pirates of somalia contents
TRANSCRIPT
Pirates of Somaliaby John D. Kimball, Jonathan K. Waldron,
and Lauren B. Wilgus
Do not look for Johnny Depp tostar in this movie. The issue of piracy isonce again on the public’s radar afterrecent vessel seizures in the Gulf ofAden and the near capture of a passen-ger vessel. The notion that pirates arethe scourge of the high seas is hardly anew idea. Like their forebears, modernpirates are the enemy of global maritimetrade and deprive the international seafaring community of freedom of thehigh seas. Pirates “attack the rights ofmankind, and menace with destructionthe lives and property of all who resisttheir unlawful acts.”1
The biggest difference between thepirates of old and those now plying thewaters off Somalia is the latter are farbetter armed.
Maritime pirate attacks worldwidehave steadily increased over the past few years. As ofOctober 27, 2008, the total number of acts of piracy andarmed robbery against ships reported to the InternationalMaritime Organization (“IMO”) since it began keeping trackwas 4,730. Pirates commonly focus their attacks mainly inthe Caribbean, the Strait of Malacca, the South China Sea,and Africa, where law enforcement is generally weak.
According to IMO’s website, a total of 440 acts of piracyand armed robbery have taken place off the coast ofSomalia since IMO started compiling relevant statistics in
CONTENTSPAGE
Pirates of Somalia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Notes from the Editor: Rule B Explosion . . . . . . . . . . . . . . . . . . . . . . . 4
Shipping, Finance, and Insolvencies: . . . . . . . . . . . . . . . . . . . . . . . . . 6The Black Swan Comes Home to Roost
Blank Rome Maritime Business Restructuring & Bankruptcy . . . . . . . 7
Problems Ahead: The UNESCO Convention on. . . . . . . . . . . . . . . . . . . 8the Protection of Underwater Cultural Heritage
ARE YOU READY? Whales and Discharge Permits– . . . . . . . . . . . . . . . 11Two Big Wintertime Challenges
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© 2009, BLANK ROME LLP. Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. Additional information on Blank Rome may be found on ourwebsite www.blankrome.com.
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JOHN D. KIMBALL
JONATHAN K. WALDRON
1984, with more than 120 attacks reported in 2008.2 Morethan 35 ships have been seized by pirates and more than600 seafarers have been kidnapped and held for ransom.3
Currently, 14 ships and some 280 seafarers from 25 nationsare being held hostage in Somalia and two seafarers havealready lost their lives.4
In response to the escalating pirate attacks in Somalia, onDecember 16, 2008, the United Nations Security Counciladopted Resolution 1851, which gives states authority for thenext twelve months to assist Somalia’s transitional federalgovernment in taking “all necessary measures that are appro-priate in Somalia for the purpose of suppressing acts of piracy and armed robbery at sea.”5 In effect, the Resolutionallows UN Member states to conduct air attacks or go ashorein Somalia to fight piracy over the next year.
The Resolution also calls upon states to “deploy navalvessels and military aircraft to seize pirate boats, vessels,arms and other related equipment” and encourages statesto create a regional office “in order to effectively investi-gate and prosecute piracy and armed robbery at sea.”6
Given the expansive area encompassed by the SMAs, it maybe difficult for the Coast Guard to effectively enforce thisrule given the country’s current homeland security focus, aswell as the Coast Guard’s numerous other maritime-relatedmissions. NOAA suggests that it is aware that some exist-ing technologies could assist in the enforcement effort, butdoes not provide any details. Given the fact that any devi-ation from the 10-knot speed restriction in the SMAs mustbe logged in the ship’s logbook and signed by the Master,it is likely that enforcement actions will be based on log-book entries rather than real-time violations. Fines can beassessed up to $8,500 for a first time violation. It is impor-tant to note, however, that the falsification of a logbookentry can be criminally prosecuted.
This Final Rule may significantly affect vessel opera-tions on the east coast of the United States and ownersand operators are encouraged to factor these restrictionsinto their voyage planning.
Have you heard of the VGP? The Environmental Protection Agency (“EPA”) issued
its final Vessel General Permit for Discharges Incidental toNormal Operation of Vessels (“VGP”) on December 18, 2008.The VGP covers 26 discharge streams incidental to the normal operation of a commercial vessel, except fishingvessels (unless they discharge ballast water). The 26 dis-charges are addressed by using existing U.S. Coast Guardregulatory regimes (e.g., bilge water and ballast water) andspecific best management practices (BMPs) to minimizeincidental discharges. On December 19, demonstrating abit of holiday cheer, the U.S. District Court for theNorthern District of California extended the compliancedate until February 6, 2009. The link to the EPA websitecontaining the VGP and other supporting documents is:http://cfpub.epa.gov/npdes/home.cfm?program_id=350.EPA estimates that about 61,000 U.S.-flag vessels and 8,000foreign-flag vessels will be subject to these permittingrequirements. If this is news to you or if you’ve not takenany action to prepare for compliance with the VGP whenit goes into effect, read on!
By way of background, in 1972, the Clean Water Act(CWA) established a permitting program governing dis-charges of pollutants from point sources into U.S. navigablewaters (i.e., out to three miles). Under the CWA, vessels are“point sources” when they are within three miles of the U.S.coast. Since implementing the CWA permitting require-ments nearly 35 years ago, however, EPA has exempted dis-charges “incidental to the normal operation of a vessel.”Incidental discharges include ballast water, graywater, bilgewater, stern tube discharges, cooling water discharges, anddeck runoff, among more than 20 others. More than 30 yearslater, various environmental groups sued EPA claimingthat the vessel exemption was illegal under the CWA. InSeptember 2006, the Court sided with the environmentalgroups and ordered EPA to eliminate the longstandingexemption. As a result, EPA issued the VGP.
Compliance with the VGP’s discharge requirementsgoes into effect on February 6, 2009, though industry willhave an extra two weeks (until February 19, 2009) to imple-ment inspections, training, and recordkeeping require-ments. In addition to the weekly, quarterly, and annualinspections, all of which must be logged, the VGP alsoincludes requirements for corrective actions and reporting.Vessel owners/operators will have to submit a Notice ofIntent (NOI) to be covered by the VGP sometime betweenJune 19 and September 19, 2008. Until that time, how ever,vessels are deemed automatically covered. While there is agrace period for owners to file the NOI, compliance isother wise required with the VGP on February 6, 2009.
Under the CWA, states are required to accept, object,or waive their acceptance of the VGP terms, and all havedone so except Alaska and Hawaii. Thus, the final VGPdoes not provide for coverage in the waters of those twostates at this time. The final VGP also contains numerousadditional state and tribal permit requirements. These state-specific requirements will need to be examined closelybecause some impose significant new and different, andmore stringent, regulatory requirements. For example,California: (1) requires that all vessel discharges in itswaters comply with the numeric effluent limitations con-tained in its statewide and regional water quality controlplans, and (2) mandates that effluent monitoring be per-formed on all waste stream discharges to determine wastestream quantity and quality.
This last minute action gives the maritime industry timeto analyze the final VGP and implement operational andrecordkeeping procedures to comply with its requirements.The implications of the VGP, however, remain huge. Eventhough EPA intends to instruct its field personnel thatenforcement should be a low priority for the first six monthsand to focus on compliance assistance, owners and operatorsshould immediately start taking actions to comply. �
1. The Ambrose Light, 24 F. 408, 413 (S.D.N.Y. 1885).2. See http://www.imo.org/Safety/mainframe.asp?topic_id=1709&doc_id=10497.3. Id.4. Id.5. See United Nations Security Council Resolution 1851 (2008).6. Id. (continued on page 2)
ARE YOU READY? Whales and Discharge Permits–Two Big Wintertime Challenges (continued from page 11)
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The Status of the UNESCO Convention in theUnited States and Other Maritime Nations
The UNESCO Convention contains several key provi-sions that are unacceptable to the United States and theother maritime nations that voted against its adoption orabstained from voting. In particular, these nations objectto the Convention’s creation of new coastal State rightsand regulatory authority over UCH located in exclusiveeconomic zones and on continental shelves and are con-cerned that the Convention does not provide adequateprotection for sunken warships.
With respect to jurisdiction, the United States andother maritime nations opposed the Convention because,in effect, it would have established a “cultural heritagezone” beyond 24 miles and the outer edge of the conti-nental shelf, in which coastal States would have directauthority to regulate access to UCH. The view of theUnited States and other maritime nations is that such newdirect coastal State regulatory authority over UCH would,in fact, improperly alter UNCLOS’ carefully constructed balance of rights and interests.
