I COMMERCIAL OVERVIEW OF THE SHIPPING INDUSTRY
The United States has a diverse maritime landscape comprising the Arctic, Pacific and Atlantic Oceans; the Gulf of Mexico; the Great Lakes; and thousands of canals, rivers and bays that make up its inland waterways. These extensive bodies of water have made the US water transportation industry a major player in international commerce.
The United States is the world’s largest trading country, making up one-quarter of the world’s imports and exports, which includes more than 2.2 billion metric tonnes of cargo. Despite this volume of international trade, the US-flagged merchant fleet (ocean-going vessels over 1,000 gross tonnes) is comprised of only 181 vessels, 100 of which are Jones Act eligible vessels that benefit from laws protecting US citizens’ participation in domestic trade.
The expansion of liquefied natural gas (LNG) exports is expected to further increase the activity of US ports. Additionally, the deregulation of offshore oil and gas exploration and production is expected to increase an already robust offshore vessel fleet.
The US shipbuilding industry has remained consistent during the past 30 years. US shipyards have built on average more than 1,600 vessels a year since 1987, ranging from military vessels to small barges.
II GENERAL OVERVIEW OF THE LEGISLATIVE FRAMEWORK
Admiralty and maritime law is one of the oldest sources of American common law. The US Constitution extends admiralty jurisdiction to federal courts and provides that Congress may pass legislation in this field. There are four general sources of admiralty law: general maritime law, federal statutes, international agreements and state law when not pre-empted.
The primary source of admiralty law is judge-made general maritime law. This is a body of principles, rules, customs and concepts that have been developed over time by the federal courts. In addition to the federal judiciary, Congress can exercise its constitutional powers to enact legislation governing maritime issues such as death on the high seas, seafarers’ rights and workers’ compensation. These enactments often pre-empt the general maritime law and courts will conform to the will of Congress in these areas.
The United States is a party to a number of significant international conventions, such as:
- the International Regulations for Preventing Collisions at Sea 1972 (COLREGs);
- the International Convention for the Safety of Life at Sea (SOLAS);
- the International Convention for the Prevention of Pollution from Ships (MARPOL)
- the Load Lines Convention; and
- the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (the STCW Convention).
There is a large body of federal law that governs maritime activities. Statutes such as the Carriage of Goods by Sea Act, the Jones Act, the Shipowner’s Limitation of Liability Act, the Oil Pollution Act and the Clean Water Act cut across a wide area of maritime activity. Federal regulators such as the US Coast Guard, Customs and Border Protection, and the Federal Maritime Commission play a significant role in regulating maritime commerce.
Federal maritime law strives for uniformity given its unique environment. However, when there is not a federal rule that pre-empts an area, state law is often applied by maritime courts. For example, marine insurance is governed by state law. In some instances, activities that appear to be maritime in nature, such as shipbuilding, are in fact governed by state law.
The common law and statutory framework that affects maritime commerce is a composite mixture of international conventions, federal statutes, case law and, to a lesser extent, state law. The bulk of the body of law, however, that affects maritime activities remains federal statutory and the general maritime law.
III FORUM AND JURISDICTION
The United States is a federal system with federal and state judicial jurisdictions. Federal district courts have original jurisdiction over admiralty and maritime claims. Under the US Constitution’s ‘savings to suitors’ clause, a claimant may bring a common law claim in a state court. Federal admiralty courts have exclusive admiralty jurisdictions over in rem claims and several statutes, such as the Limitation of Shipowner’s Liability Act and the Ship Mortgage Act, provide for exclusive jurisdiction in federal courts.
An original proceeding in the federal judicial system starts in the district court. Decisions from federal district courts may be appealed to one of the 11 federal courts of appeals, which are organised geographically. In view of to their location, the Ninth Circuit Court of Appeals (west coast), Fifth Circuit (Gulf of Mexico region) and the Second Circuit (New York area) have well-developed bodies of maritime case law. The United States Supreme Court is the nation’s highest court and its decisions are binding on all federal and state courts.
Each state has its own independent judicial system that generally has a three-tiered court system – trial court, intermediate court of appeals and state Supreme Court. While substantive admiralty law should be applied, the procedural rules applicable to the jurisdiction in which a claim is filed will govern.
Where a claim is filed is often a strategic decision and may depend on whether a claimant is seeking a trial by jury. If a claim is brought in admiralty in federal court, the trial will be before a judge who will serve as the fact finder. Note that some statutes, such as the Jones Act, confer a right to a jury trial. In the federal system, a claimant could forego its right to proceed in admiralty and instead file an action based on diversity of citizenship in order to obtain a jury trial.
Whether filed in state or federal court, cases generally follow a similar pattern. A complaint is filed and thereafter responsive pleadings are filed. If a case cannot be summarily dismissed or jurisdictional objections are not successful, discovery ensues. Under US practice, discovery is very broad and will typically involve written interrogatories, document production, depositions and the retention of expert witnesses. Discovery often involves obtaining evidence and deposition testimony from third parties. The costs associated with discovery can often be significant. Mandatory pretrial mediation is increasingly becoming part of most courts’ scheduling orders. Mediation is often conducted by a private independent mediator retained by the parties.
If a pretrial resolution is not achieved, cases are tried and typically appealed. If an appeal is taken, a panel of three judges will typically render a ruling. It is not unusual for it to take anywhere between 18 months and three years, if not longer, to resolve a case through an appeal. Under the American Rule, attorneys’ fees are not generally recoverable unless provided for by statute or in the parties’ agreement.
Although certain statutes have express statute of limitations (e.g., the Carriage of Goods by Sea Act (COGSA) has a one-year statute of limitations), there is no uniform statute of limitations applied to admiralty claims. Rather, the admiralty law applies the doctrine of laches, which is an equitable concept. The laches doctrine will look to analogous state law statute of limitations for guidance. The concept behind the laches doctrine is that the defendant should not be prejudiced by a claimant’s failure to assert a timely claim.
ii Arbitration and ADR
Contractual arbitration provisions are commonly found in maritime contracts. Since the United States Supreme Court’s 1972 decision in Bremen v. Zapata Offshore Co, and more recently in the 2013 decision in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, forum selection clauses, including arbitration clauses, and choice of law clauses are presumptively valid.
