Server: Netscape-FastTrack/2.01 Date: Wed, 31 Dec 1997 20:41:35 GMT Accept-ranges: bytes Last-modified: Mon, 12 May 1997 19:51:04 GMT Content-length: 74033 Content-type: text/html
November 1993
Vol. 4, No. 2
Back to the Annual Table
of Contents
Contents
Howard
M. McCormack Appointed Titulary Member of CMI
Partner Howard M. McCormack was appointed a titulary member of the Comité Maritime International at the 1993 regular meeting of the Assembly held in Brussels in September, 1993.
Concerning the appointment of a Titulary Member, Article 3(b) of the CMI Constitution provides: "The appointment shall be of an honorary nature and shall be decided having regard to the services rendered by the candidates to the Comité Maritime International and to their reputation in legal or maritime affairs. Titulary Members shall not be entitled to vote." Titulary Members are proposed by the Member Association concerned. There may not be more than 21 members in each Association. There are now three Healy & Baillie partners among the 20 USA Titulary Members: Howard McCormack, Nicholas J. Healy (who is an Honorary Vice President of the CMI) and Gordon W. Paulsen.
Back To Contents | Down to Site Navigation
Members of Firm Participate in Hellenic-American Chamber of Commerce Conference
on The U.S. Oil Pollution Act of 1990 (OPA 90)
On October 18, 1993 approximately 200 people attended a one-day conference on the controversial statute, OPA 90, at the New York Athletic Club, sponsored by the Hellenic-American Chamber of Commerce, of which Emmanuel Caravanos is President. Partner Robert G. Shaw was Moderator of the conference. Among the speakers were Louis Anderson who delivered the speech prepared by Basil Ph. Papachristidis, who at the last minute was unable to attend on account of illness. Other speakers were Gerhard Kurz (President, Mobil Shipping & Transportation Corp.); Dagfin Lunde (Executive Vice President and General Manager, Den Norske Bank, N.Y. Branch); Peter Donnellen (Partner, Thomas R. Miller & Son); The Hon. Loucas Tsilas (Ambassador of Greece to the U.S.); Robert Somerville (President, American Bureau of Shipping); and Healy & Baillie Partner John D. Kimball. The text of Mr. Kimball's speech is printed below.
There was a lively panel discussion at the conference concerning the almost insurmountable problems of OPA 90, albeit with a recognition that OPA 90 is not all bad. There was some discussion about a possible (but probably not likely) solution to the sticky problem of obtaining Certificates of Financial Responsibility (COFRs).
Back To Contents | Down to Site Navigation
Speech by John
D. Kimball Given at the OPA 90 Conference Held by Hellenic-American
Chamber of Commerce on October 18, 1993
My talk today will be in two parts: if you think of it as two half-speeches, maybe it will seem shorter. Part one is titled "OPA 90: The Hairy Palm of Chartering."
I
OPA 90: THE HAIRY PALM OF CHARTERING
One of the first lessons I learned in my contracts course in law school involved the case of the "hairy palm."1 The case has no direct connection to shipping and, indeed, sounds more like a medical malpractice case. It holds a simple lesson, though, which is well worth remembering in this rather uncertain era of OPA.2 The plaintiff had undergone an operation. The operation consisted in the removal of some scar tissue from the palm of his right hand and the grafting of skin taken from his chest in place thereof. Some time after the operation had been completed, however, the plaintiff discovered that hair was growing out of his palm. Nowadays, we often hear complaints about lawyers who pursue medical malpractice cases, but what would you do if you woke up one morning and found hair growing out of your palm?
What makes the case interesting for our purposes is that, before the operation, the doctor had made the statement to the plaintiff that he "guaranteed to make the hand a 100% perfect hand or a 100% good hand." Since a hairy palm was neither a perfect nor a good hand, the doctor was found to have been in breach of contract and liable for the resulting damages.
If you are scratching your head and wondering what this has to do with OPA, I won't keep you in suspense. The case stands for the very simple proposition that you can promise anything -- even to make someone's injured hand perfect -- and be held liable if you fail to deliver.
Having stated that principle, let me ask a question. How many of you in the audience today who operate vessels trading to the United States have made promises you may never be able to deliver on? And to you charterers in the audience, how many of you have asked owners to make unrealistic promises?
As previous speakers today have suggested, one of the major problems created by OPA involves certificates of financial responsibility. I hope you will indulge me if I take just a minute or so to focus on this point a bit more fully. I'm not sure everyone here has the background on this and it is important that you do. OPA requires that a vessel have a certificate of financial responsibility in the amount of its OPA limit of liability in order to call at any place subject to the jurisdiction of the United States.3 What has not yet been determined, however, is the steps an owner will have to take in order to obtain a certificate at OPA limits. An owner can obtain a certificate by submitting evidence of insurance, but -- and here is the rub -- OPA would make any such insurer a guarantor with direct liability for all OPA claims.4 The P&I Clubs have taken the position that they will not become guarantors of OPA liabilities. The chief reason for the Clubs' objection is that they do not want to be exposed to direct action suits under OPA which might deprive them of policy defenses they would otherwise have. The Coast Guard and the P&I Clubs are at an impasse on this issue.5
In the meantime, ships are operating under pre-OPA rules on an interim basis which has been in place far longer than many of us would have predicted. For how much longer it will remain in place, no one dares to predict. Since the passage of OPA in 1990, however, shipowners have been able to obtain certificates of financial responsibility from the Coast Guard based on undertakings from their P&I Clubs under pre-OPA rules and at pre-OPA limits of liability. Unless something happens, however, if the Coast Guard's proposed regulations to implement OPA are adopted, the Clubs have said they will not provide the required evidence of insurance. If the P&I Clubs will not give evidence of insurance, virtually all of their shipowner members will have their existing certificates of financial responsibility revoked and new ones will not be issued. There have been indications of an alternative front line insurance vehicle becoming available that would serve as a way of providing the necessary OPA guarantees,6 but, unless there have been very recent developments of which I am unaware, that can't be said to be definite. It also is unknown how many owners would be able to take advantage of that alternative. Thus, as it stands right now, the vast majority of shipowners are not in a position to make promises about whether they will be able to obtain certificates of financial responsibility as required by OPA in the future.
