War, Terror and Carriage by Sea

Keith Michel

• Publisher: Informa Law from Routledge
• Year: 2013
• ISBN:
  9781135133856
• Edition: 1
• Topic: Diritto
• Subtopic: Diritto marittimo

War, Terror and Carriage by Sea provides a comprehensive legal analysis of the law and practice relating to the impact of war or war related risks, terrorism and piracy on international commercial shipping. It includes a detailed review of: • International Hull Clauses, the Institute War and Strikes Clauses, and by the P&I Associations and War Risk Associations in respect of war, war related, terrorist and associated risks • The impact of the threat oroccurrence of such risks on international carriage by sea including a review of the principal time and voyagecharter forms • A detailed review of the December 2002 amendments to the SOLAS 1974 Convention and the regulations and provisions contained in the ISPS Code

Chapter 1
War and the Law

1.1 Introduction and Background

1.01 The concept of war has long been recognised as having a determinative impact on contracts of carriage, contracts of sale and marine war risks insurance. Staughton J in his arbitration award in The Bamburi¹ reaffirmed this when he said:

“The political and commercial history of the Western world for the last two hundred years is reflected in the cases on war risk insurance. The present dispute is concerned with the war between Iran and Iraq which started in September, 1980. In the course of the argument I was referred to cases arising during the Seven Years War (1756), the American revolution (1778), the Napoleonic War (1793), the siege of Paris (1870), the war between Turkey and Greece in 1912, the Great War (1914), the Spanish Civil War (1936), The World War (1939) and the Vietnam War (1966).”

1.02 The Bamburi concerned the fate, for marine war risk insurance purposes, of seventy vessels trapped in the Shatt al-Arab waterway shortly after the outbreak of the Iran-Iraq war in September 1980 and found unable to depart thereafter. In the case of those merchant vessels there would be no dramatic breakout to emulate the heroic escape of the frigate HMS Amethyst on the Yangtze River, China after damage and loss of life had been inflicted on the vessel by shore batteries of the Communist People’s Liberation Army in 1949.

1.03 The award in The Bamburi however inevitably awoke legal memories of vessels trapped in the Suez Canal after the 1967 Arab-Israeli war and the India and Pakistan conflict of 1965. Those cases had raised a number of untried legal issues which were only answered within the framework of what became the judicial arbitration in The Bamburi. They included questions relevant to the ability of an insured shipowner to sustain a claim against hull or war risk insurers for a constructive total loss within section 60(1) and (2) of the Marine Insurance Act 1906 (the 1906 Act), in particular where the insured vessel had been detained, the owner had been deprived of possession of the vessel and where there was no likelihood of the vessel’s recovery within a reasonable time.

1.04 Similar legal issues concerning the liability or not of insurers for the detention of vessels had been before the English courts on previous occasions during the preceding 200 years as Staughton J had described. In Polurrian Steamship Company, Limited v. Young² the court considered a case where a vessel was stopped by Greek destroyers in 1912, detained and released only some months later. In Panamanian Oriental Steamship Company v. Wright, The Anita,³ the court had to determine the fate for insurance purposes of a vessel detained by customs authorities in Vietnam in 1966.

1.05 As the cases show, the courts over the years have sought to construe with legal refinement the undisciplined activities of bands of armed volunteers in far flung and historically forgotten wars or conflicts and more gravely have had to come to terms with the impact of loss and damage to vessels and their cargoes not infrequently with great loss of life in times of war.

1.06 Courts and arbitrators have also been required over the years to determine the impact of war and conflict on the positions of owners and charterers, and buyers and sellers of goods afloat under the time and voyage charters on which the vessels were operating or the particular contracts of sale under which the goods were being shipped and insured.

1.07 These cases range widely in scope from, on the one hand the obligations of time charterers as to port safety⁴ and their obligations under employment and indemnity clauses⁵ where the chartered vessel may be exposed to risks of war or political or military instability and on the other to embargoes, prohibitions or sanctions which have a direct and causative impact on the ability of buyers and sellers to perform an international contract of sale. These topics are all discussed in subsequent chapters.

1.08 During the course of the Iran/Iraq conflict the commercial world saw almost daily evidence of attacks by belligerent naval and air forces on neutral shipping and the impact, arguably perhaps for the first time in a major conflict of sanctions imposed by the United Nations Security Council. The war also saw the need for insurers world-wide, exposed to risks of loss or damage to vessels, cargoes and their crews, taking steps as a matter of industry self-regulation, to impose specific requirements on insured ship owners and others who wished to continue to trade in what became a war zone. Areas of the Arabian Gulf were declared prohibited and additional premiums charged. These had a significant impact on the ability of owners, charterers and traders to operate their business in a way that was free of either inter-governmental or industrial self-regulation.

1.09 The Iraqi invasion of Kuwait in 1990 saw in a more strategic and direct way the introduction of sanctions as a measure of the rejection by the international trading community of the hostile invasion of another sovereign state. Whilst the direct impact of the Iraqi invasion in Kuwait did not result in marine casualties of the scale encountered in the Iran/Iraq war, that conflict resulted in different but related issues coming before the courts. The forcible removal by Iraq of the Kuwait Aircraft Corporation fleet to Baghdad and its purported incorporation into Iraq’s own national airline led to extensive and ongoing cases before the English courts. These cases concerned the primary insurance⁶ and reinsurance aspects of the loss and destruction of a number of those aircraft and also that of the British Airways jumbo jet stranded at the time of the invasion and subsequently destroyed soon after the outbreak of Operation Desert Storm in January 1991⁷.

