a corporation
whose principal domain was outside the British dominions.28 This provision was
altered by the Merchant Shipping Act 1988 where it is provided that British character
can only be obtained upon registration.29 This is repeated in the current legislation,
namely, the Merchant Shipping Act, 1995.30

2.2 Types of Registries

2.2.1 The Traditional Closed Registry System

By giving a ship national status, a state acquires certain rights as well as responsi-
bilities in relation to it and exercises over it, exclusive control. For example, the state
must ensure that its vessels adhere to any international maritime conventions to
which it is subject. This is considered to be best achieved where the ship owner is
subject to the laws of that particular state. Traditionally therefore, nationality was
granted only to ships that were owned by state nationals.31 This is the foundation of
the closed registry system.
There are, however, degrees of flexibility in the closed registry system. For
example, in relation to ownership, a tightly closed registry system may regard a
national to be only an individual who is a citizen born within the particular state. In a
relatively flexible closed registry system, a national may be an individual who is
simply domiciled in or a permanent resident of that state. In relation to corporate
ownership of a vessel a closed registry system will likely require that the company be
incorporated within the state and its principal place of business be situated there.32 A

26
Ibid.
27
Oteri case, supra, note 13 at p. 105.
28
Ready (1998), p. 6.
29
Ibid.
30
4 & 5 Eliz 2, 1995, c.21.
31
Mukherjee and Brownrigg (2013), pp. 204–205. See also Mukherjee (1993), p. 33.
32
In The Polzeath, [1916] P. 241, (CA), the ship in question was owned by a company incorporated
in the UK. The chairman of the Board of Directors who owned the majority shares in the company
resided in Hamburg and the company was controlled from there. The court held that “the principal
place of business [is] that place from where the effective control was maintained" and ruled that in
that case it was Hamburg, Germany and was therefore subject to forfeiture by the Crown. See also
The Rewia [1991] 2 Lloyd’s Rep. 325 per Leggatt L.J. See discussion in Hill (1995), pp. 4–5.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 587

closed registry system may have other stipulations such as a requirement for all
officers and crew to be nationals of the flag state; that all certificates and licenses held
by the personnel be issued by the national authorities; or that the ship be built in the
flag state and classed only by a nationally recognized classification society.33 The
rigid connecting factors and strict provisions in the closed registry system have been
economically cumbersome and unfavourable from the viewpoint of many ship-
owners. The effect has been for some of them to register their vessels, or flag out
to registries that provide more convenience and are amenable to their economic
interests.

2.2.2 The Open Registry System

In the open registry system, the stringent requirements of the closed registry system
are absent or greatly diminished. Supporters of and participants in the open registry
system view ship registration as an economic activity, that is, a service provided for a
fee rather than as a statement of sovereignty.34 Opponents of the open registry
system have referred to these less stringent flag states as flags of convenience.
This term has become stigmatized, because it conveys the impression that such a
flag harbours sub-standard ships where the ship registration regime is devoid of any
regulatory control by the flag state authorities. They are viewed as bearing the
following characteristics:
• the country of registry allows ownership and/or control of its merchant vessels by
non-citizens;
• Access to the registry is easy. A ship may usually be registered at a consul’s office
abroad. Equally important, transfer from the registry at the owner’s option is not
restricted;
• Taxes on the income from the ships are not levied locally or are low. A registry
fee and an annual fee, based on tonnage, are normally the only charges made. A
guarantee or acceptable understanding regarding future freedom from taxation
may also be given;
• Receipts from very small charges on a large tonnage may produce a substantial
effect on its national income and balance of payments; and
• Manning of ships of non-nationals is freely permitted.35

33
Mukherjee and Brownrigg (2013), p. 205.
34
Ibid. pp. 205–206.
35
Ready (1998), p. 6.
588 R. Mukherjee

2.2.3 The Secondary Registry

To compete with the open registry flag states, traditional maritime states initially
invited shipowners to register their vessels by tactically offering subsidies and other
financial incentives. Soon enough, a number of maritime states began to operate a
system to attempt to contain the open registries. This is the system of the secondary
or offshore registry. Traditional western maritime states operate this system and
claim that their registries provide an attractive economic option as well as maritime
safety and environmental protection. In relation to the latter point, it is asserted that
their systems adhere to strict compliance with international regulations. As a finan-
cial attraction, secondary registries do not restrict the hiring of foreign crews at
wages lower than those payable to national crews.36

2.2.4 The Hybrid Registry

The hybrid registry, as the name suggests, is a combination of the open and closed
registry systems. The impetus for it appears to have come from the United Nations
Convention on Conditions for Registration of Ships, 1986 (UNCCROS). The
Convention permits partial manning of ships by non-nationals so long as their levels
of competence and conditions of employment conform to the relevant international
rules and standards. It provides that corporate owners be established within and have
its principle place of business in the flag state, or provide for a representative person
there who is capable of meeting all legal and financial obligations of the shipowner.
UNCCROS also provides for bareboat charter registration and the fostering of joint
ventures for the development of national shipping industries. Incidentally,
UNCCROS is not in force and is highly unlikely to ever materialize as such.37
Several hybrid registries boast maritime safety and environmental protection stan-
dards that are level with or even higher than those of many closed registry flags.

2.2.5 Bareboat Charter Registration

Bareboat charter or demise charter registration (the two terms being used inter-
changeably) is a system that allows a temporary change of flag which involves the
owner, the flag state of the owner, the charterer and the intended flag state of the
charterer. It operates smoothly when there is compatibility between the laws of the
flag-out and flag-in states. From it emerges the notion of dual or parallel registration
and is economically advantageous in many ways for each party.38 It is submitted that
“parallel” is the better description because the latter has the connotation of two

36
Mukherjee and Brownrigg (2013), pp. 208–210.
37
Mukherjee and Brownrigg (2013), pp. 212–213.
38
Wiswall (1988).
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 589

registrations which can imply two nationalities; this is prohibited by law.39 In

essence, in the bareboat charter registration system, the public side of the registry
is suspended and moved to the new flag, but the private side remains in the original
registry. The shipowner collects charter revenue without incurring any operating
expenses; the charterer gains from the use of a ship without owning it; and the flag-in
state benefits from increase in its national fleet size. It is a win-win for all.
Some states have legislation providing for bareboat charter flag-in, but are mute
on the issue of flagging-out. The Australian view is that bareboat chartering in or out
constitutes a new registration altogether. It therefore requires cancellation of the
previous registration. Other states are more relaxed, permitting the original registra-
tion to stay open for registration of ownership and mortgages but require them to be
“recorded” in the flag-in registry, which does not have any legal effect.40

2.3 Ownership and Registration

Ownership of a ship is intimately connected to its registration. As stated earlier,

typically in the closed registry system, registration of a ship is only permissible
where the owner is a national of the flag state or if the owner is a company, it is
incorporated in the flag state with its principal place of business located there. Of
significant importance also is that registration of the owner’s name in the ship’s
registry is prima facie evidence of title or ownership. Registration of ownership is a
matter of domestic law and procedure. In UK law, the requirements for ownership of
a British ship are set out in principal and subordinate legislation.41 In most common
law jurisdictions, as in the UK, a ship is divided into 64 shares, each of which may be
owned individually or jointly. The concept of shares in a ship is based on
co-ownership or the property law principle of tenancies-in-common.42 Other juris-
dictions have laws under which a ship may be divided into, for example, 24 shares in
Italy and 100 shares such as in Cyprus and Liberia.43
The link between the registration and ownership of ships is a test of a vessel's
tenacity for claiming nationality. In the opinion of one author, there is wide support
for the notion that registration is the universal test for determining a ship’s nation-
ality.44 Hence, ownership plays a significant role in the outcome of this test.

39
See UNCLOS Article 92. See also Ademuni-Odeki (1998), p. 129.
40
See Mukherjee (1993), pp. 36–37. It seems civil law jurisdictions are generally more amenable to
parallel registrations of bareboat chartered ships than are common law jurisdictions. Examples are
those of Spain, Italy, Panama. Notably, Liberia and Cyprus also allow such registrations.
41
Merchant Shipping Act 1995, s.1 sets out the prerequisites for registration of a British ship. They
incorporate the revisions made in Part l of the Merchant Shipping Act 1988.
42
Merchant Shipping (Registration of Ships) Regulations 1993, regulation 2(3). See Hill
(1995), p. 2.
43
Gold et al. (2003), p. 154; Coles and Ready (2002), p. 7.
44
Ready (1998), p. 4.
590 R. Mukherjee

2.4 Genuine Link

As mentioned earlier, registration is the procedural method for conferment of

nationality on a ship, which is why the two terms are often treated as synonymous.
Indeed, sometimes the substantive notion of nationality is overlooked or understated
in favour of registration. This may be attributable to Article 91(1) of UNCLOS
where in one breath it is provided that “[E]very State shall fix the conditions for the
grant of it nationality to ships, for the registration of ships in its territory . . .” This, of
course, implies that the grant of nationality and entitlement of registration are subject
to the same conditions. From this arguably innocuous provision flows the statement
“[T]here must exist a genuine link between the State and the ship” without any
explanation of what the expression “genuine link” is intended to mean. However, an
explanation may be gleaned from the words “[E]very State shall effectively exercise
its jurisdiction and control in administrative, technical and social matters over ships
flying its flag” in Article 94(1).
Some have championed the view that UNCCROS provides the answer,45 but
others consider the notion of genuine link to have remained in a state of ambiguity46
despite references in Article 1 to the purpose of ensuring and strengthening the
genuine link between state and ship, and identification and accountability of ship-
owners and operators. Notably, in this provision, a fourth element, that of “eco-
nomic” matters, was added to the three mentioned in Article 94(1) of UNCLOS. A
debate continues to rage in some quarters over whether the link in question is
between the ship and the flag state or between the owner’s nationality and that of
the ship. Clearly and unequivocally, UNCLOS Article 91(1) refers to the former.
The doctrine of genuine link as it obtains in the public international law of
nationality of individuals derives from the well-known Nottebohm Case.47 The
essence of it in maritime law has admittedly been borrowed from that case but
uncertainty remains. Some scholars see it as being used by developed maritime states
to outlaw the practice of open registries carried out by aspiring flag states who are,
for the most part, developing countries.48 Judge Jennings, former President of the
International Court of Justice has remarked:
The assumption that the “genuine link” formula, invented for dealing with people, is capable
of immediate application to ships and aircraft, smacks of a disappointing naivete... [and that]
a provision that might seem to encourage governments to make subjective decisions whether
or not to recognize the nationality of this aircraft or that vessel is clearly open for abuse and
for that reason to grave criticism.49

45
UNCTAD press release, UNCTAD Information Unit, UN Doc. UNCTAD/INF/1770,
7 February 1986.
46
McConnell (1987), p. 7.
47
Liechtenstein v. Guatemala, 4 I.C.J. Rep, 1955.
48
Mukherjee (1993).
49
Brownlie (1998), p. 429 8.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 591

The United States Department of State has taken the view that genuine link is not
a requirement for recognizing ship nationality but is an obligation to impose
jurisdiction and control suitably.50 In practice, genuine link is interpreted as a
mechanism that suits the interests of the flag state. The most reasonable and
practicable view is that regardless of the nationality of the owner, the genuine link
requirement is satisfied if the flag state can demonstrate that it has sufficient control
over ships flying its flag in terms of the ships’ adherence to international laws
pertaining to safety, environmental protection and seafarers’ welfare issues. Oppo-
nents of the doctrine of genuine link are unsatisfied with the principle as it remains
unclear and is ambiguous as a test of nationality. Its interpretation can be diverse and
thus in practice can be used as a mechanism to achieve uncommon goals.

3 Sub-standard Shipping

3.1 Preliminary Observations

There is hardly any doubt or debate over what is a substandard ship and that such
ships should be eradicated. As stated in the introductory section of this chapter, a
ship is said to be substandard if it is unsafe, environmentally unsound and is not
secure from unlawful acts committed against it including acts of piracy. There is a
fourth element, namely, the human element which translates into seafarer compe-
tence and impinges on shipboard working conditions and seafarer welfare. Be that as
it may, our primary concern under the caption “substandard ship” is who is or should
be shouldering the responsibility of ensuring that a ship meets all requisite standards
set by law. This immediately begs the question—what is the standard or benchmark
which must be met and how is that standard to be determined. The short answer is
that in the maritime domain these standards which fall within the rubric of regulatory
law are established by bodies such as the IMO and ILO pursuant to the basic legal
framework provided in UNCLOS.

3.2 Maritime Safety and Seaworthiness

Maritime safety comprises four elements, namely, ship safety, navigational safety,
cargo safety and occupational safety. All of these matters are regulated by interna-
tional conventions, the principal ones being the International Convention on Safety
of Life at Sea (SOLAS), 1974, together with its Protocol of 1978 and several

50
Ibid.
592 R. Mukherjee

amendments,51 the International Convention on Load Lines, 1966,52 the Interna-

tional Convention on Preventing Collisions at Sea, 1972,53 all of which are IMO
conventions. SOLAS was adopted in response to the infamous Titanic disaster
which occurred in 1913. The Load Lines Convention had its genesis in the relentless
efforts of British parliamentarian of the late nineteenth century, Samuel Plimsoll in
his campaign to outlaw the so-called coffin ships of his era. The development of the
COLREGS Convention had to do with prevention of maritime collisions leading to
fatal eventualities at sea. In terms of safety matters involving seafarers, ILO instru-
ments, in particular, the Maritime Labour Convention, 200654 is applicable, in some
respects together with the International Convention on Standards of Training,
Certification and Watchkeeping (STCW), 1978 as amended in 1995 and 2010.55
Ship safety pertains to safety of a ship in terms of structural soundness, watertight
integrity, statical and dynamical stability, freeboard and floatability as dictated by
SOLAS and the Load Lines Conventions. The standards for safe construction and
maintenance of ships are also prescribed by Classification Society Rules. Naviga-
tional safety concerns safety of the ship as a moving object and the standards are
subject to the requirements of Chapter 5 of SOLAS and the collision regulations in
the COLREGS Convention. There are requirements in SOLAS relating to naviga-
tional equipment and propulsion systems employed on board. Cargo safety has two
dimensions consisting of the questions of how safe a cargo is during the voyage and
cargo operations and to what extent it affects the safety of the ship. The governing
standards are found in SOLAS and several Codes associated with it. Occupational
safety has to do with how safe a ship is as a workplace for seafarers and their abode
while they are aboard. Personal safety is a part of occupational safety and the
standards are contained in SOLAS and certain ILO instruments.56
It is trite that seaworthiness of a ship is a part and parcel of its safety. Its
application in practice arises mainly on the private law side of the shipping equation.
A ship is said to be seaworthy if and when it is fit in all respects for prosecuting its
intended voyage.57 Thus, “fitness for the purpose” is a fit description of seaworthi-
ness. Essentially seaworthiness is a private law concept associated with civil liability
in the realms of marine insurance and carriage of goods by sea. For example, under
Article 4 of the Hague-Visby Rules58 on carrier-shipper relationship under carriage

51
1184 UNTS 3.
52
18 UST 1857, 640.
53
1050 UNTS 16; 28 UST 3459.
54
45 ILM 792.
55
1361 UNTS 190 and 1362 UNTS 190.
56
For detailed explanatory analysis of all these elements see Mukherjee and Liu (2015), pp. 39–42.
57
In McFadden v. Blue Star Line [1905] 1 K.B. 697, the standard was described at p. 706 as “that
degree of fitness which an ordinary, careful and prudent owner would require his vessel to have at
the commencement of her voyage having regard to all the probable circumstances of it.”
58
International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading,
1924, 412 UNTS 127 amended by its Visby Protocol, 1968 1412 UNTS 128.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 593

contracts, the carrier is obliged to exercise due diligence to provide a seaworthy ship
at the commencement of the voyage. In this obligation is included, the notion of
cargoworthiness. English jurisprudence relating to this provision is plentiful. Two
classic cases are Riverstone Meat Company Pty Ltd. v. Lancashire Shipping Com-
pany Ltd. (The Muncaster Castle)59 and Maxine Footwear Company Ltd.
v. Canadian Government Merchant Marine.60 Added to this is the requirement
that for a ship to be seaworthy, it must be properly manned and equipped for the
voyage.61 In this regard it must be noted that failure to comply with a vessel’s safe
manning document issued pursuant to convention and statutory requirements, will
render the vessel unseaworthy.
Under marine insurance law, a contract of marine insurance may be vitiated if the
insured ship is found to be unseaworthy.62
In terms of U.K. legislation, there is also the notion of statutory seaworthiness.
Section 457 of the Merchant Shipping Act 1894 states that sending an unseaworthy
ship to sea is a misdemeanor. Under s. 459 of that Act, an “unsafe ship” is described
by reference to “the defective condition of her hull, equipment, or machinery, or by
reason of undermanning, overloading or improper loading, unfit to proceed at sea
without serious danger to human life.” The degree of danger in connection with the
offence of sending a ship to sea in an “unseaworthy state” (s. 457) appears to be less
than that required to make a vessel an “unsafe ship” within the meaning of s. 459. It
is not thought, however, that this has any practical importance except in so far as it
lightens the burden of the prosecution under s. 457.63 Following the Herald of Free
Enterprise disaster, the concept of “dangerously unsafe ship” was introduced in the
Merchant Shipping Act 199564 but other common law jurisdictions have not
embraced this superlative description. The distinction between an unsafe ship and
an unseaworthy ship is rather innocuous at best. The difference is simply a matter of
a higher or lower threshold of the burden of proof.65
Statutory seaworthiness is a public law matter; a violation of the requirements
inevitably leads to penal sanctions. Being a public policy issue, a member of the

59
[1969] 1 All E.R. p. 495.
60
[1959] A.C. 589.
61
The Roberta, (1938), 60 Ll. L.R. 85, 58 Ll. L.R. 159, 177.
62
See Gaskell et al. (1987), p. 186, in particular, footnote 13 at that page.
63
Thomas and Steel (1976), p. 130.
64
In s. 94 as the meaning of “dangerously unsafe” is elaborated as follows:
(1)... a ship is “dangerously unsafe” if, having regard to the nature of the service for which it
is intended, the ship is, by reason of the matters mentioned in subsection (2) below, unfit to
go to sea without serious danger to human life. (2) Those matters - (a) the condition, or the
unsuitability for its purpose, o f- (i) the ship or its machinery or equipment; or (ii) any part of
the ship or its machinery or equipment; (b) undermanning; (c) overloading or unsafe or
improper loading; (d) any other matter relevant to the safety of the ship; and are referred to in
those sections, in relation to any ship, as “the matters relevant to its safety”. Section 95
explains the circumstances in which a dangerously unsafe ship can be detained.
65
See Thomas and Steel (1976), p. 130.
594 R. Mukherjee

public has the statutory right to lay an information to the relevant authorities if there
is reason to believe that the vessel in question should not be permitted to proceed to
sea because of its unseaworthy (dangerously unsafe) conditions.

3.3 Environmental Protection

Environmental protection mainly has to do with protection of the marine environ-

ment from ship generated pollution as well as ways of containment and mitigation
after pollution damage has occurred. Since the adoption of the OILPOL Convention
in 1954 followed by MARPOL 73/78, environmental protection has been at the
forefront of standards, non-compliance with which will render a ship being labelled
as substandard. If a ship is not properly equipped with pollution control equipment
as required by MARPOL or does not adhere to the discharge standards prescribed by
MARPOL, that ship will undoubtedly be considered substandard unless it falls
within an exception expressly provided for in the Convention. The adage that safety
of human life takes precedence over all other matters including cargo safety and
pollution prevention is one that is entrenched in this branch of regulatory
maritime law.
MARPOL is the principal convention dealing with prevention of ship-source
pollution. It addresses six varieties of pollutants addressed in six Annexes to the
Convention. These are oil, noxious liquid substances (NLS), packaged harmful
substances, sewage, garbage and air pollution. The object of the Convention as
indicated by its title is to prevent pollution of the seas by pollutants emanating from
the ship. In order to meet that objective, there are twofold detailed, technical,
regulatory requirements in the convention. There are requirements specifying equip-
ment that must be installed on board to prevent, monitor and control discharges of
pollutants from ships exceeding the prescribed limits. The others are the discharge
standards themselves to which ships must adhere. Incidental to these, there are
designated special areas where no discharges are allowed. More stringent and
detailed standards apply to tankers. A ship that fails to comply with these require-
ments would be considered substandard and subjected to sanctions such as detention
prescribed in the MARPOL. There are numerous other requirements that do not
pertain to ships but to state parties to MARPOL, such as provision of shore reception
facilities. As in the case of SOLAS, the convention provides for legislative and
enforcement jurisdiction by flag states and enforcement jurisdiction by port states.
The Oil Pollution Preparedness and Response Convention (OPRC),199066 is
concerned with preparedness for pollution before the fact which includes contin-
gency planning as well as mitigation and response measures to be taken after an oil
spill has occurred. While MARPOL essentially deals with operational discharges,

66
International Convention on Oil Pollution Preparedness, Response and Cooperation, 1990 30 ILM
733 (1991) and OPRC-HNS Protocol, 2000 HNS-OPRC/CONF/11/Rev.1.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 595

OPRC addresses pollution from accidental oil spills. Both are regulatory conven-
tions. The third important instrument is the London Convention of 1972 modified by
its 1996 Protocol.67 This convention regulates the deliberate dumping of wastes at
sea and contains special provisions relating to radio-active wastes and incineration of
wastes at sea. Ships that do not comply with the standards specified in these
conventions would be considered to be substandard ships. There are several other
conventions in the ship-source pollution domain, namely, the Anti-Fouling Systems
Convention (AFS),68 Ballast Water Management (BWM) Convention,69 the Basel
Convention on Transboundary Movements of Hazardous Wastes, (Basel),70 the
Nairobi Convention on Wreck Removal (ICRW),71 and the Hong Kong Convention
on Ship Recycling.72 Notably, the Basel Convention is not an IMO convention is
one adopted by the United Nations Environment Programme (UNEP) and the Hong
Kong Convention is not yet in force. In effect, ship recycling is regulated by the
Basel Convention. Non-compliance with these conventions may lead to a ship being
considered substandard but it must be remembered that a ship is only obliged to
comply if its flag state is a party to that convention.

3.4 Maritime Security

The phenomenon of maritime security as we know it today, has occupied centre

stage status in the aftermath of the Achille Lauro incident in 1986 and following the
fatal events of September 11, 2001. This is the third pillar of the triumvirate of ship
standards in addition to maritime safety and environmental protection. According to
some, maritime security is in essence, an extension of maritime safety, but a
distinctive characteristic of maritime security is that the acts committed comprise
deliberate human intervention, as distinguished from negligent acts, or attributable to
accidental or fortuitous circumstances. Thus, there are subtle differences between
safety and security in the maritime context.73
Maritime security can be said to consist of four elements that have engendered
two IMO initiatives. The most serious is terrorism which has been addressed by the

67
Convention on the Prevention of Pollution by Dumping of Wastes and Other Matter, 1972, 1046
UNTS 120 and its Protocol of 1996, 36 ILM 1.
68
International Convention on the Control of Harmful Anti-fouling Systems on Ships, 5 October
2001, IMO Doc. AFS/CONF/26, of 18 October 2001.
69
International Convention for the Control and Management of Ships’ Ballast Water and Sedi-
ments, 2004, 1760 UNTS 142.
70
Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their
Disposal, 1989, 1833 UNTS 3, 1673 UNTS 126.
71
Nairobi International Convention on the Removal of Wrecks, 2007, 46 ILM 694 (2007).
72
Hong Kong International Convention for the Safe and Environmentally Sound Recycling of
Ships, 2009, (SR/CONF/45).
73
Mukherjee and Liu (2015), pp. 54–55.
596 R. Mukherjee

IMO through the Suppression of Unlawful Acts Convention, 1988 (SUA) together
with its Protocol of 1988 concerning platforms and the Protocol of 2006 which is
basically an update of the original convention.74 Notably, the terms “terrorism” or
“terrorist act” are not mentioned in any of these instruments. SUA was adopted
following the Achille Lauro incident. The other formidably serious element is piracy
which has been experiencing a dramatic rise over the past couple of decades in
several maritime areas of the world that are major trading routes.75 Piracy is a jus
cogens high seas crime and is addressed in Articles 100 to 108 and 110 of
UNCLOS.76 The provisions essentially reflect the customary international law on
this issue. The third element is armed robbery which is not addressed in any
convention instrument but interestingly enough there is a term “armed robbery
against ships” articulated by IMO to cover certain crimes which may not readily
fall within the purview of “unlawful acts” under the SUA Convention.77 The other
IMO initiative which is the fourth element, is the International Ship and Port
Facilities Security Code (ISPS Code). The Code is an extension of Chapter XI-2
of SOLAS bearing the title “Special Measures to Enhance Maritime Security”. Part
A of the Code is mandatory; Part B is recommendatory. Non-compliance with the
mandatory part of the Code will render a ship substandard.

3.5 The Human Element

The operative word in the expression “human element” is “human”. In other words,
all matters pertaining to the human being on board a ship fall under this appellation.
Two terms that are closely associated or used interchangeably with, are “human
factor” and “human error”. The human factor in shipping has more than one
dimension. Marine casualties are often attributable to human error78 at times caused
by sub-standard working conditions on board ship. Such conditions are often
predicated on the welfare and well-being of the crew; in particular, the issues of
fatigue and sufficiency of rest in contrast to their hours of work. Unlike work ashore,
a ship operates 24 h a day, seven days a week for as long as it is in operation whether
at sea or in port or even in dry dock. Fatigue is therefore a material condition which
leads to accidents, casualties and sub-standard performance.79 Thus, the element of
occupational safety referred to earlier in this work, is a factor of prime importance
which also has to do with a reasonable level of comfort that a seafarer is entitled to
have on board to enable him to discharge his duties safely and efficiently.

74
1678 U.N.T.S. 22.
75
Mejia (2002).
76
See Bassiouni (1996), pp. 38–46.
77
Mukherjee and Liu (2015), pp. 60–61.
78
See United Kingdom Department of Transport, Marine Directorate (1991).
79
Eriksson and Mejia (2000).
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 597

Within the family of regulatory maritime treaty instruments, some standards

pertain to the safety of ship and crew; others to the qualifications, skill and compe-
tence of the crew and the performance of their tasks. The standard of training and
competency that a seafarer has acquired to enable him to carry out his assigned tasks
safely is thus equally important from the human factor point of view. Training and
qualifications of seafarers are governed by the STCW Convention. The convention,
adopted in 1978, was amended quite extensively in 1995 to not only promote
international uniformity in these matters but also to raise the standards of training,
certification and watch-keeping. It is not only the lack or inadequacy of training and
competence that underscores the substandard condition of a ship. If the crew are
lacking in skill, that is, if for example they are incapable of handling shipboard
equipment with which they are tasked or carry out any activity prohibited by a
Convention that may jeopardize the safety or security of the ship or persons on
board, the ship may be considered sub-standard. Connected to the above matters is
adherence to the statutory safe manning scale reflected in the SOLAS requirement of
“safe, sufficient and efficient manning”. It is an important factor in the determination
of whether a ship is of requisite standard or falls under the rubric of substandard ship.
Notably, aside from SOLAS and STCW, the relevant instruments in this regard
are the Maritime Labour Convention, 2006 (MLC)80 and ILO Convention 147 on
Minimum Standards among other ILO instruments.81

4 Regulation and Enforcement of Standards: Responsibility

and Blame
4.1 Preliminary Remarks

Responsibility and control work hand in hand which raises the question of who
should be responsible for the safety and security of the ship, the safety and welfare of
shipboard personnel and protection and preservation of the marine environment. The
IMO and ILO regulatory conventions are mainly what one might refer to as flag state
conventions; in other words, the obligations and requirements imposed by them are
directed primarily to flag states. However, embedded in these conventions are also
responsibilities to be discharged by port states; and under Part XII of UNCLOS in
relation to environmental protection and preservation, by coastal states. Be that as it
may, shipowners and operators also have to bear certain responsibilities in conjunc-
tion with, and incidental to, those imposed on states by conventions. The main
international instruments that draw shipowners and operators into the fray are the
ISM and ISPS Codes. Other industry control mechanisms include the role of
classification societies.

80
45 ILM 792.
81
62/122, 21 ILM.
598 R. Mukherjee

4.2 Coastal State

The coastal state in relation to a ship is that state in whose maritime zone a ship is
situated at a given time.82 Coastal state jurisdiction can be exercised in the territorial
sea, internal water, and in the Exclusive Economic Zone (EEZ) in respect of safety
and maritime pollution under UNCLOS. The jurisdiction in the territorial seas is
subject to the foreign ship’s right of innocent passage. Pollution jurisdiction can be
exercised in the EEZ under UNCLOS Even though the high seas are not considered
to be a maritime zone, the coastal state can exercise jurisdiction on the high seas
under the Intervention Convention.83 There is some confusion over the extent to
which coastal states have the right to exercise enforcement jurisdiction on foreign
ships traversing its waters.84

4.3 Port State

In relation to a ship, a port state is that state in whose port or offshore terminal a ship
is situated at any given time.85 Port state jurisdiction is largely exercised through port
state control which is provided for under major IMO Conventions such as
MARPOL, SOLAS STCW and Load Lines. The requirements for port state control
are contained in UNCLOS in respect of safety and pollution. Port state control is
referred to as being corrective in that its exercise aims to correct non-compliance or
non-effective flag state enforcement. Jurisdiction is primarily based on inspection of
certificates. Inspection of the ship and its equipment occurs only if there are clear
grounds to do so. Under SOLAS, operational requirements can be checked if there
are clear grounds that crew are not familiar with essential shipboard procedures. The
flag state must be notified of any actions taken by port state control including
detention.86 Procedures for port state control are outlined in IMO Resolution
A.787(19).
Through the mechanism of port state control, much has been achieved by way of
ensuring that ships do comply with required standards established internationally.
Port state control as an institution, has had to step in to carry out the regulatory and
enforcement tasks which the flag states allegedly failed to do. While port state
control is most useful in curbing sub-standard practices in shipping, the system
evidently does not always function in a fair and expedient manner. This has given
rise, in some instances, to needless harassment of ships simply because of the illegal
practice of flag targeting, and sometimes due to incompetence on the part of port

82
Mukherjee and Brownrigg (2013), p. 179.
83
970 UNTS 211.
84
Churchill and Lowe (1999), pp. 95–99.
85
Mukherjee and Brownrigg (2013), p. 179.
86
Mukherjee (2000), p. 114.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 599

state inspectors themselves. Even so, it is submitted that port state control is perhaps
the best remedy against the operation of sub-standard ships.
Uniformity of port state inspections and control is achieved through the mecha-
nism of Regional Memoranda of Understanding on Port State Control (PSC MOUs).
In some instances, there may be an overlap between port state and coastal state
jurisdiction or the exercise of dual or concurrent jurisdiction of the flag state and the
coastal state.

4.4 Industry Controls

4.4.1 Classification Societies

With few exceptions,87 classification societies are private entities that operate for
profit providing services relating to ship safety and seaworthiness under rules and
standards set up by themselves. Uniformity of standards is ensured through the
International Association of Classification Societies (IACS) whose membership
includes virtually all class societies. Historically, these bodies were formed at the
instigation of the hull and machinery insurers of ships and they operate under
contractual arrangements with shipowners, the object being to grant them class
designations which indicated the integrity of the ship in terms of safety and fitness
to face the perils of the sea and operate in a potentially hostile marine environment.
While they continue to perform this function, in relatively recent times, they have
been carrying out statutory surveys under conventions on behalf of flag state
administrations; and in these instances, are referred to as recognized organizations
(RO).88 Traditionally, class societies have been carrying out load line and tonnage
measurement surveys under the respective conventions. Whereas some developed
Maritime Administrations such as the Maritime and Coast Guard Agency (MCA) of
the UK choose to reserve certain types of surveys such as those relating to safety
equipment and fire protection surveys to themselves, most Maritime Administrations
today delegate virtually all statutory surveys out to the RO’s.
The Conventions make it clear that the ultimate responsibility for ensuring that
the convention obligations are met, rests with the flag state Administration who must
oversee the tasks delegated to the RO, and in order to do so, must have the requisite
expertise available within the staff of the Administration.

87
China and Vietnam, among others have classification societies that are government entities.
88
Mukherjee and Brownrigg (2013), p. 185.
600 R. Mukherjee

4.4.2 International Safety Management (ISM) Code89

The contribution of the shipping industry towards curbing substandard shipping and
maintaining requisite standards is largely through sound practical implementation of
the ISM Code. The upper echelons in the shipping industry must be committed to
motivating persons within their respective organizations at every level to achieve
high international standards. Each company (shipowner) must establish a Safety
Management System (SMS) the objectives and functional requirements of which
must be set out clearly. The SMS must include provisions for the company enabling
it to respond to any emergency situation involving its ship. It should also include
provisions ensuring the recording of any non-conformities to the company which
must be examined and rectified.
The company must create procedures for maintenance of the ship and its equip-
ment, and provide for a Safety Management Manual. It must carry out safety audits
to ensure that safety and prevention of pollution activities are in accordance with the
SMS. It must hold a Document of Compliance (DOC) issued by the Flag State
Administration or an RO. A copy of the DOC must be kept on board at all times. To
assist the flag state administration in implementing the ISM Code, there are Guide-
lines which are, included in resolution A.788 (19).90

4.5 Flag State Implications

As stated earlier, the flag state in relation to a ship and other states is the state whose
nationality is held by the ship and where it is registered evidenced by the display of
the state’s flag or ensign. Whether to ensure fulfilment of the international maritime
community’s objective of eradicating sub-standard ships, the primary burden should
be placed on flag states is a thought-provoking question. There are strong and
substantiated allegations that the open registry system has fostered substandard
ships. It is perhaps an understatement that open flag states have in many instances
failed to carry out their obligations under conventions in the most ideal manner. As
part of the response to this state of affairs, IMO set up a Flag State Implementation
Sub-committee under the Maritime Safety Committee to bring pressure to bear on
delinquent flag states. IMO put into place a self-assessment procedure designed as an
incentive to make flag states do their jobs. Subsequently another system known by
the abbreviation VIMSAS was introduced which was later replaced by IMSAS.91 Be

89
International Management Code for the Safe Operation of Ships and for Pollution Prevention,
IMO Assembly Resolution A.741(18)—1993, Rev. 2015.
90
Appendix 1 to the Guidelines contains standards on ISM Code certification arrangements and
Appendix 2 contains the forms for the Document of Compliance and the Safety Management Code.
91
The Voluntary IMO Member States Audit Scheme (VIMSAS), as the name implies, was
originally a voluntary system which was later made mandatory and renamed the IMO Member
State Audit Scheme (IMSAS).
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 601

that as it may, the problems relating to flag state responsibility, or to put it precisely,
the lack thereof, has complex political and economic considerations.
It is significant that most open registry states including the top three, Panama,
Liberia and Marshall Islands happen to be developing countries. It is evident that
these countries have made political and economic decisions to be open registry flag
states with expectations of gaining considerable revenues from tonnage taxes. Many
of them have indeed made sizeable gains and others are aspiring. There is no doubt
that unless some other priorities in their political and economic agendas supersede
this policy, open registries are, and will, remain permanent fixtures in the world
shipping scene. For some of them, the ship registry is the principal source of national
revenue. In others, particularly some that are ex-colonies of traditional maritime
states it is a manifestation of their newly acquired independence and sovereignty.
The paradox is that these open registry states have virtually no beneficial ownerships
that are indigenous. This is in sharp contrast to the way in which traditional maritime
states developed their shipping prowess and maintained their competitive positions
in world trade. The open registry developing countries essentially operate a maritime
service industry by offering their flags to beneficial owners, the vast majority of who
are from the western traditional maritime countries. The verity is that in economic
terms the developing countries are stealing business away from the developed
traditional maritime countries.
Be that as it may, our concern in the present discussion is with sub-standard
shipping and how it can be minimized and eventually eradicated. In this vein, it is
true to say that fingers are pointed at developing countries that operate open
registries otherwise referred to as “flags of convenience”, an appellation that is, in
the view of this author, patently misconceived simply because any notion of a flag
that is of inconvenience to the owner and other interested parties is undesirable.
Casualty statistics over the last several decades indicate that a vast number of
maritime casualties involved ships of open registry persuasions.92 By contrast, the
so-called traditional or closed flag states, which are mainly developed western
countries are considered as maintaining the requisite standards dictated by interna-
tional law, a proposition that is imprecise at best. Whether or not open registry states
are the sole cause of sub-standard shipping is arguable even though this is the
popular belief among those who are supposedly in the know. Open registry ships
are considered as substandard because of the popular perception that they are
inadequately regulated by their administrations and the crew are ill-trained and
incompetent. No doubt the statistics speak for themselves. But there is the other
side of the coin. It is a fallacy to assert that substandard shipping is solely attributable
to open registries. No developing country open registry had anything to do with the
infamous sinking of the Titanic in 1913 or the disasters of the Estonia, Herald of
Free Enterprise, and Costa Concordia among others, all of which were flagged in

92
Ready (1998), p. 22.
602 R. Mukherjee

western developed states.93 Yet, open registries singularly carry the stigma of “flags
of convenience”.

5 The Possible Way Forward

5.1 The Premise

That shipping is inherently an international business is an undeniable verity. It is the

predominant method which has been used for centuries, indeed millennia, for the
transportation of goods and passengers across the oceans and remains the most
economical method despite the existence of other modes of transportation. What
has been unique about shipping, which it now shares with international aviation, is
that larger segments of the transportation are conducted through a medium that does
not fall within any national jurisdiction. This is the expanse of the high seas which
stands as the underlying rationale for the need to have ship nationality. In aviation,
the air space above the high seas provides the corresponding basis for aircraft
nationality. One distinction between these two modes of transportation is, however,
underscored by the fact that ships spend more time on the high seas than do aircraft
in the corresponding air space. Furthermore, ships hold on board an entire floating
community that has to carry on with life for long periods of time on the high seas.
There is no such parallel in aviation, where the duration of an aircraft in international
airspace is only a matter of hours. By far, existence on the high seas is the strongest
argument in favour of the concept of ship nationality, which provides a legal regime
on board a ship on the high seas, without which a ship would metaphorically
speaking be floating in a legal vacuum.94
Be that as it may, a cynical view of the rationale for having ship nationality, a
view shared by this author, is that when things go wrong and disasters happen, there
is a flag state on which the blame can be squarely placed. Of course, in the domain of
private law, there are actors who are perhaps even more important from the point of
view of legal and economic interests, who bear the liabilities in tangible terms. But
from an international public law and policy perspective, there seems to be a dire need
for a scapegoat. The typical open registry flag state easily fits into the mould and
becomes a victim of a seemingly increasing blame culture. This is exemplified and
evidenced by the practice of flag targeting for which there is no support in law.
Compromising standards is not in the interest of anyone in the shipping commu-
nity as in the last analysis, it would be detrimental to the shipping business and to
international trade and commerce. In that vein, if hypothetically speaking, the
concept of ship nationality and with it, the phenomenon of the flag state were to

93
https://www.dco.uscg.mil/Portals/9/DCO%20Documents/Proceedings%20Magazine/Archive/
2012/Vol69_No2_Sum2012.pdf?ver¼2017-05-31-120748-633.
94
Mukherjee and Brownrigg (2013), p. 199.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 603

be removed from the law, what might be the consequences? It is submitted that ship
nationality is not needed to impose measures to enforce safety requirements. As
radical and implausible as it may sound, there may be something to be gained from
it. By eliminating the concept of ship nationality, and the flag state, one of the
mandatory layers of the enforcement mechanism can be dissolved, but not neces-
sarily to the detriment of safe, secure and environmentally friendly shipping. Basi-
cally, it will mean a re-distribution of responsibilities with regard to observance and
maintenance of proper internationally established safety standards for ships.

5.2 Replacement Regime in the Absence of Ship Nationality

and Flag State

At this juncture, it is perhaps expedient to explore alternatives to achieving eradica-

tion of sub-standard ships. It is proposed that the substantive notion of nationality be
de-linked from the procedural mechanism of ship registration. Nationality and
registration need not be interdependent. Obviously, once nationality is eliminated,
the concept of the flag state will vanish with it, and the stigma attached to open
registries will consequently be removed. Of course, there will be numerous impli-
cations, but it is submitted that standards can be maintained in ways other than by
conferment of nationality through the registration process. Only the private law
functions of registration need be retained, and there may not be a need to maintain
national registries for this purpose. Regional or international registries may suffice.
The “standard bearer”, to put it metaphorically, will be the shipowner or operator.
The private law entities who are directly involved with shipping such as classifica-
tions societies already doing their part. Others include ship financiers such as
mortgage lenders and insurers. Before lending a substantial amount of money to a
shipowner, a lender will surely verify that the ship is safe and seaworthy. The
shipowner borrower must ensure that requisite safety standards are maintained,
otherwise he runs the risk of mortgage money being declined. Even if a shipowner
finds a flag state with low standards, and cheap, inadequately trained crew, and
somehow manages to acquire a mortgage and insurance, he may not be able to secure
cargo if the ship is a safety or environmental risk.
There are other consequences for a shipowner who does not meet the standards.
The ship may be involved in a collision causing an environmental disaster and/or
loss of life; it may become black listed by a port and denied entry, or boycotted by
stevedores. All of this can result in serious economic detriment. In realistic terms,
public law impositions will not necessarily deter a shipowner from doing business.
But private law consequences will provide an incentive to maintain high standards,
the paramount consequence being a decline in profits. At the end of the day, the
604 R. Mukherjee

raison d'etre for the shipowner to be in business is to reap the profits; not to incur
liabilities.95
In addition to the role of the private sector, in the absence of the concept of the
flag state, port and coastal state authorities will perform the policing role as they are
already. There will be no room for blame culture as there is at present with all cards
stacked against the open registries because there will be no flag state, open, closed or
otherwise. A substandard ship would be identified solely in terms of its
non-adherence to standards set internationally and applied across the board inde-
pendent of any stigmatization. Shifting the focus from flag states to the imposition of
more stringent responsibility on shipowners and operators and robust enforcement
measures under port and coastal state control regimes of relevant IMO and ILO
convention may well be the answer leading to the eradication of substandard ships.
It is conceded such a radical proposition such as this will be unobtainable under
law and practice as currently structured, because the fundamental premise of flag
state primacy is deeply rooted in history and tradition.
By a process of elimination, it is possible to narrow down considerably the
situations in which there is a potential for a legal vacuum in the absence of a flag
state. The international law concepts of freedom of the high seas and innocent
passage in the territorial seas will continue to apply as at present. Identification of
a ship can be maintained by creating an international register. Virtually all matters
pertaining to life on board can be dealt with through the jurisdiction of the place of
domicile of the shipowner or operator. International conventions can be enforced
through the application of port or coastal state jurisdiction. The nationality of a
person born on board a ship on the high seas can be readily determined by the
nationality of the mother. If two persons were to enter into a contract on board while
the ship was on the high seas, they can mutually decide on the choice of law. If a will
were to be drawn up or a trust established by an individual on board a ship on the
high seas, the law of that individual’s nationality could apply. In criminal matters,
the law of the nationality of the perpetrator or the victim could apply. In the case of a
maritime crime such as piracy which is considered jus cogens, the law of any state
can apply. In all the above circumstances, there would effectively be no legal
vacuum and safe shipping would not have to be sacrificed.

6 Conclusion

In this chapter, an attempt is made to probe into the issue of substandard ships and
their eradication by first examining the legal concept of ship nationality and its
related procedural device of ship registration. The phenomenon of the flag state in all
its facets is then examined; and in particular, the position of open flag states or open
registries is analytically observed.

95
Mukherjee (2000), p. 111.
Ship Nationality, Flag States and the Eradication of Substandard Ships:. . . 605

The issue of flag state responsibility is often a bone of contention between

proponents and opponents of the open registry system. Open flag states assert that
it is their prerogative as a matter of national policy and priority to choose the kind of
registry works best for them where there are economic interests at stake.
Opponents of open flags contend that many of them do not meet their obligations
under international laws to ensure the safety of their ships and protect the marine
environment. Open flag states, of course, are interested in increasing their fleet sizes
and earning revenue from ship registration fees. To advance economically, some
open registries cut corners leading to substandard shipping. Obviously, that is not
desirable for the good and prosperity of world shipping. By the same token,
substandard ships do no accrue to the benefit of irresponsible ship owners and
operators. A tarnished reputation may potentially result in owners and operators of
such ships not being able to secure cargo, or obtain mortgage financing or insurance.
The consequences of a single disastrous incident attributable to the substandard
condition of a ship may destroy a flag’s reputation irreversibly. On the other hand,
there are many flag states that uphold the highest standards of safety, security and
environmental protection together with adequate attention to crew safety and secu-
rity even if they are open registries according to the prevailing norms that value
superficial factors more than substantive truth. Such flags, needless to say, are
unjustifiably plagued by the stigma attached to the expression “flag of convenience”.
A new proposition is advanced that is somewhat radical. It is unlikely that it will
materialize given the well-entrenched phenomena of ship nationality and registra-
tion, and the concept of the flag and the flag state in international maritime law and
practice. In closing, it is simply submitted that the ultimate objective of the world
shipping community is to make ships safe and secure and to protect and preserve the
marine environment; and to that end, eliminate substandard ships. Regardless of how
outrageous a proposed solution may sound, if it is feasible and functional, it should
be pursued.

References

Books and Articles

Ademuni-Odeki (1998) Bareboat Charter (Ship) registration. Kluwer Law International, The Hague
Bassiouni MC (1996) The sources and content of international criminal law: a theoretical frame-
work. In: Bassiouni MC (ed) International criminal law. Transnational Publishers, Ardsley
Brownlie I (1998) Principles of public international law, 5th edn. University of Oxford Press,
Oxford
Churchill RR, Lowe AV (1999) The law of the sea, 3rd edn. Juris Publishing, Manchester
Coles R, Ready N (eds) (2002) Ship registration law and practice. Lloyd’s of London Press, London
Colombos GJ (1967) International law of the sea, 6th edn. Longmans, London, p 285. quoting
Westlake International Law - 2nd Edition, Vol. I
Eriksson P, Mejia M (2000) IMO’s work on the human element in maritime safety. Lund University
Centre for Risk Analysis and Management, Lund
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Gaskell NJJ, Debattista C, Swatton RJ (1987) Chorley and Giles’ shipping law, 8th edn. Pitman
Publishing, London
Gold E, Chircop A, Hugh K (2003) Maritime law. Irwin Law, Toronto
Hill C (1995) Maritime law, 8th edn. Lloyd’s of London Press Limited, London
Lauterpacht H (1955) Oppenheim’s international law, vol 1, 6th edn. Longman’s Green and Co,
Harlow
McConnell ML (1987) Business as usual: an evaluation of the 1986 United Nations Convention on
conditions for registration of ship. J Maritime Law Commerce 18(3 July):435
Mejia M (2002) Defining maritime violence and maritime security. In: Mukherjee PK, Mejia MQ,
Gauci GM (eds) Maritime violence and other security issues at sea. WMU, Publications, Malmo
Mukherjee PK (1993) Flagging options: Legal and other considerations. Mariner J Master Mariners
Soc Pakistan 4:31–38
Mukherjee PK (2000) New horizons for flag states. Maritime Rev:110–114
Mukherjee PK (2019) Maritime conflict of laws: zonal and jurisdictional issues in perspective. In:
Chuah J (ed) Research handbook on maritime law. Edward Elgar Publishers, London
Mukherjee PK, Brownrigg M (2013) Farthing on international shipping. Springer, Berlin
Mukherjee PK, Liu H (2015) Safety and security in shipping: International, common law and
chinese liability perspectives. In: Tavidze A (ed) Progress in economics research, vol 33. Nova
Science Publishers, New York
Ready NP (1998) Ship registration. LLP Reference Publishing, London
Stopford M (2009) Maritime economics, 3rd edn. Routledge, Oxford
Thomas M, Steel D (1976) Temperley’s merchant shipping acts. In: British shipping laws, vol
11, 7th edn. Stevens & Sons, London
UNCTAD Information Unit, UN Doc. UNCTAD/INF/1770, 7 February 1986
United Kingdom Department of Transport, Marine Directorate (1991) The human element in
shipping casualties. HMSO, London
Wiswall F (ed) (1988) Bareboat charter registration, legal issues and commercial benefits. Interna-
tional Chamber of Commerce, Paris

Cases

Liechtenstein v. Guatemala, 4 I.C.J. Rep, 1955

Liverpool Borough Bank v. Turner (1860) 29 LJ Ch 827
Maxine Footwear Company Ltd. v. Canadian Government Merchant Marine [1959] A.C. 589
McFadden v. Blue Star Line [1905] 1 K.B. 697
Naim Molvan v. Attorney General for Palestine (The Asya) (1947), 81 Ll.L.R 277 (P.C.)
Oteri v. The Queen [ 1977] 1 Lloyd’s Rep. 105, at p. 108
Polzeath, The [1916] P. 241, (CA)
Rewia, The [1991] 2 Lloyd’s Rep. 325
Riverstone Meat Company Pty Ltd. v. Lancashire Shipping Company Ltd. (The Muncaster Castle)
[1969] 1 All E.R. p. 495
Roberta, The (1938), 60 Ll. L.R. 85, 58 Ll. L.R. 159, 177
Steamship Lotus, The (1927) P.C.I.J. Series A, No. I0; 2 Hudson, W.C.R. 23
Pedagogies and Strategies in International
Maritime Business

Fikile Portia Ndlovu

Abstract Until we find an equally or more efficient way to get 90% of everything
we need from markets around the world, the maritime world must make a conscious
effort to continue to support excellence in maritime pedagogy. This must be done
through understanding the strategies that inform such a specialized area of maritime
work. It is a fact that modern maritime pedagogy brings in many new strategies, but
these will be more effective if the lens of maritime pedagogical history and chal-
lenges are understood. It is the aim of this paper to highlight teaching and learning
strategies in international maritime business in light of the latest developments and to
highlight areas where the maritime pedagogy can best support human resource
training and development in the maritime world. Maritime training must anticipate
the needs of the industry in time rather than waiting until there are skills shortages.

1 Introduction

The title, ‘Pedagogies and Strategies in International Maritime Business’ may seem
somewhat of an inordinately wide topic. However, it has never been more important
for the international community to discuss it, especially considering that it is through
educational strategies of the maritime world that nations have sustained international
trade and naval prowess dating back to ancient kingdoms and maritime history in
every generation.1 Through various methods of teaching and mentorship, maritime
skills have had to be passed on from generation to generation. Some lessons were
harder than others,2 some of the lessons required worldwide effort to unlearn

1
Unger (1980), p. 21.
2
Mayo (2016), pp. 1–7. The sinking of the Titanic for example. The sinking, which took 2 h and
40 min on the fateful day of 14 and 15 April 1912; Sekimizu (2012) which brought about nations
coming together for the adoption of the Safety of Life at Sea (SOLAS) Convention.

F. P. Ndlovu (*)
Massachusetts Maritime Academy, Buzzards Bay, MA, USA
e-mail: pndlovu@maritime.edu

© Springer Nature Switzerland AG 2020 607

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_28
608 F. P. Ndlovu

because they were negative and destructive.3 The discussion of positive and negative
lessons from maritime business and history ought to be employed as part of the
strategy of improving together as humanity. Lessons from history should not be used
to incite division but bring about mutually beneficial long term sustainability of the
industry.4 This will be possible if we employ strategies in international maritime
business that teach such harmony. This chapter will explore what this means in a
pragmatic manner.
In surveying the history of maritime schools in America, as an example, author
Speelman, makes a case that we can and should learn from in the international
community when discussing teaching and learning in international maritime busi-
ness. A nation that has invested greatly in maritime education gets to reap the
benefits of more sustainable maritime cultures, with better prepared maritime pro-
fessionals within its nation.5 It is submitted that a nation should not wait until it has
the greatest tonnage influence on the world to prepare or invest into its maritime
business education because that international maritime business continues to tran-
spire6 because of international trade regardless of a nation’s tonnage percentage. The
reality is that even some of the poorest in the world or those affected by disaster
solely surviving on food aid are benefiting from international maritime business and
deserve to know more about that world if they so wish, so that those with a passion
for this industry can be matched with the right skills set to participate meaningfully
within the industry, again, this is where good teaching and learning comes into play.
International maritime business is an extremely broad term that covers any and all
areas that have to do with maritime business activities related to shipping and trade.
It is important that we clarify which areas of this business this chapter will focus on

3
Richardson and Stähler (2014), pp. 447 onwards. International Trade and business in modern times
focuses not just on the business success of trade but the social justice and sustainability of the
environment or ecosystems of international trade segments which is crucial to international
maritime business. As humanity we need to have honest, reconciliatory and respectful conversa-
tions about what we have achieved in this regard. We have come a long way from international trade
injustices such as slave trades and other such undesirable trade practices where the shipping
industry was unfortunately a mode of transportation. What is left to do now is to continue to
learn about international maritime business in a way that helps such business to thrive in harmony
with the humane goals that we have for ourselves going forward. Guterres (2018), where the
Secretary-General of the United Nations highlighted the importance of continuing to do more to
employ methods to honor the dignity and justice for all. This was of particular importance as this
was part of honoring the survivors and victims of the transatlantic slave trades. We owe it to the
lives of those victims and survivors to build a life of forgiveness, reconciliation with fair trading
international maritime business, education is the key to unlocking that humane goal.
4
There are maritime training institutions who even have a history of permitting only male students
from entering maritime study but today those things are talked by those institutions openly (as it
should be), as a successful history lessons for the entire industry after better reason was achieved
together through court systems and the hard work of men and women who were prepared to
challenge any injustice existing in maritime pedagogy. (See, for example, Supreme court judgment
in United States of America, Plaintiff, Appellee, v. Massachusetts Maritime Academy, et al. (1985).
5
Speelman (2001).
6
George (2013), p. 7.
Pedagogies and Strategies in International Maritime Business 609

prior to discussing teaching and learning strategies around it. Maritime business
activities start even before market analysts put together data needed to study the
feasibility of a maritime venture. This involves a tremendous amount of activity
because even each type of activity has its sub-branches of activity that requires
specialization in its own right for the purposes of teaching and learning. Ship
operation activity, for example, has ship scrapping activity associated with it
which has received regulatory attention in the form of the Hong Kong Convention
of 2009,7 not to mention the businesses that depend of ship scrapping for their
survival as part of maritime business.
It is therefore submitted that we limit the meaning of what is considered interna-
tional maritime business to the well-ordered categorization provided by maritime
economics author Martin Stopford, in Table 1.8 This summary of maritime business
activities provides us with a very helpful classification of maritime business activ-
ities and this will be the opportunity of educational deliberations of this chapter.
Pedagogies in international maritime business and strategies around it are also
usually matters of international regulation. For example, mariners must be qualified
under the International Convention on Standards of Training, Certification and
Watchkeeping for Seafarers (STCW), 1978. Therefore, understanding the regulatory
framework as part of the pedagogical strategy is essential, especially where such
regulation automatically creates commitment from signatory nations to enable this
training and certification according to appropriate standards set by the International
Maritime Organization (IMO). Further, there are some technological changes and
advancements in international maritime business such as the use of blockchain
technology,9 the introduction of autonomous ships,10 the introduction of cyber
threats that have been targeting shipping companies,11 new regulation,12 all of
which will require that modern strategies of teaching and learning be adapted to
prepare the mariner, business student, commercial men and women, shipowners,
traders, developers and all intending to have longevity and resilience in the industry.
This chapter has chosen to explore education so as to contribute to effective
strategies for teaching and learning in international maritime business because

7
Hong Kong Convention (2009).
8
Stopford (2009), p. 49.
9
Blockchain can be simply explained to be a distributed ledger technology that is intended to make
the process of verifying transactions in a fair, transparent and democratic manner. Future Thinkers
(2017). Blockchain technology directly affects international maritime business as all the trans-
actions that relate to supply-chain. Software, Big Data, and IoT (2018a, b) reports that the Port of
Rotterdam has joined forces with SAMSUNG to run a Blockchain pilot program. The same
reporters, earlier in 2018, also reports efforts by Korean shipbuilders to apply Blockchain technol-
ogy to shipbuilding. We need to incorporate an understanding of these technological
implementations to international maritime business.
10
Kutawa et al. (2016), pp. 111–118 offering an algorithm for compliance with COLREGS
regulation for maritime safety and collision avoidance on unmanned vessels.
11
Cyber Security (2018).
12
See, for example, the EU’s (2018) General Data Protection Regulation (GDPR).
610 F. P. Ndlovu

Table 1 Marine activities, 1999–2004 (Source: Stopford 2009, p. 49)

Turnover US$ millionsa Growth 99–04 Share in
US$ millions 1999 2004 (% p.a.) 2004 (%)
1. Vessel operations
Merchant shipping 160,598 426,297 22% 31%
Naval shipping 150,000 173,891 3% 13%
Cruise industry 8255 14,925 12% 1%
Ports 26,985 31,115 3% 2%
Total 345,838 646,229 13% 47%
2. Shipbuilding
Shipbuilding (merchant) 33,968 46,948 7% 3%
Shipbuilding (naval) 30,919 35,898 3% 3%
Marine equipment 68,283 90,636 6% 7%
Total 133,170 173,482 5% 13%
3. Marine resources
Offshore oil and gas 92,831 113,366 4% 8%
Renewable energy – 159 0%
Minerals and aggregates 2447 3409 7% 0%
Total marine resources 95,278 116,933 4% 8%
4. Marine fisheries
Marine fishing 71,903 69,631
1% 5%
Marine aquaculture 17,575 29,696 11% 2%
Seaweed 6863 7448 2% 1%
Seafood processing 89,477 99,327 2% 7%
Total marine fisheries 185,817 206,103 2% 15%
5. Other marine related activities
Maritime tourism 151,771 209,190 7% 15%
Research and Development 10,868 13,221 4% 1%
Marine services 4426 8507 14% 1%
Marine IT 1390 4441 26% 0%
Marine biotechnology 1883 2724 8% 0%
Ocean survey 2152 2504 3% 0%
Education and training 1846 1911 1% 0%
Submarine telecoms 5131 1401
23% 0%
Total other activities 179,466 243,898 6% 18%
Total marine activities 939,570 1,386,645 8% 100%
Source: Douglas-Westwood Ltd
a
The information in this table is based on many estimates and should be regarded as no more than a
rough indication of the relative size of the various segments of the maritime business. The totals
include some duplication, for example marine equipment is double-counted
Pedagogies and Strategies in International Maritime Business 611

learning is still an effective economic and social empowerment tool coupled with
committed justice driven government leadership. As humanity we are all fully aware
that the creation of successful markets through trade partnerships with other nations
and the economic prosperity of nations in general is interdependent, therefore the
weakness of markets and lack of knowledge, especially on key global economy
activities such as international maritime business, does not support that ideal of
creating strong markets that can support one another in global trade. This subject
also affects both developed and developing nations. Nations should use teaching and
learning strategies in international maritime business to shift from being victims of
not knowing and discovering the power of knowing. However, knowing is not
enough, such knowledge must be applied to be truly beneficial. The regulation is
there to make all this possible, let this be connected to reality.

