Shipping 2019 Comparisons

Last Updated April 03, 2019

Law and Practice

Authors



Ince Gordon Dadds LLP is a legal network with offices in six countries across Europe, Asia and the Middle East, providing legal advice and strategic guidance to clients ranging from the world’s oldest and biggest businesses to ultra-high net worth individuals. Many of the international offices are located in major ports, shipping or insurance centre. Key areas of practice include admiralty and casualty response, bills of lading, dry shipping, cargo claims and defence, charter parties, marine insurance, pollution, sale and purchase disputes, sale and purchase transactions, shipbuilding, and shipping dispute resolution.

The UK does not have a specific law dealing with maritime finance. However, the intention behind implementing such a maritime finance law would be to create a legal regime that facilitates ship financing operations and provides certain incentives (fiscal and labour) for individuals and companies carrying out maritime operations in the UK.

Furthermore, the existing UK regime and London’s status as a long-established marketplace for maritime finance create an attractive investment environment for financial institutions generally, and ship-owning and management companies in particular.

The concept of a maritime finance entity does not exist per se under English law –  the relevant finance functions are primarily carried out by banks and equity funds. Additionally, the London capital market plays an important role in the raising of funds for maritime finance projects.

London is one of the financial centres of the world and has traditionally been one of the leading centres for vessel finance, with a mature regulatory framework providing a broad range of professional and business services to the international maritime community. Therefore, there is a large concentration of financial institutions, such as banks and equity investors, as well as high-profile shipping companies, vessel brokers, shipping insurance companies and law firms, present in the City of London. This makes London an attractive marketplace for the maritime industry, without the need for establishing an additional framework for maritime finance entities.

While there are no specific rules in the UK in respect of maritime finance, the general rules governing the formation of companies and the regulatory framework governing financial institutions in the UK apply. Generally, when classifying a project as ‘maritime’, there will need to be a marine and/or offshore element.

There is no specific law in the UK regarding what constitutes a maritime finance project. A maritime finance project is a project that is oriented towards:

  • the construction and/or repair of vessels, shipyards and other off-shore premises; and
  • the financing of second‑hand vessels by domestic and cross‑border finance leasing or structured finance and securitisation.

Most financial institutions will categorise projects along these lines, although there may be variations, depending on internal classifications.

A maritime project may be eligible to receive fiscal, labour and immigration incentives if it meets the necessary requirements.

Corporation tax

A UK-resident company (ie one that is formed in a UK jurisdiction or managed and controlled (at board level) in the UK) is subject to UK corporation tax on its worldwide income and gains (subject to relief for any tax paid on the same income or gains elsewhere). The company may elect to disregard profits and losses arising from branches outside the UK.

A non-resident company is not subject to UK corporation tax except on:

  • income derived from a business carried out through a UK permanent establishment;
  • capital gain arising on disposals of certain UK assets; and
  • other UK-source income, but only to the extent of any withholding tax borne by that income.

The UK corporation tax rate has been reduced several times over the last few years and has made the UK corporation tax regime globally attractive. A further reduction from 19% to 17% has been planned for 2020. The UK expects to have the lowest rate in the G20.

Annual Investment Allowance

The UK’s Annual Investment Allowance (AIA) is currently set at its highest ever level. From 1 January 2019 to 31 December 2020, the amount of AIA available has increased to GBP1 million, up from GBP200,000, for investing in plant and machinery. The AIA applies across associated companies, rather than to each company individually and is available only to limited liability partnerships that do not have corporate members.

Tonnage tax regime

The UK operates a separate tonnage tax regime into which companies operating (ie owning and/or chartering in) qualifying ships that are strategically and commercially managed in the UK may elect. Said companies must be tax residents in the UK, or else they must conduct business through a permanent establishment in the UK and not time charter in on average more than 75% of their net tonnage.

At this point, it should be noted that qualifying ships must be 100 gt [gross tonnes] or more, sea-going and used for a ‘core qualifying activity’. This activity comprises: carriage of passengers or cargo by sea; towage, salvage or other marine assistance carried out at sea; and transport by sea in connection with other services necessarily provided at sea. An election into the tonnage tax regime has a minimum duration of ten years.