As noted above, the United States has a well-developed body of law relating to arbitration. In addition to the Federal Arbitration Act (FAA), the United States is a party to the Convention on Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and the Inter-American Convention of International Commercial Arbitration (Panama Convention).
Whether crew claims for personal injuries are subject to an arbitration agreement is an often hotly contested issue. A US crew member will contend that they are exempt from arbitrating their claims under the Jones Act and general maritime law as seafarers’ contracts are exempt from arbitration under the FAA. Recently, in Dahir v. Royal Caribbean Cruises Ltd, a federal court found that the claim of an American seafarer working in international waters for a foreign employer was subject to arbitration as the FAA did not apply. Foreign seafarers’ claims are generally subject to the New York Convention and will be subject to arbitration.
For commercial arbitration, the American Arbitration Association, the Society of Maritime Arbitrators and more recently the Houston Maritime Arbitration Association administer arbitrations and provide a body of arbitrators who are well versed in maritime matters. Parties may also agree to an ad hoc arbitration to suit their needs. For smaller claims, most arbitration bodies’ rules provide for a shortened procedure, which involves a sole arbitrator. For more significant matters, a three-person tribunal is the norm. Discovery in arbitration often mirrors the costs incurred in court proceedings. Unlike the United Kingdom, the FAA2 provides a very limited right to appeal the decision of an arbitration panel. A challenge to a panel’s award is often centred on fraud, allegations of misconduct or an assertion that the panel made a manifest error of law.
Provisional remedies are often used to obtain security in aid of a maritime arbitration. The FAA specifically permits an action for security utilising an in rem arrest proceeding or a process of marine attachment. While the merits of a claim may be resolved by the parties via arbitration, a pre-arbitration security proceeding filed in federal court is quite common.
iii Enforcement of foreign judgments and arbitral awards
Under the New York Convention, which is encompassed in the text of the FAA, a valid final foreign arbitration award may be enforced via an original proceeding in a federal district court. Under the New York Convention, defences by a party resisting enforcement are primarily limited to due process or fraud. If a New York Convention recognition action is successful, the foreign arbitration award will be converted into a judgment, which can be enforced.
Although there is not an international agreement that the United States is a party to concerning judgment enforcement, a similar procedure is used by US courts to enforce a valid foreign judgment. Both federal and state laws contain procedures to recognise a foreign judgment and covert it into a domestic US judgment. Most states have adopted some variant of the Uniform Foreign Judgments Recognition Act, which provides the framework for state courts to recognise a valid final foreign judgment. Similar to New York Convention recognition proceedings, there are limited defences predicated upon fairness and due process to a judgment and enforcement action.
IV SHIPPING CONTRACTS
The US shipbuilding and repairing industry is comprised of establishments that are primarily engaged in operating shipyards, which are fixed facilities with dry docks and fabrication equipment. Shipyard activities include ship construction, repair, conversion and alteration, as well as the production of prefabricated ship and barge sections and other specialised services. The industry also includes manufacturing and other facilities outside the shipyard, which provide parts or services for shipbuilding activities within a shipyard, including routine maintenance and repair services from floating dry docks not connected with a shipyard.
Currently there are 124 shipyards in the United States, spread across 26 states, that are classified as active shipbuilders. In addition, there are more than 200 shipyards engaged in ship repairs or capable of building ships but not actively engaged in shipbuilding. The majority of shipyards are located in the coastal states, but there also are active shipyards on major inland waterways, such as the Great Lakes, the Mississippi River and the Ohio River. Employment in shipbuilding and repairing is concentrated in a relatively small number of coastal states, of which the top five account for 63 per cent of all private employment in the shipbuilding and repairing industry. The federal government, including the US Navy, US Army and US Coast Guard, is an important source of demand for US shipbuilders. While just 1 per cent of the vessels delivered in 2014 (11 of 1,067) were delivered to US government agencies, 10 of the 12 large deep-draft vessels delivered went to the US government: five to the US Navy, four to the US Coast Guard and one to the National Science Foundation.
There are no statutory formalities or requirements (beyond standard contractual requirements) that must be complied with by parties when entering into shipbuilding contracts for commercial vessels.
What may surprise some observers not familiar with the US legal system is that contracts to build a ship are not subject to the general maritime law. Shipbuilding contracts are subject to state law and commonly contain choice of law and forum clauses. It is common for dispute resolution clauses to contain a referral to the classification society, such as the American Bureau of Shipping, for a determination of technical disputes. Even foreign choice-of-law clauses will be enforced if there are sufficient contacts present. For instance, in Hartford Fire Insurance Co v. Orient Overseas Containers Lines (UK) Ltd,3 it was held that ‘[a]bsent fraud or violation of public policy, a court is to apply the law selected in the contract as long as the state selected has sufficient contacts with the transaction’.
Performance and quality standards are often subject to classification society rules or IMO standards. The flag state authority is the US Coast Guard, which has delegated a significant portion of its monitoring of newbuilds to the American Bureau of Shipping (ABS) or similar classification societies.
There is warranty of workmanlike performance that is implied in common law. Depending on the governing law, common clauses such as warranty, indemnity and additional insured provisions could have dramatically different results. Common law remedies for breach of contract and the availability of liquidated or consequential damages may also vary by state.
Commercial shipyard disputes often arise out of claims by subcontractors, which are subject to the provisions of the Uniform Commercial Code or state lien law. In addition, a security interest can be created in favour of third-party creditors of either the buyer or the builder over both a vessel under construction and related equipment.
Shipyard workers are covered by the Longshore and Harbor Worker’s Compensation Act (LHWCA), which provides a federal worker’s compensation scheme for injured workers. Indemnity provisions in shipyard contracts are often affected by the LHWCA, which precludes certain indemnity schemes. As such, contracts to build vessels in the United States should account for that possibility.
ii Contracts of carriage
The movement of goods over the water is complex and involves various interlinked systems, particularly in a multi-model carriage. As such, there are often overlapping contracts in place between shippers, ocean carriers, freight forwarders and non-vessel owning common carriers (NVOCCs).
Contracts of carriage are generally governed by the COGSA and its precursor, the Harter Act. Enacted in 1936, COGSA is the US enactment of the Hague Rules. The United States has not adopted the Hague-Visby or the Rotterdam Rules.