2 Maritime Pedagogical Strategies for a Sustainable

Industry Future (Maritime Teaching and Learning)

When dealing with the teaching and learning aspects of the maritime sector as a
public or private sector business participant, teacher or student, the following
becomes apparent. International maritime business marked by a vast amount of
specialized knowledge. The sector, while a part of daily life, since on average a
person could be using or wearing materials that were carried on a ship at some point
is an ostensibly separate business activity that may sometimes seem esoteric. The
sector also has its own sea related culture evidenced by a great amount of jargon. Of
course this is typical of any area of specialized knowledge. The point now is how to
make sure that this knowledge and specialization reaches its target audience for a
sustainable industry future.
This specialist sector, like all specialized fields, requires effective and innovative
pedagogical strategies (teaching and training theories) which need to be understood
and tested for effectiveness within the modern context. The sector is a multi-fold
industry that supports international trade and therefore training for those involved in
it must remain nationally and internationally relevant in knowledge and work ethic
in order to achieve the best results for global sea transport, movements of cargoes
and other maritime related business.
International maritime business is also becoming a field or industry that is highly
regulated,13 and affects several aspects of global trade relations, GDPs and GNPs.14
It is therefore, important that those who are educated, trained, taught to participate in
this industry are able to have the required competencies to keep up with the
demands, economic and environmental challenges, technological advances and

13
IMO (2018a). See the catalogue of publications. See also IACS (2018) and many other regula-
tions through case law, regulation and other codes and statutes of individual nations.
14
UNCTAD (2018), pp. 1–8, 15–20.
612 F. P. Ndlovu

socio-political aspects that apply to those involved in the maritime world. This is
why for example, the IMO developed ‘the implementation of the model course
programme, in the spirit of Resolution 9 of the 2010 Manila Conference that adopted
amendments to STCW Convention and Code,. . . to assist maritime training institu-
tions to improve the quality of the training they provide.’15 Ultimately learning is a
lifelong activity, especially in areas that are specialized, historic, essential for
supporting humanity, dynamic, developing, changing and therefore discussions on
teaching and learning in international maritime business will continue. Computers
have been in existence for some time yet teaching and learning strategies around it
continue to develop,16 it is exactly the same with international maritime business.

2.1 Defining Pedagogy

Pedagogy is a concept that is defined as, the art, science or occupation of teaching or
the theory and practice or principles of education. The etymology of pedagogy
suggests the ‘leading of a child’ or ‘guiding of a learner’ from the Greek word
paidagōgos, denoting a slave who accompanied a child to school.17 It is submitted
that while the etymology of the word suggests more responsibility on the teacher or
trainer to teach and guide, the international maritime industry and business requires
much disciplined, self-led people who are driven in their own desire to learn. One the
other hand the etymology of the word, shows the commitment and dedication that
the teacher or trainer must have in helping students to reach their training goals, a
teacher gives their life and effort for the high purpose of leading the learner or trainee
to true knowledge. There are many styles of pedagogy that have filled many pages in
research and statistics, a few strategic maritime business pedagogies will be used as
examples of how a better training future can be achieved for the industry.
Effective teaching and training (pedagogical) strategies of the international mar-
itime business world are also part of ensuring equal access to opportunities in the
industry while maintaining the greatest levels of preparation for those wishing to
access the opportunities for a sustainable maritime sector going forward. Maritime
business and other maritime activities affect human existence on a daily basis
because maritime activity is the main form of transportation of consumer goods
that make life comfortable. Beyond trade are other maritime business activities such
as passenger carriage, exploration and exploitation of the sea and other national
interest business such as navy involvement, to name a few examples.18 When one

15
IMO (2018c) Model Courses. The IMO (2018b, d) also has a compendium of maritime training
institutions catalogue in progress and established the World Maritime University (WMU) and the
International Maritime Law Institute (IMLI).
16
Hsiang-Chuan et al. (2013).
17
Goodson and Scherto (2011), pp. 35, 113.
18
Borgerson (2009). Report number 46.
Pedagogies and Strategies in International Maritime Business 613

contemplates on the safety, the liability and quality of life issues around these
maritime business activities, it is clear that only the best training will do in prepping
those who will serve in this industry.

2.2 Certain Benefits of Understanding Maritime Pedagogy

(History and Culture)

Of course, division of labour in the global markets and the uneven distribution of
resource endowments will always create a power imbalance and interdependence in
the world19 but gone are the days where the power of knowledge was kept only for a
special group so that they could use it to dominate and forcefully oppress. Knowl-
edge in many fields today is even freely available online and libraries are invested
into by governments,20 so that any person can learn or teach themselves with freely
available resources. This is a teaching and learning strategy known as
autodidacticism.
This is not true for all population groups and many are still living without a form
of education21 but the Internet, where it is available has the capacity to help any
person from any nation discover knowledge. There are laws and law enforcement
bodies in place, of course, to stop people from using such knowledge in an unjust
manner. The point is, in the past, international maritime business knowledge and
education was amalgamated with divisive political influences and discrimination but
that culture has to be unlearned and is being unlearned22 so that human resource
from any nation, with the best desire and talent for the industry, can be trained to
enter service in the maritime industry. This will also globally make it a competitive
platform of training so that the best of the human resource is left to serve the
industry. Whenever great risk is involved in any venture, it is best that the best
trained and most passionate be given those opportunities.
Examples of unfair and unfairly discriminating practices in international maritime
business practice and education, is seen in many examples of maritime history
worldwide but this chapter is not primarily written to dwell on what was and is
wrong (as far better platforms exist and must exist for that, so that reconciling, anger
free, accusation free, bitterness free conversations, policies and legislation may be
drafted). For now this chapter seeks to acknowledge the problems and propose
solutions using education. Such examples include the discrimination captured and
coded into the regulations of the South African Merchant Shipping Act 57 of 1951
which brought about wage discriminations and shipboard unequal treatment of

19
Leamer (1995). Refer to the practicality of the HO theorem, for example.
20
FreeCodeCamp.com (2018).
21
This is why the UN has a goal to achieve universal primary education for all.
22
See, Maritime Foundation (2016) statistics, for example, women, even if they really desire to
dedicate themselves to a sea-going career, women are still struggling with careers at sea.
614 F. P. Ndlovu

seafarers of colour but that was all eradicated thanks to the hard work of men and
women of all nationalities seeking to enforce International Labor Organization
standards for a better shipping career. Unfair discrimination was achieved and
recorded in several amendments of the Act, one of the most important ones in this
regard, being the Merchant Shipping Amendment Act 12 of 2015.
When speaking of maritime pedagogy these negative legacies must be addressed
and repaired in our societies. We are existing in a generation living with an explosion
of information and knowledge, if education is positive then such high learning and
exposure to positive information should improve us as humanity and work hard
against injustice, starting in homes, then classrooms. Justice is for all humanity.
Successful international maritime pedagogy should capture that unity of just purpose
not divide and tear apart nations.
Buckner, a researcher and teachers in the maritime field, highlights the impor-
tance of methods used in teaching maritime studies as especially relevant when
taught with an understanding of maritime history.23 It is submitted that history is an
opportunity to be better people and better teachers. Understanding maritime history
also gives more enlightenment to statistical analyses and data collection, it helps a
student understand markets better. These are all crucial to a well-trained maritime
business participant. It also helps the participant in the field to also know where to
possibly look for answers or solutions when encountering difficult questions or
seeking to offer solutions in daily work activities.
Understanding maritime pedagogy in international business is also going to be
helpful to those charged with the task of recruiting, searching for and retaining
maritime skills and talent. By understanding the various strategies and methods for
maritime pedagogy, those seeking this talent will become better equipped when
assessing the qualifications of a maritime candidate for the discipline or shipping
business they are involved in. For example, dealing with ships may require different
types of skills depending on whether the skills required are for navigation, port
services, customs and boarder protection, able bodied seaman, academics, ship’s
cooks, ship management, ship broking, captains with or without an unlimited license
or otherwise, the court room or any other aspect of international maritime business,
the list is endless.
Shipboard operations or the navigation side of industry, for example, requires
training to be typically on relevant engineering technologies and simulations pre-
paring crew for navigation on the high seas.24 For, example in the United States a
great deal of maritime training is codified into law and invested into by the

23
Buckner (1986) and Maraist (2011).
24
Hammell (1980). See, for example, in the US, examples of teaching and training methods shown
there are in the form of: ‘simulators for mariner training and licensing: phase 1: role of simulators in
the mariner training and licensing process: CAORF technical report, simulation experiment...
prepared for U.S. Department of Commerce, United States Maritime Administration, Office of
Commercial Development and U.S. Department of Transportation, United States Coast Guard,
Office of Research and Development].’
Pedagogies and Strategies in International Maritime Business 615

government to make sure that career ready professionals are made in this regard. The
organizations such as the USCG,25 MARAD26 etc. all for government agencies that
are committed to preparing the human resource to work in international maritime
business. For the recruiter, the most important aspect is to get the right person for the
right job, without judging with potential stereotypes therefore learning about mari-
time pedagogy to a degree will help the recruiter. Every maritime nation has its
certifying body for the qualification of those involved in the maritime world, it
would be helpful to recruiters to familiarize themselves with these bodies so that they
are able to tap into a great pool of top candidates, to understand their language and
where they fit into the endless areas of service of international maritime business.

3 Some Examples of Maritime Pedagogy Concerns

and Strategies

Effective commercially beneficial maritime pedagogy is a crucial part of the indus-

try. It is submitted that maritime education and training continues to require signif-
icant investment and innovation as a practical input expected for future industry
success. There are many maritime schools, charter schools and academies, it would
be unnecessary to try to record all their teaching philosophies here therefore, let us
consider a few pedagogical maritime strategies as a guide to how these can be useful
in the maritime world.27

3.1 Language in Maritime Pedagogy

While there is no person on the planet who should not be proud of their mother
tongue and language, the maritime industry, due to its global nature, forces those
active in it to use the English language as the uniting language of the industry.28 It
has been said that due to international maritime business having its own lexicon, it is
important for those in the industry to be aware of this ‘Maritime English.’29 This
means that many in the industry are forced into multilingualism especially if they are
conducting business deals foreign cultures. This awareness of multiculturalism is an
important part of maritime pedagogy.

25
The United States Coast Guard.
26
The United States Maritime Administration.
27
See, example of a list which is probably growing Maritime Schools by country. See also, USA
Maritime Schools as recorded by MARAD.
28
Zhang and Cole (2018).
29
Ibid.
616 F. P. Ndlovu

Table 2 The percentage of using different strategies by EFL learners and Marine Engineering
(ME) students for discovering a new word’s meaning (Source: Research in English Language
Pedagogy, 2017)

Strategy EFL learners ME students

no. Description N Percentage N Percentage
Determination strategies
1 Analyze part of speech 30 48.75 30 58.67
2 Analyze affixes and roots 30 55.00 30 50.67
3 Check for L1 cognate 30 56.25 30 48.00
4 Analyze any available pictures or gestures 30 62.50 30 53.33
5 Guess from textual context 30 71.25 30 81.33
6 Bilingual dictionary 30 81.88 30 76.00
7 Monolingual dictionary 30 76.25 30 70.67
8 Word lists 30 37.50 30 34.67
9 Flash cards 30 30.63 30 30.67
Average 57.78 56.00
Social strategies
10 Ask teacher for an L1 translation 30 63.13 30 42.67
11 Ask teacher for paraphrase or synonym of 30 63.13 30 50.67
new word
12 Ask teacher for a sentence including the new 30 56.25 30 40.00
word
13 Ask classmates for meaning 30 61.25 30 64.00
14 Discover new meaning through group word 30 36.88 30 45.33
activity
Average 56.13 48.53

In a study conducted among marine engineering students and students studying

English at a University in Iran, it became apparent that students had two methods of
learning the meaning of English words in that contextual study. They learned
through determination strategies and social strategies illustrated in Table 2.30 It
also became very clear that marine engineering students depended more on the
bilingual dictionary as part of the determination strategy for learning the meaning
of English words. It is submitted that it is probably due to the existence of Maritime
English that students in a maritime activity have to find more structured ways for
learning maritime language. Understanding this important investment in understand-
ing maritime language is part of the key to successful maritime pedagogy. This point
should also encourage those in the area of research and development of languages as
they can use maritime language to adapt words into mother tongues from English to
make Maritime English more accessible to new cultures, if those cultures do not
have Maritime English yet however ultimately in the global context, communicating
in an understandable manner is part of natural maritime pedagogy.

30
Heidar and Hemayati (2017).
Pedagogies and Strategies in International Maritime Business 617

3.2 Thinking, the Inverted Class Room, Augmented Reality,

STEM and Finance in Maritime Pedagogy

The art of teaching and learning and pedagogy in general is as natural to human
beings as breathing, because human beings are constantly thinking about interacting
with their environmental reality. This is why in pedagogy the most successful
strategies are those that will encourage cognition that will lead to using knowledge
positively. Thinking is crucial to pedagogy as clarified by ancient teachers such as
Socrates, who would challenge students with questions so that they can come up
with solutions to their own challenges.31 This means for those engaged in maritime
business, they should be asking themselves constantly, is my teaching and learning
getting me to a point where I am able to think logically, scientifically and practically
about my service to the shipping industry?
If one is a Maritime Lawyer, for example, they have to ask questions such as, “Do
I understand the implications of the clauses of the contract I am deliberating, do I
understand the culture and procedures of the court or forum I am presenting my case
to, and have I read and understood relevant judgments? Do I even understand the
statements of the expert witnesses that are going to be cross-examined by the
opposition? If I am crew, for example, do I understand the protocol of running a
safe and tight ship and my own contribution to the manning of the ship?” This are but
a few examples of the aspects of successful thinking required in international
maritime business pedagogy and can form different questions depending on the
area of discipline.
Another example of pedagogical strategy that that created the buzz words ‘flip-
ping the class room’ especially around 2013, involves the use of the ‘inverted class
room model.’ It is submitted that this strategy is very useful in international maritime
business pedagogy. It ‘means that students gain first exposure to new material
outside of class, usually via reading or lecture videos, and then use class time to
do the harder work of assimilating that knowledge, perhaps through problem-
solving, discussion, or debates.’32 It is submitted that this is one of the most effective
strategies of maritime pedagogy. If students are exposed to maritime materials in a
manner that impacts them personally outside of the classroom, they are likely to
interact more meaningfully with the material in class. They are more willing to spend
the time learning and teaching themselves the material, solving problems, under-
standing mathematical models and theories. Some students relate more to theory,
once it becomes important to them, this teaching strategy works well in achieving
that inspiration in a student, especially in a field as specialized as international
maritime business.

31
McGreggor (2007), p. 9.
32
Brame (2013).
618 F. P. Ndlovu

Another useful example of maritime pedagogy is the use of augmented reality

(AR)33 and other types of digital learning as part of training in the maritime
pedagogy field. It is submitted that whether it is virtual reality, augmented reality,
there’s no doubt that in a field as practical as the maritime business filed, there is
more than enough room for creating tools that enhance the learning and practical
application of knowledge. Interacting with reality is core to maritime pedagogy, in
fact the most successful institutions usually have this type of training in common.
They may have a training ship or access to one, they may have simulators and all this
is part of using computer tools to maritime trainees to practice their skill in a safe
environment.
The use of digital training is part of the drive by the UN to enhance maritime
training, where they have stated that there is a need to, ‘develop digital capabilities,
. . .introducing digital education in schools and universities; upgrading the digital
skills of the existing workforce; running special basic and advanced skill develop-
ment programmes for the youth and older persons, including digital skills training
programmes in existing professional development programmes; and providing
financial support to develop digital entrepreneurship.’34
Another example of the most important pedagogy strategies that can be employed
into the maritime industry, is the encouragement of a Science, Technology, Engi-
neering and Math (STEM) and finance background as it is an extremely scientifically
technical world that is extremely capital intensive, so understanding markets and
how to raise capital is part of effective international maritime business knowledge.
Whether one is in ship design, cargo stowage planning, discussing displacement of a
ship on fresh, salty or brackish water, hiring, building, buying or scrapping all these
are scientific considerations which need a lot of financial investment therefore those
seeking careers in the industry must have this background35 or at least be prepared to
immerse themselves into it. Further, governments should invest into education in this
way and encourage national strategies for enhancing this type of knowledge in
schools so that the youth can easily transition into any part of a career in the maritime
industry if they wish to. This can be achieved through law, policy and direct
investment into such efforts.
Students can then challenge themselves to achieve success in the industry by
serving in the areas that most fit their personality. Here is an example of an exchange
student, Tianmin Wang,36 who developed and discussed an algorithm that deals may
effectively with ‘Liner Shipping Schedule Disruption Recovery.’ There are many
students, who together with their teachers can team up to grow in maritime learning
until they can offer solutions like the one developed and discussed by the student
mentioned here, Ms. Wang. Allowing students to express themselves in this manner
is one of the methods of developing a dynamic, pulsating and empowering maritime

33
Teemu (2018).
34
UNCTAD (2018), p. IX of the report dealing with digital learning challenges.
35
Physics Today (2016).
36
Chinese exchange student from another Maritime Training Institution abroad.
Pedagogies and Strategies in International Maritime Business 619

economy. Those in power, governments and maritime training stewards around the
world should make an effort to find those with great passion for the industry, give
them all the pedagogical support, so that they may be able to take lead in the
industry. This is a process, which takes commitment, time and resources and
thinking outside of the box, so that the world does not miss out on the modern
Malcolm McLeans of the world37 and all other valuable maritime human resource.
See Fig. 1 for the algorithm explored by the student to assist the industry which is
prone to catastrophic losses because of delays and schedule disruptions due to the
economies of scale involved.
The algorithm, inspired by, inter alia, the work of, Brouer et al.,38 presents a
solution to a problem. The problem is then presented in a way that the industry can
apply using appropriate technologies. Of course not everyone is going to be in the
same field in the industry, i.e., solving problems through writing algorithms, for
example, or patrolling the coasts as part of the armed forces but this example of
student effort is included here to show some of the pragmatic ways that maritime
pedagogy can be presented with knowledge transferred in ways that stimulate
modern students in the world that they find themselves in, where computerization
and machines are in partnership with the industry.
The algorithm below for example, deals with the very real risk of irregular
deviations and delays from schedules in the liner trades, a very disruptive problem.
The proposed solution is to recover from these deviations is to speed up, port skip or
port swap in order to (a) allow recovery for schedule disruptions and (b) allow
container rerouting. This is done through the development of a mixed integer
nonlinear programming (MINLP) algorithm. This is tested against various case
studies to save the shipping company money and allow the company to recover its
schedule at an operational level.39 The solution has been found to be feasible and
logical when tested by ship operational managers. It takes effective pedagogical
strategies to achieve this kind of economically viable, solution inspiring maritime
education.

4 Challenges in Maritime Pedagogy

Statistically, international trade is a reality, nations are affected by it on a daily

basis.40 However, it seems from Fig. 2 that the WTO-extra policy areas, one of them
being education and training, created to sustain the industry with regard to pedagogy
are hardly included by many nations and are barely legally enforceable. From the
table below they do not seem to be priority for many countries. It is therefore clear

37
Marex (2016). The story of Malcolm McLean.
38
Brouer et al. (2013).
39
Wang (2016). Unpublished paper, campus project, Business of Shipping.
40
See, UN Trade Statistics (2018).
 620
F. P. Ndlovu

Fig. 1 Algorithm dealing with irregular deviations and delays in the liner trades (Source: Wang 2016, Unpublished paper, campus project, Business of
Shipping)
 Pedagogies and Strategies in International Maritime Business

Fig. 2 WTO-plus and WTO-extra policy areas included in trade agreements (Source: UNCTAD 2018, p. 43 based on Hofmann et al. 2017)
621
622 F. P. Ndlovu

that one of the challenges to maritime pedagogy is the socio-political environment

where some countries do not invest much into educational strategies.
Further, there seems to be a lack of access to opportunities in a lot of STEM
careers and this has been considered by researchers across the board trying to figure
out why STEM careers seem not to attract more women or people of colour.41 Data
keeps showing us that in efforts to attract diverse talent, maritime education and
pedagogy somehow still seems to exclude certain people who would otherwise have
liked to be part of the international maritime business work force. This has caused so
much anger and frustration in some career paths that it has been called self-
perpetrating racism by some.42 On the other hand some organizations are adding
to the support and skills in associations such as the Women’s International Shipping
and Trading Association (WISTA).43 WISTA for example, has a mission to support
women in shipping at management level, so that the gender gap in those positions
can be minimized. This by the way, is happening with the help of good men and
women in the sector.
Another challenge faced by maritime pedagogy is the availability of financial
resources to support the government and other such similar bodies in making
training available and fordable. The industry cycles and a bad economy also
means that shipowners are going to be looking for more affordable, readily trained
crew rather than investing into training new entrants to the industry especially if
those come from the developing world.
There are many other challenges to maritime pedagogy not mentioned here but it
would be amiss not to mention the challenge of awareness issue. Awareness of an
industry and the requirements for serving in it is the first step in achieving pedagog-
ical success. The truth is the shipping industry earned its reputation as an ‘invisible
industry’44 because not many have an awareness of how it works, so that must be
dealt with first so that education efforts around the industry will be prioritized as a
matter of government policies.
People who wish to be involved in international maritime business must under-
stand the demands, danger, finance and regimented focus it takes to succeed in the
industry. It is an industry that does not need mediocrity as a ship can quickly turn
into a watery grave, even for the most experienced therefore it is not an industry to be
taken lightly, the losses are catastrophic. There also needs to be an awareness of the
diversity of businesses and business activity of the international business world. Not
every person or entity wishing to partake in the industry needs to invest in a triple-E
Emma Maersk sized ship, there are other ways to gain commercial benefit from the

41
Rainey et al. (2018), pp. 4–14.
42
Visser (2013). In this news report an Advocate of the court called law firms racists because when
it came to shipping legal work, they made a conscious effort to avoid the particular candidate
involved.
43
WISTA.
44
George (2013), pp. 1–7.
Pedagogies and Strategies in International Maritime Business 623

water and oceans, from aquaculture (fish and other species farming),45 to tourism
and building, maintaining and sailing small boats. There are many skills to be
sharpened in this regard.

5 Practical Applications

This chapter has highlighted the special discipline of maritime pedagogy in light of
the challenges and strategies that can be adopted to prepare those who want to be
trained and serve in the industry. International maritime business allows a country to
be able to supply itself and its people what they need to have a normal life with added
values. Failure in international maritime business and pedagogy around it would be
an Archeles heel to the safety and security of that nation, therefore it should be taken
seriously and invested in. One of the ways a nation can inspire maritime pedagogy is
to make sure that there is a school wide system for creating awareness about what is
happening in the oceans in terms of life and business, teach it to the young so they
hold it in their heart from a young age.46 Without creating meritocracy, teach those
you are introducing to the maritime world to reach for excellence so that they can
have a culture of keeping the assets and human life safe at sea.
Those involved in maritime pedagogy should seek to partner with industry
around the world so that respect for different cultures is understood as the maritime
industry and business brings that aspect. In fact maritime advisory boards, associa-
tions, groups, clusters and partnerships should be encouraged in international mar-
itime business pedagogy as knowledge is dynamic. Strategies for growth, statistics
and data are also easier to share (without destroying the competitive edge of
partners) for common good. There is much success in forming associations of this
kind, this has helped industry through organizations such as BIMCO,47
INTERCARGO,48 INTERTANKO49 and the ICC,50 to name a few, as examples.
There should also be an encouragement to nations so they are able to make their
boarders peaceful and comfortable to live in so that they’re able to focus on investing
in education and other ocean and sea related specialist education strategies. Every
nation should keep a record and compendium of training institutions that focus on

45
Imagine if a countries would rise to their full potential using maritime business knowledge,
among other positive industries, this would help with some of the millennial goals that the UN is so
committed to achieving. This was supposed to be the point of the Bretton Woods Conference
of 1944.
46
http://rcyc.co.za/. See how this group (The Royal Yacht Club, Cape Town South Africa) has
helped so many young people, who would otherwise not have the opportunity to sail and feel
closely connected to the sea, with a possibility of thinking about a future in that career.
47
https://www.bimco.org/.
48
https://www.intercargo.org/.
49
https://www.intertanko.com/.
50
https://iccwbo.org/.
624 F. P. Ndlovu

maritime pedagogy so that every family within that nation has a resource on how to
learn about the industry. Every crèche and school should have some materials
pitched as the level of the learners that will teach them how to interact with, protect
and research about the maritime world so that even if they never wish to serve in it,
they are fully aware how much the supply chain of international maritime business
affects them directly.

6 Conclusion

In conclusion, this chapter has highlighted some strategies that are at the core of
maritime pedagogy. These strategies are a start, intended for thoughtful consider-
ation the area of international maritime business. The area of maritime pedagogy
strategies is so wide that it may and has in fact formed the basis of several books.
Maritime Pedagogy has also formed the basis of specialist maritime teaching
institutes the world over. There are some gaps however that we need to address so
that through maritime pedagogy, the best talent continues to be attracted to and
grown in the industry.
The case has been made by this chapter that, taught well and supported through
law and policy, international maritime business education can bring new life to
economies around the world, in both the developing and developed nations. This
will be achieved by using maritime pedagogy to enrich a knowledgeable, well
prepared work force that can drive maritime business innovations and provide the
work force necessary to support those innovative business activities. It all however
has to start with knowledge. The knowledge must be contextual.
This chapter has also shown that there is also an opportunity to tap into the
richness of data that can be collected from different class rooms and communities
around the world to establish the current state of the desire to learn about interna-
tional maritime business so that teaching programmes can be created to serve the
maritime pedagogical needs within the contexts of different communities interested
in international maritime business activities.

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Cyber Risks Insurance in the Maritime
Sector: Growing Pains and Legal Problems

Baris Soyer

Abstract Cyber risks pose a genuine economic threat to the maritime sector and we
have recently witnessed several high-profile cyber-attacks paralysing operations of
corporations and ports for a considerable amount of time. The insurance market has
responded to the increasing threat by offering cover against cyber risks in maritime
sector. It is discussed in this paper that standard cover on offer in the market might
not afford adequate protection for companies facing such cyber-attacks. Especially,
it has been illustrated with examples that standard cyber exclusion clause incorpo-
rated into marine policies (known as CL380) is very broad and might act to the
detriment of the assured. The paper concludes that it is essential for maritime
corporations to appreciate the scope and nature of cyber risks policies available
and the relationship between such policies and conventional insurance products.
Otherwise, they run the risk of not utilising such insurance products in the most
efficient manner in neutralising the cyber risks they face in the course of their
business.

1 Introduction

Cyber risks pose a genuine economic threat to all types of businesses,1 and those
operating in the maritime sector are not immune to such risks. However, a significant
increase in the number of incidents connected with cyber risks has been observed in
recent years, making shipping companies realise their vulnerabilities in case of such

1
UK businesses were subjected to an average of 231,028 Internet-borne cyber-attacks in 2017. The
volume of cyber attacks increased by 24% in the final quarter of the year, with companies—on
average—experiencing 68,212 attacks each between October and December (data obtained from:
https://www.beaming.co.uk/cyber-reports/cyber-attacks-uk-businesses-increase-231028-2017/
(last tested on 31 December 2018)).

B. Soyer (*)
Institute of International Shipping and Trade Law, Swansea University, Swansea, UK
e-mail: b.soyer@swansea.ac.uk

© Springer Nature Switzerland AG 2020 627

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_29
628 B. Soyer

attacks2 and also the extent of liabilities they could potentially face in those
instances.3 This trend inevitably focuses the debate on the availability of insurance
against cyber risks and the scope of such coverage.
After setting out the vulnerabilities in the maritime sector against cyber risks and
factors unique to the sector that enable cyber attacks, this paper intends to: (1) pro-
vide an overview of coverage provided against cyber risks in the insurance market;
(2) offer a critique of such coverage and exclusions that are often incorporated into
policies; and (3) discuss the changes that need to be implemented in standard
contracts/clauses so as to provide a more satisfactory coverage for shipping corpo-
rations against cyber risks.

2 Cyber Risks in the Maritime Sector

2.1 Risks Posed for Shipping Companies

A maritime cyber risk can be defined as “the extent to which a technology asset is
threatened by a potential circumstance or event, which may result in shipping-related
operational, safety or security failures as a consequence of information or systems
being corrupted, lost or compromised.”4 Cyber risks in the maritime sector can stem
from a variety of sources. Whilst shipping companies could at times be the victim of
collateral damage,5 in most cases cyber attacks are carried out by external bodies
either to achieve financial gain or to eliminate commercial competition.

2
In July 2018, COSCO Shipping Lines confirmed that it was hit by a cyber attack impacting its
Internet connection within its offices in the Americas. The company was successful in isolating its
internal networks across its global operations; and as a result, even in the United States, Canada, and
South America, cargo handling at its marine terminals was largely unaffected.
3
In 2017, A.P. Moller Maersk, one of the largest container shipping companies, became the victim
of a cyber attack which used a modified version of the Petya ransomware (NonPetya) to bring down
IT systems and operational controls across the board. The attack caused a serious business
interruption, and the cost to the company was reported to be around $300 million.
4
See, Guidelines on Maritime Cyber Risk Management, published by the International Maritime
Organisation (IMO) on 5 July 2017 (MSC-FAL.1/Circ.3) (can be accessed at: http://www.imo.org/
en/OurWork/Security/Guide_to_Maritime_Security/Documents/MSC-FAL.1-Circ.3%20-%
20Guidelines%20On%20Maritime%20Cyber%20Risk%20Management%20%28Secretariat%29.
pdf (last tested on 31 December 2018)).
5
It has been reported that the Global Positioning System (GPS) of several commercial vessels
operating in the Black Sea were jammed during the conflict between Ukraine and Russia in 2017.
These actions were blamed on Russian hackers targeting Ukrainian assets, but as of today these
allegations have not been proven. Similarly, various GPS spoofing incidents around the same time
were treated by some as part of the Russian State testing new cyber weapons (see: https://www.
newscientist.com/article/2143499-ships-fooled-in-gps-spoofing-attack-suggest-russian-
cyberweapon/ (last tested on 31 December 2018). A GPS spoofing attack attempts to deceive a GPS
receiver by broadcasting incorrect GPS signals, structured to resemble a set of normal GPS signals,
or by rebroadcasting genuine signals captured elsewhere or at a different time.
Cyber Risks Insurance in the Maritime Sector: Growing Pains and Legal Problems 629

Cyber attacks on the databases of shipping companies often aim to extract data
illegally that can be utilised to steal cargo by directing its delivery to criminals rather
than to the rightful owners. This has recently been observed in MSC Mediterranean
Shipping Co SA v. Glencore International AG6 where the Mediterranean Shipping
Co SA (MSC) carried three cargo containers from Fremantle to Antwerp under a bill
of lading. The bill named Glencore International AG (Glencore) as the shipper, and
C Steinweg NV (Steinweg), Glencore’s agents, as a “notify party”. A few days
before the vessel’s arrival at the discharge port, Steinweg lodged with MSC one of
the bills of lading and soon after, MSC emailed to Steinweg a release note and pin
codes for the electronic cargo release system that MSC operated at that port. After
the vessel arrived at Antwerp, and the containers were discharged and stored at
MSC’s terminal, Steinweg sought delivery of the cargo but it transpired that two of
the containers had already been collected by unknown, unauthorised recipients. It
transpired that the unauthorised recipients managed to obtain the pin codes sent to
Steinweg and collect the cargo before the legitimate owner of the cargo under the bill
did so. It should be stressed that other businesses in the maritime supply chain (e.g.,
warehouses), face similar risks; and cargo theft from storage units by falsifying
records in the system or redirecting delivery to unauthorised people are regular
occurrences. In similar fashion, it has been reported on numerous occasions that
the systems of cruise ship operators that hold large amounts of personal data with
regard to passengers (i.e., details concerning bank accounts, credit cards and health
issues) are often the target of cyber criminals.
In recent months, several shipping corporations faced ransomware attacks, which
primarily aim to extort money from the victims. Ransomware uses encryption to lock
up data on infected computers, then demands payment for its return. It is not only
shipping corporations that have fallen victims of this type of cyber crime. In the latter
part of 2018, the ports of Barcelona and San Diego suffered ransomware attacks.
These attacks led to delays in delivery of cargos and restrictions on public access to
some port facilities. It is not clear at this stage whether these attacks were led by
opportunist hackers or criminal syndicates.
It has been suggested that up to 15% of cyber attacks are carried out by
competitors, who aim to obtain a commercial advantage by falsifying data and
records of rival shipping companies or directing their cargo to wrong places,
increasing their costs and liabilities.7

6
[2015] EWHC 1989 (Comm); aff’d [2017] EWCA Civ 365.
7
Cooper (2019), p. 106.
630 B. Soyer

2.2 Vulnerabilities in the Maritime Sector

The number of ships that have on-board Internet access has increased dramatically in
the last decade.8 Connection of the ship networks to the Internet creates a serious
hazard, as this potentially makes every commercial vessel a target for cyber
criminals.
Also, ships today are more dependent upon computers and computer software to
operate and control various systems on board. For example, in the context of ship
operations bridge systems such as Electronic Chart Display and Information System
(ECDIS), Automatic Identification Systems (AIS) and GPS are often used. Similarly,
main and auxiliary propulsion systems increasingly rely on computer systems to
function efficiently. Such systems on board are also connected to other systems
owned by a ship owning company; thus hacking the onboard systems of a vessel
could potentially have an impact on many systems and might even lead to a shut-
down of a whole host of systems, resulting in a disruption of massive scale and
significant economic losses.9
Given that any vulnerability in the systems of a commercial ship could potentially
expose the shipowning corporation to significant cyber risks, two other factors that
might exacerbate the problem need to be mentioned. It is a very widely held view
that the crew on-board most commercial vessels are not fully aware of the scale of
cyber risks that can affect the systems of the ship; various surveys indicate that a
huge proportion of crew members has received limited or no cyber training from
their employers.10 Therefore a crew member who uses illegally copied software on
his smart phone could easily infect the system of a vessel with the latest virus simply
by charging the battery of his phone using the ship’s system. Also, firms specialising
in building cyber resistance for shipping corporations warn that most organisations
are using out-of-date firewalls and anti-virus protection and such software is not
updated regularly in a systematic manner in many organisations, thus exposing
systems to enhanced cyber risks.

8
For example, whilst in 2008 only 5200 commercial ships had on-board Internet access, today
(in 2018) this number is at 40,200 (data obtained from CyberKeel).
9
In fact, this was the case when A.P. Moller Maersk faced a cyber attack in July 2017. The company
opted to shut down a number of systems to contain the issue. A similar approach was adopted by
COSCO when the company faced a similar cyber attack in July 2018.
10
https://safety4sea.com/survey-finds-lack-of-maritime-cyber-security-training-amongst-crews/
(last tested on 31 December 2018).
Cyber Risks Insurance in the Maritime Sector: Growing Pains and Legal Problems 631

3 Insurance Against Cyber Risks

3.1 A General Overview of the Cyber Risks Insurance Market

Most organisations are well aware of the cyber risks posed in today’s business world,
and there has been widespread coverage of the matter in the media. However, one
should not lose sight of the fact that “cyber risk insurance” is a relatively new
product, and this poses several difficulties both for the insurers and assureds.
From perspective of the insurers, the main concern is that the cost of a cyber
attack could be considerably high, given that in most organisations computer
systems are interlinked, so an attacker could access a large number of systems on
the network of a corporation simply by breaching the security system of a single
computer. Therefore, the aggregate damage that can occur as a result of a cyber
attack could be on a massive scale. Furthermore, a cyber attack could potentially
come from anywhere on the network system, making it rather difficult for insurers to
quantify the extent of the risk with geographical limits. It is also no comfort to
insurers that there is very little actuarial data on cyber risks, and the industry has not
yet undertaken any robust modelling exercise on cyber risks.11 These factors create
two significant problems for insurers. First, it is rather difficult for insurers to assess
the rate of the premium for cyber risks. Secondly, challenges in risk assessment
could potentially limit reinsurers’ capacity/appetite to assume such risks. Perhaps
this explains why cyber insurance could be up to six times more expensive than
property insurance and three times more expensive than liability insurance.12
From the assured’s perspective, there is confusion about what cover cyber
insurance products actually provide. For example, absence of a “cyber exclusion”
clause in a hull & machinery policy does not mean that the assured will be covered
for recovering or repairing data on the system of the corporation other than computer
systems on board the insured vessel. Similarly, a cyber policy that expressly pro-
vides cover against business interruption would not respond to a loss caused as a
result of a war between two states if the policy contains an exclusion for acts of war,
invasion and insurrection. It is often reported that there is a huge amount of
uncertainty for the buyers of cyber insurance as to the scope of the coverage on
offer, which could potentially discourage them from fully participating in the cyber
insurance market.13

11
See, https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_
public/cyber-risk-10_key_questions.pdf (last tested on 31 December 2018).
12
See, the address of Inga Beale, CEO of Lloyd’s of London, https://www.oecd.org/daf/fin/insur
ance/Unleashing-Potential-Cyber-Insurance-Market-Summary.pdf (last tested on
31 December 2018).
13
See, https://deloitte.wsj.com/cfo/2018/03/21/cyber-insurance-how-to-address-obstacles-to-
growth/ (last tested on 31 December 2018).
632 B. Soyer

3.2 Cyber Risk Cover

There is no standard “cyber risk” cover available in the insurance market. The
products that are on offer intend to fill the gaps which conventional insurances
leave open in relation to cyber-related perils. Thus, the assured could tailor the cyber
insurance policy by taking into account their particular circumstances and needs.14
Cyber coverage can typically be obtained for losses arising from:
• Business interruption. Shipping companies increasingly rely on computers and
digital storage of essential data. A cyber attack which leads to shutting down of
the systems as a precaution or cripples companies from performing normal
business activities could lead to a significant financial loss. There is no consis-
tency in terms of cover offered. but generally it is required that there is some
degradation in network performance caused by (1) Unauthorised use of or access
to the network; (2) Denial of service attack or denial of access, including
ransomware; (3) Receipt or transmission of malicious code, including viruses;
or (4) Damage, loss or theft of data, including confidential data; and this degra-
dation should be the cause of any interruption to commercial operations. Cyber
policies would invariably state that all losses that flow directly from the event will
be covered until the end of a fixed period (known as “maximum indemnity
period”), which is usually capped in the policy between 60 and 120 days. The
value of “loss of profit” in cyber policies is calculated either by reference to “loss
of gross profit” or “net profit plus continuing fixed costs”.
• Cyber extortion. Some policies will also indemnify the assured when a ransom is
paid in response to a threat to disable its computer system but before any attack
has actually been carried out.
• Crisis management costs. Policies usually indemnify the assured for notification
expenses, forensic expenses, public relations costs and other assistance costs.
• Property damage including recovering and repairing data. Some policies would
cover damage to digital assets (data and programmes) and in some cases personal
injury.
• Loss of data. This would normally include cover for any liability payments made
to third parties whose data has been lost or damaged by the assured as a result of a
data breach, as long as the quantum of the payment has been the subject of
judicial ruling or is the result of a settlement that the insurer has endorsed.
• Regulatory fines, penalties, costs and expenses. Most policies would stipulate that
fines and penalties are payable “to the extent allowed under applicable law”.

14
However, it is often stated that lack of product standardization in the cyber insurance market
continues to pose a challenge for companies, making it difficult to conduct comparisons or to find a
product that matches their exposure. See, the paper produced by Cambridge Centre for Risk Studies
in collaboration with Risk Management Solutions in 2017, Managing Cyber Insurance Accumula-
tion Risks (can be found at: https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/
risk/downloads/crs-rms-managing-cyber-insurance-accumulation-risk.pdf (last tested on
31 December 2018).
Cyber Risks Insurance in the Maritime Sector: Growing Pains and Legal Problems 633

• The loss of intellectual property (IT) or the reputational impact. It should be noted
that some policies extend cover to IT liabilities.
With regard to the scope of the cover, a few observations are in order. First, given
that this is a relatively new product, there is not much guidance from courts as to how
cyber risk policies and especially technical terms (e.g., “mechanical/electronic
failure” or “malicious code”) used in such policies relating to cyber risks will be
construed by courts. This problem is not something unique to cyber policies; it can
arise in the context of any insurance policy providing cover for a new type of risk.
Generally speaking, in a case where a word has a technical meaning, it is presumed
that it was intended in its technical meaning.15 However, there is convincing judicial
authority to the effect that the courts will not attribute a technical meaning to the
words, especially if the ordinary meaning of a word differs from the technical
meaning and one party to the contact (in this context, the shipping corporation)
cannot be expected to be familiar with the technical meaning.16 This is likely to be
the case in the context of cyber insurance given that this is a new type of risk that
most shipping corporations have not yet come terms with.
Second, it is not uncommon for cyber risks policies to exclude losses arising from
terrorism. This could be very problematic for shipping corporations, as several
reports seem to suggest that many cyber attacks are politically motivated17 and
thus could be excluded from cover under an exclusion of that nature.
Last but not least, given that the cyber risks cover is still in its developmental
stage, it is possible that the assured might end up purchasing cyber cover for a risk
that is already covered by a separate insurance product. Let us imagine that the
software which is used to control an automatic crane in a warehouse is corrupted by a
malicious code. The corruption of software causes the crane to malfunction and as a
result one of the employees is injured. It is highly likely that the company’s general
liability policy would respond to the direct liability associated with injury. A cyber
risk policy would also provide cover for this loss, unless of course it expressly
excludes liability for any claim “arising out of or attributable to personal injury”. If
both policies respond to the loss, this is a case of double insurance, which would not
necessarily provide any monetary advantage to the assured18; but the issue here is

15
See, Kumar v. Life Insurance Corporation of India [1974] 1 Lloyd’s Rep 147, at 149, where
Kerr, J, in the context of a life insurance policy, held that a “Caesarean delivery” was an “operation”
on technical usage.
16
See, De Maurier (Jewels) Ltd v. Bastion Insurance Co Ltd [1967] 2 Lloyd’s Rep 550 where
Donaldson, J, disregarding the technical meaning of the words, held that a car “owned by the
insured” included cars held on hire-purchase by the company, as a reasonable assured not fully
aware of the niceties of law would describe them as “the company cars”.
17
See, the regular incident reports published by Carbon Black, at https://www.carbonblack.com/
security_experts/threat-reports/ (last accessed on 31 December 2018).
18
Section 32(2) of the MIA 1906 stipulates: “Where the assured is over-insured by double
insurance— (a)The assured, unless the policy otherwise provides, may claim payment from the
insurers in such order as he may think fit, provided that he is not entitled to receive any sum in
excess of the indemnity allowed by this Act. . .”.
634 B. Soyer

that the assured will be possibly paying additional premium under his cyber risk
policy for a loss that would have been ordinarily covered under his general liability
policy.

3.3 Silent (Non-Affirmative) Cyber Cover

When a traditional marine policy (e.g., hull & machinery, cargo insurance, or
protection and indemnity (P & I) cover), does not expressly include or exclude
cyber related losses, it is possible that the policy in question might respond to a loss
connected to a cyber risk if the proximate cause of the loss is judged to be a peril
insured against. In that case, it is often said that the policy has a “silent” or “non-
affirmative” cyber cover. For example, let us assume that a consignment of mobile
phones, insured under Institute Cargo Clauses (ICC) 2009 (A), is carried in a
container from China to the UK. At a transhipment port, which has a computerised
container tracking device, the hackers manage to install password capture devices
and subsequently are able to infiltrate the IT systems of the container terminal.
Hackers identify the container with the mobile phone consignment and generate new
dispatch codes causing the container to be shipped to another destination. The
assured’s claim for indemnity in such case is likely to succeed, as the cover under
the ICC 2009 (A) policy is an all-risk cover, and the loss is not likely to trigger any of
the exclusions stipulated in the policy.19
However, in the context of a silent cyber cover policy, the assured will not be able
to recover if the cyber risk triggers the application of one of the exclusions in the
policy. This can be illustrated with a couple of examples. In the context of a hull &
machinery policy providing cover against marine risk (e.g., Institute Time Clauses
Hulls (ITCH) (1995)), imagine that the insured vessel was involved in a collision as a
result of her Electronic Chart Display & Information System (ECDIS) not being able
to identify another vessel laid up in a recognised anchorage in full compliance with
all relevant regulations. It transpires that a malicious code or software (distributed by
a commercial rival) was downloaded on the computer system on board, which
prevented the ECDIS from showing accurate information. Clause 26 of the ITCH
1995 stipulates that this policy will not cover “loss damage liability or expense
caused by any person acting maliciously or from a political motive”. In the marine
context, the meaning of “malicious” has generated a degree of uncertainty over the
years. In Shell International Petroleum Co Ltd v. Gibbs (The Salem)20 Mustil, J, held
that the peril of “persons acting maliciously” in the context of a cargo policy did not

19
Clauses 4–7 of the ICC 2009 (A) excludes losses attributable to the nature of the cargo (i.e.,
insufficiency or unsuitability of packaging, inherent vice of the cargo), delay, unseaworthiness or
unfitness of the vessel which the assured is privy to, war risks, strikes, terrorism, and persons acting
from a political, ideological or religious motive.
20
[1981] 2 Lloyd’s Rep 316, at 328.
Cyber Risks Insurance in the Maritime Sector: Growing Pains and Legal Problems 635

apply to a case where the fraudulent shipowners destroyed or stole the cargo owned
by the assured, because the destruction or theft of the cargo was “simply a
by-product of an operation carried out for the purposes of gain”, and no malice
was directed against the cargo or the assured. Conversely, in Strive Shipping Corp
v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Grecia Express),21
Colman, J, was of the view that the words “any person acting maliciously”, cover
casual or random vandalism and do not require proof that the person concerned had
the purpose of injuring the assured or even knew the identify of the assured.22
Recently, the Supreme Court in Atlasnavios-Navagação, LDA v. Navigators Insur-
ance Co Ltd (The B Atlantic),23 having reviewed various judicial opinions on the
subject, concluded that Colman, J’s interpretation went too far. According to Lord
Mance a “malicious act” relates to situations where a person acts in a way which
involves an element of spite or ill-will or the like in relation to the property insured,
or at least to other property or perhaps even to a person.24 Based on that interpre-
tation, in the scenario set above the assured would not be able to recover for the loss
sustained as long as the insurer could prove that the perpetrator (i.e., whoever
circulated the malicious code or software which disabled the ECDIS) was a com-
mercial rival who with “spite” or “ill-will” intended to cause damage on the insured
vessel. It should be noted that in a case where the source of the code/programme
could not be identified, given that Colman, J’s broad interpretation of the term
“malicious act” is now jettisoned, the loss caused as a result of malfunction of the
ECDIS system in this scenario will be covered under the hull & machinery policy. In
other words, there will be silent cyber cover for the collision caused by the mal-
function of the ECDIS even though the source of malfunction is a cyber attack.
Let us consider another example which relates to P & I cover by borrowing the facts
of a recent judgment mentioned earlier. In MSC Mediterranean Shipping Co SA
v. Glencore International AG,25 the cargo was stolen by unauthorised recipients who
managed to obtain pin codes sent to the consignee by the carrier for the electronic cargo
release system that operated at that port of discharge. When the legitimate holder of the
bill of lading showed up and the carrier failed to deliver the cargo, the bill of lading
holder sued the carrier for breach of contract, bailment and conversion on the basis that
the cargo should have been delivered against bills of lading and delivering the cargo
against the presentation of a pin code to an unauthorised third party amounted to breach
of the carriage contract. The first instance judge, Andrew Smith, J, gave judgment in
favour of the holder of the bill, stressing that delivery under a contract of carriage meant

21
[2002] EWHC 203 (Comm); [2002] 2 Lloyd’s Rep 88, at 96–97.
22
Colman, J, repeated this view in North Star Shipping Ltd v. Sphere Drake Insurance plc [2005]
EWHC 665 (Comm); [2005] 2 Lloyd’s Rep 76 [81–3]; aff’d [2006] EWCA Civ 378; [2006]
Lloyd’s Rep IR 519.
23
[2018] UKSC 26; [2018] 2 WLR 1671.
24
Ibid. at [22]. Cf the judgment of Flaux, J, [2014] EWHC 4133 (Comm); [2015] 1 Lloyd’s Rep
117.
25
[2015] EWHC 1989 (Comm); aff’d [2017] EWCA Civ 365.
636 B. Soyer

actual delivery, not delivery as a means of access. The judgment was endorsed by the
Court of Appeal and the carrier was found liable for breach of the contract which was
effectively the result of a data breach. Generally speaking, P & I cover offers protection
to carriers for liability they face to third parties under a contract of carriage, but P & I
Rules invariably exclude liability for delivery without production of bill of lading
(mis-delivery).26 Therefore, in this case the carrier would not be able to recover from his
liability insurer for the cyber related breach, since one of the fundamental exceptions to
liability for cargo loss or damage is triggered.

3.4 Cyber Exclusions

Most conventional marine policies (e.g., hull & machinery, war risks, cargo policies)
explicitly attempt to exclude losses caused by cyber risks. To this end, the Institute
Cyber Attack Exclusion Clause, commonly known as “CL380”, is incorporated into
policies. There are a number of variations to this clause, but in essence it provides:
. . . in no case shall this insurance cover loss damage liability or expense directly or indirectly
caused by or contributed to by or arising from the use or operation, as a means of inflicting
harm, of any computer, computer system, computer software programme, malicious code,
computer virus or process or any other electronic system.

Although the clause has not yet been subjected to judicial airing, applying general
construction rules and principles, one might easily come to the conclusion that the
scope of this exclusion is very broad. First of all, it is noticeable that the causation
triggers used in the clause have the ability to expand the scope of this exception
considerably. The use of the causation triggers such as “directly or indirectly caused
by or contributed to” in the clause, leaves no doubt that the draftsman has gone to
great lengths to ensure that the doctrine of proximate cause27 does not apply. In fact,

26
See, for example, GARD Rules 2018, Part II. Rule 34. (http://www.gard.no/web/publications/
document/chapter?p_subdoc_id¼20747996&p_document_id¼20747880- last tested on
31 December 2018).
27
In identifying the proximate cause, one needs to identify the efficient cause of the loss, not the one
which is closest in time. In Leyland Shipping v. Norwich Union [1918] AC 350, Lord Shaw, stated
at p. 369:
To treat proxima causa as the cause which is nearest in time is out of the question. Causes are
spoken of as if they were distinct from one another as beads in a row or links in a chain, but –
if this metaphysical topic has to be referred to – it is not wholly so. The chain of causation is a
handy expression, but the figure is inadequate. Causation is not a chain, but a net. At each
point influences, forces, events, precedent and simultaneous, meet; and the radiation from
each point extends infinitely. At the point where these various influences meet, it is for the
judgment as upon a matter of fact to declare which of the causes, thus, joint at the point of
effect was the proximate and which was the remote cause . . . What does “proximate” here
mean? To treat proximate cause as if it was the cause which is proximate in time is, as I have
said, out of the question. The cause which is truly proximate is that which is proximate in
efficiency.
Cyber Risks Insurance in the Maritime Sector: Growing Pains and Legal Problems 637

the case law illustrates that “directly or indirectly caused by or contributed to” is the
widest causation trigger that can be employed in the context of an exclusion clause.
In Coxe v. Employers’ Liability Assurance Corp Ltd28 at the beginning of the First
World War, an army officer was killed by a train whilst inspecting his troops who
were guarding the old South East railway near Folkestone. When he was struck by
the train at night he was walking the line at a place where the general public were
prohibited in circumstances where the lights from a nearby signal box had been
dimmed in accordance with the Defence of the Realm Act 1914. The officer had
taken out a life insurance policy which contained an exception “The policy does not
insure against death. . . directly or indirectly caused by, arising from, or traceable
to. . .war. . . .”. The court found that the death of the officer was traceable to war and
was excluded by the policy. Scrutton, J, put it elegantly29:
. . . the words which I find it impossible to escape from are “directly or indirectly.” There
does not appear to be any authority in which those words have been considered, and I find it
impossible to reconcile them with the maxim causa proxima non remota spectatur. If it were
contended that the result of the words is that the proximate cause, whether direct or indirect,
is to be looked at, I should reply that that result does not appear to me to be consistent or
intelligible. I am unable to understand what is an indirect proximate cause, and in my
judgment the only possible effect which can be given to those words is that the maxim
causa proxima non remota spectatur is excluded and that a more remote link in the chain of
causation is contemplated than the proximate and immediate cause.

