Limitation of liability for maritime claims in the UAE – the Golden Ray
This article examines some of the risks that ship owners, operators and insurers might consider if a vessel is engaged in criminal activity – knowingly or unknowingly.
The use of shipping by organised crime groups (OGCs) to transport illegal narcotics is well known. In the UAE for example, over the last 12 months Customs authorities have had several large and high-profile seizures of drugs across a number of different ports illustrating what this crime looks like in practice. However, this is not just a regional challenge; it’s a global problem with criminals continually looking for new techniques and routes through which to traffick their product.
Earlier in 2021, a Clyde & Co article examining Corruption in the Shipping and Ports Sectors discussed an interview with Jan Jense, the Chief of the Seaport division of Rotterdam Police where he pointed out that in addition to narcotics being hidden with cargo inside containers, drug traffickers were also deploying another technique known as "drop off" where consignments were literally dropped off by corrupt crew members into EU waters at a predetermined location, collected later by accomplices in smaller vessels and brought to shore.
Unfortunately, the topic of cargo ships being unwittingly involved in organised criminal activity isn’t going away and analysis recently published by Insight Crime reinforces that view. The analysis describes how Police in Brazil had discovered that drug traffickers were using divers to attach bricks of cocaine in bulk, to the rudder compartment of cargo ships anchored in the port of Vitória and bound for the Port of Rotterdam. The ships’ crew were unaware and once the vessels had docked near Rotterdam, the cocaine was retrieved by another team of divers.
The article also disclosed a range of further techniques that traffickers use to exploit cargo ships in addition to smuggling within containers and other on-board locations, including:
For ship owners and operators who knowingly or unknowingly become involved in an international drug trafficking case or other criminal activities, the impacts can vary but might include:
There are numerous different scenarios for ship owners, operators and their respective insurers to consider, along with multiple variables.
For example, consider a scenario where a large consignment of narcotics is discovered on board a chartered vessel which is subsequently impounded whilst the authorities conduct their enquiries. The crew will inevitably be questioned and potentially detained ashore, following which and depending on the jurisdiction and the outcome of the investigations, the crew may be charged and fined. The vessel’s commercial operations will be delayed and could even ultimately result in cargo damage (if perishable) and/or the confiscation of the vessel and its cargo. But even where the vessel and its cargo are not detained, the owner is nonetheless still likely to be exposed to additional costs and potential claims for breach of contract(s).
Where a ship owner knowingly permits its vessel to be used for illegal purposes then their P&I cover will typically cease. However, let’s assume the ship owners and operators were wholly unaware of this criminal activity. In such circumstances P&I cover will remain intact with respect to liabilities and losses arising from, and as a consequence of, the illegal activity, save possibly for fines and penalties.
If the vessel is on charter then disputes will most likely arise as to whether the vessel remains on hire, at which point attention will turn to the terms of the off-hire provisions and the underlying factors. Ultimately, there is sufficient loss of hire / payment of hire cover available in the market which will extend to delays by reason of detainment by Government, public or local authorities as a result of events such as the seizure of narcotics. However the validity of this cover could be challenged in circumstances where crew members were involved and it can be demonstrated that the owner/operator were negligent or wilful with regards to their responsibilities to take appropriate security precautions, including adequate due diligence when hiring crew.
As the volume of narcotics being seized at ports and at sea increases, shipowners and operators that are not considering the different facets of this new trend are arguably exposing themselves to unnecessary risk. International P&I clubs have been warning members about this threat for several years, advising on basic security measures, providing intelligence gleaned from seizures and revealing routes and the port of origin of the vessels involved.
It’s a complicated area and there are no one-size fits all solutions. However as a starting point, ship owners and operators would be advised to:
To discuss further or for specialised support in any of the areas discussed in this paper, please contact either of the authors listed below.