Contracts of carriage are generally evidenced by bills of lading or contracts of affreightment. Contracts of private carriage are generally reflected in charter parties. Bills of lading serve as the contract of carriage and as documents of title. The interpretation of the clauses on a bill of lading is the focal point of many cargo damage suits. Many carriers and NVOCCs will maintain a copy of their tariff with the standard terms of their respective bills of lading on file with the Federal Maritime Commission.
By its terms, the COGSA applies to ‘all contracts for carriage of goods by sea to or from ports of the United States in foreign trade’. The ‘contract of carriage’ covers ‘only [...] contracts of carriage covered by a bill of lading or any similar document of title’. COGSA Section 1305 specifically excludes charter parties, unless bills of lading are issued under the charter party. The definition of ‘goods’ excludes live animals and certain deck cargo. Further, the definition of ‘carriage of goods’ covers only ‘the period from the time when the goods are loaded on the ship to the time when they are discharged from the ship’.
The COGSA applies to most international ocean shipments to or from the United States during the tackle-to-tackle period. It may be extended by contract to cover the entire period that the goods are in the carrier’s possession. Via a Himalaya clause in the contract of carriage, the COGSA defences and limits may be further extended to the agents and contractors of the carrier, such as stevedores, or connecting carriers. The extension of the COGSA by contract is generally motivated by the desire to benefit from the Act’s $500 per package or customary freight unit limitation of liability.
The Harter Act frequently comes into play on inland shipments (i.e., tug and barge movements) for domestic US shipments. The Harter Act generally applies to domestic carriage (in the absence of a contrary agreement), shipments under charter parties, most deck cargo and damages outside the tackle-to-tackle period. The Harter Act does not contain any specific language regulating the extent to which a carrier may limit its liability. Although the Harter Act has no package limitation, common practice made the $100 agreed valuation clause the effective equivalent and some carriers have used even lower amounts.
Under the Harter Act, a carrier is never exempted from liability for cargo loss unless it exercised due diligence to make the ship seaworthy at the beginning of the voyage. If unseaworthiness and a lack of due diligence are found, the carrier cannot invoke the Harter Act exoneration clause even if there is no causal connection between the unseaworthiness and the loss or damage. The Harter Act makes unlawful any provisions in a bill of lading or shipping document that relieve the manager, agent, master or owner of any vessel transferring property between ports of the United States and foreign ports from liability for loss or damage arising from negligence, fault or failure in proper loading, stowage, custody, care or proper delivery.
Both shippers and consignees may be bound by the terms of a bill of lading. Accordingly, indemnity claims by a carrier for vessel or property damage arising out of a contract of carriage could involve claims against both the shipper and the consignee. As explained below, the consignee may also be bound by a forum selection or choice of law clause in a bill of lading that it may never have seen.
Since the 1972 United States decision in Bremen v. Zapata,4 contractual choice of law and forum clauses in maritime contracts have been held to be presumptively valid. Subsequently, the US Supreme Court in Vimar Seguros y Reaseguros, SA v. M/V Sky Reefer declined to nullify foreign arbitration clauses in contracts for carriage of cargo as a lessening of the carrier’s liability under the COGSA. As such, cargo claims often involve litigation over which law to apply so as to avoid the COGSA $500 package limitation in favour of a more advantageous limitation scheme.
An interesting recent phenomenon is the extension of the COGSA, its defences and limits to inland portions of the carriage of goods under a ‘through bill of lading’. A through bill of lading is issued for the ‘door-to-door’ transportation of goods whereas a ‘port-to-port’ bill of lading covers transportation from loading to unloading. In Norfolk Southern Railway Co v. Kirby,5 the US Supreme Court held that a through bill of lading was a maritime contract and therefore the COGSA limits could apply to a rail company that was not a party to the bill of lading. The Kirby decision was reinforced by the courts’ decision in 2010 Kawasaki Kisen Kaisha Ltd v. Regal-Beloit Corp,6 which extended the reach of a forum selection clause to a rail company under a through bill of lading.
iii Cargo claims
Given the sheer volume of goods that move in and out of US ports, cargo claims are bound to occur. Small claims typically do not generate lawsuits. Rather, marine surveyors inspect the damage, exchange customary documents and insurance adjusters negotiate settlements.
For large matters or more difficult claims, suits are often filed in federal district courts under admiralty jurisdiction. A cargo claim also gives rise to an in rem claim against the vessel. As such, cargo suits are often started with a vessel arrest or the furnishing of a letter of undertaking or a surety bond by the ocean carrier’s insurer. Damage claims filed in state courts arising out of ocean carriage are far less frequent than federal suits.
The COGSA provides carriers with strong statutory defences, such as errors in navigation, perils of the sea, or insufficiency of the packaging, and limits such as a one-year time bar. The COGSA also requires the ocean carrier to exercise due diligence to render the vessel seaworthy and to properly load, stow and care for cargo.
The COGSA sets up a complex system of shifting burdens and accompanying presumptions of liability.7 The COGSA ‘ping pong ball’ burden of proof follows the following well-established path:
- The shipper must establish a prima facie case that the cargo was loaded in good order and was damaged upon discharge.8
- A shipper’s prima facie case creates a presumption of liability, which may be rebutted by the carrier.9
- The carrier is required to establish that (1) it exercised due diligence to prevent the cargo loss or damage, or (2) the cargo loss or damage falls within one of the enumerated COGSA defences.10
- If the carrier successfully rebuts the shipper’s prima facie case, the burden returns to the shipper to establish that the carrier’s negligence was at least a concurrent cause of the loss.11
- If the shipper establishes that the carrier’s negligence is at least a concurrent cause of the loss then the burden shifts once again to the carrier, which must establish what portion of the loss was caused by other factors.12
If the carrier is unable to prove the appropriate apportionment of fault, then it becomes fully liable for the full extent of the shipper’s loss.13
The application of the COGSA package limitation is often hotly contested. Depending on the facts of a case, cargo claimants may assert that there was an improper geographical deviation or improper deck stowage, so as to deprive the carrier the right to limit. Oddly enough, although the COGSA itself does not do so, a well-defined body of case law outlines what a COGSA package is. For non-containerised cargo, a package may be prepared for shipment by being fully or partially boxed or wrapped, regardless of the size of the cargo. For containerised cargo, the wording on the bill of lading is often determinative of whether the container or its contents are the ‘packages’.
