Abstract
Since the conclusion of the ship chartering contract, always unpredictable and unavoidable risks may lead to aborting the implementation of the agreement. One of these force majeure events is piracy. By the time the ship is hijacked by pirates, given that practically during which time there is no possibility of using the ship for the ship owner and ship renter, so in this case if the ship lease agreement is not concluded on how to pay ship freight and other related costs in the event of piracy, the responsibility for paying the rent and other expenses related to piracy during detention and seizure of ship by is disputed parties. The purpose of this article is to reveal the dispute between the ship owner and the renter at the time of conclusion of the contract and during its implementation, and these are always as obstacles for charter party contracts, which in short, we can refer to contradiction in terms of model standard forms, the absence of a comprehensive, fixed law, lack of a legal precedent and not fundamental insurance laws regarding piracy.
Keywords: out of service, general damages, piracy, standard contract terms, ship lease contract
Introduction
Generally, the transport of goods through sea is realized by freight contract and this contract is done by one of two forms of renting ship or cargo through general ships.
A ship chartering contract during the contract may be at risk of accidents and dangers that hinder the full implementation of the contract, including natural events such as severe storms, the ship groundings, fires and drowning... or caused by the hostile actions of some individuals and groups, such as war, piracy, confiscation and destruction of the crew...
These risks may sometimes be so severe that the resulting damages, removes losers from the effective economic activity and cause them irreparable blows.
Among the maritime security threats, "piracy" contrary to the popular belief is a developing crime and its nature is changing from the traditional to new and every day, causes death of personnel, and inflicting heavy losses to them.
Despite the increase in crime in the world, due to the lack of comprehensive and adequate legislation on piracy, the self-interested approach to marine insurance at the time of payment of compensation, the absence of case law in the courts and a conflict in terms of the standard forms of ship chartering, in practice caused many problems for ship owners, charterers and cargo owners in a way that caused the international tribunals in this case cannot simply issue a ruling.
Owners and charterers, according their demand and to determine the party who is responsible in case of emergencies such as piracy, for payment of all costs such as ship rent when is out of service, the cost of additional insurance, additional crew wage costs, the cost of wasted time and other cases where the parties need to anticipate them to create "security" to deal with emergencies and natural and unnatural disasters and should use standard forms of sample chartering that during the years in maritime trade associations and special transactions and commodities exchanges have been expanded as well.
In this study, while explaining ship chartering contracts, we try to find problems between ship owners and charterers on piracy and its impact on the contractual terms of charter parties.
Also, by analyzing the issues raised in the courts, standard forms of ship chartering, have challenged the contradictions in contractual terms of ship chartering and insurance law, and it is hoped to contribute to solving this global problem.
Research questions
Hypothesis
Chapter One: Concepts and Overview
1-1. Legal history
Piracy has a long history and it is as old as the history of human mastery over the seas, and besides the slave trade is as the first example of international crime which is subject to universal jurisdiction. Law governing piracy has been evolving over historical periods. In ancient Roman laws, which was formulated by the parliament of Rome, the piracy is mentioned as a crime against individuals and society in general. (Yekdelehpour, 2011: 62).
The law to date form the basis for international criminal law and confirm the concept of universal jurisdiction to deal with piracy. After a period of stagnation in the fight against piracy, in the seventeenth century with the end of the Spanish war, anti-piracy laws were revived briefly, despite the fact that pirates in the era enjoyed a set of rules of conduct for the organization of pirate vessels and their integration. (Journal of sea and port, 2012: 70).
Gradually, more and more state laws were led towards defining piracy as a crime against humanity. In 1856 Declaration of Paris, which was almost signed by all the major powers, all forms of piracy was declared as abolished and emphasized that the pirates must be arrested and prosecuted. Paris Declaration and its subsequent decisions for the first time considered a legal entity separate from the individuals and governments for pirates. Therefore, piracy was considered as a political tool lacking the government support and the support of nationals. (Yekdelehpour, 2011: 63).
Since its establishment, the international community, as one of the first crimes has criminalized piracy. Committee of Experts of the international community, for the gradual development of international law in the field of piracy in 1926, published the regulations for the repression of piracy on the eight articles. These regulations limited piracy to committing acts with personal intentions and on the high seas and allowed countries to take certain decisions about the status of rebels (Wilson, 2008: 320)
1-2 Pirate
Pirate attacks caused many deaths and injuries of personnel and imposed many damages to commercial ships, which was strongly condemned by the international community, especially from the early nineteenth century. Piracy is the oldest international crime and it can be aligned with crimes such as war crimes and crimes against humanity. (Journal of message of sea, 2011: 48).
"Under international law, pirate is the enemy of humanity and the enemy of humanity is sentenced on behalf of all mankind." (Michel, 2008: 115).
The purpose of traditional piracy is to seize any personal or state vessels or persons and goods in it on the high seas. Usually, their aim was seizing and looting cargo vessel that in these cases, pirates abandoned crew and passengers after the seizure of cargo, or seized the ship and murdered the crew. (Beygzadeh, 2009: 25)
In the latest way of piracy, kidnapping for ransom was extended from Somalia and in the Gulf of Aden since early 2001, the target of pirates was kidnapping crew and passengers, and then negotiating to obtain huge bribes in exchange for their freedom. In this case, the pirates don’t need much precious cargo and property in the vessel which is attacked but after the kidnapping operation they receive exorbitant bribes in exchange for the return of the vessel, the crew and passengers. (Beygzadeh, 2009: 25)
1-3 Proposed definition of piracy
Legally, there are different views in relation to piracy and definitions related to it. By different definitions, we mean that depending on the type of legislation that deals with piracy and prosecuting this crime, a separate definition of piracy is provided by it. For example, international law, criminal law and domestic laws, that each have different definitions of piracy. (Todd, 2010: 52).
The simplest definition of piracy is an act that the pirate or pirates will be at the way of maritime trade and goods that are transported by ships at sea with trick or using guns, and by plunder of the goods and sometimes is also accompanied with killing the crew and sinking them, and thus they steal the wealth and power of ships.