With respect to sunken warships, military aircraft, andother national vessels the view is that the Conventionwould alter customary international law and practiceregarding title to such vessels. It would also permit coastalStates to recover such vessels located in internal waters orthe territorial sea without the consent of the flag State oreven an obligation to notify them. The United States’position is that: (1) the Convention should instead codifycustomary principles of international law that title to asovereign vessel or aircraft, wherever located, remains vested in the original flag State unless expressly aban-doned; (2) it is not lost through the passage of time; and(3) salvage or recovery of such vessels or aircraft is not permitted without the express consent of the flag State.
The Future of the UNESCO ConventionIt is uncertain whether the UNESCO Convention will
re sult in a significant improvement in the protection ofUCH. As the late Robert Bloomberg, the head of theUnited States delegation to the panel of experts whonegotiated the Convention’s text, put it, “Ultimately, theConvention will not be effective unless it is broadlyratified and imple mented throughout the internationalcommunity, including by countries in which the mostadvanced undersea technology resides and whose nationalsare most active in regard to underwater cultural heritage.”Because of their objections to expansive jurisdictional pro-visions or concerns about the lack of warship protection,these countries, which include France, Germany, theNetherlands, Norway, Russia, Sweden, the United Kingdom,and the United States will likely remain outside the UCHregime. As a result, the Convention’s Rules and other positive provisions may ultimately have only limitedimpact on the protection of UCH. �
In the United States, Article I, Section 8, clause 10 ofthe Constitution expressly authorizes Congress to “defineand punish Piracies and Felonies committed on the highSeas, and Offenses against the Law of Nations.”11 Someinterpretations of this clause allow Congress to pass legis-lation to punish pirates for crimes that are considered universally cognizable. “The universality principle is basedon the assumption that some crimes are so universallycondemned that the perpetrators are the enemies of allpeople,” and “[t]herefore, any nation which has the cus-tody of the perpetrators may punish them according to itslaw applicable to such offenses.”12 Because the high seas,by definition, lie outside United States territory, Article I,Section 8, clause 10 grants Congress the power to applyfederal law beyond the borders of the United States.13
Congress codified its constitutional authority to “extra-dite or prosecute” offenders in 18 U.S.C. § 2280. Section2280(a)(1)(A) defines a pirate as a person who unlawfullyand intentionally seizes or exercises control over a ship byforce or threat thereof, and Section 2280(a)(1)(B) prohibits“acts of violence against a person on board a ship” that are“likely to endanger the safe navigation of that ship.”
Courts have been willing to broadly apply 18 U.S.C.S. §2280 to acts of piracy. In a recent decision of the UnitedStates Court of Appeals for the 9th Circuit, a three judgepanel upheld the conviction and 36-year prison sentence ofa Chinese cook who was convicted in Honolulu of forciblyseizing control of a foreign vessel in international watersand killing a Taiwanese Captain and Chinese First Mate.14
In the Lei Shi decision, the court held that the nexusrequirement under the Fifth Amendment Due ProcessClause does not apply to pirates because they are statelessand universally condemned.15 Therefore, a pirate will beprosecuted by any state where he is found even if he wasbrought within the jurisdiction of the United Statesagainst his will.16
The legal regime for dealing with piracy is well estab-lished, both as a matter of international law and domesticlaw. However, while governments are concerned aboutthe risk piracy now poses for commercial shipping, thecost of capturing, trying and punishing pirates puts a strainon a state’s judicial system and economic resources. Addi -tionally, it is questionable whether isolated arrests will really solve the problem.
Further challenges arise in the ratification of, accessionto, and implementation of relevant international Conven -tions. For example, states that are heavily targeted by piratesbecause of their close proximity to high-traffic shippinglanes, specifically Indonesia, Malaysia, the Philippines, andSomalia have not signed the SUA Convention.
Additionally, not only is there a lack of state participa-tion in international Conventions, the Conventions them-selves have various limitations. For example, article 101 ofUNCLOS defines piracy as “all illegal acts of violence ordetention . . . committed for private ends against anothership, aircraft, persons, or property on board by the crew or
Passage of this Resolution demonstrates the urgency of thesituation, as Somalia has requested international assistanceto deal with this extraordinary crisis and has given up someof its sovereignty in return.
Resolution 1851 also urges state parties to theConvention for the Suppression of Unlawful Acts Againstthe Safety of Maritime Navigation (“SUA Convention”) tofully implement their obligations under the SUA Conven -tion and cooperate with the Secretary-General and theIMO to create criminal offences, establish jurisdiction,accept delivery, and build judicial capacity for the success-ful prosecution of persons responsible for or suspected ofseizing or exercising control over a ship by force or threatthereof, or any other form of armed robbery or intimida-tion off the coast of Somalia.7
In response to the recent escalation of pirate attacks,the European Union has recognized the need for an inter-national military force to deal with piracy. On December8, 2008, the United Nations Security Council launched aEuropean Union military operation, called EU NAVFORSomalia (operation “Atalanta”), to support Resolutions1846 (2008) and 1851 (2008). Operation Atalanta wasestablished to contribute to the protection of vessels of theWFP (World Food Programme) delivering food aid to displaced persons in Somalia; the protection of vulnerablevessels cruising off the Somali coast; and the deterrence,prevention, and repression of acts of piracy and armedrobbery off the Somali coast.8
What Rights Does a State have to Punish Piratesfor Offenses Committed Outside their Jurisdiction?
Article 100 of the UN Convention on the Law of theSea (“UNCLOS”) provides “[a]ll States shall cooperate tothe fullest possible extent in the repression of piracy onthe high seas or in any other place outside the jurisdictionof any State.”
This provision is consistent with customary internationallaw which has long recognized the principle of universaljurisdiction. This principle is based on the idea that “offens-es against all states may be punished by any state where theoffender is found.”9 Universal jurisdiction permits a “stateto claim jurisdiction over an offender even if the offender’sact occurred outside its boundaries and even if the offenderhas no connection to the state.”10 Since pirates are knownas hostis humanis generis, or “the enemy of mankind,” theycan be apprehended and prosecuted in any state under theuniversal jurisdiction principle.
ARE YOU READY?Whales and Discharge Permits–Two Big Wintertime Challenges
by Jeanne M. Grasso
As if a bad economy is not enough,the maritime industry faces implemen-tation of two key rulemakings thatcould have a significant impact on vessel operations—and on a shipowner’sbottom line. The first relates to vesselspeed restrictions on the east coast ofthe United States to reduce the mor -tality of North Atlantic Right Whales.The second relates to permitting–yes,
permitting–discharges incidental to the normal operationsof vessels.
A Whale of a RequirementRegarding whales, the National Oceanic and Atmospheric
Administration (NOAA) issued a Final Rule on October 10,2008, imposing a 10-knot speed restriction on commercialvessels in specific waters off the east coast of the UnitedStates in an effort to reduce the mortality of NorthAtlantic right whales from ship strikes. The 10-knot speedrestriction is applicable to all vessels 65 feet in lengthor greater that operate in certain U.S. waters and will be effective, seasonally, from December 8, 2008 throughDecember 9, 2013. During this period, NOAA will assesswhether the speed restrictions are effective. If so, the rulewill likely be extended.
The Final Rule, published after protracted litigation,was based on several years of investigation and study andis intended to reduce the threats to right whales posed byvessel traffic along the east coast of the United States.According to NOAA’s data, right whales live for about 70years, range from 45 to 60 feet in length, and weighbetween 30 and 80 tons. They are currently the mostendangered large whales in the world and NOAA estimatesthat they could become extinct unless protective steps aretaken. NOAA estimates that there are about 300 rightwhales living off the U.S. and Canadian east coasts duringmuch of the year, as they transit from the warm birthinggrounds of Florida and Georgia in the winter to the NorthAtlantic in the summer. Approximately one third of allright whale deaths reportedly result from ship strikes andentanglement in fishing gear.
Based on the seasonal migration of the right whales,the speed restrictions involve three Seasonal ManagementAreas (SMAs), the Southeastern Atlantic US region (SEUS),the Mid-Atlantic US region (MAUS), and the Northeast USregion (NEUS). A map depicting the “seasonal manage-ment areas” and a NOAA published compliance guide canbe accessed at http://www.nmfs.noaa.gov/pr/shipstrike/.
NOAA intends to work closely with the U.S. CoastGuard to implement an effective enforcement strategy.
