Nordisk Skibsrederforening

Piracy: entrenched and escalating

The cold hard facts about piracy activity as of the third quarter (2011) were recently released. The bad news is that worldwide piracy attacks are at an all-time high, with Somali pirates accounting for 199 attacks. This represents a 50 % increase compared to the 2010 figures. The good news is that the same Somali pirates only managed to take 24 vessels, compared to 35 at the same time last year. These figures are frightening in their own right, but they shed little light on the human suffering and the frantic activity taking place behind the scenes in what has truly become a multi-billion-dollar industry. This is probably as good a time as any to reflect upon the current state of affairs.

In addition to the mountains that have been written about this subject, there have also been numerous conferences and seminars. Looking back, two speakers stand out, at least in my memory. One was a political scientist, the other an admiral. The political scientist explained the “big picture” – the conflict between north and south, between the haves and the have-nots. In his view it was inevitable that ships passing through the choke points in transport lanes would become increasingly attractive targets for desperate people. Once pirates discovered the rewards associated with their new-found business concept, it was inevitable that the activity level would accelerate and spread. Today’s situation, with the rampant piracy activity throughout the Indian Ocean and even across to West Africa, confirms that his scenario was correct.

The admiral was on a different mission. He explained the nature of, and restrictions associated with, military intervention in the Gulf of Aden and the Indian Ocean. He described how difficult it was to police these vast ocean areas in an effective manner and alerted us to the extensive response time needed due to the limited range of available assets. His main message, however, was the importance of maintaining a balance. In some ways he seemed to have capitulated to the level of piracy activity as it was at the time. Although this activity certainly represented a nuisance, it was in his view very important not to disrupt this balance and risk increased violence. He was very much against using armed guards as this would only ratchet up the level of violence and inevitably lead to harsher treatment of crew and hostages, who up to that point had been treated relatively well with few reported injuries or fatalities. Despite these warnings it seems, for whatever reason, that the balance (if there ever was one) has certainly been upset and we are now venturing into uncharted territory.

The level of aggression and violence associated with piracy attacks has increased, both in the attack phase and in the aftermath. The treatment of hostages has deteriorated, as has been vividly reported by recently released hostages. Even though vessels have been released, some hostages have also been retained as retaliation against certain flag states. Ransom amounts have reached staggering levels. Given these developments, it is not surprising that shipowners worldwide have when possible opted to enlist the services of armed guards. As was the case with the wagon trains and stage coaches passing through the American West, the almost inevitable response to persistent attacks has been to hire armed guards. So in a sense history repeats itself. The logic of a Norwegian captain is almost irresistible: fewer people will go into the forest to hunt if the prey can shoot back! It remains to be seen if this theory applies in the Somali context. While pirates do back off when fired upon, and perhaps most significantly, no vessels with armed guards have yet been hijacked, there is unfortunately no shortage of pirates still willing to go hunting.

While the Somali pirates have spent years perfecting their business model, it appears that the Nigerian pirates operating off West Africa have only needed a few months to discover how to profitably hijack ships performing STS operations. Unlike the Somalis, they are not after hostages, but simply wish to take the cargoes and line up a resale using local contacts. They have been remarkably active in recent months. The maps of the IMB Piracy Reporting Centre now display flags denoting attacks and hijackings in the most diverse locations. The pirates seem to be everywhere, sometimes using mother vessels, other times attacking with swarms of skiffs. Recent accounts suggest that the lull during the monsoon period has been used for local raids into Kenya to take western hostages, as a supplement to hostages taken in Somalia. Now that the monsoon season is over, there is reason to expect new record-breaking activity levels in the coming weeks.

In the shipping business the stress placed on the crews is immense, as are the worries ashore. Few wish to be associated with sending vessels into harm’s way, so when trading to piracy risk areas is inevitable a wide range of precautions is taken. Tremendous energy and resources are expended in an effort to limit the hijacking risk by hardening vessels and training for the (un)expected. The procedures and equipment used to avoid hijacking have been improved markedly as evidenced in the recent BMP4 (Best Management Practices 4). For those unfortunate vessels that have been boarded by pirates, the use of citadels has in some cases been successful, but has also frustrated pirates into setting fire to vessels. Despite the risk of injury, captivity and death, not to mention serious environmental damage, vessel traffic seems for the most part to continue as before.

For those of us working in the safety of law offices ashore, it is difficult not to be affected by the human cost and suffering – the price being paid to keep the wheels (hulls) of commerce moving. Our task, however, is commercial. We are part of an army of underwriters, consultants, negotiators, responders and advisors dealing with these issues on a daily basis. We are regularly asked by owners and charterers about their charterparty rights when trading into high-risk areas is contemplated. Owners will ask if they can reject employment orders and instead choose a route that takes the vessel out of harm’s way, for example, steaming around the Cape of Good Hope or perhaps within the territorial waters of India. The next day we might advise time charterers whether they can maintain their orders to a vessel to, for example proceed across the Indian Ocean. Our focus is on helping our members and clients make prudent decisions, and at the same time allocating risk and exposure to lost time and costs. Aside from drafting, reviewing and amending piracy clauses of various sorts, we also review contracts with contractors providing armed guards. The new regime in Norway allowing the use of armed guards (effective from July 1) has brought about a significant amount of activity to ensure compliance with the new regulations.

When disputes arise we wage battle in London over the meaning of war and piracy clauses and the extent to which a master can refuse orders to proceed to a pirate-infested area. A few years ago one of our members refused to transit the Gulf of Aden and instead insisted on going around the Cape of Good Hope. The ongoing dispute about who is responsible for the extra steaming time was resolved in owners’ favour in arbitration, but was recently heard in the High Court. We have all been anxiously awaiting the result because it will be the first precedent involving the interpretation of the Conwartime 1993 clause in the piracy context. A favourable judgment for owners would probably cause owners with vessels on time charter to be more inclined to reject employment orders into pirate-infested waters. That, however, would not be very popular with charterers, traders and sellers in need of transporting their products through the Gulf of Aden and the Indian Ocean.

As it turned out, the High Court judgment did not provide much clarification. The judge held that the arbitrators had applied the wrong threshold test for invoking the clause. The arbitrators had concluded that the owners could reject the orders if there was a “serious risk” of being exposed to acts of piracy. The judge instead favoured a test requiring a “real likelihood” of such exposure. He went on to say that this required “real danger”. The difference between these descriptions of risk is difficult to appreciate, but the case has now been sent back to the arbitrators for further deliberations. This will probably not be the last chapter on this critical issue, but if history is any guide, the players in this industry will find a way to keep cargoes moving.

Although the legal issues are important in their own right, their importance dwindles in comparison to the overall tragedy of the Somali piracy experience – on both sides. The suffering of the hostages in captivity is horrible, as is the reported attrition rate for pirates going to sea (with one-third of them allegedly never coming home). It is only right that there should be more focus on the human element of piracy.

In our legal world we are doing what we can to serve our members in the best possible way. We draft piracy clauses, help negotiate contracts, and most importantly give hands-on advice to members facing very awkward circumstances in connection with employment to high-risk piracy areas. I think it is fair to say that we have gradually become better at our jobs – but so have the pirates.