The measure of the shipper’s recovery when cargo is damaged is normally the difference between the fair market value of the goods at the port of destination in the same condition as they were in when shipped and their value damaged. Incidental damages, such as survey costs, are recoverable. Damages for delay are more problematic to establish and will often be determined if the contract of carriage is on a ‘time is of the essence’ basis. Consequential damages are potentially recoverable but are often excluded as a matter of contract.
iv Limitation of liability
In 1851, the United States Congress enacted the US Limitation of Liability Act (the Act). Limitation of liability for shipowners was common in the admiralty law of most nations well before 1851. In 1734, a limitation of liability scheme was enacted under British law. Prior to 1851, US shipowners were uneasy facing potentially unlimited personal liability, which also put them at a competitive disadvantage with respect to shipowners in countries that offered a limitation of liability scheme. The US shipowners pressed Congress to remedy this perceived disparity. As a result, Congress passed the 1851 Act. While many countries have since amended their limitation of liability schemes, the US Limitation Liability Act of 1851 remains essentially unchanged.
Purpose and benefits
Generally speaking, limitation liability schemes seek to limit the exposure of the shipowner to its interest in the vessel and any pending freight. This was the heart of the Act and remains so today.14 In cases where the vessel sinks or suffers extreme damage, there may be little or nothing in the limitation fund to pay personal injury and death claimants. In 1935, Congress amended the Act to ensure that in cases of personal injury or death, the shipowner would have to establish a fund in the amount of $420 per gross ton solely to pay personal injury or death claims.
Not all participants with an interest in the voyage are permitted to take advantage of the Act; it is reserved solely for the owner or non-demise charterer. ‘Owner’ is defined by the Act to include a demise charterer that ‘mans, supplies, and navigates the vessel’. Time and voyage charterers do not fall within this definition.
The limitation fund is to be equal to the value of the vessel at the conclusion of the voyage or casualty, plus any pending freight. The owner stipulates this amount in court. The claimants can demand that security be deposited with the court in the same amount. Claimants to the fund can also challenge the sufficiency of the limitation fund and seek to have it increased. A vessel owner may limit only for tort claims, including property damage, personal injury and death. Under the ‘personal contract doctrine’, a vessel owner cannot limit liability for contractual agreements entered into prior to the casualty.
Venue, concursus and injunction
The owner files its limitation proceeding in the district court. If the vessel owner has not yet been sued, it must file its action in the judicial district where the vessel lies. If the owner has been sued, it must file its limitation action in the judicial district where the first suit was lodged. If the vessel remains at sea outside any judicial district and the owner has not been sued, the owner can file its limitation action in any judicial district of the United States.
When a vessel owner files its own limitation of liability proceeding, the federal court will then issue an injunction staying any suits that have been filed in any other court. It will also order those suits, as well as all future suits, to be brought solely in the limitation proceeding commenced by the shipowner. It will order all claimants to file their claim in the shipowner’s limitation of liability proceeding within four to six weeks. Claimants that fail to file by that date are subject to being defaulted by the court. This is an excellent tool for the shipowner to not only pick its forum, but to force the many claimants that arise out of a major casualty to file their claims in the shipowner’s action. Thus time and expense are saved by not having to litigate multiple claims in various jurisdictions and venues. Shipowners must be mindful that they have six months from written notice of a claim to file their limitation of liability proceeding.15 If a shipowner does not file within six months and a suit is filed against it, it still has the right to assert limitation of liability under the Act as an affirmative defence. It does not, however, have the right to the injunction and marshalling of claims into its own proceeding.
Claimants’ stipulation and the shipowner’s privity and knowledge
If all the claimants agree and stipulate that they will not seek to enforce a judgment in excess of the federal court’s limitation value set forth in the initial order, the court will allow the case to go back to state court for trial. If a judgment is obtained in excess of the limitation value, the parties then return to federal court to resolve the issues surrounding the limitation value and the right of the owner to limit in the first place. The theory behind the Act and all limitation liability schemes is to limit the owner’s liability for the negligence of his crew, owing to the fact that the ship is at sea and the owner lacks control over the vessel’s operation. If, however, the court finds that the negligent act or omission causing the casualty was within the privity and knowledge of the shore-side management, the vessel owner will be denied its right to limit liability. While Congress has chosen not to amend or repeal the Act, the federal courts are often keen to find privity and knowledge, especially in cases of severe personal injury or death juxtaposed with a limitation value that is extremely low.
Should the limitation proceeding proceed to trial in the federal court, three results may be obtained: (1) the vessel owner is totally exonerated; (2) the owner is found liable, but damages are limited to the post-casualty value and pending freight; or (3) the owners are found liable, the court finds the cause of the casualty within its privity and knowledge, and the owner must pay the full damages awarded by the court.
For the foreseeable future, it does not appear that the US Congress will alter or amend the Act. The Limitation of Liability Act is available to shipowners of any nationality. It remains a useful tool not only for limiting liability, but for fixing venue, marshalling claims in one convenient form, and maintaining control of what can be an expensive and complicated litigation.
i Ship arrest
The United States is not a signatory to any arrest convention. Under US law the two primary tools for arresting or attaching a vessel are found under Rule C and Rule B of the Federal Rules of Civil Procedure Supplemental Rules for Certain Admiralty and Maritime Claims.
Under Rule C, a plaintiff can bring an in rem action against the vessel or property if a maritime lien exists or if the plaintiff has certain statutory rights against the vessel regardless of whether the defendant can be found in the district. Maritime liens are defined in the Federal Maritime Lien Act and the Ship Mortgage Act. Liens under maritime law include seafarers’ wages, tort, salvage and general average. Suppliers of necessaries to a vessel that are authorised by the owner have a maritime lien on the vessel. Necessaries are defined by statute and include repairs, supplies, towage, use of a dry dock, bunkers, food and spare parts. A person providing necessaries must rely on the credit of the vessel.
Under Rule B, a plaintiff with a prima facie in personam maritime claim may attach the defendant’s vessel or property as security for the claim, which gives the plaintiff quasi in rem jurisdiction over the defendant, provided the defendant has property in the arrest jurisdiction and is not found in that jurisdiction. Whether or not a claim is ‘maritime’ is determined under US federal law. The prima facie validity of the claim is determined under the law that applies to the claim. Examples include a judgment or pending arbitration or litigation in another jurisdiction. A maritime lien on the vessel is not required under Rule B.