7. Id.8. See European Union, European Security and Defense Policy, Military operation
of the EU, EU NAVFOR Somalia.9. See United States v. Lei Shi, 525 F.3d 709 (9th Cir. Haw. 2008) quoting Stephen
Macedo, Universal Jurisdiction 2-12 (2004).10. Id.11. See http://www.house.gov/house/Constitution/Constitution.html.12. Demjanjuk vs. Petrovsky (1982), 776 F.2d 571, at 582.13. See United States v. Lei Shi, 525 F.3d 709 (9th Cir. Haw. 2008) quoting United
States v. Davis, 905 F.2d 245, 248 (9th Cir. 1990).14. United States v. Lei Shi, 525 F.3d 709 (9th Cir. Haw. 2008).15. Id. at 722.16. Id. at 724.
Pirates of Somalia (continued from page 1)
JEANNE M. GRASSO
(continued on page 12)
established with the dedicated aim of destroying them ormeting out appropriate punishment for their crimes.
Additional issues to consider include:
• Legislation to make ransom payments illegal, just asthey are for terrorist groups.
• Maritime search and destroy missions.
• Shipowners’ liability for deviation claims under thecharter party if Owners decide to avoid areas knownfor pirate attacks.
If you have questions or would like additional information on thematerial covered in this article, please contact John D. Kimball,International and Maritime Litigation and Alternative DisputeResolution Practice Group Leader, at 212.885.5259, or Jonathan K.Waldron, Partner in the International Trade and Public ContractsPractice Group, at 202.772.5964. �
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passengers of a private ship.”17 This definition of piracyexcludes certain types of attacks, including politically-motivated acts and environmental attacks.18 Second, whenan attack occurs inside the territorial waters of a state, thepursuing state may only continue outside the territorialzone if the pursuit has not been interrupted.19 Further, theright of hot pursuit ends as soon as the fleeing ship entersits own territorial waters or the territorial waters of a thirdparty.20 Finally, article 105 of UNCLOS provides that astate may seize a pirate ship “on the high seas or in anyother place outside the jurisdiction of any State . . . [and][t]he courts of the State which carried out the seizure maydecide upon the penalties to be imposed, and may alsodetermine the action to be taken. . . .” This means that inareas of densely populated states, such as Southeast Asia,fleeing vessels can easily escape into the territory of aneighboring state and avoid punishment if the adjoiningstate is reluctant to act.
Pirates operating in international waters off of Somaliahave been successful in collecting ransom money withvery low cost operations. It has been easy to recruit morepirates because the rewards are high and the risk seems tobe low. In order to successfully combat piracy, the risks ofbeing a pirate must be made much higher. Potentialrecruits need to know they may get killed and that highlycapable naval forces have made it their aim to capture anddestroy them.
Since piracy has long been recognized as a crimeagainst the law of nations establishing an internationalcourt to undertake the great expense and challenge of try-ing and convicting pirates may be the best solution. UNResolution 1851 encourages regional cooperation amongAfrican nations to “facilitate the investigation and prose-cution of persons detained . . . for acts of piracy and armedrobbery at sea off the coast of Somalia.”21 A possibleresource for trying captured pirates is the InternationalTribunal for the Law of the Sea (“ITLOS”) based inHamburg. ITLOS is an underused tribunal established pur-suant to UNCLOS to deal with disputes arising under theconvention. To effectively implement this resource, how-ever, the rules of jurisdiction concerning ITLOS wouldhave to be revised to give it the power to deal with suchdisputes. Utilizing ITLOS to try and punish piracy willreduce the burden on individual states in having to dealwith the lengthy and costly prosecution. This idea shouldbe considered as part of a longer term solution for dealingwith piracy.
Pirates have been the scourge of the high seas for cen-turies and are bound to be around for years to come unlesseffective international military and judicial agencies are
Parties take “all practicable measures” to ensure that theirnationals and vessels flying their flag do not engage inactivities that are not in conformity with the Convention’sprovisions and the Rules of the Annex and establishesbroad authority to impose sanctions for violations ofmeasures a State has taken to implement the Convention,“wherever they occur.” The Convention also broadlyrequires States Parties to “use the best practicable means”at their disposal to prevent or mitigate activities that mayinadvertently or incidentally physically disturb or otherwisedamage UCH. Also, included within the Conven tion’sregime for activities occurring within a State’s ExclusiveEconomic Zone, on the Continental Shelf, and on areas ofthe seabed outside of national jurisdiction is the require-ment that the master of any vessel flagged by a State Partywho discovers or intends to engage in activities directed atUCH report such discoveries or activities to the State Partyin whose waters the activities take place.
It remains to be seen how signatories to the Conventionwill implement these provisions, especially those concern-ing inadvertent or incidental activities affecting UCH. Forexample, vessels that inadvertently drag an anchor or atrawl net through a shipwreck could be at risk of sanctions.At a minimum, shipowners and managers of vessels flaggedby States Parties should expect flag state inspections willinclude reviews of measures involving UCH activity andreports. Until some practice has been developed in this area,shipowners and managers of vessels flagged by–or operatingin the jurisdiction of—States Parties should be aware of thepotential risks and exercise caution when planning and con-ducting any underwater activities.
The Convention also contains control-of-entry andnon-use provisions that affect all vessels. The Conven tionrequires States Parties to prohibit the entry into their terri-tory or the possession of UCH that was not recovered incompliance with the Convention’s provisions. The use ofa State Party’s territory, including its maritime ports, byvessels that engaged in activity directed at UCH that wasnot done in compliance with the Convention is also pro-hibited. The Convention further authorizes the seizure ofUCH found in a State’s territory that has been recoveredin a manner not in conformity with the Convention.
Accordingly, shipowners and managers of vesselsinvolved in activities directed at UCH must be aware ofwhich nations are States Parties when planning their vessel’s movements, including the designation of potentialports of refuge, otherwise they run the risk of inadvertentlybringing their vessels within the Convention’s authority.Vessels that transport UCH artifacts, even possibly con-tainer vessels, also should be aware of the possibility ofhaving cargo seized and sanctions imposed if they enterthe jurisdiction of States Parties.
Shipowners should consider the extent to which theserequirements may affect their operations. One solutionfor avoiding them is to re-flag in a country which has not ratified the Convention.
For activities in the Exclusive Economic Zone, on theContinental Shelf, and areas of the seabed outside ofnational jurisdiction the Convention establishes a specificinternational cooperation regime encompassing notifica-tions, consultations, and coordination in the implementa-tion of protective measures.
An important part of the Convention is its Annex—containing “Rules concerning activities directed at under-water cultural heritage.” The operational schemes found inthe Rules are widely recognized by marine archeologistsas the standard reference document for interventions atUCH sites and largely mirror standards established forland based cultural sites.
The UNESCO Convention’s RulesAffecting Vessel Operations
The UNESCO Convention contains provisions that mayhave a significant impact on the operations of vesselsflagged both by States Parties and non-States Parties. TheConvention contains the broad requirement that States
17. See Preamble to the United Nations Convention on the Law of the Sea, Article101(a)(1) and (2) and 101(b).
18. Id. 19. See Preamble to the United Nations Convention on the Law of the Sea, Article
111(1).20. See Preamble to the United Nations Convention on the Law of the Sea, Article
111(3).21. See United Nations Resolution 1851(3).
Problems Ahead: The UNESCO Convention on the Protectionof Underwater Cultural Heritage (continued from page 9)
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the territorial sea to 24 nautical miles from the coast)without their approval. Beyond 24 miles, UNCLOS didnot establish or recognize any special role or competencefor coastal States in regard to the protection or regulationof UCH.
UNCLOS, however, provides no definition of what isto be considered UCH, how it is to be preserved or dis-posed of for the benefit of mankind, which States are entitled to preferential rights, or the nature of such rights.UCH located beyond 24 nautical miles is subject only toadvisory UNCLOS obligations and the general internationallaw of salvage and finds.
At the same time, there was growing concern in theinternational marine archeology community that thethreat to underwater heritage sites posed by looting, unin-tentional and negligent damage from fishing, exploitationof sea-bed resources, and shore-line and offshore construc-tion had the potential to cause a great loss to the study ofthe history of civilization. Contributing to this threat wasthe concern that legal efforts to protect underwater her-itage sites lagged behind laws protecting cultural heritagesites on the ground.
To attempt to correct this imbalance and provide aframework for cooperation for safeguarding underwaterheritage sites, UNESCO resolved in 1993 to draft a newconvention for the protection of UCH. A group of expertsmet in Paris in 1998 and 1999 to work out language for adraft convention. Although there was broad consensusamong the experts on many UCH issues, major differencesremained unresolved concerning whether the jurisdiction ofcoastal States extended to the full extent of the continentalshelf and whether flag States maintained sovereignty of military shipwrecks located in foreign territorial waters.