Some day soon, we may face the oil crisis of 1993 or 1994 -- a crisis driven not by a shortage of oil or ships, but by a government requirement that insurers become guarantors. If we ever get to that day, the consumer at the gas pump is not going to understand it; and any consumer who does understand it is not going to believe it! Mr. Kurz also mentioned a possible assignment scheme which has created a glimmer of hope for a solution -- but I don't see how this solves the basic problem, which is rooted in OPA's definition of "guarantor."7 As the statute is drafted, an insurer who provides evidence of insurance is a guarantor, subject to direct suit without regard to policy defenses. My own view is that the problem should be solved in the most direct way -- Congress should amend OPA to make it clear that an insurer is not a guarantor.
For the moment, let us look at some charter clauses which currently appear to be in widespread use. To me some of these look very much like the promise made by the surgeon in the "hairy palm" case: shipowners continue to warrant that they will be able to obtain whatever certificates of financial responsibility are required to come to the United States, even though they have no idea whether they in fact will be able to make good on that promise. This may be okay on a voyage charter basis where the time frame is short term and relatively foreseeable. But I still see clauses in time charters and consecutive voyage charters which may have a considerable life span ahead and under which it is virtually certain owners will be in breach if the financial responsibility provisions of OPA are ever implemented.
We will look on the screen at a few clauses which are in use.
SAMPLE CLAUSE
1
COMPLIANCE WITH LAWS: Owner warrants that he will comply with U.S. Water Quality Improvement Act of 1970 (effective April 3, 1971) provisions of U.S. Coast Guard Regulations for Federal Water Pollution Control Act, Section 154, 155, 156 and 33 C.F.R., as amended, all applicable local port rules and regulations, applicable MARPOL regulations, and will have and carry aboard the vessel a U.S. Federal Maritime Commission Certificate of Financial Responsibility (Oil Pollution). In no case shall Charterer be liable for demurrage or other delay as a result of Owner's failure to obtain the aforementioned certificate. Any losses, expenses or damages arising as a result of failure to comply with this clause will be for Owner's Account.
The first clause was taken from a long term time charter for a tanker owned by a well-known owner and chartered by a well-known charterer who sub-chartered on the same terms to a well-known oil company. This clause is a disaster waiting to happen. It is at least 10 or 15 years out of date, but on my reading of it, the Owner has agreed to provide whatever certificates OPA requires. Do not use this clause ever again!
SAMPLE CLAUSE
2
Owner warrants that the vessel is in all respects eligible under applicable conventions, laws and regulations for trading to the ports and places specified in Part I(C) and (D) and that she shall have onboard for inspection by the appropriate authorities all certificates, records, compliance letters and other documents required for such service, including, but not limited to, a U.S. Coast Guard Certificate of Financial Responsibility (Oil Pollution) and the certificate required by Article VII of International Convention on Civil Liability for Oil Pollution Damage, as amended.
Owner further warrants that the vessel does, and will, fully comply with all applicable conventions, laws, regulations and ordinances of any international, national, state or local governmental entity having jurisdiction, including, but not limited to, the U.S. Port and Tanker Safety Act, as amended, the U.S. Federal Water Pollution Control Act, as OPA amended, MARPOL 1973/1978 and SOLAS 1974/1978/1983.
Any delays, losses, expenses or damages arising as a result of failure to comply with this clause shall be for Owner's account and Charterer shall not be liable for any demurrage for delays caused by vessel's failure to comply with the foregoing warranties.
In the interest of safety, Owners will recommend that the Master observe the recommendations as to traffic separation and routing which are issued from time to time by the International Maritime Organization (IMO) or as promulgated by the State of the flag of the vessel or the State in which the effective management of the vessel is exercised.
The second sample clause is more up-to-date and makes direct reference to OPA, but contains exactly the kind of warranty I would strongly urge every owner not to give. As you will see, Owner is warranting that, throughout the term of the charter, it will comply with every U.S. federal, state or local law concerning pollution. I have recently seen this clause used in long term time charters, as well as voyage charters. It may be acceptable for a single voyage if Owner is sure the vessel is in compliance, but beyond that it should not be used.
SAMPLE CLAUSE
3
Owner warrants that it has in place with its P&I Club the standard oil pollution cover of US$500 Million plus an additional US$200 Million oil pollution insurance cover available through its P&I Club or through underwriters providing first class security and Owner further warrants that such cover will remain in effect for the duration of this charter.
The third sample clause is a standard clause used by a major oil company. As you see, Owner is warranting what its P&I Club has warned it not to take for granted: the Clubs have warned that US$700 Million of coverage for pollution incidents may not be available year after year. If the Clubs are not able to offer it, who will? Any Owner who agrees to this clause has to provide US$700 Million of cover, whether or not it is available from its Club and, if it's not, must do so through underwriters providing first class security. That probably will not be possible.
A much better clause is one which we will see on the screen as Sample Clause 4: Owner is agreeing to provide the maximum coverage available from its P&I Club, but nothing more. Equally, the Owner is agreeing to call at U.S. ports only if it can obtain guarantees from its P&I Club and thereby obtain a certificate of financial responsibility.
SAMPLE CLAUSE
4
Owners have at present in force the US$700,000,000.00 oil pollution insurance.
The vessel shall not be required to call at ports in the U.S.A. in respect of which calls the vessel's P&I Club does not maintain or provide full coverage of owners'/vessel's potential liability for oil pollution or certificates of financial responsibility or other bonds, guarantees, undertakings or the like required for such call.
If, however, such cover and certificates, bonds, undertakings or the like are available or obtainable in respect of such calls from Owners' P&I Club against extra or additional cost, the vessel shall be required to comply with charterers' orders. Any and all extra or additional costs to be for Charterers' Account.