In providing various definitions of the crime of piracy in international documents and treaties, we should not forget that the involvement of international channels and the performance of state legislature lead to develop the concept of piracy in the definitions. On the other hand, given that the definition of piracy is caused changes in the final statistical calculation. So, these definitions are influenced by specific benefits and incentives of reference providing the definition. For example, according to the International Maritime Bureau definition, piracy is to attack any ship with the intention of committing any theft or any other crime and with the aim or the possibility of using force to advance the action. Obviously, the purpose of this definition is nothing but increasing the inclusion of the enumerated acts of piracy to use a tool to justify the insurance rate structure and insurance revenues in areas under the control of pirates. (Report Group, 2010: 106).
In 1958 the common law in relation to piracy was codified by "the Geneva Convention on the High Seas" in law. Then, in 1982, "United Nations Convention on the Law of the Sea" was adopted. The Convention entered into force in 1994 with the approval of the sixtieth signatory state. According to Article 101 of the Convention, such as Article 15 of the Geneva Convention offered a similar definition of piracy on the high seas, piracy is defined as:
14 Definitions and legal status of the high seas
The definition of the high seas in Article 1 of the Convention of the High Seas 1958 is as follows:
"All regions of sea, except the internal waters and waters that are part of the territory of a country are called the high sea» (Convention on the high sea, 1958: 1). In the meantime, despite the exclusive economic zones and the waters of the archipelago, this definition is modified by Article 86 of the United Nations Convention on the Law of the Sea 1982 as "all sea regions except exclusive economic zones and inland waters and waters that are part of the territory of a the country and also except the waters of the archipelago of a country are called high sea ». (UNCLOS, 1982: 86)
Convention on the High Seas, which, along with the 1958 Geneva Conventions, codified customary international law has several provisions that one of the main principles is identifying crime of piracy in modern times. Many of the provisions relating to the jurisdiction of the state and freedom of the seas and piracy. But other things are allocated to some specific issues that after 1958 has attracted a lot of attention (Bigdeli, 2005: 321).
Article 2 of the Geneva Convention of 1958 preserved the right for sailing, fishing, piping and cabling and their repair in the high seas as well as the right to fly over the seas for all countries. According to this Convention, the freedoms mentioned above are reserved for all countries given the rational considerations and so that the right of other countries is not misused. According to Article 87 of the United Nations Convention on the Law of the Sea 1982, construction of artificial islands and other installations and scientific research have been added to the list of freedoms (Bigdeli, 2005: 322)
Chapter Two: types of ship chartering contract and the impact of piracy on its provisions
2.1 Definition of ship chartering and its existence
Some of the authors consider the ship chartering contract as a contract whereby the owner should offer all or part of his ship in exchange for a certain fee to the charterer. Conditions and the effects of chartering contract are determined by parties to the lease agreement. From the perspective of some legal dictionaries, ship chartering is a written contract between the owner or master of the ship on one hand and the product owner (charterer) on the other hand and includes the rights and obligations of the parties, details of the ships and goods and many mutually acceptable cases. (Najafi Asfad, 2008: 152)
2-2 Parties to the ship chartering contract
Ship chartering contract is a written document between the ship owner or his authorized representative on the one hand and the tenant on the other hand. As can be seen, the principal parties to the lease agreement whose names should be mentioned in the preamble of the agreement, are the ship`s owner and tenant, in fact, contract results from negotiations, bargaining and agreements. But since the principle parties often are not technically, commercially and legally prepared for presence in negotiation meetings or for any other reasons are not willing to do so, in the international market of ship chartering, responsibility for such acts and conclusion of charter parties will be assigned to professional speculators. These individuals as "representative" undertake the responsibility on behalf of owners and tenants that are not dissimilar to advocacy and negotiate and bargain on their behalf professionally and finally, the chartering contract is signed with the terms of interest of both parties. (Najafi Asfad, 2008: 153)
2-3 Types of ship chartering contracts
According to international maritime law, all or part of the ship can be rented for a specified period for one or more travels and thus, ship owners and ship users are allowed to conclude charter parties with diverse and different contents. (Najafi Asfad, 2008)
Ship chartering contract is divided into three main types as:
2-4 Time Charter Party
According to Article 7 of the Law of 18 June 1966 France further noted, in the long or long-term lease, the lessor undertakes to provide fully equipped ship to the tenant. As shown in this article, two points are missed by the legislator, first the payment of wage or rent fee that logically should be determined in the contract and second specifying ship that is one of the pillars of the lease agreement. But by referring to the article 1 and 2 of this law it can be seen that the French lawmaker has generally obliged the tenant to pay for all the money equating for the action of giving ship to the tenant as a right of the owner for all types of shipbuilding contracts by inserting the words "acquisition fee" and has made the tenant to pay rent, and thereby removed shortcomings related to the rent from this article of law. But the silence of the legislator in specifying the ship, which may be interpreted as an objection has remained. The definition in article 7 of the Law of 18 June 1966 in France is more fully discussed in paragraph 1 of article 170 of the maritime trade law of Lebanon, and includes all important points. Based on this definition, the shipbuilding contract makes the owner to give a certain, well-equipped ship to the tenant for a specific time period and while getting the rent. Based on this contract, the renter has the right to use the ship legally, rationally, and freely for the time specified in the charter party when the ship in his hands. It is obvious that in case any damage is done on the ship during this production time, the tenant is responsible to pay for fixing the damage (Seddigh, 2014:279)
Moreover, as the ship is in hands of the renter for a certain time period based on the nature of lease time contract, so the commercial management of the ship has to inevitably pass to the renter regarding the commercial shipping circumstances. Therefore, the commander of the hired ship not only is in touch with the ship owner as the main employer, but also has to obey the rules and opinions of the renter of the ship for a better management of the ship to serve the rights of tenant and with the purpose of protecting his employer`s rights. According to these explanations, the commander can be considered as the representative of the ship renter as long as the lease contract is valid (Najafi Asfad, 2013:158).
One of the purposes of the renter of taking the ship could be supervising in the area of maritime transport. In fact, the renter could aim to do shipping services as a supervisor by signing the lease time contract. Then the renter is allowed by the contract to load the whole ship or a part of it with any legal cargo and send it to any desired safe port. That`s why some lawyers consider the lease time contract a maritime transport contract (Najafi Asfad, 2013:158).