The Convention was finally adopted by UNESCO’sGeneral Conference on November 2, 2001. Twenty Stateshave now ratified it and it will enter into force on January2, 2009.1 In accordance with the Convention’s provisions,the UNESCO Director-General has convened a meeting ofStates Parties to be held in Paris in March 2009. In addi-tion to establishing its functions and responsibilities, theStates Parties meeting may also establish a Scientific andTechnical Advisory Body composed of experts who willmake recommendations to the States Parties.
General Principles ofthe UNESCO Convention
For the purposes of the UNESCO Convention,“Underwater Cultural Heritage” refers to all traces of humanexistence having a cultural, historical, or archeological character, which have been partially or totally under water,periodically or continuously, for at least 100 years.
of whether funds directed to the defendant as beneficiary aresubject to attachment while in the hands of the garnisheebank. That issue is presently on appeal, with a decisionexpected sometime in the Spring of 2009.
Despite the attempts by some district judges to limitthe remedy, we have seen in the past few months a deci-sion challenging long-standing notions of admiralty juris-diction in holding that a vessel sale MOA is a maritimecontract; two previous but also recent decisions held thatit is not. We have seen decisions holding that ForwardFreight Agreements, which are financial derivative instru-ments intended to be (but not always) used as hedgesagainst fluctuating freight rates, are maritime contracts,whereas the authority seems to be split on commoditysales contracts which contain provisions relating to oceantransport and demurrage or contain other seemingly“salty” provisions.
Can a Rule B action be filed “under seal” so that thedefendant will not learn of the filing in the media and gainthe opportunity to take evasive measures? Many cases havebeen successfully filed in this manner, but at least onerecent decision says no, at least not without a strong show-ing of cause extending beyond the simple concern that thedefendant might learn of the action.
How detailed do “alter ego” allegations need to be?The district court decisions cannot be reconciled, and theSecond Circuit recently let an opportunity to clarify thispoint slip by without focusing on it. Meanwhile, somejudges require detailed factual allegations and others areapparently satisfied with more conclusory allegations.
What should the court consider in ruling on a motionto vacate an attachment? Numerous recent decisions haveheld that the court must look no further than the primafacie allegations in the complaint whereas others have con-sidered affidavits and exhibits submitted by the parties.Here again, a recent Second Circuit decision missed anopportunity to clarify and may even have further muddiedthe waters.
Unsurprisingly, the question whether a party is “found”in New York—thereby rendering it immune from Rule Battachment—is a hot topic, and we have seen a number ofdecisions holding that registering with the New YorkSecretary of State and appointing an agent for service ofprocess is sufficient to make a party found for Rule B pur-poses. But not so fast: appeals are pending, and one or twoearlier decisions support the opposite view. That uncer-tainty has not stopped the flow of registrations in NewYork, however, and we suspect the Secretary of State’soffice is wondering what the heck is happening with all thenew filings.
Some judges have started to append their own “custom”modifications to proposed attachment orders. One provi-sion we have seen holds that the order is only good for 120days and automatically expires thereafter unless funds areattached. Another provides that the order automaticallyexpires within 45 days if the plaintiff has not commencedlitigation or arbitration on the merits within that time.
Notes from the Editor: Rule B Explosionby Thomas H. Belknap, Jr.
There are many barometers by whichto measure the state of the economy.The S&P 500, FTSE 100, and Nikkei 225indexes all tell us about stock values,and there are indices measuring con-sumer confidence, home values andsales, unemployment levels, inflation(or deflation), interest rates, and justabout every other economic metric thatcan be conceived. In shipping there is(among others) the Baltic Exchange Dry
Index, and by that measure things are pretty tough thesedays. According to a recent Financial Times report, charterrates for a Capesize bulk carrier fell 99% between June andDecember 2008, from a peak of nearly $234,000 a day toa paltry $2,364.
In New York, we have another instrument by which tomeasure the health of the shipping industry, and that isthe rate of new filings of “Rule B” maritime attachmentactions. A recent article in Tradewinds (Nov. 14, 2008)reported that Rule B cases represented about 10% of thenew filings in the Southern District of New York in thebeginning of 2008 (itself a remarkable number, consider-ing there are about 12,000 cases filed in the SouthernDistrict in any given year). But in October of last year,Rule B cases made up 25% of new filings (over 250), andas of November that number had risen to over 30%. Theseare astonishing statistics. Many vessels are subject tochains of charters consisting of as many as ten differentcompanies. In many instances it seems as if a disputehas developed—more or less simultaneously—under everycharter in the chain.
The maritime bar, the banks, and, not least, the districtcourt and its judges, are struggling with this flood of RuleB cases. There are some forty-five district judges in theSouthern District of New York. Some judges—based ontheir decisions—had never been particularly fond of theprecedent the Second Circuit has established allowingattachment of EFTs. As new cases fill the docket, evensome of the most even-keeled judges seem to be lookingfor ways to slow down and manage the flood. This has ledto what some might call innovation but others have calledjudicial activism.
It is difficult to think of another area where the case lawhas evolved so quickly—two or three new decisions arereported every week, it seems, and many other rulings areissued as informal “memo endorsements” or from the benchwithout written decision. The Second Circuit’s decision inConsub Delaware LLC v. Schahin Engenharia Limiteda appearsto have laid to rest the question of whether EFTs originatedby the defendant are subject to attachment pursuant to RuleB, though the Consub court declined to rule on the question
The Convention is based on four main principles:
1. The obligation of the States Parties to the Conventionto preserve UCH for the benefit of humanity.
2. The preservation of UCH in situ (i.e., under water atthe current location on the seabed) as the preferredoption before allowing or engaging in any otheractivities. Recovery may be authorized, however, forthe purpose of making a significant contribution tothe protection or knowledge of underwater culturalheritage.
3. No commercial exploitation of UCH for trade orspeculation. This principle is not to be understood aspreventing professional archeology, the depositionof heritage recovered in a research project, or pre-venting salvage activities or actions by finders thathave been authorized by competent authorities andare in full conformity with the Convention’s Rules.
4. Cooperation among States to protect UCH, promotetraining in underwater archeology, and raise publicaware ness of the importance of sunken culturalproperty.
The Convention’s standards of protection for UCHapply only among States that have ratified the Con -vention. Furthermore, the Convention does not regulatethe issue of ownership of wrecks or ruins between theStates concerned. The Convention is not intended to prej-udice the rights or duties of States under international law,including UNCLOS. Every State may become a party tothe Convention, regardless of whether it is a State party toUNCLOS or not.
In addition to the enumerated protection principles,the Convention contains specific regimes for cooperationbetween coastal and flag States depending on the currentlocation of the UCH:
• States Parties have the exclusive right to regulateactivities in their internal and archipelagic waters andtheir Territorial Sea;
• within their Contiguous Zone, States Parties may reg-ulate and authorize activities directed at UCH; and
• within their Exclusive Economic Zone and on theContinental Shelf, States Parties may regulate orauthorize activities directed at UCH in order to pre-vent interference with the state’s sovereign rights orjurisdiction.
For the seabed and ocean floor beyond the limits ofnational jurisdiction, State Parties may only grant authoriza-tion for activities directed at UCH that are in conformitywith the provisions of the Convention.
THOMAS H. BELKNAP, JR.EDITOR
1. As of the date of this article, the twenty States ratifying the Convention are: Barbados, Bulgaria, Cambodia, Croatia, Cuba, Ecuador, Lebanon, Libya, Lithuania, Mexico,Montenegro, Nigeria, Panama, Paraguay, Portugal, Romania, Saint Lucia, Slovenia, Spain, and Ukraine.
(continued on page 10)
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Even where the attachment order contains no such provi-sions, we have seen that some judges have begun dismiss-ing actions “without prejudice” where no funds have beenattached, but subject to a plaintiff ’s right to show goodcause why the action should be restored.
Some judges are requiring detailed documentation ofthe merits of the claim, even where they are subject to foreign law and arbitration and even though no suchrequirement is found anywhere in the rules or case law,before they will sign an order directing attachment. Onejudge has ruled that the standard pleading in the com-plaint that a party “may” have assets in the jurisdictionduring the pendency of the action is insufficient and hasrefused to sign attachment orders without specific allega-tions that the defendant’s property can be found in thedistrict. Another judge is notorious for not signing Rule Battachment orders at all, or waiting months to do so, whichis particularly problematic because the delay in signingorders is, as a practical matter, almost unreviewable.