The last sample clause was drafted by me and I offer it for what it is worth. It should be satisfactory to Owners and Charterers in the present market.
SAMPLE CLAUSE
5
PROPOSED MODEL UNITED STATES OIL POLLUTION CLAUSE
a) Owner warrants that it has and throughout the period of this Charter shall maintain at its expense, the standard oil pollution coverage available from its P&I Club. Currently, the standard coverage is in the amount of US$500 Million. Any additional premiums charged by Owner's P&I Club to cover oil pollution risks for trading to the United States are for Charterer's Account.
b) At Charterer's option and expense, Owner will obtain any additional oil pollution coverage which is available through Owner's P&I Club or other underwriters. Currently, additional coverage in the amount of US$200 Million is available through Owner's P&I Club.
c) Owner warrants that for purposes of trading to any place in the United States or subject to its jurisdiction, it shall obtain the necessary certificates of financial responsibility required by the federal and/or state governments, provided, however, that notwithstanding any other provision of this Charter, this warranty shall be of no force and effect in the event Owner's P&I Club declines to provide guarantees or any other security or documentation necessary for that purpose. In the event Owner is unable to obtain the necessary certificates of financial responsibility for this reason, Charterer shall have the option of (1) continuing the charter and trading the vessel to non-U.S. ports; (2) continuing the charter and providing the necessary guarantees or security to enable the vessel to trade to the United States; or (3) cancelling the charter and redelivering the vessel to Owner at a place provided for in the charter.
In my view, it is safe for an Owner to warrant that it will obtain the maximum level of insurance available from its P&I Club or other insurer to cover pollution risks. The amount of coverage should not be warranted in any long term contract since that is subject to change annually.
It also is safe for an Owner to warrant that it will obtain such certificates of financial responsibility as may be required, but only if that warranty has the proviso that it will not apply if the required guarantee is not available from the Owner's P&I Club or other insurers. My recommendation is that any such clause also provide the Charterer with the options of restricting the trade of the vessel to non-U.S. ports; providing the necessary guarantee itself; or cancelling the charter.
Before concluding this part of my speech, I should also note that OPA includes numerous other requirements which I will not cover for lack of time, but which Owners will have to satisfy in order to be in compliance with standard charter party warranties.
Owners and Charterers need to pay very careful attention to the oil pollution warranties in their charter parties. It will do no one in the industry any good if Owners end up being in breach of warranties to bring vessels to the United States only because of the refusal of their insurers to provide certificates of financial responsibility. If we are talking about a charter which is likely to have a life of six months or more, I can only urge all of you to remember the case of the hairy palm and not make promises you can't keep.
II
OPA 90: IS UNLIMITED LIABILITY INFINITE?
When I hear the word "INFINITE", I usually associate it with Albert Einstein. Among Einstein's unproved, but generally accepted theories, is the conclusion that the universe is constantly expanding. Einstein postulated, however, that there would come a time when the constantly expanding universe would reach what is called in physics a state of maximum entropy. Entropy measures the degree of disorder in a system.8 When the Universe reaches the state of maximum entropy, all the processes of nature will cease.9 The Universe will come to what, for want of a better word, we might call the "end." Happily, Einstein also calculated that this event will not happen for billions of years to come.
For those of us gathered here today, a question of more immediate concern, is whether unlimited liability under OPA will put the shipping industry which serves the United States in its own state of maximum entropy? If the Congress and our courts continue to expand the universe of liabilities shipowners and their insurers must contend with, will we reach the point of no return where the industry might just disappear?
The greatest outcry against OPA has been that it represents a major change in the law because it created unlimited liability for shipowners. I do not want to sound like an apologist for OPA, but let me attempt to set part of the record straight. OPA did not actually represent much of a change from prior law so far as liability for federal government clean-up claims is concerned. Yes, the amount of the OPA limit is much greater than it had been under the Federal Water Pollution Control Act.10 But, it seems to have been forgotten that, under the law before OPA, an Owner who was responsible for an oil spill had only a conditional right to limit liability. Under the FWPCA, an Owner could be held liable for the full amount of the government's clean-up costs without limitation if the spill was the result of "willful negligence or willful misconduct within the privity and knowledge of the owner."11 Congress did not define "willful negligence" or "willful misconduct" and, as it has since recognized, they were perhaps not the best choices of phraseology. After all, it is hard to understand how you can willfully neglect to do something. In any event, our courts found a way to give "willful negligence" a definition, and did so in a pre-OPA case called The Tug Ocean Prince.12 There, the court held that willful negligence and willful misconduct essentially meant egregious conduct which made it likely that an accident would happen. The same rule was applied in the Amoco Cadiz,13 although in a somewhat different context.
OPA does represent a change from prior law in that it expanded the ways in which the right to limit can be lost. The right to limit will be lost if the incident was caused by gross negligence, willful misconduct, or the violation of certain federal regulations, or by the failure or refusal to report the incident, failure to cooperate with government officials in the removal action, or the failure to comply with any order made by the government.14 In my opinion, the significant change is in the latter areas.
Perhaps the single most important change which OPA created so far as limited liability is concerned, relates to state government claims. Under prior law, before OPA, unlike federal government clean-up claims, state claims and private claims were subject to limitation under an entirely different statute called the Federal Limitation of Liability Act of 1851.15 The Limitation of Liability Act covered any and all claims for damages arising on a voyage, except federal government clean-up claims made under the FWPCA and certain other federal statutes. Under the Limitation Act, an Owner is entitled to limit its liability to the value of the vessel at the end of the voyage if it can carry what has proved to be the heavy burden of showing that the casualty was the result of causes outside its privity and knowledge.16 Thus, under prior law, when we spoke of limiting liability, it was necessary to distinguish between the FWPCA on the one hand, which created its own limitation fund and applied only to federal government clean-up expenses, and the Limitation of Liability Act, on the other hand, which covered all other claims and for which an entirely separate limitation fund based on the value of the vessel was established.
