By Capt. A.K. Bansal
Here is the corrected text with the scanning errors, OCR glitches, and broken formatting cleaned up while keeping edits to an absolute minimum:
Law of Sovereignty of Nations, Law of Freedom of the High Seas, Law of Freedom of Contract, and Legal Personality of a Ship are the four cardinal principles of International Maritime Law.
The principle of sovereignty of nations has been rarely violated unless one country subjugates another, with or without justification. Domination of Great Britain over an empire on which the sun never set is one example. Hitler’s invasions in Europe were another. Invasion of Iraq by the USA is the most recent example. International maritime law stands on four strong pillars.
Articles 2 and 3 of the United Nations Convention on the Law of the Sea 1982 (UNCLOS) have added sea areas up to 12 nautical miles from coastal baselines, called territorial waters, into the sovereignty of coastal states. Sea areas outside the territorial waters are international waters. Articles 17, 18, and 19 of this convention limit this sovereignty of a coastal state in its territorial waters by providing that foreign-flag vessels enjoy the right of innocent passage through this strip of coastal waters, and they define what innocent passage is.
It is also stipulated that when ships are in the territorial waters of another country even on innocent passage, they are subject to the law of the coastal state. In essence, it means that regardless of the flag of the ship and the nationality of her crew, such ships should not prejudice the peace, good order, or security of the coastal state during their passage. It is optional for coastal states to exercise their criminal jurisdiction within their territorial waters, which mainly depends upon whether a crime committed therein disturbs its peace and good order. Most countries exercise such jurisdiction if a victim or the suspected offender is a citizen of that state. Japan has now amended its penal code in light of the Tajima incident to extend its criminal jurisdiction in cases where the victim is a Japanese national, even if the crime is committed by non-Japanese suspects on a foreign-flag vessel on the high seas.
How strictly the law of jurisdiction within the territorial waters of a country can be applied, if it chooses to do so, can be demonstrated by the following case: As seafarers do in their spare time all over the world, especially since it does no harm, a seaman threw a fishing line overboard from the stern rail of his foreign-flag ship, which was anchored and waiting to enter a US harbor. But to fish in US waters requires a license. The US Coast Guard promptly boarded the ship and arrested the seaman because he was fishing contrary to US law, and also the Master because he personified the ship, which contravened US law.
Law Governing the High Seas
From time immemorial, it has been accepted that the high seas belong to the entire human race—to all six billion humans on this earth. This is the second pillar of International Maritime Law and is usually exerted by most nations and individuals as an inherent right. This principle is now incorporated in Article 87 and other articles of Part VII of UNCLOS. It is under this principle that ships of all nationalities are able to carry goods from country to country across the oceans without let or hindrance.
But this right of freedom of the high seas is subject to the law of nationality. For example, in about 1500 A.D., the Chinese Emperor Hong Zhi made it a capital offense for any of his subjects to sail the high seas. Subsequently, he even ordered all seagoing ships to be destroyed. It was due to this reason that the immense Chinese sea power of earlier years, under Admiral Cheng Ho, was wiped out. It has taken China five centuries to come back into its own in shipping.
However, “might is always right.” Therefore, a nation powerful enough may block the high seas to fellow men or to another nation at will by the might of arms. President Kennedy laid a blockade against the approach of Russian ships to Cuba in October 1962, against all canons of international law, as it affected the right of freedom of the high seas for Russian ships, not to talk of Cuba’s sovereign rights. But neither the Russians nor the Cubans could afford to fight the Americans, and the rest of the world remained silent. Therefore, Kennedy got away with it.
Freedom of the high seas has also been interpreted by humanity to mean the freedom to throw waste into the seas as a birthright. Thus, human waste has been thrown into the seas from coastal habitations for centuries, not forgetting sewage, garbage, oil tank washings, bilges, and what not from ships. In the fifty years from 1948 to 1998, world shipping increased from 98 million tons to 550 million tons. This, coupled with the increase in world population and coastal habitations, means pollutants thrown into the oceans by ships today—including everything coming from the coastal belts—are affecting the environment of our earth. Hence the necessity to curb this freedom and introduce conventions such as MARPOL.