Scrutton, J, was convinced that if the officer had been struck by lightning while he
happened to be at a military camp, it could not be said that his death was indirectly
caused by the war. However, in this case he had been killed by the train while
undertaking military duties, and thus his death was indeed indirectly caused by the
war. The main message that emerges from the judgment is that the use of the words
“indirectly caused by” still requires a genuine causal connection between the loss
and event, albeit not an immediate one. It is sufficient that the two are connected by a
“chain of causation”, however many links apart they may be in that chain.30 In the
context of CL380, this means that any causal connection in the chain between the
loss and use or operation of any computer, computer system, computer software
programme, malicious code, computer virus or process or any other electronic
system for the purpose of inflicting harm would be adequate to trigger the exclusion.
This would mean that if a surveillance camera in the car park of a warehouse is
disabled by a software to ensure a quick and safe escape and a cargo is stolen from a
safety deposit box vault by thieves manually disabling other security and drilling a
large hole, the loss will be excluded if CL380 is incorporated into the policy.

28
[1916] 2 KB 629.
29
Ibid. at 634.
30
This has been confirmed in Spinney’s (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep
406 and more recently in Arc Capital Partners Ltd v. Brit Syndicates Ltd [2016] EWHC 141; [2016]
Lloyd's Rep IR 253.
638 B. Soyer

Similarly, use of a smart phone to facilitate instant communication between mem-

bers of a criminal organisation which ultimately stops a truck and forcefully takes the
cargo away would be adequate to exclude liability under a cargo insurance policy
incorporating CL380. Or perhaps even more fanciful, if the truck driver is hit by a
laptop on the head, it can be argued that in the context of CL380, the resulting loss of
cargo is an excluded peril. This is possibly not intended to be within the spirit of
CL380, but preference to adopt wide causation triggers in the clause and the use of
certain words in the clause, in particular reference to the use of a “computer as a
means of inflicting harm”, points towards that conclusion.
In evaluating the scope of this exclusion clause, the second issue is whether the
insurers could still rely on CL380 in a case where the assured is the victim of a
collateral damage from a cyber attack aimed at a third party. If, for example, an
amateur hacker is circulating malware randomly, which leads the ECDIS of the
insured vessel to malfunction resulting in her grounding, would the insurer be able to
deny liability assuming that CL380 has been incorporated into the policy? Again,
there is no direct judicial guidance on the matter, but guidance can be obtained from
other authorities, and in particular the decision of the Court of Appeal in Tektrol Ltd
v. International Insurance Co of Hanover Ltd.31 There, the assured, a manufacturer
of energy-saving devices, obtained insurance to protect its assets including key data
for its products. During the Christmas period of 2001/02, the insured company lost
independent copies of the source code for its most recent energy-saving product
which were stored on a variety of mediums; on desktop and laptop computers, at a
remote site operated by a third party, and a paper copy. A virus on an email
attachment (purporting to be a Christmas card from a firm of solicitors) deleted the
source code held on the laptop and at the remote site. Upon returning after New
Year, the assured discovered their business premises had been burgled and the
desktop computers holding the source code and the paper copy had been stolen.
An indemnity claim by the assured was declined by the insurer relying on an
exclusion clause in the policy which stipulated that loss arising directly or indirectly
from: “erasure loss distortion or corruption of information on computer systems or
other records programmes or software caused deliberately by rioters strikers locked-
out workers persons taking part in labour disturbances or civil commotion or
malicious persons” is excluded from coverage. The Court of Appeal, reversing the
judgment of the trial judge,32 held that the exclusion only applied where the assured
was specifically targeted and as a result the data on computer systems was erased,
lost or distorted. Buxton, LJ, stressed that “the clause does not extend to interfer-
ences by such people that are not directed at the computer systems, etc, used by the
insured at the premises. If the insurer wished to exclude all damage caused however
indirectly by a computer hacker he needed to place that exclusion in a separate
clause, and not refer to malicious persons in the same terms as rioters or locked-out

31
[2005] EWCA 845; [2005] 2 Lloyd’s Rep 701.
32
[2004] EWHC 2473 (Comm); [2005] 1 All E.R. (Comm) 132.
Cyber Risks Insurance in the Maritime Sector: Growing Pains and Legal Problems 639

workers.”33 The decision acts as a reminder that exclusion clauses in insurance

contracts will be construed against the factual and contractual matrix, and a narrow
construction will be adopted in cases where clear language to that effect is used.34
Here, the language used in the exclusion clause was deemed to have restricted the
meaning of “malicious persons” by the placement of these words at the end of a
sentence where reference is made to rioters, strikers and persons taking part in labour
disturbances and civil commotions. A careful reading of CL380 reveals that the
position is rather different. This is a stand-alone exclusion clause that seems to put no
restriction on the type of people who could cause loss by using a computer, computer
system, computer software programme, malicious code, computer virus or process
or any other electronic system. The only requirement is that the objective of the
people causing such losses is to “inflict harm”. It is, therefore, submitted that CL380
is radically different than the exclusion clause that Buxton, LJ, considered in Tektrol
Ltd v. International Insurance Co of Hanover Ltd and is capable of excluding
liability in cases where damage can be linked to the actions of any hacker acting
with the intention of “inflicting harm”.
Also, reference to a loss caused by a “malicious code” is significant in this
context. A person who authors a malicious code with the intention of inflicting
harm to other computer users is not in a position to know where the code will end up
and what kind of cyber security systems it might penetrate. Therefore, it can
plausibly be argued that the intention of the draftsman was to exclude loss or liability
caused by the use of a computer, computer system, computer software programme,
malicious code, computer virus or process or any other electronic system by any
person as long as he intended to inflict harm to anyone including but not restricted to
the assured.
If this analysis holds true, it is clear that the scope of CL380 is so wide that it
could potentially reduce the utility of conventional marine policies if incorporated
into the policy. In the example given above (i.e., the ECDIS of the insured vessel
malfunctioning as a result of a cyber attack, resulting in her grounding, the assured
will not be able to recover even though “perils of the seas” (including grounding) is

33
[2005] EWCA 845; [2005] 2 Lloyd’s Rep. 701, at [12]. With regard to the question of liability
regarding the burglary, the insurers sought to rely on the following exclusion clause, excluding loss
arising from: “other erasure loss distortion or corruption of information on computer systems or
other records programmes or software unless resulting from a Defined Peril in so far as it is not
otherwise excluded.” It was argued that the physical loss of the data that was stored on the stolen
desktop computers and the print out were covered by the above exclusion and, as theft or burglary
was not a “Defined Peril” under the policy, that such loss could not be recovered. The majority of
the Court of Appeal (Carnwath LJ dissenting) rejected this point as well. It was held that in the
context of the whole clause, the word “loss” did not extend to physical loss by theft, but referred
only to loss by means of electronic interference. The draftsman’s use of words in this clause was
seen as “linguistic overkill” in that a number of words and phrases were used all expressing more or
less the same idea. The majority expressed the view that they would have expected the exclusion of
such a different type of loss as physical loss to be covered in a separate clause.
34
The point was made authoritatively in Impact Funding Solutions Ltd v. AIG Europe Insurance Ltd
[2016] UKSC 57. See, also, Crowden v. QBE [2017] EWHC 2597 (Comm).
640 B. Soyer

ordinarily an insured peril in most hull & machinery policies. Conscious of this
potential effect of the clause on the cover when incorporating CL380 into the
contract, the market might be prepared to offer write-backs in some instances. For
example, the London market has developed a variation of the clause for the hull &
machinery market, known as “CL380 Hull amended”. After incorporating the above
mentioned cyber exclusion into the contract, this clause effectively writes back cover
for a range of traditional perils, such as perils of the seas, fire or explosion or
negligence of master, officer, crew or pilots, even in cases where computers,
software or related systems are directly or indirectly the cause of the physical loss
emerging.

4 Conclusions

It is virtually impossible to calculate the cost of cyber crime to businesses, but it is

predicted that it will cost $6 trillion globally by 2021.35 The demand for cyber
insurance is increasing rapidly, and a modest estimate indicates that in 2018 the
insurance industry must have taken in more than $4 billion in premiums to under-
write insurance against cyber risks.36 Most recent high-profile cyber attacks to
shipping companies and ports were a reminder to the sector of the magnitude of
financial losses that they can face even when a modest cyber attack is perpetrated.
Cyber risk insurance is a relatively new type of cover, and it is not an understate-
ment to say that both insurers and assureds are on a stiff learning curve when it
comes to appreciating the extent of the cover. In the early days, most conventional
policies did not contain an express cyber exclusion clause, so in some instances
assureds befitted from non-affirmative (silent) cyber cover. However, this situation is
fast changing, and in most conventional policies (e.g., hull & machinery, energy and
cargo risks) insurers are making sure that cyber exclusions are incorporated into their
policies. The wording of the standard cyber exclusion clause (known as CL380) is
very broad and might act to the detriment of the assured, as illustrated with examples
in this paper. The author predicts that given the difficulties in defining the nature of
cyber risks, the insurers are unlikely to make any alteration in the wording of CL380,
but they will possibly offer write-backs depending on the type of policy in question.
This presents a good opportunity to assureds to negotiate a tailor-made policy
protecting them against cyber risks; but the main problem in the sector is that the
assureds are not yet fully appreciative of the extent of cyber exclusions and usually
not in a position to negotiate write-backs in an effective way.

35
https://cybersecurityventures.com/hackerpocalypse-cybercrime-report-2016/ (last tested on
31 December 2018).
36
This figure was $2.5 billion in 2014. See, http://fortune.com/2015/01/23/cyber-attack-insurance-
lloyds/ (last tested on 31 December 2018).
Cyber Risks Insurance in the Maritime Sector: Growing Pains and Legal Problems 641

Also, it is believed that as a result of lack of appreciation of the extent of the cyber
cover, the assureds on occasion end up purchasing more than one insurance product
which would respond to losses arising from cyber risks; or conversely, they would
fail to purchase adequate cyber cover. Specific cyber insurance could provide cover
to the assured against data losses, liabilities, penalties, cyber extortion, and possibly
most significantly, losses associated with business interruption. There is no standard
wording for cyber policies, but most of them would contain conditions and/or
warranties which require the assured to take reasonable precautions such as ensuring
software is patched regularly and firewalls are in place. The assureds must appreciate
the need to comply with such conditions, as otherwise they might well lose their
cover. So far, cases as to the construction of the words used in insuring clauses and
exclusions have not been given judicial airing. Given the increase in the number of
cyber policies sold annually, it is expected that more litigation will emerge in the
years to come.
Cyber exposures are not static but evolve as corporations increasingly rely more
and more on computers on a daily basis. As part of their business, cyber insurers no
doubt follow the changing trends and identify new risks. However, they still struggle
in terms of risk assessment, as cyber risk modelling is in its infancy. The shipping
corporations have only recently started appreciating the extent of cyber threats, and
many still do not realise the scope and nature of cyber risks policies available and the
relationship between such policies and conventional insurance products. It is fair to
say that the sector is experiencing growing pains; but cyber risks are increasing at an
enormous pace, and it is vital particularly for shipping corporations to appreciate
how they can utilise such products in the most efficient manner to manage risks they
face in their business.

References

Cambridge Centre for Risk Studies in collaboration with Risk Management Solutions (2017)
Managing Cyber Insurance Accumulation Risks. Can be found at: https://www.jbs.cam.ac.uk/
fileadmin/user_upload/research/centres/risk/downloads/crs-rms-managing-cyber-insurance-
accumulation-risk.pdf. Last tested on 31 Dec 2018
Cooper S (2019) Cyber risks, liabilities and insurance in the maritime sector. In: Maritime liabilities
in a global and regional context. Informa
GARD Rules 2018, Part II. Rule 34. Retrieved December 31, 2018, from http://www.gard.no/web/
publications/document/chapter?p_subdoc_id¼20747996&p_document_id¼20747880-
ICC 2009 (A)
International Maritime Organisation (IMO) (2017) Guidelines on Maritime Cyber Risk Manage-
ment, (MSC-FAL.1/Circ.3). http://www.imo.org/en/OurWork/Security/Guide_to_Maritime_
Security/Documents/MSC-FAL.1-Circ.3%20-%20Guidelines%20On%20Maritime%20Cyber
%20Risk%20Management%20%28Secretariat%29.pdf. Last tested on 31 Dec 2018
Marine Insurance Act 1906.
642 B. Soyer

Cases

Atlasnavios-Navagação, LDA v. Navigators Insurance Co Ltd (The B Atlantic) [2018] UKSC 26;
[2018] 2 WLR 1671
Atlasnavios-Navegação, LDA v Navigators Insurance Co Ltd [2014] EWHC 4133 (Comm); [2015]
1 Lloyd’s Rep 117, Flaux, J
Arc Capital Partners Ltd v. Brit Syndicates Ltd [2016] EWHC 141; [2016] Lloyd’s Rep IR 253
Coxe v. Employers’ Liability Assurance Corp Ltd [1916] 2 KB 629
Crowden v QBE [2017] EWHC 2597 (Comm)
De Maurier (Jewels) Ltd v. Bastion Insurance Co Ltd [1967] 2 Lloyd’s Rep 550
Impact Funding Solutions Ltd v. AIG Europe Insurance Ltd [2016] UKSC 57
Kumar v. Life Insurance Corporation of India [1974] 1 Lloyd’s Rep 147
Leyland Shipping v. Norwich Union [1918] AC 350
MSC Mediterranean Shipping Co SA v. Glencore International AG [2015] EWHC 1989 (Comm);
aff’d [2017] EWCA Civ 365
North Star Shipping Ltd v. Sphere Drake Insurance plc [2005] EWHC 665 (Comm); [2005]
2 Lloyd’s Rep 76 [81–3]; aff’d [2006] EWCA Civ 378; [2006] Lloyd’s Rep IR 519
Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1981] 2 Lloyd’s Rep 316
Strive Shipping Corp v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Grecia
Express) [2002] EWHC 203 (Comm); [2002] 2 Lloyd’s Rep 88
Spinney’s (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep 406
Tektrol Ltd v. International Insurance Co of Hanover Ltd. [2005] EWCA 845; [2005] 2 Lloyd’s Rep
701
The Legal Concept and Significance
of Clean Shipping Transport Documents

D. Rhidian Thomas

Abstract Under all the international conventions for the carriage of goods by sea,
whether in force or not, the carrier is obliged to issue a transport document which
records the apparent order and condition of the goods. When all is well to the visible
eye the master or other agent may represent the goods to be in apparent good order
and condition, which is the definition of a clean transport document. In this contri-
bution the duty is analysed with a view to determining its commercial significance,
legal nature and effect, and the extent to which the duty may be controlled contrac-
tually by parties to the contract of carriage. Beyond the possibility of contractual
liabilities when the duty is abused or misperformed, statements made in a transport
document are representations of fact which if false or erroneous may be the basis of
liability in tort.

1 Introduction

Transport documents issued to shippers in respect to goods carried wholly or partly

by sea may assume significant legal and commercial importance, not only in relation
to the contract of carriage but also in international trade and trade finance. The
principal categories of such documents are negotiable and straight bills of lading,
waybills and mate’s receipts, but there may be others and in general there is no
compulsion that any documentation must be issued. Nonetheless, documents will
usually be issued in accordance with commercial custom or practice, or as a
contractual or even legal obligation. When issued they may display different legal
and commercial characteristics, but in their generality they provide evidence of the
contract of carriage and as a receipt for the goods to be transported. The information
contained in the documents may provide details of the place of receipt, loading,
carriage and destination of the goods; and also the type, identity, quantity and
condition of the goods, and the dates the goods were shipped and the transport
document issued. This information may be factual in nature and provided by the

D. R. Thomas (*)
Institute of International Shipping and Trade Law, Swansea University, Swansea, Wales, UK

© Springer Nature Switzerland AG 2020 643

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_30
644 D. R. Thomas

shipper or ascertainable from the terms of the agreed contract, or it may be based on
an assessment of the condition of the goods when received and/or shipped by the
carrier.
The international conventions relating to the carriage of goods by sea all address
transport documentation but in different ways. The Hague Rules1 and Visby Proto-
col2 only apply to contracts of carriage “covered by a bill of lading or any similar
document of title”, a form of words which suggests negotiable bills of lading.3 The
Hamburg Rules4 are somewhat muddled because in their generality they identify a
contract of carriage by reference to a bill of lading or other document evidencing the
contract of carriage,5 but the powers of a shipper to demand a transport document are
limited to bills of lading.6 This position does not appear to be changed by article
18 which indicates more narrowly that “any other document” has the same basic
legal characteristics as a bill of lading.7 The Rotterdam Rules8 apply to contracts of
carriage of goods wholly or partly by sea generally without reference to the precise
transport document issued.9 But thereafter adopts a broad approach to transport
documents10 (and their electronic equivalents styled electronic transport records11)
and adopts a new language. A waybill becomes a non-negotiable transport docu-
ment12; a straight bill of lading becomes a non-negotiable transport document that
requires surrender,13 and a negotiable bill of lading becomes a negotiable transport
document.14
The transport documents are therefore a significant source of factual and eviden-
tiary information relating to the contract of carriage by sea and its performance, and
also to the identity, quantity and condition of the goods shipped.15 This information

1
International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading
and Protocol of Signature (Brussels, 25 August 1924).
2
Protocol to Amend the International Convention for the Unification of Certain Rules Relating to
Bills of Lading 1924 (Brussels 23 February 1968).
3
Art 1(b). At common law a negotiable bill of lading is recognised as a document of title, with the
consequence that the document represents or is the symbol of the goods recorded in the document:
see Treitel and Reynolds (2017).
4
United Nations Convention on the Carriage of Goods by Sea 1978 (Hamburg 31 March 1978).
5
Arts 1(6) & (7), Part IV.
6
Art 14.1.
7
Art 18 recognises that a carrier may issue a document other than a bill of lading and that such a
document is prima facie evidence of the contract of carriage and a receipt for the goods.
8
United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly
by Sea (Rotterdam 23 September 2009).
9
Art 1.1.
10
Arts 1. 14–16.
11
Arts 1. 18–20, Chpt. 3.
12
Arts 1.16, 45.
13
Art 46.
14
Arts 1.15, 47.
15
See, Baughen (2019).
The Legal Concept and Significance of Clean Shipping Transport Documents 645

may be relevant to the performance of the contract of carriage between shipper and
carrier, but may be of even greater relevance to the position of the consignee who
may come into a contractual relationship with the carrier, and, if also the buyer of the
goods, be party to a contract of sale with the shipper/seller. The general position is
that as between shipper and carrier the information in the transport documents is
prima facie evidence; but as between consignee acting in good faith and carrier it is
conclusive.16 With regard to the contract of sale the transport documents and the
information contained may have to comply or be consistent with the terms of the sale
contract, with breach sounding in damages and/or a right to reject non-conforming
documents and/or the goods.17
In this contribution the discussion is focussed on the statement in transport
documents relating to the condition of the goods shipped. Much of the discussion
will allude to bills of lading but may equally be applicable to sea transport docu-
ments generally.

2 The Nature and Scope of the Carrier’s Duty

2.1 The Basic Obligation

As a matter of commercial practice or contractual obligation the carrier, subject to a

contractual term to the contrary, is obliged to issue a transport document which
includes a statement as to the apparent order and condition of the cargo when
received for carriage or loaded on the ship. All the international conventions are in
accord in this regard.18
The duty clearly indicates that when a transport document is issued the carrier is
obliged to scrutinise the cargo at the relevant point in time and record his observa-
tions on the document. If all is satisfactory the carrier is obliged to record that the
goods have been received for shipment or shipped, as the case may be, “in apparent
good order and condition”, which in turn is the indicator of a clean transport
document. On the other hand, if damage or defect is observed this is to be recorded
on the face of the bill in the form of a notation or reservation or qualification,19 in
which case the document is described as being “claused”.20 Clausing has been
described judicially as “ a notation on the bill of lading by the master or his agent,

16
Considered infra under the title ‘The evidentiary significance of documentary representations’.
17
As would be the case under a CIF contract of sale.
18
Hague Rules arts 3.3, 3.7 & 3.3(c); Hamburg Rules arts 14.1, 15(b), 15.2; Rotterdam Rules arts
35, 36.2(a).
19
These are the various words used to describe the procedure.
20
Sometimes it is described as “unclean” which is awkward language to apply to a document.
646 D. R. Thomas

which qualifies existing statements in the bill of lading as to the description and
apparent conditions of the goods”.21
In contemporary practice it is usual to find the words “shipped in apparent good
order and condition” printed in the transport document, thereby presuming that the
goods shipped will be in apparent good order and condition unless the transport
document bears a contrary notation. If all is apparently well with the goods the
master or other agent simply signs the transport document and thereby affirms the
description in the bill. If the contrary is the case, the damage or defect is noted on the
bill, which is statement which detracts from the printed words in the bill indicating
that the good were shipped in apparent good order and condition, and results in a true
statement relating to the goods appearing in the bill of lading.22
The Hamburg23 and Rotterdam Rules also expressly state that if a transport
document fails to indicate the apparent order and condition of the goods at the
relevant time, it is deemed to have declared that the goods were in “apparent good
order and condition”.24
The words “apparent good order and condition” raise some difficulties of mean-
ing. The word “apparent” is clear enough, indicating the appearance of the goods and
is discussed further later in the text. But thereafter there is reference to good “order”
and “condition”. This raises a question whether the words are to be read separately or
as one, and if the former what is their separate meaning. In most instances it will not
be necessary to dissect the phrase, with it understood to indicate a single test to mean
what commercial parties would understand the words to mean: the phrase in its
generality indicating a single test. But occasions may arise when it will be necessary
to analyse the words closely and attribute meaning to each of the words. When this is
the case the word “good” may be understood to mean “proper”.25 There has been
greater judicial examination of the word “condition” which is considered later in the
text.26 It is of interest to note that in the Hamburg Rules the reference is to the
“condition” of the goods only.27
There is an important qualification to the duty. The statement of apparent good
order and condition relates to the goods as described in the transport document. It is
not a wider endorsement of the commercial quality of the goods or their compliance
with the terms of any sale contract relating to the goods. The obligation of the master
is to determine whether the cargo loaded “appears to satisfy the description of its

21
Sea Success Maritime Inc. v African Maritime Carriers Ltd [2005] EWHC 1542(Comm), [2005]
2 Lloyd’s Rep 692 [23] Aikens J. This statement was made in the context of an obligation under a
time charterparty but it is suggested that the statement represents the general understanding of a
claused bill of lading.
22
Sea Success Maritime Inc. v African Maritime Carriers Ltd., ibid.
23
Art 16.2.
24
Art 39.3.
25
Sea Success Maritime Inc. v African Maritime Carriers Ltd., supra.
26
Infra under the title “Condition and quality of goods distinguished”.
27
Art 15.1(b).
The Legal Concept and Significance of Clean Shipping Transport Documents 647

apparent order and condition in the bills of lading tendered for signature28”. To take
an extreme example, if goods are described as damaged in the transport document,
and the damage is observed by the master on shipment, nonetheless a clean transport
document may be issued.29 The bill of lading accurately describes the cargo shipped
on board.
In the practice of shipping the description of the goods that appears in the bill of
lading and which has been inserted by the shipper may be changed following
discussion between the parties. If the carrier is unable to accept the description in
the bill of lading the first response will not necessarily be to clause the bill but to
consult with the shipper and consider whether the description of the goods in the bill
of lading can be changed in a way that enables the carrier to accept the bill without
qualification. Where this procedure is followed, it is a perfectly proper course and the
issue of a clean bill of lading cannot be challenged.30

2.2 Standard of Vigilance

An initial question concerns the standard of the inspection to be carried out by the
carrier or his master/agent. In this regard the key word is “apparent”, which makes it
clear that the carrier is concerned only with the appearance of the cargo and is not
obliged to conduct a stringent examination.
From an early stage in the development of the law it has been held that what is
required is an external examination of the goods carried out with reasonable dili-
gence. The carrier is not required to be a detective or professional analyst; he is not
required to investigate beyond the outer skin or surface of the goods, whatever form
it may take, or to instruct or take the advice of third party specialists. The advice of
an expert third party may be sought but such a course is to be determined in the
discretion of the carrier. The carrier only falters in his duty if he fails to observe
damage or defects visible on a reasonable external inspection, and beyond that which
is reasonably visible the carrier is not expected to be aware.
The authorities indicate this to be the general approach. In The Peter der
Grosse,31 Sir R Phillimore was of the opinion that the words meant “apparently,
and so far as meets the eye, and externally, they were placed in good order on board
this ship”.32 In Silver v Ocean SS Co33 the bill of lading recorded that the consign-
ment of cans of frozen eggs had been shipped in apparent good order and condition.
The court considered that the notation was justified notwithstanding that the cans

28
The David Agmashenebeli [2003] 1 Lloyd’s Rep 92, 105 per Colman J.
29
Sea Success Maritime Inc v African Maritime Carriers Ltd, supra.
30
Ibid.
31
(1875) 1 PD 414.
32
Ibid, p. 420.
33
[1930] 1 KB 416.
648 D. R. Thomas

were punctured with pinholes because the master could not reasonable be expected
to detect their existence. But the same could not be said about the insufficiency of the
packing and the fact that the cans were seriously gashed, which were readily visible.
The law was reviewed by Colman J in The David Agmashenebeli34 who con-
cluded that the duty was as described in the previous paragraph., It was not simply
one to act honestly but also in accordance with an objective professional standard.
Although the master must exercise his own judgment as to the appearance of the
cargo, his opinion must be one that would be properly shared by a reasonable
observant master.35
The Rotterdam Rules replicate this approach and also give express recognition to
a logical extension of the requisite standard. Article 36.4 indicates that the obligation
to make a statement in the transport document of the apparent order and condition of
the goods received is based on; (a) A reasonable external inspection of the goods as
packaged at the time the shipper delivers them to the carrier or a performing party;
and (b) Any additional inspection that the carrier or a performing carrier actually
performs before issuing the transport document or electronic transport record.
Par (b) addresses a point which appears not to have been expressly considered so
far by the common law but it is the essence of common sense. If beyond the basic
demands of his obligation the carrier resolves to conduct a detailed inspection, this
must be taken into account in determining what is or should have been reasonably
known by the carrier and recorded on the bill of lading. The carrier would be
expected to know that which would reasonably be revealed by the kind of inspection
undertaken.

2.3 The Test and Packaging

The nature of the test and the standard demanded indicates that when goods are
“packaged” the carrier cannot reasonably see beyond the packaging to the contents.
In the Rotterdam Rules reference is made to the “reasonable external inspection of
the goods as packaged”.36 “Packaging” in this context is a word used widely to
include any kind of packaging, including containers and piping. In The
Athelviscount37 kerosene was pumped through pipe lines on shore into the ship’s
pipe-lines and thence into the ship’s tanks. It was held that no reasonable examina-
tion could have detected a defect in the kerosene. Consequently if the packaging
(whatever its form) appears to be undamaged and in good order the carrier is entitled
to issue a transport document which states shipped in apparent good order and
condition.

34
Supra n. 28
35
Ibid, p. 105.
36
Article 36.4.
37
(1934) 48 Ll L Rep 164.
The Legal Concept and Significance of Clean Shipping Transport Documents 649

This statement in this context applies only to the packaging and not to the
contents, and therefore will not be of significant commercial assistance to interested
parties such as buyers.38 In the case of containerised goods the “apparent good order
and condition” qualification will relate to the container and not its contents. It will be
for buyers to look after their interests by adopting other means of inspecting the
contents. But if the packaging is damaged or otherwise defective the carrier is
obliged to clause the transport document, notwithstanding that he has no knowledge
of the condition of the contents. Of course, there may be circumstances where
damaged or defective packaging may be indicative that the contents may also have
been compromised, as where a container is severely damaged or fluid is seen to be
seeping out from the container.

2.4 Condition and Quality of Goods Distinguished

The statement made by the carrier relates to the “condition” of the goods. There is a
distinction to be made between the “condition” and “quality” of goods. In general
terms it may be said that “condition” relates to the state of the goods, which can be
discerned from an external viewing of the goods, whereas “quality” relates to the
commercial fitness and/or utility of goods. The latter is a significant element in
contracts for the sale of goods and in respect of which the carrier of the goods is not
expected to have any concern. Nonetheless, the distinction can be elusive and it is
possible for the defective condition of goods to impact upon their commercial
quality. But again the carrier need not be concerned with such niceties.
In The Athelviscount39 a cargo of kerosene was pumped on board the chartered
vessel and described in the bills of lading as “Rumanian export type kerosene”, a
product which had a water white colour. The bills indicated that the cargo had been
“shipped in good order and condition” and the master’s signature was qualified by
the words “Weight, quantity and quality unknown to me”. It was subsequently
discovered on analysis that the kerosene was discoloured but the master could not
visibly discern any discolouration. In the context of a question whether the carrier
was estopped as against the receivers from alleging that the kerosene had been
contaminated when pumped on board, the court held that the defect was not one of
“condition” which related to the external and apparent condition of the kerosene, but
one of “quality” which was not usually apparent to an unskilled person. The master
had no authority to make any representation as to the quality of the kerosene pumped
on board.

38
The TNT Express [1992] 2 Lloyd’s Rep 636, Sup Ct (NSW).
39
Supra n. 37
650 D. R. Thomas

2.5 Time When the Test Is Applied

In the case of a shipment transport document, the representation applies to the goods
at the time when they are loaded on board the carrying ship: in the case of a received
for shipment transport document, it is at the time when the goods are received for
shipment by the carrier. The representation describes the condition of the goods at
either specific point in time. It is far from indicating or guaranteeing that the goods
will arrive at their destination in good order and condition.
The position is dramatically illustrated by the facts in The Galatia.40 After part of
a consignment of sugar was loaded on board the carrying ship a parcel of 200 tonnes
was damaged by fire and discharged. A separate bill of lading was issued in respect
of the 200 tonnes of damaged sugar which contained a printed clause that acknowl-
edge that the sugar had been shipped in apparent good order and condition. There
was also attached a note indicating that the sugar to which the bill related had been
discharged because of damage caused by fire and/or water. It was held that the bill
was a clean bill because it contained nothing that qualified the statement that “at the
time of shipment” the goods were in apparent good order and condition. The damage
by fire had occurred after loading.

3 The Preconditions to a Valid Notation

The question arises whether there is a substantive precondition to a valid reservation.

Is it sufficient simply to make a bald statement to the effect that the goods have not
been received/shipped in apparent good order and condition or is the carrier obliged
to explain, at least to some degree, the nature of the observable damage or defect?
Quite clearly, if the notation on the transport document is wrong or unjustified the
carrier is in breach of contract. The immediate issue is whether in circumstances
when the carrier is justified in clausing the transport document, to be effective must
the clausing be formulated in a certain way.
There is little guidance in the international conventions as to how precisely the
carrier is to proceed. In the Hamburg Rules it is indicted with regard to details in the
bill of lading provided by the shipper41 that a reservation by the carrier must
“specify” the inaccuracies, grounds of suspicion or the absence of reasonable
means of checking.42 A similar provision is found in the Rotterdam Rules again
relating to information provided by the shipper43 and where it is indicated, in the
applicable circumstances, that the qualification must indicate the information the

40
[1979] 2 All E R 726, [1980] 1 All E R 501, [1980] 1 Lloyd’s Rep 453(CA).
41
Set out in art 16.1.
42
Art 16.1.
43
Art 36.1.
The Legal Concept and Significance of Clean Shipping Transport Documents 651

carrier was unable to check and state what the carrier reasonably considers to be the
accurate information.44
There is nothing further expressly indicated in the conventions relating to a
statement appertaining to the condition of the goods. It might be considered implicit
that in the event that the goods are not considered to be in apparent good order and
condition the reservation must give a brief statement as to why this is considered to
be the case. For example, it may be stated that the container is dented or bags torn or
steel coils rusty. In the alternative, the matter falls to be governed by the applicable
law of the contract of carriage.
In English law the issue was consider in The Agnashenebeli,45 where it was
accepted that to be valid a reservation had to satisfy certain substantive criteria. On
the facts of the case the master claused a bill of lading relating to the bulk shipment
of a cargo of urea in the following manner—“Cargo discoloured also foreign
materials e.g. plastic, rust, rubber, stone, black particles found in cargo”. Colman J
was of the opinion that there was not any particular linguistic formula for expressing
a qualification in a bill of lading but it was necessary for it to reflect reasonably
closely the apparent good order and condition of the cargo, in particular the extent of
any defective condition which the master reasonably concludes it to possess.46 The
master had been justified in noting the discolouration but only about 1% of the cargo
was discoloured and the notation made no mention of this. To this extent the master’s
notation was misleading. There had been contamination of the cargo by the presence
of foreign matter but it was very minor and did not exceed a few kilos. A reasonably
observant master would not have seen it fit to note this degree of contamination in
the bill of lading.47 Accordingly, the carrier was in breach of contract in issuing a bill
of lading with the notation made by the master.

4 Can the Contractual Obligation Be Excluded?

With regard to information in the bill of lading provided by the shipper it is accepted
that the carrier may in prescribed circumstances avoid responsibility for its accuracy
by qualifying the document in an appropriate manner. This is justified, at least in
part, by the fact that the carrier many not know or have the reasonable means of
discovering the true factual position.48
The immediate question is whether the carrier has a similar right to avoid
responsibility for the good order and condition of the cargo by qualifying the bill
by words such as “condition unknown”. This is a very different kind of obligation

44
Art 40.3.
45
Supra n. 28.
46
Ibid, p. 105.
47
Ibid, p. 114.
48
Hague/Hague Visby Rules Art 3 (Proviso), Hamburg Rules Art 16.1, Rotterdam Rules Art 40.
652 D. R. Thomas

which is imposed on the carrier and demands the exercise of a judgment. It is to

externally assess cargo shipped or received for shipment and, as previously
observed, is of a “low order”.49 Beyond the question of policy, it is difficult to
contemplate any reasonable commercial and practical circumstance when the carrier
acting through the agency of the master or other party would not be able to perform
this responsibility. The duty calls not for the confirmation of a factual statement
provided by the shipper, but a judgment by the carrier.
It is noteworthy that the international conventions do not expressly recognise
such a right. Whereas it is acknowledged that carriers may qualify the bill of lading
and avoid responsibility for factual information provided by the shipper,50 this
concession is not expressly extended to the duty to declare the order and condition
of the cargo. This might be viewed as evidence which implies that such a qualifica-
tion is void as a provision which lessens the liability of the carrier otherwise than as
permitted by the convention.51
The position under the common law does not appear to have been expressly
decided but there have been tangential and inconclusive determinations.52 But this
question is now of little significance for rarely would a contract of carriage by sea not
be governed by the terms of an international convention or national law giving effect
to the terms of such a convention.

5 Can the Parties Contractually Define When Goods Are

to Be Regarded as in “Apparent Good Order
and Condition”?

The question in issue is whether parties may agree or indicate that goods shipped are
to be acknowledged as being in apparent good order and condition notwithstanding
that they may be damaged or otherwise defective.
In a general sense this is always possible because, as previously observed, the
representation as to the order and condition of the cargo relates to the description of
the cargo in the bill of lading. If the description includes damage and/or other
deficiencies the master/agent may acknowledge the apparent good order and condi-
tion of the cargo notwithstanding visible damage and/or deficiencies because what is
being shipped corresponds with the description in the bill.53
The more particular issue is whether the same result can be achieved by a standard
contractual provision. A significant example is the so-called “Retla” clause which

49
Supra, under the title, ‘The nature and scope of the carrier’s duty’.
50
Supra n. 48.
51
Hague/Hague Visby Rules Art 3.8, Hamburg Rules Art 23.1, Rotterdam Rules Art 79.
52
The Peter der Grosse The Sharp (1875) 1 PD 414; [1935] P.134 Canada & Dominion Sugar Co
Ltd v Canadian National (West Indies) SS Co [1947] A.C. 46.
53
Supra ns 28 & 29.
The Legal Concept and Significance of Clean Shipping Transport Documents 653

takes its name from the US case in which its effectiveness was tested and accepted.54
The bill of lading issued in respect of the shipment of a consignment of irrigation
pipes and galvanized and ungalvanized plumbing pipes included the following
provision:
. . . the term ‘apparent good order and condition’ when used in this bill of lading with
reference to iron, steel or metal products does not mean that the goods, when received, were
free of visible rust or moisture. If the shipper so requests, a substitute bill of lading will be
issued omitting the above definition and setting forth any notations as to rust or moisture
which may appear on the mates’ or tally clerks’ receipts.

The court attributed to the clause its literal meaning. The carrier made no
representation that the metal products shipped were free from rust or moisture, and
more particularly that all surface rust was excluded from the representation as to
apparent good order and condition.
The clause came before an English court in The Saga Explorer55 which accepted
the validity of the clause but analysed it differently. As a question of construction the
clause was held not to apply to all rust, only to rust that could be consider as minor
and superficial, the kind of rust associated with steel cargoes generally. Further, the
effect of the clause was not to counter the apparent good order and condition
representation in the bill of lading but to qualify it. It indicated that there might be
the appearance of rust and moisture of a type which could be expected to appear on
any cargo of steel, the result of superficial oxidation caused by atmospheric condi-
tions. On the facts of the case the rusting of the cargo of steel pipes was more
significant than the toleration permitted by the clause and the bill of lading should
have been qualified accordingly.
The decision in The Saga Explorer dos not provide a conclusive answer to the
question initially posed or to the validity of Retla and similar clauses in transport
documents. Where any of the international conventions apply, or form the basis of
national law, it is at least arguable that their effect is to lessen the carrier’s liability
and that they are consequently void.56 On the other hand, they may serve the
interests of commercial practice by giving certainty to the otherwise ambiguous
words “apparent good order and condition”.

6 The Evidentiary Significance of Documentary

Representations

The core significance of a clean bill of lading is evidentiary. When a clean shipped
on board bill of lading has been issued it provides evidence of the condition of the
goods at the time of loading. If at the discharge port the goods are discovered to be

54
Tokyo Marine & Fire Ins Co Ltd v Retla SS Co [1970] 2 Lloyd’s Rep 91 (9th Cir).
55
[2013] 1 Lloyd’s Rep 401.
56
Supra n. 51.
654 D. R. Thomas

damaged there is at least an inference that the damage was caused in transit when in
the possession of the carrier, with the evidentiary burden on the carrier to explain the
cause of the damage.57 The precise evidentiary position differs as between shipper
and carrier, consignee/receiver and carrier.
As between shipper and carrier the words “shipped in apparent good order and
condition” are prima facie evidence as to the condition of the goods when received
by the carrier either for shipment or at the time of shipment.58 Thereafter the burden
of proof is on the carrier to rebut the prima facie evidence and adduce evidence that
the goods when received or shipped were damaged or otherwise defective.59
The position is different as between carrier and consignee/receiver. This position
arises when the consignee/receiver is a different entity from the shipper, for example
the buyer of the goods in transit who may also have acquired contractual rights under
the contract of carriage.60
At common law the phrase “apparent good order and condition” amounts to a
representation of fact. If the consignee/transferee of the document acting in good
faith does so rely on the statement an estoppel is established. The effect of the
estoppel is to deny the carrier the right to adduce evidence to counter the represen-
tation suggested by the words and which thereupon are treated as conclusive
evidence.61 This continues to be the case even if the goods were actually damaged
when received by the carrier and of which the carrier was aware.
Under the international conventions the position is the same, save that the words
“proof to the contrary shall not be permissible” are substituted for “estoppel”. The
protection is again subject to the condition that the consignee/receiver has acted in
good faith.62
Of course, in the event that the transport document is claused its evidentiary
significance is nullified. It is neither prima facie nor conclusive evidence.

7 Wider Potential Legal Liabilities

Beyond contractual liabilities and evidentiary consequences, there are many liabil-
ities that may arise in connection with statements made in a bill of lading relating to
the condition of goods shipped or to be shipped.
It has already been observed that the carrier may be imposed upon to issue a clean
bill of lading notwithstanding that the goods are visibly damaged or otherwise

57
Volcafe Ltd and Others v Compania Sud Americana de Vapors S (Trading as CSAV) [2018]
UKSC 61.
58
Hague and Hague-Visby Rules art 3.4; Hamburg Rules art 16.3(a); Rotterdam Rules art 41(a).
59
Supra n. 57
60
In the context of English law under the Carriage of Goods by Sea Act 1992.
61
Cia Nav Vasconcada v Churchill & Sim [1906] 1 KB 237.
62
Hague-Visy Rules art III.4; Hamburg Rules art 16.3(a) and (b); Rotterdam Rules art 41(b) and (c).
The Legal Concept and Significance of Clean Shipping Transport Documents 655

defective. In practice this will usually be agreed to only if the shipper provides a
letter of indemnity protecting the carrier for any liabilities that may result. The
potential primary liability of the carrier is in contract to the receiver for the delivery
of damaged goods, the receiver taking advantage of the conclusive evidence rule.63
The conduct of the carrier in this kind of circumstance will not necessarily be
unjustified. Obviously, if on the facts it is clear that the bill should have been claused,
the carrier, being aware of the potential deception, is acting fraudulently and
consequently the letter of indemnity is void.64 But situations may arise when there
is genuine uncertainty as to whether the bill should be claused, in which case an
agreement not to clause the bill in return for a letter of indemnity may be an
acceptable way of avoiding a commercial impasse.65 Also, in this circumstance
there is no implication of fraudulent design and presumably the letter of indemnity
would be valid.
Inaccurate statements in a bill of lading may also be the basis of tortious
liability.66 To issue a bill of lading that states that the goods have been shipped in
apparent good order condition, knowing the statement to be false and that transferees
of the bill will rely on its accuracy, amounts to a fraudulent misrepresentation and
constitutes the tort of deceit.67 The advantage of this tortious remedy is that it entitles
the receiver to recover damages from the carrier for all direct loss suffered and,
therefore, beyond that recoverable in an action under the contract of carriage.68
Apart from the vicarious liability of the carrier, the actual tortfeasor, the party who
signed the bill of lading, is also directly liable.69
A less likely event in practice is for the bill of lading to be intentional and
maliciously claused, notwithstanding that the goods are in apparent good order
and condition. This again is a dishonest representation which amounts to the tort
of deceit.
There is also the possibility that the carrier may wrongly and negligently clause
the bill of lading with the consequence that the shipper/receiver suffers loss, as where
the associated contract of sale is terminated or the seller is obliged to pay damages or

63
Supra, under the title ‘The evidentiary significance of documentary representations’.
64
Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621; [1957] 2 Lloyd’s Rep
1.
65
See supra n. 30, for the practice relating to party negotiation about the way cargo is to be described
in the bill of lading.
66
Sea Success Maritime Inc v African Maritime Carriers Ltd [2005] 2 Lloyd’s Rep 692 [20] per
Aiken J.
67
The Saudi Crown [1986] 1 Lloyd’s Rep 261, a case where the bill of lading had been incorrectly
dated.
68
Smith New Court Securities v Citibank NA [1997] AC 254.
69
Standard Chartered Bank v Pakistan National Shipping Corp. and Others (No 2) [2002] UKHL
43, [2003] 1 Lloyd’s Law Rep 227.
656 D. R. Thomas

agree a decrease in the price. In this circumstance the carrier may be liable in the tort
of negligence.70

8 Final Comment

There is much more to the obligation of the carrier, acting through the agency of the
master, tally clerk or some other party, to make an assessment of the order and
condition of the cargo at the time it is received for shipment or actually shipped than
might initially be thought to be the case. The strong tendency in contemporary
transport documents is to assume that all is well with the goods so far as the eye can
see, underwritten by the printed words that the goods have been “received/shipped in
apparent good order and condition”. This creates a de facto presumption that issued
transport documents are clean unless qualified by a notation which detracts from the
printed representation in the bill of lading.
With regard to international trade there is an understandable emphasis on the
necessity to present clean transport documents, which is predominantly a term of
international sale contracts and if not complied with justifies the rejection of the
document and termination of the contract.71 It is also a requirement under documen-
tary credits.72 This accounts for the pressure sea carriers may be exposed to by
shippers when they are informed of the intention to clause the bill of lading or other
transport document. For the shipper/seller the consequences may be drastic and the
carrier may be tempted to assist his customer by agreeing to what might appear as an
innocent administrative manipulation of the paperwork. The outcome is often
submission to the persuasive pleading of the shipper in return for a letter of
indemnity.
As the preceding analysis and exposition has indicated, this is far from being an
innocent situation for carriers. To the contrary it is strewn by potentially grave
problems and exposure to a range of legal liabilities and disabilities. Even the letter
of indemnity, so widely used in shipping and international trade to circumvent the
consequences of routine trading difficulties, may be void.

References

Baughen S (2019) Sipping law, 7th edn., chp 3. Routledge, Abingdon

Treitel G, Reynolds F (2017) Carver on bills of lading, 4th edn. Sweet & Maxwell, London

70
Under the principle in Hedley Byrne & Co v Heller & Partners [1964] AC 465 as subsequently
developed and the Misrepresentation Act 1967, section 2(1).
71
This is usually the case with regard to international sale contracts based on INCOTERMS.
72
The Uniforms Customs and Practice for Documentary Credits (UCP 600), Article 27, sets out a
definition of “Clean Transport Document” and also indicates that a bank will only accept a clean
transport document.
Liability Insurer’s Right to Limit Liability
for Maritime Claims: English and Chinese
Law Perspectives

Yuanjun Xia

Abstract Limitation of liability was once upon a time a phenomenon unique to

shipping law but today it embraces aviation and land-based transportation as well.
This article is concerned with the right of liability insurers to limit their liabilities
under relevant international conventions and domestic legislation focusing on the
respective laws of the United Kingdom and China. It is postulated that there are two
modalities or methodologies pursuant to which such rights are conferred. In line with
statements made by scholars in the field, one is described as the parasitical mode
exemplified in the global Limitation Convention of 1976 amended by its Protocol of
1996; the other is referred to as the independent mode, promulgated mainly through
the ship-source pollution conventions, the first of which was the Civil Liability
Convention of 1969, later replaced by the convention of 1992 bearing the same
name. The article presents a comparative analysis of the two modalities and con-
cludes that the independent is the better option to follow in the interests of shipping
as a whole, including the national interests of China. It is thus proposed that the
LLMC 1976/1996 Convention be suitably amended to reflect this preferred propo-
sition. As well, corresponding changes to the extant Chinese legislation should be
made to establish the independent mode of application of the rule of liability
insurers’ right to limit liability.

1 Introduction

Limitation of liability is a phenomenon that was hitherto unique to shipping law.

That being said, it has undergone evolutionary changes in terms of its scope and
application. Today, it embraces aviation and land-based transportation. Arguably,
the phrase “limitation of liability” is imprecise at best and a misnomer at worst.1 That
is because, the aim of the legal regime in question is not to limit the perpetrator’s

1
Mukherjee (2009), p. 40.

Y. Xia (*)
Dalian Maritime University, Dalian, PR China

© Springer Nature Switzerland AG 2020 657

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_31
658 Y. Xia

liability but rather, the compensation payable, if he is found to be liable. It is stated

by a noted author that liability is the measure of conduct that is reprehensible or
repugnant in the eyes of the law whereas compensation, otherwise known as
damages in common law jargon, is the remedy provided by the law to one who
suffers loss, damage or injury resulting from such conduct. Thus, liability is quali-
tative in nature whereas compensation is quantitative.2 To put it in precise terms and
in proper context, it is submitted that the phrase should be “limitation of damages”
(or compensation) and not “limitation of liability.” Arguably, however, “liability” in
the latter expression means the compensation that the perpetrator is “liable” to pay to
the victim of his act or omission which has proximately caused his loss, damage or
injury.
This chapter addresses a specific aspect of law within the realm of limitation of
liability; that is the entitlement of limitation in respect of a liability insurer. Follow-
ing this Introduction, the article refers in summary form to the fact that the law and
practice of limitation of liability in international shipping has been largely tempered
by convention law, and that in the present milieu, there are several convention
instruments some governing what is known as “global limitation” and others,
addressing specific subject matters, whereby, virtually all aspects of shipping are
covered by limitation regimes. A central purpose of the paper is to present the
Chinese law on the subject of the insurer’s right to limit liability, the state of the
law which is primarily statute-based and its underlying principle. Reference is made
to English legislation and case law which tangentially points to a comparative
appreciation of how the convention law is embraced in the two jurisdictions. In
finality, some speculative conclusions are made with respect to which modalities
pose as the best choices in which situations. Proposals are made for amending the
relevant convention instruments and corresponding domestic legislation giving
effect to these amendments.

2 Historical Evolution

It is said that the origins of limitation of liability are lost in obscurity and “was
probably not a concept derived from the general maritime law”.3 In historical terms,
connotations and traces of it are reportedly to be found in the Mosaic law of the Old
Testament biblical era and the doctrine of noxae diditio in Roman law.4 Latterly, the
traditional maritime custom and practice of limitation was recorded in medieval

2
Id. p. 41.
3
Meeson and Kimbell (2011), p. 283. See in particular footnote 5 at that page citing various sources
relating to the obscurity of its origins.
4
Pursuant to this doctrine, person liable to another for damage or harm could discharge his liability
by simply surrendering the offending instrument of which he was the owner. See Gauci
(1995), p. 65.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 659

maritime codes such as the Rôles d’Oleron and the Consolato del Mare and became
entrenched in national legislation of the European Continent such as the Swedish
Maritime Code of 1667 and a French Ordinance of 1681.5 In 1733, English ship-
owner’s made a petition to Parliament which resulted in the enactment of the first
legislation in that jurisdiction on limitation of liability.6 In contemporary times, the
notion of limitation of liability has been entrenched in international convention law
and given effect through national legislation of state parties.

3 Basic Characteristics of Limitation of Liability

Among several other facets to this phenomenon originally peculiar to shipping is that
it has characteristically been treated not as a legal right but rather as a privilege
emanating from a consideration of public policy. An oft-quoted dictum of the
inimitable Lord Denning M.R. stated in The Bramley Moore7 is that “there is not
much justice in this rule; but limitation of liability is not a matter of justice, it is a rule
of public policy which has its origin in history and its justification in convenience”.
In The Amalia,8 the great English Admiralty judge Dr. Lushington expressed a
similar view regarding limitation of liability, that it was driven by the needs of
public policy. An outcrop of this observation is that limitation of liability is an
exception to the general rule of restitutio in integrum under which a liable party is
required to pay restitution in full to the party who has suffered loss, damage or
injury.9
A related observation is that since the inception of this phenomenon, a ship-
owner’s limitation of liability was based on the value of his ship which served as a
natural limitation. In other words, a shipowner could not be liable for any amount
greater than the value of his ship. In bygone times, size dictated value and size was
denoted by the ship’s tonnage. Even to this day, the standard for computation of the
maximum amount for which the shipowner can be liable is the tonnage of his ship.
But it is fallacious to conclude that size dictates value anymore. There are relatively
smaller vessels like luxury yachts which could quite conceivably command a higher
value than a conventional merchant ship. Aside from tonnage as a parameter, in
appropriate circumstances, there are such phenomena as package limitation relating
to cargo found in carriage of goods conventions. Limitation of liability in respect of
carriage of passengers is treated differently as is limitation with respect to ship-
source pollution and nuclear damage through their respective conventions. As
mentioned above, all manner of limitations not falling under these specific subject

5
Meeson and Kimbell (2011), supra note 3, p. 284.
6
Responsibility of Shipowners’ Act, 7 Geo II, c. 15.
7
[1963 ] 2 Lloyd’s Rep. 429.
8
(1863), Br. & Lush151; 176 E.R. 323.
9
Mukherjee (2009), supra, note 1, p. 42.
660 Y. Xia

matters of liability are encapsulated by the so-called “global limitation” convention

regime. Furthermore, in the realm of the current convention law on global limitation,
in addition to shipowners, salvors are also entitled to limit liability. Indeed, the
convention definition of “shipowner” includes owner, charterer, operator and man-
ager, thus further expanding the varieties of entities entitled to limit liability.10
An important feature of limitation law is that the right associated with it is
considered to be substantive law, as it is entwined with the merits of the case, but
the quantum of limitation is a procedural matter and therefore subject to the lex fori.
In English law, however, the situation is different. In Caltex Singapore Pte and
Others v. B.P. Shipping Ltd.,11 Clark J. held that in terms of English law, limitation
of liability would not be characterised as substantive law of Singapore to be
recognised as the lex loci delicti commissi for the purposes of proceedings in an
English court. An English court would apply the 1976 LLMC Convention as a part
of the lex fori.12 It is submitted that this is anomalous at best since the merits of a case
on which liability, if any, is determined and consequently, the right to limit liability,
are substantive matters which should be subject to the lex causae. As stated by
Meeson and Kimbell, the legal position stated by Clarke J. and endorsed by others is
not wholly supported in other common law jurisdictions.13

4 Limitation Regimes Under Conventions

This chapter is concerned with convention law, and in this vein, it must be noted that
two successive conventions were adopted in 1924 and 1957 respectively, in which
limitation of liability was granted exclusively to shipowners of sea-going ships; not
covering any others.14 Among the specific subject matter IMO Conventions, the first
was the Nuclear Liability Convention of 196215 which has not yet entered into force.
In 1969, following the Torrey Canyon oil spill disaster of 1967, the Civil Liability
Convention (CLC) was adopted under the auspices of the International Maritime
Organization (IMO)16 followed by the adoption of the companion instrument known

10
Convention on Limitation of Liability for Maritime Claims (LLMC), 1976, Article 1(2), 1456
UNTS 221.
11
[1996] 1 Lloyd’s Rep. 286.
12
See Meeson and Kimbell (2011), supra, note 3, pp. 290–291.
13
Id. p. 291.
14
International Convention for the Unification of Certain Rules Relating to the Limitation of
Liability of Owners of Sea-Going Ships, 1924, http://twmla.org/wp-content/uploads/2015/11/Lim
itation-Conventions-1924.pdf; and International Convention Relating to the Limitation of Liability
of Owners of Sea-Going Ships, 1957, 1412 UNTS 73.
15
Convention on the Liability of Operators of Nuclear Ships, 1962, 57 AJIL 268 (1963).
16
International Convention on Civil Liability for Oil Pollution Damage, 1969, 973 UNTS 3.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 661

as the Fund Convention in 1971.17 In 1974 the Athens Convention on Passengers

and their Luggage (PAL) Convention was adopted with its own limitation regime.18
This convention was modified through its Protocols of 199019 and 200220 which
basically altered the limitation amounts. The global limitation Convention of 1976
was amended as well through its Protocol of 1996 providing for higher limits of
liability. Incidentally, the CLC and Fund Convention were revised through their
respective Protocols of 1992, now referred to as the CLC 1992 and Fund Conven-
tion, 1992,21 which have significantly higher limits of liability. The Fund Conven-
tion also has the Supplementary Fund Protocol, 200322 which has even higher
limitation amounts. Among other ship-source pollution liability conventions are
the Hazardous and Noxious Substances Convention (HNS), 1996 Convention23
and the HNS 2010 Protocol,24 and the Bunkers Convention, 2001.25
Apart from the above, which are all IMO Conventions, there are the conventions
on carriage of goods by sea, namely, the Hague Rules, 1924,26 the Hague-Visby
Rules, 196827 and the Hamburg Rules, 1978,28 all adopted under the auspices of the
United Nations Conference on Trade and Development (UNCTAD) or United
Nations Commission on International Trade Law (UNCITRAL). In 1980, the Mul-
timodal Convention was adopted but has not entered into force.29 The latest such
commercial carriage of goods convention is the Rotterdam Rules adopted in 2008
which has also not entered into force.30 All these conventions have limitation
regimes of their own.

