The Migrant Crisis Hits Home

Why are shipowners bearing so much of the burden?

By Erik Kravets

North Africa, Syria and Iraq have been in turmoil for more than a decade, causing millions to flee their homes both in fear for their lives and in search of a better future. For a time Europe was shielded by the Mediterranean – and by the efforts of shipowners to pick up the so-called "boat people." But the trickle grew to a flood and, according to a year-end report from the German Federal Navy, more than one million migrants came to Europe by way of the Mediterranean in 2015 – with 3,770 deaths.

In the same way that authorities on land are now struggling to cope with the extent and intensity of the migrant crisis, shipowners have for years been at the forefront of dealing with the problem under various provisions of UNCLOS, SOLAS, and IMO SAR. The administrative hassles, expense and stress of providing assistance are now finally impacting the broader public.

Paying the Price

The Master is under no obligation to determine the immigration status of persons rescued. His sole responsibility is to provide for their safety and humane treatment and to disembark them at a place of safety. As a result, when called upon or when the situation arises, the Master has no choice but to deviate in order to perform his humanitarian obligations.  

The mere existence of so many people in need of rescue poses a major problem. Each deviation is costly for the shipowner. Even if it is an ethical imperative to conduct rescues, the cost of doing so leaves many owners unhappy that E.U. governments are not living up to their obligations and are, in effect, shifting what should be a public burden onto the back of private industry.

The problem has become so pervasive that last year the International Chamber of Shipping published a manual providing guidance on "large-scale rescue operations at sea" and advocating the training of crews for this purpose. The glossy brochure is littered with poignant pictures of jam-packed dinghies.

The bickering among E.U. Member States over refugee quotas contrasts sharply with the recommendation that rescued migrants be disembarked at the closest, most opportune safe port. Islands like Lampedusa, Italy and certain Greek ports are now so overwhelmed that unsanitary conditions prevail. It could be argued that any port where sanitary conditions pose a threat to human life is not "safe" under the law.

Moreover, certain Member States are shifting the cost and paperwork involved in processing rescued persons onto owners and crews even though such tasks rightfully should be carried out by administrative officials. P&I entity Standard Club noted in one of its newsletters that "the port or immigration authority may require the member to pay expenses incurred due to watch and custody, as well as immigration and repatriation procedures." The documentation needed to maintain P&I cover throughout such travails means additional stress and hassle for already overburdened seafarers and their shore offices. The German Association of Shipowners has argued that certain Mediterranean routes have become essentially unnavigable as a result.

On land, Greece has activated the E.U.'s Civil Protection Mechanism, which is the E.U. equivalent of the U.S.’s Federal Emergency Management Agency. Various forms of aid, from experts to materials, are now flowing into the Greece’s eastern Aegean islands.  At least 16,000 people there require relocation.

With the International Chamber of Shipping, BIMCO, the Maritime Safety Committee and various P&I clubs – not to mention the national shipowner associations – exercising so much pressure on Member States, it's to be hoped that the situation at sea will soon improve. The EUNAVFOR MED military expedition, backed by seven European nations (including the U.K., Italy and Spain) and designed to disrupt human smuggling operations in the Mediterranean, should represent just the first step in a comprehensive response.

U.K. Insurance Reform

Meanwhile, in the U.K., the aging Marine Insurance Act 1906 was subject to scrutiny by the Law Commission starting in 2006. Now their suggested changes have entered into legislation in the form of the Insurance Act 2015. The new regime will enter into force on August 12 of this year and grant a measure of relief to insureds.

The term "utmost good faith" was at the center of the reform effort. Previously and speaking broadly, the insured could be denied coverage due to any breach in actively disclosing information to the insurer that could be relevant to the insured risk. We now largely bid goodbye to "utmost good faith" and say hello to "fair representation," which is the concept upon which coverage now depends.

Under “fair representation,” the insured must disclose "every material circumstance" and provide "sufficient information," to use the parlance of the Insurance Act 2015. This duty on the part of the insured encompasses both known facts and facts they ought to know. And as every lawyer knows, or at least ought to know, this is a legal minefield.