Apart from such pollutants, an estimated 10 billion tons of salt water is carried yearly across oceans by merchant ships. Ballast water transports live microorganisms with it, which easily pass through the water pipes of ships. When this water is pumped out, live alien species are injected into a different environment miles away from their natural habitat. This affects the local environment and ecology and also causes a lot of harm to local fisheries. Therefore, it has also become necessary to curb this freedom of the high seas and to find ways and means to stop the migration of live microorganisms across oceans through large quantities of salt water ballast (hence ballast water control).
Under Article 92 of UNCLOS, all ships on the high seas are subject to the exclusive jurisdiction of the flag state. Therefore, conventions such as MARPOL can only be enforced by them. But flag states, especially flags-of-convenience states, do not have the infrastructure or the will to control their flag vessels from polluting the high seas miles away from their own coasts. Hence, regulations on ballast water control and international conventions such as MARPOL continue to be flouted by their ships with impunity.
Therefore, to lay the onus directly on ships and shipowners, BIMCO, INTERCARGO, the International Chamber of Shipping, the International Shipping Federation, INTERTANKO, and the Oil Companies International Marine Forum jointly issued basic guidance in September 2006. This emphasized the vital importance of strict adherence to International Maritime Organization (IMO) requirements, committing to a zero-tolerance approach to any non-compliance with the IMO MARPOL Convention, including the use of oily water separators. These guidelines add that no one should engage in any illegal conduct in the mistaken belief that it will benefit their employer. Severe legal consequences have been outlined for both the company and the seafarers. Ship operators have the ultimate responsibility to establish a compliance culture on their ships.
Even the most minor violations of MARPOL will be detected by authorities and violators punished. Fines of millions of dollars can be imposed on both company management and seafarers, who can also be liable to criminal prosecution and imprisonment for any deliberate violation of MARPOL, such as bypassing oil-water separators or falsifying records. In France, Loi Perben extends the concept of individual criminal liability for causing pollution beyond the Master to owners, managers, and others. Since March 2004, ships have been intercepted even on suspicion of pollution and brought into French ports to face fines and jail sentences on questionable evidence. Foreign Masters convicted of even unintentional pollution face up to 7 years in jail and fines up to $880,000 or four times the value of the cargo on board.
Furthermore, OPA 90, the Clean Water Act (CWA), APPS, and allied laws of the USA are being strictly enforced by US authorities on world shipping. US authorities have found ways and means in recent years to enforce anti-pollution rules on ships of all flags bound for the USA for polluting the high seas miles away from their own coasts.
Law of Freedom of Contract
The third pillar on which International Maritime Law stands is the law of freedom of contract. Whether under a charter party or a bill of lading, international maritime trade is carried out on the basis of freedom of contract. For example, a charterer in one country can charter a foreign-flag ship to carry cargo from a third country to a fourth country, and all parties are able to enter into such contracts subject to the laws of their own nationalities. Similarly, a foreign national may contract to serve on a Panama-flag ship owned by Greek owners, time-chartered to British charterers, to ply between Australia and Japan, subject to laws that restrict or prohibit their actions as nationals of their country.
Until 1995, the Master, Chief Officer, and Chief Engineer of a British ship had to be of British nationality. Under American laws, the Master, officers, and crew of a ship flying the American flag have to be US-born citizens. Therefore, owners of such flag vessels could not contract with seafarers of other nationalities for those ships and positions. In some countries, such as Panama, only those holding a Panama Certificate of Competency can command Panama-flag ships, directly impacting international trade and commerce (for example, regarding contracts to supply oil to South Africa). Again, for many years, India had no relationship with Portugal, and no Indian could enter into a contract to trade with the Portuguese.
Legal Personality of a Ship
The fourth pillar of International Maritime Law is that a ship has a legal personality of her own in addition to being the property of the owner. Under Article 91 of UNCLOS, every state is required to fix conditions for registration and grant nationality to every marine craft they recognize as a ship, giving her the right to fly its flag. This way, she acquires a legal personality.
She can do wrong; damage caused by her to third parties through collision is a typical example of her own wrongdoing for which she is liable. She has other liabilities: if a ship receives an essential service, the service provider gets a right to exact payment from her if the owner fails to pay. She can be arrested and even sold to pay her debts. She also has rights, e.g., to issue a bill of lading.