17
International Convention on the Establishment of an International Fund for Compensation for Oil
Pollution Damage, 1971, 1110 UNTS 57.
18
Athens Convention Relating to the Carriage of Passengers and Their Luggage by Sea, 1974, 1463
UNTS 19.
19
http://library.arcticportal.org/1700/1/Athens_convention_compilation.pdf.
20
http://library.arcticportal.org/1700/1/Athens_convention_compilation.pdf.
21
1956 UNTS 255; 1953 UNTS 373.
22
IMO Doc. LEG/CONF.14/20.
23
International Convention on Liability and Compensation for Damage in Connection with the
Carriage of Hazardous and Noxious Substances by Sea, 1996, I35 ILM 1406.
24
http://www.hnsconvention.org/fileadmin/IOPC_Upload/hns/files/2010%20HNS%20Protocol_e.
pdf.
25
International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, I40
ILM 1493.
26
International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading,
1924, 120 LNTS 187; 51 Stat. 233.
27
Protocol to Amend the International Convention for the Unification of Certain Rules of Law
Relating to Bills of Lading, 1968, 1412 UNTS 127.
28
United Nations Convention on the Carriage of Goods by Sea, 1978, 1695 UNTS 3.
29
United Nations Convention on International Multimodal Transport of Goods, 1980, UN Doc.
TD/MT/CONF/16 (1980).
30
United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly
by Sea, 2008, A/RES 63/122.
662 Y. Xia

5 Limitation Rights of Insurers and Modalities

of Application

5.1 Preliminary Remarks

What is relevant to the present discussion is that most of the above-noted conven-
tions have provisions relating to the right of the liability insurer to limit liability.
First, the relevant rule is presented followed by the methodology for its application.
The right of the insurer to limit liability, in the first instance, flows from the so-called
right of “direct action” allowing a party who has suffered loss, damage or injury and
has a cause of action against the shipowner, charterer or salvor, as the case may be, to
directly sue the insurer for compensation. That said, the manner in which “direct
action” as a term of art is to be construed requires some analytical thought. At any
rate, it is submitted that there are two different modalities discernible in convention
instruments which are correspondingly reflected in domestic legislation in different
jurisdictions. In this work, we are concerned with the legislation of the United
Kingdom and China. Their respective pros and cons are discussed analytically in
the text below.

5.2 The So-Called Parasitical Mode

The term “parasitical” is a metaphorism which derives from the nature of living
organisms known as parasites, to cling to other organisms to sustain their own
existence. In the present context, the term is used to describe the modality through
which a liability insurer is able to limit liability through dependence on his assured’s
legal right to do so when the insurer is subjected to direct action by a third party who
has a claim against the assured. In the LLMC 1976/1996 Convention, the right of
direct action can be derived from Article 1(6) which provides that “[A]n insurer of
liability for claims subject to limitation in accordance with the rules of this Conven-
tion shall be entitled to the benefits of this convention to the same extent as the
assured himself”. It is notable that no such provision exists in the global Limitation
Convention of 1957.31 In the words of a duo of well-known authors, Article 1(6) of
the LLMC 1976/1996 Convention simply declares that:
the right to limitation to which the assured is entitled may be enjoyed by his insurer, whether
he be sued by the assured or the third party. In this sense, the benefit of limitation conferred
by Article 1(6) to the insurer could be described as parasitical in nature; one way or another,
either through the assured or the third party, he feeds upon the right to limitation which the
law has conferred upon his host, the assured.32

31
Griggs et al. (2005), p. 15.
32
Hodges and Hill (2001), p. 539.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 663

Basically, this means that the liability insurer’s right of limitation is dependent on
and pre-conditioned by the assured’s entitlement to limit; in other words, the liability
insurer would be prevented from invoking limitation if his assured himself is barred
from that privilege. In essence, if the assured is deprived of the right to limit, so is the
fate suffered by the insurer, namely, loss of the corresponding right. The merits of
this viewpoint are strengthened by a reasoned appreciation of Article 1(6) pursuant
to which the insurer is not entitled to limit his liability as per Articles 1(1) and (4), but
is simply entitled to enjoy the “benefits” of limitation to the same extent as the
assured himself. It is noteworthy that Article 1(4) which is incidental to our discus-
sion, provides for the right of any person for whose act, neglect or default, the
shipowner is responsible, to avail himself of limitation under the Convention. It is
the view of some authors that such “right to limit liability is parasitic on the
shipowner”.33 This is being mentioned simply to highlight the use of the term
“parasitic” in the connotation in which it is used in this article. But there are others
of a contrary view who postulate that the right of limitation made available to a
person as referred to in Article 1(4), is not parasitic but rather is independent of the
shipowner’s right to limit.34
In terms of English law, the legal position can be gleaned from section 1(1) of the
Third Party (Rights Against Insurers) Act, 1930 which provides for a transfer of
rights from the assured to a third party who has suffered a wrongful act perpetrated
by the assured wrongdoer. Thus, in effect, a third party can proceed directly against
the liability insurer so long as all the conditions in the said section 1(1) are met.
Essentially, however, it must first be established that the insured has incurred a
liability towards the third party in respect of which the assured is entitled to be
indemnified by the insurer.35 The net effect of section 1(1) of the Act of 1930 is that a
third party who has suffered loss, damage or injury is afforded a statutory assignment
of assured’s rights under his policy to enable him to bring an action against the
insurer in the same manner as the assured would have. As provided in section 1(4) of
the legislation, the insurer is subject to the same liability vis a vis the third party as
the assured himself.36 It is notable in this context that this legislation has been
repealed and replaced by an Act of the same name enacted in 2010.37 In that
sense, it can be said that a third party in the position of an unsatisfied creditor of
the assured, steps into the latter’s shoes” and becomes subrogated to his rights
against the insurer, although it must be recognised that any such right would be
subject to the terms of the policy or any applicable legislation such as the Marine
Insurance Act 1906. Thus, there would be no subrogated right in favour of the third

33
Meeson and Kimbell (2011), supra note 3, p. 301.
34
Hodges and Hill (2001), supra, note 32, pp. 531–532.
35
Id. pp. 533–534.
36
Id. pp. 537–538.
37
Meeson and Kimbell (2011), supra, note 3, p. 302.
664 Y. Xia

party if the assured was found to be in breach of an express or implied warranty in

the policy.38
In The Fanti/The Padre Island,39 the House of Lords held that a third party
claimant stepping into the shoes of an assured pursuant to the 1930 Act could not
recover from a P&I Club if the assured had failed to comply with the Club’s Rules.
Thus, the third party’s rights under the legislation would be subject to the contractual
provisions of the insurance. In this regard it has been opined that while on the one
hand the liability insurer’s rights might have been unintentionally prejudiced by
Article 1(6) of the LLMC 1976/1996 Convention, given the requirement for com-
pliance with the express terms of the insurance policy or s. 55(2) of the Marine
Insurance Act 1906, on the other hand, the Convention having the force of law in the
United Kingdom by virtue of s. 185 of the Merchant Shipping Act 1995, the insurer
has, under the convention, the same right to limit his liability as the assured.40

5.3 The Independent or Separate Identity Mode

In contrast to the conventions and domestic legislation exemplifying the application

of the methodology exemplified by Article 1(6) of the LLMC 1976/1996 Conven-
tion, otherwise referred to as the parasitical method, the so-called independent mode
of application of limitation in respect of the liability insurer, which gives him an
identity separate from his assured regarding the right to limit liability, operates under
an opposite premise.41 An important observation in this regard is that the indepen-
dent mode is compatible with compulsory insurance which is mainly provided for in
the ship-source pollution conventions and corresponding legislation giving effect to
them. This modality, first demonstrated by Article VII (8) of the CLC 1969 repeated
in its 1992 Protocol, provides that any claim for compensation for pollution damage
may be brought directly against the insurer for the owner’s liability for pollution
damage, and in such case, the insurer may, irrespective of the actual fault or privity
of the owner, avail himself of the limits of liability prescribed in Article 5 (1) of the
Convention. In other words, unlike in the case of the parasitical mode, the liability
insurer does not lose his right to limit liability even if his assured is deprived of that
right by reason of some legal roadblock.
The CLC has the distinction of being the first international convention where the
liability insurer gained the benefit of limitation. Others, as we shall see, followed
suit. This provision is characterized by its independent entitlement to limitation,
separate from that of his assured, meaning that the insurer of liability is entitled to
limit his liability in his own right without being affected by his assured’s right or lack

38
Griggs et al. (2005), supra, note 31, p. 15.
39
[1992] Lloyd’s Rep 191.
40
See Griggs et al. (2005), supra, note 31, p. 15.
41
To describe this modality, the term “independent” is used in this chapter.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 665

thereof. The outcome is that the liability insurer does not suffer the same fate as his
assured in a situation where the assured is denied the right of limitation.
The independent mode of entitlement of the liability insurer to limit liability
under the CLC 1969 repeated identically in CLC 1992, has been adopted by several
other conventions. The relevant provisions are, inter alia, Article 12 (8) of the HNS
Convention, 1996, Article 7 (10) of the Bunkers Convention, 2001, and Article 4 bis
(10) of the Athens Convention, 2002. It is noteworthy that the right of limitation
under the Athens Convention (PAL) 2002 is mainly package limitation for passenger
claims, which is different from the typical limitation of liability under the CLC 1969
and 1992, the HNS Convention, 1996 and the Bunkers Convention, 2001.
Unlike the conventions mentioned above, the Nuclear Convention, contains no
provision relating to the insurer of liability. Pursuant to Article III of the Nuclear
Convention, the operator of a nuclear ship can limit his liability regardless of
whether the nuclear incident resulted from his actual fault or privity. Thus, his
liability is limited in virtually all cases, and this right is hardly ever lost. In the
event of any direct action brought against the liability insurer, in the absence of any
provision to the contrary, it must be surmised that he may invoke the same right of
limitation as the assured operator himself even though, as mentioned above, the
Convention does not explicitly confer any right of limitation on the liability insurer.
It should be added that although conventions on carriage of goods by sea
generally establish a regime of package limitation for cargo claims, none of them,
namely, the Hague Rules of 1924, the Hague-Visby Rules of 1968, the Hamburg
Rules of 1978 and even the recent Rotterdam Rules of 2008, confer on the liability
insurer any right of limitation.

6 Comparison of the Two Modalities

Which is the better of the two modalities attracts a subjective answer depending on
who is most likely to benefit from one or the other. From the viewpoint of the
liability insurer, clearly the independent mode is more advantageous and functional,
because it is separate from the assured’s right to limit, whereas from the claimant’s
perspective, the parasitical mode, which is dependent on or attached to the assured’s
right to limit, would seem to serve his interest better. At any rate, this is how the
matter is viewed from the vantage point of the vested commercial interests. How law
and policy makers should approach the issue to reach a fair and balanced outcome is
not an easy task, to say the least. For this reason, among others, an objective
comparative analysis is warranted which is set out below.
666 Y. Xia

6.1 Arguments in Favor of the Parasitical Mode

It can be gleaned from the writings of Hodges and Hill that the parasitical mode of
the LLMC 1976/1996 Convention is the preferable one for providing limitation to
liability insurers.42 The main grounds for this preference are as follows: First, it
conforms to the principle of indemnity in insurance law under which, the assured,
whether or not he can invoke limitation, is entitled to recover from his insurer the
amount of damages which he has in fact paid to the injured third party. If the insurer
of liability is allowed an independent or separate right of limitation, it may well be
that the amount recoverable by his assured from him will be less than the amount
paid to the third party. This would lead to an erosion of the principle of indemnity.
Second, the independent mode amounts to conferring on the insurer an unbreakable
or guaranteed right of limitation, as it is inconceivable that he would ever be guilty of
conduct barring limitation of the kind envisaged in Article 4 of the LLMC 1976/
1996 which provides that “[A] person liable shall not be entitled to limit his liability
if it is proved that the loss resulted from his personal act or omission, committed with
the intent to cause such loss, or recklessly and with knowledge that such loss would
probably result.” As a result, “the defence made available to the party opposing
limitation under that Article would be effectively rendered otiose”.43

6.2 Justification for the Independent Mode

Contrary to the views expressed above, the independent entitlement to limitation for
the liability insurer may be more suitable for the following reasons:
First, the parasitical mode would directly affect the liability insurer’s defences
under the insurance contract or the applicable law. As noted by one trio of authors,
Article 1(6) of the LLMC raises an interesting question under the law of the United
Kingdom.44 On the one hand, a direct action can be brought in certain circumstances,
i.e., where the assured has failed to satisfy a judgment or has been wound up, by the
third party against the insurer of liability under the Third Parties (Rights against
Insurers) Act 2010. In these circumstances, the third-party creditor “steps into the
shoes” of the assured and takes over the rights the assured has against the insurer
under the liability policy. These rights are likely to be restricted either by the terms of
the policy itself or by the provisions of the Marine Insurance Act 1906 (MIA 1906)
or by the common law, for instance, the serious consequence of breach of warranties

42
See Hodges and Hill (2001), supra, note 32, p. 536.
43
See Ibid., p. 535.
44
Griggs et al. (2005), supra, note 31, p. 15.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 667

in the policy,45 and the “pay to be paid” principle confirmed in The Fanti/The Padre
Island.46
On the other hand, however, the special requirement of “to the same extent as the
assured”, in Article 1(6) of the LLMC 1976, may make the insurer unable to rely on
the provisions or defences under the liability policy or the MIA 1906 or the common
law. Moreover, where the assured has forfeited his right to limit liability, the insurer
may correspondingly lose that right and would be compelled to meet the claim of the
third party claimant in full. As pointed out by Patrick Griggs et al, such a result could
not have been intended by the drafters of the LLMC 1976/1996 or by the United
Kingdom legislature since it would fly in the face of the LLMC’s declared aim that
the new limitation regime should be based on a foundation of stable affordable
insurance cover. Fortunately, a way around the problem can be found in the wording
of Section 1(1) of the Third Parties (Rights against Insurers) Act 2010 which pro-
vides in reference to the assured that “. . . his rights against the insurer under the
contract in respect of the liability shall, notwithstanding anything in any act or rule of
law to the contrary be transferred to and vest in the third party to whom the liability
was so incurred”. Notable in this context, is that section 1(2) of that Act provides that
“the rights of the relevant person under the contract against the insurer in respect of
the liability are transferred to and vest in the person to whom the liability is or was
incurred (the ‘third party’).”
It is clear that notwithstanding Article 1(6)47 of the LLMC 1976/1996, the
statutory transfer of creditor’s rights under the Third Parties (Rights against Insurers)
Act 2010 should be maintained. Consequently, the subrogated rights of the third
party claimant against the insurer of liability are still restricted by the insurance
contract and the associated law. In other words, the Third Parties (Rights against
Insurers) Act 2010 defines the liability of the insurer to the third party, and Article 1
(6) of the LLMC 1976/1996 only comes into play when that liability has been
determined.48
Although the provision on transfer of creditor’s rights under the Third Parties
(Rights against Insurers) Act 2010 can protect the liability insurer’s defences under
the insurance contract and the MIA 1906, and hence relieve to some extent, the crisis
caused by Article 1(6) of the LLMC 1976/1996, the parasitical mode is not yet
recommendable since not all insurance legislation can provide sufficient protection
for the liability insurer as the English law does. For one thing, it is not certain that the
principle of statutory transfer of creditor’s rights is duly established by all insurance
legislation.

45
It should be noted that the UK Insurance Act 2015, which entered into force in August 2016, has,
to a certain extent, lessened the traditional draconian legal effect of breach of warranty. Section 10
(3) provides that: “An insurer has no liability under a contract of insurance in respect of any loss
occurring, or attributable to something happening, after a warranty (express or implied) in the
contract has been breached but before the breach has been remedied.”
46
[1990] 2 Lloyd’s Rep. 191.
47
The text of this provision is set out in the first paragraph of 5.2 above.
48
See Griggs et al. (2005), supra, note 31, p. 16.
668 Y. Xia

Secondly, the parasitical mode is self-contradictory. As mentioned above, the key

point of the duo of English scholars referred to previously supporting the parasitical
mode is its conformity with the principle of indemnity under which the insurer of
liability is not entitled to invoke limitation and should pay in full to the third-party
claimant if the assured loses his right to limit. Nevertheless, as to the question
whether the liability insurer has the right to limit liability where the assured has
failed in a plea for limitation, to which he was originally entitled, at the time when
the claim brought against him by the injured third party was adjudicated, the answer
given by the authors mentioned above, is surprisingly in the affirmative based on the
following grounds: (1) the assured should reap as he has sown irrespective of
whatever reasons and the insurer need not carry the can for the assured; (2) the
LLMC 1976 does not require the assured to first plead limitation before his insurer
does, in other words, the insurer should not be affected by whether or not the assured
is entitled to limit; (3) the third party stands in no better position than the assured
under the insurance policy because his claim is assigned from the assured.
Thus, if the insurer is allowed to invoke limitation against the assured, the same
right should be exercisable against the third party as well, which does not make the
third party lose anything more than he should.49 It is apparent that there is a
contradiction within the parasitical mode in this respect. In light of the principle of
indemnity, the answer to the above question should be in the negative; namely, the
insurer should not be entitled to invoke limitation and should pay in full to the third
party claimant if his assured has failed in his plea for limitation to which he is
entitled, because the assured in such circumstance does not actually enjoy the right
of limitation though he has it on the surface, and the aim of the principle of
indemnity is to indemnify the actual loss of the assured. Essentially, it is the principle
of indemnity that leads to a false choice of the mode of entitlement to limitation of
liability.
The contradiction is also apparent from the viewpoint of legal interpretation.
According to the parasitical mode, the insurer of liability is entitled to invoke
limitation despite the fact that his assured, who is originally allowed the benefit of
limitation, has failed to assert the benefit; but the insurer is not entitled to invoke
limitation where his assured has committed an intentional or reckless act or omission
with knowledge that the loss would probably result. In the former case, the assured’s
culpability is little or even none and the insurer’s right of limitation is not affected;
whereas in the latter case, the assured’s culpability is obviously large and by logic,
the insurer’s right of limitation should have been kept to be unaffected. In the view of
the present authors, the actual result, however, is that the insurer is denied the right of
limitation, which is entirely against common sense and is totally unfair.
Third, it is a fundamental attribute of the modern law of limitation of liability that
only if it is due to his conduct should the person liable be subjected to forfeit of his
right of limitation. It should be emphasized further that the conduct barring limita-
tion should be of the person liable himself if he is a natural person, and should be of

49
See Hodges and Hill (2001), supra note 32, p. 254.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 669

his alter ego if he is a legal entity. The reason for this fundamental attribute is that in
the law of carriage of goods or passengers by sea, the persons liable, such as
shipowners or charterers etc., should bear, in most cases, vicarious liability for
their servants or agents, particularly, the master or crew members. This kind of
vicarious liability is conducive to the victim’s claim on the one hand, but brings to
the persons liable more risks or perils on the other, because in the early days it was
difficult for shipowners to effectively control their masters or crews while the ship
was at sea. To balance the interests between shipowners and merchants, the maritime
law confers the right of limitation on the persons liable.50 If the law denies the right
of limitation of the persons liable due to the conduct of their servants or agents after
the balance is reached between vicarious liability and limitation, the scale would tilt
towards the merchants and, in this vein it is submitted, that the aim of limitation of
liability for protecting and encouraging the persons liable to involve themselves in
the shipping business, would fall through. A similar argument can be made in respect
of liability insurance in relation to shipping.
The effect of direct action which is designed to protect the third-party claimant
could also be deemed as a kind of vicarious liability taken by the liability insurer for
his assured, and it likewise comes to a balance with the limitation of liability
especially in consideration of the insurer’s difficulty in controlling his assured.
Therefore, it is unfair to the liability insurer to be involved and then be denied the
right of limitation due to his assured’s conduct barring limitation. To put it in precise
and concise terms, the parasitical mode of entitlement to limitation accords with the
principle of indemnity in appearance, but goes against the principle of fairness in
substance. Contrarily, the independent mode of entitlement to limitation may be
inconsistent with the principle of indemnity in appearance, but it embodies the
principle of fairness in substance. Undoubtedly, the principle of indemnity should
be subject to fairness.
Fourth, the parasitical mode may cause instability of the liability insurer’s right of
limitation. An interesting argument is introduced by Patrick Griggs et al. by refer-
ence to P & I insurance where the owner, demise charterer and manager are
frequently entered members in respect of the same ship. It may be that in such
circumstances, one assured is able to limit liability whereas another is not. Then the
right of the P & I insurer to limit liability may depend on which member is sued
under the parasitical mode of the LLMC 1976.51 The instability of the right of
limitation is certainly neither what the legislators wish to see; nor what the shipping
industry, especially the liability insurers, wish to encounter, because it would make it
difficult for the insurer to evaluate the potential loss, to determine the rate of the
premium or call, and to carry out ordinary risk management. All these are not
desirable for further development of the regime of liability insurance in the shipping
field.

50
See Li (2004), p. 157.
51
Griggs et al. (2005), supra, note 31, p. 35.
670 Y. Xia

Fifth, one of the grounds of support for the independent mode is that it would
confer upon the liability insurer an unbreakable or guaranteed right of limitation. In
fact, it is the aim of the LLMC 1976/1996 to simply invest with the person liable an
indisputable right of limitation. In The Bowbelle,52 Sheen J. stated: “I return to
consider the 1976 Convention, under which shipowners agreed to a higher limit of
liability in exchange for an almost indisputable right to limit their liability.” In The
Breydon Merchant,53 Sheen J. reiterated: “the purposes of the Convention (LLMC
1976) were to make some additional claims against shipowners (such as money due
under a contract or payable under a statute) subject to limitation and to ensure that
the right to limit liability is almost indisputable. In exchange for those rights, the
shipowners agreed to a higher limit of liability.” Obviously, the effect of the
independent mode corresponds with the aim of the LLMC 1976 and, in the view
of the authors, this mode should be adopted.

7 Harmonization in Convention Law

From the discussion above, it should be apparent that the majority of international
conventions have adopted the independent mode of entitlement to limitation of
liability in respect of liability insurers. In fact, the parasitical mode has only been
adopted in the LLMC 1976/1996 Convention. Despite that, however, in so far as the
scope of application is concerned, that modality is undoubtedly wider because the
claims subject to limitation under the LLMC 1976/1996 are broader in scope and
variety. By comparison, those conventions that have adopted the independent mode
are applicable to only to particularized claims such as ship-source pollution damage
caused by oil or hazardous and noxious substances, and claims of passengers in
respect of personal injury or for loss of or damage to their luggage. It can therefore be
inferred that in most cases, the liability insurer can invoke limitation through the
parasitical mode pursuant to the LLMC 1976/1996, which, it is submitted, is not
ideal as depicted in the arguments above. That methodology is of disadvantage to
liability insurers which potentially discourages the healthy development of liability
insurance.
At the end of the day, it prejudices the interests of third-party claimants. It is
therefore proposed that the LLMC 1976/1996 be amended to adopt the independent
mode of entitlement to limitation for liability insurers. In this regard, the following
draft is proposed to replace the existing Article 1(6). One is as follows:
An insurer of liability for claims subject to limitation in accordance with the rules of this
Convention shall be entitled to the benefits granted to the assured by this Convention,
irrespective of the assured himself being denied the right to limit by Article 4 of this
Convention.

52
[1990] 1 Lloyd’s Rep. 532, p. 535.
53
[1992] 1 Lloyd’s Rep. 373, p. 376.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 671

The above suggestion is consistent with the comments of the Baltic and Interna-
tional Maritime Conference (BIMCO) which were made on the original draft of the
LLMC 1976 Convention. BIMCO commented that Article 1(6) of the draft LLMC
1976 did not make clear the position of an insurer in the event of a breach by the
assured of Article 4,54 and a direct recourse action brought against the insurer. In this
situation, the insurer should still be entitled to limit his liability—a principle
recognized by Article VII (8) of the CLC 1969. It was deemed to be important
that the insurer should not be exposed to unlimited liability in the event of an assured
being in breach of Article 4 of the draft LLMC 1976.55
It is further proposed that the international conventions on carriage of goods by
sea prescribing package limitation should also clarify that liability insurers of the
relevant parties concerned, namely, those of the carrier, the actual carrier or the
maritime performing party, and their servants or agents, etc., are entitled to inde-
pendent rights of limitation of liability, because they are also likely to be sued
directly by third party claimants in certain circumstances under relevant insurance
legislation.56 The provision could be drafted as follows:
An insurer of liability for claims subject to limitation in accordance with the rules of this
Convention shall be entitled to the limit of liability set out in Article  of this Convention,
irrespective of the assured himself being denied the right to limit by Article of this
Convention.

By amending Article 1 (6) of the LLMC 1976 and adding a clause to the
international conventions on carriage of goods by sea as suggested above, a uniform
and independent mode of entitlement to limitation would be established in
maritime law.

8 The Position in Chinese Law

As regards the modality utilized in Chinese legislation to characterize the right of a

liability insurer to invoke limitation, it is instructive to look at Article 206 of the
CMC which provides—“[W]here the assured may limit his liability in accordance
with the provisions of this chapter, the insurer liable for the maritime claims shall be
entitled to the limitation of liability under this Chapter to the same extent as the
assured”. This provision is indubitably reflective of Article 1(6) of LLMC 1976/
1996. The wording clearly indicates that the liability insurer’s right to limit liability
under the CMC is parasitical in nature. This is also the majority view of Chinese

54
It must be noted in this context that in the final version of Article 1(6) and Article 4, the wording
remained the same as it was in the original draft. In other words, the problem highlighted above has
remained unresolved.
55
See IMO (1983), p. 118.
56
See Section 1 of the Third Parties (Rights against Insurers) Act, 2010 of the United Kingdom, or
Article 65 Paragraphs 1 & 2 of the Insurance Law of the People’s Republic of China.
672 Y. Xia

maritime academics57 and judges. In China Shipowners Mutual Assurance Associ-

ation’s Application for Constitution of Fund of Limitation of Liability for Maritime
Claims,58 the Xiamen Maritime Court and the High People’s Court of Fujian
Province, both clarified and confirmed that according to Article 206 of the CMC,
the liability insurer’s right of limitation is based on the premise that his assured was
entitled to limit liability in the first place.
Incidentally, two items of legislative provisions are pertinent in this regard. These
are set out below.
Article 65 Paragraph 2 of the Insurance Law of the People’s Republic of China
(CIL) provides that-
Where an assured in liability insurance causes any damage to a third party and the liability of
the assured for indemnity to the third party has been determined, the insurer shall directly
pay insurance benefits to the third party according to the request of the assured. Where an
assured is negligent in making a request, the third party shall have the right to directly
request the insurer to pay the insurance benefits for the damage with respect to which the
third party shall be indemnified.

Article 97 Paragraph 1 of the Special Maritime Procedure Law of the People’s

Republic of China provides that-
An aggrieved party may claim for oil pollution damage caused by a ship either against the
owner of the ship causing oil pollution damage or directly against the insurer who is
answerable for the liabilities of the owner of the ship causing oil pollution damage, or
against the person who provides financial security therewith.

It is not clear whether the principle of statutory transfer of creditor’s rights is

adopted by the above two items of legislative provisions. Accordingly, it is as yet
uncertain whether the defences under the insurance contract and the relevant legis-
lation can be invoked by the insurer of liability. Even though the aforesaid principle
is established, the actual defences under insurance legislation or the contract might
not be adequate to protect the interests of the liability insurer in a direct action against
him. For example, by virtue of Article 242 of the CMC59 and Article 27 paragraph
2 of the CIL,60 the insurer is only entitled to reject the assured’s insurance claim
where the loss is caused by his intentional act. This means that where in the case of
“a reckless act or omission done with knowledge that the loss would probably
result”, the assured would also forfeit his right to limit liability, the insurer unfortu-
nately is not entitled to reject the claim of the assured and cannot limit liability.

57
See Hu (2016), p. 634; He and Xie (2008), p. 138.
58
Jin (2005), p. 554.
59
Article 242 of the CMC provides that: “the insurer shall not be liable for the loss caused by the
intentional act of the assured.”
60
Article 27 Paragraph 2 of the CIL provides that: “If the policy holder or the assured fabricates the
occurrence of an incident covered by insurance on purpose, the insurer is entitled to terminate the
insurance contract, and not to bear obligation for indemnity or payment of insurance benefits, and
except as otherwise provided in Article 43 of this Law, not to refund the premiums either.”
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 673

In contrast to the Chinese legislation on this point, the United Kingdom legisla-
tion is specific in this respect. According to section 55(2)(a) of the MIA 1906, the
insurer is not liable for any loss attributable to the willful misconduct of the assured.
It is generally accepted that the word “willful” means “reckless” in that context.61 In
any event, whether it is United Kingdom law or Chinese law, the insured amount
might be higher than the statutory limit of liability, which means that the liability
insurer will have to pay more to the third-party claimant even though he can rely on
the terms of the insurance contract. But in respect of the Chinese legal regime,
regardless of whether liability insurance is compulsory or not, an independent mode
of entitlement to limitation is needed, even though as stated previously, the inde-
pendent mode is compatible with compulsory insurance.
The other peculiar problem under Chinese law is caused by the application of
international conventions in China. Among the international conventions conferring
the rights of limitation on marine liability insurers, China has acceded to or ratified
two of them so far, namely, the CLC 1992 and the Bunkers Convention, 2001, which
have the force of law in China. However, under a basic principle of private
international law in China, an international convention to which China is a party,
is merely applicable to legal relationships involving foreign elements, such as
foreigners or subject matters involving foreign law or foreign jurisdiction. Only
the liability insurer providing cover for foreign-related oil pollution damage within
the meaning of these two conventions, may have a separate and independent right of
limitation. For those liability insurers providing the same coverage as aforesaid but
without foreign-related elements, or contracts covering risks other than oil pollution
damage under the CLC 1992 or Bunkers 2001, would have to invoke limitation
rights in accordance with Article 206 of the CMC.
This situation has not changed even though a special regulation62 prescribing
compulsory insurance or financial guarantee for domestic oil pollution damage at sea
has been promulgated by the Ministry of Transport in 2010. Similar to their status
under the relevant international conventions, the liability insurers’ rights of limita-
tion of liability under current Chinese legislation are also parasitical in most cases.
This is undoubtedly a disadvantage to insurers of liability and would discourage
healthy development of liability insurance in the shipping field in China. An
amendment to the law is therefore needed.
Unlike international conventions, the CMC is an integrated piece of legislation
which comprises nearly all aspects of maritime law. In order to uniformly confer
upon the liability insurer an independent right of limitation, the clear and economical
way is not to amend Article 206 and to make two supplements to Chapter 463 and

61
See Griggs et al. (2005), supra note 31, p. 41.
62
See the Measures of the People’s Republic of China for Implementation of Civil Liability
Insurance for Oil Pollution Damage Caused by Vessels, 2010, Order No. 3 [2010] of the Ministry
of Transport of the P. R. China.
63
The title of Chapter 4 is “Contract of Carriage of Goods by Sea”.
674 Y. Xia

Chapter 564 of the CMC, but to simply repeal Article 206 and add a provision in
Chapter 1265 which would read—“An insurer of liability for claims subject to
limitation in accordance with this Code shall be entitled to the benefits of limitation
granted to the assured by this Code, irrespective of the assured himself being denied
the right to limit by this Code”.

9 Summary and Conclusion

In summary, it is stated that in the present maritime law, whether under international
conventions or domestic legislation, there are two modalities providing for entitle-
ment to limitation for insurers of liability, namely, the parasitical mode and the
independent mode. It is submitted that the latter is fairer and more reasonable, and is
therefore the better choice for international conventions as well as domestic legisla-
tion to achieve harmonization of laws with respect to entitlement to limitation for
liability insurers.
To that end, it is submitted that although the parasitical modality is in accord with
the principle of indemnity in insurance law, it affects the liability insurer’s defences
under the insurance contract and the relevant legislation. In the case of the assured
who is entitled but fails to invoke limitation, the parasitical mode contains self-
contradiction and goes against the logic of legal interpretation. Therefore, it is
untenable to adopt that modality on the basis of the principle of indemnity. In fact,
the parasitical mode is in breach of the basic philosophy underlying the modern law
of limitation of liability, i.e., the person liable should only forfeit his right of
limitation owing to his own conduct. It also causes instability of the liability insurer’s
right to limit his liability. In contrast, the association of the independent mode with
these problems, is remote, if any at all; and is in conformity with the aim of the
current law of limitation of liability, which is principally to confer on the liability
insurer an independent and indisputable right of limitation. It is self-evident that the
independent mode of entitlement to limitation is a better choice for any domestic
legislation, the intention of which is to endow the liability insurer with the right to
limit liability.
In conclusion, it is proposed with regard to convention law that Article 1(6) of the
LLMC 1976/1996 Convention be amended to clarify the independence of the
liability insurer’s right of limitation, and in the convention on carriage of goods by
sea, a similar clause be added. In China, it would be expedient to repeal Article
206 of the CMC and simultaneously to add a provision in Chapter 12 addressing the
Contract of Marine Insurance, to uniformly confer on the liability insurer an inde-
pendent right of limitation.

64
The title of Chapter 5 is “Contract of Carriage of Passengers by Sea”.
65
The title of Chapter 12 is “Contract of Marine Insurance”.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . . 675

References

Gauci G (1995) Limitation of liability in maritime law: an anachronism? Marine Policy 19(1):65–74
Griggs P, Williams R, Farr J (2005) Limitation of liability for maritime claims. LLP, London
He L, Xie M (2008) Limitation of liability for maritime claims. Xiamen University Press, Xiamen
Hodges S, Hill C (2001) Principles of maritime law. LLP, London
Hu Z (2016) Admiralty law. Peking University Press, Beijing
IMO (1983) Official Records of the International Conference on the limitation of liability for
Maritime Claims, 1976
Jin Z (2005) Annual of China Maritime Trial 2004. China Communications Press, Beijing
Li, S. (2004). Problems in proceedings of limitation of liability for maritime claims in China. In
E. Wan (eds.), Guide on foreign-related commercial and maritime trial, 8(2), People’s Court
Press, Beijingp. 157.
Meeson N, Kimbell JA (2011) Admiralty jurisdiction and practice. Informa, London
Mukherjee PK (2009) Essentials of the regimes of limitation of liability in maritime law, The
Admiral, 4, 39-57. Ghana Shippers’ Council, Unik Image, Accra

Cases

Amalia, the (1863), Br. & Lush151; 176 E.R. 323

Bowbelle, the [1990] 1 Lloyd’s Rep. 532
Bramley Moore, the [1963 ] 2 Lloyd’s Rep. 429
Breydon Merchant, the [1992] 1 Lloyd’s Rep. 373
Caltex Singapore Pte and Others v. B.P. Shipping Ltd. [1996] 1 Lloyd’s Rep. 286
Fanti/The Padre Island, the [1992] Lloyd’s Rep 191

Conventions

Athens Convention Relating to the Carriage of Passengers and Their Luggage by Sea, 1974, 1463
UNTS 19
Convention on Limitation of Liability for Maritime Claims (LLMC), 1976
Convention on the Liability of Operators of Nuclear Ships, 1962, 57 AJIL 268. (1963)
International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading,
1924, 120 LNTS 187; 51 Stat. 233
International Convention for the Unification of Certain Rules Relating to the Limitation of Liability
of Owners of Sea-Going Ships, 1924, http://twmla.org/wp-content/uploads/2015/11/Limitation-
Conventions-1924.pdf
International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, I40 ILM 1493
International Convention on Civil Liability for Oil Pollution Damage, 1969, 973 UNTS 3
International Convention on Liability and Compensation for Damage in Connection with the
Carriage of Hazardous and Noxious Substances by Sea, 1996, I35 ILM 1406
International Convention on the Establishment of an International Fund for Compensation for Oil
Pollution Damage, 1971, 1110 UNTS 57
International Convention Relating to the Limitation of Liability of Owners of Sea-Going Ships,
1957, 1412 UNTS 73
Protocol to Amend the International Convention for the Unification of Certain Rules of Law
Relating to Bills of Lading, 1968, 1412 UNTS 127
the CLC 1992 and Fund Convention, 1992, 1956 UNTS 255; 1953 UNTS 373
676 Y. Xia

the Supplementary Fund Protocol, 2003, IMO Doc. LEG/CONF.14/20

United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly
by Sea, 2008, A/RES 63/122
United Nations Convention on International Multimodal Transport of Goods, 1980, UN Doc.
TD/MT/CONF/16 (1980)
United Nations Convention on the Carriage of Goods by Sea, 1978, 1695 UNTS 3

Legislation

Chinese Maritime Code

Responsibility of Shipowners’ Act, 7 Geo II, c. 15
Insurance Law of the People’s Republic of China
Measures of the People’s Republic of China for Implementation of Civil Liability Insurance for Oil
Pollution Damage Caused by Vessels, 2010, Order No. 3 [2010] of the Ministry of Transport of
the P. R. China
Third Parties (Rights against Insurers) Act, 2010, United Kingdom
Shipowner Protection in the Wake
of the Collapse of O.W. Bunker: The Second
Circuit Approval of Interpleader Actions
in Hapag-Lloyd Aktiengesellschaft v. U.S. Oil
Trading LLC

Jingchen Xu

Abstract The collapse of O.W. Bunker has led to a frenzy of actual and threatened
vessel arrests and delays, and vessel owners have faced demands for double pay-
ment. The United States Court of Appeals for the Second Circuit for the first time
have encountered the issue of whether jurisdictions lies interpleader involving in rem
actions. The Second Circuit held that the in person am claims against the vessel
owners and the in rem claims against the vessels were merely alternative procedural
devices to obtain the same relief and therefore the court has subject matter jurisdic-
tion over the interpleader actions. For vessel owners, the decisions in all such cases
are notable because it means that vessel owners can utilize interpleader actions to
protect themselves from multiple payments and from the risk of ship arrest arising
from the O.W. Bunker collapse.

1 Introduction

1.1 O.W. Bunkers Case: Factual Backgroud

O.W. Bunker & Trading A/S was one of the world’s largest suppliers of bunker fuel
for ships fuel.1 While owners and charterers (shipowners) would contract for bunker

Adapted with permission of Journal of Maritime Law and Commerce, Vol. 47 Issue 3, July 2016
where it was originally published as an article.
1
UPT Pool Ltd. v. Dynamic Oil Trading (Singapore) PTE. Ltd., 2015 AMC 2070, 2071
(S.D.N.Y. July 1, 2015) aff’d sub nom., Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading
LLC, 814 F.3d 146 (2d Cir. 2016).

J. Xu (*)
Centre for Maritime Law, Faculty of Law, National University of Singapore, Singapore,
Singapore
e-mail: xu.jingchen@nus.edu.sg

© Springer Nature Switzerland AG 2020 677

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_32
678 J. Xu

fuel from O.W. Bunker & Trading (O.W. Bunker) or its subsidiaries, O.W. Bunker
rarely supplied the bunkers directly to the ships. Instead, O.W. Bunker acted only as
an intermediary by sub-contracting with third-party suppliers (actual suppliers) to
deliver the bunkers to the ships.2 In addition, certain O.W. entities assigned their
rights, pursuant to an Omnibus Security Agreement, in the bunker supply contracts
as security to ING Bank N.V. (ING). When O.W. Bunker suddenly collapsed and
filed for bankruptcy in Denmark on November 7, 2014, amidst internal fraud and
risk management losses, many of its subsidiaries and affiliates sought bankruptcy
protection by filing petitions all over the world.3 Given the bankruptcy filing, some
actual suppliers feared that any payment collected by the upstream O.W. entities
would become part of a bankruptcy estate from which actual suppliers might never
recover.4 Thus, actual suppliers sought an alternative way to recover payment for the
bunkers they supplied, namely, through enforcement of their maritime liens against
the ships, regardless of whether shipowners had already paid the amounts owed to
O.W. Bunker.5 Also, ING alleged that it had an interest in the payment as assignee
against shipowners, who were then faced with potential multiple claims for payment
from O.W. Bunker, actual suppliers, and ING.6
To address these competing claims and the risk of ship arrests, a solution was
found by shipowners in the form of an interpleader action. Such an action is a device
that can protect a disinterested party or entity who is facing competing claims by
providing for their adjudication in a single proceeding. At least twenty-five inter-
pleader actions have been filed in, or transferred to, the Southern District of
New York. In these cases, the court is asked the overarching question: whether the
court has subject matter jurisdiction over the interpleader actions. The United States
District Court for the Southern District of New York held that it did so and granted
interpleader injunction.7 One of the actual suppliers (“USOT”) filed an interlocutory
appeal. The United States Court of Appeals for the Second Circuit affirmed the
decision of the Southern District of New York and held that the in personam claims
against the shipowners and the in rem claims against the ships were merely alterna-
tive procedural devices to obtain the same relief and therefore the court has subject
matter jurisdiction over the interpleader actions.8

2
Id.
3
Id.
4
Id. at 2073.
5
Id. at 2072.
6
Id. at 2073.
7
Id. at 2087.
8
Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, 814 F.3d 146, 156 (2d Cir. 2016).
Shipowner Protection in the Wake of the Collapse of O.W. Bunker: The. . . 679

1.2 Purpose

The purpose of this chapter is to examine the device known as the interpleader action
prevailing in common law jurisdictions, in the present context, the United States.
The focus of the discussion is on protection of shipowners through interpleader
actions in the context of a case, one of several, arising from the collapse and ensuing
bankruptcy of O.W. Bunker.

1.3 Structure

Following the Introduction, the chapter first provides a chronological background to

the phenomena of interpleader actions and the device of anti-suit injunctions through
a perusal of the relevant case law and introduces the fundamentals of in rem and in
personam actions within the admiralty jurisdictions of common law courts and
focuses on the personification theory peculiar to the judicial realm in the United
States. The discussion then moves on to the decision rendered by the Second Circuit
in the subject case followed by an analysis of it. The chapter’s conclusion points to
judicial inconsistencies which need to be addressed in the interests of bunkers
supplies in particular and the shipping industry as a whole.

2 Background

2.1 Interpleader and Anti-suit Injunctions

Interpleader is a specialized joinder mechanism designed to address situations when

multiple persons have competing claims to the same specific piece of property or
fund.9 In U.S. v. High Technology Products, Inc.,10 it was held that interpleader is an
equitable proceeding that affords a party who fears being exposed to the vexation of
defending multiple claims to a limited fund or property that is under his control, a
procedure to settle the controversy and satisfy his obligation in a single proceeding.
An interpleader action originates when the plaintiff holds property on behalf of
another, but does not know to whom the property should be transferred. Interpleader
brings all such persons into the same action so that the same court may resolve their
respective rights in a single action. Because interpleader actions are remedial in
nature, the governing rules and statutes are to be liberally construed to prevent
stakeholders from being subject to multiple liabilities, as well as to protect them

9
Tittle v. Enron Corp., 463 F.3d 410, 425 (5th Cir. 2006); Rhoades v. Casey, 196 F.3d 592, 600 n.8
(5th Cir. 1999).
10
497 F.3d 637, 641 (6th Cir. 2007).
680 J. Xu

from the expenses of multiple lawsuits.11 If the court determines that interpleader is
proper, the stakeholder is discharged from liability with respect to the stake, and the
claimants are left to resolve their competing claims.12
28 U.S.C. § 1335 (a) sets out three conditions for the granting of interpleader
status and the exercise of original jurisdiction by a federal district court.13 First, the
amount in controversy must be equal to or greater than $500.00.14 Second, there
must be diversity of citizenship between two or more adverse claimants, who are
claiming or may claim to be entitled to such money or property.15 Statutory
interpleader requires only minimal diversity.16 The interpleader does not need to
involve claims arising out of a common source of right or entitlement.17 The Second
Circuit in Ashton v. Josephine Bay Paul & C. Michael Paul Found., Inc. held that the
interpleader action might be entertained although the titles or claims of the
conflicting claimants did not have a common origin, or were not identical, but
were adverse to and independent of one another.18 Third, a stakeholder must deposit
with the court either the funds at issue or a bond payable to the clerk of the court in
such amount and with surety as required by the court.19 The stakeholder must
deposit the largest amount for which it may be liable in view of the subject matter
of the controversy.20 In Lincoln General Ins. Co. v. State Farm Mut. Auto. Ins. Co.,
the court stated that the failure by a stakeholder to deposit the funds in question into
the registry of a court was a jurisdictional defect, but the stakeholder could cure it.21
Once the statutory interpleader action is commenced, the court may issue an order to
restrict all claimants from starting or continuing any action which would affect the
stake, make such injunction permanent, and discharge the stakeholder from liabil-
ity.22 The order may apply in any district of the United States in which the claimants
reside or may be found. The injunction ensures that the litigation is actually confined
to a single forum and furthers the equitable interest served by interpleader by

11
State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530 (1967).
12
Sun Life Assur. Co. of Canada v. Thomas, 735 F. Supp. 730, 732–33 (W.D. Mich. 1990).
13
28 U.S.C. § 1335(a) (2012); Thomas, 735 F. Supp. at 731–32.
14
28 U.S.C. § 1335(a) (2012).
15
Id.
16
Id.; State Farm Fire & Cas. Co., 386 U.S. at 530.
17
28 U.S.C. § 1335(b) (2012).
18
Ashton v. Josephine Bay Paul & C. Michael Paul Found., Inc., 918 F.2d 1065, 1069
(2d Cir. 1990).
19
28 U.S.C. § 1335(a)(2) (2012).
20
28 U.S.C. § 1335(a)(2) (2012); CNA Ins. Companies v. Waters, 926 F.2d 247, 249–50 n.6
(3d Cir. 1991).
21
Lincoln General Ins. Co. v. State Farm Mut. Auto. Ins. Co., 425 F. Supp. 2d 738, 742
(E.D. Va. 2006).
22
28 U.S.C. § 2361 (2012).
Shipowner Protection in the Wake of the Collapse of O.W. Bunker: The. . . 681

consolidating all claims into one proceeding and preventing a claimant from racing
to judgment in another forum.23

2.2 In Rem Actions and the Personification Doctrine

An in rem action is an action against the arrested res itself, and any judgment is thus
limited to the value thereof or the value of the bond or stipulation substituted for the
res to obtain its release.24 In an admiralty proceeding in rem, a person is not made a
party defendant, but a ship or other thing is seized and treated as the defendant, and a
decision is sought against the res rather than its owner. A judgment in an in rem
admiralty action is said to be good “against all the world.”25 An action in rem based
on an admiralty claim may be brought only in a federal court and is initiated by
“arresting” the property. The property must be subject to the jurisdiction of the
court.26 Further, in Rainbow Line, Inc. v. M/V Tequila, the Second Circuit held that
the in rem action was only available to enforce a maritime lien or as otherwise
permitted by statute.27 Under the Federal Maritime Lien Act (FMLA), any entity that
supplies a ship with “necessaries,” such as bunker fuel, “on the order of the owner or
a person authorized by the owner” has a maritime lien on the ship and is entitled to
bring a civil action in rem to enforce that lien.28
The underlying principle behind the in rem action is the doctrine of personifica-
tion. The personification doctrine can be traced back to the practice of the English
admiralty courts in the sixteenth century and possibly prior to that. But English
courts themselves abandoned it in the late nineteenth century in favour of what is
known as the “procedural theory.”29 American courts supposedly adopt a true
personification theory, rooted perhaps more in terms of continental European notions
than in English ones, viewing the suit as against the ship for her wrong independent
of the owner’s fault. The U.S. Supreme Court explained the fiction of “personifica-
tion” in the in rem proceeding of Madruga v. Superior Court of State of Cal. in & for

23
UPT Pool Ltd. v. Dynamic Oil Trading (Singapore) PTE. Ltd., 2015 AMC 2070, 2086
(S.D.N.Y. July 1, 2015).
24
Cent. Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A., 56 F.3d 359, 364, 1996 AMC
163, 166–67 (2d Cir. 1995).
25
See 2 Am. Jur. 2d Admiralty § 26; see also C.J. Hendry Co. v. Moore, 318 U.S. 133, 136, 1943
AMC 156, 158 (1943); Rounds v. Cloverport Foundry & Mach. Co., 237 U.S. 303, 306 (1915).
26
Force (2013), p. 173.
27
Rainbow Line, Inc. v. M/V Tequila, 480 F.2d 1024, 1028, 1973 AMC 1431, 1436 (2d Cir. 1973).
28
46 U.S.C. § 31342 (2012).
29
Davies (2000), p. 341 (stating that the “procedural theory” conceives of the action in rem as
simply a device for forcing the appearance of the shipowner in personam rather than truly as an
action against the ship itself).
682 J. Xu

San Diego County.30 The ship was deemed to have a legal personality, such that it
was treated as the offender itself and subject to suit directly for the torts it committed
and for the contracts it breached.31 The U.S courts, however, have viewed person-
ification with varying degrees of rigidity.32
Courts usually have deemed in personam action and in rem action as two distinct
types of suit. Applying the personification doctrine in The China, the U.S. Supreme
Court held that the ship was liable independently for her acts even though her owner,
who had chartered the ship to another party, could not be held liable in personam.33
Similarly, in S.E.L. Maduro (Florida), Inc. v. M/V Antonio de Gastaneta, the
Eleventh Circuit Court of Appeals illustrated the distinction between the obligations
of a ship in rem and a shipowner in personam.34 The Eleventh Circuit held that res
judicata did not bar a later action in rem against the ship to enforce a maritime lien
because the “the primary right at stake” in the breach of contract claim was “not the
same as the primary right stake” in the in rem action.35 The District Court of
Maryland in The Eastern Shore held that res judicata did not apply to the subsequent
in rem claim, reasoning that, “[t]he maritime lien here claimed is a proprietary
interest or right in the ship itself, and entirely distinct from the cause of action or
demand for personal judgment against its owner.”36 Thus, the court based its holding
on the personification theory’s precept that in rem proceedings to execute a maritime
lien against a ship are different from in personam proceedings against that ship’s
owner.37 In Central Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A., the
Southern District Court of New York held that “the distinction between in rem and in
personam jurisdiction in admiralty cases . . . remains a bedrock principle of admi-
ralty law,” and found the plaintiff’s in personam claim to be “distinct from its claim
against the ship in rem.”38
There are, however, some courts that have not strictly pursued the personification
doctrine and criticize its overly technical application. In Continental Grain Co. v.
Barge FBL-585, the U.S. Supreme Court criticized mechanistic distinctions between
civil actions in rem and in personam in light of “admiralty’s approach to do justice
with slight regard to formal matters”—particularly where applying the legal fiction

30
Madruga v. Superior Court of State of Cal. in & for San Diego County, 346 U.S. 556, 1954 AMC
405 (1954).
31
Id., at 560, 1954 AMC at 409; see Force (2013), p. 31.
32
Schwab (2012), p. 255.
33
The China, 74 U.S. 53, 70–71, 2002 AMC 1504, 1511–12 (1868).
34
S.E.L. Maduro (Florida), Inc. v. M/V Antonio de Gastaneta, 833 F.2d 1477, 1481–82, 1988 AMC
1217, 1223–24 (11th Cir. 1987).
35
Id. at 1482. (AMC reporter summarizing case).
36
The Eastern Shore, 24 F.2d 443, 444, 1928 AMC 327, 328 (D. Md. 1928).
37
Id.
38
Central Hudson Gas and Electric Corp. v. Empresa Naviera Santa, S.A., 845 F.Supp.
150, 152–53, 1994 AMC 2003, 2005–06 (S.D.N.Y. 1994).
Shipowner Protection in the Wake of the Collapse of O.W. Bunker: The. . . 683

would “cut down” a federal statute.39 Because the Court did not regard in rem and in
personam actions as two distinct civil actions, an in rem suit was transferred to the
more convenient forum where an in personam suit was pending.40
Following the Supreme Court, the Second Circuit Court of Appeals in Burns
Bros. v. Central R.R. dictated that although the American theory purports to view the
wrong of the ship as distinct from that of the shipowner, the present claim in rem was
merely an alternative remedy to the claim in personam, therefore, res judicata effect
could be given to an in personam action in an in rem suit.41 Similarly, it stated in
Royal School Laboratories, Inc. v. Town of Watertown that interpleader jurisdiction
was proper when a statutory materialmen lien claim and breach of contract claim
arose out of a single contract because the claims were “inextricably interrelated.”
Allowing the suits to proceed separately created the risk of two recoveries against the
plaintiff for the same enrichment.42 In addition, the court in Insurance Co. of
N. America v. S/S American Argosy further explained that “the in rem liability of a
ship is a fiction; the reality is that the owner, not the ship, pays the judgment.”43

3 The Court’s Decision

In the noted case, the Second Circuit construed the interpleader statute liberally and
explained that the in personam claims against the shipowners and the in rem claims
against the ships themselves arose out of the same debt. They were inextricably
interrelated, and therefore, subject to interpleader.44 Furthermore, the court held that
the owner consented to the District Court’s jurisdiction over its interests, which was
sufficient to confer in rem jurisdiction.45 But the Second Circuit ordered limited
remand to permit the district court to apply the correct standard for anti-foreign-suit
injunctions.46
First, USOT alleged that because its claims to payment arise from statutory in rem
liens against ships while the O.W. Bunker entities’ claims arise from the supply
contract (and thus are correctly characterized by USOT as being in personam in
nature), its codefendants are not claiming entitlement to the same money.47 The
Second Circuit, however, rejected this argument. It is well established that the

39
Continental Grain Co. v. Barge FBL-585, 364 U.S. 19, 25, 1961 AMC 1, 5 (1960).
40
Id.
41
Burns Bros. v. Central R.R., 202 F.2d 910, 912–13, 1953 AMC 718, 720–21 (2d Cir. 1953).
42
Royal School Laboratories, Inc. v. Town of Watertown, 358 F.2d 813, 815 (2d Cir. 1966).
43
Insurance Co. of N. America v. S/S American Argosy, 732 F.2d 299, 302, 1984 AMC 1547, 1552
(2d Cir. 1984).
44
Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, 814 F.3d 146, 153 (2d Cir. 2016).
45
Id. at 154.
46
Id. at 155.
47
Id. at 151.
684 J. Xu

interpleader statute is “remedial and to be liberally construed,” particularly to

prevent races to judgment and the unfairness of multiple and potentially conflicting
obligations.48 Wesley J. emphasized that where the other requirements of statutory
interpleader are met, the statute makes it irrelevant that the title or claims of the
conflicting claimants do not have a common origin.49 Then, the Second Circuit
relied on Royal School Laboratories, Inc. v. Town of Waterman, to explain that
nothing could be more palpably unjust than to permit two recoveries against the
interpleader plaintiff for the same enrichment.50 The Second Circuit concluded,
therefore, that the claims alleged in this action are inextricably interrelated and
interpleader jurisdiction is proper under the broad and remedial nature of
28 U.S.C. § 1335.51
Next, the actual suppliers challenged the sufficiency of the District Court’s in rem
jurisdiction by arguing that to obtain that jurisdiction, it is necessary to have the
consent of both the owner of the res and the lienholder seeking to arrest.52 But the
Second Circuit held that the cases relied on by USOT were inconsistent with other
cases, which indicated that only the owner’s consent is necessary.53 Also, the court
emphasized that in rem jurisdiction may be waived without seizure when the owner
appears without contesting jurisdiction.54 The court concluded, therefore, that “by
initiating interpleader concerning certain in rem claims of a provider of fuel delivery
services involving maritime liens on ships and posting adequate security for those
claims, [ship owner] consented to the District Court’s jurisdiction over its interests,
which [wa]s sufficient to confer in rem jurisdiction.”55
Lastly, USOT contended that the interpleader injunction issued here was in
violation of the requirement of 28 USC § 2361. USOT argued that § 2361 did not
expressly authorize an interpleader injunction to extend to foreign suits.56 The
Second Circuit acknowledged that while the statue itself has no extraterritorial
reach, federal courts have long possessed the inherent power to restrain the parties
before them from engaging in suit in foreign jurisdictions.57 As a result, the court