Under this regime, tax is payable based on the net tonnage of the ships operated rather than by reference to the profits earned from such operations. The result is a low effective rate of tax that incentivises shipping companies and groups to base their operations in the UK.

Under the Maritime Labour Convention (MLC) 2006, seafarers are required to have individual Seafarer Employment Agreements setting out certain minimum working and living rights for seafarers, including conditions of employment, minimum age, medical certification and training and qualification.

The MLC does not apply, for example, to seafarers working on fishing vessels; naval vessels; vessels navigating inland or sheltered waters; ships of a traditional build; and vessels which are not commercially operated. In such cases, seafarers should be provided with Crew Agreements under the Merchant Shipping Act 1995.

Other UK legislation confers a number of minimum statutory rights on employees generally and, in particular, applying to the maritime industry:

  • the Merchant Shipping (Hours of Work) Regulations 2002 as amended by the Merchant Shipping (Maritime Labour Convention) (Hours of Work) (Amendment) Regulations 2014 sets out the seafarers’ working hours;
  • under the Merchant Shipping (Maritime Labour Convention) (Minimum Requirements for Seafarers) Regulations 2014, seafarers are entitled to payment of wages for up to 16 weeks following sickness or injury sustained whilst at work; and
  • the Merchant Shipping (Maritime Labour Convention) (Minimum Requirements for Seafarers) Regulations 2014 set out the details of any health or social security protection benefits to be provided for seafarers by ship-owners in accordance with the MLC.

There are no specific immigration incentives under UK law covering the maritime industry. Equally, however, no nationality restrictions apply to the manning of UK-registered ships, save for the Merchant Shipping (Officer Nationality) Regulations 1995, which deny foreign nationals (other than Commonwealth citizens, EEA nationals or a national of a state other than an EEA state which is a member of the North Atlantic Treaty Organization) permission to serve as Master of a strategic ship. A strategic ship is defined as a UK cruise ship, product tanker or ro-ro ship of 500 gt or more.

It should be mentioned that all officers must hold a valid Certificate of Competency or Certificate of Equivalent Competency. The written examinations for these certificates are administered for and on behalf of the Maritime and Coastguard Agency (MCA) by the Scottish Qualifications Authority.

Although not specific to the maritime sector, any finance entity in the UK will be subject to the supervision of the Financial Conduct Authority (FCA) as set out in the Financial Services and Markets Act (FSMA) 2000. Banks, credit unions and insurance companies are regulated by the FCA and the Bank of England’s Prudential Regulation Authority (PRA).

In order to receive FCA approval, the relevant entity has to demonstrate that it is ready, willing and organised to comply, on a continuing basis, with the requirements and standards under the regulatory system. Investment activity may take place only once the relevant entity has been authorised.

There is no separate maritime finance authority in England and Wales. As set out above, the FCA and PRA regulate financial conduct.

In the maritime industry, the MCA also plays a prominent role. It is an executive agency of the UK working to prevent the loss of lives at sea and is responsible for implementing British and international maritime law and safety policy. It produces legislation and guidance on maritime matters and provides certification to seafarers. It also includes the UK Ship Register.

Under English law, the available fiscal, labour and immigration incentives are not subject to expiry, save for the election of tonnage tax regime, which has a minimum duration of ten years.

The UK is a party to the International Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 76), which is implemented into English law by the Merchant Shipping Act (MSA) 1995, as amended by the 1996 protocol.

The UK is party to LLMC 76, as amended by the 1996 protocol. Amendments to the 1996 protocol that substantially increased the liability limits (by 51%) came into effect internationally on 8 June 2015 and entered into force 18 months thereafter.

The new LLMC limits were implemented into UK law by modifications to the relevant provisions in the MSA 1995 by virtue of the MSA 1995 Amendment Order 2016 No 1061 and came into effect in the UK on 30 November 2016.

The implementing legislation set out in the MSA 1995 extends the right to claim limitation to non-seagoing ships, hovercraft, conservancy authorities, harbour authorities, and owners of docks and canals.

A limitation action is commenced by issuing a claim form in the Admiralty Court. If the court agrees to grant a limitation decree, the limiting party can limit liability against any and all claims. Limitation may also be pleaded by way of defence to claims brought against the ship interests. A limitation action can be commenced without setting up a limitation fund, although there are advantages to setting up such a fund.