In a form which is used in accordance with the terms of the lease trip, the renter can calculate his costs more easily. Because the act independently and freely with time in their lease trip. The calculated and payable fees according to the time is on the renter or anyone who accepted the risk and danger of all delays (Najafi Asfad, 2013:159).
The ship commander can change the direction of the ship and choose a longer route in order to prevent piracy. If the ship is hijacked by the pirates, it won`t be useable for the renter any longer. The effect of piracy on lease time contracts of the ships will be discussed in the next sections.
In freight contract as lease time, the payment for rent for the ship and its personnel is calculated according to time, where the renter has accepted the risk and danger of delay in delivering the goods, which is one of its differences with lease trip contract. This issue does not affects directly the long ferry route or the amount of cargo that must be carried. So it is obvious that lease trip motivates the renter to consider the fastest and best way to load and unload the cargo on-time payment of the costs in ship delays (Safazadeh et. al., 2006:240).
In lease time contracts, there`s usually one term or one clause for not paying the rent by the renter in case the ship is out of service. For example when the ship is out of service for maintenance, the ship commander must typically act based on the renter`s instruction. Although the commander and crew are chosen and hired by the ship owner, sometimes the ship owner cannot take the full control and supervision of the ship, and as it was mentioned earlier, the renter`s instructions must be obeyed (Sadeghi Moghaddam, 2000:98).
2.5 Terms of shipbuilding contract
2.5.1 Changing the original direction of the ship
Changing the original direction of the ships in order to prevent the risks might cause some extra costs for the renter in a lease time contract. In lease time contracts, the renter gives the necessary instructions to the ship and the ship which is under the control of the renter, has to follow these instructions, though the ship commander was responsible for the safety of the ship and its sailing up to now, and eventually it’s the captain or ship commander who takes the final decision foe changing the direction of ship, and so the renter has to pay for the extra costs caused by longer route (Mashhadchi, 1982:115).
When there is not enough reasons for changing the original direction of the ship, the ship commander has to direct the ship in its original route with the utmost safety in the shortest selected route according to the legal specified path. According to the sentence in paragraph 4 of article 55 of the Law of the Sea of Iran, "any change in the direction of the ship in the sea for surviving and saving human life and property, or any rational deviation of the ship is not against the maritime transport regulations, and the charter supervisor won`t responsible for loss or damages arising from it". A little attention and focus on this legal statement allows us to conclude and deduce the followings:
First, the general legal principle is that the direction of the ship must be in the route specified in advance in a sea journey.
Second, deviation from this route is not permitted except in exceptional cases determined by law, and will result in responsibility lawsuit against the supervisor maritime transport. Third, deviation from the specified route is considered legal in case it aims to survive and save human life and property or it is done rationally and logically (Najafi Asfad, 2013:168).
Although this law is the exact translation of article 4 of the convention 1924 in Brussels, it shouldn`t be denied that using the complicated and ambiguous expression of "any rational deviation" has made access to the intention of the legislator largely difficult, and inevitably one should speculate for better understanding.
Some empirical examples of "any rational deviation" based on speculation in this regard are as the following:
Situation where deviation of the ship from the normal path takes place with the purpose of overcoming the inability of sailing and serious and inevitable maintenance.
Situation where deviation of the ship from the normal path takes place to prevent the ship from facing natural hazards such as hurricane and smog.
Situation where the commander changes the ship direction unintentional because of sickness or sudden incurable illness at sea, so that he can be treated in the nearest possible port (Najafi Asfad, 2013169).
2.5.2 Commitment to safety of port
The question arises regarding the topic of this paper that can the ports with pirates in their nearby be considered to be unsafe? Piracy can in fact be called a marine occupation, but there is a classic definition for safe port in the report of 1985 by Lloyds which states:
"… No port can be considered safe unless a specific ship can access to that during the certain time period in charter party, and also be able to exit it without any raucous event, and with no risk or threat which is essentially not avoidable that relying on good navigation and efficient marine personnel …" (maclachlan, 2004: 376)
This definition informs us about a safe port to a large extent, and so a safe port can be distinguished from an unsafe and dangerous port by referring to that. Based on this definition, a port can be considered safe when treating climate or situations in port, such as political unrest, revolution, blockade etc. cannot be avoided by appropriate and desired sailing and efficient naval personnel and seafarers.
But in some cases, the situation in the port is determined to make different situation and conditions compared to the previous situation, i.e. in the lease time contract, the tenant committed to direct the ship by his command to a port where was considered to be safe at the time of commanding. But the en route ship finds out this port has lost its safety due to occurrence of new events and has become an unsafe port. In this situation, the tenant has a second commitment to cancel his previous command and moves the ship with his new command to a port where is safe at the time of recent command (Seddigh, 2014:282).
But another situation can also be imagined in which the ship moves to a safe port specified in advance in charter party by the tenant command and reaches it and a new danger threatens the port after berthing at it, thereby makes it unsafe. In this circumstance, the only solution for the tenant is to leave the port as soon as possible and keeps the ship away from danger. But if the tenant doesn`t have time for that and it is not possible for him to avoid danger and a damage is done on the ship, the tenant won`t have any responsibility in this regard (Seddigh, 2014:284).
Air and sea blockade of Lebanon which started from 12 January, 2006 at war with Israel and continued to a couple of days after issuing the statement No. 1701 in 11 August, 2006 by UN Security Council, is a suitable and illustrative example for this hypothesis. In this armed conflict which may be considered as a War and/or War-Like situation, a number of ports in Lebanon became unsafe, and many ships which had moved to the ports of these countries because of safety of coasts of this region were in dangerous situation due to unsafety of these ports. However, it has to be referred to the context of charter parties signed among ship owners and renters and the approach to set the terms of the contract in order to achieve precise legal ruling in this regard. Therefore, it seems that there`s no second commitment, and the tenants of the ships traveled to these ports were not able to leave the unsafe ports due to the escalation of war, so they have no responsibility in this regard (Najafi Asfad, 2008:173).
Article 155 of our country`s marine law has appointed in this regard that:
"If due to port blockade or any other coercive powers, it wouldn`t be possible to enter the target port, the commander has to unload the goods efficiently in the nearest port according to the interests of the sender, or return them to the origin port, in case of not receiving instructions or receiving unenforceable orders".
