The threat of piracy when transporting goods is not a new one, having been around for thousands of years. However the face of piracy has changed considerably, from parrots and eye patches to organised crime, theft and sabotage. The coasts of Africa and Asia are the areas that are particularly at risk, but the knock on impact on trade can be felt around the globe. Political instability in areas of East and West Africa has resulted in an increase in attacks, and as the pirates become more sophisticated so must the security measures to guard against them. Insurance cover for shipowners and charterers is available, but an understanding of the law is critical if companies wish to continue transporting goods through the areas that are most at risk.
What is piracy?
The technical definition derives from Article 101A of the United Nations Convention on the Law of the Sea. Piracy consists of an illegal act of violence for private ends by a private ship directed on the High Seas against another ship, outside the jurisdiction of any state. Often this is an attack on large vessels using weapons such as firepower or grappling hooks. It includes the mounting of the ships, siphoning cargo off the vessels, attacking the crew and demanding high ransoms from shipowners and insurers.
One interesting aspect of modern piracy is that its characteristics change depending on location. For example attacks in Nigeria are characterised as being very aggressive. Ships are attacked up to 170 NM from the coast and can be held for three days where they are ransacked. In South-East Asia piracy is conducted more by organised gangs and the focus of the attacks is the cargo rather than the individual crewmembers. There are new forms of piracy but pirates have been in existence since at least AD 75.
What can be done to prevent piracy?
Maritime security guards have been very effective. These are individuals who are placed on board vessels to stop pirates. For example in the Gulf of Aden there were 169 pirate attacks in 2009 and then only around 35 in 2012 because of the introduction of security guards. There are also the directions issued by insurers such as having a 24-hour watch, a dimly lit deck, as well as the use of fire hoses, water canons and barbed wire. All those methods are used to deter and stop pirate attacks and increasingly have been successful.
How does the insurance work?
Contracts of insurance are used for the benefit of shipowners against pirate attacks. Hull and Machinery cover, War Risks cover, Kidnap and Ransom cover and also P&I club cover are examples of the policies which are available. The problem now is that there are a number of exclusion clauses which exclude acts of piracy. War risks for example will cover riot and war but not pirate attacks. P&I club cover as well will not extend to pirate attacks without the existence of legal liability. As well as exclusions being put in place, there has been a surge in insurance premiums because of these pirate attacks.
What is the role of DWF?
We advise insurers on what contracts of insurance may respond to acts of piracy. On occasion we will also be looking at issues from the perspective of the insureds who are worried about navigating in certain seas, advising them on what they can do and how their insurance will respond.
We also deal with the liability of the Master of the vessel, in terms of what they are responsible for. There have been instances of security guards shooting at so-called pirates who are attacking their vessel. This raises questions about what constitutes self-defence.
What is the law on ransom payments?
The law on ransoms is complicated. The Proceeds of Crime Act 2002 at section 328 (i) indicates that a person commits an offence if he enters an arrangement which facilitates the control of criminal property. Section 17 of the Terrorism Act 2000 indicates that no one can be seen to be supporting terrorist acts. A contrary view is contained in the case of Masefield AG v Amlin (2011) ‘there is no universally recognised principal of morality which leads the courts to conclude that payment of ransom is contrary to public policy.’ It is not very easy to provide a definitive position on the law. Theresa May gave a speech at the end of last year where she stated that no ransom payments should be made for fear of supporting terrorist regimes.
How does piracy affect trade?
Local trade can be particularly affected. In West Africa fishermen are plying their trade in seas infested with pirates, and therefore their trade is threatened.
Moving on to the bigger picture, companies transporting metal or oils in a region where pirates are active have to face serious cost consequences. The vessels may have to navigate a longer route to avoid the pirates, the insurance premiums will be higher and those costs will translate to the high street. The main beneficiaries from this impact on trade will be the maritime security guards, the security industry and in turn potentially the lawyers.
What can be done?
Collaboration is essential. Governments should be talking to each other about piracy and the effects on international trade. In places like Somalia, where the political situation has stabilised, pirate attacks have reduced. This demonstrates the impact social and political stability can have on reducing the frequency of attacks. In the last ten years we have been successful in stamping out piracy in certain zones of the world, but it seems to rear its head in other locations. I cannot say that maritime piracy will be completely obliterated. Hopefully it can be managed, measured and thwarted, but it will not disappear.