48
Id.
49
Id. at 152.
50
Id.; see also Royal School Laboratories, Inc. v. Town of Waterman, 358 F.2d 813, 815
(2d Cir. 1966).
51
Id.
52
Id. at 153.
53
Id.; see also Shaffer v. Heitner, 433 U.S. 186, 207 (1977).
54
Id. at 154; see also United States v. Republic Marine, Inc., 829 F.2d 1399, 1402 (7th Cir. 1987);
Cactus Pipe & Supply Co. v. M/V Montmartre, 756 F.2d 1103, 1107–08 (5th Cir. 1985); cf.
Continental Grain Co. v. The FBL 585, 364 U.S. 19, 22–27 (1960) (construing the owner’s consent
as sufficient for venue transfer of both in personam and in rem claims).
55
Id.
56
Id.
57
Id.
Shipowner Protection in the Wake of the Collapse of O.W. Bunker: The. . . 685

remanded the case to the district court to eliminate or retain the foreign scope of its
injunction according to specific conclusions under the China Trade test.58

4 Analysis of the Decision

This was the first time that the Second Circuit encountered the issue of whether it has
subject matter jurisdictions over interpleader involving in rem actions. The Court
addressed the apparent conflicts among bankruptcy law, maritime law, and inter-
pleader relief.59 For shipowners, the decisions in all such cases are notable because it
means that they can use interpleader actions to protect themselves from multiple
payments and from the risk of ship arrest arising from the collapse of O.W. Bunker.
Also, this development is important because the court equitably applied the person-
ification doctrine.
The Second Circuit’s decision in Hapag-Lloyd expanded the application of equity
personification into the interpleader context. Although not explicitly stated in the
decision, the court applied the personification doctrine with a mind for fairness. In
other words, the court approached the doctrine of ship personification as an equitable
principle that may be ignored when it causes an outcome contrary to the panel’s own
subjective sense of justice.60 Whereas, generally, courts deem in personam and in
rem actions as two distinct proceedings, the decisions here were departures from the
general rule. But many U.S. courts have already so departed in previous cases.
Before Hapag-Lloyd, the Supreme Court and Second Circuit had already applied the
personification doctrine equitably in res judicata cases. In Burns Bros. v. Central R.
R., for example, the Second Circuit criticized overly technical distinctions between
civil actions in rem and in personam. The Court explained that although the
American theory purports to view the wrong of the ship as distinct from that of the
shipowner, the present claim in rem was merely an alternative remedy to the claim in
personam, and, therefore, res judicata applies to an in personam action in an in rem
suit.61 Because similar instances of equitable personification have already occurred
in other maritime contexts, the panel in Hapag-Lloyd expanded the application of
equity personification into the interpleader arena, a choice that remains consistent
with precedent and honours the purpose of interpleader actions.62

58
Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, 814 F.3d 146, 154–55; see also China
Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33, 35 (2d Cir. 1987).
59
Hapag-Lloyd, 814 F.3d at 148.
60
See Schwab (2012), p. 281.
61
Burns Bros. v. Central R.R., 202 F.2d 910, 912–13, 1953 AMC 718, 720–21 (2d Cir. 1953).
62
See, e.g., Continental Grain Co. v. Barge FBL-585, 364 U.S. 19, 25, 1961 AMC 1, 5 (1960)
(because the court did not regard in rem and in personam actions as two distinct civil proceeds, an in
rem suit had been transferred to the more convenient forum where an in personam suit was
pending).
686 J. Xu

The Court’s extension of application of the personification doctrine equitably to

interpleader context was correct. The personification theory was developed with
noble intentions: to promote the flow of commerce and to ensure fairness in the
resolution of admiralty disputes. An indiscriminate application of the personification
doctrine would impede both of these objectives by rendering the interpleader regime
effectively useless, encouraging duplicative litigation and giving some admiralty
claimants an undue advantage.63
First, the decision fulfilled the purpose of the interpleader action. Interpleader
exists to resolve numerous competing claims facing a stakeholder. By joining all
claimants in the same action, interpleader relieves the stakeholder of the cost of
multiple suits and protects the stakeholder from the risk of multiple liabilities.64 The
dilemma faced by shipowners in this case is exactly the scenario that interpleader
phenomenon seeks to address. That is, each party faced multiple claims in respect of
a single obligation and asked the court to determine the entitlement of competing
claimants and, in the interim, to grant equitable relief in the form of an anti-suit
injunction to restrain the competing claimants from initiating proceedings
elsewhere.65
Moreover, the equitable personification doctrine adopted by the Second Circuit
serves the interest of equity and prevents duplicative payments. The real conflict is
between O.W. Bunker and the actual fuel suppliers as to which entities are entitled to
payment. For their part, the shipowners have already prepared bunker payments;
they simply do not know whom they should pay and wish to avoid double payment.
As a matter of practice, the shipowners need only pay O.W. Bunker for the fuel. But
the physical suppliers may threaten to arrest the shipowners’ ships, claiming the
existence of maritime liens. Out of fear that arrests could frustrate their operations,
the shipowners may surrender and preemptively pay the physical suppliers, even
though they already paid O.W. Bunker. If the court chose not to allow the inter-
pleader actions, the shipowners could have faced double obligations to both
O.W. Bunker and the physical suppliers. Therefore, it is proper that the court
declined to adhere rigidly to the personification theory and did not force the
shipowners to pay twice for something they received only once. Although the
claimants’ argument that in rem and in personam actions are distinct is correct in
some contexts, in all cases there was only one delivery of fuel to each ship, which
created one debt to each ship and to each owner.66 Therefore, the in personam
actions against the shipowners and the in rem action against the ships are not two
different claims. The shipowners should only pay for that delivery of fuel once.
In addition, the court’s decision in this case will prevent some admiralty claimants
from obtaining undue advantage and protect the entire maritime industry. Courts
around the world encountered the same interpleader application after the collapse of

63
See Schwab (2012), p. 280.
64
See State of Texas v. State of Florida, 306 U.S. 398, 407, 412 (1939).
65
Pincus et al. (2015).
66
UPT Pool, 2015 AMC at 2077–79.
Shipowner Protection in the Wake of the Collapse of O.W. Bunker: The. . . 687

O.W. Bunker. Similarly, Canadian and English courts reached the same results and
outcomes as the Second Circuit holding that they have subject matter jurisdiction
over interpleader actions.67 But a Singapore court dismissed the request for inter-
pleader. It applied the personification doctrine rigidly and held that the in personam
action against the shipowners and the in rem action against the ships were of a
different nature and did not concern the same debt.68 The Singapore court’s decision
portends horrible consequences. Because this was a global bankruptcy initiated by
O.W. Bunker, its influence extends not only to shipowners and actual suppliers, but
also to the whole industry.69
As discussed above, affected shipowners without recourse to interpleader actions
may submit to double payment to avoid the threat of ship arrest by the actual
suppliers, even if they already paid O.W. Bunker. In addition, instead of pursuing
O.W. Bunker, the real debtor, the actual suppliers chased after the shipowners,
leaving O.W. Bunker, the entity on which liability should be imposed, out of the
picture. The personification doctrine is a legal fiction that is convenient in many
instances.70 However, the court need not blindly treat in personam claims as separate
and distinct from in rem claims, especially when doing so would result in unfairness
and injustice. Rigidly applying the doctrine of personification like the Singapore
court did, is not conducive to fairness and equity and may even threaten to disrupt
the whole shipping industry.
After this case, shipowners may use interpleader actions to protect themselves
from double payment and the threat of ship arrest. Maritime and bankruptcy
practitioners, however, still need to be aware that there are different conclusions
regarding this matter around the world, and no uniform solution has yet come to
light. From the perspectives of practitioners, it may be easier for them in other areas
of maritime law to argue that the court should approach the doctrine of personifica-
tion with a mind for fairness. On the other hand, from the perspectives of courts, they
should be aware that the personification is a legal fiction that remains useful for
certain purposes, but not for all.71 If the court applies the personification doctrine
indiscriminately, it will eventually be rendered unreliable and innocuous, and may
lead to U.S. courts adopting a permutation of the procedural theory espoused by
English courts. Thus, the preservation of the personification theory mandates judicial
recognition of equity’s role in rendering ship personification inapplicable in the

67
Canpotex Shipping Services Ltd. v. Marine Petrobulk Ltd., 2015 FC 1108 (Can.), http://www.
canlii.org/en/ca/fct/doc/2015/2015fc1108/2015fc1108.html; Stena Bulk AB v. Copley, [2015]
1 Lloyd’s Rep. 280 (QBD, Admiralty Ct).
68
Precious Shipping Public Company Co Ltd v O.W. Bunker Far East (Singapore) Pte Ltd [2015]
SGHC 187, para. 83–84.
69
Insurance companies, financing institutions (such as ING), cargo owners, and other relevant
parties may all be affected.
70
Usually it will provide a remedy directly against the vessel, which removes an admiralty
claimant’s extremely difficult burden of identifying the party truly responsible for its loss. Davies
(2000), pp. 363–364.
71
Davies (2000), p. 373.
688 J. Xu

cases where such a view is unequivocally deemed to be appropriate.72 But the courts
should also note that the extension of application of the equitable personification
doctrine cannot be too broad. Otherwise, it may damage the interests of other
maritime suppliers and ultimately weaken the personification doctrine.

5 Conclusion

The collapse of O.W. Bunker has led to a frenzy of actual and threatened ship arrests
and delays, and shipowners have faced demands for double payment. The inconsis-
tent decisions made by courts around the world illustrate the difficulties arising from
a bankruptcy in which contractual claims and maritime lien claims interact. In
addition, the different bankruptcy procedures and regimes adopted by different
jurisdictions have made this kind of cross-border problem less clear. Nevertheless,
the Second Circuit addressed only the first step of this case by stating that the court
has jurisdiction over interpleader actions, giving affected shipowners a novel means
of preventing the arrest of their ships. Next, the courts will need to resolve the
substantive issues, such as whether the actual suppliers have valid maritime lien
claims against the ships and which entities are entitled to payment for supplies of
bunkers.

References

Davies M (2000) In defense of unpopular virtues: personification and ratification. Tulane Law Rev
75:337
Force R (2013) In: Markarian K (ed) Admiralty and maritime law, vol 173, 2nd edn
Pincus A et al (2015) Courts in New York and Singapore reach opposite conclusions on the validity
of interpleader applications arising out of the O.W. Bunker bankruptcy, July 13, 2015, 2015
WLNR 20699185
Schwab BJ (2012) Equitable personification: a review of Res Judicata’s historical application to
successive in Personam and in Rem admiralty actions in the United States. Tulane Marit Law J
37:253
28 U.S.C. § 1335(a) (2012)
28 U.S.C. § 2361 (2012)
2 Am. Jur. 2d Admiralty § 26

Cases

Ashton v. Josephine Bay Paul & C. Michael Paul Found., Inc., 918 F.2d 1065 (2d Cir. 1990)
Burns Bros. v. Central R.R., 202 F.2d 910, 1953 AMC 718 (2d Cir. 1953)
Cactus Pipe & Supply Co. v. M/V Montmartre, 756 F.2d 1103 (5th Cir. 1985)

72
Schwab (2012), p. 282.
Shipowner Protection in the Wake of the Collapse of O.W. Bunker: The. . . 689

Canpotex Shipping Services Ltd. v. Marine Petrobulk Ltd., 2015 FC 1108 (Can.), http://www.
canlii.org/en/ca/fct/doc/2015/2015fc1108/2015fc1108.html
Cent. Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A., 56 F.3d 359, 1996 AMC
163, 166-67 (2d Cir. 1995)
Central Hudson Gas and Electric Corp. v. Empresa Naviera Santa, S.A., 845 F.Supp. 150, 1994
AMC 2003 (S.D.N.Y. 1994)
China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33 (2d Cir. 1987)
C.J. Hendry Co. v. Moore, 318 U.S. 133, 136, 1943 AMC 156, 158 (1943)
CNA Ins. Companies v. Waters, 926 F.2d 247(3d Cir. 1991)
Continental Grain Co. v. Barge FBL-585, 364 U.S. 19, 1961 AMC 1 (1960)
Hapag-Lloyd Aktiengesellschaft v. U.S. Oil Trading LLC, 814 F.3d 146 (2d Cir. 2016)
Insurance Co. of N. America v. S/S American Argosy, 732 F.2d 299, 1984 AMC 1547 (2d Cir.
1984)
Lincoln General Ins. Co. v. State Farm Mut. Auto. Ins. Co., 425 F. Supp. 2d 738 (E.D. Va. 2006)
Madruga v. Superior Court of State of Cal. in & for San Diego County, 346 U.S. 556, 1954 AMC
405 (1954)
Precious Shipping Public Company Co Ltd v O.W. Bunker Far East (Singapore) Pte Ltd [2015]
SGHC 187
Rainbow Line, Inc. v. M/V Tequila, 480 F.2d 1024, 1973 AMC 1431 (2d Cir. 1973)
46 U.S.C. § 31342 (2012)
Rounds v. Cloverport Foundry & Mach. Co., 237 U.S. 303 (1915)
Royal School Laboratories, Inc. v. Town of Watertown, 358 F.2d 813 (2d Cir. 1966)
State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523 (1967)
Sun Life Assur. Co. of Canada v. Thomas, 735 F. Supp. 730 (W.D. Mich. 1990)
S.E.L. Maduro (Florida), Inc. v. M/V Antonio de Gastaneta, 833 F.2d 1477, 1988 AMC 1217 (11th
Cir. 1987)
Shaffer v. Heitner, 433 U.S. 186 (1977)
State of Texas v. State of Florida, 306 U.S. 398 (1939)
Stena Bulk AB v. Copley, [2015] 1 Lloyd’s Rep. 280 (QBD, Admiralty Ct)
Tittle v. Enron Corp., 463 F.3d 410, 425 (5th Cir. 2006); Rhoades v. Casey, 196 F.3d 592 (5th Cir.
1999)
The China, 74 U.S. 53, 2002 AMC 1504 (1868)
The Eastern Shore, 24 F.2d 443, 1928 AMC 327 (D. Md. 1928)
UPT Pool Ltd. v. Dynamic Oil Trading (Singapore) PTE. Ltd., 2015 AMC 2070 (S.D.N.Y. July
1, 2015) aff’d sub nom
U.S. v. High Technology Products, Inc., 497 F.3d 637 (6th Cir. 2007)
United States v. Republic Marine, Inc., 829 F.2d 1399 (7th Cir. 1987)
The International Legal Regime Governing
Shipboard LNG

Jingjing Xu and Proshanto K. Mukherjee

Abstract The Chapter addresses the international legal regime governing shipboard
LNG which could be carried on board as cargo or fuel. The discussion touches upon
both the regulatory law element as well as the private law dimension of the regime.
On the regulatory side of the discussion, the focus is placed on the Sulphur 2020
Initiative of IMO, the IGC Code and the IGF Code; and on the private law side of the
discussion, the HNS Convention is the focal point. A brief discussion is also
provided on the LNG implications of Greenhouse Gas Emissions from ships. In
the Concluding Remarks it is noted somewhat disappointingly that current statistics
and relevant information point to the less than enthusiastic posture of shipowners to
switch to using LNG as fuel in the foreseeable future.

1 Introduction

This chapter is about the role and relevance of liquified natural gas (LNG) in the
maritime domain, in terms of the legal framework necessary to facilitate its effective
and efficient use. It is recognized in this context that the development of the law is
tempered by the level of scientific and technological advancement in the field. LNG
is at once a commodity transported by specially designed ships operating across the
oceans from one end of the world to another, and it is now also being used as bunker
fuel replacing oil as the conventional mode for powering ships’ machinery. It is well-
known that LNG is far more carbon efficient than oil and therefore exceedingly
environment friendly. However, despite some positive signals emanating from

J. Xu (*)
Plymouth Business School, University of Plymouth, Plymouth, UK
e-mail: jingjing.xu@plymouth.ac.uk
P. K. Mukherjee
Faculty of Law, Dalian Maritime University, Dalian, China

© Springer Nature Switzerland AG 2020 691

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_33
692 J. Xu and P. K. Mukherjee

certain quarters within the industry,1 mainly due to economic unfeasibility, LNG is
nowhere near becoming the norm at present, in so far as its use as fuel for ships is
concerned. But developments at the International Maritime Organization (IMO) are
on-going with regard to reduction of sulphur content in ships’ fuels and particulate
matter (PM) together with curbing greenhouse gas emissions, mainly carbon dioxide
(CO2). These have a strong tangential relationship to LNG.
Be that as it may, LNG, whether carried as cargo or fuel on board ships, is prone
to imposing risks to human health and safety. This potential eventuality calls for a
preventive and mitigative international legal framework both from a public law
regulatory perspective as well as to address private law civil liability concerns and
associated commensurate compensation schemes for victims of such damage. Nota-
bly, however, the legal regimes dealing with LNG carried on board as cargo as
opposed to fuel are developed separately, and while the regulatory side of the
framework is rather complete in that both LNG carried as cargo and as bunkers
are covered, there is a gap in the private law domain. More specifically, while there
exists an international legal regime dealing with liability and compensation issues
relating to LNG carried as cargo, an exclusive and specific legal regime in respect of
shipboard LNG used as fuel is at present absent, which in the view of the present
authors, is a conspicuous deficiency and lacuna in the law.
The principal objective of this chapter is two-fold; one, to provide a brief
overview of current and contemporary developments in the field of regulatory law
pertaining to shipboard LNG carried as cargo or used as fuel, and the other, to review
the relevant convention regime on civil liability and compensation in relation to
carriage of hazardous and noxious substances to determine how it may apply to LNG
as a pollutant in the event of a casualty causing pollution damage when it is carried as
cargo or fuel.
In the following text, the regulatory law element of shipboard LNG is addressed
in Sect. 2 where the two international Codes dealing directly with transporting LNG
as cargo and using LNG as a fuel are discussed. Following that, the private law
regime governing the issues relating to liability and compensation in connection with
shipboard LNG is examined in Sect. 3. Sect. 4 provides a brief discussion on
Greenhouse Gas (GHG) emissions and LNG implications, and the chapter ends
with some concluding remarks which highlight the fact that it is noted somewhat
disappointingly that current statistics and relevant information point to the less than
enthusiastic posture of shipowners to switch to using LNG as fuel in the foreseeable
future.

1
See for example, Shell Marine Report in Marine Professional of 28 June, 2019 where it is reported
that “LNG as a marine fuel is expanding globally with bunker locations growing and LNG fuelled
ship segments broadening”; and that key supply locations are being developed to serve LNG fuel to
customers.
The International Legal Regime Governing Shipboard LNG 693

2 The Regulatory Law Element of Shipboard LNG

To discuss the regulatory law regime governing shipboard LNG particularly ship-
board LNG used as fuel, it is important to address pollution of the air caused by
exhaust emissions from ships which, in turn, depend on the quality and cleanliness of
the fuel used, as that is indeed a major element underpinning the discussions around
using alternative fuels, such as LNG. It is trite that such pollution eventually returns
to the earth’s surface and much of it enters the oceans which is why it can be
characterized as ship-source pollution albeit one that is indirect as it first enters the
air. Annex VI of MARPOL2 is the international regime that regulates and sets
standards for ship-source air pollution. Notable in this regard is that in UNCLOS,3
it is referred to as “pollution from and through the atmosphere”, which, in the view of
the present authors, is a better and more accurate description of the phenomenon.
UNCLOS Article 212 provides the basic legal framework for the establishment of an
international regulatory regime elaborated through rules and standards adopted
by IMO.

2.1 Reduction of Sulphur in Ship Emissions

It is recognized that among others, sulphur content in ships’ fuel is a major culprit in
terms of generating air pollution. The “talk of the town” today is sulphur 2020 which
signifies 1 January 2020 as the date when the new limit on sulphur content in ships’
fuel oil comes into effect. The date is unchangeable due to complications involved in
setting a new implementation date.4 The details of compliance with sulphur control
requirements and acceptable non-compliant alternatives are discussed below. The
connection with LNG in this regard is highlighted by the fact that in order to meet the
compliance requirements under the anticipated MARPOL regulations, natural gas of
sorts including LNG can be used as fuel. Methanol is a fuel alternative commonly
used in certain short sea services.5 These gases when ignited produce negligible
amounts of sulphur oxide (SOx) emissions. In developing the International Code of
Safety for Ships using Gases or other Low Flashpoint Fuels (IGF Code) adopted in
2015, IMO has taken cognizance of this fact.6

2
International Convention for the Prevention of Pollution from Ships (MARPOL 73/78), 1340
UNTS 184.
3
United Nations Convention on the Law of the Sea, 1833 U.N.T.S. 397.
4
IMO Document (2019).
5
Ibid.
6
See International Code of Safety for Ships using Gases or other Low Flashpoint Fuels (IGF Code),
MSC Res.391(95).
694 J. Xu and P. K. Mukherjee

Recent amendments to SOLAS7 require new ships using gases such as LNG or
other low flashpoint fuels to comply with the IGF Code. In the Code, there are
provisions relating to the arrangement, installation, control and monitoring of
machinery, equipment and systems which are mandatory for ships using LNG or
other low flashpoint fuels. All matters needing particular consideration in relation to
the use of low flashpoint fuels are addressed through a goal-based approach to the
issues. The relevant goals and functional requirements are set out in each section of
the Code which contain specific provisions relating to the design, construction and
operation of ships using such fuels.8
The IMO Sulphur 2020 initiative prescribes the limit of sulphur content in ship’s
fuel as 0.50%. This limit will become mandatorily effective as of 1 January 2020
pursuant to amendments made to MARPOL. Needless to say, this new lower limit
will be of major benefit both in terms of the marine environment as well as human
health.9 Notably, given the anticipated major health benefits in respect of personnel
onboard ships and people residing in the hinterland near ports and shipping routes, it
is expected that eventually the limit will be even lower than 0.10%. The new limits
provide certainty in terms of standard to refineries and bunkering stations.
To ensure cleaner exhaust emissions, the first option for ship owners is to install
exhaust gas cleaning systems otherwise referred to as scrubbers. Flag states have
accepted this methodology as a viable alternative for meeting the requirements of
sulphur limitations. This is a complementary amendment to MARPOL which will
become effective on 1 March 2020. It is complementary to the 1 January 2020
implementation date to provide flag and port states the means to comply with the
new requirements and carry out effective enforcement. Secondly, there is the option
of using fuels that are compliant with the new standards but from the ship owners’
point of view, that will entail higher costs. The third alternative, which is probably
the best and most viable from a technical perspective is the use of LNG as a clean
gas fuel.
The European Union (EU) policy appears to be the most advanced in terms of
recognising the usefulness of LNG usage as fuel and promoting its use. It is evident
that the EU has in fact adopted certain measures that are more advanced than IMO
requirements. The use of LNG as a marine fuel is thus relatively high on the EU
agenda categorising it as the most promising option for ships’ fuel.10

7
International Convention for the Safety of Life at Sea, 1974 (SOLAS), 1184 UNTS 3. Chapter II-1
(Construction—Structure, subdivision and stability, machinery and electrical installations).
8
IMO Document (2019).
9
Ibid.
10
European Commission (2013), “SWD (2013) 4 final: Action towards a comprehensive EU
framework on LNG for shipping”. In Sect. 1 it is remarked that “LNG is the most promising
alternative shipping fuel technology in the short to medium term, at least for short sea (and possibly
inland waterway transport), but also for maritime activities outside transport. . .” cited in Xu et al.
(2015), p. 230.
The International Legal Regime Governing Shipboard LNG 695

2.2 The Evolution of the IGF Code

The need for an exclusive code instrument for regulation of LNG as a fuel became
imminent as LNG proceeded to be recognised as an alternative variety of fuel. As
early as in 2004, a proposal for the development of an international code for gas
fueled ships was instigated by Norway.11 In this vein, interim guidelines were
adopted in 2009.12 Eventually this led to the adoption of the IGF Code. The Code
entered into force on 1 January 2017 and is mandatory for ships using gases or other
low flash-point fuels. The Code recognises the importance of proficiency of seafarers
working on such ships and provides for relevant training requirements. The aim of
this Code is to minimise risks to ships and their crew as well as the marine
environment around the ship, in light of the nature of the fuels that are used.
Compliance with the IGF code is compulsory pursuant to amendments to SOLAS.
There are mandatory provisions which are relevant and applicable to LNG.
The Code consists of Parts A, B, C and D. Part A contains general provisions. As
stated earlier, it follows a goal-based approach and emphasises good engineering
practice to focus on building safety into the design of the system without relying on
operational methods or procedures. The goal is to provide for safe and environmen-
tally friendly design, construction and operation of ships, particularly in relation to
installations of propulsion machinery systems, auxiliary power generation machin-
ery using gas or low-flashpoint fuel. In general terms, the goal is also to ensure that
risk assessment is carried out to eliminate or to mitigate any adverse effects on
persons on board and the environment or the ship. Part B-1 addresses the issues of
testing of materials and specifications for metallic piping, materials used in fuel
containment systems. Part C-1 deals with drills and emergency exercises and
operational issues, the goal of which is to ensure that operational procedures for
loading, stowage, maintenance and inspection of systems are minimised in terms of
risk to personnel, ship and the environment. These should be consistent with the
practices prevailing for an oil fueled ship while taking into consideration the nature
of the fuel. Part D deals with training, the goal of which is to ensure that seafarers on
board ships are adequately qualified, trained and experienced.13

11
Norway, “Proposal for Developing International Regulations on Gas-Fuelled Ships”, IMO Doc.
MSC 78/24/8 (19 December 2003) cited in Xu et al. (2015), p. 231, in particular footnote 40 at
that page.
12
Maritime Safety Committee, “Interim Guidelines on Safety for National Gas-Fuelled Engine
Installations in Ships”, MSC Resolution MSC.285(86), (17 June 2009) cited in Xu et al. (2015),
p. 231, in particular, footnotes 41 and 42 at that page.
13
See International Code of Safety for Ships using Gases or other Low Flashpoint Fuels (IGF
Code), MSC Res.391(95).
696 J. Xu and P. K. Mukherjee

2.3 LNG Carried as Cargo

In relation to the carriage of LNG as cargo, reference must be made to the Interna-
tional Code of the Construction and Equipment of Ships Carrying Liquefied Gases in
Bulk (IGC Code),14 which was adopted in 1983,15 and made mandatory through an
amendment under Chapter VII of SOLAS on 1 July 1986.16 The Code provides the
international standards for the safe transport of liquified gases carried in bulk and
other such substances. The Code not only provides for design and construction
standards, but also those necessary with regard to equipment, the object being to
minimise risk to the ship, personnel on board and the marine environment.
The first point to note about this Code is the fact that the current version was
adopted in 2014 and is a revision which entered into force on 1 January 2016 when it
became legally effective.
There are 19 chapters in the Code. Chapter 1 contains general provisions provid-
ing an international standard for the safe carriage by sea in bulk of liquefied gases.
Among other elements, Chapter 1 provides for a definition of “hazardous area” and
provides for a surveys and certification regime using the harmonised survey system
as the default given that majority of flag states have adopted this system. Chapter 2 is
captioned “Ship survival capability and location of cargo tanks”. Ship arrangements
are provided for in Chapter 3, the goal of which is to ensure that the cargo
containment and handling system is located such that in the event of any cargo
being released, the consequences will be minimised. There is also provision for safe
access for operation and inspection. Chapter 4 deals with cargo containment
particularised in Part A of the Chapter. The overall goal is to ensure the safe
containment of cargo under all design and operating conditions regard being had
to the nature of the cargo. Chapter 5 deals with “Process Pressure Vessels and
Liquids, Vapour and Pressure Piping Systems”. Chapter 6 prescribes construction
materials and quality control measures. Chapter 7 is captioned “Cargo Pressure/
Temperature Control”. Vent systems for cargo containment are addressed in
Chapter 8, and “cargo containment system atmosphere control” in Chapter 9. Chap-
ters 10 and 11 deal with electrical installations and fire protection and extinction
respectively. Chapter 12 provides for artificial ventilation in cargo areas; and
Chapter 13 prescribes the instrumentation and automation systems. Chapter 14 pro-
vides for protection of personnel. Chapter 15 addresses the issue of filling limits for
cargo tanks, and Chapter 16 deals with use of cargo as fuel. Chapter 17 briefly
provides for special requirements; and Chapter 18 for operational requirements. A
summary of minimum requirements is contained in Chapter 19, following which
there are 5 Appendices.

14
The International Code of the Construction and Equipment of Ships Carrying Liquefied Gases in
Bulk (IGC Code), MSC.5(48).
15
Ibid.
16
IGC Code - International Maritime Organization, www.imo.org/en/OurWork/Safety/Cargoes/
CargoesInBulk/Pages/IGC-Code.aspx.
The International Legal Regime Governing Shipboard LNG 697

For the present purposes, Chapter 16 which bears the heading “Use of Cargo as
Fuel” is significant. The aim of it is to ensure safety whenever cargo is used as fuel.
Methane is the only LNG cargo the vapour or boil-off gas can be used in certain
machinery spaces where it may be used only in boilers, inert gas generators, internal
combustion engines, gas combustion units, gas turbines and the likes. For vaporized
LNG, the fuel supply system must comply with the relevant prescriptions. There are
also provisions relating to the requirement for no visible flame to be exhibited by gas
consumers and the uptake exhaust temperature must be maintained at a prescribed
level.17

3 The Private Law Dimension

As mentioned previously, whilst the regulatory legal regime addresses both aspects
of LNG being carried on board as cargo and as bunker fuel, it is noted that in the
private law side of the equation which involves issues of liability and compensation
for damage, there is a lacuna in the law which needs to be filled.18
In this context, the relevant international instrument is the International Conven-
tion on Liability and Compensation for Damage in Connection with the Carriage of
Hazardous and Noxious Substances by Sea 2010 (HNS Convention 2010).19 The
Convention, originally adopted in 1996, was revised through a Protocol in 2010. The
consolidation of the two came to be known as the HNS Convention 2010. The
solutions adopted in the 2010 Convention reflect the reasons which necessitated the
changes which are to remedy the underlying costs which prevented the original
Convention of 1996 to enter into force.
One reason is the heavy burden placed on states requiring them to report the
extensive range of packaged substances received by them.20 The shipowner’s
limitation amount in this respect has been increased to maintain the two-tier system
taking into consideration the exclusion from contributions to the Fund.21 Another
reason is that in respect of LNG cargos the original Convention of 1996 made the
titleholder responsible for making contributions.22 The third reason is that a series of

17
Corkhill (2016).
18
Xu et al. (2017), p. 148.
19
https://www.hnsconvention.org/wp-content/uploads/2019/05/2010-HNS-Convention-English.
pdf.
20
This was resolved by adopting a differentiation between bulk and packaged HNS goods by
excluding packaged goods from the definition of ‘contributing cargo’ and providing an exemption
to receiving states from the obligation to contribute to the HNS Fund in respect of them. However,
under the shipowners’ compulsory insurance, damage caused by packaged goods remains covered
and any excess is met by the HNS Fund.
21
See IOPC Fund (2019), p. 1, paragraph 4.
22
It was recognised that such person may not be subject to the jurisdiction of the state party and as a
result, contributions may not be recoverable. The 2010 Convention makes the receiver responsible
698 J. Xu and P. K. Mukherjee

obstacles was posed by the lack of contributing cargo reports upon ratification of the
1996 Convention and annual submissions thereafter.23
The singular purpose of the Convention is to provide compensation for damage
caused by the carriage of HNS by sea.24 It is to ensure provision of adequate, prompt
and effective compensation for loss or damage suffered by persons, property and the
marine environment arising from carriage by sea of HNS. Going beyond pollution
damage, the Convention also covers other risks such as fire and explosion. Com-
pensation is available pursuant to two tiers; the first being attributable to the
shipowner’s liability, and the second, comprising payment out of the HNS Fund
where amounts payable under the first tier are insufficient to meet all eligible claims.
The scope of the application of the 2010 Convention extends to damage caused by
HNS in the territory or territorial sea of a state party, and also pollution damage in the
exclusive economic zone of a state party. In addition, damage caused by HNS
carried on board a ship, the flag state of which is a state party is also covered. As
in the other Conventions, preventive measures are also covered.25
The word “damage” is a defined term in the 2010 Convention which includes loss
of life or personal injury occurring on board a ship carrying HNS or outside such
ship. It also includes property damage or loss outside the ship, loss of damage caused
by contamination of the environment as well as other losses that are actionable under
the Convention. Compensation amounts available from the shipowner and the HNS
Fund are distributed among claimants in proportion to their established claims.
However, priority is granted in respect of claims for loss of life and personal injury.26
The Convention was modeled along the lines of the CLC/Fund regime27 and
shares some salient features with it, such as strict liability, limitation of liability,
channeling of liability, and compulsory insurance. However, there are several
dissimilarities as well, which make the HNS Convention distinctively different
from the CLC/Fund Regime. One is the dual-purpose character of the HNS Con-
vention, namely, consideration of human health and safety in addition to the
environmental factor. This led to the use of the term ‘damage’ in the HNS as opposed
to ‘pollution damage’ which is the term used in the other two regimes governing civil
liability arising from spills of cargo or bunker carried by ships, namely the

for such payment unless the titleholder agrees to assume that responsibility. See ibid., p. 2,
paragraph 4.
23
This was resolved by requiring states to submit reports on contributing cargo as a condition of
becoming a state party to the 2010 Convention and to submit annual reports thereafter. Failure to
comply with this requirement can lead to a state party being suspended temporarily from being a
contracting state and depriving that state from claiming compensation until the reports in question
are submitted. See ibid.
24
Preamble to the 2010 Protocol.
25
Ibid, paragraph 6.
26
Ibid, paragraph 9.
27
International Convention on Civil Liability for Oil Pollution Damage, 1992, 973 UNTS 3;
International Convention on the Establishment of an International Fund for Compensation for Oil
Pollution Damage, 1992, UNTS Vol No. 1110 (p. 15).
The International Legal Regime Governing Shipboard LNG 699

CLC/Fund regime and the Bunkers Convention.28 Another conspicuously signifi-

cant provision in the scheme of the HNS Convention is that the HNS Fund consists
of four separate accounts, one of which is specially identified as the LNG account.29
It would have been ideal if the Conventions covered both LNG carried on board
as cargo and as bunker, but notably, the Convention covers only LNG carried as
cargo although the definition of “HNS” is broad.30 As defined in the Convention,
“HNS” includes packaged goods, bulk solids, liquids and liquefied gases, and is
largely based on lists of substances that have been previously identified in a number
of IMO Conventions and Codes that were designed to ensure maritime safety and
marine environmental prevention.31 The inclusion of LNG as an “HNS” is provided
in Article 1(5)(a)(v) of the Convention. According to Article 1(5)(a) and (b), the
application of the Convention is limited to HNS carried on board a ship as cargo, or
as residues from their previous carriage in bulk.
It is to be observed in this context that pursuant to Chapter 16 of the IGC Code,
LNG carried as cargo may be used as fuel, but arguably, whereas liability for damage
caused by LNG when it is cargo is covered by the HNS Convention, when it is
transferred to the ship’s bunkers to be used as fuel, the liability regime of that
convention will not apply. Equally relevant is the fact that there is no liability regime
under the Bunkers Convention for damage caused by LNG used as fuel.32 As such,
there exists a legal lacuna as the current liability and compensation legal regimes in
the international domain does not govern LNG used as a fuel. It has been
recommended in a previous study that the most feasible option to filling the lacuna
would be to amend the HNS Convention to include LNG used as fuel in the
definition of “Hazardous and noxious substances”.33 This would avoid the need
for amending the definition of “damage” in the Convention as it is broad enough to
include the possible damage that may be caused by spills of LNG carried on board a
ship as fuel.

4 Greenhouse Gas (GHG) Emissions and LNG Implications

Thus far, the discussion in this chapter has been predicated on the usefulness of LNG
as a marine fuel based on the fact that LNG produces virtually negligible quantities
of SOx. Be that as it may, concern over sulfur content expressed through the IMO

28
Xu (2013), p. 110.
29
See IOPC Fund (2019), p. 7, paragraph 44.
30
See Article I paragraph 5, subparagraph (a) items (i) to (vii), paragraph (b) referring to residues
from previous carriage in bulk; paragraph 5 bis providing definition of “bulk HNS”; and paragraph
5 ter providing definition of ‘packaged HNS’.
31
Xu (2013), p. 122.
32
See Xu et al. (2017), pp. 140–141.
33
Xu et al. (2017).
700 J. Xu and P. K. Mukherjee

2020 mandatory initiative is not the only factor relevant to the phenomenon of clean
mobility of ships. Indeed, CO2 emission which is a major culprit in terms of
generation of GHG is a matter of equally serious concern. The correlation between
GHG emissions and LNG usage as marine fuel is therefore quite significant.
The findings of a new study on use of LNG as marine fuel indicate that LNG
bunkering provides a small reduction or even an increase in GHG emissions in
comparison with heavy oil fuel which is the prevailing norm. At any rate, this
depends on various factors including engine design. In the worst-case scenario,
LNG fuel may produce life cycle emissions that exceed those from the use of
heavy oil but can, on the other hand, result in reductions of CO2 emissions by
30%. Utilization of LNG involves other emission sources which can reduce the net
benefit. In certain instances, methane which is a powerful GHG more so than CO2,
may generate higher GHG emissions than vessels fuelled by heavy oil. The study
referred to concludes that reaching the IMO GHG reduction target of 50% by 2050
may not be feasible by using improvements in efficiency and LNG alone; rather, an
improvement rate of 35% is more likely achievable. Given various other advantages
of LNG use including the low emissions of NOx, SOx and PM may on the whole
render the LNG option relatively attractive in the medium term.34
It is somewhat alarming that methane emissions from ships using LNG as fuel are
higher than those produced by marine fuel oils currently in use. There is also the
issue of unburned methane emissions known as methane slip, which is significant.
Researchers have commented that in order to retain benefits accruing from LNG
usage in terms of GHG, the question of methane emissions must be addressed. Thus,
there are issues relating to LNG which require further investigation and these matters
are being addressed by expert bodies including the IMO, the European Sustainable
Shipping Forum and the Society for Gas as a Marine Fuel.35
Needless to say, a robust legal regime relating to GHG implications of LNG
should be articulated particularly in respect of its regulatory control.

5 Concluding Remarks

The legal regimes governing shipboard LNG is to some extent patchy and, as
explained above, there is a notable lacuna in the private law domain with the
emerging use of LNG as a marine fuel. However, this may not be an immediate
concern to the international maritime community as a wide use of LNG as a marine
fuel is not envisaged. Specifically, the feasibility factor of ships using LNG as fuel is
very much dependant on its availability, which in turn depends on the existence of
LNG bunkering infrastructure on a global basis. In other words, whereas the use of
LNG as an alternative marine fuel is desirable, the demand for its use and the supply

34
See Maritime Executive (2019); see also Sharafian et al. (2019).
35
See European Commission (2016).
The International Legal Regime Governing Shipboard LNG 701

of LNG must be commensurate. At present, LNG bunkering infrastructure is grossly

inadequate and, as such, LNG use as a marine fuel continues to be hampered by
insufficient storage space and inadequate logistical arrangements in the supply
chain.36
It is probably worthwhile to mention that the majority of LNG use on ships is
currently limited to vessels operating coastwide, and predominantly in waters in the
European continent. Notably, bunkering ports around the world have to date not
developed any LNG bunkering facilities in a comprehensive fashion. If existing
ports have to be modified to meet the relevant requirements, these would be fairly
expensive ventures. Furthermore, LNG bunkering would result in additional costs
including the costs of delivery to the import terminals and then the costs relating to
breaking bulk where the LNG is received. There will also be the issues of need and
availability of shuttle services for delivering the LNG bunkers to bunker vessels and
the further costs of delivering them to ships. If these are viewed as downsides to the
use of LNG as fuel, there is also the economic factor which concerns currently
decreasing oil prices resulting in a corresponding decline in the price of fuel oil.
Overall, this scenario is not consistent and compatible with the best business sense
for shipowners.37
For LNG to become the norm in terms of marine fuel, account must be taken of
the need for ships to be retrofitted. This is quite a complex task given that existing
engines of ships must be modified significantly, or LNG gas tanks must be added.
All these together with the sophistication involved translates into considerably high
costs for fitting of LNG tanks along with the associated piping systems. In view of
these observations, it would appear to be the case that using LNG as the best option
for fueling ships’ engines is more appropriate and cost-effective for new buildings,
and the task of transforming existing ships for LNG usage is not ideal in that sense.
The cost factor obviously cannot be ignored: an LNG bunkered ship is inordinately
expensive, costing in the range of USD 60 to 80 million for a new build mid-size
vessel.
Considering all these above-mentioned anomalies and downsides, it would
appear that the use of LNG as a bunker fuel would not be considered by shipowners
as the best and most viable option at present or in the near future, which may allow
IMO to complete the legal framework governing shipboard LNG overall ahead of its
vast development.

36
But see Shell Marine Report in Marine Professional, supra, note 1 above.
37
IMO (2017).
702 J. Xu and P. K. Mukherjee

References

Corkhill M (2016) A new regulatory regime for new gas carriers. LNG World Shipping, 23 June
2016. https://www.lngworldshipping.com/news/view,a-new-regulatory-regime-for-new-gas-
carriers_43440.htm
European Commission (2013) SWD (2013) 4 final: action towards a comprehensive EU framework
on LNG for shipping
European Commission (2016) Science for environment policy: methane emissions from
LNG-powered ships higher than current marine fuel oils. http://ec.europa.eu/environment/
integration/research/newsalert/pdf/methane_emissions_from_lng_powered_ships_higher_
than_current_marine_fuel_oils_444na4_en.pdf
IMO Document (2017) Safety for gas-fuelled ships – new mandatory code enters into force. I
January 2017. http://www.imo.org/en/MediaCentre/PressBriefings/Pages/01-IGF.aspx
IMO Document (2019) The 2020 global sulphur limit. http://www.imo.org/en/MediaCentre/
HotTopics/GHG/Documents/2020%20sulphur%20limit%20FAQ%202019.pdf
IOPC Fund (2019) An overview of the international convention on liability and compensation for
damage in connection with the carriage of hazardous and noxious substances by sea, 2010 (The
2010 HNS Convention). https://www.hnsconvention.org/wp-content/uploads/2019/04/HNS-
Convention-Overview_e.pdf
Maritime Executive (2019) LNG may offer 10 percent cut in GHG emissions. 29 January 2019.
https://www.maritime-executive.com/article/study-lng-may-offer-10-percent-cut-in-ghg-
emissions
Maritime Safety Committee (2009) Interim Guidelines on Safety for National Gas-Fuelled Engine
Installations in Ships. MSC Resolution MSC.285(86), (17 June 2009)
Norway (2003) Proposal for Developing International Regulations on Gas-Fuelled Ships. IMO
Doc. MSC 78/24/8 (19 December 2003)
Sharafian A, Blomerus P, Mérida W (2019) Natural gas as a ship fuel: assessment of greenhouse gas
and air pollution reduction potential. Energy Policy 131:332–346
Xu J (2013) The international legal framework governing liability and compensation for ship-
source oil pollution damage. In: Mejia MQ Jr (ed) Selected issues in maritime law and policy:
Liber Amicorum Proshanto K. Mukherjee. Nova Science Publishers
Xu J, Testa D, Mukherjee PK (2015) The use of LNG as a marine fuel: the international regulatory
framework. Ocean Dev Int Law 46(3):225–240
Xu J, Testa D, Mukherjee PK (2017) The use of LNG as a marine fuel: civil liability considerations
from an international perspective. J Environ Law 29:129–153
Intelligent Ships

Tingting Yang

Abstract In the era of big data, the development of intelligent ships is accelerating,
and intelligent ships have become the main direction of future development of ships
and shipping. This chapter briefly introduces the related concepts of intelligent ships,
and focuses on the application technologies of intelligent ships and the legal and
regulatory issues it will face in the future development. The key technologies of
intelligent ships involve information perception technology, intelligent decision-
making technology, intelligent routing technology, marine communication network
security technology, route planning technology, autonomous navigation technology,
state monitoring and fault diagnosis technology and so on. In the future, the devel-
opment of intelligent ships must strengthen the amendment and improvement of
maritime conventions and laws, and introduce relevant laws, regulations and norms.

1 The Concept of Intelligent Ships

Intelligent ships refer to the use of sensors, communications, the Internet of things,
such as the Internet technology, automatic perception and obtain the ship itself, the
marine environment, logistics, port and other information and data, and based on
computer technology, automatic control technology and data processing analysis
technology. A ship that realizes intelligent operation in navigation, management,
maintenance and cargo transportation. To make ships safer, more environmentally
friendly, more economical and more reliable (China Classification Societies 2015).
Intelligent ships can be divided into four development stages. The first stage of
intelligent ships is limited to remote monitoring and data analysis of marine equip-
ment status. In the second stage, intelligent ships make use of cloud computing,
internet of things, big data analysis and other technologies to provide timely safety,
environmental protection and energy efficiency optimization suggestions for ships
by connecting onshore centers, so as to realize semi-automatic navigation. In the

T. Yang (*)
School of Electrical Engineering and Intelligentization, Dongguan University of Technology,
Dongguan, China

© Springer Nature Switzerland AG 2020 703

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_34
704 T. Yang

third stage, intelligent ships add port logistics information on the basis of ship data
analysis to realize seamless connection between ship and shore information and
optimize navigation, ships schedule and port operation dynamically in real time. The
fourth stage of the intelligent ships will achieve full autonomous unmanned driving
and automatic port loading, unloading and logistics. The current intelligent ships are
in the transition stage from the first stage to the second stage (Yan 2016).
Intelligent ships are divided into six functional modules: intelligent navigation,
intelligent hull, intelligent engine room, intelligent energy efficiency management,
intelligent cargo management and intelligent integration platform (Heci 2016). To
realize the function of intelligent ships, it is necessary to further study the information
perception technology, communication and navigation technology, energy efficiency
control technology, route planning technology, status monitoring and fault diagnosis
technology, distress early warning and rescue technology, pilot integration and
autonomous navigation technology related to ships. In addition, 10,000 Scientific
Problems
Volume of Transportation Science also covers intelligent ships about
scientific problems, including intelligence challenges, ship navigation intelligent
decision-making, complex waters ship intelligent collision avoidance safety
decision-making, transportation automatic intelligent control and automatic naviga-
tion of the ships, the intelligent recognition of small moving targets on the sea, etc.

2 The Status Quo of Intelligent Ships

The development of intelligent ships is not an overnight process, but a gradual

process, from the local to the whole, from the sea to the shore. In terms of the current
technical situation, in terms of the design, construction and operation of ships, the
technology of intelligent ships is still considered from the individual, rather than the
technical system of integrated intelligent ships (Zeng 2015).
There are several reasons for the current situation.
(1). The development and design of intelligent ships system requires strong techni-
cal support. In the last century and the beginning of this century, the techno-
logical development in system control intelligence and wireless communication
is not enough to lead or support the development of intelligent ships from the
individual to the technical level of system integration.
(2). Intelligent ships need related to the development of international norms and
rules related competent authorities of collaboration, there is currently no intel-
ligent ships internationally relevant standards and norms of no unified standard,
unable to realize intelligent ships international within the scope of the system
compatibility and versatility, which greatly restrict the development of intelli-
gent ships system Conversely, the relevant international standards and needs
certain actual technical support and the practice application, revision consum-
mates unceasingly. For example, if you want to achieve ship-to-shore commu-
nications, monitoring, control, diagnosis, then realizing the function of the
system design and manufacturing will need to have the corresponding
Intelligent Ships 705

international standard rules to realize unmanned, there is currently no

corresponding international standard rules requirements, and unmanned itself
and existing norms conflict rules, whether IMO and the relevant classification
society are and are not allowed to accept. These big data systems and
corresponding operating system software for the intelligent ship system are
not required by relevant norms and rules in the world, so they cannot obtain
relevant certificates or certifications.
(3). The research and development of intelligent ships system need the cooperation
and development of ship owners, shipyards, equipment manufacturers and other
relevant research units. It is mainly reflected in the following aspects: according
to the operation situation, the ship owners puts forward relevant technical
requirements related to the safety and economy of the ship, including the safety
of the ship itself, energy saving and emission reduction, logistics scheduling,
loading and unloading control, etc. According to the requirements of the ship
owners, the ship design and construction unit puts forward technical schemes to
meet the requirements of the ship owners, including intelligent control of the
ships’ own system and remote shipboard control system (which includes not
only the ship’s own control, but also other control systems such as port and
logistics scheduling system). The implementation of these programs also
requires specific hardware and software to realize, and relevant equipment
manufacturers need to develop systems and products suitable for a certain
scale of market demand, and form a scale, at least to ensure the standardization
of global after-sales service.
(4). The development and research of intelligent ships need to be led by a competent
department to organize and coordinate the development of participants in all
relevant links. At present, some international ships intelligent control systems or
products are basically designed to meet the individual requirements of ship
owners, and are not mandatory requirements of IMO or relevant classification
societies. For example, centralized bridge building control system, although there
are certain requirements for classification symbols and corresponding international
rules, is not a mandatory requirement for IMO and classification society.
As mentioned above, although the intelligent ships have not formed a complete
system, many ship owners and equipment manufacturers have developed various
intelligent ships control systems. A intelligent ship should be understood as a
system, not a ship itself.

3 Key Technologies of Intelligent Ships

The ultimate goal of intelligent ships is autonomous ships without manual interven-
tion. According to Oskar Levander, vice President of ship innovation at Rolls-
Royce, three exploration directions of unmanned ship technology include sensor
fusion perception, navigation and collision avoidance decision control algorithm,
706 T. Yang

shipboard communication and interconnection (Manno 2015). Yingjun Zhang’s

team from Dalian Maritime University divided the technical framework of
unmanned ships into three parts: ship terminal autonomous navigation system,
high-performance maritime communication system and shore-based support system
(China Ship News 2015). Ship terminal autonomous navigation system is the core,
which involves intelligent perception, intelligent decision-making and reliable
implementation of decision-making technology. High-performance maritime com-
munication system is responsible for transmitting information and instructions
between ships and shore, involving data compression technology, intelligent routing
technology and marine communication network security technology. Shore-based
support system includes monitoring center and information support center, involving
telemetry and remote control, complete information real-time push and intelligent
processing technology (Liu et al. 2016).

3.1 Information Perception Technology

Ships information perception refers to a technical means by which a ship can obtain
all kinds of information about itself and its surrounding environment based on a
variety of sensing equipment, sensing network and information processing equip-
ment, so that the ships can navigate more safely and reliably. Ships perceived
information can be divided into its own state information and surrounding environ-
ment information. Its own state information includes the state information of various
equipments in the engine room, bridge and cargo compartment of the ship, as well as
the navigation position, speed, heading and other navigational state information of
the ships. It mainly relies on the existing pressure, temperature, speed, liquid level
and other sensors, and the sensing means are relatively mature. Surroundings around
information including ship and around obstacles, meteorological condition, water
depth, video monitor, audio monitor information, the flow speed and direction,
AIDS to navigation location, navigable areas, etc., which rely on AIS, maritime
radar, video cameras, laser sensor, laser radar sensor, a wind speed sensor, the
direction of the wind sensor, acquisition equipment, log, the depth of the water
meter, visibility voyage data recorder system (VDR), electronic chart (electronic
navigation chart) interaction information for vessel and shore, involved in the
process of perception between signal sort is more, the large amount of data and
information redundancy and conflict problems. It is worth further study (Burmeister
et al. 2014).

3.2 Communication Navigation Technology

Communication technology is used to realize the information interaction between

various systems and equipment on ships, as well as between ships and shoreline
stations, ships and navigational aids. Common modes of communication mainly
Intelligent Ships 707

include: VHF (very high frequency), maritime private network, maritime satellite,
mobile communication network (mobile phone network), etc. Navigation technol-
ogy is used to guide the ships from one point of the designated route to another point,
usually including positioning, destination selection, path calculation and path guid-
ance and other processes.

3.3 Energy Efficiency Control Technology

In order to improve ships energy efficiency and reduce ships greenhouse gas
emission (energy saving and emission reduction), IMO proposed EEDI (energy
efficiency index of new shipbuilding design), EEOI (energy efficiency index of
ships operation) and other evaluation standards. Intelligent ships development
should keep up with the trend of the development of “green ship”, the analysis of
navigation environment, loading capacity, draft, host power (speed), and other
factors and the internal relation between ships operating efficiency index EEOI,
under the premise that ensure the vessels’ safety and operational efficiency, by
optimizing the control of ship speed, loading capacity, draft, routes, etc., to minimize
EEOI index. The relationship between environmental factors and ships energy
consumption is worth further study.

3.4 Route Planning Technique

Route planning refers to the intelligent real-time selection of the position and route
of the ships in the waterway according to the traffic flow control information in the
navigation area, the density of ships in the channel ahead, the company’s shipping
date information, the channel flow distribution information and the navigation
difficulty information, so as to optimize the route and achieve the purpose of safety,
efficiency, green and environmental protection. Currently, common route planning
methods include: linear programming method, mixed integer programming model,
genetic algorithm, simulated annealing, particle swarm optimization algorithm and
other intelligent algorithms (to solve the problem of random travel time).

3.5 State Monitoring and Fault Diagnosis Technology

State monitoring technology is a kind of prediction technology of equipment running

state by means of monitoring the development trend of equipment vibration. It can
judge whether the equipment is in a stable state or deteriorating by understanding the
health condition of the equipment. In the future, ships fault diagnosis may consider
building equipment status monitoring system based on big data and using multi-
708 T. Yang

scale analysis method. Fault diagnosis technology is in the ships or basic don’t
remove the equipment in the operation of the machinery and equipment, to master
the operation of the equipment condition, according to the diagnosis object test
useful information analysis processing, judge whether the state of the diagnosed
object is in abnormal condition or fault condition, judge state of degradation of parts
or components, and determine the reason of the failure state and forecast the
development trend of degradation, etc. Its purpose is to improve the efficiency and
reliability of the equipment, prevent the occurrence of trouble before it happens, and
avoid the occurrence of fault. Due to the small number of intelligent ships personnel,
there are higher requirements for self-monitoring and fault diagnosis technology of
ships equipment status. By using big data analysis technology and intelligent
diagnosis technology, potential faults can be detected and dealt with as soon as
possible to ensure the safety and reliability of ships during navigation.

3.6 Early Warning and Rescue Technology for Distress

Water traffic accidents occur from time to time, especially collision and grounding
accidents, which often cause serious economic losses and casualties. No matter in
the sea or inland waters, ships collision is the most common type of water traffic
accidents, accounting for a large proportion of all water traffic accidents. Ships
distress early warning and search and rescue technology can effectively reduce the
incidence of accidents and reduce the loss of accidents.