Needless to say, the lack of uniformity has made itchallenging to give concrete advice on many of theseissues, and no client likes to hear that success or failurecomes down to the luck of the draw of the judge. Ofcourse, part of the challenge is simply the speed withwhich the law is evolving, and as soon as one “legal” issueis settled another seems to arise. The “practice” issues area different matter, however, and while many of thejudicial “add-ons” aim to serve legitimate ends, the lack ofuniformity and predictability has only complicated matters.
We suggest that it is time for the maritime bar in NewYork to reach out to the judges and banks in the SouthernDistrict to try to work out uniform guidelines for practicein Rule B matters. Perhaps this can be accomplishedthrough the Maritime Law Association. While this won’tsolve disputes over “legal” issues, which properly are leftfor the adversarial process by which the law evolves in theUnited States, it might help resolve some of the “practice”issues, which are more a matter of establishing clear, uniform pleading requirements and procedural rules. Suchan approach might help to ease some of the stress whichhas been placed on the courts and the banks in dealingwith a burgeoning maritime docket and at the same timemake it easier for lawyers to counsel their clients.
We have a few simple suggestions for some uniformpractice rules, but we are sure that input from other mem-bers of the maritime bar and from the courts and the bank-ing industry could improve on our suggestions:
• Eliminate the requirement for daily supplementalservice. Make the writ of attachment, once personallyserved on the bank, effective for 90 or 120 days andthen have it automatically expire (and the action auto-matically dismissed without prejudice) if no funds arecaught within that time unless the plaintiff shows causewhy the order should be extended. This would moreclosely conform with the banks’ present practice ofscreening for attachments by placing defendants’names in their OFAC screening software once they
Problems Ahead: The UNESCOConvention on the Protection of Underwater
Cultural Heritageby John D. Kimball and Alan M. Weigel
On January 2, 2009, the UnitedNations Educational, Scientific andCultural Organization (“UNESCO”)Convention on the Protection of theUnderwater Cultural Heritage (“UCH”)will enter into force, having now beenratified by twenty States. UNESCOadopted the convention to provide aframework for safeguarding marinearcheological sites and submerged ship-wrecks from potential loss caused byunderwater activities.
Unfortunately, the Convention creates expansive new coastal Statejurisdiction over UCH-related activitiesin wide areas outside of the traditionallimits of national jurisdiction and failsto provide adequate protection formilitary shipwrecks consistent with customary international law. As a result
of these provisions, the United States and other major maritime nations do not support the Convention andwill likely not become parties, thereby limiting theConvention’s effectiveness.
For vessels flagged in States that have ratified theConvention, their activities will be subject to significantnew regulations and reporting requirements. The Con -vention’s provisions may also have an effect on the opera-tions of vessels flagged in non-State Parties as well.
BackgroundPrior to the adoption of the UNESCO Convention
there was no comprehensive legal regime that specificallyregulated activities affecting UCH located within 24 nauti-cal miles seaward of the coast. The 1982 U.N. Conventionon the Law of the Sea (“UNCLOS”) addresses the protec-tion of UCH, but its regime is unclear and incomplete.
UNCLOS obliges all states “to protect objects of anarchaeological nature found at sea” and to cooperate forthat purpose. It also provides that such UCH “shall be preserved or disposed of for the benefit of mankind asa whole, particular regard being paid to the preferentialrights of the State or country of origin, or the Stateof cultural origin, or the State of historical and archaeo -logical origin.”
Under UNCLOS, coastal States have jurisdiction to regulate activities affecting UCH in their territorial sea (seaward of 12 nautical miles from the coast) and may alsoprevent the removal of “objects of an archaeo logical andhistorical nature” from their contiguous zones (seaward of
the “existence of such foreign proceeding and of theappointment of the foreign representative.”7 After noticeand a hearing, the bankruptcy court is directed to enter anorder recognizing a foreign main or non-main proceedingwith the specific direction that such petitions “shall bedecided upon at the earliest possible time.”8
Effect of RecognitionUpon FilingThe new chapter contains a section specifying the
“[r]elief that may be granted upon the filing of a petition. . .” so that the court may provide relief prior to ruling onthe application, if needed to protect the assets of thedebtor or interests of creditors.9
This relief includes:
• “staying execution against the debtor’s assets”;
• “entrusting the administration or realization of all orpart of the debtors assets located in the United Statesto the foreign representative or person authorized bythe court . . .”
In the Brit Bulk case, the Bankruptcy Court entered atemporary restraining order on the day the petition wasfiled which it then extended prior to a hearing onwhether to recognize Brit Bulk’s English administration asa “foreign main proceeding.”
Upon RecognitionIn a separate section, Chapter 15 lays out the “effects
of recognition” as a matter of right upon recognition ofthe foreign proceeding, including the application of theBankruptcy Code’s well known “automatic stay” “withrespect to the debtor and the property of the debtor thatis within the territorial jurisdiction of the United States.”10
In addition, certain discretionary relief may be grantedconsistent with that regularly granted in domestic cases.Upon the request of the foreign representative, the courtmay entrust distribution of the debtor’s assets “located inthe United States” to the foreign representative, providedthat U.S. creditors’ interests are “sufficiently protected.”The foreign representative is also given the power to assertavoidance actions but the new section does not dictate thechoice of law applicable to such avoidance actions.
ConclusionThe little heard of Chapter 15 is likely to become as
familiar as the term “Rule B” in admiralty circles. It effec-tively shuts down Rule B and other pre-judgment andpost-judgment collection efforts throughout the U.S. inone fell swoop. When the “unknown event” of a total collapse in the shipping market has just occurred at leastthere is a known safe harbor for an insolvent maritimecompany considering how to stave off its creditors. �
receive the original hand service and would minimizethe needless administrative burden of daily e-mail orfax service—which serves no discernible purpose andwould help courts get stale cases off the docket.
• If there is going to be a requirement that arbitrationor litigation on the merits be pursued within a certaintime frame, make the “trigger” for this requirementthe attachment of funds rather than the commence-ment of the action. This would more closely conformwith the very sensible approach taken by many plain-tiffs of seeking security before embarking on anextremely costly arbitration or litigation that maywell result in an unenforceable award or judgmentunless security can be obtained.
• Standardize the “form” order to be issued by thecourt directing issuance of process of maritimeattachment and garnishment to make it easier on thebanks and courts to standardize their handling ofnew filings, but leave it open to the plaintiff in anygiven case to propose modifications to the orderwhere it can show the circumstances warrant it.
• Standardize the notice of any attachment to be givenby the banks to the plaintiff and by the plaintiff tothe defendant to minimize needless disputes overwhether proper notice was given and to ensure partiesare fully aware of competing attachments.
• Consider with the court a procedure to get cases offthe active docket once funds have been attached, butsubject to reopening if disputes arise or once fundsare to be distributed. This would allow Courts toclose inactive cases as quickly as possible.
These are intended to be practical suggestions thatcould reduce the administrative burden of Rule B actionson everyone, leaving the parties free to focus on the moresubstantive issues of when, and to what extent, an attach-ment is warranted in the circumstances of a particular case.There may be good reasons why some or all of these ideaswouldn’t work. We think the time is ripe, however, to havethat discussion. �
7. 11 U.S.C. § 1515(b)(2).8. 11 U.S.C. § 1517(a).9. 11 U.S.C. § 1519.
10. 11 U.S.C. § 1520(a)(1).
Shipping, Finance, and Insolvencies: The Black Swan ComesHome to Roost (continued from page 6)
ALAN M. WEIGEL
JOHN D. KIMBALL
Blank Rome has an unmatched capability to provide one-stop shopping for financial restructurings andbankruptcies in the maritime industry—to debtors, investment bankers, secured creditors, creditor committees,lenders, purchasers, and unsecured creditors—including:
• DIP and exit financing
• Restructuring and workouts
• Preference action defense
• Chapter 15 petitions and injunctions in aid of foreign bankruptcy cases
We help our clients through the four stages of what can be a hurricane-like experience:
1. Financial Storm Gathering—Advise on your options
2. Gale Force Financial Winds—Prepare for debtor's bankruptcy, including DIP financing
3. Bankruptcy Hurricane—Guide you through the bankruptcy process to a reorganization plan
4. Smooth Financial Sailing—Assist you with implementing a bankruptcy reorganization plan,including exit financing
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BLANK ROME LLP 6
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The “New Comity”—Chapter 15:“Ancillary and Other Cross-border Cases”
United States’ bankruptcy law, codified principally in theBankruptcy Code, has recognized “ancillary petitions,” thatis, permitting a representative trustee or liquidator of a foreign debtor to file a bankruptcy petition “ancillary” to themain bankruptcy case pending in another country. The sen-sible purpose was to allow the foreign representative to marshal all the assets of the debtor for the main, “home”bankruptcy case for equal pro rata distribution, rather thanto allow U.S. creditors to obtain more than their fair share ina “piecemeal” fashion. The one major caveat was that theorder of distribution or “treatment of all holders of claims”had to be broadly similar in the foreign jurisdiction as in theU.S. The new chapter takes this view of comity substantiallyfurther and may somewhat reduce the element of discretionleft to the bankruptcy court to deny such petitions. However,case law relating to the old Code section remains applicable.