As it can be seen, the implicit terms of this legal statement are mostly in accordance with the first situation mentioned above, i.e. the situation where the en route ship becomes aware of unsafety of the anticipated safe ports in the lease contract. According to this article, the commander`s duty is subjected to the fulfillment of two conditions: first, entrance of the ship to the target port becomes impossible due to unsafety resulted from different coercive reasons or naval blockade and, second, no order is issued by the tenant or his representative in this regard, or if it is issued, it is unaffordable (Sadeghi Moghaddam, 2000:105).
Anyway, if no physical harm threatens the port is not a sufficient reason for its safety. According to lease time contracts, the ship owner has to direct the hired ship according to his commitments to the port specified by the renter. On the other hand, most of forms of shipbuilding contracts include an article related to the fact that the renter is committed to make sure the ports where the hired ship is supposed to commute are completely safe (Wilson, 2008: 349). Some judicial precedents and judicial procedures occurred in these cases determine a port is not safe, unless the goods ship has its own floating during unloading the goods, and can leave the port safely after unloading (halburys Laws of Singapore (carriers), 1989: 215).
So, a port where it is not possible to enter without any risk is not a safe port, and therefore when a piracy is near a port and is a barrier to access the port, that port will be called unsafe.
There is no doubt that the ship owner does not guarantee for the renter not to direct the ship towards a port where there are pirates, and also it has to be considered that a renter who orders the ship to go an unsafe port, has violated the law regarding the shipbuilding and freight contract. So the ship owner can cancel the contract and considers the renter responsible for all damages to the ship. The question that arises in this situation is that was the ports of interest a safe port at the time of signing the contract or did the renter know about its unsafety while moving towards it? If a port which was safe at the time of signing the contract becomes unsafe after signing the contract, the ship owner has to inform the renter the mentioned port is unsafe from now on, and the renter had to avoid moving there based on the information he gets about the unsafe port. If the renter doesn`t obey these rules, the ship owner can direct the ship to the nearest safe port and act according to the terms and rules of fright contract about the ongoing event. Here, the dispute among charter parties` terms is that whether the route where ships commute in the Indian Ocean and Gulf of Aden and there is no need to go to ports (unsafe ports) where pirates are and they only to pass through this route to commute is unsafe or not? No jurisdiction and legislation has ever answered to this question up to now, and this has resulted in some disputes between the ship owners and renters in paying additional expenses (Mirmohammadi, 2010:73).
2.5.3 Making a ship out of service or off hiring a ship
The general principle of lease time contracts is that the ship is completely in hands of the renter for a certain time specified in the contract, and the total rent of the ship is paid to its owner, unless a provision of this contract becomes infringed during the lease time. In this case, a provision or clause will act that excludes the commitments of the renter related to making the ship out of service. Most of the charter parties include a term called "making the ship out of service" or more technically "off hiring" that frees the renter from paying the rent to the ship owner when the ship is out of service . For example, in the form NYPE93 (New York produce Exchange) which is usually used, in its 17th article, it is stated about the events included in off hires that:
"losing time because of negligence or failure of ship officers or crew, shortcomings in storage and spare parts for ships, fire in the ship, damage or engine failure or damage to the hull and rigging, ship aground, arrest and detention of the ship (unless the renter himself, his renting officers, or his representative are the reason of this arrest), or to seizure the ship due to legal incidents occurred for the cargo or the ship, change in the quality and nature of the cargo or damage to the cargo, the ship`s pool deck to repair or to paint, or its inspection, or any other similar reason that prevents servicing and full performance of the ship" (Sadeghi Moghaddam, 2000:113).
In interpreting the sentence "or any other similar reason that prevents servicing and full performance of the ship", it is a quite general sentence and includes different states of off hires. However, this question arises that is hijacking the ship by pirates sufficient for off hiring the ship or making it out of service?
The answer to this question might be that off hires doesn`t involve piracy. Words like "similar reason" stated in the definition of off hire are probably related to physical states and problems of the ship or its personnel and doesn`t involve piracy (Sadeghi Moghaddam, 2000:113).
In the ship Saldanha, the form NYPE93 was used and the piracy was not considered as a "sea damage" or "any similar reason". G. Grass suggested that the word "any" has to be added to the above provision so that it could be possible to consider piracy as one of the events included in off hires (EWHC, 2010: 532).
The ship in the below situations is off hired or out of service and cannot be used.
Dismantled or cannot be used.
Missing Vessel.
Dry-docking for maintenance.
The actions related to preserving the sailing ability of the ship and its equipping is being done.
Lack of crew or deficit in requirements in observed in the ship.
Events and accidents other than exceptional risks and damages caused by them that lead to the loss of more than 24 hours.
In the lease time contract of Baltaym 1939 related to making the ship out of service, it is stated in its clause A, article 11 that "if a ship has stopped more than 24 hours due to ship maintenance, or necessary plans for preserving the efficiency of the ship, or inefficiency of ship personnel or the fuels in ship`s storage, or technical defects or damage to the body, or other accidents, no rent is payable during stop, so any prepaid money has to be adjusted". (Sadeghi Moghaddam, 2000:114).
2.6 lease trip contract
In a lease trip contract, the ship owner is committed to give the specified ship with full equipment to the tenant for one or more voyage in exchange for a specified rent. The amount of rent can paid as a lump sum by mutual agreement of the contract correspondents, but the amount paid depends on the value of the goods, and its main specification related to lease time contract is that it doesn`t depend on the time duration of the trip (Najafi Asfad, 2008:175).
So it is the ship owner who takes the cost of any delay. If the trip becomes longer than the expected time, it’s the ship owner who has lost in terms of time, and cannot ask for any excess payment from the renter to compensate the occurred delay. He also cannot use the ship to earn money from other places to compensate the lost time. On the other hand, if the trip becomes shorter than the expected time, it is the owner`s profit as he can rent the ship to somewhere else to earn more money. So the main and fundamental difference in lease time and lease trip contract is specified here; in lease time, the renter takes the risk of any delay, while in lease trip, it is the ship owner who takes the risk of delay, and usually no certain speed is specified for the ship, and the common speed is considered (Todd, 1988: 65).
According to these contracts, the ship owner not only takes sailing management, but also the commercial management is on him. In other words, the main commitments of the ship owner includes three parts:
Giving his owned ship.