1.10 The Bamburi arbitration was essentially a test case whose terms of reference were framed by London insurers anxious for a judicial determination in respect of a variety of provisions in hull and war risk policies which excluded liability for loss to vessels trading north of 24° North in the Arabian Gulf. A difference of opinion in the London market had emerged over whether special blocking and trapping cover for such risks was necessary or whether those were already covered in the then existing 1970 London Institute War and Strikes (IWS) Clauses.

1.11 Opinions were sought from leading counsel in London. These opinions did nothing to allay the divergence of opinion between the open market, which maintained that blocking and trapping did not fall within the cover provided within the IWS Clauses—thereby obliging a ship owner to take out what was subsequently known as the “RJM cover”—and the view of the mutual war risks associations which was that such special cover was unnecessary since it only duplicated the protection already afforded by the standard form of war risk policy. The direct consequence of the award in The Bamburi was a wholesale revision in 1982 of the structure upon which hull and marine war risks insurance was written in the London market.

1.12 Cover for war risks had evolved in a convoluted way in that war risks insurance traditionally operated on the basis of risks and perils that were excluded from the hull cover by a clause which was known as the FC&S clause (Free of Capture and Seizure) and which listed those risks which had been excluded under the standard marine policy (what was known as the SG Form) attached as a schedule to the 1906 Act. The text of the SG Form is found in Appendix 1. The FC&S clause provided:

“Warranted free of capture, seizure, arrest, restraint, or detainment, and the consequences thereof or of any attempt thereat; also from the consequences of hostilities or warlike operations, whether there be a declaration of war or not; but this warranty shall not exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the vessel concerned or, in the case of a collision, any other vessel involved therein, is performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty ‘power’ includes any authority maintaining naval, military or air forces in association with a power.

Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or piracy.”

1.13 Somewhat illogically the law had prescribed that the loss was not necessarily covered by the war risk policy, simply because it resulted in one of the perils set out in the FC&S clause. Historically, recovery could only be effected under the war risk policy if it would have been recoverable under the hull policy had the latter not included the FC&S exemption. It was therefore necessary to proceed on a two stage enquiry, first to ascertain whether the loss fell within the form of the “positive” cover obtained in the hull policy and secondly subject to the first whether the loss was excluded by the FC&S clause. Issues relating to the FC&S clause had been before the courts on many occasions but their complexity led Mocatta J to state in his judgment in The Anita⁸:

“It is probably too late to make an effective plea that the traditional methods of insuring against ordinary marine risks and what are usually called war risks, should be radically overhauled. The present method certainly as regards war risk insurance is tortuous and complex in the extreme. It cannot be beyond the wit of underwriters and those who advise them in this age of law reform to devise more straightforward and easily comprehended terms of cover.”

1.14 As a consequence of the decision in The Bamburi and the publication of the new Institute Hull and War and Strikes Clauses with effect from 1 October 1982 it was no longer necessary to juggle with the complexities of the FC&S clause. The new clauses set out in clear terms those perils or risks which were to be specifically identified as “war risks”. These were listed as specific exclusions to the hull policy and included as the specific perils insured against in the new War and Strikes Clauses. One exception that will be discussed in section 7.3 is the peril of piracy. Piracy is included as a positive peril insured under the hull cover (clause 2.1.5 of the International Hull Clauses published on 1 November 2002 and the second version of the clauses published on 1 November 2003) but is excluded from the Institute War and Strikes Clauses (clause 5.1.6 of the version published on 1 November 1995). Piracy may however be reinstated as a war risk peril if cover is taken out with a mutual war risk insurer (for example clause 2A 2.6 of the Rules of the Hellenic Mutual War Risks Association (Bermuda) Limited where the relevant peril is listed as “piracy and violent theft by persons from outside the ship”).

1.15 Whilst The Bamburi was therefore a landmark decision in the development of hull and marine war risk insurance the impact of war on other insurers, on contracts of carriage and on contracts of sale for century or more has been highly significant. Conflicts such as the Iraqi invasion of Kuwait for example led insurers to seek judicial certainty with regard to losses under primary insurance and reinsurance contracts in the aviation market.

1.16 A historian reviewing these matters at a later date might well observe that the pattern of evolution of practice and judicial decision in relation to the concept of and effect of war has occurred in what might paradoxically be said to be an “ordered” way.

1.17 What may be said however to be far less certain is whether the same historian would say that such evolution could be said to have proceeded in a similarly “ordered” way as a consequence of the advent of heightened terrorism and its threats to world commerce within the last three to four decades of the twentieth century.

1.18 The events of 11 September 2001 brought a new and devastating dimension to the spectre of terrorism which had already surfaced all too often in the preceding decades in a tragic and destructive way if not on the same scale of human tragedy.

1.19 In the Dawson’s Field arbitration award (29 March 1972), the late Sir Michael Kerr (later Kerr LJ) sitting as an arbitrator considered how a reinsurance contract responded to the destruction of aircraft by members of the Popular Front for the Liberation of Palestine (PFLP). In September 1970 four commerci...