Conditions for RecognitionBeing a Foreign “Debtor”First there must be a “debtor,” defined as “an entity that
is subject to a foreign proceeding,”3 meaning a “collectivejudicial or administrative proceeding in a foreign country. . . under a law relating to insolvency or adjustment of debtin which proceeding the assets and affairs of the debtor are subject to control or supervision of a foreign court, for the purpose of reorganization or liquidation.”4
Being a “Foreign Representative”The issue of who is a foreign representative (which was
also an issue subject to frequent challenge under theformer Section), is now a streamlined enquiry and includesa “person or body appointed on an interim basis . . . ”5
The “Foreign Proceeding”The new chapter makes two distinctions:
MAINThe foreign proceeding may be a “main” proceeding
or a “non-main” proceeding. Chapter 15 defines a mainproceeding as one brought in thecountry “where the debtor has the“center of its main interests.”
NON-MAINA “foreign non-main”
proceeding is defined as aforeign proceeding, other thanthe main one, in a country where thedebtor has “an establishment,” as opposedto its “main interests.”6
ImplementationThe new chapter provides for a case to
be commenced by the filing of “a petition for recognitionof a foreign proceeding.” 11 U.S.C. § 1504. This requiresthe foreign representative’s petition to be accompanied byinter alia, (“evidence”, in English) from the foreign court of
Shipping, Finance, and Insolvencies:The Black Swan Comes Home to Roost
by Jeremy J.O. Harwood
In 2007, in discussing the newBankruptcy Code chapter, Chapter 15,in respect of foreign bankruptcy cases,we wrote “international financial mar-kets ‘correct’ themselves . . . [t]he inter-national shipping industry, which hasseen all time highs in recent years, mayponder its own fate.”1 In March of thisyear our article on the same subject wasfollowed by the question “A Homeport
In The United States?” The Chapter 15 filing of BritanniaBulk PLC (“Brit Bulk”) in the New York Bankruptcy Courton November 17, 2008 is evidence of the Black Swan2
(“what you don’t know is more relevant than what you doknow”) coming home to roost in the U.S. Bankruptcy system. This note will examine the Brit Bulk filing; the efficacy and practical purpose of Chapter 15 filing for maritime companies in New York; and re-cap the primaryrequirements and effects of Chapter 15.
The Brit Bulk FilingThe declaration of the Joint Administrator in support
of Brit Bulk’s Chapter 15 petition asserted that Brit Bulk,a U.K. public listed company, had commenced U.K. insol-vency proceedings in England as “its center of main inter-ests” and claimed “foreign main proceeding” recognition,as discussed further below.
The declaration disclosed that Brit Bulk operated, at itspeak, a fleet of approximately 50-70 vessels. Most remark-able is that in the third quarter of 2008 Brit Bulk “increasedits chartered-in-capacity at a time when the demand forshipping capacity decreased significantly.” Brit Bulk’slenders accelerated its loan obligations.
The Nub of the FilingThe declaration stated that since late September 2008
over 14 Supplemental Admiralty Rule B actions had beenfiled against it. All of those actions would have been filedin New York to attach wire transfers passing through inter-mediary clearing house banks. The largest attachmentaction sought to attach $39 million. The Liquidator arguedthat the Rule B attachments “would cause injury or detri-ment to the creditors as a whole and would prevent theorderly administration and integrity of [Brit Bulk’s] insol-vency proceedings in England.” Brit Bulk obtained arestraining order against Rule B plaintiffs—evidently theprimary purpose of the filing.
JEREMY J.O. HARWOOD
1. Jeremy J.O. Harwood, M.A. (Oxon.) See, Shipping, Finance, and Insolvencies: AHomeport in the United States?, Mainbrace, June 2007, at 3.
2. As described by Nassim Taleb. in “The Black Swan.”3. 11 U.S.C. § 1502(1).4. 11 U.S.C. § 101(23).5. 11 U.S.C. § 101(24).6. 11 U.S.C. § 1502(5). (continued on page 8)
BlankRome.com Hong Kong New York Philadelphia Washington, DC Wilmington
RescueToThe
Blank RomeMaritime BusinessRestructuring & Bankruptcy
Many business founderings can beavoided or mitigated by early risk assessment,evaluation of alternatives, and restructuring.
Blank Rome has an unmatched capability to provide one-stop shopping for financial restructurings andbankruptcies in the maritime industry—to debtors, investment bankers, secured creditors, creditor committees,lenders, purchasers, and unsecured creditors—including:
• DIP and exit financing
• Restructuring and workouts
• Preference action defense
• Chapter 15 petitions and injunctions in aid of foreign bankruptcy cases
We help our clients through the four stages of what can be a hurricane-like experience:
1. Financial Storm Gathering—Advise on your options
2. Gale Force Financial Winds—Prepare for debtor's bankruptcy, including DIP financing
3. Bankruptcy Hurricane—Guide you through the bankruptcy process to a reorganization plan
4. Smooth Financial Sailing—Assist you with implementing a bankruptcy reorganization plan,including exit financing
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BLANK ROME LLP 6
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The “New Comity”—Chapter 15:“Ancillary and Other Cross-border Cases”
United States’ bankruptcy law, codified principally in theBankruptcy Code, has recognized “ancillary petitions,” thatis, permitting a representative trustee or liquidator of a foreign debtor to file a bankruptcy petition “ancillary” to themain bankruptcy case pending in another country. The sen-sible purpose was to allow the foreign representative to marshal all the assets of the debtor for the main, “home”bankruptcy case for equal pro rata distribution, rather thanto allow U.S. creditors to obtain more than their fair share ina “piecemeal” fashion. The one major caveat was that theorder of distribution or “treatment of all holders of claims”had to be broadly similar in the foreign jurisdiction as in theU.S. The new chapter takes this view of comity substantiallyfurther and may somewhat reduce the element of discretionleft to the bankruptcy court to deny such petitions. However,case law relating to the old Code section remains applicable.
Conditions for RecognitionBeing a Foreign “Debtor”First there must be a “debtor,” defined as “an entity that
is subject to a foreign proceeding,”3 meaning a “collectivejudicial or administrative proceeding in a foreign country. . . under a law relating to insolvency or adjustment of debtin which proceeding the assets and affairs of the debtor are subject to control or supervision of a foreign court, for the purpose of reorganization or liquidation.”4
Being a “Foreign Representative”The issue of who is a foreign representative (which was
also an issue subject to frequent challenge under theformer Section), is now a streamlined enquiry and includesa “person or body appointed on an interim basis . . . ”5
The “Foreign Proceeding”The new chapter makes two distinctions:
MAINThe foreign proceeding may be a “main” proceeding
or a “non-main” proceeding. Chapter 15 defines a mainproceeding as one brought in thecountry “where the debtor has the“center of its main interests.”
NON-MAINA “foreign non-main”
proceeding is defined as aforeign proceeding, other thanthe main one, in a country where thedebtor has “an establishment,” as opposedto its “main interests.”6
ImplementationThe new chapter provides for a case to
be commenced by the filing of “a petition for recognitionof a foreign proceeding.” 11 U.S.C. § 1504. This requiresthe foreign representative’s petition to be accompanied byinter alia, (“evidence”, in English) from the foreign court of
Shipping, Finance, and Insolvencies:The Black Swan Comes Home to Roost
by Jeremy J.O. Harwood
In 2007, in discussing the newBankruptcy Code chapter, Chapter 15,in respect of foreign bankruptcy cases,we wrote “international financial mar-kets ‘correct’ themselves . . . [t]he inter-national shipping industry, which hasseen all time highs in recent years, mayponder its own fate.”1 In March of thisyear our article on the same subject wasfollowed by the question “A Homeport
In The United States?” The Chapter 15 filing of BritanniaBulk PLC (“Brit Bulk”) in the New York Bankruptcy Courton November 17, 2008 is evidence of the Black Swan2
(“what you don’t know is more relevant that what you doknow”) coming home to roost in the U.S. Bankruptcy system. This note will examine the Brit Bulk filing; the efficacy and practical purpose of Chapter 15 filing for maritime companies in New York; and re-cap the primaryrequirements and effects of Chapter 15.