Property subject to arrest
Under Rule C, property subject to a maritime lien includes vessels, freight, bunkers and vessel equipment. Under Rule B, property subject to attachment includes vessels, tangible property bank accounts and debt owed by others (subject to garnishment). There is no associated or sister ship arrest regime in the United States under Rule C, which provides for in rem jurisdiction over only the vessel or other property that is subject to the lien.
The two arrest procedures are alike in that the plaintiff must file a verified complaint that describes with reasonable particularity the property sought to be arrested, and states that the property is in the district. The court will then issue an order directing the clerk to issue a warrant for the arrest of the vessel or other property. In a Rule B attachment, the plaintiff includes an affidavit stating that the defendant cannot be found in the district in which the attachment is sought. The plaintiff must also pay a deposit to cover the cost of the arrest. The defendant may post security to release the property from arrest or attachment. Such security is often in the form of a letter of undertaking furnished by the vessel owner’s protection and indemnity (P&I) club.
The actual arrest of a vessel may not take place outside the territorial jurisdiction of the district. A vessel on the high seas – which is a distance beyond 12 nautical miles from shore – may not normally be arrested by the US Marshal. Under the doctrine of ‘free passage’, a vessel may transit territorial waters without being subject to arrest. The US Marshal may decide not to arrest a vessel in territorial waters in heavy seas, such as a vessel at anchor offshore during a storm. Usually, the US Coast Guard (USCG) will assist in providing water transportation if necessary; however, the USCG will not use force to stop a vessel.
ii Court orders for sale of a vessel
Generally, the US Marshal handles the sale of seized or attached property; however, the court may order another person to do so. A vessel or property on board a vessel may be sold by a person assigned by the court if the US Marshal is a party in interest. In addition, Title 28 of the US Code, Section 1921 provides for the use of a public auctioneer. There are two types of sales: interlocutory and final.
Prior to the final disposition of a case, the court may authorise the sale of a vessel or other property under arrest or attachment if (1) the property is perishable, or the vessel or property is subject to decay, deterioration or damage; (2) the cost of keeping the vessel or property is disproportionately expensive; or (3) because there is an unreasonable delay in securing the release of the vessel or property. A final judgment sale is based on the final judgment issued at the final disposition of the case.
The court will issue the order authorising the sale of the vessel or other property. Specific provisions must be followed by the US Marshal. Generally, the interested party will contact the US Marshal to determine a convenient date, time and place for the sale and the conditions or requirements that the US Marshal would like to see included in the order. The order for sale may include:
- whether a minimum bid amount has been set;
- whether there are required minimum increments in the bidding, e.g., $1,000 or more;
- whether credit bids are allowed;
- whether a certain amount of deposit or down payment is required;
- whether the number of days for the balance to be paid is designated;
- whether there are any limitations regarding who may bid (e.g., an alien restricted from bidding on the purchase of an American flag vessel);
- whether any special methods of payment are designated (e.g., a cashier’s or certified cheque);
- whether there are any provisions regarding the filing of objections with the court;
- whether, in the absence of objections, the court or local rules provide for automatic confirmation of sale; and
- whether a successful bidder is required to file an order for the clerk of the court’s signature stating that no opposition of the sale has been filed to provide a written record for the court and documentation for submission by the new owner to the USCG or other authority where the new owner may wish to register the vessel.
After the order of sale is issued by the court, a notice of the sale must be prepared. It contains the date, time, location and all conditions connected to the sale as outlined in the order authorising the sale. The US Marshal will publish the notice of sale in accordance with the local rules and procedures.
The USCG is the prime agency charged with the regulation of marine safety; it is a part of the Department of Homeland Security. Accordingly, it also has a significant role in port and waterway security.
The USCG’s safety role cuts across a wide variety of activities. Although marine search and rescue is probably its best-known role, USCG personnel inspect commercial vessels, respond to pollution, investigate marine casualties and merchant mariners, manage waterways and license merchant mariners. The USCG also issues regulations across a wide range of topics, which include navigation rules, marine safety, crewing, licensing, manning requirements, and design and engineering standards. The USCG is also the agency that enforces international conventions, such as SOLAS, to which the United States is a party.
In areas where the USCG may have over lapping jurisdiction with other federal agencies, it will enter into a memorandum of agreement (MOA). For example, it has several MOAs with the Bureau of Environmental Safety and Environmental Enforcement, which regulates offshore drilling. These MOAs promote collaboration and define each agency’s role in regulating offshore drilling platforms, which are also vessels.
USCG regulations are set forth in the Code of Federal Regulations (CFR) at parts 33 and 46. A fairly recent development is the expansion of USCG regulations under 33 CFR subchapter M to establish towing vessel safety regulations, inspection standards and safety management systems. These regulations have had a large impact on the US inland marine industry.
A USCG investigator or a Marine Board of Investigation will investigate a marine casualty. A Marine Board of Investigation is the highest level of the investigatory process and will often include live testimony. For example, a Coast Guard Marine Board of Investigation was convened following the tragic loss of the El Faro. Although commonly associated with aircraft casualty investigations, the National Transportation Safety Board’s Office of Marine Safety investigates major marine accidents on or under navigable waters, internal waters or the territorial sea of the United States, and accidents involving US-flagged vessels worldwide.
For USCG investigations, parties in interest may participate in the interviewing of key personnel and other aspects of the investigation. A ‘party in interest’ is defined by the USCG as any person with a direct interest in the investigation, including ‘an owner, a charterer, or the agent of such owner or charterer of the vessel or vessels involved in the marine casualty or accident, and all licensed or certificated personnel whose conduct, whether or not involved in a marine casualty or accident is under investigation by the Board or investigating officer’.16 Participation in USCG investigations are particularly crucial in circumstances in which another vessel’s interest is involved since a party in interest will have an opportunity to be present when the other vessel’s master and crew are interviewed, to request that other witnesses be interviewed, and to be present when the other vessel is inspected. When formal hearings are held by the USCG, a party in interest will have the additional rights to cross-examine witnesses under oath and to present witnesses on its behalf.