3.7 Autonomous Navigation Technology

As defined in the Code for Intelligent Ships, intelligent navigation refers to the
analysis and processing of perceived and acquired information by means of com-
puter technology and control technology, and the design and optimization of the
navigation path and speed of ships. When feasible, with the help of shore-based
support center, ships can avoid collision automatically in open waters, narrow
waterways and complex environmental conditions, so as to realize independent
navigation. The research on autonomous navigation technology of foreign ships is
earlier. The United States, Israel and other maritime powers have developed
unmanned surface ships, which are mainly used for military reconnaissance and
mine clearance.
Intelligent Ships 709

4 The Epitaxy of Intelligent Ships

In addition to the key technologies of intelligent ship design, the development of

intelligent ships also requires a lot of epitaxial conditions, including the intangible
infrastructure of supervision and regulation, and the hardware environment of
supporting (Ando 2014).
In terms of hardware environment, it includes the following aspects. Firstly, the
supporting infrastructure of intelligent ships, such as ports, wharves, waterways,
anchorage, navigation marks and communications, needs to be industrialized and
upgraded. Secondly, intelligent ships need a large number of ship supporting
equipments, including highly reliable power equipments, deck machineries, cabin
equipments, communication, navigation and intelligent systems (including all kinds
of sensors), and they need to cooperate with each other through information inter-
action to complete the highly complex business functions of intelligent ships, which
is also the trend of communication physical systems (CPS) of industry 4.0 (Li et al.
2012). In addition, intelligent ships can only be applied in the designated test waters
after long-term rigorous testing. Hydrological, meteorological and other environ-
mental factors in the waters can be monitored and digitized in real time, and perfect
communication, navigation, maritime supervision and rescue measures are required.
Norway opened the world’s first unmanned ship test area in Trondheim Fjord in
October 2016, and Finland opened the test area with sufficient data connectivity in
August 2017. China also make breakthroughs in the setting up and relevant research
of unmanned ship test area.
In terms of intangible infrastructure, policies, legislations and regulations of the
shipping industry under the condition of intelligent ship technology need to be
updated. At present, IMO has formulated more than 50 effective conventions and
rules for the use and compliance of the global contracting parties, and these con-
ventions and rules must be translated into the shipping industry regulations of the
contracting parties. These regulations are generally made with human as the main
body. When the ship intelligence enters the highly autonomous stage even the
unmanned stage, navigation of ships mainly depends on shore-based remote control
even autonomous navigation. This fundamental change will lead to the failure of
many existing conventions and rules to meet the requirements, and the resulting
revision of conventions and rules will be a complex, huge and even subversive work.
Nine IMO member states including the United States, Norway, Denmark, Japan and
the republic of Korea submitted a proposal to the maritime security council to
determine the scope of legislation in the field of unmanned ships on February
27, 2017. Furthermore, the United States, the United Kingdom, Belgium and
South Korea and other countries have launched unmanned ship domestic legislative
procedures. At present, CCS has submitted the report on the research on issues
related to unmanned ships to the relevant competent authorities, suggesting that the
research on technologies and rules related to unmanned ships should be started as
soon as possible from four aspects, namely, the impact on shipping mode, laws and
regulations, operation management, norms and standards. In terms of the operation,
710 T. Yang

safety, pollution prevention, maritime rights and interests and responsibilities of

unmanned ships, IMO member states should make adequate preparations for the
introduction for the promulgation of relevant legislations, regulations and norms.

5 Legal and Regulatory Issues Faced by the Development

of Intelligent Ships

The SOLAS Convention stipulates that each flag state shall equip the ship with
qualified personnel in accordance with the minimum personnel allocation regula-
tions set by itself, and it is obvious that unmanned ships do not meet this provision.
In order to adapt to the development trend of unmanned ships, it is necessary to
strengthen the amendment and improvement of maritime conventions and laws. In
order to reduce the minimum staffing to zero, the following legal problems must be
solved.
(1). How crew redefines. The current crew work includes cargo handling, mainte-
nance, driving, etc. It is both the operation subject and the responsibility subject.
If you leave the ship and the pilot changes to a program, do the programmers
have to be trained by the crew? In PSC (port state supervision and control)
inspection of various countries, the captain signs and confirms the problems
found out. If there is no crew, at least a regulation should be issued to replace the
captain to assume various responsibilities.
(2). Who bears the legal responsibility for safety? When a ship equipped with fully
automatic navigation and collision avoidance system meets the requirements of
average and machine damage accident, who should be responsible. Ship
owners, shore-based operators, equipment manufacturers and system mainte-
nance personnel are all likely to be liable, and the identification of liability needs
to be regulated by new laws. It is also the responsibility of competent authorities
to establish relevant laws on supervision and management to ensure that
unmanned ships reach at least the same safety standards as current ships and
avoid accidents.
(3). Who is responsible for the loss of ship owners and shippers? In the current
operation of the ship, the chief officer is responsible for the handover of goods
and the chief engineer is responsible for the refueling. If there is no crew on
board, these are arranged directly by the port. If ship owner spot checks and
finds that the oil stored is not accounted for, it is impossible to determine which
port has lost the cargo space and find the relevant responsible person.
In a word, in order to realize unmanned ships, the existing SOLAS, STCW, MLC
and other conventions are all about protecting or restraining the crew. If the crew is
lost, it must be abolished or revised, which requires a long time to study, discuss and
adapt.
Intelligent Ships 711

The development of intelligent ships is a branch of artificial intelligence. Its

reliability and stability need to be tested repeatedly for a long time. Relevant
legislations and regulations and supporting services need a long time to be gradually
improved. The coming decades will be a period of rapid development of artificial
intelligence, and the shipping industry should also gradually overcome difficulties in
this period, train relevant personnel, establish relevant supporting facilities, and
make preparations for the realization of unmanned ships.

References

Ando H (2014) Smart ship application platform project. Sea Japan 2014: Environmental Technol-
ogy Seminar, 11th April 2014
Burmeister H-C, Bruhn W, Rødseth ØJ, Porathe T (2014) Autonomous unmanned merchant vessel
and its contribution towards the e-Navigation implementation: the MUNIN perspective. Int J
e-Navig Marit Econ 1:1–13
Heci (2016) Requirements stated in the six modules in CCS’s specification on smart ships. China
Ship Surv 3:84–85
Li G, Wang T, Zhang G (2012) Study of intelligent ship design based on internet of things. Ship
Eng 34(6):59–62
Liu G, Perez R, Muñoz JA, Regueira F (2016) Internet of ships: the future ahead. World J Eng
Technol 4:220–227
Manno G (2015) The connected Ship-DNV GL. 50th Nor-shipping, 2015
Smart Ships Forum and Press Conference on the prototype smart ship “i-Dolphin”. China Ship
News. 2015.12.2
Specification on Smart Ships. China Classification Societies, 2015
Yan X (2016) Statud and development trends of smart ships. Public Utili 3(1):23–26
Zeng X (2015) Development of smart ships. Rep Overseas’ Ship Equip Technol 2015:89–94
The United Kingdom Tonnage Tax Regime:
Compatibility with Relevant European
Union Tax Law and Policy

Yinan Yin

Abstract The maritime heritage of the United Kingdom speaks for itself. Over a
substantial part of the last century as well as in the nineteenth century, the United
Kingdom had the distinction of having the largest tonnage in the world. However,
over the last decades the size of the United Kingdom fleet on the world scale had
diminished considerably down to some 7 million tonnes deadweight tonnes (DWT)
in 1999 from a high of 50 million DWT in 1975. Faced with competition from
vessels registered in third countries, in 2000, the United Kingdom adopted tonnage
tax regime to reverse the flow of UK registered ships flagging out. This scheme was
classified as a state aid for maritime transportation within the EU and the commis-
sion has defined its first guidelines on this subject to ensure a certain convergence
between the action of the Member States since 1989. Indeed, the concept of tonnage
system has its roots in the so-called open ship registry system, which is adopted by
third countries and radically different from the traditional closed registry system of
ship registration. This project aims to examine the effectiveness of this scheme in the
United Kingdom, its compatibility with EU law and policy; and the potential impact
of Brexit on the United Kingdom shipping registry.

1 Introduction

1.1 Background

The phenomenon of tonnage tax as a taxation regime is peculiar to the shipping

industry. Basically, it is an alternative method for the computation of the taxable
profits of a shipping entity which is different from normal corporate taxation in a
given jurisdiction. A company’s profit based on tonnage tax is a replacement for both
tax adjusted commercial profit or loss on shipping trade as well as chargeable gains
or losses made on tonnage tax assets. It is obvious that the notion of “tonnage tax” is
based on the tonnage of a ship and how the two interrelate will unfold in this work.

Y. Yin (*)
Liverpool John Moores University, Liverpool, UK

© Springer Nature Switzerland AG 2020 713

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_35
714 Y. Yin

Within the European Union, a national tonnage tax regime brings in the issue of
maritime state aid as a matter of EU policy and which is essentially a kind of
concession given in recognition of the importance of European shipping and the
need for competitiveness in this field vis a vis non-European maritime states. Closely
related is the issue of tax avoidance, which, although technically a lawful device, is
closely watched by both the EU regulator as well as domestic regulatory taxation
authorities. Another issue concerns EU rules relating to foreign corporations con-
trolled by entities based in a European Union country, especially where such a
corporation is located in an offshore jurisdiction where relatively liberal taxation
rules prevail.

1.2 Purpose

The purpose of this chapter is to examine the United Kingdom tonnage tax regime
and its compatibility with European Union taxation rules, Attention will be focused
on the importance of shipping to the economic growth of the United Kingdom, and
what steps are being taken in terms of national policy to prevent the decline of
shipping which evidently is harmful to international trade and commerce over
seventy percent of which is seaborne.1 While numerous European countries have
embraced the tonnage tax system, this chapter focuses only on the law and practice
in the United Kingdom which operates pursuant to the Merchant Shipping (Tonnage
Tax) Regulations 2000 made under the Finance Act 2000.2 The reason for examin-
ing the tonnage tax regime of the United Kingdom is that since the institution of this
system, the fleet size has increased considerably and the previous decline of the
recent past continues to be in a state of reversal.
The United Kingdom, among other traditional maritime states of the European
continent has chosen to emulate the practice adopted by many states outside of
Europe most of which are developing countries and have, in recent years, gradually
enhanced their shipping fleets. It will become apparent from the discussion in this
chapter that the tonnage tax phenomenon relates to a particular kind of ship registry
which needs to be clearly understood in order to comprehend the advantage of the
tonnage tax system. The principal line of inquiry in this chapter is to assess whether
in the United Kingdom, there is an infringement of the state aid rules of the European
Union. This will be determined primarily by examining the EU policy on state aid
for maritime transportation. Incidental to this determination, the issues of tax
avoidance and the application of the CFC Rules will be considered contextually.

1
Mukherjee and Brownrigg (2013), p. 1, 14.
2
c.7, Schedule 22, paragraphs 47, 85(3), 112(7), 113(4), and 130 to 136.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 715

2 The Tonnage Tax Phenomenon

2.1 Concept and Historical Development

The concept of tonnage tax has its roots in the so-called open registry system which
is radically different from the traditional closed registry system of ship registration.
Indeed, there are several varieties of ship registries with which one must be familiar
in order to fully appreciate the notion of tonnage tax. As the starting point, it must be
recognized that seagoing ships need to be registered to acquire nationality and in
international law, ship nationality is subject to the so-called doctrine of genuine link.
The rationale underlying the legal concept of ship nationality is explained by a noted
author in the following words:
The conceptual theory of ship nationality stems from the functional characteristic of mobility
of a ship beyond the jurisdictional limits of a state into the high seas where no jurisdictions
would otherwise prevail. As a self-contained communal unit, where people live, work and
interact, a ship must, of necessity, be subject to some legal regime at all times. In waters other
than the high seas, a ship could well be subject to the laws of a littoral state, at least in some
respects. But upon the high seas, without the benefit of flag or nationality, she would,
metaphorically speaking, float in a legal vacuum.3

Under public international law, which is reflected in Article 91 of the United

Nations Convention on the Law of the Sea, 19824 (UNCLOS), states are required to
fix conditions for the grant of a ship’s nationality. This Article in paragraph 1 pro-
vides as a fundamental principle that “there must exist a genuine link between the
state and the ship”. While the doctrine of genuine link has not only been mentioned
in this UNCLOS provision, but also in the United Nations Convention on Conditions
for Registration of Ships (UNCCROS), its meaning in terms of the law remains
unclear and is not entirely consistent with practice. It has, among other things, been
described as an “elusive” concept.5 The question is whether it means political link,
administrative link, economic link or sociological link. In the absence of any
definitive elaboration in treaty or case law, flag states have resorted to giving the
term an interpretation that best suits their national needs and interests. Some
indication of what it might constitute may be found in Chapter 94.1 of UNCLOS
and in Chapter 1 of UNCCROS. In UNCLOS, reference is made to the flag state’s
jurisdiction and control over ships with respect to its “administrative, technical and
social matters”. In UNCCROS the “economic” parameter is added to that list.6
The core of the debate concerns the question of whether the link must be between
the flag state and the ship or between the shipowner and the ship, the common
denominator being nationality (Mukherjee 2000, pp. 110–114). Those who sub-
scribe to the ultra-conservative view of the traditional closed registry would contend

3
Mukherjee and Brownrigg (2013), p. 199.
4
1833 UNTS 3.
5
McConnell (1985).
6
Mukherjee and Brownrigg (2013), p. 199.
716 Y. Yin

that commonality of nationality between the ship and the shipowner is an absolutely
essential ingredient of the concept of genuine link. Those who disagree belong to the
cadre of supporters of the non-traditional registries. In their view, the link must exist
between the flag state and the ship for it to qualify as “genuine” or “effective” under
the international law doctrine of genuine link. They would point to the words in
Chapter 91.1 of UNCLOS which expressly refers to the link between “the state and
the ship”. No mention is made of the shipowner in this provision; neither is there any
such mention in UNCCROS. While it is noteworthy that UNCCROS is not in force
and is hardly likely to ever enter into force, the convention does have persuasive
value in that it has influenced national maritime policy and legislation in many
jurisdictions.7 It can also be contended that its conceptual reach and underpinning
has been instrumental in the development of the tonnage tax concept which is
unquestionably the hallmark of non-traditional registry systems.8
It is contextually notable that the genuine link doctrine of ship nationality has its
roots in the classic decision of the International Court of Justice (ICJ) in the case of
Lichtenstein v. Guatemala9 which involved the legal issue of nationality of an
individual. This case happened in the post-World War II era.10 The other event of
importance is the advisory opinion sought by the International Maritime Organiza-
tion (IMO) from the ICJ when the traditional maritime states of Europe challenged
the bid of Liberia and Panama for membership of the Maritime Safety Committee
(MSC). Even though they were the two largest tonnage holding states in the world, it
was contended that there was no commonality of nationality between ships and
shipowners in those two states. The genuine link requirement was therefore not
satisfied. The ICJ held otherwise. In its view, the IMCO Treaty spoke nothing of
owner nationality; entitlement to membership of the MSC was simply based on the
size of tonnage.11
If the term “open registry” is used in a general sense, there are several types of
registries which can be described as “non-traditional”; in other words, they are not
closed. The hybrid registry is one that has certain characteristics of the closed
registry system in that safety and pollution prevention standards are not
compromised. However, there are virtually no restrictions regarding the nationality
of the ship owner, or where it is a corporate entity, the country of incorporation or
principal place of business. The bareboat charter registry is another alternative to the
traditional registry which allows a bareboat charterer to register the ship in its flag of
choice different from the state of registration of the owner. In the European context,
the secondary registry is the one that is the most important in terms of the use of the
tonnage tax as an alternative to normal corporate income tax. In the secondary

7
Ready (1994).
8
Ibid.
9
(1995), I.C.J. Rep. 4.
10
Ready (1994).
11
Constitution of the Maritime Safety Committee of the Inter-Governmental Maritime Consultative
Organization, Advisory Opinion, 1960 I.C.J. 150 (June 8).
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 717

registry system, the registry is a virtual extension of the primary ship registry but is
afforded, among other things, the tonnage tax regime which is different from the
normal corporate taxation regime of the primary registry. The secondary registry
may be physically located in the same place as the primary registry which is the case
with Norway, Denmark and Germany12; or it may be located in an offshore territory
of the state of primary registry such as in the UK, France and Spain.13
The tonnage tax phenomenon is the common denominator for the above-
mentioned non-traditional registries. It is an alternative fiscal regime for shipping.
Under this system no income tax, is charged; instead, a flat rate tax is charged based
on the tonnage of each ship. In other words, the tax imposed is not income-based but
rather tonnage-based; hence the term “tonnage tax”. In Northern Europe, the term
“tonnage tax” is shorthand for a tonnage-based corporate tax. This contrasts with a
traditional corporation tax regime under which a company’s tax liability is based on
the commercial profits that it has made in a year. The tonnage tax system ignores
actual profits and instead computes a notional profit on the basis of number and size
of ships operated by a company, and taxes this profit at the normal corporation tax
rate. The tonnage tax is set on that notional profit, and hence, tax liability is minimal,
while being compatible with international tax treaty obligations. While the general
principles involved are fairly uniform, the practices of individual states are different
mainly because of a lack of harmonization of fiscal policies. Countries in Europe
operate tonnage tax schemes according to their national policies and what is per-
ceived to be in their best interests.14

2.2 Important Elements of Tonnage Tax

The tonnage tax concept was launched in Europe with the object of rejuvenating the
industry which was in a state of decline mainly due to the fiscal facilities being
offered by certain jurisdictions aspiring to establish themselves as flag states. It is, of
course, undeniable that international trade and shipping are inextricably linked. The
European countries have, for many centuries dominated global trade, and have been
major ship-owning countries largely by virtue of their colonial history. Europe is still
a major player in the world scene as a trading bloc. There are numerous land-based
industries that rely heavily on shipping. Furthermore, seafaring has traditionally
been an occupation ingrained into the European socio-economic culture and has
been a significant source of employment for European citizens. However, seafaring
as a profession was beginning to show signs of decline as European ships moved

12
See the Norwegian International Ship Registry (NIS), the Danish International Register of Ship
(DIS), the German International shipping Register (ISR).
13
Such as Bermuda and Cayman Islands in respect of the UK, Kerguelen Islands in respect of
France and Canary Islands in respect of Spain.
14
Smith and Middledich (2003/2004).
718 Y. Yin

increasingly to open registries which offered extensive freedom in the choice of crew
nationality to shipowners. The potential demise of the shipping industry with its
impact on associated industries and the seafaring profession was thus viewed as
“commercially and strategically catastrophic for the whole maritime cluster”.15
Thus, tonnage tax was seen as at least a partial remedy to the decline of European
shipping as a whole; and in particular, the virtual demise of the traditional ship
registries.
In embracing the tonnage tax system European shipping states began to emulate
or replicate what open registries had to offer by way of fiscal advantages and to bring
back European tonnage that had migrated to the open flags. It has been in operation
in this part of the world in different manifestations and degrees over several decades
taking its cue from the leading open registries. The system started with Greece which
has for many years, been the largest registry within the EU since the 1990s.
Netherlands and Norway followed suit in 1996 and the United Kingdom facing
competition from its own satellite states, the overseas territories, entered the arena in
2000. In the years following, a host of EU countries joined the fray. At present there
are quite a few of them including Belgium, Denmark, Finland, France, Ireland and
Italy.16 Some have established secondary registers in overseas territories owned or
held by them; others are operating such registries physically from their regular
primary registries.
The offerings made by the traditional maritime countries of Europe in terms of the
tonnage tax regime were accompanied by a number of quid pro quo conditions,
among which, some countries such as the United Kingdom required shipowners to
engage in crew training activities to foster and encourage the enhancement of the
seafaring profession. The tonnage tax system has gained immense popularity within
Europe including the EU countries.17
European shipping companies are not as prosperous in the international shipping
market as they used to be. The tonnage tax system is a boon to these states, but it is
important to note that the regimes differ from one state to another in the details of
practice and implementation even though the core principles are the same. This is
due to the peculiar jurisdictional features of each state and the importance that is
attached by them to the maritime industry. The notable factor is that those states that
have embraced the tonnage tax system have in one form or another incorporated it in
their legislation which prescribes the extent to which the system applies in terms of
shipping activities governed by the laws of that jurisdiction.18
It is notable that these elements of tonnage tax which have been adopted in
different jurisdictions have the object of minimizing the possibility of tax avoidance
and, for the member states of EU, complying with the Guidelines for state aid to

15
Mukherjee and Brownrigg (2013).
16
Mukherjee and Brownrigg (2013), p. 178.
17
Ibid.
18
Community Guidelines on State aid to maritime transport Commission communication (2004/C
13/03) cl 43.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 719

maritime transport, besides the principal object of being competitive with the open
registries offering low tax or zero tax.

3 Tonnage Tax Regime in the UK

3.1 Background

The maritime heritage of the United Kingdom speaks for itself. Over a substantial
part of the last century as well as in the nineteenth century, the United Kingdom had
the distinction of having the largest tonnage in the world.19 However, over the last
decades the size of the United Kingdom fleet on the world scale had diminished
considerably down to some 7 million tonnes deadweight tonnes (DWT) in 1999
from a high of 50 million DWT in 1975.This was mainly due to United Kingdom
registered ships flagging out to open registries which was a major setback in view of
the fact in the 1970s almost all UK-owned ships were registered in the UK. The
seafarer population of the United Kingdom fell correspondingly from 75 to 59%
over that period. By contrast, in the1990s, some 50% of UK owned ships were
registered under foreign flags which represent some 66% of DWT owned by UK
shipowners.20 This state of affairs, which in some ways reflects the decline in the
world economy, is still most discouraging even though there is some solace in the
realization that a substantial amount of world shipping is still managed from the
United Kingdom by UK-based companies. The demise of UK shipping seemed to be
a foregone conclusion even if it was not imminent. This disturbing forecast was in
sharp contrast to the rapid increase in demand for shipping services worldwide.21
As mentioned above, the principal object of the tonnage tax scheme was to
reverse the flow of UK registered ships flagging out. The strategy for achieving
the resurrection of the United Kingdom fleet was two-fold; namely, to increase direct
ownership of UK ships within the country and to increase the number of professional
seafarers at the levels of both officers as well as crew. It is significant that the strategy
seems to have succeeded in the United Kingdom; the fleet size has indeed increased
since the introduction of the tonnage tax system. The exodus seems to have ceased
and ships are returning to the United Kingdom registry.
It can be concluded from the data in Fig. 1 above that the aim of the tonnage tax
scheme has been realized completely. Furthermore, the basic attributes of the scheme
are apparent from the data in question. It is evident that up to 2003, the volume of
tonnage increased quite considerably which was reflected in the 5% plus average
annual growth. A sectoral analysis of tonnage indicates that much of the growth has
taken place in the container ship trade. However, the annual growth in the number of

19
Leggate and McConville (2005).
20
Ibid.
21
Brownrigg et al. (2005), p. 213.
720 Y. Yin

Fig. 1 UK interests in trading vessels, million deadweight tonnes (vessels over 100GT), end year:
1997–2017 (Shipping Fleet Statistics: 2018, Department for Transport, based on data supplied by
IHS Global Limited, 2019. All rights reserved)

ships is actually less than 1%. As such, it is evident that the tonnage tax system is
prone to attracting high tonnage ships to the registry. It is also evident that not only
ships are returning to the registry from whichever flag states they had moved to, but
new tonnage is also entering the register. This is evident from the statistics indicating
the lowering of the average age of ships from approximately 23 years in 1997 to
about 17 years in 2003 compared with a world average in 1997 of 17.8 years which
has risen to 19 years by 2003.22
It is somewhat of a paradox that included in the United Kingdom are several ship-
owning entities that can be described as world leaders in shipping, both in terms of
profit as well as seafaring skill sets the combination of which constitute contributions
to the national economy that deserve mention.23 The entities which are qualified to
participate in the UK tonnage tax scheme are essentially individual entrepreneurs,
foundations, legal entities, partnerships, and permanent establishments which oper-
ate qualifying ships that are “strategically and commercially managed in the United
Kingdom”. Although the UK revenue authorities adopt a common-sense approach to
the interpretation of this phrase, every strand of activities carried out in the UK is
taken into consideration. In terms of what is strategic, account is taken of the location
of the company’s headquarters including senior manager personnel, decision-
making of the board of the directors and whether or not the company is listed in
the UK stock exchange. Commercial management includes, route planning,

22
Ibid.
23
Ibid.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 721

bookings of cargo and passengers, management of bunkers, provisions and victual-

ling requirements; personnel management, training organizations, technical man-
agement of ships, operation of foreign offices or branches under UK–based
management; and support facilities in the UK such as training facilities, terminals,
etc. In respect of all of the above, all qualified members of the group must participate
together.
There are several other factors that come into play such as the amount of work
carried out in the UK compared with other places, the nature and extent of UK
accommodation, number of UK employees, residence of key staff members in the
UK including directors, a reasonable balance between UK-based activities and UK
tonnage and flagging, classing, insuring and financing of ships in the UK. There are
also special rules that apply to vessels providing services at sea where only the
transport element is subject to tonnage tax, vessels other than supply vessels, tugs,
anchor handlers or tankers which are subject to normal taxation, operating in UK
waters of the North Sea, transitional provisions on capital allowances for deprecia-
tion, and on chargeable gains, ring-fencing of tonnage profits from non-tonnage tax
profits or losses particularly finance costs, leasing companies’ ownership of vessels
which cannot make an election and to which a special regime of capital allowance
applies, corporate partnerships and lawful tax avoidance. Within a date fixed by
statutory instrument, a UK ship operating company can elect to enter the tonnage tax
system for an initial period of 10 years.24
Other parameters that constitute the framework for entitlement to tonnage tax
privilege are as follows:
(a) Activities including ship operations in international trade, and dredging and
towing services provided at least 50% of these activities take place at sea. The
shipowner or bareboat charterer, if it qualifies, must engage in certain manage-
ment activities regarding the ship.
(b) Vessels and owners which qualify include ships that are owned and those that are
bareboated-in. Ships bareboated-out do not qualify. Time-chartered ships may
qualify provided a maximum of 75% of the fleet’s tonnage is on time charter.
(c) Capital gains are not subject to additional tax. Deferred tax liabilities are valued
at fair market value when the ship enters the tonnage tax system and “claw back”
rules on hidden reserves are realized during the lock-up period which is for
10 years after which the deferred tax liabilities no longer exist. The capital gains
which are derived during the lock-up period are a part of the tonnage tax base.25
A company is regarded as operating a ship if it is used by the owner or charterer.
Regarding the latter, the ship must be time, voyage chartered-out or bareboat
chartered out to another UK group member or in certain circumstances to a third
party where there is a short-term over-capacity and the charter is for no more than

24
“TTM01010: Introduction to Tonnage Tax: a Brief Guide” http://www.hmrc.gov.uk/manuals/
ttmmanual/ttm01010.htm; The Tonnage Tax Regulations (2000) 2000 2303.
25
Leggate and McConville (2005).
722 Y. Yin

3 years. The ship in question must be seagoing; in other words, it is engaged in

carriage of cargo or passengers by sea, or in towage or in salvage or in other form of
assistance at sea, or sea transportation connected with some other services necessar-
ily provided at sea. A laid-up ship that continues to be operated will attract tonnage
tax. A ship must also be certificated for sea navigation by a competent authority and
must be engaged in normal commercial operations carried out at sea.26 Vessels that
do not qualify are fishing vessels or factory ships, pleasure craft, harbour or river
ferries, offshore installations, tankers dedicated to a particular oil field, certain tugs ,
certain dredgers, vessels the main purpose of which is to provide goods or services
normally provided on land (e.g. floating hotel or supermarket).
The tonnage tax is computed by reference to the net tonnage of a ship and is
payable instead of the corporate income derived from the operation of the ship. In
other words, entering into a tonnage tax regime enables the shipowner to reduce its
tax liability by a considerable amount compared to what it would have paid under a
corporate income tax regime.27
The actual profits covered by a tonnage tax profit include those derived from the
following: core qualifying activities in operating its own ships; other necessary ship-
related activities integral to the above; qualifying secondary activities; qualifying
incidental activities, not exceeding 0.25% turnover from qualifying core and sec-
ondary activities; distributions from oversea shipping companies (which only oper-
ate qualifying ships); loan relationship profits and foreign exchange gains, which
would otherwise be trading income; gains on disposal of tonnage tax assets.
The above-mentioned activities are considered to be of primary character because
they relate to the direct operation of the company’s own ships. Those activities that
are not so connected directly but have a substantial connection with the core
qualifying activities of the company or a fellow group member are secondary
activities, but they would qualify for tonnage tax. These activities are as follows:
Support services to fellow group member’s ships that would be qualifying core or
secondary activities if carried out for own ships; carriage of passengers or cargo
beyond the sea-leg of an inclusively priced journey where the transport is bought in
from a third party; administration and insurance services; embarkation and disem-
barkation of passengers; loading and unloading cargo; excursions for passengers
where cabins remains available to passengers; normal sales and services to, and
entertainment of passengers; similar services to third parties where use of surplus
capacity; and reciprocal arrangements with third parties.

26
The Commissioners of Inland Revenue, “The Tonnage Tax Regulations (2000)” in Volume 2303
(2000).
27
Smith and Middledich (2003/2004).
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 723

Table 1 Illustration of tax liability based on normal corporate taxation and tonnage tax (adapted
from Leggate and Mcconville 2005)
Tax liability based on the normal corporate taxation £1,000,000
Hypothetical annual income £1,000,000
Tonnage of ship 40,000 net tonnage
Income tax (Rate of corporate taxation 30%) £ 300,000
Rates for tonnage daily “Profit”a
For each complete 100 net tons up to 1000 £ 0.60
For each complete 100 net tons from 1001 to 10,000 £ 0.45
For each complete 100 net tons from 10,001 to 25,000 £ 0.30
For each complete 100 net tons above 25,000 £ 0.15
Illustration of tonnage tax on 40,000 net ton vessela
Tonnage range Rate Total profit in range
100–1000 tons @ £ 0.6 per 100 tons £6
1001–10,000 tons @£0.45 per 100 tons £ 40.5
10,001–25,000 tons @£ 0.30 per 100 tons £ 45
25,001–40,000 @£0.15 per 100 tons £ 22.5
Total £ 114
365 days £ 41,610
Tax liability At full rate of corporation tax of 30% £ 12,483
a
Leggate and McConville (2005)

3.2 Tonnage Tax Versus Income Tax in the UK Regime

In a typical tonnage tax regime, the shipowner’s “profit” for each day of operation is
calculated by reference to net tonnage on a sliding scale, as illustrated in Table 1
below. Thus, the tax “profits” diminish in relative terms with the increases in
tonnage. The system works best in respect of large vessels. The daily “profit” is
multiplied by the number of days of operation of the ship which ordinarily should be
365 days in the run of a year with the computation being repeated for each ship. The
aggregate amount for all ships is the shipowner’s tonnage tax profit for the taxation
period which is then multiplied by the appropriate corporate tax rate. Table 1 below
also provides an illustration of the tonnage tax “profit” and potential liability of
owner of a vessel of 40,000 net tonnage for 1 year. The computation is based on a
30% rate of corporate taxation. Under the UK tonnage tax regime, a shipping
company can make an election for an initial 10-year period, and the regime would
then apply to the accounting period in which the election is made. A tonnage tax
election may be renewed for a further 10 years at any time before the current one
expires.28
There are several related issues in connection with the tonnage tax system which
are relevant in respect of an income tax regime. The methodology for computing

28
Lord Alexander (1999).
724 Y. Yin

tonnage tax described above, leads the discussion into the arena of comparison
between what tax liability a shipowner would have incurred under a normal income
tax regime compared with its tax liability under a tonnage tax regime.
There is added advantage to the tonnage tax system as compared with other
measures in that the system can be made subject to specified limitations. It was
hoped that the scheme would assist in the revival of the domestic shipping industry
by fostering and boosting investment in the domestic shipping domain that has in
fact happened. The system is particularly attractive to shipowners as well as inves-
tors because there is certainty and clarity in terms of future taxation liabilities.
Potential investors would consider the system as more user-friendly and less expen-
sive than the typical corporate tax regime which is based on allowances and
deductions.29 Looking at it from another vantage point, it is well established under
the Ricardian theory that each state should maximize its economic efficiency through
the deployment of resources in sectors where the state enjoys a relative advantage.
The prerequisite, of course, is that there must be a free and fair global market place.
Where shipping holds a particularly advantageous national position, it would make
economic sense to deploy commensurate resources in that industry.30
The general situation within the global shipping industry, however, is distinc-
tively different, at least in terms of a level playing field. Ship registry jurisdictions
such as Bermuda, Bahamas and the Cayman Islands levy virtually no corporate taxes
at all. Much depends on the taxation regimes of states as to whether profits reverted
from the jurisdiction of a subsidiary back to its primary jurisdiction, that of the parent
state, are subject to taxation.31 As explained earlier, several shipping states have
created replicas of tax friendly jurisdictions through the secondary registries which
provide commensurate favorable taxation environments within the national jurisdic-
tion. In these jurisdictions, tonnage tax has been introduced as competitive measures
vis a vis open registry states which offer low tax or zero tax regimes. Some European
states such as Germany, Netherlands and Denmark also offer domestic tax favorable
conditions in respect of personal investments to attract investments into their
national shipping sectors. The variations described above have in effect created
considerable market distortions whereby shipping entities in less favorable fiscal
jurisdictions inevitably continue to bear the brunt. Only if global tax competition
comes to an end can disadvantaged shipping sectors witness a revival.
Without adequate government action, not only will the shipping industry suffer,
but allied industries and the seafaring profession inclusive of the crewing industry
will run the risk of severe decline at the very least and eventual collapse in a worst-
case scenario.32 While there are many pros in terms of national fiscal policy and
advantages to the shipping industry derived from the tonnage tax system, there are
cons as well. These include potential tax avoidance opportunities, competition and

29
Leggate and McConville (2005).
30
Brownrigg et al. (2005), p. 219.
31
Ibid at p. 216.
32
Ibid, at p. 216.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 725

fiscal disparity between shipping and other industries and revenue losses for gov-
ernments. The UK government, at least, does not view the potential downsides as
serious problems.33
It is to be noted that the introduction of the tonnage tax phenomenon as an
attractive fiscal measure has gained high popularity and has had a significant impact
on the global distribution of ship ownership. Needless to say, this has also had the
effect of distorting the shipping market considerably. The gains acquired by these
jurisdictions have inevitably been at the expense of national fleets of other jurisdic-
tions which have suffered because of less conducive fiscal treatment. Before the
tonnage tax scheme was introduced in the UK, the shipping industry in that country
suffered immensely because of competition from these jurisdictions, offering tax
advantages which grossly undermined the profitability of the domestic shipping
industry which resulted in a serious decline.34
It was this state-of-affairs that prompted the UK government to adopt the tonnage
tax system to save the shipping industry from down-sliding and provide the impetus
for its revival. The Government viewed this as the optimal solution to end to global
tax competition in the shipping field. The Government had already used subsidies
and other devices for its shipping industry but these were not considered as fruitful as
the tonnage tax scheme. Subsidies could only be justified if there was a comparative
advantage and there were subsidy schemes elsewhere beyond the shores of the
UK. From a policy perspective it was thought that failure to support the shipping
industry in the short-term would result in long-term harm especially to the commu-
nity of home-grown seafarers and land-based industries allied to shipping. The end
of global tax competition would allow the UK shipping industry to expand and
benefit further through acquisition of more ships and investment capital on a Global
scale.35 Previously shipping activities enjoyed direct government grants until they
were outlawed under the Guidelines on maritime state aids issued by the European
Commission in 1997.
Under the Guidelines, it is not permissible for a single member state to support its
national shipping industry through grants if another member state’s shipping fleet
suffered as a result. However, if measures are taken to assist in ensuring sufficient
supply seafarers, such as through tax rebates being extended, these could be con-
sidered as justifiable. It is submitted, however, that such measures would not
ordinarily advance the position of a national shipping industry. Given that ship-
owners are the principal if not the sole employers of seafarers, it would be necessary
to foster the growth of the shipping industry to make it viable on a long-term basis.
This would ensure that national seafarers are provided with sufficient training and
hands-on experience. It is evident that the tonnage tax scheme can generate this
desired effect. This contention is borne out by the fact that numerous ships are
returning to their national flag states to make the fleets sustainable and generate

33
Ibid.
34
Ibid, at p. 213.
35
Ibid, at pp. 220–221.
726 Y. Yin

growth at a multiple level. The tonnage tax system is yielding a positive effect also
because in countries such as in the UK, shipowners are having to provide minimum
training for seafarers sailing under the home flags. Between 1999 and 2000 the UK
national fleet, by virtue of the tonnage tax system, experienced a growth of some
35%. Experience also shows that the tonnage tax system attracts foreign vessels into
the national shipping registry.36
The tonnage tax system has enhanced the profile of certain traditional ship
registries so that they have become attractive enough to trigger the return of ships
owned by national entities which had previously left the registry. This dramatic and
radical change in outlook which is essentially a reform of taxation policy relating to
the shipping industry has engendered renewed confidence among all parties partic-
ipating in the shipping industry. In particular, the growth in the prospects of national
seafarers has brought about considerable positivism in the overall economy of
shipping in terms of the cost-effectiveness as well as legal and economic efficiencies.
The tonnage tax experience is likely to remain as an integral feature of national tax
policy even though it is a phenomenon that works effectively only in the shipping
sector. It has helped in reversing the decline of shipping in the UK which exemplifies
a reverse in the trend of the past several decades which saw ships leaving the UK
registry to enter open flag registries which have prospered immensely in the post-
World War II era.
As explained above, shipping companies which have elected to enter the tonnage
tax system are required to calculate their corporate tax profits from maritime
transport activities under the Merchant Shipping (Tonnage Tax) Regulations 2006.
If a shipping company in the tonnage tax system commences operation of a ship not
registered in the EU or EEA member state during the current financial year, that is,
2013, it is required to carry out a “flagging test” to determine whether the ship
qualifies for tonnage tax. Such a situation may have an effect on whether a ship so
qualifies unless the year in question is an “excepted year”.
It is notable that tugs and dredgers must at all times be registered in an EU or EEA
member state in order to qualify for tonnage tax. On an annual basis, the UK
Revenue and Customs authorities determine the proportion of UK tonnage tax
ships registered in EU/EEA member state registers as a proportion of tonnage tax
ships registered worldwide. If the proportion does not fall below the calculation
made for the previous year, the treasury may by order declare that financial year as
excepted. If such designation is not made, companies must apply a flagging test
when they begin operation of a non-EU or EEA registered ship for the first time to
determine whether the ship qualifies for tonnage tax.37 If the conditions set out in the
flagging test are met the ship will not qualify for tonnage tax and the ship’s profits
will be taxed under the normal rules of corporate taxation. It is notable that over the
recent past the proportion of EU/EEA tonnage has declined on average over a 3-year

36
Ibid, at p. 219.
37
The details regarding the flagging test are found in the Tonnage Tax Manual at TTM03910.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 727

period as result of which financial year 2013 has not been designated an excepted
year.38

4 Maritime State Aid

4.1 Preliminary Observations

As discussed in the chapter relating to ship registries, there has appeared, since the
1950s, tonnage tax regimes or similar taxation regimes with the objective of
supporting the maritime industry which are the essential economic backbones for
countries, such as Greece, Cyprus, Malta, etc.39 The inventor of the tonnage tax
concept is in fact not the EU; the practice was imported from the typical open
registry states. In order to boost the EU maritime industry which faced fierce
competition from low tax jurisdictions and offshore open registries, the EU being
aware of various measures being taken by individual states decided to develop
Guidelines for state aid to the maritime industry. Introducing and harmonizing
tonnage tax regimes among the member states is undoubtedly one of the most
important elements in the Guidelines the main purpose of which is to foster
enhancement of the internal market in accordance with EU norms40 by granting
member states the possibility of adopting tonnage tax regimes subject to certain
prescribed limitations. Although the tonnage tax scheme has generally been regarded
as a form of state aid, its operation within the purview of EU law is considered to be
legitimate provided there is compliance with the strictures provided by the
Guidelines.41
The first Guidelines for maritime state aid were published by the European
Commission in 1989, and were subsequently reviewed and amended in 1997. The
aim was to maintain the fleets as much as possible within the EU.42 It was recognized
by the European Commission, that to some extent, state aid for shipping was
necessary to foster the growth and advancement of EU shipping which had being
witnessing undesirable times of decline. However, there has always been concern
over inconsistency of policy and practice among Member states. To address the
incongruence, the Commission published a revised set of Guidelines in a Commu-
nication dated 17 January 2004 specifying in particular, the limits to which such

38
For the purpose of the flagging test, member states’ registers include all registers subject to the law
of the member states applying to their territories forming part of the EU and also Norway, Iceland.
The secondary registries included are DIS, ISR, MAR, NIS, the Italian International Ship Register,
the Canary Islands, and Gibraltar Registers. The Kerguelen, Dutch Antilles, Isle, Bermuda, and
Cayman Islands registers are not considered to be Member States’ registers.
39
OJ C 13, 17.1.2004, p. 3.
40
OJ C 205,5.7.1997, p. 5.
41
Art 3-6 TFEU, see also Helminen (2011), p. 2.
42
OJ C 205,5.7.1997, p. 5.
728 Y. Yin

grants would be tolerate.43 The revised Guidelines introduced the requirement for a
EU/EEA flag which is considered to be one of the most crucial changes.44
The main requirement in this regard is that state aid may only be granted in
respect of ships entered in the ship registry of a Member state. As an exception to this
general rule, state aid may be granted in respect of other ships if the following three
conditions are satisfied:
(a) there is compliance with international standards and EU law embracing, inter
alia, safety, security, environmental protection and shipboard working
conditions;
(b) the ships in question are operated from within the EU; and
(c) the shipowner is established within an EU state and the Member state in question
can show that the foreign ship registry (if any), contributes directly to the
objectives set out in the Guidelines.
It is apparent from the third condition mentioned above that the question of flag
state of the ship, i.e., where it is registered is of particular significance in relation to
state aid in respect of shipping in the EU.45
It is common ground that preferential treatment of shipping companies in fiscal
terms is an age-old phenomenon which has taken different shapes and forms
including accelerated depreciation on investments in shipping and tax-free preser-
vation of profits from ship sales for a stipulated time on condition that they are
re-invested in ships. These are examples of movements towards the creation of a
fiscal-friendly climate to boost shipping. As a fundamental principle, however, any
form of preferential and discriminatory fiscal treatment is prima facie deemed to be
potentially in conflict with the principles of free movement. Nevertheless, in view of
the fact that EU shipping needs to be in competition with shipping from the open
registry flag states, the Commission is inclined to support and approve such prefer-
ential fiscal treatment of ship-owning entities provided there is an effective link
(somewhat akin to the concept of genuine link in ship registry regimes) between the
fiscal relief scheme and a EU flag state. Any state aid so provided must be necessary
to promote the return of commercial and strategic management of ships beneficially
owned by EU entities back to the EU. The beneficiaries of any such state aid scheme
must be subject to corporate taxation liability within the EU.46
There is usually a so-called “lock-up” period which means that the entity in
question can only enjoy the tonnage tax status for a limited period which is usually
10 years. In some tonnage tax jurisdictions, capital gains from sales of vessels and
their equipment, if related to international shipping activities, are not taxed under the
normal taxation regime. Hidden reserves may or may not be taxed or there may be
provision for deferred tax liability. In some instances, if a ship leaves the system

43
Chuah (2005), pp. 235–239.
44
OJ C 13, 17.1.2004, p. 3.
45
Chuah (2005), pp. 235–239.
46
Chuah (2005), pp. 235–239.; See also Lang John Temple (2012)
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 729

during the lock-up period, direct tax liability may apply as a penalty. At the end of a
lock-up period, rules relating to valuation of the ship may be different from one
jurisdiction to another. With few exceptions, to qualify under a tonnage tax scheme
the ship must be flagged with a EU registry. An individual shipping company may be
granted relief if at least 60% of its fleet is flagged with a EU registry. If that is not the
case, the relevant EU Member state should not grant tonnage tax status to ships of
that company flagged outside the EU. These are provisions in the 2004 Guidelines
which allow ship management companies to participate in the tonnage tax system if
they fully perform all the technical/nautical and crew management functions. In
other words, they must assume full responsibility for the operations of the fleet
including compliance with the requirements of the International Safety Management
(ISM) Code.47

4.2 Maritime State Aid and Harmful Tax Competition

Tonnage tax, considered as one of the special tax regimes together with low–tax
countries and tax havens, provides shipping entities with the benefit of lower tax
liability. It is attractive for shipping entities to be able to move to tonnage tax regimes
or other varieties of low-tax regimes. This can potentially trigger tax competition
among countries.48
Fiscal competition among EU Member States is an issue that warrants consider-
ation in the context of tonnage tax. At present, there are no schemes in place that
appear to distort competition between Member States with regard to trade; at least
distortion that is harmful to their common interest (Luca 2009, pp. 389–395). On the
contrary, as far as shipping is concerned, there seems to be a converging trend in
terms of the approaches being adopted by Member States with regard to provision of
aid to shipping. It is hardly ever the case that one EU Member State flags out to
another except to a satellite registry of an overseas territory which flies the same flag.
Fiscal competition is a phenomenon that exists mainly between Member States and
non-EU states, especially offshore jurisdictions. These jurisdictions offer consider-
able cost savings to shipowners mainly through fiscal advantages at the centre of
which is the tonnage tax device.49

47
Farthing and Brownrigg (1997), p. 225, see also Stopford (1997), pp. 38–43.
48
Zielke (2011).
49
OJ C 13, 17.1.2004, p. 3.
730 Y. Yin

5 Tax Avoidance in the Context of Tonnage Tax

Being a vehicle for tax avoidance,50 the contention that tonnage tax creates compe-
tition distortion is supported by the fact that none of the other modalities of
transportation enjoy the advantages of this phenomenon simply because tonnage is
not a factor that can be utilized for imposition of any form of taxation. Tonnage is
peculiar to shipping because of the fact that the physical characteristics of a ship are
based on the law of floatation. As alluded to earlier, the size of the ship, translates
into volume or space which in turn determines its revenue earning capacity. Tonnage
is the unit by which size is measured. That is not the case with other modes of
transport, such as rail, road or air because none of them are based on tonnage.
Consequently, shipping derives an advantage over these other modes in fiscal terms
by virtue of the tonnage tax system. This is how distortion in competition may be
created. Tonnage tax can arguably, also foster tax avoidance.

5.1 UK Tonnage Tax Scheme and Tax Avoidance

It is submitted that the way out of this maze is the tonnage tax device which
traditional maritime states are adopting, having taken the cue from states which
have attracted shipowners away from them. In the context of the issue of tax
avoidance, the tonnage tax regime of the UK has been explained and analyzed
including the proposition that they provide a form of tax avoidance legitimized by
legislation. Be that as it may, it is also evident that the regime is subject to controls
that yield other benefits in terms of overall national policy in trade and commerce
pertaining to the shipping industry.51
In the United Kingdom, it was the flight of tonnage out of the domestic registry
that prompted the Government to embark upon the tonnage tax scheme. As men-
tioned above, the scheme is viewed in some quarters as encouraging tax avoidance.
This writer has expressed the opinion that tax avoidance is a part of the overall fiscal
policy of a government which the government implements through legislation for
various reasons. The fact that the tonnage tax system operates to support the shipping
industry, specifically to prevent or reduce the frequency of ships owned by national
entities from flagging out, may be characterized as a tax avoidance scheme of some
sort, but that is obviously a policy matter that has been thought through by the
government concerned. In that vein it can be said that the tonnage tax scheme
employed by the UK is simply a necessary component of national fiscal policy

50
This opinion was expressed by Lord Alexander, Lord Alexander of Weedon Q.C. was commis-
sioned by the UK Government to carry out an inquiry and produce a report (known as the
“Alexander Report” which essentially spells out the legal and operational framework for the UK
tonnage tax regime. See Independent Inquiry into a Tonnage Tax, London: H.M. Treasury.
51
OJ C 205,5.7.1997, p. 5.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 731

consisting of some typical tonnage tax attributes. However, there are “checks and
balances” or control measures to ensure that tax avoidance is not unduly or inad-
vertently encouraged.52
Eligibility for tonnage tax treatment is also restricted to management companies
located within the UK only and engaged in commercial or strategic management
activities. All qualifying shipping companies within a group must make an election
for entry into the tonnage tax regime.53 This feature of the UK regime which is not
shared by some other jurisdictions, is designed to prevent entities from only entering
their high profit enterprises into the regime to take advantage of its offerings. Picking
and choosing is thus discouraged. The legislation creating the tonnage tax regime
has provisions which provide for rigid safe guards so that electing companies are
ostensibly prevented from transferring profits from their overseas operations simply
to benefit from the tonnage tax scheme.54 This is achieved by imposing rules on
capitalisation of companies and other anti-avoidance measures. The rules also create
obstructions to provide taxation relief between shipping and non-shipping activities
with a group. Transactions within a group must be demonstrably at arm’s length
which must be reflected in the use of arm’s length values when they stretch across the
limitations imposed by the law.55
The treatment of foreign profits is another issue relevant to tax avoidance within
tonnage tax regime. Should the tonnage tax regime apply to dividends remitted from
subsidiaries in foreign jurisdictions so that they are exempted from the application of
domestic corporate tax? If this is answered in the affirmative the domestic jurisdic-
tion would have the potential for attracting shipping entities with global interests.
Foreign entities involved in joint ventures with local companies would not be
inclined to risk being caught by local corporate taxation when they are relatively
safe in offshore tax-friendly jurisdictions. If the tonnage tax regime is applied to
foreign profits, neutrality of capital export would be maintained. In other words,
investors would pay the same tax on profits from both domestic as well as foreign
investments and earnings. In EU terms the problem is that there is no uniformity in
fiscal policy in this regard. There would thus be disparity in fiscal regimes which
would translate into some jurisdictions being more favorable to the shipping industry
than others. For example, the Netherlands does not impose any domestic corporate
taxation on remittances made from a foreign subsidiary to the parent company in the
Netherlands but the UK previously had no such general policy. However, further to
the recommendations made by Lord Alexander, the UK government decided to
make foreign shipping dividends subject to the UK tonnage tax regime. Even so, any
opening of the doors in this regard would have to be subject to strict precautionary
measures being taken against potential tax avoidance. For the sake of uniformity
within EU member states in terms of fiscal policies designed to suppress distortion of

52
Brownrigg et al. (2005), p. 213.
53
Leggate and McConville (2005), p. 180.
54
See “The Tonnage Tax Regulations 2000, 2000 No. 2303”.
55
Leggate and McConville (2005), see also “The Tonnage Tax Regulations 2000, 2000 No. 2303”.
732 Y. Yin

competition or tax avoidance, the European Commission has issued certain Guide-
lines on state aid. Measures and combinations of measures have been identified that
impact on the fiscal treatment of ship-owning entities which operate under tonnage
tax regimes or benefit from other incentives and allowances. The advantages are
counterbalanced by requirements, as in the UK, by shipping companies undertaking
crew training enhancement schemes and the like.56
Using net tonnage of a ship for calculation of the tonnage tax is in essence an
alternative way of dealing with or computing corporate taxation. Thus, taxation
based on ship tonnage is a replacement of both the tax-adjusted commercial profit or
loss of a shipping entity as well as the chargeable gain or loss arising out of a sale of
tonnage tax assets. Any other profits of a tonnage tax entity are subject to the
ordinary taxation regime of the UK. As a final word, it must be mentioned that
provision of training facilities for seafarers is a condition under the tonnage tax
regime, the object of which is to boost national seafaring as a career. This is among
other peculiar factors which include management, the proportion of UK national as
employees in the company and their residency.

5.2 Tax Avoidance and the CFC Rules

The scheme of the Controlled Foreign Corporation (CFC) Rules has been designed
to minimize opportunities for tax avoidance. It is recognized that this is only one
device among others for dealing with tax avoidance in situations where an entity
established in a EU member state has a subsidiary in a foreign jurisdiction which is
controlled by it, and that jurisdiction has a zero tax or low tax regime.
Trade remains the lifeblood of every state aspiring to better its economic condi-
tion and shipping is the indisputable vehicle through which international trade is
conducted. Indubitably the situation is not about to change. Shipping incentives are
needed more than ever to boost shipping. Despite the allegations that in fiscal terms
shipping may be deriving an unfair advantage and stealing a march over other
industries, without incentives not only does shipping suffer, but along with it all
allied industries and associated ventures and activities including the plight of the
seafaring profession.57
A shipping company can, and often does, carry out business through a company
in a foreign jurisdiction which it controls. The foreign company which is usually the
registered owner of a ship or ships entered in the ship registry of that jurisdiction may
be a subsidiary of the parent corporation. The “controlled” foreign corporation may
be incorporated in the foreign jurisdiction or it may be simply registered there
without the need for separate incorporation.58 In other words, it remains registered

56
Ibid.
57
OJ C 205,5.7.1997, p. 5.
58
Mayr and McGrath (1997), p. 270.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 733

in the jurisdiction of its parent company or elsewhere. The foreign jurisdiction is

often an offshore tax haven. That is not to say that all foreign jurisdictions offering
preferential treatment to shipping enterprises are tax havens in the popular sense.
Rather, they are the typical open registries that offer a host of advantages germane to
profitable shipping operations which attract shipowners to register their ships
there.59
In the ordinary scheme of things, income earned by a foreign subsidiary would be
taxed in that foreign jurisdiction. Tax may also be payable in the owning company’s
home jurisdiction, but is likely to receive credit for the tax paid abroad. In any event,
the parent company will be inclined to set up its foreign operation in a zero tax or low
tax jurisdiction. In such a situation, if no dividends are remitted to the owner’s home
jurisdiction, no tax will be payable. Such an arrangement will obviously afford the
owner the opportunity to defer taxes and reinvest its profits virtually tax-free. The
downside of such an arrangement would be that the owner would have to forego
returns in the form of dividends. If profits are sent back to the parent company in the
home jurisdiction, it will have to pay corporate income tax there; if dividends are
then drawn, the individual owner or shareholder will incur personal tax liability.
Where the registration of a ship is moved to a foreign jurisdiction, it will have the
nationality of the new flag state.60
The CFC scheme has been designed and put into place by countries with sizeable
direct foreign investments to reduce opportunities for tax avoidance. Under this
scheme, income from a company in a tax-friendly jurisdiction controlled from the
owner’s home jurisdiction is deemed to be CFC income so that its income is taxed as
if it were located in the home jurisdiction and was subject to its taxation regime. The
object is to assimilate all CFC income regardless of where it is earned into the
taxation regime of the owner’s home jurisdiction and eliminate or reduce the
instances available for tax deferral or tax-free reinvestment of profits.
Obviously, the CFC scheme can only work if proper disclosure of incomes is
made supported by information flow from the foreign jurisdiction in question to the
home jurisdiction of the owner or parent company, as the case may be. In practical
terms, in the shipping business at least, it is rather difficult if not impossible to
achieve the level of full and complete disclosure of incomes from the foreign
controlled corporation or the foreign flag state of the ship. Often release of fiscal
information is prohibited by law in offshore jurisdictions whose economies depend
or thrive on banking operations and/or open flag ship registration. It is submitted that
the utility of the CFC system in shipping is questionable at best in view of the fact
that shipowners are free to register their ships wherever they wish and under the
international law flag states enjoy the sovereign right to establish their own ship
registration laws and regulate their own fiscal affairs according to their national
policies.61 As discussed above, the tonnage tax system is a better option for the

59
Burns (2005), pp. 14–19.
60
Brownrigg et al. (2005), p. 220.
61
Ibid.
734 Y. Yin

taxation of shipping enterprises. Unsurprisingly therefore, the CFC does not apply to
shipping income.62

6 Compatibility of UK Tonnage Tax Regime with EU Law

and Policy

The first point to be noted is that there is no law in the EU legal regime that directly
addresses the issue of tonnage tax. This is understandable simply because the
phenomenon of tonnage tax is related to ship registries and the EU does not have
a ship registry but many of its member states do. Incidentally, an EU ship registry
was planned over a decade ago which never materialized.63 This chapter is focused
on the UK, a traditional maritime state which has one of the most prominent ship
registries in the EU and has adopted the tonnage tax system in the same way as
non-traditional open-registry states have.
The characteristics of the tonnage tax system are in several respects contrary to
the principles of income taxation as practiced in the EU. The tonnage tax system was
already in operation in the UK when the law and policy makers of the EU realized
the importance of shipping for the economic well-being of Europe but were also
conscious of maintaining the principles of EU tax law. To balance the two interests,
the EU has granted certain concessions applicable to shipping entities of member
states through the vehicle of the maritime state aid Guidelines with attendant
strictures and limitations designed to safeguard the basic principles of tax avoidance
and temper the proliferation of states indiscriminately adopting tonnage tax regimes
(Lang 2009, pp. 98–113).
The UK cannot afford to retract from its tonnage tax policies where success has
been proven with the considerable expansion of the size of the UK merchant fleet.
On the other hand, as a member state of the EU, the UK cannot be seen to be acting
contrary to the spirit of the EU law and policy on taxation, especially those
concerning state aid and tax avoidance. This state of affairs points to potential
incompatibility between the UK tonnage tax regime and the relevant aspects of
EU taxation law. The following discussion regarding this potential incompatibility
centres on two issues, namely, maritime state aid and tax avoidance which extends to
a contextual consideration of the CFC Rules.
The main requirement regarding maritime state aid is that the ship in question
must be registered in the ship registry of a Member state subject to an exception
comprising three conditions already mentioned above and repeated below for
convenience.