Providing the staff and commander who are led by him.
Carrying the loaded goods on the ship.
In fact, the main commitment of the ship owner is to carry the cargo belonged to the renter according to the agreements, using two other elements, i.e. ship and staff, to the desired destination(s) and deliver them to the interested parties (Najafi Asfad, 2008:178).
The ship owner and tenant can set the lease contract based on the principle of free will, so that it would meet the demands of each of the parties. Usually, each of the parties states their own opinions that are representative of their own interests in the proposed talks, negotiations and bargaining. In the meantime, do not forget the profound and direct effects of international forms of charter parties, which always pervade the negotiation process and overshadows the final adjustment to the lease agreement between owner and tenant. In most of the cases, the lease contract which both parties eventually agree on it is either the complete form of international sample charter party or a modified form of it (Seddigh, 2014:303).
In 19 August, 2008, tanker ship carrying chemical called Bvngamlaty medicine moving from Malaysia to Rotterdam was hijacked by Somali pirates in the Gulf of Aden. The ship, its crew, and its cargo were directed by the pirates to the internal waters of Somalia, and the pirates asked for ransom money from the ship owner after a short while to release the ship (EWCA, 2011: 321).
Argument between owners of the goods and their insurers began and led them to attend the court and ask the judge Steel J. that based on marine insurance law in 1906, whether the piracy can take the control of ship and its cargo based on the clause "actual total loss" or "assumed total loss", so this way the owners of the cargo can access to their rights (EWCA, 2011: 321).
According to its rules, the court states that this case is neither actual total loss nor assumed total loss. It was mentioned in its proof and transparency that the key point is whether the ship owner is fully disappointed from getting his ship and its cargo back, and there is no way to take it back, and the ship is totally destroyed. In relation to the ship Bvngamlaty medicine, discussion and negotiation started between pirates and ship owner hoping to release the ship. During negotiation which continued around one month, and the ship was in hand of the pirates, the ship owner warned his ship insurer for assignment of ship and cargo, and turn away from property, and this issue was refused by the insurer, but the pirates and ship owner reached an agreement, and the ship owner paid the ransom money to the pirates, and eventually the ship, its personnel, and its cargo were freed in 29 September, 2008, and reached Rotterdam in 26 October, 2008, and its cargo was unloaded without any damage (EWCA, 2011: 322).
From cargo owner`s view, hijacking the ship by the pirates and moving it to the coast of Somalia means his goods are included in the clause of actual total loss, and the ship and its cargo cannot be returned to their owners, and based on the insurance contract, this state is included in actual total loss, and the cargo owner asked for compensating the loss of his goods from the insurance, and eventually, the ship owner set free the ship and its cargo along with the personnel against general policies to combat piracy by paying tribute to the pirates (EWCA, 2011: 322).
About the expression of being impossible to take the ship and its cargo back when the warning for leaving the ship and turning away from the property was announced from the owners of ship and goods, the appeal court considered factors that had an important role in this regard, such as being interested parties where they were fully aware of the compensation for their loss. Moreover, there were signs of agreement between the ship owner and pirated in paying the ransom money. But the court still insisted on its previous decision, and eventually the ship, its personnel and cargo were set free after 6 weeks (EWCA, 2011: 323).
The moment when ship was ordered to be evacuated, there was no sign of the possibility of getting the ship and its cargo back. Because in professional goods` insurer`s view, within a year before the ship Bvngamlaty medicine was seized by pirates, the had the experience of hijacking and releasing 9 other ships, and the Somali pirates` approach is so that no damage is imported on the ship and its cargo when the ship becomes released (EWCA, 2011: 323).
Steel J. says about his policies in this case about general policies and arguments and debates about piracy that paying ransom money to pirates motivates them to do the same in future. He also stated that military interventions cannot prevent this action as well. So practically, there is one way left, which is paying the ransom money to the pirates and it can be said that it is the only effective ways that prevents any harm to the personnel, ship, and cargo. Finally, he mentioned the money which is paid to pirates in exchange of setting free the ship can be compensated as public loss (EWCA, 2011: 324).
So the appeal by the owner of the goods was settled for two reasons cited below.
First, owners of goods claimed that seizing the ship is immediately included in actual total loss clause, even if there is the possibility of getting back the original property. Steel J. concluded in his statements that the insurer doesn`t fully disappoint from his ship and cargo unless it is physically impossible to get them back, even if this getting back results in inappropriate costs for its owner. Then the owners of goods stated the theory that hijacking and seizing the ship by the pirates immediately includes in actual total loss clause unless returning the ship to its owner happens prior to warning to leave the ship by the personnel and disappointment of the owner from the ship. The appeal court refused this justification after the analysis (EWCA, 2011: 324).
Second, owners of the goods justify that the law doesn`t want to or cannot consider paying ransom money as a legal way for getting back the ship, while the owners of the goods know that paying ransom to pirates to set the ship free in illegal in England, Somalia, Malaysia, and even international law, and they claim that such ransom payment to the pirates is not pleasant from the standpoint of public interest, public morals and universal principles. In the other words, paying ransom to the pirates cannot be considered as a part of insurance duties for saving the ship, its personnel, and its cargo. Because the ship is irretrievably lost by its owner physically as well as legally, and the only of getting the property back has to be done by the insurance, and is not logically acceptable (EWCA, 2011: 324).
However, as there is no legal barrier for paying the ransom money for setting the ship and its cargo free, and this expense will actually be compensated by the insurance through public loss, the appeal court concluded that they cannot resist general policies in this regard, and eventually, by further investigation and acquiring sufficient proof related to shipping and marine insurance about piracy, the court insisted on negotiation with the pirates in order to prevent any harm to the personnel, ship, and cargo, and refused the issue of actual total loss (EWCA, 2011: 324).
As it can be seen from the particular case of piracy above, there is no certain law in courts to refer directly, and the legislator can judge based on it, and this has causes some disputes between the court and owners of the goods regarding the sentence issued by the court. According to the topic of this research, piracy not only affects the shipbuilding contracts, but also has some effects on marine insurances and other related parts.