OPA made the 1851 Limitation Act inapplicable to state government claims, as well as private claims made under OPA.17 In addition, OPA expressly provides that state governments are free to impose any additional or different types of liability for oil spill removal expenses and that the Limitation Act does not apply to such claims.18 Essentially, the states are free to do as they wish in imposing liability on the Owners of vessels which spill oil.
OPA has also changed the legal regime quite substantially by greatly expanding the types of damages for which an Owner can be liable. For example, OPA creates a right of recovery for private claimants who suffer purely economic damage as the result of a spill.19 OPA eliminated a number of uncertainties in prior law as to such claims. For example, the former requirement that a claimant prove physical damage to property as a precondition to recovery for purely financial loss was abolished. OPA makes it clear that a fisherman may recover income lost due to damaged fisheries resources, even though he is not the Owner of those resources.
One of the factors which makes the specter of unlimited liability seem infinite is the way damages may be determined under OPA. For example, the National Oceanic and Atmospheric Administration ("NOAA") is in the process of developing Natural Resource Damage Assessment regulations.20 Although the final rules have not yet been published, NOAA is likely to embrace what is called the "contingent valuation methodology" of assessing damages associated with the "non-use" or "passive use" of the environment. Contingent Valuation Methodology seeks to assess the cost to society of natural resource damage, even when no economic loss has been suffered by anyone. This methodology could mean very big bucks in government damage claims. The way damages are calculated is important. If you add to the cost of replacing a tree which was nice to look at an amount to compensate society for the loss of that view, how do you calculate it?
At present, we have no case law to look to to see how all of these new provisions I have mentioned will be applied by the courts. We do have a body of case law resulting from pre-OPA oil spills which is instructive. There were several important cases in which the vessel owner was permitted to limit its liability for government clean-up expenses.21 I see no reason to draw the conclusion that those cases would have been decided differently under OPA. There were also a few cases where the FWPCA limit was broken, so that the Owner was liable for 100% of the government's clean-up expenses.22 There also were cases where FWPCA had no role, but limitation under the 1851 Act was attempted.23 The best known example of the latter type of case was the Amoco Cadiz,24 which involved foreign government clean-up and damages claims. The court's comments about the 1851 Limitation Act in the Amoco Cadiz were not encouraging from a shipowner's perspective: the court noted that the recent trend in the courts has been to greatly reduce the ability of shipowners to limit their liability. Not all of our courts have been so negative on limitation, but the judicial attitude indicated in the Amoco Cadiz suggests that OPA's restrictions on the use of the 1851 Limitation Act in oil spill cases may not matter very much since the courts were already heading in the same direction anyway.
Another related change from prior law made by OPA is that the Responsible Party ("RP") is obliged to pay all removal costs and damages recoverable under OPA in the first instance, without regard to its OPA limit.25 There is no vehicle in OPA for a RP to set up a limitation fund and then leave the clean-up to the Coast Guard. Rather, the law effectively presumes unlimited liability in the first instance, but allows a RP who is entitled to limitation to seek reimbursement of the excess of clean-up costs over the limitation fund from the Federal Oil Spill Liability Trust Fund administered by the Coast Guard.
To put this in more concrete terms, let us imagine a spill from a 60,000 GRT tanker. If the vessel's GRT is 60,000 tons, the OPA limit is $72,000,000 [60,000 X $1200 per GRT]. If the clean-up cost is $100,000,000, the RP must lay out $100,000,000, but may look to the Fund for reimbursement of $28,000,000 if it is entitled to limit. Whether RPs can actually do this will largely depend on the attitude of their insurers.
OPA itself provides no mechanism by which an RP can opt out of paying for the clean-up as directed by the Federal On-Scene Coordinator. Indeed, it appears that a failure to follow the Coordinator's directions is a ground for losing the right to limit liability and could expose the RP to penalties. This is so even where the RP has bona fide grounds for contending that a third-party has sole liability for the spill. Under OPA, an RP has a right to recover against a third-party who was the sole cause of a spill, but only after the RP has paid removal costs and damages to any claimant.26
Under prior law, we often used the Limitation Act in oil spill cases to create a concursus for filing all claims. In plain English, it was a way of forcing all claimants to bring their claims in one court case and this applied to federal and state government claims, as well as any private claims. Establishing a concursus had numerous advantages for all concerned in the administration of the claims. Unfortunately, OPA has minimized this possibility.
There may be other ways of achieving a concursus. A private claims handling program set up by the RP might work -- but only if claims are settled.
Another approach which I might guardedly suggest is voluntary bankruptcy. Particularly in the event of a major or catastrophic oil spill, the RP should consider filing for bankruptcy under Chapter 11 of the Bankruptcy Code. It is not necessary to be insolvent to take advantage of our bankruptcy law. A bankruptcy filing would effectively enjoin all third party claims from being filed or continued elsewhere, and thereby force claimants to file their claims in the bankruptcy court and seek relief from the bankruptcy stay in order to litigate their claims elsewhere. Bankruptcy has been used in a number of mass tort cases, notably those involving asbestos manufacturers, to create a judicial concursus for all claims. Although the interplay between OPA and the Bankruptcy Code is entirely unclear, this is an approach which should be evaluated carefully in major spills.
In conclusion, it is fair to say that OPA has vastly changed the legal regime in the United States concerning oil spills. But the possibility of unlimited liability has long been part of our law in this area. Let us remember that the most expensive oil spill of all time -- the Exxon Valdez -- is a pre-OPA case. The real changes brought about by OPA were to vastly widen the scope of an Owner's potential liability, especially to state governments; to validate certain types of private claims which prior law did not clearly recognize, and to put the burden of funding the clean-up on the RP.
1 Hawkins v. McGee, 146 A. 641 (N.H. 1929).
2 Oil Pollution Act, Pub. L. No. 101-380, 104 Stat. 484-576 (1990) ("OPA").
3 33 U.S.C. §2716.
4 Id.
5 See, e.g., U.S. Coast Guard View 'Irresponsible.' Lloyd's List, September 24, 1993.
6 Mulrenan, "New Insurance Company Set to Cover U.S. Oil Spill Liabilities," Lloyd's List, Sept. 28, 1993, at 3.
7 33 U.S.C. §2701 (13).