The primary purpose of an investigation is to ascertain the cause or causes of an accident, casualty or personnel behaviours to determine whether remedial measures should be taken and whether any violation of federal law or regulation has occurred. By statute, USCG investigation findings are not admissible in civil suits. The statute is clear and it is generally accepted that the USCG’s investigative report is protected from discovery and inadmissible as evidence in litigation. There is a growing body of case law in which courts have held that attachments such as photographs or factual determinations are admissible in litigation.17 As investigation reports are public record, it is common practice in casualty litigation to obtain the investigation reports and provide the same to a party’s retained liability expert.
ii Port state control
The USCG’s port state control programme is responsible for ensuring that foreign-flagged vessels operating in US waters comply with international conventions, such as SOLAS, MARPOL and ISPS and US law.18 The USCG focuses its investigations on vessels deemed substandard. The USCG bases whether a ship is substandard or not on a variety of factors, including ship management history, flag state detention ratio, vessel compliance history and a ship’s particulars. If a vessel is not in substantial compliance with US law and international conventions, the USCG will impose controls on the vessel until compliance is achieved.
According to the USCG’s most recent report in 2016, 9,859 individual vessels from 83 countries made 81,877 port visits to the United States. The USCG conducted 9,390 SOLAS safety exams and 8,818 ISPS exams on these foreign-flagged vessels: 103 vessels were detained for environmental protection and safety deficiencies, and eight vessels were detained for security deficiencies.
The USCG’s Quality Shipping for the 21st Century programme (QS21), which allows eligible flag administrations and vessels to receive less frequent and reduced examinations, had enrolment of 1,493 vessels. Last year, one flag administration lost its eligibility and six became eligible (namely, The Bahamas, China, Germany, Isle of Man, Portugal and Singapore). In 2017, the USCG introduced QS21 E-Zero, a new programme that adds environmental stewardship to the existing QS21 programme. E-Zero focuses on compliance with international environmental conventions, anti-fouling and US ballast water regulations. E-Zero eligibility requires (1) QS21 enrolment, (2) no worldwide MARPOL detentions for three years, (3) no environmental deficiencies in the United States for three years, (4) no letters of warning, notices of violation or civil penalties for Right Whale Mandatory Ship Reporting violations for five years, and (5) a USCG-approved ballast water management system.
iii Registration and classification
Vessel registration is administrated by the USCG’s National Vessel Documentation Center (NVDC). The NVDC maintains databases of recorded preferred ship mortgages, certificates of documentation, certificates of inspection and abstracts of title, all of which are public record. To the extent that a common lien is reported to the USCG, it will appear on the abstract of title. Preferred ship mortgages issued by both domestic and foreign banks may be recorded with the NVDC.
The USCG is one agency that is involved with the administration of the coastwise laws under the Jones Act. Under the Jones Act and the Passenger Service Act, a coastwise qualified vessel must be employed to carry passengers and merchandise between two coastwise points in the United States, which can include certain US territories. The US Customs and Border Protection (CBP) enforces penalties associated with violations of the coastwise laws. An advisory opinion may be requested from the CBP as to whether any potential movement violates the coastwise law. In 2017, the CBP proposed alternating its interpretation of vessel equipment, which would have overruled dozens of past rulings. If the CBP proposal went forward, the items formerly classified as vessel equipment would not be considered merchandise, which would require a coastwise qualified vessel. After receiving significant public comment, the CBP withdrew its notice of intent to modify its prior ruling until additional research has been conducted.
Classification societies play an important part in many aspects of maritime business. To all intents and purposes, it is impossible for a vessel to operate and trade without being classed and certified by a classification society. Both port and flag states rely on classification and, in some respects, statutory certification has been delegated to these societies. The ABS is a major US classification society. Foreign classification societies may inspect US-flagged vessels assuming that USCG authorisation is obtained.
In Otto Candies, LLC v. Nippon Kaiji Kyokai Corporation, 346 F.3d 530 (5th Cir. 2003) the Fifth Circuit Court of Appeals was the first to ‘cautiously recognize’ that classification societies could be liable to third parties in tort for negligent misrepresentation. This is a somewhat heavy burden of proof as to have an actionable claim in negligence, plaintiffs must prove that the classification society owed them a duty of care. A breach of that duty must be established and the society’s conduct must be the proximate cause of the harm claimed.
iv Environmental regulation
There is an extensive body of US environmental laws that regulate air and sea pollution, especially affecting the shipping industry. The US Justice Department (DOJ) boasts that by the end of fiscal year 2016, the United States had imposed $363 million in criminal penalties and more than 32 years of confinement against shipping companies and their crew for intentional discharges of pollution from ocean-going vessels.19
The Act to Prevent Pollution from Ships (APPS) is the US codification of MARPOL and is intended to prevent the discharge of oily waste into the sea. The APPS and MARPOL set limitations on the oil content that is allowed to be discharged into the sea and places recording requirements on vessels. The APPS and MARPOL require that vessels maintain an oil record book that documents all oily waste discharges or transfers. The USCG is entrusted with investigatory authority to ensure compliance and if it suspects illegal discharges, it refers the matter to the DOJ for further investigation and potential prosecution.
The Clean Water Act (CWA) created the basic structure for the regulation of pollutant discharges into US waters. Under Section 312 of the CWA, the Environmental Protection Agency (EPA) and the USCG jointly regulate the sewage discharges of vessels within US waters. The EPA regulates the equipment used by vessels to treat or hold the sewage and establishes no-discharge zones. Section 402 of the CWA authorises the National Pollutant Discharge Elimination System permitting programme to regulate discharges that are incidental to the normal operations of commercial vessels, for example ballast water, bilge water, water from sinks and showers (grey water), and deck wash-down run-off.
The Oil Pollution Act (OPA) requires vessels to submit to the US government plans describing how they intend to respond to large discharges of oil. It focuses on preventing and responding to large oil spills but also created a liability and compensation scheme for oil pollution within navigable waters. OPA violations can carry civil and criminal penalties for vessel owners, operators and crew members.
These environmental regulations are typically enforced by the EPA and the USCG. After a violation has been alleged or investigated, the DOJ will decide whether to seek criminal or civil prosecution of the alleged violations. For example, recently, the USCG inspected the oil record book of a Liberian-flagged vessel and found at least eight occasions when the vessel entered US waters with false and misleading entries. The oil record book did not accurately record the vessel’s transfers and discharges of oily water. The USCG turned over its investigation to the DOJ’s Environmental Crimes Section for further prosecution of the ship management company and the vessel owner.