3.1.2 Saldanha ship and Royal Creek ship
Saldanda was a Panamax-size bulk carrier ship which was time leased on 5th of July, 2008, for 50 months according to the form of New York produce Exchange, or NYPE form. On 30th of January, 2009, the renter ordered to load coal in Indonesia for transportation to the port of Koper in Slovenia. The ship owner assumed the route to be through passing the Cape of Good Hope, while the renter had considered it through Suez Canal. When the renter says to the ship owner that the route is through crossing the Suez Canal, the ship owner reserves the right to cancel the contract due to the path where there is the risk of piracy, unless the renter commits to pay the extra costs the ship owner that the ship owner has to pay it to the insurer. These extra costs include paying war insurance because of entrance of the ship to such regions, and in this particular case, the renter commits to pay it based on the lease contract (EWCH, 2010: 638).
On 22 February, 2009, while the ship was moving through the water corridor route determined to pass through the Gulf of Aden, it was hijacked by Somali pirates. The pirates made the ship commander to move towards the waters off the Somali coast, and the ship was in hands of the pirates up to 25 April, 2009. The ship was moved back to its previous place at the time of hijacking and was able to continue its path after freedom on 2 May, 2009 (EWCH, 2010: 638).
The renter refused to pay the rent during this time, from 22 February, 2009, to 2 May, 2009. On the other hand, the ship owner claimed for damages related to not paying the rent and cost of fuel in this duration by the renter and other excess costs for war insurance and reward of crew for the war zone. The renter also claimed for damage because of unpreparedness of the ship and its crew members to counter a pirate attack (EWCH, 2010: 639).
According to the sentence issued by the jury in the first court on 8 December, 2009, hijacking the ship by the pirates doesn`t allow the renter to consider the ship out of service or off hired relying on the article 17 of the form NYPE and refusing to pay rent to the owner (EWCH, 2010: 639).
The court investigated other terms of the contract in this particular case as well, and in short, the court issued a ruling as follows: according to the article 39 of shipbuilding contracts, the ship was not out of service or so-called off hired, and the article related to the war zones and premium related to it in charter party doesn`t make the ship owner to neglect his right about ship rent during the time when the ship was in hands on pirates (EWCH, 2010: 640). With this sentence issued by the court, there would be no objection to this ruling and there is no need to discuss this issue any further. So we can focus just of the article 17 related to making the ship out of service or off hiring it. The article 17 of shipbuilding contract states that:
In case of losing time due to negligence or failure of staff in doing their responsibilities, such as striking of the officers and crew, fire, breaking or damage to the hull, machinery, or equipment, grounding, seizing due to regular accidents of the ship or goods, drydocking for maintenance or painting, or any other reason resulting in the lower efficiency of the ship and its inability to full service, the rent payment is not on the renter anymore during the lost times.
As can be inferred from the above statement, there are three reasons for making the ship out of service by the renter:
Seizing the ship for reasons other than "particular accidents" happened for ship or cargo.
Negligence of the staff in their duties.
Any other reason (EWCH, 2010: 641).
The rule of paying rent in a lease time contract is based in the agreements in the contract. The rent of the ship is payable during the time it is in hands of the tenant. However, the renters can have some exceptions; the burden of proving these claims is on the renters themselves.
Here, the issue of negligence of the crew is discussed.
If the ship commander failed to perform operations against piracy before attack of the pirates, and the pirates seize the ship, this problem might be due to reasons other than negligence of the crew.
A special case related to this issue bringing up the article 17 of the form NYPE in the court to prove their claim is about "Royal Greek". The renter orders the ship to move in this case, but the crew say the ship movement is conditional to be caravan in the specified route. As the debate on this issue, the renter considers his orders to be refused and therefore off hires the ship, or makes it out of service.
As it was mentioned earlier, the court doesn`t give the right to the renter to make the ship out of service and refusing to pay the rent relying on one single expression (negligence of the crew in their duties). In fact, the meaning of the expression which results in making the ship out of service in this case is that "lack in the number of crew, including officers and sailors in the ship that cause negligence in duties are included in making the ship out of service". In this case, however, the ship was fulfilled in terms of the number of crew, and in fact, these words doesn`t help in paying rent (EWCH, 2010: 641).
3.1.3 Andreas Lemos
In this section, we will discuss a case related to the definition of piracy and the disputes raised from it. Andreas Lemos ship was hijacked by the pirates while commuting in internal waters of the country Bangladesh. The ship owner attends the insurance company for getting compensation, having the ship insurance covering all insurance terms including war insurance and piracy insurance. The ship owner claim that his ship has all terms of insurance including the insurance of internal war in the countries, revolution, rebellion, uprising, conflict and civil strife, as well as piracy, and the insurance company has to pay for the damage in case of occurrence of any of the situations above. The ship owner attended insurance company for piracy attack and seizing the ship by pirates. By investigation in this regard, the insurer deduced that the ship was commuting in the waters of Bangladesh country at the time of hijacking, and insurance doesn`t include Andreas Lemos based on the definition of piracy which has to occur in free waters.
As it can be seen, the problem in comprehensive and unique definition of piracy causes such disputes in insurance contracts and their implementation in case of accidents. It is clear that the ship owner has no intention other that insurance and financial guarantee of his property for the accidents mentioned above at the time of his original property insurance, and the just the effect of discrepancy and paradox in various definitions of piracy in different regulations and conventions caused such disputes and, therefore such expenses for ship owners, and the ship became seized by the pirates; defects and discrepancies in rules causes such judgments.
3.4.1 Hill Harmony ship
In Hill Harmony ship, the ship commander chose a longer route instead of the standard route considered for the ship in order to prevent facing bad weather in crossing the Pacific Ocean. Meanwhile, the renter excluded the rent for the excess time resulted from changing the route and also the cost of excess fuel used from the original rent of the ship, and eventually the England court voted for eligibility of the renter (EWHC, 2012: 215).
Such a decision taken for Hill Harmony not only limits the commander in decision making for determining the route, but also makes the captain responsible for the safety of the ship at all times during travel. The problem of the ship commander in Hill Harmony took place since he didn`t have a good reason in terms of safety or a legitimate proof for choosing the shorter route. If the ship commander had paid more attention to the notifications of International Maritime Organization such as the notification related to piracy attack, and had stated his reason of changing the route to prevent confronting to pirates, there would have a been a totally different situation and changing the ship route would have been acceptable and logical with this reason (EWHC, 2012: 215).