Pursuant to s.190 MSA 1995, there is a two-year time-limit for bringing claims against a ship or its owners in respect of damage or loss caused by the fault of that ship to another ship, its cargo or freight or any property on board, or for damages for loss of life or personal injury caused by the fault of that ship to any person on board another ship. The two years runs from the date the damage or loss was caused, or the loss of life or injury was suffered. This time-limit applies where another ship is involved and the claim is being made against the other (non-carrying) ship. It does not apply to claims for damage to cargo brought against the ship on board which the cargo is carried, nor to claims for personal injury or death against the ship on which the person killed or injured was on board. The former may be subject to a one-year time-limit where the Hague or Hague-Visby Rules apply.

Claims subject to limitation of liability include those relating to loss of or damage to property, including damage to other ships, property, harbours, basins, waterways and aids to navigation, occurring on board or in connection with the operation of a ship or salvage operations.

LLMC 76 also limits liability for loss resulting from delay in the carriage by sea of cargo, passengers, or their luggage. Claims relating to losses caused by infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship and/or salvage operations, are also covered.

In relation to LLMC 76, the UK does not limit liability for claims pertaining to loss of life or personal injury suffered by passengers on seagoing ships. However, those claims will be subject to the Athens Convention 1974 and its 2002 protocol. LLMC 76 also generally does not limit claims for salvage or contribution in general average, or for oil pollution or nuclear damage.

The English courts have, however, held that parties are free to contract out of the LLMC 76 limitations by clearly excluding the right, either expressly or by necessary implication. Claims by an owner against a charterer for loss of or damage to the chartered ship are also not subject to limitation of liability.

Personal acts or omissions, committed with the intention to cause such loss as has been caused, or recklessly and with knowledge that it would probably result in such loss, will bar the right to limit liability. It is for the person challenging the right to limit to prove conduct barring limitation. English case law demonstrates that it is extremely difficult to break this limit; the burden is a heavy one because of the nature of the conduct which must be proved.

The limitations of liability are set out in Article No 6 of the 1996 protocol, as amended, and are calculated on the basis of a sliding scale related to the vessel’s limitation tonnage and calculated using Units of Account, ie Special Drawing Rights (SDR) as defined by the International Monetary Fund. Essentially, the higher the limitation tonnage, the higher the limit. The way limitations are assessed means that there can be significant disparities between the quantum of a claim and the level of limitation.

A party can break the ship-owner’s right to limit liability by demonstrating conduct barring limitation as summarised above.

Historically, a limitation fund would be constituted by depositing a sum into court (as indicated in the UK’s Civil Procedure Rules). The Court of Appeal has clarified that, subject to certain requirements, it is possible to constitute the limitation fund with a bank guarantee or with a P&I Club letter of undertaking (LOU).

P&I Club LOUs are, as a result of the Court of Appeal ruling, acceptable as guarantees to constitute a limitation fund.

Once a limitation fund is established, any person having made a claim against the fund is barred from exercising any rights or claiming against any other assets of a person on behalf of whom the fund has been constituted. Any ship or other property that has been arrested prior to the constitution of the fund may be released by an order of the court or other competent authority of the state in the country of arrest.

The jurisdiction to order a judicial sale of a vessel under arrest rests with the Admiralty Court. Under Rule 61.10 of the English Civil Procedure Rules, an application for the survey, appraisement or the sale of a ship to be made in a claim in rem can be made at any stage by any party. An application will be made by filing an application notice and supporting evidence with the court.

As such, a party does not need to wait for a judgment to be issued or, where there has been a failure to acknowledge or defend the claim against the vessel, for a judgment in default to be obtained. If an application for sale pendente lite is made, however, it may be heard only by the Admiralty judge, who will make an order for sale only where there is ‘a good reason’ to do so.

An example of a good reason might be where the continued costs of maintaining the arrest would result in a material reduction of the value of the security obtained through the arrest. Furthermore, should the defendant owners challenge the application for sale pendente lite, the Admiralty judge would examine the merits of the application more critically than would be the case if a judgment had already been obtained.