62
Ibid.
63
Ready (1994).
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 735

(a) there must be compliance with international standards and EU law embracing,
inter alia, safety, security, environmental protection and shipboard working
conditions;
(b) the ship in question must be operated from within the EU; and
(c) the shipowner must be established within an EU member state which must be
able to show that the foreign ship registry (if any), contributes directly to the
objectives set out in the Maritime state aid Guidelines.
The second and third conditions mentioned above bring to light a particular
situation pertaining to the UK. In this context it must be noted that the UK has a
number of offshore ship registries physically located in its overseas territories. Ships
registered in these territories are separate flag states; they are British ships but not
UK ships. Whether or not such ships satisfy the third condition above is a question of
fact giving rise to potential incompatibility between UK practice and the EU
requirements although it is evident from the discussion in Sect. 4 of this chapter
that the UK tonnage tax regime is in principle compliant with the Guidelines. In
particular, it must be noted that Gibraltar and the Isle of Man in certain respects are
considered as registries of the UK for the purposes of the Guidelines.
Regarding tax avoidance, given the fact that the tonnage tax system started in the
UK well before the EU Maritime State Aid Guidelines were introduced, it may well
be that certain entities which would not otherwise qualify under the EU Guidelines
have already been enjoying the benefits of tonnage tax under the UK domestic law.
Strictly speaking, at least under the EU law, these entities could be considered to be
income tax avoiders. However, the question is—what will their status be under UK
law? If under that law, such entities remain entitled to enjoy the benefits of tonnage
tax, it would point to incompatibility between the UK tonnage tax law and practice
and the EU law regarding tax avoidance. Given this possible state of affairs, it is
necessary to re-examine the EU tax avoidance rules.
The tonnage tax regime may become a vehicle for tax avoidance and the debate
regarding this issue has raged ever since the tonnage tax regime was introduced
through domestic legislation and implemented into practice by the UK government.
Any tax avoidance or harmful tax competition potentially attributable to the UK
tonnage tax regime, would, needless to say, constitute a breach of the relevant EU
law. However, the maritime state aid Guidelines aim to provide member states with
the tools to ensure that the tonnage tax regime in the domestic law is in line with EU
requirements and also boost the competiveness of the EU fleet all over the world. It
has been stated that entities that do not qualify under the maritime state aid
Guidelines may well be accused of tax avoidance if they continue to operate within
the UK tonnage tax regime. It is therefore incumbent on the UK to ensure that such
entities are not granted the privileges of tonnage tax under the domestic law. A
perusal of the Merchant Shipping (Tonnage Tax) Regulations would indicate that at
the UK law is in compliance with the EU requirements but whether or not in practice
there are entities still operating legitimately under the UK tonnage tax regime but are
in real or potential violation of the EU requirements is a question of fact.
736 Y. Yin

Along with the foregoing discussion on whether the tonnage tax system may be
considered as a tax avoidance scheme, the issue of the application of the CFC Rules
has been addressed under Sect. 5.2 of this chapter and conclusions to that effect have
been presented. It is submitted, that in real terms, tax avoidance can only take place if
the shipowner moves his ships from his home registry to a tax-friendly offshore
jurisdiction. As explained earlier, the home-grown UK tonnage tax regime is
designed to prevent ships from being moved to such foreign jurisdictions. It is
notable that whereas the open registries attract ship owners of all nationalities by
using the tonnage tax system, the traditional European ship registries exemplified by
the UK has introduced the same tonnage tax mechanism to keep ships owned by
national shipowners at home, thus preventing the flight of national tonnage to
foreign ship registries.
In light of the legislation in place governing tonnage tax schemes in the UK, it can
be concluded that subject to the comments made above relating to issues that are
questions of fact, the tonnage tax scheme as it prevails is not contrary to the EU
legislative provisions on state aid or tax avoidance.

7 Summary and Conclusion

In this chapter, an attempt has been made to research the subject of tonnage tax
which is an interdisciplinary topic combining taxation law and shipping law. Not
much has been written on this topic from a legal perspective which makes it a
domain of relatively uncharted waters. It is of contemporary interest embracing
global trade and commerce and is not free from controversies (Stokes 1992, pp.
78–90). The topic is therefore of prime importance to scholars and practitioners alike
who are involved in taxation and shipping law matters. In this inquiry, tonnage tax is
rightly portrayed as a phenomenon unique to the shipping industry and is presented
as the focal point for discussion and the inevitable theme of the chapter. It is
explained that the tonnage tax concept is at once a branch of taxation law and at
the same time in some respects an exception to the norms of taxation law. It is also
explained that the rationale for such exception is the law and policy directed towards
the rejuvenation of the shipping industry in the UK within the scope of the wider
extent of the problem in Europe as a whole.
The focus of the inquiry is the tonnage tax regime of the UK and in the final
analysis an assessment is made of its compatibility and consistency with the tax law
requirements of the EU which apply across the board. It is submitted that the tonnage
tax regime is the optimum solution for reversing the trend of UK and European
shipowners flagging their ships out to open registries. The UK has experienced
considerable success with the introduction of tonnage tax in the face of competition
offered by offshore tax-friendly jurisdictions. This has been elaborated in the chapter
in a methodical way after discussing the evolution of the tonnage tax concept and its
rationalization from the perspective of the so-called traditional maritime states.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . . 737

It is submitted that a clear and comprehensive understanding of the tonnage tax

phenomenon is only possible after at least an elementary understanding of the
international law of ship nationality and registration is gained. Of even more
importance is an appreciation of the different types of ship registries particularly
those that are of the non-traditional variety. This is germane to understanding why a
traditional maritime state such as the UK has embraced the tonnage tax system.
Incidentally, several EU member states have over the years done the same which
has prompted the EU to accept this as a reality and to design Guidelines under which
EU states can adopt the tonnage tax system without gross disregard for the taxation
principles embedded in EU law and policy, in particular, the rules relating to state
aid. These are known as the Guidelines for maritime state aid. Compliance with the
Guidelines prevents such states from being accused of engaging in harmful taxation
practices and tax avoidance. In this context, the contention that the practice of
tonnage tax may encourage and engender tax avoidance is discussed in detail.
The author’s conclusion on this point is that tax avoidance is not illegal; but at the
same time devices must be put in place to avoid proliferation of tax avoidance
mechanisms. In this regard, it is evident that the UK has, through the Merchant
Shipping (Tonnage Tax) Regulations, put into place limitations on the utilization of
the tonnage tax facilities by entities engaged in the shipping industry. The notion of
state aid in terms of national taxation regimes is discussed and the question of
whether tonnage tax is a form of state aid is considered. In this regard the position
of the European Union has been discussed which considers tonnage tax as a form of
justified maritime state aid.
It is recognized that from the perspective of the shipping industry which is an
international activity fostering global trade, which in turn is the life blood of every
trading nation, the introduction of the tonnage tax system has proved to be consid-
erably fruitful and beneficial. The tonnage tax system in the UK has successfully
prevented the rapid decline of the shipping industry in that country less than a couple
of decades ago. Although in this chapter the UK has been singled out for analytical
treatment to assess the compatibility of its tonnage tax laws with EU requirements, it
is evident that the tonnage tax system has been proven to be a viable fiscal measure
for the shipping industry in various other countries not to mention the so-called open
registries from where the system derives (Fayle 1933, pp. 271–290).
In conclusion it is submitted that the success of the tonnage tax system in the UK
and in numerous other countries has altered some of the fundamental precepts of
shipping, trade and commerce and is emerging as an important aspect of fiscal
arrangements and regimes within an international context while benefiting the
shipping industries of national economies. It is apparent that this is the only viable
way of preventing the decline of shipping in many traditional maritime states which
have been suffering a steady departure of ships to the open flag registries. At the
same time, it must be recognized that in the post-WWII and decolonization era,
newly independent sovereign states have an equal right to participate and engage in
world shipping. However, these so-called developing states lack the resources and
expertise to compete with the traditional maritime states and have therefore resorted
to the innovative fiscal measure of tonnage tax as an integral component of the open
738 Y. Yin

registry system to which most of them subscribe. This has enabled them to elevate
their positions and be competitive. This trend has arguably created distortion in
world ship ownerships the remedy for which may lie in attempting to create a
uniform taxation regime for the world shipping industry. It may be difficult to
determine the optimum level at which such a regime should operate given the
differences in levels of economic development of different states.
Even so, in view of the economic successes of both traditional and new shipping
countries through adoption of the tonnage tax system, it is recommended that
universality in taxation of the shipping industry be sought through the tonnage tax
methodology of taxation in the shipping world. The contemporary experience with
countries like the UK shows that there is now a fair degree of competition between
the open and non-open flag states in terms of attracting ships to their registries which
is no doubt a healthy sign for the growth of international shipping as a whole and
without causing detriment to the fiscal and taxation law and policies of states in
competition with offshore jurisdictions. The EU Guidelines on maritime state aid
and the UK legislation on tonnage tax through which these Guidelines are effectu-
ated may well serve as models for other aspiring shipping states to follow without
unduly sacrificing their fiscal and taxation interests.

References

Books, Articles, Judicial Opinion

Alexander L (1999) Independent inquiry into a tonnage tax. H.M. Treasury, London
Brownrigg M, Dawe G, Mann M, Weston P (2005) Developments in UK shipping: the tonnage tax.
Marit Policy Manage 213, 219, 220
Burns L (2005) Rethinking the design of Australia’s CFC rules in the global economy. Bulletin
14–19
Chuah J (2005) State Aid for Maritime Transport (Case C- 400/99) Italy v. Commission. J Int Marit
Law 11(3):235–239
Drewry Shipping Consultants, Global Container Markets, July 1996
Eivind Furuseth, University of Oslo, Norway- Corporate Taxation- Country Surveys
Farthing B, Brownrigg M (1997) Farthing on international shipping, 3rd edn. LLP, London
Fayle EC (1933) A short history of the world’s shipping industry. George, Allen & Unwin, London
Helminen M (2011) EU tax law. IBFD, Turku
IMCO Maritime Safety Committee, Constitution of Advisory Opinion, available at http://www.
answers.com/topic/imco-maritime-safety-committee-constitution-of-advis ory-opinion
Lang John Temple (2012) The Gibraltar state aid and taxation judgment -‘methodological revolu-
tion’? Eur State Aid Law Q 4:810
Lang M (2009) Recent case law of the ECJ in direct taxation: trends, tensions and contradictions.
EC Tax Rev 3:98–113
Leggate H, McConville J (2005) Tonnage tax: is it working? Marit Policy Manage 180–182
Luca R (2009) The definition of Subsidy and State Aid, WTO and EU law in comparative
perspective. Oxford University Press Inc, New York
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Mayr TP, McGrath RH (1997) Tramp shipping: the role of taxation in international resource
allocation. Marit Policy Manage 24(13):261–283
McConnell M (1985) Darkening confusion mounted upon darkening confusion: the search for the
elusive genuine link. J Marit Law Commer 16:365
Mukherjee PK (2000) New Horizons for Flag States. Maritime Review London: Pacific Press
Limited 110–114
Mukherjee PK, Brownrigg M (2013) Nationality and registration of ships: concept and practice. In:
Farthing on international shipping. Springer
Official Journal of the European Commission, (OJEC)
Ready NP (1994) Ship registration. LLP, London
Sharpston, Advocate General - Opinion in the Wam SpA decision
Shipping Fleet Statistics: 2017 [FLE0101], Department for Transport, March, 2018
Smith D, Middledich M, Allen & Overy (2003/2004) Tonnage tax- the regime in practice. Shipping
Finance Annual
Stokes P (1992) Ship finance credit expansion and the boom-bust cycle. Lloyd’s of London Press
Ltd, London
Stopford M (1997) Maritime economics. Routledge, Abingdon
Zielke R (2011) The changing role of Tax Havens - an empirical analysis of the Tax Havens
worldwide. Bull Int Tax 65(1):42–44

Legislation and Conventions

Community Guidelines on State Aid to Maritime Transport (97/C 205/05)

Community Guidelines on State Aid to Maritime Transport (2004/C 13/17) Council Regulation
(EC) No. 659/1999 of 22 March 1999
Income Tax, The Tonnage Tax Regulations 2000, 2000 No. 2303
United Nations Convention on Maritime Liens and Mortgages, 1993
United Nations Convention on the Law of the Sea, 1982
United Nations Convention on Conditions for Registration of Ships, 1986

Cases

C-730/79 Philip Morris Holland BV v. Commission of the European Communities [1980] ECR
2671
Case C-324/00 Lankhorst-Hohorst GmbH v. Finanzamt Steinfurt [2002] ECR I-11779
Case C- 400/99 Italy v. Commission, [2005] ECR I-3657
Case C-196/04 Cadbury Schweppes, PLC v. Inland Revenue [2006] ECR I-7995
Case C-169/08 ECR 17.11 Presidente del Consiglio dei Ministri v. Regione Sardegna [2009] ECR
2009 1- 10821
Case C-88/03, Portugal v. Commission [2006] ECR 1-7115
Case 173/73 Italy v. Commission [1974] ECR 709
Case C-148/04 Unicredito Italiano SpA v. Agenzia delle Entrate, Ufficio Genova [2005] ECR
I-11137
Joined Cases C-78/08 to C-80/08 Ministero dell’Economia e delle Finanze and Others v. Paint
Graphos Soc. coop. arl and Others [2008] ECR n.y.r
740 Y. Yin

Joined cases C-106/09 P and C-107/09 P European Commission (C-106/09 P) and Kingdom of
Spain (C-107/09 P) v. Government of Gibraltar and United Kingdom of Great Britain and
Northern Ireland
Joined Cases T-304/04 and T-316/04 Italian Republic and Wam SpA v. Commission [2006] ECR
II-64
Liechtenstein v. Guatemala (Merits), [1955] ICJ Rep 4
Advisory Jurisdiction of the International
Tribunal for the Law of the Sea as a Full
Court: Legal Basis and Limits

Minna Yu

Abstract On 2 April 2015, the full Tribunal rendered an advisory opinion regarding
questions submitted to it by the Sub-Regional Fisheries Commission (SRFC).
Through this opinion, ITLOS solidly affirmed its advisory jurisdiction as a full
Tribunal. But there is no provision either in UNCLOS or in the ITLOS Statute that
can serve as proper legal basis for the full Tribunal’s advisory jurisdiction. Article
138 of the ITLOS Rules being procedural in nature cannot supersede the provisions
of the Convention which are substantive; and therefore, cannot constitute a legal
basis for the full Tribunal’s advisory jurisdiction. Such jurisdiction should only be
conferred on the full Tribunal through amendments to the ITLOS Statute. It is also a
matter of urgency to clarify the procedural rules governing the full Tribunal’s
advisory jurisdiction and define its limits as precisely as possible.

1 Introduction
1.1 Background

The International Tribunal for the Law of the Sea (hereafter “ITLOS” or “the
Tribunal”) was established pursuant to the United Nations Convention on the Law
of the Sea, 1982 (hereafter “UNCLOS” or “the Convention”)1 as a forum for
settlement of disputes under Part XV of the Convention and the ITLOS Statute. It
started to function as an international judicial body on 1 October 1996.2 On
28 October 1997, it adopted Rules of the Tribunal (hereafter “ITLOS Rules”)

1
United Nations Convention on the Law of the Sea (UNCLOS), 1833, UNTS 3. This Convention
was opened for signature at Montego Bay on 10 December 1982 and it entered into force on
16 November 1994.
2
Oyarce (2014), p. 643.

M. Yu (*)
School of Law, Wuhan University, Wuhan, China

© Springer Nature Switzerland AG 2020 741

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_36
742 M. Yu

pursuant to Article 16 of the ITLOS Statute.3 The jurisdiction of ITLOS extends to

addressing legal questions submitted to it under the Convention, otherwise referred
to as its “advisory jurisdiction”.4 This chapter is only concerned with the advisory
jurisdiction of the Tribunal as a full court. The raison d’etre for the choice of this
topic is the allegation in some quarters, that the relevant provisions in the Conven-
tion and its Annex VI, which provide the legal basis for the full Tribunal’s advisory
jurisdiction, are ambiguous and open to debate.
It appears that the “creeping” jurisdiction of ITLOS has become a focus of
attention for academics; and in this connection, it has been noted that a cautionary
approach should be taken with respect to the question of jurisdiction.5 At any rate,
there are several provisions in the Convention6 and the ITLOS Statute7 regarding the
advisory jurisdiction of the Sea-Bed Disputes Chamber (hereafter “the Chamber”).
The Chamber has delivered an advisory opinion in line with Convention provisions
and ITLOS Rules8 regarding obligations and responsibilities to be borne by States
purporting to sponsor entities, individuals or otherwise, regarding activities in the
Area. In fact, this was the first occasion of a request for an advisory opinion being
submitted to it, and the first such decision rendered by the Chamber.9 However,
neither the Convention nor the ITLOS Statute has dealt clearly with the matter of
advisory jurisdiction of ITLOS sitting as a full Tribunal.10 Article 288 (2) of the
Convention and Article 21 of the ITLOS Statute are often invoked to justify the
advisory jurisdiction of the full Tribunal and the Tribunal itself regards Article
138 of the ITLOS Rules as a possible legal basis for such jurisdiction.11
In this regard, the most crucial point to observe and understand is that on 2 April
2015, the full Tribunal rendered an advisory opinion in response to questions
submitted to it by the Sub-Regional Fisheries Commission (SRFC).12 Through this

3
Rules of the Tribunal (ITLOS Rules) was adopted on 28 October 1997. It was amended on
15 March and 21 September 2001, 17 March 2009 and 25 September 2018.
4
See the official website of International Tribunal for the Law of the Sea, https://www.itlos.org/
jurisdiction/, available on 1 January 2019.
5
See Lando (2016), p. 441.
6
Article 191 of UNCLOS.
7
Section 4 of ITLOS Statute, “Sea-Bed Disputes Chamber”.
8
See Section H of Rules of the Tribunal, “Advisory proceedings”.
9
See Responsibilities and obligations of States with respect to activities in the Area, Advisory
Opinion, 1 February 2011, ITLOS Reports 2011, p. 10.
10
You (2008), p. 360. See also Lando (2016), p. 442.
11
The official website of ITLOS, https://www.itlos.org/en/jurisdiction/, accessed on
2 January 2019.
12
Request for Advisory Opinion Submitted by the Sub-Regional Fisheries Commission, Advisory
Opinion, 2 April 2015, (hereafter referred to as “Advisory Opinion”). It is to be noted that the
document so referred, includes both the Request and the Opinion. See ITLOS Reports 2015, para.
4. The SRFC member states are: Cape Verde, Guinea, Guinea-Bissau, Mauritania, Senegal, Sierra
Leone and The Gambia.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 743

opinion, ITLOS solidly affirmed its advisory jurisdiction as a full Tribunal.13 But the
question of the legal basis for such jurisdiction is still not free from controversy.
Indeed, opinions are sharply divided on this matter, which are discussed in detail
below.

1.2 Purpose and Structure

The principal purpose of this chapter is to attempt to clarify the legal basis and limits
of the advisory jurisdiction of the full Tribunal. The author will seek to examine the
legal basis of the full Tribunal’s advisory jurisdiction, because there is no clear
provision providing for it. Also, the limits of the full Tribunal’s advisory jurisdiction
will be discussed by interpreting Article 138 of the ITLOS Rules. Needless to say,
the Advisory Opinion being the centerpiece of this discussion, will be carefully
examined.

2 The SRFC Advisory Opinion of 2 April 2015

In March 2013, in pursuance of a resolution of its Conference of Ministers, the SRFC

communicated a request for an advisory opinion to the full Tribunal. It was aimed at
clarifying flag-state obligations involving instances of illegal, unreported and
unregulated fishing activities carried out in Exclusive Economic Zones (EEZ) of
third-party states, and the ensuing liabilities for violations of obligations relating to
such fishing activities. Before addressing the substantive issues raised by SRFC, the
first question for ITLOS to consider was whether it had jurisdiction to render an
advisory opinion as requested.14 Numerous State Parties to UNCLOS and interna-
tional organizations submitted their written statements and participated in the oral
proceedings. While some participants argued in favour of the full Tribunal’s advi-
sory jurisdiction15; others took the position that the full Tribunal is not competent to
render an advisory opinion.16 The debate focused on the question whether it would
be ultra vires its remit under UNCLOS, if ITLOS responded to the request

13
See Tanaka (2015), p. 319.
14
Advisory Opinion, para. 37.
15
Chile, Cuba, Germany, Japan, Micronesia, Montenegro, New Zealand, Saudi Arabia, Somalia, Sri
Lanka, Switzerland supported the full Tribunal’s advisory jurisdiction. Some international organi-
zations also expressed support, such as Caribbean Regional Fisheries Mechanism, Forum Fisheries
Agency, International Union for the Conservation of Nature and Natural Resources.
16
Argentina, Australia, China, France, Ireland, Spain, Thailand, United Kingdom, Unites States of
America.
744 M. Yu

affirmatively and asserted jurisdiction.17 ITLOS decided unanimously that it had

such jurisdiction to render the advisory opinion as requested.18

3 Advisory Jurisdiction of the Full Tribunal: Legal Basis

Whereas the advisory jurisdiction of the Sea-Bed Chamber is clearly articulated in

the Convention,19 there is no such unequivocal expression of advisory jurisdiction of
the full Tribunal either in UNCLOS or in the ITLOS Statute.20 Article 138 (1) of the
ITLOS Rules is the only provision which provides for advisory competence of the
full Tribunal.21 In the Advisory Opinion, ITLOS held that the full Tribunal had legal
competence to exercise advisory jurisdiction pursuant to UNCLOS and the ITLOS
Statute.22 The legal basis for this assertion is examined analytically by reference to
the Advisory Opinion. In that Opinion, the Tribunal dealt with arguments in support
of and against the full Tribunal’s advisory jurisdiction advanced by States and
international organizations. The arguments are mainly based on three provisions;
namely, Article 288 (2) of UNCLOS, Article 21 of the ITLOS Statute and Article
138 of the ITLOS Rules. These provisions are referred to by ITLOS judges as well as
by scholars discussing the advisory function of the full Tribunal.23 In this chapter,
they are examined objectively, to determine whether any or all of them can serve as
proper legal basis for the full Tribunal’s advisory jurisdiction.

3.1 Article 288 (2) of UNCLOS

UNCLOS Article 288 (2) provides explicitly that “a court or tribunal referred to in
Article 287 shall also have jurisdiction over any dispute concerning the interpreta-
tion or application of an international agreement related to the purposes of this
Convention, which is submitted to it in accordance with the agreement”. Three
points of observation arise in respect of this provision.
The first observation is that Article 288 is found in Section 2 of Part XV of the
Convention, under the title “Compulsory Procedures Enabling Binding Decisions”.
It is submitted in this context that any dictum described as “advisory opinion” cannot
at the same time, be a “binding decision”. The two expressions are conceptually

17
Advisory Opinion, para. 40.
18
Advisory Opinion, para 62.
19
UNCLOS Article 191.
20
See Ruys and Soete (2016), p. 156.
21
See Ndiaye (2010), pp. 580–581.
22
See Gao (2012), p. 84.
23
Ibid, p. 20; see Wolfrum (2013), p. 54. See also Tanaka (2015), p. 323.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 745

incompatible. Furthermore, what is not legally binding cannot serve as binding

precedent.24 Arguably, therefore, no notion of advisory jurisdiction in respect of
the full Tribunal is covered in this Section.25 Second, Article 288 (2) encapsulates
ITLOS and the International Court of Justice (ICJ) as well as arbitral tribunals
referred to in Article 287. The ICJ already has advisory jurisdiction based on Article
96 of the UN Charter26 and the Statute of the International Court of Justice.27
Accordingly, one might wonder why Article 288 (2) purports to grant advisory
jurisdiction to ITLOS but not extend the same to the ICJ.28
Unsurprisingly, in the Advisory Opinion, ITLOS made no reference to Article
288(2) as a legal basis for its advisory jurisdiction. This may be viewed as an
indication of implicit recognition by the Tribunal that Article 288 of UNCLOS
does not provide for any advisory jurisdiction vested in it,29 and no assumption to
the contrary should be made. Thirdly, as opined by one commentator, application of
the literal rule of interpretation to Article 288(2) for construing that provision can
lead to it being the legal basis for the Tribunal’s consensual but not its advisory
jurisdiction.30 In sum, therefore, Article 288 (2) cannot be treated as providing the
legal basis for conferment of advisory jurisdiction on the full Tribunal.

3.2 Article 21 of the ITLOS Statute

There is little doubt that the interpretation of Article 21 of the ITLOS Statute is
germane to our inquiry regarding the advisory jurisdiction of the Tribunal. It, bearing
the title “Jurisdiction”, provides that “the jurisdiction of the Tribunal comprises all
disputes and all applications submitted to it in accordance with this Convention and
all matters specifically provided for in any other agreement which confers jurisdic-
tion on the Tribunal.” This Article warrants careful analytical examination as it is
prone to serious debate.31 In the SRFC proceedings, some States took the position
that this provision is adequate legal basis for the proposition that the full bench of

24
See Ndiaye (2010), p. 565.
25
Ibid, p. 159. See also Tanaka (2015), p. 324; You (2008), pp. 361, 362.
26
Article 96 (2) of the UN Charter provides that “Other organs of the United Nations and specialized
agencies, which may at any time be so authorized by the General Assembly, may also request
advisory opinions of the Court on legal questions arising within the scope of their activities.”
27
Chapter IV of Statute of the International Court of Justice (ICJ Statute) provides for “Advisory
Opinions”.
28
See You (2008), pp. 361–362. See also written statement of Australia, 28 November 2013,
9, para. 19.
29
See Lando (2016), p. 444. Judge Lucky also agree that Article 288 (2) of the Convention cannot
be extended to support an argument that the Tribunal has jurisdiction to give an advisory opinion.
See Separate Opinion of Judge Lucky in the Advisory Opinion, para.26.
30
See Gao (2012), p. 88.
31
Ibid.
746 M. Yu

ITLOS possesses the competence to accept a request for rendering an advisory

opinion.32 They pointed out that the ITLOS Statute, including Article 21, is com-
plementary to Article 288 of UNCLOS.33 The Tribunal explained in the course of
the proceedings that the ITLOS Statute, being an integral part UNCLOS housed in
Annex VI of the Convention, its status was no different from that of the Convention
in terms of statutory hierarchy by reason of Article 318 of the Convention.34 Thus,
Article 21 of the ITLOS Statute was not inferior or subject to Article 288 of
UNCLOS but held an independent status.35
As such, ITLOS based its jurisdiction for rendering an advisory opinion on
Article 21 of the ITLOS Statute. The words “disputes”, “applications” and “matters”
in Article 21 needed interpretation.36 In respect of “disputes”, ITLOS held that it
relates to the jurisdiction of the Tribunal to deal with contentious issue, and “appli-
cations” meant applications submitted to it under the Convention in respect of
contentious cases.”37 These would comprise, inter alia, applications for prompt
release of vessels, requests for provisional measures and determination of cases on
the merits.38 Regarding the word “matters”, ITLOS observed that:
The words all ‘matters’ (“toutes les fois que cela” in French) should not be interpreted as
covering only ‘disputes’, for, if that were to be the case, article 21 of the Statute would
simply have used the word ‘disputes’. Consequently, it must mean something more than
only ‘disputes’. That something more must include advisory opinions, if specifically pro-
vided for in ‘any other agreement which confers jurisdiction on the Tribunal’.”39

At the seventy-third session of the UN General Assembly held in 2018, President

Paik stated in his report in reference to Article 21 of the ITLOS Statute that “it might
also be useful to consider the possibility of requesting the Tribunal for an advisory
opinion in the new instrument” based on “all matters specifically provided for in any
other agreement which confers jurisdiction on the Tribunal”. Thus, in the opinion of
one judge, “matters” is to be construed as a generic and all-encompassing word,
wide enough to cover advisory opinions provided for in any other agreement.40 In
this regard, ITLOS held that “all matters specifically provided for in any other

32
For example, Germany holds that the wording “all matters” includes requests for advisory
opinions, and Article 21 Statute by itself already provides an implicit legal basis for the competence
of the full Tribunal to issue advisory opinions. See Written Statement of the Federal Republic of
Germany, 18 November 2013, para. 8. See also Written Statement of New Zealand, 27 November
2013, para. 10. Written Statement of the Federal Republic of Somalia, 27 November 2013, para. 3.
33
Advisory Opinion, para. 48. See Written Statement of Ireland, 28 November 2013, para. 2.6.
34
Article 318 of the Convention provides that “The Annexes form an integral part of this Conven-
tion and, unless expressly provided otherwise, a reference to this Convention or to one of its Parts
includes a reference to the Annexes relating thereto.”
35
Advisory Opinion, para. 52.
36
Advisory Opinion, para. 54.
37
Advisory Opinion, para. 56.
38
Separate opinion of Judge Lucky in the Advisory Opinion, para. 14.
39
Advisory Opinion, para. 56.
40
Separate opinion of Judge Lucky in the Advisory Opinion, para. 14.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 747

agreement which confers jurisdiction on the Tribunal” does not by itself establish the
advisory jurisdiction of the Tribunal. It is the “other agreement” which confers such
jurisdiction on the Tribunal. The Tribunal then is rendered competent to exercise
such jurisdiction regarding “all matters” specifically provided for in the “other
agreement”. In summary, Article 21 and the “other agreement” conferring jurisdic-
tion on the full bench of the Tribunal are correlated; together they provide the
substantive legal basis for the advisory jurisdiction of ITLOS.41 It also held that
Article 138 of the ITLOS Rules sets out certain prerequisites that must be met before
the Tribunal can exercise its advisory jurisdiction.42 In the opinion of this author,
however, the Tribunal’s reasons are not persuasive.

3.2.1 Interpretation of “Matters”

Judge Cot, although a member of the Tribunal, pointedly stated in a declaration that
the interpretation of Article 21, including the meaning of “matters”, was ambiguous,
and that the interpretation given by the Tribunal was “misguided”43 and contrary to
the rules of treaty interpretation in the Vienna Convention of 1969.44
The word “matters” is ambiguous45 and obscure in terms of Article 31 of the 1969
Vienna Convention,46 and therefore, recourse to supplementary means of interpre-
tation as per Article 32 of that Convention was needed to construe that term.47 Quite
a number of States argued that the full Tribunal is not competent to give an advisory
opinion from the perspective of the negotiating history of UNCLOS.48 Whether or
not ITLOS should be empowered to render advisory opinions requested by national
judicial tribunals was raised during the early stages of the Third UN Conference on

41
Advisory Opinion, para. 58.
42
Advisory Opinion, para. 59.
43
Declaration of Judge Cot in the Advisory Opinion, para. 3.
44
1969 Vienna Convention on the Law of Treaties (1969 Vienna Convention), 1155 UNTS
331, entered into force on 22 May 1969.
45
Advisory Opinion, para. 55.
46
Article 31 of 1969 Vienna Convention provides that “a treaty shall be interpreted in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty in their context and in
the light of its object and purpose.”
47
Article 32 of 1969 Vienna Convention provides that “Recourse may be had to supplementary
means of interpretation, including the preparatory work of the treaty and the circumstances of its
conclusion, in order to confirm the meaning resulting from the application of article 31, or to
determine the meaning when the interpretation according to article 31: (a) leaves the meaning
ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable.”
48
See Written Statement of the United Kingdom, 28 November 2013, paras.7, 24. Written State-
ment of the People’s Republic of China, 26 November 2013, para.6. Written Statement of the
United States of America, 27 November 2013, para. 8. See Gao (2012), p. 91; Ruys and Soete
(2016), pp. 159–160.
748 M. Yu

the Law of the Sea (Third Conference).49 In 1974, the United States, along with
some other states, submitted a Working Paper on the settlement of law of the sea
disputes Article 9 of which provided as follows:
if a court of a Contracting Party has been authorized by the domestic law of the Party to
request the Law of the Sea Tribunal to give an advisory opinion [a ruling] on any question
relating to the interpretation or application of this Convention, the Law of the Sea Tribunal
may [shall] give such an opinion [ruling].50

This was, however, not accepted by the Conference. In 1976, it was mentioned by
the German representative that an arbitral tribunal should be able to ask ITLOS for
an advisory opinion on questions of general international law or interpretation of
UNCLOS provisions which may have a bearing on a case. This would ensure
continuity of jurisprudence in law of the sea matters which was highly desirable.51
However, in the Informal Single Negotiating Text (ISNT) of 1975 and since that
time, it has been settled that only the Chamber is the body empowered to render
advisory opinions, and only at the request of the Authority which may request
them.52 At the Third Conference the advisory jurisdiction of the Chamber was
articulated.
Several states continue to espouse the view that the efforts of the drafters of
UNCLOS would be undermined if, pursuant to an international agreement among
two or more states, could confer advisory jurisdiction of the full Tribunal on “any
legal question if an international agreement related to the purposes of the Convention
specifically provides for the submission to the Tribunal of a request for such an
opinion,”53 as per Article 138 of the ITLOS Rules. Judge Cot stated in his Decla-
ration that the travaux préparatoires of UNCLOS Convention should have been
referred to, in which there is no support for the interpretation adopted by the
Tribunal.54 In conclusion, there is no indication anywhere to suggest that Article
21 was intended by the drafters to confer advisory jurisdiction on the full Tribunal
pursuant to any international agreements.

49
See Written Statement of the United Kingdom, 28 November 2013, para.7. Gao (2012), p. 91. See
Adede (1987), pp. 33–34.
50
The working paper on the settlement of law of the sea disputes, 27 August 1974, Third United
Nations Conference on the Law of the Sea, 1973–1982, Volume III, Document of the Conference,
Second Session, A/CONF.62/L.7,91.
51
Third United Nations Conference on the Law of the Sea, 1973–1982, Volume V, Summary
Records of the Plenary, Fourth Session: 58th meeting, A/CONF.62/SR.58, 5 April 1976, 12. See
also the statements of the representative of Venezuela of 7 April 1976, Third United Nations
Conference on the Law of the Sea, 1973–1982, Volume V, Summary Records of the Plenary,
Fourth Session: 62th meeting, A/CONF.62/SR.62, 42.
52
See Document A/CONF. 62/WP.8, Articles 33 and 62 which eventually matured into UNCLOS
Article 159(10).
53
See Written Statement of the United States of America, 27 November 2013, para. 19.
54
Declaration of Judge Cot in the SRFC Advisory Opinion, para. 3.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 749

Further to the above contention, it must be observed that the French version of
Article 21 of the ITLOS Statute is more restrictive.55 In that context, Judge Cot
opined in his declaration that the French version does not refer to “matters” and it is
not translated as “matières”.56 This would have been the case if the drafters had
intended to give to that term a meaning that would include a reference to advisory
jurisdiction.57
Another observation is that Article 21 of ITLOS Statute virtually mirrors Article
36 (1) of ICJ Statute exposing several similarities.58 Some States and scholars alike
have analyzed the meaning of “matters” in this provision comparing it with Article
36 (1) of the ICJ Statute,59 where “matters” usually refers to contentious procedures
submitted to the ICJ.60 One noted author has opined that the jurisdiction of the ICJ in
Article 36 (1) of its Statute signifies that the ICJ has the power to make binding
decisions.61 Furthermore, that provision in the ICJ Statute does not provide the legal
basis for its advisory jurisdiction.62 But, ITLOS rejected the proposition that “mat-
ters” in Article 21 of the ITLOS Statute should bear the same meaning as it has in the
ICJ Statute or the PCIJ Statute before it.63 On the contrary, it expressed the view that
the meaning of “all matters”, must surely include requests for advisory opinions, but
it provided no convincing evidence in support of that interpretation.64
All in all, ITLOS wishes to expand its jurisdiction and play a more important role
in the international dispute settlement mechanism, but it seems that an opportunity
has been missed. It did not make a cogent, clear and articulate demonstration to
justify its advisory jurisdiction based on Article 21 of the ITLOS Statute and made
no effort to justify its interpretation of the word “matters” in accordance with the
1969 Vienna Convention. As Judge Cot stated, the affirmation by the Tribunal of its
advisory jurisdiction without any persuasive reasoning was quite remarkable.65
Based on the above, it is submitted that it is erroneous to interpret “matters” as
extending to requests for advisory opinions and it is difficult to unreservedly accept
Article 21 of the ITLOS Statute as the legal basis of the full Tribunal’s advisory
jurisdiction.

55
Advisory Opinion, para. 3. See also Ruys and Soete (2016), p. 159.
56
French Version refers to “toutes les fois que cela”, which could be understood as further
restriction on the Tribunal’s jurisdiction.
57
Declaration of Judge Cot in SRFC Advisory Opinion, para. 3.
58
Gao (2012), p. 90.
59
Tanaka (2015), pp. 325, 326; Gao (2012), p. 90; You (2008), p. 362. See also Written Statement
of Ireland, 28 November 2013, para. 2.6.
60
Ruys and Soete (2016), p. 160.
61
Rosenne (1997), p. 659.
62
See Written Statement of the Portuguese Republic, 27 November 2013, para. 10. See also Gao
(2012), p. 90.
63
Advisory Opinion, para. 57.
64
Tanaka (2015), p. 327.
65
Declaration of Judge Cot in SRFC Advisory Opinion, para. 13.
750 M. Yu

3.2.2 Other Arguments

First, ITLOS ruled that Annex VI of UNCLOS enjoys the same status as the
Convention proper, and that Article 21 of the ITLOS Statute stands on its own.66
However, connection between UNCLOS Article 288 and Article 21 of the ITLOS
Statute cannot be ignored or discounted.67 Article 1 (4) of the ITLOS Statute pro-
vides that “reference of a dispute to the Tribunal shall be governed by the provisions
of Parts XI and XV”. Logically, therefore, Article 21 must be read together with Part
XV of the Convention, particularly, Article 288; and needless to say, Article 21 of
the ITLOS Statute and Article 288 (2) of the Convention must be interpreted
consistently and compatibly. Article 288 (2) cannot be a sole legal basis for the
exercising of advisory jurisdiction by the full Tribunal. Therefore, whether Article
21 of the ITLOS Statute was intended to confer a broader jurisdictional basis than
that provided by Article 288(2) of UNCLOS is a valid field of inquiry.68
Second, there is a perception that the implied power doctrine enables the full
Tribunal to assert jurisdiction to give advisory opinions. Some scholars have perhaps
rightly argued that what is not expressly prohibited can be said to be legally
permitted. While not explicitly providing for the full Tribunal’s advisory jurisdic-
tion, neither UNCLOS nor the ITLOS Statute expressly exclude or reject such
jurisdiction. As such, “it is possible for an organ with a judicial role such as the
Tribunal to render an opinion on a point of law.”69 But the corollary is that the
ITLOS functions on the basis of authority granted affirmatively by UNCLOS and the
ITLOS Statute, and not pursuant to any notion of non-exclusion. If that were not so,
the powers of ITLOS will be without limitation.70 Surely, that is not desirable.
The doctrine of implied dictates that “under international law the organization
must be deemed to have those powers which, though not expressly provided in the
charter, are conferred upon it by necessary implication as being essential to the
performance of its duties.”71 It means that advisory competence is essential for the
fulfilment of the judicial organ’s functions. Several academics and scholars have
opined that a judicial Tribunal does not possess any inherent advisory jurisdiction
unless such jurisdiction is expressly given to it by its constitutive legal instruments.72
For instance, there is no advisory jurisdiction vested in the International Criminal

66
Advisory Opinion, para. 52.
67
Ibid, p. 327.
68
Written statement of Australia, 28 November 2013, 6, para. 26.
69
Ndiaye (2010), p. 581. See also Rao and Gautier (2006), p. 393.
70
Gao (2012), p. 94; Zou (2010), p. 142; See also Written Statement of the United Kingdom,
28 November 2013, para. 13.
71
Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion of
11 April 1949, ICJ Reports 1949, p. 182.
72
Amerasinghe (2003), p. 503; Oellers-Frahm (2011), p. 1033; Tanaka (2015), pp. 332–333.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 751

Court.73 By contrast, there Articles 159 and 191 of UNCLOS expressly provide for
advisory jurisdiction of the Seabed Chamber. However, such express provisions do
not imply that the full Tribunal has inherent power to render advisory opinions in all
matters pertaining to ITLOS. Indeed, the contrary is true.74 Apart from that, Article
40 (2) of the ITLOS Statute provides for the procedural requirements for invoking
the advisory jurisdiction of the Chamber, but there are no provisions with respect to
such jurisdiction being afforded to the full Tribunal. It would therefore be reasonable
to conclude that there is no implied power vested in ITLOS giving it jurisdiction to
hand down advisory opinions.
For the reasons set out above, it is submitted that Article 21 of the ITLOS Statute
cannot serve as a legal basis for the advisory jurisdiction of the Tribunal as a full
court. Notably, Judge Lucky expressed in his separate opinion that UNCLOS has
often been referred to as the constitution of the oceans, and a constitution is organic,
like a “growing tree”. Its provisions must therefore be broadly construed. While he
encourages the Tribunal to make robust interpretation of Article 21, especially the
word “matters”,75 he seems to ignore the potential danger of abuse and manipulation
if too much wideness were to prevail. The learned judge also subscribes to the view
that the Tribunal should apply lex lata, the law as it currently exists, and not lex
ferenda, the law that should be according to some.76

3.3 Article 138 of ITLOS Rules

Whether Article 138 of the ITLOS Rules can serve as a legal basis for the full
Tribunal’s advisory jurisdiction is debatable to say the least. Arguably, the Rules
being procedural in nature cannot supersede provisions of the Convention which are
substantive. It would be ultra vires the Tribunal to confer on itself, powers that are
wider than what is provided by UNCLOS and its Annexes.77 In the Advisory
Opinion, the Tribunal also answered this question in the negative when it held:
The argument that it is Article 138 of the Rules which establishes the advisory jurisdiction of
the Tribunal and that, being a procedural provision, article 138 cannot form a basis for the

73
Rome Statute of the International Criminal Court was adopted on 17 July 1998, modified by the
procés-verbaux of 10 November 1998 and 12 July 1999, and entered into force on 1 July 2002,
U.N. Doc. A/CONF.183/9. See Gao (2012), p. 94.
74
See Written Statement of the United Kingdom, 28 November 2013, para. 13 and Written
Statement of the United States of America, 27 November 2013, para. 13.
75
Separate opinion of Judge Lucky in Advisory Opinion, para. 12.
76
Ibid, para. 18.
77
Ibid, para 42. See Ruys and Soete (2016), p. 159. See also Written Statement of the United States
of America, 27 November 2013, para. 11.
752 M. Yu

advisory jurisdiction of the Tribunal is misconceived. Article 138 does not establish the
advisory jurisdiction of the Tribunal.78

Thus, it can be said that Article 138 of ITLOS Rules cannot constitute a legal
basis for the full Tribunal’s advisory jurisdiction. The validity of Article 138 of the
ITLOS Rules depends on whether it is in conformity with the provisions in
UNCLOS and the ITLOS Statute.79

3.4 Concluding Remarks

All in all, it is difficult to find the solid legal basis for the full Tribunal’s advisory
competence in the Convention and ITLOS Statute but the Tribunal has the last word
on whether or not it has competence with respect to any dispute submitted to it.80
When the ITLOS Rules were adopted, the Tribunal decisively included Article
138 (1). ITLOS thus positively asserted its competence to render advisory opinions
in certain cases.81 It may well be that the assertion of advisory jurisdiction of the full
Tribunal as ITLOS did in the Advisory Opinion is a kind of judicial innovation.82
Incidentally, the United Kingdom being unhappy with it, expressed its concern in a
written statement saying that “it is important that the Tribunal should not stray
beyond the terms of the powers granted to it by the States Parties; otherwise there
will be a concern among States that the powers granted by them are being used in a
manner which goes beyond their terms.”83
Like it or not, the deed is done. The voting record indicates that the ITLOS is bent
on assuming a more positive and proactive role in the interpretation and application
of UNCLOS through advisory proceedings.84 ITLOS should pay heed to the flurry
of voices speaking against its advisory function as a full court and embark on making
amendments to the ITLOS Statute as may be needed. Advisory jurisdiction should
only be conferred on the full Tribunal under appropriate and clearly specified
conditions.85 Thus, it is a matter of urgency to clarify the procedural rules governing
the full Tribunal’s advisory jurisdiction and define its limits as precisely as possible.

78
Request for Advisory Opinion submitted by the Sub-Regional Fisheries Commission, supra note
13, Paras. 42, 59.
79
Ruys and Soete (2016), p. 159.
80
Article 288 (4) of the Convention provides that “in the event of a dispute as to whether a court or
tribunal has jurisdiction, the matter shall be settled by decision of that court or tribunal.” See
Mensah (1998a), p. 540.
81
You (2008), p. 361.
82
Rosenne (1998), p. 507.
83
See Written Statement of the United Kingdom, 28 November 2013, para. 34.
84
Tanaka (2015), p. 333. See also You (2008), p. 361.
85
Lando (2016), p. 461.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 753

4 Limits on the Advisory Proceedings of ITLOS as a Full

Court

In the Advisory Opinion, the full Tribunal released an advisory opinion based on
Article 21 of its Statute and “other agreement”.86 Article 138 of ITLOS Rules
provides the prerequisites that must be met before ITLOS can proceed to exercise
its advisory jurisdiction.87 As stated by ITLOS, in the Advisory Opinion, these
prerequisites are: (1) an international agreement related to the purposes of the
Convention specifically provides for the submission to the Tribunal of a request
for an advisory opinion; (2) the request must be transmitted to the Tribunal by a body
authorized by or in accordance with the agreement mentioned above; (3) such an
opinion may be given on “a legal question”.88 These prerequisites need to be
analytically examined to determine the extent to which the full Tribunal’s advisory
jurisdiction is circumscribed.

4.1 “International Agreement Related to the Purposes

of the Convention Specifically Provides For”

Under Article 138 (1) of the ITLOS Rules, the Tribunal is authorized to provide an
advisory opinion in accordance with “an international agreement”, which must be
“related to the purposes of the Convention” and must “specifically provide[s] for the
submission to the Tribunal of a request for such an opinion”. However, there are
different views regarding the definition of “international agreement” and the two
conditions mentioned above, giving rise to a variety of possible interpretations.
The first question is the scope of the term “international agreement”. Some
scholars hold the opinion that “an international agreement” refers to a treaty as
envisaged in Article 2 (1) (a) of 1969 Vienna Convention on the Law of Treaties.89
There, the definition of “treaty” excludes agreements between international organi-
zations and States, or between international organizations. Such an opinion would,
for example, preclude the European Union, an international organization and a party
to UNCLOS, from invoking Article 138(1) of the ITLOS Rules. This is surely
contrary to the Convention.90
In the Advisory Opinion, the Tribunal considered Article 21 of the ITLOS Statute
as the legal basis for its advisory jurisdiction and was of the opinion that Article
138 of the ITLOS Rules provide a legitimate interpretation of Article 21. Both

86
Advisory Opinion, para. 58.
87
Ibid, para. 59.
88
Ibid, para. 60.
89
115 UNTS 331. See You (2008), p. 365; See also Ndiaye (2010), p. 585.
90
Qiang (2014), p. 29. See also You (2008), p. 367.
754 M. Yu

Judges Jesus and Jianjun Gao held the opinion that the term “international agree-
ment” may well encompass interstate agreements as well as agreements between
States and international organizations, because Article 21 of the ITLOS Statute uses
the term “any other agreements” which is broad enough to extend to private
agreements or mixed State-private agreements.91 Furthermore, Article 20 of the
ITLOS Statute gives right of access to the Tribunal to “entities other than States
Parties in any case expressly provided for in Part XI (of the Convention) or in any
other agreement conferring jurisdiction on the Tribunal which is accepted by all the
parties to that case.”92 Under this provision, an international organization being an
entity other than a state party, can have access to the Tribunal if an agreement to
which that organization is a party, confers jurisdiction on the Tribunal and all other
parties in that case accept it.
At the Plenary of the Sixtieth Session of the UN General Assembly in 2005,
Judge Wolfrum stated in his report that states could very well have provisions
inserted in their international agreements, whether bilateral or multilateral, and
regardless of whether they are also parties to UNCLOS, giving jurisdiction to
ITLOS.93 Notably, in Judge Wolfrum’s statement, “jurisdiction” refers to conten-
tious jurisdiction. Clearly, the Tribunal’s aim and attitude is to encourage States and
international organizations to insert provisions giving jurisdiction to ITLOS in their
future international agreements regarding UNCLOS matters.94 This evident from the
Advisory Opinion in which, on the issue of whether under Article 138 (1) of the
ITLOS Rules, multilateral agreements fall under the expression “international agree-
ment”, ITLOS answered in the affirmative.
A good example is the MCA Convention95 is an international agreement the
parties to which are seven States. Article 33 of this agreement provides that “the
Conference of Ministers of the SRFC may authorize the Permanent Secretary of the
SRFC to bring a given legal matter before the International Tribunal of the Law of
the Sea for advisory opinion”. In the view of ITLOS, this provision satisfies the
requirement under the wording “an international agreement specifically provides for
the submission to the Tribunal of a request for an advisory opinion” in Article 138 of
the ITLOS Rules.96
However, whether it encompasses agreements entered into by and among private
parties or mixed State-private agreements remains unresolved. The answer would be
in the negative if word “international” is construed as precluding individuals from

91
Ibid, p. 393; Gao (2012), p. 96. See also Rao and Gautier (2006), p. 393.
92
Mensah (1997), p. 239.
93
See the Statement of Judge Wolfrum on agenda item 75 (a) at the Plenary of the Sixtieth Session
of the United Nations Generally Assembly, paras 8–11, https://www.itlos.org/fileadmin/itlos/docu
ments/statements_of_president/wolfrum/ga_281105_eng.pdf, available on 19 February 2019.
94
Ibid, para 10.
95
The MCA Convention refers to the “Convention on the Determination of the Minimal Conditions
for Access and Exploitation of Marine Resources within the Maritime Areas under Jurisdiction of
the Member States of the Sub-Regional Fisheries Commission”.
96
Advisory Opinion, para. 62.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 755

being parties to an “international agreement”,97 but such a proposition would seem

to be unsound in view of Article 288 (2) of UNCLOS and Articles 20 and 21 of the
ITLOS Statute where agreements, other than inter-state agreements are contemplated
in the circumstances mentioned in those provisions. Under those provisions, juris-
diction could be conferred on the Tribunal pursuant to agreements dealing with
disputes involving states as well as non-state entities including private corporations
engaged in commercial pursuits, inter-governmental and non-governmental organi-
zations and private individuals, if the agreement in question provides for non-state
entities to participate in proceedings before ITLOS in matters concerning the
interpretation or application of it.98 Incidentally, ITLOS has not yet faced a request
for an advisory opinion by the full Tribunal based on an international agreement
involving private parties. It can thus be concluded that conclusion, the term “inter-
national agreement” mentioned in Article 138 (1) of Rules of ITLOS could very well
encompass multilateral and bilateral agreements as discussed above.
However, there are limitations to the application of Article 138(1) of the ITLOS
Rules which refers to international agreement. There are several such agreements in
place,99 and in his report at the 60th Session of the UN General Assembly, Judge
Wolfrum mentioned the existence of such international agreements. In this context,
it is notable that Article 138(1) is derived from Article 288(2) of UNCLOS where it
is stated that any dispute submitted to ITLOS must relate to the purposes of the
Convention.100 However, it is not always easy to determine whether an international
agreement is related to the purposes of UNCLOS. In its Advisory Opinion, ITLOS
held that the MCA Convention as an international agreement is indeed related to the
purposes of UNCLOS simply because its aim and object is to implement that
Convention, in particular, “its provisions calling for the signing of regional and
sub-regional cooperation agreements in the fisheries sector as well [as] the other
relevant international treaties” and to ensure that the policies and laws of its Member
States “are more effectively harmonized with a view to a better exploitation of
fisheries resources in the maritime zones under their respective jurisdictions, for
the benefit of current and future generations”.101

97
Noyes (2009), p. 1259.
98
Mensah (1997), p. 240. See also Mensah (1998b), p. 6.
99
According to Gao (2011), pp. 144–146. They include the 1995 United Nations Agreement for the
Implementation of the Provisions of the United Nations Convention on the Law of the Sea of
10 December 1982 Relating to the Conservation and Management of Straddling Fish Stocks and
Highly Migratory Fish Stocks, the 1996 Protocol to the Convention on the Prevention of Marine
Pollution by Dumping of Wastes and Other Matter, the 2000 Convention for the Conservation and
Management of Highly Migratory Fish Stocks in the Western and Central Pacific Ocean, the 2001
Convention on the Conservation and Management of Fishery Resources in the South East Atlantic
Ocean, and the 2001 Convention on the Protection of the Underwater Cultural Heritage, etc.
Additionally, the 1994 Agreement Relating to the Implementation of Part XI of the UNCLOS of
10 December 1982 can also be included.
100
Qiang (2014), p. 30.
101
Advisory Opinion, para. 63.
756 M. Yu

However, as Judge Mensah has stated, “given the very comprehensive scope of
the Law of the Sea Convention, it is not easy to envisage that any agreement dealing
with ‘marine issues’ can be excluded from the Tribunal as ‘not related to the
purposes’ of the Law of the Sea Convention.”102 One commentator has opined
that the attitude of ITLOS is to expand its jurisdiction; thus the limitation supposedly
imposed by the expression “related to the purposes of the Convention” tends to
become a relatively less important factor.103
The second limitation is underscored by the words “specifically provides for the
submission to the Tribunal of a request for such an opinion”. It leads to the question
whether a special agreement or compromis,104 or jurisdiction clauses in treaties are
included in the scope of “international agreement” provided for in Article 138 (1) of
ITLOS Rules. In the Advisory Opinion, it was pointed out that Article 33 of the
MCA Convention provides that “the Conference of Ministers of the SRFC may
authorize the Permanent Secretary of the SRFC to bring a given legal matter before
the International Tribunal of the Law of the Sea for advisory opinion.” The Confer-
ence of Ministers of the SRFC adopted a resolution in accordance with that Article in
the MCA Convention, authorizing the Permanent Secretary of the Commission to
request and obtain an advisory opinion from ITLOS.105 In attempting to understand
the essence of that Article, the Tribunal purported to inform States and other entities,
that ITLOS may render an advisory opinion on any legal question in relation to the
Law of the Sea in accordance with a compromis or a jurisdiction clause in a treaty, as
long as it clearly refers to the advisory procedure of the full Tribunal.
In conclusion, it may be stated that the two expressions referred to above are
seemingly insignificant in terms of any contention that the scope of the term
“international agreement” is restricted. The advisory jurisdiction of an international
judicial body or tribunal is usually clearly stipulated in its Statute, and ITLOS
followed this rule in dealing with the advisory jurisdiction of the Chamber. There
is no difference between the legal basis on which a tribunal exercises advisory
jurisdiction and that on which it exercises contentious jurisdiction. Both should be
based on the consent of the states involved. The position adopted by the Tribunal is
therefore somewhat unusual.106 It appears from the Advisory Opinion that ITLOS is
determined to exercise the full Tribunal’s advisory competence as broadly as
possible.