This is the mainstay of international trade and commerce. A ship acknowledges receipt of cargo loaded on board in her own right, with essential details of what and how much was loaded, in what condition, at which port, and for which destination. This receipt, known as a Bill of Lading (B/L), also contains terms and conditions under which cargo is carried. If freight is not paid, the B/L is marked ‘Freight to Pay’. Shippers used to mail the B/L to a buyer abroad to enable them to take delivery of the goods at destination. Due to postal uncertainties, a practice developed to issue three originals, which the shipper sent to the consignee by three different mails; any one having been honored, the other two automatically became null and void. In time, this document has not only become a contract of carriage but also an instrument negotiable through banks and a document of title—meaning the holder has a right to the goods and is their owner.
As maritime traffic became more regular with steamships, owners employed clever lawyers who drafted clauses absolving the ship and owners from all and every liability for carriage of goods by sea. These clauses were printed on the back of B/Ls as part of the contract of carriage, leaving shippers with little remedy even if their cargo was never delivered. Hence the Hague Rules 1924, which gave considerable relief to shippers. A protocol was adopted in 1968 at Visby to amend these rules (the Hague-Visby Rules). Many maritime nations, including most Commonwealth countries, have enacted laws incorporating these rules, which are widely used by merchants and mariners alike.
Thus, under the laws of most countries, freedom to stipulate terms and conditions of carriage is subject to the Hague and/or Hague-Visby Rules. Under these rules, the shipowner must exercise due diligence to make the ship seaworthy before and at the beginning of the voyage. The carrier must “properly and carefully load, handle, carry, keep, care for, and discharge” the goods to be entitled to protection under the seventeen exceptions to liability, which protect shipowners for damage caused through “perils of the sea.” If unavoidable damage is caused to goods through marine perils, the ship/owners are not liable. An American Judge defined “unavoidable” as “something so catastrophic as to triumph over safeguards by which skillful and vigilant seamen usually bring ship and cargo to port in safety.”
With containerization, cargo usually moves from a factory door in one country to an importer’s door in a different country, involving different modes of transportation where sea transit may be just one leg. Under multimodal transport systems, a B/L may be issued miles away from the ship, even by a road transporter. Therefore, there have been many modifications to the law pertaining to the carriage of goods by sea. In liner trades, B/Ls are invariably issued by trusted, well-established agency houses with a printed line usually signed by the master authorizing agents to sign B/Ls on behalf of the ship.
Bills of Lading in International Trade
The legal character of a B/L remains a contract between the ship and the shipper and a receipt by the ship, signed by the Master or agent on her behalf. A B/L signed by or under the authority of the Master means more today for bankers in international trade and commerce who issue Letters of Credit (L/C), under which a B/L is usually essential. Under this documentary credit system, billions of dollars worth of L/Cs are issued and honored by bankers worldwide to make commercial payments to unknown exporters based on the count and description of goods as per the B/L.
Depending on the terms of the L/C, goods are bought or sold through negotiable B/Ls even while still on the high seas. The holder can endorse it to a buyer for value received, unless the B/L is non-negotiable (i.e., not “To Order”). It is usually transacted first through the exporter’s bank and finally through the importer’s bank. When the original B/L reaches the importer’s bank, it pays the exporter’s bank, debits the importer, and delivers the B/L. If an importer receives goods without producing the B/L to the ship, they get them free.
Recently, in cases where an agent delivered goods without taking possession of the original B/L, they were held liable for damages suffered by the exporter who did not get paid by the buyer’s bank (Sze Hai Tong Bank v Rambler Cycles Co [1959] 3 All England Reports 182). In a Maersk line case, a container was delivered at destination against production of a fraudulent B/L; a British court held against shipowners, ruling that a B/L is the key to the goods as it represents and secures legal title and physical possession. Lord Denning’s observations are most appropriate:
“It is a perfectly clear law that a ship owner who delivers without production of the B/L does so at his peril. The contract is to deliver, on production of a Bill of Lading, to the person entitled under the Bill of Lading.” He further added, “The shipping company… delivered the goods, without production of the Bill of Lading, to a person who was not entitled to receive them… No court can allow so fundamental a breach to pass unnoticed under the cloak of a general exemption clause.” ([2004] EWHC 2929 Comm)
A B/L performs functions a charter party (C/P) cannot—for instance, a C/P cannot certify the quantity and condition of goods shipped, whereas a B/L does. It also binds the carrier to deliver the goods to its holder “in the same good order and condition.” Therefore, where a C/P exists, a B/L is an essential document, but a B/L can also exist without a C/P.