There are two stages when a judicial sale will be notified to interested parties. First, at the time the application is made for the sale of the vessel, as the applicant is required to serve the application notice on:

  • all parties to the claim in rem;
  • all parties who have requested cautions against releases/the proceeds of sale; and
  • the Admiralty Marshal.

Second, the court may also order that the Admiralty Marshal give notice of the sale and set the deadline by which any claims against the vessel must be filed with the court and that this information be advertised in a trade publication such as Tradewinds. The court is likely to make such an order where it is believed there may be unknown prospective claimants with claims against the vessel (eg unpaid crew members) who will wish to bring their claims should they become aware of the sale.

Third, potential buyers will be invited to submit bids, usually by the broker appointed by the Admiralty Marshal.

At the same time as applying for an order for sale, the applicant will also apply for an order that the vessel be appraised. If the application for appraisement is granted, the Admiralty Court will order the Admiralty Marshal to choose one or more experienced persons to appraise the vessel and certify its true value in writing.

Previously, and in particular, mortgagees would apply to the court for a sale of a vessel to a named buyer with an appraisement or auction in what were known as ‘private treaty’ sales. The English Court, however, has now held that a sale may be ordered without appraisement or auction only if there are special circumstances that justify such departure from the usual practice. The court gave, as an example of such special circumstances, a situation where the delay in the sale of the vessel would result in the loss of a particularly valuable employment fixture.

When a vessel is subject to a judicial sale, the key is the appraised value. This is because the Admiralty Marshal will sell the vessel for the highest price that can be obtained for it. The vessel may not, however, be sold for less than its certified value without a further order of the court.

Once the Admiralty Court has ordered the sale of the vessel, the Admiralty Marshal will generally arrange for the judicial auction sale to take place four to six weeks after the order for sale is made and at least 28 days after appraisement. On the tender date, the sealed envelopes will be opened after the closing time and the successful bidder will be notified immediately (provided the offer meets or exceeds the certified value).

There is no requirement for a prospective bidder to instruct a lawyer. Bidders should, however, consider whether they wish to be represented or assisted by a broker in the judicial auction.

After the Admiralty Marshal makes an invitation for tender, a willing bidder must complete and sign a tender form. This includes agreement to the Admiralty Marshal’s printed standard terms and conditions. The bidder must then place the tender form in a sealed envelope and lodge it with the Admiralty Marshal or the broker appointed by the Admiralty Marshal prior to the closing date.

If a bidder is successful, they must usually transfer 10% of the purchase price immediately upon the Admiralty Marshal’s acceptance of their offer. The balance, plus the price of any lubricants and fuel, will need to be paid within one week of that date. Should the successful bidder not pay the balance, the Admiralty Marshal will be entitled to terminate the sale contract and keep the 10% deposit.

A party with a judicially recognised claim against the vessel (eg a mortgagee) can enter the auction for the vessel and, if successful, purchase the vessel. They can also finance another party’s purchase or bid through a nominee. However, they will not usually be able to set off the value of their claim against the purchase price and will thus have to pay the full purchase price.

Without an order of the court, the Admiralty Marshal cannot sell the vessel for less than the certified value. Provided that the winning bid meets this criterion, however, the fact that the winning bid does not cover the expenses incurred in connection with the arrest will not prevent the sale. In such circumstances, the Admiralty Marshal’s expenses must be paid by the party that arrested the vessel. That party will have been required to undertake to pay on demand the Admiralty Marshal’s costs and expenses of arrest prior to the sale order following the arrest.

The UK is a party to the Hague-Visby Rules. These were enacted into domestic legislation by the Carriage of Goods by Sea Act (COGSA) 1971.

There are three situations in which the Hague-Visby Rules will compulsorily apply to contracts for carriage of goods by sea which are covered by a bill of lading. The first is where the bill of lading is issued in a contracting state to the Hague-Visby Rules. The second is where the bill of lading is issued in respect of goods carried from a port located in a contracting state. The third is where the bill of lading contains a clause paramount which states that the Hague-Visby Rules will apply.

Where the Hague-Visby Rules do not apply compulsorily, the fact that a bill of lading is subject to English law will not be sufficient to incorporate the Hague-Visby Rules into that bill. A clause paramount expressly providing for the Hague-Visby Rules to apply will be required.

