The Cost of Piracy

A study by one earth Future Foundation suggests that the global cost of piracy is usd 12 billion annually, including costs of rerouting and an armed force deterrent. the rerouting of vessels is costly, not only in terms of delayed voyages and increased bunker consumption, but due to a number of legal issues.

The key questIons

1. Can a master refuse to follow charterers' orders to follow a specific route through pirateinfested waters?

2. What additional premiums should charterers pay to owners?

3. what costs are charterers obliged to pay?

This article is based on advice from english law and on the presumption
that the charterparty incorporates the conwartime 2004 and bimco piracy clauses 2009.

ChoosIng the route

Generally speaking, a master must follow the charterers' set route. piracy is no different from other dangers when it comes to routing or voyage planning. the difference lies in the predictability of pirate attack compared to the
predictability of other hazards, such as adverse weather. It's all in the assessment as the master and charterers should have access to the same information.

The question is, has the master been prudent? if he has not, then charterers can claim damages based on the principles stated in the Hill Harmony decision.


Additional premiums

Relevant clauses state that charterers pay additional insurance premiums requested by the vessel's insurers in relation to trade that follows their own orders.It does not follow that charterers pay for additional insurance that
owners wish to obtain due to the trade, in particular extortion (kidnap & ransom or k&r) cover.The owners may claim additional premiums on existing covers only.

Charterer's costs

The overriding principle is that 'additional running costs' are for charterers' account. These include crew war bonus, repatriation costs and the purchase and rigging of barbed wire or any similar protection.

The cost of vessel conversion is probably not included. at the time of delivery or contract agreement the vessel must be fully fit for the intended trade, including allowance for sailing in pirate-infested waters if relevant.

The cost of armed guards is clearly a 'running cost', but if armed guards are illegal in the relevant jurisdiction, this cost cannot be claimed. as the legal
aspects of armed guards are not fully explored (see p. 24), parties are well advised to agree a lump sum payment for 'additional costs'.

Jørgen Rasch

This article is an extract from BEACON No. 1 2011 - issue 199