Frauds and the Hamburg Rules
The concept of a B/L being a negotiable instrument and document of title has also given rise to frauds from time to time. For instance, the M.V. Lord Byron (8200 DWT) was sub-chartered to carry sugar, and kept idle in Bangkok for 13 days waiting for cargo to fabricate a record that she took 13 days to load 10,000 tons. During this time, the charterer’s agent entertained the Master lavishly. Suddenly, on a Saturday afternoon, 6,874 bags of sugar were loaded from a few barges against 6,874 tons nominated by the Master. On Sunday morning, the agent told the Master to sail immediately because charterers had lost money waiting. He assured the Master that demurrage would be paid and that since B/Ls could not be signed on a Sunday morning, they would be forwarded to the port of discharge. The Master fell for it and gave written authority for the agent to sign B/Ls. An L/C for $5.9 million was negotiated early Monday morning using these B/Ls. Later, the ship was detained by Somali authorities because she brought 6,874 bags instead of 11,000 tons of sugar. The Master’s explanations failed to convince authorities that he was not part of a fraud.
More recently, the Hamburg Rules were framed by a Convention on the Carriage of Goods by Sea, making fundamental changes to the form of B/Ls and applicable laws. The convention defined a B/L for the first time:
“A document which evidences a contract of carriage by sea and the taking over or loading of the goods by the carrier, and by which the carrier undertakes to deliver the goods against surrender of the document.”
While Hague-Visby Rules do not apply to inward shipments, Hamburg Rules apply to all contracts of carriage by sea (written or not, regardless of ship flag) provided the port of loading or discharge or the issuing place is in a contracting state. Under Hamburg Rules:
- Carrier and actual carrier (truckers, stevedores, terminal agents) have joint and several liability.
- Responsibility extends from the time the carrier takes over the goods (even on a truck at a factory door) rather than just “tackle to tackle.”
- Consignee can treat goods as lost if not delivered within 60 days of expected delivery.
- Exceptions covering negligence in navigation and management of the ship are abolished.
However, the Hamburg Rules have neither received the ratifications necessary for entry into force nor been adopted by major trading states. Therefore, the 1968 Hague-Visby Rules remain widely used.
Master’s Duty to Clause Bills of Lading
When a C/P requires the Master to sign B/Ls as presented, it does not mean the Master cannot endorse the actual condition and/or quantity of cargo loaded. A bona fide buyer is entitled to rely on an accurate count. Shippers sometimes try to persuade Masters not to make such endorsements by offering a Letter of Indemnity (LOI) in exchange for a clean B/L. If a Master yields, they participate in fraud against ultimate buyers. Furthermore, an LOI from a foreign shipper is not enforceable against a receiver in another country.
In 2002, a British court defined the nature of a Master’s duty regarding clausing B/Ls (David Agmashenebeli [2002]). The cargo was “Urea in Bulk, white color, free flowing.” When loading commenced, the Master noticed the cargo contained rust, plastics, and dirt. Mate’s receipts and B/Ls were endorsed accordingly. Banks refused to honor the L/C due to the claused B/L, leading to court litigation.
The court held that if a Master honestly believes cargo is not in apparent good order and condition—a view shared by any reasonably observant Master—they are entitled to qualify the B/L. However, if they take an eccentric view not shared by others, they are unjustified. The Master was correct in noting discoloration, though he should have specified it was partial.
Similarly, in Sea Success Maritime Inc v African Maritime Carriers Ltd (2005), hot rolled steel coils tendered for shipment were rusty, dented, and stored in adverse open weather conditions. The Master refused to load them. The court upheld that while a Master must sign B/Ls “as presented,” they cannot inaccurately describe damaged cargo as being in “good” condition, as doing so constitutes a misrepresentation of fact. If the cargo is defective, the Master is fully justified in clausing the B/L accordingly.