3.1.5 Iran Dianat Ship and Sirus Star Tanker
Iran Dianat Ship is an example of piracy which occurred in Iran Republic Islamic Shipping in 2008. The Iran Dianat ship was moving from China to the Netherlands on 22 August while carrying 42500 tons of different industrial minerals, when it was hijacked by Somali pirates in the international waters in the Gulf of Aden. The ship and its personnel were seized by Somali pirates for 7 weeks, and eventually the ship owner was obliged to pay a compensation to the pirates, and this way could liberate the ship on 11 October, 2008. Due to extreme differences in shipbuilding contracts and related insurance investigation of this case has not reached to the ultimate conclusion about this ship and the costs imposed on it.
Somali pirates freed the giant Saudi oil tanker after getting 3 million dollars, and after 2 months of international effort. The Associated Press reports that the Sirus Star Ship and its 25 personnel were hijacked in 15 November, 2008. This ship with dimensions as an aircraft which carried 2 million barrels of oil worth 100 million dollars belonged to "Aramco" Oil Company of Saudi, and is the world`s biggest ship ever hijacked. The mentioned ship was hijacked in 830 km south east of Mombasa in Kenya, and since it is the first time that a big ship is attacked by pirates away far away from coast of Africa, it has raised some concerns. Now, after nearly seven years of this event, the final verdict of the court have failed in this case because of differences and disputes between the ship owner and insurance in this case, which was due to the fact that the piracy happened out of the war zone.
As can be inferred from these two cases, piracy and its regulations, and also differences and disputes in legal clauses in shipbuilding contracts and the insurances related to that caused international courts to verdict easily in this particular case, and these disputes would persist as long as there is no integrated law.
3.2 Effect of Pirates on Execution of the Contract in Lease Time Contract
The nature of the lease time contract of the ship is so that all risks are on the renter, and the basic rules state that the renter is responsible for the risk of all potential delays in lease time contract. The general rule of lease agreement is so that the renter has to pay his rent to the ship owner during the contract time. There are also some exceptions for paying the rent. As in all exceptions, the Off-hire or out of service ship is one of the exceptions in lease time contract. In a lease time contract, the renter, or the tenant commands the ship to move towards which port, although full authority of the ship is on the commander who directs the ship to the desired direction. The commander and/or captain of the ship has to prove his goodwill and impartiality in important decisions honestly to the ship owner and tenant. Here, the piracy can affect contracts since making a ship out of service while hijacking does not include in piracy clauses, therefore the responsible person for paying the rent in the contract may also face some problems in implementation of the contract and paying the rent, which is the effect of piracy on implanting of contract.
3.3 The Final Analysis of Piracy Effects on Shipbuilding Contracts
Investigating the available contract analysis for shipbuilding contracts and limitations applied on the standard form in the particular case of piracy, and the problems existing in these limited forms have made the renters to set some conditions for ship owners to consider in contracts, which are sometimes the reason of opposition of the owners and not reaching the ultimate consensus in contract. Because as it was mentioned earlier, in the standard forms of BIMKO and INTERTANKO, the renter is responsible for paying the rent to the owner when the ship is in the hands of pirates. This results in their discontent and makes the more cautious at the time of setting the contract since there is no comprehensive and fair law.
Here, in order to clarify the problem and effect of piracy on implementing contract, and the losses that incurred for marine transportation companies in this regard, we will focus on a sample analysis of contract trend done in one of Iranian companies for leasing their ship to the renters.
National Iranian Tanker Company has 55 ocean-going ships. Considering this number of ships, it is assumed that one of these ships does not reach consensus in contract because of the piracy clause in INTERTANKO standard form which states the rent has to be paid by the renter during the time the ship is in hands of pirates, and the renter disagrees to this form or this clause and finally no contract would be made.
Now assuming the rent of this ship is $50,000 for a 3 month rent, so the national tanker company would lose $4,500,000 for leasing this ship, and according to the elicit explanations above, the reason is the differences in regulations and lack of a comprehensive and transparent law regarding piracy.
On the other hand, if the renter takes the ship along with the lease time contract, so that agrees with the ship owner on each of the standard forms covering piracy, and the ship becomes hijacked by the pirates while moving in Gulf of Aden in compliance with all security issues, the renter is obliged to pay the rent to the owner for 90 days based in the BIMKO standard form, though the ship is not any longer under his control. This will cost $4,500,000 for the tenant according to the $50,000 daily rent.
3.4 The final outcome of the legal effect of standard forms BIMKO and INTERTANKO
As explained in this article, the condition of piracy drafted by BIMKO and INTERTANKO can be used in clarifying the legal issued regarding piracy. However, the comprehensiveness and of these forms and not existing any defect in them cannot be verified, because there are many errors in the clauses of these forms which cause some disputes among contract correspondents.
The BIMKO contract condition about piracy aims to serve justice among contract correspondents during signing the contract, and states that while a ship is in hands of pirates, or in other words, the ship is hijacked by the pirates, the rent belongs to the ship owner as an in service ship up to 90 days from the start of hijacking, meaning the ship belongs to the pirates after 90 days, it will be out of service, and off hired. There is another possibility for contract correspondents regarding this issue in which they can choose the article related to the Gulf of Aden which allows them to make the ship out of service after 60 days, instead of 90.
In INTERTANKO contract condition, it also can be concluded from investigating its clauses and comparing them with BIMKO contract terms that all clauses are almost the same, but the main difference of these two is that the time in which the ship is in service while it is in hands of the pirates is specified in BIMKO, but it has not been specified in INTERTANKO when the ship would be out of service.
Another important is to dismiss the contract or not to implement the shipbuilding contract in case of disaster, which was explained in details previously.
Contractual Obligations should change without any mistake by contract correspondents, which implies if the ship or its cargo is lost, it will cause some fundamental changes in the obligations of the ship owner for sure. For example, in lease time contract of the ship, the ship owner wouldn`t be able to deliver the cargo to the target port in case of hijacking the ship by the pirates, and eventually there would be no buyer. The main problem is that whether delay in delivering the goods (after liberating the ship by the hijackers and the resulted delay) can cancel the lease agreement or freight contract.