The Brit Bulk FilingThe declaration of the Joint Administrator in support
of Brit Bulk’s Chapter 15 petition asserted that Brit Bulk,a U.K. public listed company, had commenced U.K. insol-vency proceedings in England as “its center of main inter-ests” and claimed “foreign main proceeding” recognition,as discussed further below.
The declaration disclosed that Brit Bulk operated, at itspeak, a fleet of approximately 50-70 vessels. Most remark-able is that in the third quarter of 2008 Brit Bulk “increasedits chartered-in-capacity at a time when the demand forshipping capacity decreased significantly.” Brit Bulk’slenders accelerated its loan obligations.
The Nub of the FilingThe declaration stated that since late September 2008
over 14 Supplemental Admiralty Rule B actions had beenfiled against it. All of those actions would have been filedin New York to attach wire transfers passing through inter-mediary clearing house banks. The largest attachmentaction sought to attach $39 million. The Liquidator arguedthat the Rule B attachments “would cause injury or detri-ment to the creditors as a whole and would prevent theorderly administration and integrity of [Brit Bulk’s] insol-vency proceedings in England.” Brit Bulk obtained arestraining order against Rule B plaintiffs—evidently theprimary purpose of the filing.
JEREMY J.O. HARWOOD
1. Jeremy J.O. Harwood, M.A. (Oxon.) See, Shipping, Finance, and Insolvencies: AHomeport in the United States?, Mainbrace, June 2007, at 3.
2. As described by Nassim Taleb. in “The Black Swan.”3. 11 U.S.C. § 1502(1).4. 11 U.S.C. § 101(23).5. 11 U.S.C. § 101(24).6. 11 U.S.C. § 1502(5). (continued on page 8)
BlankRome.com Hong Kong New York Philadelphia Washington, DC Wilmington
RescueToThe
Blank RomeMaritime BusinessRestructuring & Bankruptcy
Many business founderings can beavoided or mitigated by early risk assessment,evaluation of alternatives, and restructuring.
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Even where the attachment order contains no such provi-sions, we have seen that some judges have begun dismiss-ing actions “without prejudice” where no funds have beenattached, but subject to a plaintiff ’s right to show goodcause why the action should be restored.
Some judges are requiring detailed documentation ofthe merits of the claim, even where they are subject to foreign law and arbitration and even though no suchrequirement is found anywhere in the rules or case law,before they will sign an order directing attachment. Onejudge has ruled that the standard pleading in the com-plaint that a party “may” have assets in the jurisdictionduring the pendency of the action is insufficient and hasrefused to sign attachment orders without specific allega-tions that the defendant’s property can be found in thedistrict. Another judge is notorious for not signing Rule Battachment orders at all, or waiting months to do so, whichis particularly problematic because the delay in signingorders is, as a practical matter, almost unreviewable.
Needless to say, the lack of uniformity has made itchallenging to give concrete advice on many of theseissues, and no client likes to hear that success or failurecomes down to the luck of the draw of the judge. Ofcourse, part of the challenge is simply the speed withwhich the law is evolving, and as soon as one “legal” issueis settled another seems to arise. The “practice” issues area different matter, however, and while many of thejudicial “add-ons” aim to serve legitimate ends, the lack ofuniformity and predictability has only complicated matters.
We suggest that it is time for the maritime bar in NewYork to reach out to the judges and banks in the SouthernDistrict to try to work out uniform guidelines for practicein Rule B matters. Perhaps this can be accomplishedthrough the Maritime Law Association. While this won’tsolve disputes over “legal” issues, which properly are leftfor the adversarial process by which the law evolves in theUnited States, it might help resolve some of the “practice”issues, which are more a matter of establishing clear, uniform pleading requirements and procedural rules. Suchan approach might help to ease some of the stress whichhas been placed on the courts and the banks in dealingwith a burgeoning maritime docket and at the same timemake it easier for lawyers to counsel their clients.
We have a few simple suggestions for some uniformpractice rules, but we are sure that input from other mem-bers of the maritime bar and from the courts and the bank-ing industry could improve on our suggestions:
• Eliminate the requirement for daily supplementalservice. Make the writ of attachment, once personallyserved on the bank, effective for 90 or 120 days andthen have it automatically expire (and the action auto-matically dismissed without prejudice) if no funds arecaught within that time unless the plaintiff shows causewhy the order should be extended. This would moreclosely conform with the banks’ present practice ofscreening for attachments by placing defendants’names in their OFAC screening software once they
Problems Ahead: The UNESCOConvention on the Protection of Underwater
Cultural Heritageby John D. Kimball and Alan M. Weigel
On January 2, 2009, the UnitedNations Educational, Scientific andCultural Organization (“UNESCO”)Convention on the Protection of theUnderwater Cultural Heritage (“UCH”)will enter into force, having now beenratified by twenty States. UNESCOadopted the convention to provide aframework for safeguarding marinearcheological sites and submerged ship-wrecks from potential loss caused byunderwater activities.
Unfortunately, the Convention creates expansive new coastal Statejurisdiction over UCH-related activitiesin wide areas outside of the traditionallimits of national jurisdiction and failsto provide adequate protection formilitary shipwrecks consistent with customary international law. As a result
of these provisions, the United States and other major maritime nations do not support the Convention andwill likely not become parties, thereby limiting theConvention’s effectiveness.
For vessels flagged in States that have ratified theConvention, their activities will be subject to significantnew regulations and reporting requirements. The Con -vention’s provisions may also have an effect on the opera-tions of vessels flagged in non-State Parties as well.
BackgroundPrior to the adoption of the UNESCO Convention
there was no comprehensive legal regime that specificallyregulated activities affecting UCH located within 24 nauti-cal miles seaward of the coast. The 1982 U.N. Conventionon the Law of the Sea (“UNCLOS”) addresses the protec-tion of UCH, but its regime is unclear and incomplete.
UNCLOS obliges all states “to protect objects of anarchaeological nature found at sea” and to cooperate forthat purpose. It also provides that such UCH “shall be preserved or disposed of for the benefit of mankind asa whole, particular regard being paid to the preferentialrights of the State or country of origin, or the Stateof cultural origin, or the State of historical and archaeo -logical origin.”
Under UNCLOS, coastal States have jurisdiction to regulate activities affecting UCH in their territorial sea (seaward of 12 nautical miles from the coast) and may alsoprevent the removal of “objects of an archaeo logical andhistorical nature” from their contiguous zones (seaward of
the “existence of such foreign proceeding and of theappointment of the foreign representative.”7 After noticeand a hearing, the bankruptcy court is directed to enter anorder recognizing a foreign main or non-main proceedingwith the specific direction that such petitions “shall bedecided upon at the earliest possible time.”8
Effect of RecognitionUpon FilingThe new chapter contains a section specifying the
“[r]elief that may be granted upon the filing of a petition. . .” so that the court may provide relief prior to ruling onthe application, if needed to protect the assets of thedebtor or interests of creditors.9
This relief includes:
• “staying execution against the debtor’s assets”;
• “entrusting the administration or realization of all orpart of the debtors assets located in the United Statesto the foreign representative or person authorized bythe court . . .”
In the Brit Bulk case, the Bankruptcy Court entered atemporary restraining order on the day the petition wasfiled which it then extended prior to a hearing onwhether to recognize Brit Bulk’s English administration asa “foreign main proceeding.”
Upon RecognitionIn a separate section, Chapter 15 lays out the “effects
of recognition” as a matter of right upon recognition ofthe foreign proceeding, including the application of theBankruptcy Code’s well known “automatic stay” “withrespect to the debtor and the property of the debtor thatis within the territorial jurisdiction of the United States.”10
In addition, certain discretionary relief may be grantedconsistent with that regularly granted in domestic cases.Upon the request of the foreign representative, the courtmay entrust distribution of the debtor’s assets “located inthe United States” to the foreign representative, providedthat U.S. creditors’ interests are “sufficiently protected.”The foreign representative is also given the power to assertavoidance actions but the new section does not dictate thechoice of law applicable to such avoidance actions.