8 Hawking, A Brief History of Time 102 (1988).
9 Barnett, The Universe and Dr. Einstein 95 (1948).
10 33 U.S.C. §1321, amended by Oil Pollution Act, Pub. L. No. 101-380 (1990).
11 33 U.S.C. §1321(6)(B), Oil Pollution Act, Pub. L. No. 101-380 (1990).
12 584 F.2d 1151, 1978 AMC 1787 (2d Cir. 1978), cert. denied 440 U.S. 959 (1979).
13 1992 AMC 913, 940 (7th Cir. 1992).
14 33 U.S.C. §2704.
15 46 U.S.C. §§183-189.
16 46 U.S.C. §183(a).
17 33 U.S.C. §2702.
18 33 U.S.C. §2718(a)(1), (c).
19 33 U.S.C. §2702(b)(2)(B).
20 See Advanced Notice of Proposed Rulemaking, 57 Fed. Reg. 8962 (March 13, 1992) (regulations expected to be issued within the next two months).
21 See, e.g., U.S. v. Dixie Carriers, Inc., 736 F.2d 181 (5th Cir. 1984); U.S. v. Bear Marine Services, Inc., 509 F. Supp. 710 (E.D.La. 1980); Amoco Oil Co. v. U.S., 3 Ct. Cl. 785 (1983); Dixie Carriers, Inc. v. U.S., 1989 AMC 326 (E.D.La. 1978), aff'd, 627 F.2d 736 (5th Cir. 1980); Steuart Transport Co. v. Allied Towing Corp., 596 F.2d 609 (4th Cir. 1979).
22 Tug Ocean Prince, Inc. v. U.S., 584 F.2d 1151 (2d Cir. 1978), cert. denied, 440 U.S. 959 (1979); U.S. v. City of Redwood City, 640 F.2d 963 (9th Cir. 1989); See also Steuart Transport Co. v. Allied Towing Corp., 596 F.2d 609 (4th Cir. 1979) (discussing willful negligence standard for unlimited liability under FWPCA).
23 In Re Oswego Barge Corporation, 1979 AMC 33 (S.D.N.Y. 1978); U.S. v. Bear Marine Services, Inc., 509 F. Supp. 710 (E.D.La. 1980); U.S. v. M.V. BIG SAM, 681 F.2d 432 (5th Cir. 1982), cert. denied, 462 U.S. 1131 (1982).
24 1992 AMC 913 (7th Cir. 1992).
25 33 U.S.C. §2702.
26 Sec. 1002(d)(1)(B).
Back To Contents | Down to Site Navigation
Remarks by William
N. France Regarding Ferry Vessel Safety Issues at a Conference Sponsored
by The Transportation Research Board of The National Research Council July
28, 1993
Safety issues, especially as they relate to the environment and to personal and economic injuries to crew, passengers, and third parties, have come to dominate maritime casualty litigation. At the same time, the design, construction and functioning of vessels have become more complex and exotic -- and more regulated. More regulated, perhaps, due to the fact that engineers better understand the natural processes which have always affected vessels, so that it is now possible to design for them. But there can be no doubt that safety concerns also lie behind the proliferation and complexity of today's regulations, increasingly dominating the services provided by those who inspect and certify vessels.
I confess a lack of familiarity with the operation of ferry vessels and their regulation, inspection, and certifications. My experience has been with ocean-going vessels for which classification societies are the significant regulators, setting design and construction standards and carrying out post-delivery surveys, and more recently evaluating crewing and training standards.
I understand that the United States Coast Guard occupies the role of chief regulator for ferry vessels and that class -- ABS, since we are concerned with United States flag vessels -- services overlap to some degree insofar as ABS rules and regulations may be applicable and insofar as ABS is authorized to perform services on behalf of the Coast Guard.
Even so, one issue is common whether we are concerned with ocean-going or inland and protected waterways vessels: who pays for the services of the regulators and who ought to pay?
At this time it is appropriate to mention marine insurance. In fact, my remarks have not been chronological since the genesis of the regulatory function arose after marine insurance. As many of you may know, Lloyd's Register of Shipping was established by underwriters at Lloyd's better to enable them to evaluate the risks of insuring particular vessels. Lloyd's Register was paid by the underwriters. Perhaps the closest equivalent in modern times is the United States Coast Guard here or, for example, the Department of Transport in the United Kingdom, and similar national agencies in other countries. At least to the extent that these agencies are independent of the shipowners whose vessels and operations they regulate, they resemble the original notion of a classification society.
At some time and in some manner, however, classification societies themselves came to be paid by that segment of the industry which they were intended to regulate. Internationally both hull and P&I underwriters have become so dissatisfied with services provided by classification societies that they now insist on their own independent surveys and inspections before accepting risks. These developments in the last several years resemble the very origins of the classification society itself.
But we are seeing classification societies responding to these criticisms. They are improving and empowering the International Association of Classification Societies ("IACS"), to insure more consistent and uniform standards and application of standards among societies, thus removing the temptation for owners to shop for a more lenient society. Those who are members of IACS are subject to periodic quality assurance reviews.
These developments in the marine industry strike me as similar to issues faced by all professions and industries which strive to be self-regulating. Their evolution is never simple and never without crises.
This leads me now to the issue of who regulates the regulators and who allocates the liabilities and costs of a maritime casualty. This, of course, is where the courts and our legal system play their primary roles. There are two basic schemes of liability: contract and tort, each having its own theories of liability ranging from strict liability and warranty to products liability and negligence. Contract theories are limited to parties who bear a contractual relationship with each other. While parties in a contractual relationship cannot affect the rights of injured third parties, they are able to allocate among themselves liabilities to third parties. In appropriate circumstances -- between or among parties of relatively equal bargaining power -- courts are less willing today to interfere with agreements and allocation of responsibilities that parties have negotiated into their contracts.