COGSA Act 1971 also extends the scope of the Hague-Visby Rules to trade occurring between two UK ports and to the carriage of deck cargo or live animals.

A bill of lading evidences a contract of carriage. It is not the contract of carriage itself. The relevant contract will usually have been formed in advance of loading the cargo on board the vessel and before the signing and issue of the bill of lading. The contract of carriage itself may take the form of a booking note, a charter-party or other contractual document.

At the time the contract of carriage of goods by sea is formed, the parties to that contract will usually be the shipper and the carrier. Over time, however, the parties to the contract may change. The lawful holder of the bill of lading issued in respect of that cargo will have a right to take possession and delivery of the cargo. COGSA 1992 provides that the rights of the shipper are transferred to the lawful holder of the bill of lading as if the holder had been an original party to the contract of carriage. When this transfer occurs, the original shipper’s rights are extinguished.

The lawful holder of the bill of lading is the person to whom the bill is endorsed or, if it is a bearer bill, the person with the bill in their possession.

A similar transfer of rights occurs to the consignees of sea waybills and a person entitled to delivery under a ship’s delivery order.

A claim for loss of or damage to cargo may be brought against the carrier by the party to the contract of carriage. Under COGSA 1992, the lawful holder of the bill of lading will have title to sue. Possible cargo claimants include:

  • the original shipper;
  • the party named as the consignee under the bill of lading;
  • a person to whom the consignee endorses the bill of lading;
  • the holder of a bearer bill;
  • the consignee of a sea waybill; and
  • the person entitled to delivery under a ship’s delivery order.

Cargo interests will normally bring a cargo claim under a bill of lading against the carrier under the bill. A cargo claim may, however, also be brought in certain circumstances by a charterer against the owner under a charter-party or by a cargo owner against the actual carrier in bailment or tort.

The carrier under a bill of lading will usually be the ship-owner, but might also be the charterer. This will depend on whether it is an owner’s or a charterer’s bill. In order to identify the carrier under the bill of lading, a cargo claimant must consider carefully all the terms of the bill, including any identity of carrier clause and the words in the signature box on the front of the bill.

An action in rem against a vessel in connection with a cargo claim may be brought pursuant to Section 21(4) of the Senior Courts Act (SCA) 1981. This stipulates that in order to bring an action in rem, the claim must arise in connection with a ship, and the party liable for the claim must have been the owner or demise-charterer of the vessel when the cause of action arose and the claim form was issued.

Where a claim falls within those listed in Section 20 of the SCA 1981, it will give rise to an action in rem. Section 20(2)(g) specifies “any claim for loss of or damage to goods carried in a ship”, thus providing a right to bring a claim for loss of or damage to cargo. Under English law, a cargo claim does not provide the claimant with a maritime lien, but claims under Section 20 of the SCA, including those for loss of or damage to goods carried in a ship, give rise to a statutory lien.

A cargo claim may be brought in tort for negligence or, in some instances, bailment or conversion. Such a claim may be brought where it is not possible to bring a successful claim in contract, because, for example, the contracting party is insolvent, there is no relevant contract or the party liable for the loss is not the contracting carrier.

A Himalaya clause seeks to provide contractual protection to third parties, ie non-parties to a contract of carriage, such as a bill of lading. It aims to exempt, so far as possible, the servants, agents and independent contractors employed by the contractual carrier from liability to other parties to the contract, such as the shipper, consignee or holder of a bill of lading, or to extend the same protection from liability available to the carrier.

A widely and appropriately drafted Himalaya clause may extend this protection to a wide range of sub-contractors, such as stevedores or agents. A Himalaya clause should, in principle, be effective under English law, but may not be upheld in some other jurisdictions.

Pursuant to Article No III of the Hague-Visby Rules, the carrier must exercise due diligence to make the ship seaworthy, and to care properly and carefully for the cargo. However, Article No IV Rule 1 of the Hague-Visby Rules provides for the carrier to be exempted from liability for loss or damage resulting from unseaworthiness, unless caused by want of due diligence on the carrier’s part to make the ship seaworthy.

