TERRORISM, SECURITY & THE ALLOCATION OF CONTRACTUAL RISK

1. TERRORISM, SECURITY & THE ALLOCATION OF CONTRACTUAL RISK Rajeev Philip Athens, April 2005

2. Introduction • The impact of 9/11. • Transport industries in the spotlight. • Threefold risk • The Ship as a Weapon • The Ship as a Target • The Ship as a Means of Transporting Terror The “ACHILLE LAURO” and The “U.S.S. COLE”. The IMO Response – ISPS Code The U.S. Response – MTSA 2002 and USCG Regs.

3. The ISPS Code • In force 1 July 2004 • As at September 2004 • 89.5% of Port Facilities ISPS Compliant • Over 90% of vessels ISPS Compliant “The purpose of the Code is to provide a standardized, consistent framework for evaluation risk, enabling governments to offset changes in threat with changes in vulnerability for ships and port facilities.” • Shipside: Company & Ship Security Officers Ship Security Assessment Ship Security Plan International Ship Security Certificate

4. The ISPS Code in Operation • ISM vs. ISPS • The Interface between Ship & Shore • Security Levels: • “Security level 1 means the level for which minimum appropriate protective security measures shall be maintained at all times. • Security level 2 means the level for which appropriate additional protective security measures shall be maintained for a period of time as result of heightened risk of a security incident. • Security level 3 means the level for which further specific protective security measures shall be maintained for a limited period of time when a security incident is probable or imminent, although it may not be possible to identify the specific target.”

5. The ISPS Code in Operation • Relevant National Authority Declares Security Level. • Very Wide Discretion: • Reasonableness? • Proportionality? • Predictability?

6. The ISPS Code in Operation Example: A tanker loads a cargo in Nigeria for carriage to the Far East. Two days before she arrives at her discharge port an Al-Qaeda cell is discovered in Berlin. Amongst the papers seized by the German Authorities are plans of the Nigerian oil terminals. At the discharge port, the local authorities refuse to allow the vessel to berth. Security Level 3 is declared, the vessel is ordered to keep five security guards on board, along with an escort tug – all at the vessel’s expense. The vessel is delayed for a week, during which time she is thoroughly searched, and the crew interrogated. The total cost to the owner, in respect of time and expenses is approximately US$ 500,000.

7. The ISPS Code in Operation • Who should bear this loss? • Where do the parties stand in the absence of express contractual terms allocating security risk? • Should the type of charter be determinative?

8. The Allocation of Risk • War Risk Clauses? • Unavailability of Information. The various potential delays and expenses are very difficult to shoehorn into traditional time and voyage charter frameworks of duties and liabilities. • Example: The English Law position on who bears the cost of security guards.

9. The Allocation of Risk • THE TIME CHARTERPARTY • The BIMCO and INTERTANKO Clauses • Duty to nominate Safe Ports? • THE VOYAGE CHARTERPARTY • The BIMCO and INTERTANKO Clauses • Unquantifiable risk • Alternative Ports and Frustration • THE BILL OF LADING

10. The Allocation of Risk • The BIMCO Approach vs. The INTERTANKO Approach: • Wider application? • The Basrah Example

11. The Allocation of Risk THE U.S. AUTOMATED MANIFEST SYSTEM REGULATIONS. • Electronic Filing • Standard Carrier Alpha Code • International Carrier Bond • Who is the carrier? • The BIMCO approach.

12. Conclusion