Two international shipping companies were fined $1.9 million for covering up illegal dumping of oily bilge water and garbage from their ships into the sea. The USCG received information from a crew member that the ship was illegally bypassing the oily water separator and dumping oily bilge water over the side. The companies pleaded guilty to violating the APPS and obstruction of justice. In addition to their monetary fine, the companies were placed on a four-year probation that includes strict compliance plans for all its ships operating in US waters.
Frequently, it is not only violation of the environmental regulations that are prosecuted but also the actions of the crew in covering up or providing false statements to the investigators of the alleged violations. Recently, two Greek shipping companies were sentenced to pay $2.7 million after being convicted of violating the APPS, obstructing justice, witness tampering and conspiracy. During a routine inspection by the USCG, it was discovered that two senior engineers were trying to hide the fact that the vessel had been dumping oily waste water into the ocean for months. The vessel owner and operator were each given a five-year probation and prohibited from sending ships into US ports until their fines were paid. The two senior engineers were found guilty of the same crimes as the shipping companies and were sentenced to a 12-month and a nine-month prison term, respectively.
v Collisions, salvage and wrecks
The United States adopted the COLREGs with effect from January 1977 (Title 33 of the US Code, Sections 1601 to 1608). However, a second set of navigational rules has also been adopted, namely the Uniform Inland Navigation Rules (Inland Rules), which apply generally in inland waters. The Inland Rules are applicable inside certain demarcation lines set forth in regulations by the USCG and that generally conform to a line connecting the outermost aids to navigation along the US coastline. The Inland Rules are generally in harmony with the COLREGs; however, they include rules particularly applicable to inland river navigation.
The United States is a party to the International Convention on Salvage, 1989, which entered into force on 14 July 1996. The Salvage Act gives rise to a right to a reward, and a maritime lien is created in the salvaged property. Accordingly, the court may exercise jurisdiction both in personam and in rem, depending on the circumstances. The elements of a valid salvage claim are (1) a marine peril that places the property at risk, (2) the salvage is voluntarily rendered, and (3) the salvage effort must be successful in whole or in part.
A vessel grounded or sunk in the navigable waters of the United States is subject to the requirements of the Wreck Removal Act (a part of the Rivers and Harbors Act of 1899, found at 33 USC Sections 409 to 415) (Wreck Act). The Wreck Act imposes a strict, non-delegable duty upon the owner of a wrecked vessel to mark the wreck as soon as possible. This includes a duty to use diligent efforts to locate the wreck. The vessel owner may ask the USCG to mark the wreck; however, this does not relieve the owner of the duty to exercise due care to see that the mark is maintained.
Section 409 of the Wreck Act also requires the owner to ‘commence immediate removal’ of the wreck if it is a hazard to navigation. Civil and criminal fines may accrue for failure to abide by the requirements of Section 409. Should the owner abandon the wreck, it is liable to reimburse the US government for removal costs incurred except in the case of a non-negligent sinking. The owner of wreck who has failed to mark or remove the wreck is liable for damages caused if another vessel collides with the wreck.
Shipbreaking primarily involves the dismantling and disposal of obsolete US Navy and Maritime Administration (MARAD) ships, commercial barges and mobile offshore drilling units. Exporting these vessels for scrapping in other countries was stopped by the Navy in December 1997 and by MARAD in January 1998 because of concerns about worker safety and health, and adverse environmental impacts.
US ship scrapping and recycling is regulated for pollution issues by the EPA. The EPA has published ‘A Guide for Ship Scrappers: Tips for Regulatory Compliance’, which provides ship recycling facilities with an overview of the most pertinent environmental and worker health and safety requirements. The guide is structured by specific processes, including asbestos removal, metal cutting, PCB handling and fuel and oil removal. The EPA has also published ‘National Guidance: Best Management Practices for Preparing Vessels Intended to Create Artificial Reefs’.
Worker safety is regulated by Occupational Safety and Health Administration, which promulgates general regulations pertaining to fall protection, use of cranes, forklifts, cutting and welding, fire prevention and protection, and so forth.
US shipbreaking facilities are currently active in Brownsville, Texas, where most of the obsolete Navy and MARAD ships are taken for recycling. The ships are towed into slots dredged into the side of the channel, grounded and disassembled.
vi Passengers’ rights
The United States is not a signatory to the Convention Relating to the Carriage of Passengers and Their Luggage by Sea (the Athens Convention), a multinational treaty allowing a cruise carrier to limit its liability in damages to passengers, while guaranteeing compensation to injured passengers. Instead, US federal law prohibits the limitation of liability to a cruise passenger when the cruise docks in the United States.20
Several cruise lines, however, have incorporated certain limitations from the Athens Convention into their passenger ticket contracts, and have attempted to enforce them against US passengers, in US courts, where the voyage is entirely foreign. Although the Supreme Court has not yet ruled on the legitimacy of these practices, lower courts have increased the burden on cruise carriers by narrowing the reasonable communicativeness test as applied to cruise line passage contracts, especially when they invoke international treaties such as the Athens Convention.21
With regard to passengers’ rights before injury, the Cruise Lines International Association, of which most of the world’s major cruise lines are members, introduced its 2013 Cruise Industry Passenger Bill of Rights. This makes certain promises to passengers related to mechanical failures, medical care, essential provisions and unspecified emergencies. However, the Bill of Rights does not specify any specific compensation if a cruise line violates these rights.
vii Seafarers’ rights
Seafarers’ maritime claims may be adjudicated in state or federal courts, but federal maritime law applies.
Jones Act negligence
The Jones Act is a federal law providing a cause of action in negligence for seafarers injured in the course of their employment. An employer is liable for the injuries to its employee by acts or omissions of the employer’s officers, agents or employees.
The standard of care applicable in the Jones Act context is ordinary care. The employer’s non-delegable duty under the Jones Act is to provide the seafarer with a reasonably safe place to work. The employer must have actual or constructive notice of the unsafe condition and an opportunity to correct the problem before liability attaches. Moreover, an employer exercises ordinary prudence when a safe procedure is used even though a safer or more preferable procedure might exist.
Similarly, the standard of care applicable to seafarers under the Jones Act is ordinary care and prudence under the circumstances. Although a seafarer’s contributory negligence or assumption of risk does not bar his or her recovery, comparative negligence applies and fault is allocated on a comparative basis.