Furthermore, Article No IV Rule 2 sets out a list of 17 specific exceptions to the carrier’s liability. These include but are not limited to:

  • act, neglect or default of the carrier’s servants in the navigation or management of the ship;
  • perils of the sea;
  • acts of God;
  • fire, unless caused by the fault or privity of the carrier;
  • arrest of the ship or seizure under legal process;
  • strikes; and
  • any other cause arising without the actual fault or privity of the carrier or without the fault or neglect of the agents or servants of the carrier.

Article No IV Rule 5(h) provides that the carrier will not be responsible for loss or damage to, or in connection with, the goods if the nature or value of those goods has been knowingly mis-stated by the shipper in the bill of lading.

Article No III Rule 8, however, also provides that any contractual clause limiting or lessening the carrier’s obligations otherwise than as provided in the Rules “shall be null and void and of no effect”.

Pursuant to Article No IV Rule 5(a) of the Hague-Visby Rules, unless the nature and value of the goods has been declared by the shipper before shipment and inserted in the bill of lading, the carrier’s liability is limited to an amount “not exceeding the equivalent of 666.67 units of account per package or unit or two units of account per kilo of gross weight of the goods lost or damaged, whichever is the higher”. The units of account are SDR. Article No IV Rule 5(c) expressly provides for limitation in respect of containerised cargo.

The carrier may lose his or her right to limit pursuant to Article No IV Rule 5(e) where the damage resulted from an act or omission of the carrier “with intent to cause damage, or recklessly, with knowledge that damage would probably result”.

The question of who bears the burden of proof in a cargo claim was considered in 2018 by the UK Supreme Court in Volcafe v CSAV [2018]. The carrier will be liable for loss or damage to the cargo sustained during the voyage unless it can prove, on a balance of probabilities, that the loss or damage was not caused by any breach of its duty to take reasonable care of the cargo.

If the carrier is relying on one of the exceptions to liability listed under Article No IV Rule 2, it must additionally demonstrate that there was no negligence on its part that resulted in the loss or damage. Where the carrier seeks to rely on inherent vice of the cargo as a defence, it must show either that it took reasonable care of the cargo but that the damage occurred anyway, or that whatever reasonable steps it might have taken to protect the cargo from damage would have failed due to the cargo’s inherent propensities.

Pursuant to Article No III Rule 6, where the cargo is lost or damaged, removal of the goods into the custody of the person entitled to their delivery under the contract of carriage constitutes prima facie evidence of the delivery of the goods as described in the bill of lading, unless:

  • notice of the loss or damage as well as of the general nature of such loss or damage is given in writing to the carrier or his or her agent at the discharge port before or at the time of removing the goods; or
  • where the loss or damage is not apparent, notice is given within three days of their removal.

However, notice in writing does not need to be given where, at the time of their receipt, the goods were the subject of a joint survey or inspection. Furthermore, unless proceedings are commenced within one year of delivery of the goods, or of the date when they should have been delivered, the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods.

Pursuant to Article No III Rule 6, the time-bar for cargo claims against the carrier and the ship is one year from delivery of the goods or, where the goods are lost, from the date when the goods should have been delivered.

The one-year time-bar under the Rules can be extended by agreement between the parties.

Under English law, the law governing a contract is determined by Regulation (EC) No 593/2008 (better known as Rome I). Pursuant to Article No 3(1), the English courts will, subject to certain limited exceptions, recognise choice of law clauses in contracts, including bills of lading, where these are express or are clearly demonstrated by the contract or by the circumstances of the case. The English courts will continue to apply Rome I rules on choice of law clauses after Brexit.

The English courts generally respect the parties’ choice of jurisdiction and will give effect to a valid and effectively incorporated jurisdiction clause in a contract, including a bill of lading. Where a bill of lading seeks to incorporate terms by reference to a charter-party, a jurisdiction clause will be incorporated only if specifically referenced in the bill of lading.

If a jurisdiction clause has the effect of lessening the carrier’s responsibilities under the Hague-Visby Rules when the Hague-Visby Rules apply compulsorily as a matter of law, the English Court will not give effect to it.

Vessel conduct in UK territorial waters and inland waters connected with the sea and navigable by sea-going vessels is governed by the International Regulations for Preventing Collisions at Sea 1972, as amended (COLREGS). The COLREGS are incorporated into English law by virtue of The Merchant Shipping (Distress Signals and Prevention of Collisions) Regulations 1996.