Tort law provides remedies for those not in a contractual relationship, frequently including those persons suffering physical or economic injury in a vessel casualty. While such persons, if they be passengers, crew members or cargo interests, may have a contractual relationship with the vessel owner, they will not normally have a contractual relationship with a classification society. To the extent the Coast Guard is implicated, suits against United States government agencies are governed by the Federal Tort Claims Act and the Suits in Admiralty Act.
In 2000 B.C. the Code of the Babylonian ruler Hammurabi contained this provision:
If a boat-builder build a boat for a man, and do not make it tight [seaworthy]; if in that same year the boat be sent on a trip, and be damaged, the boat-builder shall rebuild that boat, and make it strong at his own expense; he shall give the reconstructed boat to the owner.
Apparently in 2000 B.C. the errors of the boat builder were not the source of as much concern as the errors of the shoreside builder, for a further provision of Hammurabi's Code provided that if a house was not solidly built and fell down, killing the owner, the builder was to be put to death.
The advantages of strict liability are obvious: the law is simple and easily applied, minimizing the legal time and expense in allocating the costs of a casualty. Strict liability, in theory at least, is intended to place liability on those best able to bear it or on those society believes ought to bear the ultimate risk of liability.
The concept of fault embodied in the tort theory of liability called negligence is of fairly recent development. Without such a theory of negligence the industrial revolution would have taken an entirely different form. The elements of a negligence cause of action are the same whether the defendant is a classification society, the Coast Guard, a shipowner, a shipyard or any other defendant. The plaintiff must establish that the defendant owed a duty to conform to a certain standard of conduct for the protection of others against harm; that the defendant failed to conform to that duty of care; that such failure by the defendant was the "proximate" cause of the plaintiff's injuries, and that the plaintiff has been damaged or injured. Negligence liability is the generally applicable theory of liability when seeking to impose liability on those who provide services like classification societies or the Coast Guard.
Courts have not found products liability theories appropriate for these kinds of services. Products liability requires that a product be "unreasonably" dangerous. In the context of services, this has been transformed into a requirement that the negligent performance of the service must have increased the risk of harm, and courts have frequently found that merely failing to discover a defect or deficiency during a vessel inspection or survey does not satisfy the requirement of an increased risk of harm. What courts find unfair in applying products liability theories to inspection and surveying services is that inspectors and surveyors do not have the same degree of control over the vessel or component causing the injury as does the owner, or vessel builder or repairer, for example.
However, a recent English case is noteworthy for its pragmatic evaluation of the role of a classification society. The case is Marc Rich & Co. A.G. v. Bishop Rock Marine Co. Ltd. (The Nicholas H), 2 Lloyd's Rep. 481 [1992], in which the owners of a cargo of bulk ore brought suit against the vessel's classification society, Nippon Kaiji Kyokai (NKK) for the loss of their cargo. The facts are that after loading the cargo of ore in South America the vessel developed a crack in her shell plating and took refuge in San Juan, Puerto Rico. NKK were notified and their non-exclusive, local surveyor inspected the vessel. He recommended permanent repairs at the nearest available port before completing the voyage to Europe; he made the undertaking of such repairs a condition of the vessel's remaining in class. However, a team flown out to inspect the vessel by the shipowner balked at this requirement. Temporary repairs using sealant and welding were carried out on the vessel in Puerto Rico. Thereafter, NKK's surveyor issued a further report revoking his first recommendation and approving the temporary repairs for a voyage to Europe. A week after setting sail the crack reopened, resulting in the sinking of the vessel. Fortunately, no lives were lost. However, the cargo, valued at $6,000,000, sank with the vessel. Because the shipowner's liability was contractually limited by the Hague Rules to $500,000, cargo interests sought recovery of the $5.5 Million balance from NKK.
The case came before the Court on NKK's motion to dismiss the claim, which the Court denied. The Court said in connection with the issue of "control" exercised by NKK over the vessel:
On the assumed facts . . . it seems to me that there was a very close degree of proximity between [NKK's surveyor] and the plaintiffs. Having first recommended that the vessel should not leave port without having undergone permanent repairs, he later recommended that she set sail after only temporary repairs had been done, knowing that she was fully loaded, and therefore knowing that, if it was dangerous for her to go to sea in that condition, the goods were just as likely to be damaged or lost as the vessel itself. Although it is true . . . that [the surveyor] had no actual direct physical control over the vessel in the sense that he could bar her sailing, the sanction imposed by his first report rendered it highly probable that the shipowner would not sail (as in fact occurred), in view of the dire effects that this would have on his insurance and on other common commercial arrangements such as a ship mortgage . . . The absence of any contact, direct or indirect, between the plaintiffs and NKK, and the absence of any kind of reliance by the former on the latter is by no means decisive . . .
I am, therefore, satisfied that, on the assumed facts of this case, a sufficiently close and direct relationship of proximity is established, but I wish to emphasize that this conclusion is based simply and solely on those assumed facts, and has no general application whatsoever to any other situation which might arise between a Classification Society and cargo owners or other third party with whom they are not in contractual relationship.
This is a refreshingly objective assessment of a regulator's role in the maritime industry; a role quite unlike regulators in other industries. Had NKK been paid by underwriters rather than owners, no doubt the NICHOLAS H would not have sailed! By contrast, in a recent United States case, Sundance Cruises Corp. v. The American Bureau of Shipping, 799 F. Supp. 363 (S.D.N.Y. 1992), the judge likened a classification society's role in performing a SOLAS survey to that of a motor vehicle inspection station's annual safety inspection of an automobile and dismissed the owners' suit for loss of its vessel.1
A final variation on the negligence theory ought to be mentioned, that is, negligent misrepresentation. The general maritime law of the United States recognizes a cause of action based on such a theory, summarized in the Restatement (Second) of Torts, § 552 (American Law Institute 1977) as follows:
Information Negligently Supplied for the Guidance of Others.
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered:
(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions to which it is intended to protect them.