102
Mensah (2001), p. 30.
103
Qiang (2014), p. 31. Gao (2012), p. 96.
104
Compromis is a requisite to submit a case after a dispute arises based on consent ad hoc.
105
Request for Advisory Opinion submitted by the Sub-Regional Fisheries Commission, supra note
13, para. 63.
106
Qiang (2014), p. 28.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 757

4.2 Scope of “Body”

The question of who all are entitled to request an advisory opinion from ITLOS, is
addressed in Article 138 (2) of the ITLOS Rules. The answer is that a body which is
authorized by or in accordance with “the agreement” mentioned in that Article can
make a request to ITLOS. Be that as it may, the scope of the term “body” is
ambiguous; there are two opposing views. Judges Treves and Ndiaye hold the
opinion that “body” only refers to an organ of an international organization, as in
the PCIJ or ICJ.107 This view is consistent with Article 65 of the ICJ Statute.108
Judge Jesus and others are of the opinion that States should be allowed to request an
advisory opinion even if by definition it is not an organ of an international organi-
zation, that is, by the use of some other means.109
It is submitted that the latter interpretation is more persuasive. The situation in
Article 138 (2) of the ITLOS Rules is different from that of the ICJ. Article 65 of the
ICJ Statute provides that the Court may give an advisory opinion on any legal
question if so requested, by “whatever body may be authorized by or in accordance
with the Charter of the United Nations to make such a request.” Under Article 96 of
the UN Charter, such a body would include the General Assembly, Security Council,
other organs of the United Nations and specialized agencies authorized by the
General Assembly. But in Article 138(2) of the ITLOS Rules, nothing is stated
about the nature of the “body” contemplated in Article 138 (2) of the ITLOS
Rules.110 In the Advisory Opinion, the Tribunal recognized that the Permanent
Secretary of the Commission, as an organ of an international organization, is the
qualified body to request an advisory opinion from ITLOS based on the MCA
Convention.111 Notably, some scholars have paid attention to the meaning of the
word “transmit”. Since such body is only the “messenger”, that is, the one who
conveys the request, perhaps its nature is of less relevance to the central issue of the
advisory jurisdiction of ITLOS. The legitimacy of such body to convey the request is
obviously based on the authority it derives from the agreement in question and has
little to do with its nature or character or any other consideration.112
Therefore, it appears that any state or other entity such as an organization or organ
thereof, provided for in an international agreement as having the authority to request
an advisory opinion of the full Tribunal, can make such a request.113 In other words,
it would qualify as “body” within the meaning of Article 138 (2) of the ITLOS Rules
provided it accords with the terms of the agreement in question.

107
Treves (2001), p. 92. See also Ndiaye (2010), pp. 583–584.
108
You (2008), p. 364.
109
Rao and Gautier (2006), p. 394. See also Gao (2012), p. 96; You (2008), p. 365; Gautier (2006),
pp. 392–393.
110
Gao (2012), p. 96.
111
Advisory Opinion, para. 62.
112
Rao and Gautier (2006), p. 394.
113
Ibid.
758 M. Yu

4.3 Interpretation of “Legal Question”

As one author commentator has stated, any request for an advisory opinion based on
Article 138 (1) of the ITLOS Rules must be one that is purely in relation to a legal
issue114 However, it is often difficult to make a distinction between a legal and a
political question. It is notable in this vein that in some cases, the ICJ has not
hesitated to exercise its advisory jurisdiction on a political question even if, strictly
speaking, its mandate is circumscribed by opinions to be rendered on legal issues.115
Considering the specialized character of ITLOS, legal questions given to it should
pertain to the law of the sea. Furthermore, there are implicit restrictions on the scope
of what is a legal question in a particular context. For example, the Chamber has
exclusive jurisdiction only over matters in connection with the international sea bed
regime. As such, Article 138 of the ITLOS Rules should not apply to such matters.

5 Conclusion

ITLOS, as one of the institutions established under UNCLOS, is expanding its

jurisdiction to render advisory opinions. In this chapter, an attempt has been made
to examine the alleged legal basis for the full Tribunal’s advisory jurisdiction;
namely, Article 288 (2) of UNCLOS, Article 21 of the ITLOS Statute and Article
138 of the ITLOS Rules. ITLOS has based its advisory jurisdiction on a wide
interpretation of Article 21 of the ITLOS Statute. In Article 138 of the ITLOS
Rules are prerequisites that must be met before the Tribunal can exercise any
advisory jurisdiction. In this context, critics from academia and the international
community have voiced their views against the Tribunal’s allegedly arbitrary asser-
tion of its advisory jurisdiction by the Tribunal. They contend that ITLOS has been
unable to establish the legal basis for its advisory jurisdiction in any persuasive
manner. Some State Parties to UNCLOS have expressed the view that a wide
interpretation of any relevant provision relating to the advisory jurisdiction of the
full Tribunal can lead to dangers of manipulation and abuse.
The question remains as to the extent and way in which ITLOS may exercise
advisory jurisdiction. In this chapter, an attempt has been made to analytically
examine Article 138 of the ITLOS Rules in light of the Advisory Opinion. The
conclusion of this author, by reference to the interpretation of the term “international
agreement”, the scope of the term “body”, and questions that form the basis of a
request for an advisory opinion, is that the advisory competence of the full Tribunal
is limited. There are several other factors that are not addressed in this chapter
including the relative positions of the states involved in the particular circumstances
under which the advisory opinion of the Tribunal is sought and the limits of the full

114
Ndiaye (2010), p. 585.
115
Rosenne (1998), pp. 999–1012.
Advisory Jurisdiction of the International Tribunal for the Law of the. . . 759

Tribunal’s advisory jurisdiction. Given that ITLOS has rendered an advisory opin-
ion, further examination of this important issue by scholars and interested entities
should be forthcoming.

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the law of the sea: a drafting history and a commentary. Brill, Leiden
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Political Science and Law Press, Beijing. (in Chinese)
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sea as a full court: an unresolved issue. Int J Marit Aff Fish 4:1
Gautier P (2006) The international tribunal for the law of the sea: activities in 2005. Chin J Int Law
5:381–396
Lando M (2016) The advisory jurisdiction of the international tribunal for the law of the sea:
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Lex Maritima in a Changing World:
Development and Prospect of Rules
Governing Carriage of Goods by Sea

Lijun Zhao

Abstract This chapter examines the attempts to unifying law governing carriage of
goods by sea and the background to these attempts over the past hundred years or
so. It finds that a repetition of the current mode of negotiating static conventions will
not unify these rules. Moreover, from historic and legal perspectives, the attempts to
unify the international carriage of goods by sea regimes in the past century have
remained transitional. The active players have shifted from private entrepreneurs to
government delegates. This research probes into the new trade practice for the
shipping industry in the twenty-first century and argues that new ‘landscape’ calls
for innovative modifications of the conventional approach to unifying carriage of
goods by sea rules. This research also forecasts the prospects of the Rotterdam Rules
and discusses several countries’ current attitudes, including the UK, the Netherlands,
Scandinavian countries and, particularly, the USA.

1 Introduction

Maritime law has a long tradition of international uniformity. As stated in a Report of

the Comité Maritime International (CMI), “[T]he existence of Lex Maritima com-
prising a complex of internationally accepted rules of maritime law which may be
traced in particular back to usage and general principles is widely, and even
increasingly, subscribed to by legal doctrine.”1 The lex maritima, evolving from
ancient custom and usage has exerted a profound influence on the development of
maritime law over the past millennia. The international community has attempted to
unify the rules governing carriage of goods by sea since the late nineteenth century,
through the adoption of international conventions. While it is conceded that in recent
times advancement has decelerated somewhat, this chapter proposes to examine the

1
CMI (1997).

L. Zhao (*)
School of Law, Middlesex University, London, UK
e-mail: L.Zhao@mdx.ac.uk

© Springer Nature Switzerland AG 2020 761

P. K. Mukherjee et al. (eds.), Maritime Law in Motion, WMU Studies in Maritime
Affairs 8, https://doi.org/10.1007/978-3-030-31749-2_37
762 L. Zhao

current state of play and prospects of success in relation to the latest such convention,
namely, the Rotterdam Rules.
The first breakthrough was the adoption of the Brussels Convention for the
Unification of Certain Rules of Law Relating to Bills of Lading (“Hague Rules”)
in 1924.2 As the law trailed behind commercial practice, a second attempt to create
uniformity was made through the Visby Protocol amending the original convention
(“Visby Rules”).3 After the end of World War II, the work towards uniformity
underwent a shift from private commercial efforts to politicised pressures.4 The
adoption of the United Nations Convention on the Carriage of Goods by Sea
(“Hamburg Rules”)5 in 1978, and the relatively recent United Nations Convention
on Contracts for the International Carriage of Goods Wholly or Partly by Sea
(“Rotterdam Rules”)6 adopted in 2008 exemplify the efforts of the international
maritime community to advance uniformity in this crucial area of commercial law.
Numerous scholars have devoted themselves to the technical aspects of these
convention instruments,7 but there has been little literature scrutinising the dynamics
between all the attempts to unify the law.8
It is said that “every true history is contemporary history.”9 Over the centuries,
trade practices have been the primary driver of change in the way transport and
shipping operate in global trade. History is often seen to repeat itself. By setting out
the conventions preceding the Rotterdam Rules in their historical perspectives, it is
possible to better understand the aims of the Rules and the prospects of its success.
An historical review of the unifying efforts by the international community to date
provides the necessary vantage point for appreciating the cyclical and interactive
processes involved.

2
Hague Rules (1924).
3
Visby Rules (1968).
4
For an instructive comparison of the Hague Rules and Hamburg Rules processes, see Frederick
(1991), pp. 81–117.
5
Hamburg Rules (1978).
6
Rotterdam Rules (2008).
7
For example, Diamond (2009), pp. 445–536. Baatz (2009). Other literature provides comparisons
among the related convention instruments from a doctrinal and analytical perspective. For example,
the works of Force (1996) and Yancey (1982).
8
For example, Faria (2008), pp. 277–310. Cf. Honnold (1993), p. 75.
9
Croce and Ainslie (1960).
Lex Maritima in a Changing World: Development and Prospect of. . . 763

2 The Era Shaping the Hague Rules

2.1 Steamships, Opening of Suez Canal, and Liner

Conferences (1850s–1900s)

In the second half of the nineteenth century, the shipping industry experienced
unprecedented development.10 The steam engine significantly increased vessel
power11 commensurately enhancing the ability of ships to transport goods. Between
1854 and 1856, the efforts of John Elder resulted in reduction of fuel consumption of
steam engines to approximately 2–2.5 pounds of good coal per horsepower per hour
thus enhancing the capacity of steam-driven vessels.12 Later, the invention of the
compound engine and the triple expansion engine also reduced fuel consumption
substantially, and space previously used for storage of fuel became available for
cargo.13 Improvements in engine efficiency further reduced the cost of ocean
carriage.14 Consequently, steam ships became serious competitors of sailing ships
in the early 1880s.15
The emergence of steamships led to a significant increase in the amount of goods
carried. It has been estimated that international sea carriage of goods increased over
400% between 1850 and 1869.16 The size of the shipping industry increased when
sail gave way to steam.17 Steamships further guaranteed transportation frequency
and encouraged the emergence of liners. Previously, sea carriage was undertaken by
sailing ships utilizing wind power, thus relying heavily on the wind.18 Shipping
efficiency was hugely dependent on the direction and force of the wind.19 Because of
the vagaries of the wind and ocean currents, sailing ships were unable to provide
regular scheduled services.20 Steamships began to offer regular and scheduled
services, and liner shipping became established.21 However, they did not replace
sailing vessels entirely; the two co-existed and competed with each other for quite
some time, particularly in the Eurasian trade routes exemplified and typified by the

10
Faria (2008), pp. 279, 319.
11
Clapham (1952), p. 71. See Holt (1878), pp. 2–11.
12
Ibid.
13
Ibid. See Harley (1971), pp. 215–234.
14
Harley (1971).
15
Ibid.
16
Fletcher (1958), pp. 556–573.
17
Ibid, 558.
18
Ibid.
19
Ibid.
20
See Boyce (1995), p. 25.
21
See Armstrong (1991), pp. 55–65. See also Burley (1968). Although sailing ships were operated
as liner shipping on the UK-Australia and Germany-South America routes, this was very
exceptional.
764 L. Zhao

tea trade. The changeover took place slowly as steamship technology advanced, and
new shipping routes emerged.
The opening of the Suez Canal in 1869 shortened the sailing distance between
Europe and Asia significantly, and caused dramatic changes to the international sea
carriage of goods.22 Sailing ships were hampered by the lack of wind and ocean
currents in the Red Sea, the Suez Canal and the Mediterranean Sea, as well as the
prohibitive cost of being towed more than a hundred nautical miles through the
canal.23 After the inauguration of the Suez Canal on 17 November 1869, steamships
started replacing sailing ships particularly on the routes between the Far East and
Europe.24
These developments in shipping practice triggered the formation of liner confer-
ences. The first liner conference, the Calcutta Conference, emerged in 1875, shortly
after the opening of the Suez Canal.25 Subsequently, liner conferences spread
worldwide.26 The main aim of these conferences or combines was to bring a stop
to unbridled destructive competition preventing freight rebates to preferential ship-
pers, and to impose equal rates on ports.27 The innovation of the steamship, the
opening of the Suez Canal, and the formation of the liner conference system, largely
shaped the shipping industry in the second half of the nineteenth century.28 These
developments together shaped the era leading up to the evolution of the Hague
Rules.

22
The distance was reduced nearly by half. For example, for a voyage from Bombay, India to
Liverpool, UK a sailing ship required an 11,560 nautical-mile trip round the Cape of Good Hope; by
substituting the Suez Canal route for the Cape, a steamship could save 5777 nautical miles. See
Fletcher (1958), p. 559. See also Samuda (1870).
23
Ibid, 558.
24
Ibid, 558–559 (From December 1869 to 1875, there were only 238 sailing ships out of the 5236
vessels passing through the Suez Canal). Because there was insufficient wind power (and ocean
currents) for them in the Suez-Canal-and-Red-Sea route as opposed to the open-seas route, sailing
ships had to take longer routes via the Cape of Good Hope, However, the consumption of fuel made
them less competitive than steamships on the Europe-Asia routes.
25
Sjostrom (2004), p. 107.
26
For example, the Australia conference was launched in 1884, the South African conference in
1886, the West African and northern Brazil conference in 1895, the River Plate conference in 1896,
the west coast of South America conference in 1904, and a North Atlantic trade conference around
1900. These conferences covered most outbound transport from Europe, while inbound voyages
were carried out by tramp ships for bulk cargo. See more in Dyos and Aldcroft (1969); Kirkaldy
(1914). Marx (1953), p. 5.
27
Faria (2008), pp. 277, 278.
28
Ibid, 279, 319.
Lex Maritima in a Changing World: Development and Prospect of. . . 765

2.2 The Wave of Harter-Style Domestic Legislation Prior

to the Hague Rules (1892–1919)

Courts in different jurisdictions viewed the exculpatory clauses under the regime of
freedom of contract in various ways. The courts, particularly those of the UK, gave
predominance to freedom of contract, even disregarding the different bargaining
powers of the parties.29 In the US and other jurisdictions, judicial attitude was
tempered by public policy considerations.30 As pointed out by one distinguished
author, “in countries where cargo interest dominated, ‘negligence’ clauses were
declared invalid; in other countries, where hull interests prevailed, such clauses
were given effect under the cover of an almost unlimited freedom of contracting.”31
Cargo interests increasingly detested the carriers’ abuse of their untrammelled
power over exculpatory clauses.32 The resistance against freedom of contract came
not only from shippers, but also from others with cargo interests, such as bankers and
underwriters.33 In 1890, the British cargo interests, for example, the Glasgow Corn
Trade Association, complained to the British Prime Minister that carriers’ “bills of
lading are so unreasonable and unjust in their terms as to exempt [the carriers] from
almost every conceivable risk and responsibility.”34 French35 and American cargo
interests also shared this concern.36 Despite the hostility of the US courts to these
exculpatory clauses, carriers continued benefiting from them, because the choice-of-
law and choice-of-forum clause required all cargo claims to be brought in the UK
under UK law.37 American cargo interests started to lobby the US Congress to
oppose the European carriers.38 In the late nineteenth century, the rise of the United
States as a trading power equal to Europe increased the influence of American

29
Yiannopoulos (1958), pp. 609–627.
30
In re Missouri Steamship Company (1889) LR 42 ChD 321, 322, it was for the court to decide if it
was the English law or the US law which governed the contract of carriage in question, whereas the
negligence clause would be enforceable in England but void in the United States in light of public
policy. The Hague Rules afford protection to the underdog with weaker bargaining power,
especially when a third party is engaged, who is necessarily bound by the contract of carriage
without having had any chance to negotiate the contract under the public policy protection for them.
31
Yiannopoulos (1958), p. 609.
32
Knauth (1953).
33
Sturley et al. (2010a, b, c, d), pp. 8–9, paragraphs 1.027–1.033.
34
Petition of Glasgow Corn Trade Association (1890), reprinted in H.R. Rep. No. 1988, 52d Cong.,
1st Sess. 2 (1892), and cited in Sturley (1991).
35
See Dor (1956).
36
Knauth (1953), p. 116 (stating that US cargo interests regarded the bills of lading in North
Atlantic trade as where a carrier “accepted goods to be carried when he liked, as he liked, and
wherever he liked”).
37
See e.g., H.R. Rep. No. 1988, 2 and 24 Cong. Rec. 172 (1892) (‘Rep. Coombs’).
38
Mangone (1997), p. 79.
766 L. Zhao

domestic law in international shipping.39 As a result, the US Harter Act40 was

enacted in 1893 to balance cargo and carrier interests governing all sea carriage to
and from the US.41 The Harter Act and subsequent judicial rulings42 set American
courts on a path greatly different from those of the UK courts.43 The shift originated
from the US Supreme Court’s recognition of the need to protect American shippers
by American courts. The American domestic merchant fleet came to rely on British
ships for international carriage of goods by sea, owing to the decline of the American
shipping industry.44
The US Harter Act has had a long-lasting impact on carriage of goods by sea.45
Being quite aggressive in its approach,46 it served as a model triggering a wave of
legislative enactments dominated by cargo interests not only in the US, but also in
Commonwealth countries. Several countries followed the US and unilaterally
enacted domestic legislation governing exoneration clauses in bills of lading.47
These were the Australian Carriage of Goods by Sea Act 1904,48 the New Zealand
Shipping and Seamen Act 1903,49 the Canadian Water Carriage Act 1910,50 and the

39
Faria (2008), p. 279. The Europe was the undeniably supreme power of the world when the US
Harter Act was ratified in 1893. However, Japan and the United States became ascendant powers
before World War I. Europe, which had colonised virtually all the African continent, as well as
many parts of Asia and the Pacific regions, was about to be surpassed by the US after World War I.
40
United States, the Harter Act 1893, 27 Stat. 445 (1983). The Harter Act is currently codified at
46 U.S.C. app. §§ 190–196 (1998).
41
See also Sturley (1991), pp. 11–14 (pinpointing the process of the passage of the US Harter Act as
a compromise balancing cargo and hull interests).
42
For example, in Missouri Steamship Co., Re (1889) 42 Ch D 321, the traditional conflicts rule to
apply British law which upheld an exculpatory clause were overlooked, and the law of the US port
of loading held the exculpatory clause invalid.
43
See also Sweeney (1993).
44
Before the American Civil War (1861–1865), foreign flag carriage in the American international
trade accounted for approximate 33% during 1855–1859, but the effect of the northern blockade of
the southern originating exportation and the destruction of the northern shipping industry increased
foreign carriers’ involvement to 56%.
45
Sweeney (1993), p. 1.
46
See Sturley (1991), p. 4.
47
Ibid, 10.
48
Sea-Carriage of Goods Act 1904, No. 14 (Australia), superseded by Sea-Carriage of Goods Act
1924, No. 22 (Australia).
49
Compare Shipping and Seamen Act, 1903, No. 96, § 293 (New Zealand), with the US Harter Act
§ 3; compare Shipping and Seamen Act, 1903, § 300(1) (a) with the Harter Act § 1; compare
Shipping and Seamen Act, 1903, § 300(1) (b) with Harter Act § 2; compare Shipping and Seamen
Act, 1903, § 300(2) with the Harter Act § 7.
50
There were several significant differences between the Harter Act and the final Canadian
legislation, the Water Carriage of Goods Act 1910, 9–10 Edw. 7, ch. 61 (Canada), superseded by
Water Carriage of Goods Act, 1936, 1 Edw. 8, ch. 49 (Canada), codified as Carriage of Goods by
Water Act, Can. Rev. Stat. ch. C-15 (1970). For example, § 5 of the Canadian Act of 1910 required
a clause paramount in outbound bills of lading and prohibited choice-of-forum clauses purporting to
oust or lessen the jurisdiction of any Canadian court at the port of loading. Sections 6 and
Lex Maritima in a Changing World: Development and Prospect of. . . 767

French Morocco Maritime Commercial Code 1919.51 Several other jurisdictions

were also considering enacting Harter-style legislation.52 In contrast, the interna-
tional community had accomplished little towards uniformity of maritime law.53
Consequently, this wave of unilateral legislation made shipowners face the prospect
of conflicting and non-uniform domestic regulation in many of their most important
markets in the 1920s.
Not only did the wave of unilateral legislation create a mandatory framework for
carrier liability,54 but it also brought in the age of international unification of the
maritime transport regime. Litigation subjecting the hull interests to these conflicting
pieces of legislation increased their incentives to support an international resolution
of the problem.55 One author notes that the UK made a concession before this
legislative wave of cargo interests, and decided to work towards international
uniformity on sea transport carriage.56 Another author also claims that the domestic
legislation in the late nineteenth and early twentieth century, accompanying the
threat of more extensive unilaterally enacted legislation in the 1920s, turned out to be
the principal impetus for reaching an international agreement.57
History has shown that the period of Harter-style domestic legislation marked the
transition of changing approaches to unifying laws on bills of lading from unilateral
legislation or private agreements to international agreements. In the short term, these
countries passed different unilateral domestic legislation governing exoneration
clauses in bills of lading which increased tension and conflict among national laws
in cargo-claim cases for ship as well as cargo interests. However, in the long run, this
conflict was an incentive to both interest groups to support international legislation
to replace conflicting and fragmented domestic legislation in different jurisdictions.

7 expanded the list of the carrier’s statutory exceptions to include latent defects, fire, any reasonable
deviation, strikes, and losses “arising without [the carrier’s] actual fault or privity or without the
fault or neglect of [the carrier’s] agents, servants or employees.”
51
French Morocco, Code de Commerce Maritime, article 267 (French Morocco, 31 March 1919);
Berlingieri (1921).
52
Sturley (1991), pp. 17–18 mentions that France, Netherlands, Spain, Denmark, Norway, Sweden,
Finland, Iceland and South Africa were considering domestic legislation in line with the US
Harter Act.
53
Ibid, 15–18.
54
Sturley (1990) (Volume 1), pp. 50–150 (examining how the US Harter Act introduced a
mandatory framework of carrier’s liability into the seaborne carriage regime).
55
Sturley (1991), p. 18.
56
Bennett (1914), pp. 4, 19 (as long as the UK shipowners were regulated in their home ports,
uniform regulation was preferred where they did business under the comparable regulations of their
foreign competitors).
57
Sturley (1991), p. 10. See also Westbrook (1990), pp. 77–85, 92–96.
768 L. Zhao

3 The ILA, ICC, Private Participants and a Model Bill

of Lading

In addition to the domestic efforts to establish uniformity of maritime law in the late
nineteenth century, the international community also attempted to achieve unifica-
tion through three other approaches. The International Law Association (‘ILA’)58
devoted its attention to private law subjects with a heavy emphasis on maritime
topics.59 Its first scheme to achieve international uniformity for the transport law
governing bills of lading was proposed at the Liverpool Conference of 1882.60 This
local conference merely involved private entities rather than government represen-
tatives, which made it significantly different from its counterpart negotiations in the
twentieth century.61 The participants were Liverpool merchants, shipowners, under-
writers and lawyers.62 Its approach to uniformity was “a model bill of lading that
would be available for voluntary adoption by [an] agreement between the shipper
and the carrier”.63 This model bill of lading reflected a compromise between the
cargo and ship interests in that it amended common law liability.64 It produced some
innovative concepts, such as “the navigation exemption”, “due diligence to make the
vessel seaworthy”, and “package limitation”.65 Although this model never achieved
general acceptance, it exerted some influence.66 Several of the innovations were
revived later in the Hague Rules (1921),67 and thus the compromise between cargo
and the vessel interests was embodied and embedded in the Hague Rules.
In its second attempt to achieve uniformity in the international carriage of goods
by sea regimes, the ILA temporarily took a different approach. Instead of the detailed
model bill of lading, the Association proposed a set of rules known as the “Hamburg

58
The International Law Association (ILA) was founded in 1873 and initially called the Association
for the Reform and Codification of the Law of Nations, changing its title to the current name in
1895. See ILA, Report of the 17th Conference 282–285 (Brussels Conference 1895).
59
ILA, Report of the 30th Conference (‘Hague Conference 1921’), vii, cited in Sturley (1990)
(Volume 1), pp. 50–150.
60
Because the uniform draft of bills of lading was discussed during the ensuing ILA conference at
the Hamburg Conference of 1885 and the London Conference of 1887, the Liverpool Conference is
regarded as part of international efforts towards uniformity. See CMI, Travaux Preparatoires of the
Hague Rules and of the Hague-Visby Rules, http://www.comitemaritime.org/Uploads/Publications/
Travaux Preparatoires of the Hague Rules and of the Hague-Visby Rules.pdf., 16.
61
Sturley (1991), pp. 6–7.
62
Ibid.
63
The model bills of lading were also known as the ‘Conference Form’. See ILA, Report of the 10th
Conference 75, 78–80, 86 (Liverpool Conference 1882/‘Liverpool Conf. Rep.’), reprinted in
Sturley, The Legislative History of the Carriage of Goods by Sea Act and the Travaux
Préparatoires of the Hague Rules (Volume 2), 32–33, 36–38, 44.
64
Sturley (1991), p. 7.
65
Ibid.
66
See CMI (1979), p. 16.
67
Ibid, 16.
Lex Maritima in a Changing World: Development and Prospect of. . . 769

Rules of Affreightment” which parties to the contract could voluntarily incorporate

into their bills of lading.68 However, these rules were considered to be an
unworkable compromise between the cargo and ship interests by almost all related
private entrepreneurs.69 Thus, they were rescinded at the London Conference of
1887.70 It is clear from this brief historical narrative that uniformity can be achieved
only if it is based on a workable compromise.
Thirdly, the establishment of the Comité Maritime International (CMI)71 had an
indirect but significant importance for the uniformity of carriage of goods by sea
regimes. In 1897, several national Associations of Maritime Law joined together to
establish the CMI.72 This was the first international organisation concerned exclu-
sively with maritime law and related commercial practices.73 First, the CMI changed
the approach to uniformity from modelling private agreements to diplomatic nego-
tiation. It persuaded the Belgian government to initiate the first Diplomatic Confer-
ence on Maritime Law, held in Brussels in 1905.74 It is apparent that the participants
in this and later conferences were no longer private entrepreneurs but national
diplomatic representatives. In addition, both the CMI and the Diplomatic Conference
on Maritime Law promoted the later passage of the Hague Rules.75 It is noteworthy
that the Hague and Visby Rules were drafted and negotiated by private entities or
representatives of their national Associations on substantial and substantive matters.
They were subsequently finalised at diplomatic conferences and signed by govern-
ment delegates.
In May 1921, the ILA’s Maritime Law Committee met at the London Conference
to formulate uniform model rules based on the Canadian Act governing sea bills of
lading.76 The committee was appointed to prepare the draft rules and their members
consisted of representatives of governments, as well as the private sector
representing commercial interests77 which included carriers, shippers, bankers,
underwriters and their respective associations.78 The Committee met to draft com-
promise rules which were discussed at a meeting of the International Chamber of

68
Sturley (1991), p. 8. ILA, Report of the 12th Conference (‘Hamburg Conference 1885’), 165–168
reprinted in Sturley (1990) (Volume 2), 122–125. CMI (1979), p. 16.
69
Ibid, 8 (stating that only a few German companies adopted the rules).
70
Ibid.
71
CMI (2013).
72
Ibid. The Comité Maritime International (CMI) had its first conference in June 1897.
73
Ibid.
74
Sturley (1991), p. 9. Lilar and van den Bosch (1973), pp. 16, 72.
75
Ibid, pp. 9–10.
76
Ibid, 20. See, e.g. ‘Hague Conf. Rep.’, 38 (Sir Norman Hill), reprinted in Sturley (1990) (Volume
1), p. 144. Cf. Report of the Maritime Law Commission on Bills of Lading, xxxix, reprinted in
Sturley (100) (Volume 1), p. 94.
77
Sturley (1991), pp. 20, 26. See Hague Conference Report, cxiii–cxix, reprinted in ibid (Vol. 1),
168–174 listing the delegates and their occupations.
78
Ibid.
770 L. Zhao

Commerce (ICC) in London at the end of June 192179 which generally approved the
ILA draft.80

4 The Era of Successor Rules: Containerisation

and “Package”

In this text, successor rules refer to the Visby Protocol and the Hamburg and
Rotterdam Rules. The Hague Rules had not defined “package”, possibly because
at the time of its drafting, the term appeared to be well understood in shipping
practice, which, of course, was changing continually. By the 1920s, goods were not
always transported within the same “packages” which were familiar to all concerned
in 1924 when the Hague Rules were adopted.81 However, by the late 1950s, the
container revolution was taking place, and this started changing the reality of
shipping logistics.82 In the breakdown of seaborne trade, approximately one third
of liquid bulk cargoes and two thirds of dry cargoes83 have been carried in containers
since 1970.84
Container ships revolutionised the transport system for industrial goods.85
Improved rail and road infrastructure enhanced the development of combined inland
and maritime transport. However, the combined modes of transport necessitated
separate contracts of carriage. Goods were moved by one or more inland carriers
from an inland point to a port, then by ocean carrier, and finally by other land carriers
to an inland destination; thus the freight was also subjected to at least six—and up to
twenty—successive handling or sorting operations at different stages of the move-
ment; shippers were charged separate transport rates for each portion of this move-
ment.86 The separately combined transport segments were not effectively integrated
until the 1950s.87 A significant step in unifying different transport modes into a

79
Sturley (1991), p. 21. See also Sturley (1990) (Vol. 3), p. 519 and (Vol. 1), p. 94.
80
Frederick (1991), p. 87.
81
Sturley et al. (2010a, b, c, d), pp. 10, 160, paragraphs 1.036, 5.222.
82
Bell (2010), pp. 58–59 highlighting the importance of containerisation for the shipping industry.
83
UNCTAD (2012), p. 26, Figure 1.2. International seaborne trade, by cargo type, selected years
(millions of tons loaded). For 2006–2012, see breakdown by type of dry cargo based on Clarkson
Research Services’ Shipping Review & Outlook, various issues. Data for 2012 are based on a
forecast by Clarkson Research Services in Shipping Review & Outlook, spring 2012. See also
Haralambides (2004), p. 4 concluding that the container revolution changed liner shipping and sea
carriage in general.
84
OECD (2001), p. 4.
85
Grammenos (2010).
86
Schmelzer and Peavy (1970).
87
Donovan (2000), pp. 315–317.
Lex Maritima in a Changing World: Development and Prospect of. . . 771

comprehensive one was achieved when the container emerged. According to the
Organization for Economic Co-operation and Development (OECD) statistics, sea
container transport kept increasing in all OECD countries except in Australia,
Canada and Belgium, where it fell sharply from the 1970s to about 1996, but started
to increase again after that period.88
Through the use of containers, loading and discharging of cargoes was simplified.
The freight costs of loading and unloading a container were far less than those for
individual packages.89 The container revolution eliminated the cost of unloading
freight from rail cars or trucks on trans-shipment to a ship.90 It was estimated that
containerisation led to a decrease in transport costs of between 5 and 10% of the
goods’ values,91 and it was also pointed out that the time for loading and unloading
was shortened from 3 days to approximately 8 h.92 In short, freight rates and loading
times were both sharply reduced.
As a consequence, courts around the world spent decades trying to ascertain the
new meaning of “package” in containerized transport,93 the principal issue being
whether a sealed container constitutes a single package under the original Hague
Rules. To bring the sea transport legal regime into line with commercial practice, its
successors (Visby,94 Hamburg95 and Rotterdam Rules96) include a “container”
clause.97 Container transport has continued to expand since 1990,98 with a minor
decrease in 2009 during the economic crisis but rebounded in 2010.99

88
OECD database on Statistics on Transport, Sea Container Transport (n.d.).
89
Nicholas (2010), pp. 113–117, paragraph 6.6 (stating that the containerisation of cargo allows for
ease of transit and reduced freight rates).
90
Schmelzer and Peavy (1970), p. 208.
91
Daudin (2003), pp. 411, 425.
92
Schmelzer and Peavy (1970), p. 208.
93
Huybrechts (2010), p. 119 (looking at the historic genesis of the rules on “package limitation”).
94
Visby Rules Article 4.5(c).
95
Hamburg Rules Article 6 ‘Limits of Liability’.
96
Rotterdam Rules Articles 59 and 60.
97
See also Sturley et al. (2010a, b, c, d), pp. 160–162, paragraphs 5.221–5.226.
98
UNCTAD (2012), pp. 21–23.
99
Ibid, 22, Figure 1.5 ‘Global container trade, 1990–2011’. Source: Drewry Shipping Consultants,
Container Market Review and Forecast 2008/09; Clarkson Research Services, Container Intelli-
gence Monthly, May 2011. Note: The data for 2011 were obtained by applying growth rates
forecasted by Clarkson Research Services in Container Intelligence Monthly, May 2011.
772 L. Zhao

5 Rotterdam Rules: The Dawn of the Next Technological

Revolution

5.1 Digitalisation and Electronic Commerce

The contemporary phenomenon in sea transport and trade is digitalization and

electronic commerce which has ushered in the dawn of the next technological
revolution. Digitalization will create opportunities for entrepreneurs and businesses,
and bring benefits to consumers exemplified by the global growth in e-commerce.
However, many existing practices will be disrupted, such as paper-based shipping
documents given that shipping is notorious for its resistance to new technologies.
Electronic transport documents have been used in shipping practice since 1970,
particularly in liner carriage where transport documents are not always issued.100
The legal question is whether in sea transport, electronic documents can operate as
equivalent counterparts of paper documents.101 In order to accommodate today’s
maritime e-commerce, UNCITRAL sought the assistance of the CMI in the drafting
of the Rotterdam Rules, which incorporates electronic transport records. The makers
of the Rotterdam Rules foresaw the impact of electronic documents in maritime trade
and provided for electronic transport records102 as equivalents to paper transport
documents.103 However, in chapter 3 of the Rules, inconsistency of categories of
paper-based transport records and their electronic counterparts is evident104; there
are three kinds of paper-based shipping documents, but only two kinds of electronic
counterparts. It is apparent that maritime e-commerce has not yet reached a viable
level of technological maturity.105 The singularity (uniqueness) of transport docu-
ments is commercially required and expected by law, because of their roles as
documents of title. So far, this singularity has not been fully achieved under the
technology in existing electronic systems, such as Bolero, ESS-Databridge,TM
Electronic data exchange systems and the Atlantic Container Line data-freight
system.106

100
Thomas (2010), pp. 284–294.
101
See further, Wilson (2010), pp. 165–171.
102
See Chapter 3 “Electronic Transport Records’ in the Rotterdam Rules” in Berlingieri (2010);
Thomas (2010); Sturley et al. (2010a, b, c, d); Baatz et al. (2009).
103
Alba (2009), pp. 803, 816 (referring to the Comite Maritime International Rules for Electronic
Bills of Lading and noting that the electronic equivalence approach is a developed but problematic
solution addressing the existing needs of electronic commerce). CMI (n.d.-a), Rules for Electronic
Bills of Lading.
104
Zhao (2016), pp. 1–27.
105
On further implications regarding e-commerce in the shipping industry, see Wilson (2010),
pp. 165–171 (illustrating the electronic bills of lading in the Atlantic container liner data freight
system, the Electronic Data Interchange (‘EDI’) system and the Bolero system).
106
See Wilson (2010), pp. 165–171. Thomas (2010), p. 292.
Lex Maritima in a Changing World: Development and Prospect of. . . 773

Although shipping has traditionally been resistant to technological advancement,

this is likely to change with the introduction of blockchain technology which enables
peer-to-peer transactions securely recorded in de-centralised multiple locations.
While the use of this technology is yet uncommon in the shipping business,
apparently there are some bunker supply contracts which involve blockchain and
smart contract.107 Maersk and IBM intend to establish a joint venture to develop an
open trade digitalization platform, deploying blockchain and other cloud-based,
open-source technologies. A shipping consortium consisting of Hyundai Merchant
Marine and others conducted a pilot voyage in September 2017 in which blockchain
was used to secure paperless processes for shipment booking and cargo delivery.108
Several smart contract prototypes have been launched which involve digitalizing
electronic bills of lading and other trade documents, such as CargoDocs under
ESS-DOCS, and Cargo X.
Positive results achieved in these initiatives demonstrate the potential blockchain
may have in accomplishing the singularity of paperless electronic shipping docu-
ment.109 This will doubtless bring new challenge, one being lack of uniform
standards and the need for interoperability between various initiatives. Some
observers point out that head-on competition on choice of technology aimed at
making a particular one the standard would be detrimental for the shipping indus-
try.110 New security challenges is another concern which may be alleviated by the
use of blockchain but may also lead to new potentially more complicated challenges
as hacking into a maritime transaction may still be possible by the use of some
methods.111 Accordingly, the approach to uniformity in the regime of carriage of
goods by sea needs to be predicated on updating static legal rules to keep pace with
on-going developments in shipping.

5.2 Multimodal Transport and the Rotterdam Rules

The container became widely used from the 1970s.112 Due to dry cargoes being
mainly containerised, large sea carriers extended their business to inland-route
transport to earn additional freight.113 Consequently, the traditional ocean carriers
started to become multimodal operators.114 They stepped into the air, rail and road

107
Smart contracts are contracts in the form of a computer programme run within blockchain which
automate the implementation of the terms and conditions of a contract between the parties.
108
Lloyd’s List (2017).
109
UNCTAD (2018), pp. 87–89.
110
Joc.com, Blockchain success in shipping hinges on standardisation, 27 March 2018.
111
Marine Electronics and Communications, Blockchain is not the silver bullet for cybersecurity,
9 March 2018.
112
OECD Doc. DSTI/DOT/MTC (2001) 3, (11 January 2001), 4.
113
Bauchet (1998), p. 191; Faria (2008), p. 304.
114
Ibid.
774 L. Zhao

transport business because of commercial interests in warehousing, consolidating

and distributing freight.115 Commercial motivation prompted carriers to mobilize the
transport chain from the seller’s to the buyer’s warehouse.116 Whether or not they
are directly involved as multimodal carriers, sea carriers are likely to be agents for
multimodal transport operators (MTO).117 Under the auspices of UNCTAD rather
than UNCITRAL, the United Nations Convention on International Multimodal
Transport of Goods was signed in 1980.118 This convention dealt with the conflicts
between the unimodal-governing carriage conventions, but has been unable to attract
the minimum number of ratifications or accessions to bring it into force.119 The
scope of application of the Rotterdam Rules extends to multimodal transport120
which is governed by a number of mandatory rules of other transport modes.
Related conventions provided various limitations of liability and defences for
carriers of modes of rail,121 air122 and road123 transport.124 One argument is that
Rotterdam Rules merely addresses, and only to a limited extent, legal conflicts
among the conventions of different modes of carriage on multimodal transportation.

115
Ibid, p. 305.
116
Bauchet (1998) (mentioning Conference on Trade and Development, Geneva, Switzerland,
12–30 November 1979, United Nations Conference on a Convention on International Multimodal
Transport, part I (B), art. 1(2), U.N. Doc.TD/MT/CONF/17.201.,141).
117
Ibid.
118
United Nations Convention on International Multimodal Transport of Goods, Geneva, 24 May
1980, UN Doc.TD/MT/CONF/16; Wilson (2010), pp. 253–259 (examining that the multimodal
transport and the UN Multimodal Convention 1980).
119
Ibid.
120
The formal name of the Rotterdam Rules is “United Convention on Contracts for International
Carriage of Goods Wholly or Partly by Sea”.
121
Convention Concerning the Carriage of Goods by Rail (‘CIM’), 25 October 1952, 241 U.N.T.S.
336; The initials CIM stand for its French name “Convention Internationale concernant le transport
des Marchandises par chemin de fer”. Retrieved 17 June 2018, http://www.jus.uio.no/lm/cim.rail.
carriage.contract.uniform.rules.19xx/doc.html. The CIM is modified and incorporated as Appendix
2 to the COTIF from May 1999. International Convention Concerning the Carriage of Goods by
Rail (‘COTIF’), 7 February 1970, 1101 U.N.T.S. 226.
122
Convention for the Unification of Certain Rules Relating to International Carriage by Air (the
‘Warsaw Convention’), 12 October 1929, 49 Stat. 3000, 137 L.N.T.S. 1. The original Warsaw
Convention of 1929 was first amended in Hague in 1955, and then in Montreal in 1975. In 1999, a
new Convention, known as the ‘Montreal Convention’, on international air carriage was concluded
in Montreal and on 28 June 2004, came into force in the European Union. See Chuah (2009),
pp. 367–371.
123
UN, Convention on the Contract for the International Carriage of Goods by Road (‘CMR’,
abbreviated from the French ‘Convention relative au contrat de transport international des
marchandises par route’), 19 May 1956, 399 U.N.T.S. 189, amended by the 1978 Protocol.
Chuah (2009), pp. 379–388.
124
E.g. carriers’ liability for delay: Warsaw Convention Article 19 (stating that under the Warsaw
Convention the carrier shall be liable for delay in the air transportation of passengers, baggage, or
goods); the CMR for truck transport, Article 17.2. See also the limitations of liability of carriers are
different in related conventions. See more conflicts in Ulfbeck (2010), pp. 34–37.
Lex Maritima in a Changing World: Development and Prospect of. . . 775

Furthermore, the conventions dealing with other transport modes are largely Euro-
centric with little significance.125 It is submitted that the Rotterdam Rules are over-
ambitious in attempting to deal with multimodal transport which may be a reason for
the insufficiency of ratifications necessary to bring them into force.

5.2.1 Article 82 of the Rotterdam Rules

The opening words of Article 82,126 “[n]othing in this Convention affects the
application of any of the following international conventions. . .” points to the
employment of the network-liability approach in the Rotterdam Rules to deal with
potential conflicts between carriage conventions. This Article is part of Chapter 17 of
the Rules (“Matters not governed by this Convention”), which implies that the
circumstances described within Article 82 are outside the scope of application of
the Convention.127
Paragraph (a) aims to prevent the Rules from prevailing over any convention on
the carriage of goods by air “to the extent that such convention according to its terms
applies to any part of the contract of carriage”.128 Even though the Montreal
Convention does not govern any period of “carriage by land, by sea or by inland
waterway outside an airport”, two exceptions fall within the Montreal Convention’s
coverage.129 First, if carriage takes place “in the performance of a contract for
carriage by air, for the purpose of loading, delivery or trans-shipment, any damage
is presumed, subject to proof to the contrary, to have been the result of an event
which took place during air transport”; second, if a contract of carriage stipulates that
goods would be carried by air, and a carrier arbitrarily changes to another transport
mode, e.g. by sea, without the consent of the consignor.130 Thus, under these two
circumstances, the Montreal Convention can govern carriage by sea. Some experts
claim that Article 82 (a) is sufficient to address the conflicts between sea and air
legs.131 It must be mentioned in this context that the combination of carriage by sea
and air is rare.
Despite the Rotterdam Rules not being applicable in the two cases mentioned
above,132 it has been pointed out that Article 82 (a) is not sufficient to harmonize

125
Chuah (2009), pp. 367–401.
126
Rotterdam Rules Article 82 (International conventions governing the carriage of goods by other
modes of transport).
127
Cf. Sturley et al. (2010a, b, c, d), pp. 59–75, paragraphs 4.013–4.045 (addressing the complexity
of conflicts). Berlingieri (2009), p. 54.
128
Rotterdam Rules Article 82 (a). See also De Wit (2010), pp. 100–107, paragraphs 5.53–5.
129
Montreal Convention Articles 38 and 18.4.
130
Ibid, Article 18.4.
131
Ralph De Wit (2010), pp. 100–101, paragraphs 5.53–5.58; see also G. van der Ziel in Cf. Sturley
et al. (2010a, b, c, d), pp. 72–73, paragraphs 4.034–4.037.
132
See also De Wit (2010), pp. 100–107, paragraphs 5.53–5.73.
776 L. Zhao

other conflicts with air transport conventions, if the place of damage or loss cannot
be proved.133 If, for instance, there is a multimodal transport bill of lading, including
(international) air and sea legs and some goods are carried by the modes agreed by
the carrier and the consignee (not the second circumstance mentioned above), and
the goods are damaged but the place of damage is not identified (if the place is
known, it is the first circumstance mentioned above).134 Since the place of damage is
unknown, it is debatable whether the Rotterdam Rules apply.
Similarly, paragraphs (b), (c) and (d) of Article 82 prevent the Rotterdam Rules to
a limited extent from conflicting with any existing convention applicable for
governing the carriage of goods by road,135 rail136 and inland waterways.137 Poten-
tial conflicts would arise between the Rules and a broad range of sea-and-road
transport instruments138; the CMR is one of these and applies compulsorily.139
Under paragraph (b),140 the Rotterdam Rules merely scratch the surface of the
problem of conflicts between the sea and the road transport conventions (e.g. the
CMR Article 2) for a roll-on/roll-off (ro-ro) carriage, in which the goods carried
“remain loaded on a road cargo vehicle carried on board a ship”. Therefore, Article
82 (b) will prevent the Rules from prevailing over the CMR, if only “goods . . .
remain loaded on a road cargo vehicle carried on board a ship”. That is, in the event
of a ro-ro contract of carriage, the Rules would not conflict with the CMR which
apply to the whole141 carriage. Nevertheless, other potential conflicts remain under
this paragraph as to carriage by road and sea.

133
Diamond (2009), p. 454.
134
Ibid.
135
CMR Article 41.1 states “any stipulation which would directly or indirectly derogate from the
provisions of this Convention shall be null and void”. Datec Electronics v United Parcels Services
[2007] UKHL 23. See Ulfbeck (2010), pp. 43–76.
136
CIM Articles 1.3 (governing a single contract including international road and inland waterway
carriage), Article 5 (stating that the mandatory rules cannot be contracted out of or derogated from
unless as otherwise provided for in the Rules themselves), Article 23.1.
137
Sturley et al. (2010a, b, c, d), pp. 71–75, paragraphs 4.031–4.045, pp. 169–176; paragraphs
5.245–5.259; the UNCITRAL 20th Session Report, paragraphs 163–166.
138
Thermo Engineers v. Ferrymasters Ltd [1981] 1 W.L.R.
139
CMR Article 2.1 provides: “Where the vehicle containing the goods is carried over part of the
journey by sea, rail, inland waterways or air, and, except where the provisions of article 14 are
applicable, the goods are not unloaded from the vehicle, this Convention [CMR] shall nevertheless
apply to the whole of the carriage.” CMR Article 41 states “1. Subject to the provisions of article
40, any stipulation which would directly or indirectly derogate from the provisions of this Con-
vention shall be null and void. The nullity of such a stipulation shall not involve the nullity of the
other provisions of the contract.” E.g. T Comedy v. Easy Managed Transport [2007] EWHC
611 (holding that the a general lien clause in the truck carriage contract would derogate from the
consignees’ right to delivery on payment of the charges shown to be due on the consignment note
(Article 13.1) would be null and void under Article 41 of the CMR).
140
See also De Wit (2010), pp. 100–107, paragraphs 5.53–5.73.
141
CMR Article 2.
Lex Maritima in a Changing World: Development and Prospect of. . . 777

Likewise, the same problem also applies to paragraphs (c)142 and (d).143 Under
paragraph (c), the Rules come into play as the “supplement to the carriage by rail”,
without a clear definition of “supplement”. Under paragraph (d) on inland waterways
carriage, the Rules prevail in the very limited case of carriage “without trans-
shipment both by inland waterways and sea.144 Notably, in this case, the Budapest
Convention (CMNI) is possibly not applicable.145 Consequently, there is a possibil-
ity that an inland waterway carriage without trans-shipment both by inland water-
ways and sea is governed by neither the Rotterdam Rules nor the Budapest
Convention.
Therefore, Article 82 has not clearly addressed conflicts between conventions on
different modes of transport in cases of multimodal carriage. These problematic
provisions cause legal uncertainties. To address the conflicts which arise from
litigation over allocated (because unprovable) damage or loss, there are two options:
first, to admit that both the Rotterdam Rules and a potential conflicting carriage
convention are applicable,146 so that either puts Article 82 within another chapter
rather than Chapter 17 (“matters not governed by this Convention”), or maintain that
Article 82 be part of Chapter 17 of the Rules together with amending the title of
Chapter 17 (to e.g., “Matters suspending the Convention’s application”); second, to
clearly state which convention prevails over the others, or to set out a uniform147
level of liability in the event of unallocated damage, loss or delay.

5.2.2 Article 26 of the Rotterdam Rules

Article 26148 aims to establish a ‘limited network system’149 on carriers’ liability

with regard to multimodal transport, in order to reduce the conflicts between the
Rotterdam Rules and other international instruments. For the application of this
Article, it must be proved where loss, damage, or delay occurred.150 However, if it

142
De Wit (2010), pp. 100–107, paragraphs 5.53–5.73.
143
De Wit (2010). See also Sturley et al. (2010a, b, c, d), p. 73, paragraph 4.038.
144
Rotterdam Rules Article 82(d).
145
CMNI Article 2.2.
146
Cf. Honka (2010), pp. 349–354.
147
Si and Guo (2010), p. 259.
148
Rotterdam Rules Article 26. See also De Wit (2010).
149
A pure network system makes all the unimodal rules applicable directly between the carrier and
the shipper as to each mode of transport. A uniform system makes the same rules apply between the
carrier and the shipper to the whole multimodal transport with no regard to the unimodal rules
applicable to individual legs of the multimodal transport. In a limited network system, which mixes
uniform and network systems, the mandatory rules which apply between the carrier and the shipper
vary according to and are based on the underlying unimodal rules applicable to a related mode of
transport, while other issues remain governed by the Rotterdam Rules for the whole of the
multimodal transport. See Uffe Lind Rasmussen (2009), pp. 143–145.
150
Uffe Lind Rasmussen (2009), p. 146.
778 L. Zhao

cannot be proved where the event (loss, damage, or delay caused) occurred, or if the
damage was caused during one leg and continued during following legs, Article 26 is
not applicable. Thus, if a case falls outside this Article’s ambit, Article 26 itself cannot
avoid the conflicts between compulsory rules of different modes of transport.151
Moreover, Article 26 has not dealt with the relationships between the Rotterdam
Rules and mandatory national laws which conflict with the Rules. This is because the
words “international instruments” (Article 26) do not cover national laws, so Article
26 does not apply. An earlier UNCITRAL draft152 which was subsequently
discarded would have resolved this problem.
Furthermore, the use of the words “international153 instrument”154 in Article
26 implies regulation by regional economic organizations; thus they have a broader
connotation than the word “convention” (between nations) in Article 82. It is worth
noting that Article 26 does not circumscribe international instruments like those “in
force at the time this Convention comes into force” (Article 82); rather it embraces
instruments activated “at the time of such loss, damage or event or circumstance
causing delay”.155 As we have seen, the Rotterdam Rules may well be overridden by
certain future international instruments. Thus, it must be borne in mind that an
uncertain number of potential instruments could lead to lack of predictability at a
worldwide level, and increasing legal costs.
Therefore, in the three categories of circumstances mentioned above, it is difficult
to predict how potential conflicts among different transport modes can be resolved.
These conflicts could also promote legal uncertainty concerning similar cargo
litigation in different jurisdictions, and accompanying increased legal costs. In
order to handle the conflicts between the Rotterdam Rules and related national
laws, the wording “international instrument, at the time of such loss, damage or
. . . delay” is needed to be replaced and ensure that merely “international conven-
tions” “in force at the time this Convention comes into force” prevailing over the
Rules. This new extension within Article 26 will govern the relationships between
the Rules and national instruments; in other words, the Rules could well prevail over
the national instruments.

151
Diamond (2009), p. 456.
152
In order to cater for this need, UNCITRAL Working Group III drafted a provision, including
mandatory national laws, into Article 26, so that “it specially identified the law in question, that the
law applied to the loss or damage in question and that the damage occurred in that state’s territory.”
But such a draft provision was left out in the final version.
153
The limited network system on liability applies to the relevant provisions only of international
instruments, such as EU regulations; see Uffe Lind Rasmussen (2009), p. 147. See also Sturley et al.
(2010a, b, c, d), pp. 59–75, paragraph 4.022; UNCITRAL (1987), Doc.A/CN.9/642, 20th Session
Report, paragraphs 163–166.
154
The wording of Article 26 is “international instrument” rather than international “convention”,
which refers to a broader range of international legislation. See Sturley et al. (2010a, b, c, d),
multimodal aspects, pp. 59–75, paragraph 4.023; the UNCITRAL (1988) 21st Session Report,
paragraph 84. Rasmussen (2010), p. 147.
155
Rotterdam Rules Article 26. van der Ziel (2009), p. 989.
Lex Maritima in a Changing World: Development and Prospect of. . . 779

6 Conclusion

In this chapter, an attempt has been made to carry out historical and legal analysis on
attempts to unify carriage of goods by sea rules to shed light on the lex maritima and
the prospect of success of the Rotterdam Rules. In concluding the discussion, the
chapter probes into the attitudes which impact on the adoption of the Rotterdam
Rules, of the shipping powers and certain countries.
It is notable that most states, notably the Scandinavians and the Netherlands, are
adopting a “wait and see” attitude, observing whether major and influential maritime
states will ratify the Rules before taking any firm action although the Netherlands
have taken a more positive step by presenting two bills to Parliament concerning the
Rotterdam Rules. The first is in respect of the Netherlands and three of the King-
dom’s overseas territories, namely, Aruba, Curacao and St. Maarten. The ratification
of the Rotterdam Rules is concomitant with the denunciation of the version of the
Hague-Visby Rules to which they are party. The second would remove the Hague-
Visby provisions in its Civil Code and replace them with the Rotterdam Rules which
would be incorporated into the Code by reference. Both bills are expected to pass
soon but will not lead to an immediate replacement of the Hague-Visby Rules with
the Rotterdam Rules. The Dutch legislative move might constitute “a small step on
the road to Rotterdam”.156 The explanatory notes to both Dutch bills provide that it
will be for the government to decide on the date of ratification and entry into force
and this may depend on ratification of the Rules by neighbouring states such as
Germany and France and major trading partners such as China and the
US. Incidentally, no mention is made of the UK. The Scandinavian countries seem
to be “friendly” towards the Rotterdam Rules. Initiatives were taken to ratify the
Rules since the year Spain did so, but have decided to wait and see what other
European neighbours and the USA will do.
The USA is facing domestic objections from its port industry seemingly based on
the belief that ratifying the Rotterdam Rules will harm their interests. This industry
has lobbied Congress to not accept the Rotterdam Rules.157 This chapter is the end
product of research undertaken by the author to examine the lex maritima by taking a
close look at carriage of goods by sea. The historical and legal analysis of the
attempts to unifying carriage of goods by sea rules has demonstrated that this is an
odyssey. Further analysis of the attitudes of the shipping and trading countries
towards the Rotterdam Rules indicates that this Convention will not accomplish
legal uniformity of carriage of goods by sea, because it is not going to be widely
accepted, at least not in the forthcoming future.

156
Baughen (2018).
157
Information gleaned from private communication with a US delegate at the Rotterdam Rules
negotiations. Details are contained in Sturley (2016).
780 L. Zhao

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