Local rules of an appropriate authority will often apply in particular harbours, roads, rivers and canals. These rules are supposed to conform as closely as possible to the COLREGS.

Unlike for the majority of continental Europe, the European Code for Navigation on Inland Waterways does not apply in the United Kingdom.

Marine accidents worldwide involving UK-flagged vessels, and those involving any other vessels within UK territorial waters/waterways, are covered by the Merchant Shipping (Accident Reporting and Investigation) Regulations 2012, as amended (the Regulations). Certain provisions of the Regulations, however, only apply to non-UK-flagged vessels in certain circumstances, such as if the accident takes place within the jurisdiction of a UK harbour-master, or the vessel is employed in carrying passengers to or from a port in the UK. Pursuant to the Regulations, the Marine Accident Investigation Branch (MAIB) carries out investigations of marine accidents only to determine cause and circumstance, not to apportion blame or determine liability.

For the purposes of the application of the COLREGS, relevant waterways are “the high seas and in all waters connected therewith navigable by sea-going vessels”.

For the purposes of the application of the Regulations, relevant waterways are waterways within the UK, ie inland waterways (canals, navigable rivers etc), and UK waters (as defined in Section 313(2)(a) of the MSA 1995) refers to “the sea or other waters within the seaward limits of the territorial sea of the United Kingdom”.

Territorial sea is in turn defined by Article No 3 of the United Nations Convention on the Law of the Sea (UNCLOS) as 12 nautical miles, measured from the baseline in accordance with the UNCLOS.

There is no blanket compulsory pilotage in the UK. Competent harbour authorities can decide whether to make pilotage compulsory in their area. Where pilotage is compulsory, it is possible to apply for an exemption under which a named officer of a vessel may be permitted to navigate without a pilot. This is most often given to officers who frequently navigate in particular areas.

A ship-owner can in principle recover damages from a harbour authority for losses arising from a marine accident in waterways, subject to proving breach of contract or a common law duty of care or a statutory duty by the authority. However, in claims arising out of pilotage, pilots and harbour authorities are entitled to limit their liability to very low levels. Note that, under English law, a pilot is usually considered the servant of the owner so is not ordinarily sued. For these reasons, claims against pilots and port authorities arising from pilotage are rare.

The ship-owner, on the other hand, has strict liability to third parties, including the port, for pollution or damage to the port.

Claims against a harbour authority can be brought either under a contract (such as a Terminal Service Agreement), in negligence or under a relevant statute. The three main statutes governing the relationship between ship-owner and port are:

  • the Harbour Docks and Piers Clauses Act 1847;
  • the Pilotage Act 1987; and
  • the MSA 1995.

The International Ship and Port Facility Security Code, an amendment to the International Convention for the Safety of Life at Sea (SOLAS), sets out minimum security arrangements for ships, ports and government agencies (applicable for international voyages). The Port Marine Safety Code sets out minimum safety requirements for UK port authorities.

A claim in negligence can be brought on the basis that:

  • the ship-owner was owed a duty of care by the harbour authority;
  • there was a failure on the part of the harbour authority to meet that duty of care; and
  • the harbour authority’s breach of that duty caused the ship-owner's loss.

Inspectors working for the MAIB, an operationally independent unit of the Department of Transport, are responsible for carrying out investigations of marine accidents in relevant waterways and improving marine safety. Inspectors have a professional background at sea and in the marine industry. Their duties include:

  • increasing awareness of how marine accidents happen;
  • making safety recommendations to reduce the likelihood of such accidents recurring in the future;
  • carrying out investigations to determine the causes and circumstances of accidents; and
  • improving national and international co-operation in marine accident investigations.

The Chief Inspector must ensure a safety investigation is carried out in relation to any accident that is deemed a ‘very serious marine casualty’. A very serious marine casualty is an event or sequence of events that results in total loss of a ship, loss of life, or severe pollution, and occurs directly by or in connection with the operation of a ship.