This theory was applied by the United States District Court in New Jersey to hold a classification society liable for negligently calculating and certifying vessels' Suez Canal tonnages. Somarelf v. The American Bureau of Shipping, 704 F. Supp. 59 (D.N.J. 1989) and 720 F. Supp. 441 (D.N.J. 1989). The vessels' owners and time charterers relied on the classification society's certificates and suffered economic loss as a consequence. The case stands for the more general proposition that in matters requiring a regulator's inspection and certification and when such matters require special expertise and training such that the regulator is considered an "expert" in the field, then such a regulator may be held liable for its neglect.
1 The Second Circuit Court of Appeals recently affirmed the District Court's dismissal in Sundance Cruises Corp. v. The American Bureau of Shipping, Docket No. 92-9153 (October 15, 1993).
Back To Contents | Down to Site Navigation
Firm Has Permission to Open Office in Hong Kong
We are very glad to announce that the Law Society of Hong Kong has approved Healy & Baillie's application for the establishment of a branch office in Hong Kong. We expect to announce the opening of the Hong Kong office in the very near future. Genrong Yu will then be our resident partner in Hong Kong.
Back To Contents | Down to Site Navigation
Genrong Yu Becomes Partner: Liaison Offices Established in Shanghai and
Guangzhou
Genrong Yu, who had been a Healy & Baillie associate since 1989, became a partner on May 14, 1993. He is presently in the People's Republic of China lecturing on AMVER (see article on AMVER in this issue) and in connection with establishing Healy & Baillie liaison offices in Shanghai and Guangzhou which will be in a position to assist the firm and our clients in handling legal matters in China, including maritime disputes, commercial transactions and negotiations, foreign investments, etc. Legal questions concerning China should be referred to Genrong Yu at our New York office (for the time being), or to either of our Liaison Offices. The persons and addresses to be contacted there are:
Yang, Zhaonan, Esq. Shanghai Lawyers Office for Maritime Affairs, 1550 Pudong Da Dao, Shipping Management Building, 5th Floor, Shanghai, China
Telephone: 86-21-885-4869/86-21-885-5200, Ext. 2509 Telecopier: 86-21-885-4869 Huang, Ya-Quang, Esq., CPI Guangzhou, Ocean Hotel Bldg., Suite 1419, 412 Huan Shi Road, East Guangzhou, China
Telephone: 86-20-776-5988, Ext. 1419 Telecopier: 86-20-776-5636 TOCPI GZH
Back To Contents | Down to Site Navigation
Book on Voyage Charters Published by Lloyd's of London Press
Healy & Baillie partners, John D. Kimball and LeRoy Lambert; David Martowski (Thomas R. Miller & Son); Andrew Taylor (Richards Butler, London); Julian Cooke (Lincoln's Inn) and Timothy Young (Gray's Inn) have just published a new textbook on Voyage Charters. The book includes a clause-by-clause analysis of the Gencon and Asbatankvoy forms of charter party. In the forward the Rt. Hon. Lord Justice Staughton writes of the book: "It will be a valuable aid both to those who go down to the sea in ships, and to those who have to resolve their disputes; but not for the general reader, who may think that off-hire is a rugby league footballer." It is published by Lloyd's of London Press.
Back To Contents | Down to Site Navigation
New York Court Authorizes Multiple Rule B Maritime Attachments on the Same
Bank Account
By Todd P. Kenyon
Attachment of an opponent's assets as security for a maritime claim is an important tool in both arbitration and litigation. Supplemental Admiralty Rule B of the Federal Rules of Civil Procedure provides a mechanism for the pre-judgment attachment of an opponent's assets, normally a bank account, as security. Under Rule B, a maritime claimant in a London arbitration, for example, can attach the New York bank account of its opponent as long as the opposing party is not present in New York for purposes of personal jurisdiction.
It is not unusual for a party subject to a Rule B attachment to have a number of creditors seeking security for their various claims. Under those circumstances, is it possible to have multiple Rule B attachments by multiple creditors on the same bank account? In a case recently handled by the firm on behalf of a claimant in a London arbitration attempting to attach a New York bank account subject to a previous Rule B attachment, the court held that it is.
In Starboard Ventures Shipping v. Casinomar Transportation Inc., 93 Civ. 644 (S.D.N.Y. 1993), the claimant, Starboard Ventures, sought security for an unpaid hire claim that was being pursued in a London arbitration. On application by Starboard Ventures, the court issued an order of Rule B attachment against any funds held by Casinomar at Marine Midland Bank in New York City. The order of attachment was successful in capturing funds held under Casinomar's name at the bank, but Casinomar moved to vacate the order of attachment because the funds were held in an escrow account at Marine Midland pursuant to a previous Rule B attachment.
Casinomar made two arguments in support of its motion. First, it argued that since the account at Marine Midland was subject to a previous Rule B attachment, it did not belong to Casinomar and was not subject to attachment. Second, because the escrow account was in custodia legis (within the custody of the court) based on the previous Rule B attachment, the funds could not be attached.
In response to Casinomar's first argument, the court did not agree that Casinomar had no ownership interest in the escrow account. Although Casinomar did not have control over the funds, it still had a reversionary interest in any surplus remaining after the first claim was satisfied, which, like other assets, was subject to attachment. The court recognized, however, that Starboard Ventures' attachment of the funds was subsidiary to the previous Rule B attachment. If the claimant in the first attachment succeeded fully in its claim, there would be no surplus security to satisfy Starboard Ventures' claim.
Concerning Casinomar's custodia legis argument, the court found that New York courts expressly permit an attachment of funds held in custodia legis. Custodia legis only bars the subsequent attachment of funds that would prevent a court from disposing of the funds in accordance with the initial attachment and which would interfere with the authority of the initial court. The court found neither of these circumstances present. Starboard Ventures freely acknowledged that its attachment was subsidiary to the first attachment. Further, since the first Rule B attachment was also in the Southern District of New York, it was not a case where one court was interfering with the authority of another.