Once a seafarer proves that his or her employer was negligent, he or she need only show that the employer’s negligence is the cause, in whole or in part, of his or her injuries. In other words, once a seafarer establishes negligence, he or she need only show that the employer’s negligence ‘played any part, even the slightest, in producing the injury or death for which damages are sought’.22 Thus, the seafarer’s burden of proof of causation is slight. The same causation standard also applies in determining whether the seafarer was contributorily negligent for his or her injuries. This is often referred to as the ‘featherweight’ causation standard.
If successful in proving negligence under the Jones Act, a seafarer may recover for pecuniary losses, including loss of earning capacity, past lost wages, medical expenses, pain and suffering, mental anguish and physical discomfort. A seafarer may not recover non-pecuniary damages, including punitive damages or loss of society, from his or her employer.
A seafarer may also maintain a cause of action for breach of the warranty of seaworthiness under the general maritime law against the owner of the vessel upon which he or she worked. The doctrine of unseaworthiness imposes upon the shipowner an absolute and non-delegable duty to furnish a seaworthy vessel and appurtenances that are reasonably safe and fit for their intended use.23 Unseaworthy conditions may include defective equipment, hull, tools or appliances; slippery decks; insufficient or incompetent crew; inadequate supplies; improper methods of work; failure to provide adequate safety equipment; and failure to provide safe means of ingress and egress from the vessel.
In addition to the unseaworthy condition, the seafarer must also establish a ‘causal connection between his injury and the breach of duty that rendered the vessel unseaworthy’. The mere fact an accident occurs does not establish unseaworthiness. Instead, a seafarer must prove that the unseaworthy condition was a direct and substantial cause of injury.
The damages available to a seafarer for the unseaworthiness of a vessel are virtually identical to those that may be recovered under the Jones Act. Specifically, a seafarer may recover pecuniary losses, including loss of earning capacity, past lost wages, medical expenses, pain and suffering, mental anguish and physical discomfort. Since the US Supreme Court’s decision in Miles v. Apex Marine Corp.,24 federal and state courts have grappled with whether a seafarer has the right to recover punitive damages under a general maritime law claim of unseaworthiness. Currently, the federal circuit courts are split, with the Ninth Circuit answering in the affirmative and the First, Second, Fifth and Sixth Circuits answering in the negative.
Maintenance and cure
In addition to bringing a claim for negligence under the Jones Act and unseaworthiness under the general maritime law, a seafarer is entitled to receive maintenance and cure from an employer if the seafarer becomes ill or is injured while in the service of the vessel. An employer’s obligation to pay maintenance and cure is regardless of fault. Moreover, an employer must continue to pay maintenance and cure until the seafarer reaches maximum cure. A seafarer reaches maximum cure once his or her condition becomes permanent and cannot be improved by further medical treatment.
The doctrine of maintenance entitles an injured seafarer to the reasonable cost of food and lodging comparable to what is received on board the vessel. The amount of maintenance is a factual determination based upon evidence of the seafarer’s actual expenditure for food and lodging. Some federal circuits allow the seafarer’s union to negotiate a standard maintenance rate with the employer in a collective bargaining agreement.
Cure is the employer’s obligation to pay for medical expenses for a sick or injured seafarer. A seafarer, however, has a duty to mitigate his or her medical expenses. Although a seafarer may be treated by a physician of his or her choice, overly expensive or unnecessary medical costs will not be reimbursed.
In Atlantic Sounding Co. v. Townsend,25 the US Supreme Court held that a seafarer can recover punitive damages if an employer wilfully and wantonly denies maintenance and cure benefits. Townsend emphasised that marine employers and their claims handlers must ensure prompt and appropriate investigation of a seafarer’s claim for maintenance and cure.
As a large nation with extensive coastlines and inland waterways, the maritime sector will always be a significant contributor to the US economy. The maritime sector is also affected by multiple, often disparate, geopolitical factors. With the current Congressional focus on infrastructure, it is hoped that US ports and terminals will receive significant and much-welcomed upgrades. Threatened protectionist tariffs issued by the Trump administration could have an effect on imports. At the same time, strong domestic oil and gas production will allow the United States to become a net energy exporter in the years to come. With the emphasis on liquid natural gas – both as a maritime fuel and as an export commodity – domestic shipbuilding could see real gains.
1 James Brown, Michael Wray, Jeanie Goodwin and Thomas Nork are partners, Chris Hart is an of counsel, Marc Kutner is a senior associate and Andrew Miller is an associate at Holman Fenwick Willan LLP.
2 9 USC Section 10.
3 230 F3d 549, 556 (2d Cir. 2000).
4 407 US 1 (1972).
5 543 US 14 (2004).
6 561, US 89 (2010).
7 US v. Ocean Bulk Ships, Inc., 248 F.3d 331, 335 (5th Cir. 2001).
10 Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995).
11 Tenneco Resins, Inc. v. Davy Int’l, AG, 881 F.2d 211, 213 (5th Cir. 1989).
12 Tenneco Resins, 881 F.2d at 211.
14 46 USC Sections 30505 to 30512.
15 Rule F of Supplemental Rules For Admiralty or Maritime Claims.
16 46 CFR 4.03-10.
17 Thibodeaux v. Wellmate, No. 12-1375, Rec. Doc. 67 (E.D. La. 31 Mar 2014), Newill v. Campbell Transp. Co., Inc., No. 12-cv-1344, 2015 WL 222438 (W.D. Pa. 14 Jan 2015).
20 46 USC Section 30509.
21 In the Ninth Circuit, see Wallis v. Princess Cruises, Inc., 306 F.3d 827 (9th Cir. 2002). In the Eleventh Circuit, see Wajnstat v. Oceania Cruises, Inc., No. 09-21850-CIV-COOKE/TURNOFF (S.D. Fla. 12 Jul 2011) (order denying defendant’s motion for partial summary judgment); see also Wajnstat v. Oceania Cruises, Inc., No. 11-13670 (11th Cir. 12 Aug 2011); Wajnstat v. Oceania Cruises, Inc., 684 F.3d 1152 (11th Cir. 2012).
22 Rogers v. Missouri Pac. R.R. Co., 352 US 500, 506 (1957).
23 Seas Shipping Co. v. Sieracki, 328 US 85, 89 (1946), overruled on other grounds.
24 498 US 19 (1990).
25 557 US 404 (2009).