In relation to an accident deemed a ‘serious marine casualty’, however, the Chief Inspector may decide whether or not to undertake a safety investigation having carried out a Preliminary Assessment. A serious marine casualty is any incident in connection with the operation of a ship not deemed a very serious marine casualty and which involves certain circumstances as set out in the Regulations.

The MAIB receives between 1,500 and 1,800 reports of accidents of all types and severity each year. On average, this leads to 30 separate investigations being launched.

The procedure for the investigation of a marine accident does not involve a hearing as such. Following the notification of an accident, MAIB inspectors gather as much evidence as possible so that a decision can be reached about how to proceed. In very serious cases, a safety investigation will begin immediately, as explained above. For other casualties, as also explained above, it may be necessary to conduct a Preliminary Assessment to establish whether or not further investigation is warranted. This decision will usually be made within two weeks of the accident, and all involved parties will be informed.

If an investigation is to take place, inspectors will initially gather as much information as possible relating to the accident. This will usually involve visiting the vessel(s) concerned; interviewing crew, passengers, shore staff, and other witnesses or survivors; and collecting physical and electronic evidence. At the scene of the accident, the inspector may take photographs or videos of pertinent areas and items of equipment, or may examine log books, other records, crew qualifications and certificates.

If the vessel is fitted with a voyage data-recorder, the data will be removed and examined at the MAIB offices. If a vessel has sunk, remotely operated vehicle surveys and/or divers may be contracted to assist in the investigation. Failed items of equipment may be independently analysed to determine the mode of failure.

The inspector will then analyse the evidence to try to determine the causal and contributory factors that led to the accident. Following a decision to investigate, the Master and/or surviving senior officer and the ship-owner have a duty to preserve evidence such as charts, logbook, the ship’s VDR [voyage data-recorder] and all documents that may be considered important to the accident.

Once the active investigation phase is completed, a report is produced, including recommendations where appropriate. Each investigation report is circulated for consultation to stake-holders and anyone whose reputation could be affected by its contents. If a person has died in the accident, the report is sent to their next of kin. A 30-day consultation period enables involved parties to check the facts and analysis in the report, and put forward suggestions or corrections. All submissions will be taken into account, and the report amended if necessary, before it is finally published and made publicly available.

In order to initiate a claim, a ship-owner should usually send a letter before claim to the relevant authority. If the matter is not resolved, the ship-owner may commence formal court proceedings.

Unlike some other jurisdictions, there is no ‘administrative claim’ (as distinct from a ‘judicial claim’) under English law.

Although there is an Administrative Court in England and Wales, its function is to carry out a judicial review of decisions made by other courts, tribunals and public bodies, and to hear challenges to decisions made by certain people or bodies. It is very unusual for that court to hear matters relating to marine accidents in waterways. See question 5.14 Time Bar for Filing Judicial Claim below for time-bars generally.

The type of damages claimable against an authority are the ship-owner’s financial losses.

A ship-owner would not ordinarily be able to recover damages for non-financial loss, eg pain and suffering.

It is difficult to identify such events. Instead, the critical question is which events or circumstances will give rise to a claim.

Formal judicial proceedings are commenced by the issuance of a claim form, which has to be submitted to the Court, along with the relevant fee. For a claim of GBP200,000 or more, the relevant fee as at February 2019 is GBP10,000.

For a contractual claim, the time bar for filing a judicial claim is generally six years from the date of the breach of contract.

For a claim in tort (such as for negligence), it is generally six years from the date that the cause of action accrued.

No court has exclusive jurisdiction to hear such claims. The court with jurisdiction to determine the claim will depend on the value and type of the claim: if the value is high, the claim is likely to go to one of the specialist branches of the High Court. Those branches include, among others, the Admiralty and Commercial Courts, which handle commercial and business disputes often related to shipping.

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Ince Gordon Dadds LLP is a legal network with offices in six countries across Europe, Asia and the Middle East, providing legal advice and strategic guidance to clients ranging from the world’s oldest and biggest businesses to ultra-high net worth individuals. Many of the international offices are located in major ports, shipping or insurance centre. Key areas of practice include admiralty and casualty response, bills of lading, dry shipping, cargo claims and defence, charter parties, marine insurance, pollution, sale and purchase disputes, sale and purchase transactions, shipbuilding, and shipping dispute resolution.

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