Legal & Political Considerations in the aftermath of Marine Casualties

IMIF BUFFET LUNCHEON

Date: Wednesday 16th April 2014

Venue: Watson Farley & Williams LLP, 15 Appold Street, London, EC2

Host: Nigel Thomas, Partner, Watson Farley & Williams LLP

Speaker: Lars Rhodin, Managing Director, The Swedish Club

Subject: “Legal and political considerations in the aftermath of Marine Casualties”

Report by James Brewer

Mr Rhodin examined the costly consequences of two of the most serious casualties in recent years – the Costa Concordia and the Rena – and sadly, on the eve of his presentation to the IMIF, another awful loss had occurred, that of the South Korean ferry, the Sewol, with the announcement at that stage that around 300 people were missing.

The Swedish Club managing director was scathing about an attitude by some in the maritime sector that “it is quite OK to earn money out of casualties.”

He had direct and personal experience in relation to the Rena, because the operator Costamare Shipping has had tonnage entered with the club for more than 30 years, including cover for pollution liability. Mr Rhodin said that the incident was the subject of “one of those phone calls I shall never forget,” when he was just about to leave the office for the day.

Mr Rhodin showed dramatic photos taken after the Rena ran aground in the Bay of Plenty, New Zealand, in the early hours of October 5 2011. She had been heading at full steam to Tauranga when 12 miles from the port she hit the small Astrolabe Reef, near Moiti Island.

In an exposed position and with 1,368 containers on board, 32 of which contained hazardous materials, as well as 1,648 tonnes of heavy fuel oil, the ship tested New Zealand with its first major oil spill disaster.

The insurance chief regretted the lack of response resources on hand locally. “Everything had to be brought from Singapore – little was available in New Zealand or Australia.”  The operation was hampered by severe weather, but a huge voluntary effort by the people of the Bay of Plenty assisted professionals in cleaning up much of the shoreline and rescuing oiled birds.

On January 7 2012, the stricken ship was battered by huge waves and the following morning she had broken in two, releasing debris and oil sheen into the sea. In addition to the main salvage effort, the significant cost of operations coordinated by surveyors and their subcontractors was borne by the Swedish Club.

The master of the Rena, Mauro Balomaga, and navigation officer Leonil Relon were jailed for seven months for mishandling the ship and altering documents, but released after serving half of their sentence.

Mr Rhodin talked of the politics: “We live in a blame culture. It turned out that there was no national response emergency plan, and the authorities were criticised for not having any equipment at all. And they had not updated their own liability law in line with modern shipping maritime conventions. So we had major legal problems in this case. The Bunker Convention would have been very suitable, but had not passed into law in New Zealand.

“Cases today are very much political… and you have the media… When politicians have not done what they should do, they directed everything to the’ shipowner’, so this was headline news except when there was championship rugby and New Zealand won. Our ‘problem’ is we are obligated to honour the law.”

MSC, the charterers, were seen by the non-specialist media to be the shipping line – they were not the owners, just the charterers, but it was not easy to tell the public that.

The salvage industry in the financial sense was risk averse – “it is all about quarterly revenue and earnings. The incentives you had in the old days are not there anymore.” He said later in his talk that salvage companies today preferred to work in the offshore industry, on fixed contracts.

The Auckland-based marine fuel tanker Awanuia had to be chartered at an exorbitant rate of $140,000 a day to pump bunkers out of the containership. Even so, “we had more than 50% down time.”

In regard to the Costa Concordia, which blundered into rocks off the Italian island of Giglio on the night of Jan 12, 2012, there were also substantial cost questions. This casualty occurred almost exactly 100 years after the Titanic, and Mr Rhodin quoted an article entitled “A century of lessons not learned.”

The Italian government’s decision to require the Costa Concordia to be removed in one piece had doubled removal expenses, according to some experts: “we are talking about big money.”

Mr Rhodin recalled a separate occurrence when at the end of an office day the phone rang reporting a ship with a problem in the engine room while passing the Aleutian Islands on the way to China, and there was no salvage capacity in the vicinity. “There was a window of opportunity of about 30 minutes – they took the crew off but there was a big freak wave and six people died. But people in the Unified Command were more concerned about the crested auklet (a bird) than the lost crew members. It turns out later it is all about money… we had to negotiate ‘parking fees’ with the government of Alaska.”

He drew attention to the 2007 book The Black Swan: the Impact of the Highly Improbable by the scholar and statistician Nassim Nicholas Taleb. People tended to focus on “what you know and not on what you do not know.” Much earlier the philosopher Aristotle had said: “It is quite likely something unlikely will happen. “ While the probability of major marine casualties was low, when they did occur they underlined strongly the risks involved.

Mr Rhodin reminded the audience that “90% of what you [the population] eat or use has been shipped on a vessel, but the public do not know that and are not prepared to share the risks in the maritime adventure.”

Mr Davis said that Mr Rhodin’s account of the industry’s response to major casualties had been “very sobering stuff. They were in an impossible position. These ships are not easy to deal with. Are we trying to minimise pollution, get the ship off, save some of the cargo? We have to somehow prioritise.” He raised the dilemma of the cost of having emergency resources on standby: “waiting around for something like this, there is a lot of idle time.”

Mr Rhodin said that it was worth considering that the “extra” costs resulting from government decisions over the Costa Concordia could have been better spent. “It is a lot of money. What would that money have done for society in terms of building schools and hospitals?”

He further posed a question in relation to the relatively modest size of the Rena. “If this had been an 8,000 teu containership, it would have taken two years to remove the containers.  I would prefer not to receive a call from a shipowner in such a case.”

A member of the audience at the IMIF event asserted that there had been discussion among hull underwriters as to whether to pay the Costa Concordia claim because she had deviated from her scheduled route. “That claim could have been avoided, and why has the P&I side to do what the Italians want? It is going to cost $2bn at the end of the day,” claimed the questioner. There was also the consideration, the audience member went on, which amounted to “pay – or you will not be allowed to continue operating in this country: is it legal to say that? It was nothing but commercial pressure.”

Mr Rhodin said that in general, “this is very much a country thing, they do not want to talk about mistakes, and some cultures are very uncomfortable in talking about risk sharing.”

Mr Davis praised Mr Rhodin for his “brilliant” presentation which illustrated the complex aftermath of major casualties.

The chairman warmly thanked Mr Thomas and his colleagues at Watson Farley & Williams for their generosity in hosting the event.