Although when a ship is attacked by pirates much of the effort is naturally focused on the human aspect of the problem, the contractual and technical issues are of interest as it is inevitable that an attack will affect the commercial relationships between the different contracting parties and it is these particular relationships that this article aims to cover and unravel.
Given the average duration of a hijack, the issue of frustration will only arise for short trip time or voyage charters and can therefore be neglected, with the most interesting issues being related to off-hire and damages.
Although the general position under standard charterparties wording seems to be that piracy is not an off-hire event, whether hire remains payable during the hijacking, and whether other damages are arising from the event, will depend on the construction of the underlying charterparty. Owners will try to establish that the event, and thus the damages flowing, are the result of the following of orders and directions of the charterers, however following charterers’ orders as to route or service per se will not make hire always payable. Any deviation clause needs to be carefully reviewed to clarify whether the drafting has been wide enough to exclude payments of hire in all cases where the vessel departs from the normal route for whatever reason.
The owners’ argument is probably less interesting to analyse on theoretical basis, as it depends on too many factual considerations and in particular on whether the vessel has been exposed to risks the owners have not agreed to bear under the circumstances and the wording of the charterparty. More of interest instead is the charterers’ argument, which will inevitably touch whether the ship was properly manned with a trained and responsible crew, whether she was adequately protected, or in other words “properly manned, equipped and supplied”, and most likely whether the voyage itself was sufficiently safe given the knowledge nowadays available of the high risk areas. In order to succeed in their argument therefore, charterers will need to prove a failure of the owners to exercise due diligence to make the ship seaworthy. As strange as it may seem, it seems that even today not many charterparties anticipate the possibility of a hijacking and therefore litigation will always arise.
BILLS OF LADING
Issues similar to the one related to unseaworthiness of the vessel as seen above may also rise in relation to claims under bills of lading. But a much more interesting issue is given by the incorporation in almost every bill of lading of provision for the payment of general average. The issue has not yet been fully clarified, however it seems that payment of ransom, being an extraordinary cost incurred to ensure that the common venture can continue, falls into the general average provision, always assuming that there is a successful release of the ship and cargo.
As pirates always try to make clear they are acting for personal gain – and not for any political, religious or ideological reason, which would label them as terrorists – it seems that at the very least arguable that the ransom is extortion and not payment to terrorists and therefore pirates have to be considered as pirates and not terrorists for marine insurance purposes.
While from a cargo perspective, piracy is classified as a war peril under the 2005 revision of the Institute Hull clauses and cargo owners are only protected under the wording of the ICC (A) All Risks policy, many different types of insurance are available on the market for owners to protect themselves against the risk of piracy, from loss of hire to Kidnap & Ransom policies. However, it is fair to say that life is not easy for owners, as K&R insurance is not available for every vessel, as her characteristics (free board and speed in particular) will dictate whether such policy is available or not for the particular vessel, and no policy exists at the moment for the additional costs owners have to incur in their dealing with pirates and media during the time of the hijacking, costs that well might be exceeding the cost of ransom itself.
Pirates’ attacks have serious human and financial consequences which can affect all the parties involved. Hence it is essential that nowadays both cargo and ship owners, as well as charterers, can access a higher level of knowledge regarding any potential contractual liabilities that may rise as the result of such attacks, with these requests likely to increase according to the value of the target vessel and cargo until an answer is found to the vexata quaestio of how the surge of pirates attacks in the Gulf of Aden can be stopped once and for all.
Sr. Legal Consultant
Fichte & Co Legal Consultancy