When should the industry ‘take a stand’?

Simon Tatham asks if there will ever be a time when owners or P&I Clubs challenge the courts if faced with unreasonable/uncommercial requirements from local authorities.

At the time of writing, the cost of the operation to remove Costa Concordia is predicted to reach US$1.17bn, breaking through into the International Group of P&I Club’s third general excess layer of P&I insurance, the first claim ever to do so. The vessel reportedly cost US$450m to build and that it might cost over twice that to remove from the rocks of the island of Giglio is patently absurd.

When the International Group’s Large Casualty Working Party presented its findings to the ISU in March of this year, swiftly followed by the publication of Lloyd’s report to the market on Challenges and Implications of Removing Shipwrecks in the 21st Century, the cost of the operation was estimated at US$560m. Both reports cited government influence as the dominant factor in rising wreck removal costs. In the Costa Concordia case, the authorities’ concern over the preservation of the local pristine marine environment dictated that the vessel be removed in one piece. Estimates for the removal by the simpler method of cutting her into sections were reportedly in the order of US$250m. The attitude of the authorities is reminiscent of the aftermath of Exxon Valdez, which led to OPA 90 when the phrase “you spill, we bill” was first coined. As that notorious incident demonstrated however, nature has a remarkable ability to recover when left to its own devices.

P&I resources are likewise remarkable. However, the most expensive claim in history, whilst tragic as 32 persons lost their lives, cannot be characterised as a catastrophic loss involving pollution damage, or extensive loss of life, which risks have been the main justification for having in place such extensive insurance cover. With wreck removal claims now forming the single fastest-growing type of loss on the International Group’s books, there are, as a result, some very concerned people in the insurance markets. Three decades of legislation enforcing more stringent international safety standards across the shipping industry has had a measurable impact upon losses, in particular helping to reduce pollution. It is, however, much more difficult to control local politicians and so-called competent authorities, and although the Nairobi Wreck Convention will bring a degree of uniformity of approach, once in force (see July/August 2013 edition of IT&O), the direct action element enabling states to pursue insurers direct will arguably make matters worse for the Clubs.

The time has therefore surely come for the shipping industry, the Clubs in particular, in the right case, to withdraw co-operation, take a stand, and seek to challenge in the courts the decisions of local authorities deemed to be commercially unreasonable. As legislation or regulation seldom deals directly with the precise extent of local or national governmental powers in relation to such incidents, mounting a legal challenge would have the effect of bringing the usual process of wreck removal by consensus to a tactical halt.

The response of the authorities may be to exert pressure by detaining the crew, if they remain present in the jurisdiction, threaten the prosecution of company individuals as was seen by the vendetta waged by the French authorities in the aftermath of Erica, or threaten to conduct the operation themselves and then send the bill. However, with Costa Concordia, the master and others are in any event being prosecuted, and, realistically, can one envisage the island of Giglio or the Italian government funding a US$1.17bn or even a US$250m operation?

Simon Tatham

Simon Tatham is a partner at Tatham Law and founder member of the www.tugadvise.com service. He has more than 30 years’ experience of shipping law.

Reproduced with kind permission of International Tug & OSV magazine. View original article.