Here, the piracy method in Strait of Malacca and Coast of Somalia and their differences matters. As it was mentioned earlier, the purpose of Somali pirates was to get the money for compensation, or the proposed money by the ship owner to set free the ship, its personnel, and cargo. But the piracy in Strait of Malacca was totally different, in which they tended to keep the ship and its cargo for their own use, sale, or trafficking.
So the Somali pirates can be considered as catchpoll pirates while pirates of the Strait of Malacca are thief pirates who steal other`s property with the intention of permanently depriving its owner. According to this difference, it can be concluded that there is more chance to retake the ship, its personnel and cargo from Somali pirates.
Therefore, if the ship is hijacked by the Somali pirates, the delay that will occur in delivery when the ship is seized cannot cancel the shipbuilding contract or the contract for carriage of goods easily since the Somali pirates will set the ship and its cargo free after getting the ransom money. Whereas the pirates of the Strait of Malacca will keep the ship for their own use and sell its cargo, so in this case the contract correspondents decide to cancel the contract after a short while from ship hijacking.
3.5 Comparing the results of this research with the similar studies
According to the literature review and the related studies and comparing them with this research, it can be concluded that in Ghorbanpour`s research (2009), the only approach to prevent piracy is the cooperation of the concerned countries for strengthening preventive measures in order to prevent attack taking the ships hostage by pirates and enforcing the central government of Somalia in order to concur internal problems, by reconstruction of this country and its institutions in the form of long-term solutions to eradicate piracy in this part of the world, but nothing was mentioned regarding the current problems in good transportation contracts and also shipbuilding contracts and finding a plan for reducing the effects of such a disaster in sea freight. Moreover, comparing with Taghizadeh`s research (2010) named "Combating piracy off the coast of Somalia from the perspective of international law with an emphasis on Security Council actions", which considers various factors responsible for creating challenges in the fight against piracy, including the main challenges for the safety and security of commercial fleet against pirates in this region, lack of integrated regional and international political will to strengthen the regional institutions and mechanisms in support of the suppression of this phenomenon in the Horn of Africa, Insufficient available capacities, lack of effective and integrated programs to fight pirates, lack of a single legal framework, border and ethnic disputes and too much sensitivity towards sovereignty, and doesn`t mention the effects of this insecurity and lack of efficient planning and lawlessness in maritime transport and the global economy and shipping and shipbuilding contracts above all, and there is a common consensus on stability in Somalia and the presence of strong central government. But what has to done for these problems as long as this global desire has not been fulfilled? The study carried out on Aydin, 2011 noted using standard forms, and again mentioned the political stability is the Somalia as the only solution. In report of the speech gathered by Mohammadreza Hosseini in the Study of International Law Center about piracy from the prospect of international law, they concluded that the only solution to eradicate piracy in Somalia is to return peace and stability to this country and this responsibility is on United Nations Security Council, and the international society and United Nations above all have to modify the social and economic condition in this country in order to dry out the roots of piracy, which are poverty and lawlessness. Eradication of poverty and stability in Somalia will dry out the roots of piracy for sure, but several studies must be done looking for a way to reduce the impact of this phenomenon on the global economy till then. Applying new rules in maritime transport contracts and also international cooperation in generating a transparent law and a united judicial procedure, and also developing principles for marine insurance contracts which can contribute to the problems and fix them significantly are some of the approaches to deal with before developing a powerful and legislator state in Somalia. This research tries to figure out the problems among ship owners and renters related to this phenomenon in the world and to reveal its impact on shipbuilding contracts, and also challenges the current laws and judicial procedure and discrepancies in the terms of shipbuilding contracts and insurance regulations, and this way hopes administrators and officials to think of a solution for this problem and fill legal and contractual gaps and even insurance about the phenomenon of piracy.
Conclusion
Considering the whole data and existing regulations, we concluded that there is no unique judicial procedure to deal with piracy in courts, and also there are much legal gaps about that. The approach of dealing sea insurances, as explained in the text, causes some problems for ship owners and renters, and even owners of the cargo. Furthermore, the discrepancies in terms of standard forms of renting ships about piracy has added to this problem. By carefully investigating the different types of standard forms, we concluded that piracy does not results in off hiring the ship in any case, and the contract correspondents can decide freely on rules and terms of shipbuilding contracts in the vicinity of the desired countries. Generally, using standard forms and adding some contract terms to these forms by Large Marine Forum can help contract correspondents significantly. However, no comprehensive and complete law has been developed yet by the international regulatory bodies, and contract correspondents have to use the standard forms which piracy has been mentioned in the, for example: the ship owner and renter include the risk of piracy in the contract. In BIMKOW and INTERTANKO standard forms, one contract term has been added for ship owner and renter related to piracy which can be used, but this terms has its own problems as well which could eventually be detriment to of one of the parties of the contract. However, we still have to expect some disputes in this regard among ship owners and tenants in implementing contracts.
Suggestions
According to the results of this research, the approaches for solving this problem are:
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[1] For more information, see: www.hamshahrionline.ir visited on 16.06.2015.
[2] For more information, refer to: (www.icc-ccs.org), reviewed on 2015.08.11, 15:15 P.M.
[3] For more information, refer to: (www.icc-ccs.org), reviewed on 2015.08.11, 15:15 P.M.
[4] Strait of Malacca is the name of a waterway between Sumatra and Malay Peninsula which connects the Andaman Sea in the Indian Ocean to the South China Sea in the Pacific Ocean. Singapore is located at the southernmost point of the strait. The Strait is named after the port of Malacca in Malaysia which was of significant importance during 16th and 17th century. The Strait of Malacca is funnel like with the narrowest part in south of the strait and widens towards north. Strait of Malacca is known to be one of the world`s most important sea crossings, and more than a quarter of the world`s crudes cargos passes through this strait. It is considered to be the most important transport highway of oil at sea in the world after Strait of Hormuz.
Ehsan Pahlevani Fard, Phd Student in International Law, Islamic Azad University, Qeshm Branch, Department of Law, Qeshm, Iran
Omid Doost Mohammadi, MA student, Computer Software Engineering, Islamic Azad University, Semnan Branch, Department of Computer, Semnan, Iran