But what has changed for the benefit of the insured is that the insurer cannot any longer sit back and take a purely passive role in risk assessment. Also, the threshold for denial of coverage to the insured is now significantly higher.

And if disclosures are still not made properly under the new rules, then the failure to fairly present the insured risk requires "deliberate or reckless" action on the part of the insured, a standard much higher than in the Marine Insurance Act 1906. Short of this, the insurer may take more moderate steps to limit the insured's coverage, like claiming damages for a premium that is too low.

North Sea and Baltic SECAs

Appendix VI of MARPOL, Rule 14.4.2 was implemented by the European Union just over a year ago on January 1, 2015. As a result, the SOx-quotient of marine fuels burned in the North and Baltic Seas could not exceed 0.1 percent, which meant that cheap heavy fuel oil was prohibited. The industry is dealing with the new regulation, but some sectors are hurting more than others.

With respect to liner services, “bunker surcharges” have been assessed for time in transit through SECAs which, depending on the bargaining power of the liner service, have more or less successfully been imposed on customers in a manner analogous to airline fuel surcharges. Ports either entirely or largely within SECAs, e.g., Baltic ports, are most heavily affected by the surcharges.

In contrast to liner services, voyage charter parties do not typically impose bunker surcharges. Rather, the owner has been left to increase his freight calculation to account for the more expensive fuel, which accelerates the relative decline in competitiveness of less-efficient vessels.

Lastly, while time charter parties like BOXTIME already include bunker price adjustment clauses, agency managers need to know that these clauses only account for market movements (see boxes 9 and 10 of BOXTIME for bunker prices at delivery/redelivery). It is Cl. 12 (f), BIMCO Fuel Sulphur Content Clause that requires charterers to always bunker such fuels as are required to conform to the environmental standards of the geographic area in which they are sailing. Further, Box 8 of BOXTIME permits the charterer and owner to define specific fuel grades to be bunkered during the time charter.

It is advisable to take due care when filling out these parts of the BOXTIME charter party so as to ensure that all parties’ expectations are fully satisfied. Otherwise, there is the risk of a "surprise invoice" for bunkers. If left at the default rule in Cl. 12 (a, b), namely, bunker costs upon redelivery are to the owner’s account – and if delivery is outside a SECA and redelivery is at a port within a SECA – the charterer nevertheless must still ensure that the quantity of fuels at redelivery is sufficient to “allow the Vessel to safely reach the nearest port at which fuels of the required type or better are available.”

In light of this, one might call to mind Rule 18.2.2 of Appendix VI of MARPOL, which provides an exemption from compliance with 14.4.2 if the vessel would have to unreasonably deviate from or delay its journey to comply with the emissions requirements. But beware, as this rule only shields against public sanctions! A time charterer would not be able to defend against an owner if he failed to bunker sufficiently to transit a SECA by arguing, as per rule 18.2.2, that it would have delayed his journey or required a diversion.

Odds & Ends – European Case Law Highlights  

For freight forwarders engaged in intermodal shipping, Appeals Court of Dusseldorf, Germany has decided that, to effectively shift liability for damage to goods from overstacking, it is necessary to ensure that the goods are labelled properly. If they are unlabelled, labelled atypically, or are not in conformity with packing rules, the carrier is not liable.

Another intermodal decision was delivered by the Appeals Court of Vienna, Austria, which ruled that in the event of loss of goods in road transit, even if the lost goods are later found, the damaged party can file a claim under the 30-day loss presumption in Art. 20 I CMR. This puts the carrier under intense time pressure to locate the lost items.

Finally, defining clearly the difference between "contract party" and "agent," the Superior Court of Bremen, Germany ruled that typical and desirable ship’s repairs ordered by the duly authorized ship manager without the owner’s knowledge are strictly to the owner’s account. The shipyard cannot claim against the manager even when the shipowner has, meanwhile, gone insolvent. – MarEx

Erik Kravets is a maritime lawyer based in Cuxhaven, Germany and a frequent contributor to the online  MarEx Newsletter.