The court was also faced with Casinomar's request for counter-security pursuant to Supplemental Admiralty Rule E(7). Rule E(7) provides that if a defendant who has given security asserts a counterclaim, it shall be given counter-security for the counterclaim, unless the court otherwise directs. Casinomar had asserted a $65,000 counterclaim against Starboard Ventures. In view of Starboard Ventures' inferior security interest in the attached funds, however, the court ordered the posting of counter-security, only if and when the initial attachment was released and a surplus remained in the account. Only then would it be equitable to order Starboard Ventures to post counter-security, since it would then have an unencumbered security interest in ready money.
The Starboard Ventures case is the first reported case addressing multiple Rule B attachments on the same funds. It is important since it upholds and does not limit the power of Rule B maritime attachments in cases involving multiple security claims on one asset of a debtor.
Back To Contents | Down to Site Navigation
Captain You-Zhong Liu who recently retired from China Ocean Shipping Co. ("COSCO") joined Healy & Baillie as a technical adviser on a temporary basis on October 4, 1993. Captain Liu was a ship master for many years, became Chief Marine Superintendent of COSCO-Shanghai and then Director of Marine and Terminal Operations of COSCO North America, Inc. He is the Claims Advisor of China P&I Club, Senior Consultant of Ocean Routes, Inc. (Shanghai) and Guest Professor, Shanghai Maritime University.
Back To Contents | Down to Site Navigation
Healy & Baillie Assisting USCG in Promotion of AMVER in The People's
Republic of China
Genrong Yu and Ronald Betancourt of Healy & Baillie, together with Captain You-Zhong Liu, are assisting the United States Coast Guard ("USCG") in promoting its Automated Mutual Assistance Vessel Rescue System, commonly known as AMVER, in the People's Republic of China.
AMVER is a program which provides important aid in the development and coordination of search and rescue efforts in all oceans. The system's premise is simple and effective: merchant vessels of every flag are encouraged voluntarily to send sailing and periodic position reports to AMVER's new computer facility in Martinsburg, West Virginia, which enters them in the computer's data base from which the computer generates and maintains dead reckoning positions for each vessel. The computer retains information concerning each vessel, such as speed, available onboard medical facilities, helicopter landing capabilities, etc. This data base is made available upon request to recognized search and rescue ("SAR") agencies world-wide during emergencies at sea. The data base is invaluable to SAR authorities in determining the most effective rescue vessel(s) in the area in terms of response time as well as in terms of SAR characteristics. Conversely, the data base is invaluable in determining which vessel(s) need not respond either because another vessel is closer or because it does not have the SAR characteristics needed. Thus, AMVER saves lives and property and promotes efficiency.
What's the catch? There is none! AMVER participation is free, voluntary and available to ships of all nations. It is fully endorsed by the International Maritime Organization ("IMO"). AMVER information is protected and is used exclusively for humanitarian purposes.
Maximum participation is vital to AMVER's support of search and rescue around the world. The more ships enrolled in the system, the better the chances of emergency assistance being quickly located and dispatched to a vessel in distress.
To this end, Healy & Baillie is proud to be of assistance to the USCG in promoting AMVER participation among Chinese owners and/or operators. We are presently arranging with the Shanghai Maritime University to hold a one day seminar featuring the AMVER program. The seminar is tentatively scheduled for September 1994. For further information on AMVER and/or the seminar please drop a line to Ronald Betancourt or Genrong Yu.
Back To Contents | Down to Site Navigation
Notes of Interest Regarding Healy & Baillie Personnel
Simon and Karen Harter are happy to announce the birth of their son, Graham John, on August 24, 1993. The Harters also have a daughter, Kathryn Elizabeth, who is 3-1/2 years old.
Matthew and Julie Day Marion are proud to announce the birth of their first child, a son, Connor Day Marion, born on October 17, 1993.
* * * *
Associate Ronald Betancourt was recently selected as an Officer of the Port of New York Chapter of the United States Merchant Marine Academy Alumni Association. Ron is a 1982 graduate of the Academy. Incidentally, Ron recently ran in the New York City Marathon with a finishing time of 4 hours and 12 minutes. It was his second successful marathon and, he claims, likely his last.
* * * *
WAIT 'TIL NEXT YEAR!
After completing an undefeated regular season, the Healy & Baillie softball team lost to Bigham Englar in the first round of the playoffs by a score of 7 to 6. It was an exciting game, but a disappointing end to an otherwise successful season. As always, a good time was had by all, and we look forward to next season! Walker & Corsa went on to win the championship.
Back To Contents | Down to Site Navigation
MAINBRACE is intended to provide general information. The articles contained in MAINBRACE do not constitute legal advice. An analysis of the facts relating to a particular issue must be accomplished before legal advice can be given.
NOTE: "Mainbrace," our Firm's cable address, in nautical terminology means the brace or rope sustaining the main yard on a ship. The Staff of "Mainbrace" consists of Nicholas J. Healy, Gordon W. Paulsen, John C. Koster, Matthew A. Marion, Betty M. Waterman and Renee Kintzer.
New York Office: 29 Broadway New York, NY 10006-3293 Telephone: (212) 943-3980 Telecopier: (212) 425-0131 |
Hong Kong Office: Luk Hoi Tong Bldg., Suite 1301 31 Queen's Road Central Hong Kong Telephone: (852) 2 537-8628 Telecopier: (852) 2 521-9072 |
Connecticut Office: Stamford HarborPark 333 Ludlow Street Stamford, CT Telephone: (203) 961-7250 Telecopier: (203) 357-7909 |
New Jersey Office: 374 Millburn Avenue P.O. Box 599 06902-6987 Millburn, NJ 07041-0599 Telephone:(201) 384-2556 Telecopier:(201) 384-1081 |
Internet:Reception@Healy.com
MAINBRACE
HEALY & BAILLIE
29 BROADWAY
NEW YORK, NEW YORK 10006-3293
Home
Page Oil Pollution Charters |
MB
Newsletter WWW Links In the News |
Attorneys Firm Description Offices |
Making
Law Bibliography Search |
Email
Us Webmaster Disclaimer |