ConclusionThe little heard of Chapter 15 is likely to become as
familiar as the term “Rule B” in admiralty circles. It effec-tively shuts down Rule B and other pre-judgment andpost-judgment collection efforts throughout the U.S. inone fell swoop. When the “unknown event” of a total collapse in the shipping market has just occurred at leastthere is a known safe harbor for an insolvent maritimecompany considering how to stave off its creditors. �
receive the original hand service and would minimizethe needless administrative burden of daily e-mail orfax service—which serves no discernible purpose andwould help courts get stale cases off the docket.
• If there is going to be a requirement that arbitrationor litigation on the merits be pursued within a certaintime frame, make the “trigger” for this requirementthe attachment of funds rather than the commence-ment of the action. This would more closely conformwith the very sensible approach taken by many plain-tiffs of seeking security before embarking on anextremely costly arbitration or litigation that maywell result in an unenforceable award or judgmentunless security can be obtained.
• Standardize the “form” order to be issued by thecourt directing issuance of process of maritimeattachment and garnishment to make it easier on thebanks and courts to standardize their handling ofnew filings, but leave it open to the plaintiff in anygiven case to propose modifications to the orderwhere it can show the circumstances warrant it.
• Standardize the notice of any attachment to be givenby the banks to the plaintiff and by the plaintiff tothe defendant to minimize needless disputes overwhether proper notice was given and to ensure partiesare fully aware of competing attachments.
• Consider with the court a procedure to get cases offthe active docket once funds have been attached, butsubject to reopening if disputes arise or once fundsare to be distributed. This would allow Courts toclose inactive cases as quickly as possible.
These are intended to be practical suggestions thatcould reduce the administrative burden of Rule B actionson everyone, leaving the parties free to focus on the moresubstantive issues of when, and to what extent, an attach-ment is warranted in the circumstances of a particular case.There may be good reasons why some or all of these ideaswouldn’t work. We think the time is ripe, however, to havethat discussion. �
7. 11 U.S.C. § 1515(b)(2).8. 11 U.S.C. § 1517(a).9. 11 U.S.C. § 1519.
10. 11 U.S.C. § 1520(a)(1).
Shipping, Finance, and Insolvencies: The Black Swan ComesHome to Roost (continued from page 6)
ALAN M. WEIGEL
JOHN D. KIMBALL
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the territorial sea to 24 nautical miles from the coast)without their approval. Beyond 24 miles, UNCLOS didnot establish or recognize any special role or competencefor coastal States in regard to the protection or regulationof UCH.
UNCLOS, however, provides no definition of what isto be considered UCH, how it is to be preserved or dis-posed of for the benefit of mankind, which States are entitled to preferential rights, or the nature of such rights.UCH located beyond 24 nautical miles is subject only toadvisory UNCLOS obligations and the general internationallaw of salvage and finds.
At the same time, there was growing concern in theinternational marine archeology community that thethreat to underwater heritage sites posed by looting, unin-tentional and negligent damage from fishing, exploitationof sea-bed resources, and shore-line and offshore construc-tion had the potential to cause a great loss to the study ofthe history of civilization. Contributing to this threat wasthe concern that legal efforts to protect underwater her-itage sites lagged behind laws protecting cultural heritagesites on the ground.
To attempt to correct this imbalance and provide aframework for cooperation for safeguarding underwaterheritage sites, UNESCO resolved in 1993 to draft a newconvention for the protection of UCH. A group of expertsmet in Paris in 1998 and 1999 to work out language for adraft convention. Although there was broad consensusamong the experts on many UCH issues, major differencesremained unresolved concerning whether the jurisdiction ofcoastal States extended to the full extent of the continentalshelf and whether flag States maintained sovereignty of military shipwrecks located in foreign territorial waters.
The Convention was finally adopted by UNESCO’sGeneral Conference on November 2, 2001. Twenty Stateshave now ratified it and it will enter into force on January2, 2009.1 In accordance with the Convention’s provisions,the UNESCO Director-General has convened a meeting ofStates Parties to be held in Paris in March 2009. In addi-tion to establishing its functions and responsibilities, theStates Parties meeting may also establish a Scientific andTechnical Advisory Body composed of experts who willmake recommendations to the States Parties.
General Principles ofthe UNESCO Convention
For the purposes of the UNESCO Convention,“Underwater Cultural Heritage” refers to all traces of humanexistence having a cultural, historical, or archeological character, which have been partially or totally under water,periodically or continuously, for at least 100 years.
of whether funds directed to the defendant as beneficiary aresubject to attachment while in the hands of the garnisheebank. That issue is presently on appeal, with a decisionexpected sometime in the Spring of 2009.
Despite the attempts by some district judges to limitthe remedy, we have seen in the past few months a deci-sion challenging long-standing notions of admiralty juris-diction in holding that a vessel sale MOA is a maritimecontract; two previous but also recent decisions held thatit is not. We have seen decisions holding that ForwardFreight Agreements, which are financial derivative instru-ments intended to be (but not always) used as hedgesagainst fluctuating freight rates, are maritime contracts,whereas the authority seems to be split on commoditysales contracts which contain provisions relating to oceantransport and demurrage or contain other seemingly“salty” provisions.
Can a Rule B action be filed “under seal” so that thedefendant will not learn of the filing in the media and gainthe opportunity to take evasive measures? Many cases havebeen successfully filed in this manner, but at least onerecent decision says no, at least not without a strong show-ing of cause extending beyond the simple concern that thedefendant might learn of the action.
How detailed do “alter ego” allegations need to be?The district court decisions cannot be reconciled, and theSecond Circuit recently let an opportunity to clarify thispoint slip by without focusing on it. Meanwhile, somejudges require detailed factual allegations and others areapparently satisfied with more conclusory allegations.
What should the court consider in ruling on a motionto vacate an attachment? Numerous recent decisions haveheld that the court must look no further than the primafacie allegations in the complaint whereas others have con-sidered affidavits and exhibits submitted by the parties.Here again, a recent Second Circuit decision missed anopportunity to clarify and may even have further muddiedthe waters.
Unsurprisingly, the question whether a party is “found”in New York—thereby rendering it immune from Rule Battachment—is a hot topic, and we have seen a number ofdecisions holding that registering with the New YorkSecretary of State and appointing an agent for service ofprocess is sufficient to make a party found for Rule B pur-poses. But not so fast: appeals are pending, and one or twoearlier decisions support the opposite view. That uncer-tainty has not stopped the flow of registrations in NewYork, however, and we suspect the Secretary of State’soffice is wondering what the heck is happening with all thenew filings.
Some judges have started to append their own “custom”modifications to proposed attachment orders. One provi-sion we have seen holds that the order is only good for 120days and automatically expires thereafter unless funds areattached. Another provides that the order automaticallyexpires within 45 days if the plaintiff has not commencedlitigation or arbitration on the merits within that time.
Notes from the Editor: Rule B Explosionby Thomas H. Belknap
There are many barometers by whichto measure the state of the economy.The S&P 500, FTSE 100, and Nikkei 225indexes all tell us about stock values,and there are indices measuring con-sumer confidence, home values andsales, unemployment levels, inflation(or deflation), interest rates, and justabout every other economic metric thatcan be conceived. In shipping there is(among others) the Baltic Exchange Dry
Index, and by that measure things are pretty tough thesedays. According to a recent Financial Times report, charterrates for a Capesize bulk carrier fell 99% between June andDecember 2008, from a peak of nearly $234,000 a day toa paltry $2,364.
In New York, we have another instrument by which tomeasure the health of the shipping industry, and that isthe rate of new filings of “Rule B” maritime attachmentactions. A recent article in Tradewinds (Nov. 14, 2008)reported that Rule B cases represented about 10% of thenew filings in the Southern District of New York in thebeginning of 2008 (itself a remarkable number, consider-ing there are about 12,000 cases filed in the SouthernDistrict in any given year). But in October of last year,Rule B cases made up 25% of new filings (over 250), andas of November that number had risen to over 30%. Theseare astonishing statistics. Many vessels are subject tochains of charters consisting of as many as ten differentcompanies. In many instances it seems as if a disputehas developed—more or less simultaneously—under everycharter in the chain.
The maritime bar, the banks, and, not least, the districtcourt and its judges, are struggling with this flood of RuleB cases. There are some forty-five district judges in theSouthern District of New York. Some judges—based ontheir decisions—had never been particularly fond of theprecedent the Second Circuit has established allowingattachment of EFTs. As new cases fill the docket, evensome of the most even-keeled judges seem to be lookingfor ways to slow down and manage the flood. This has ledto what some might call innovation but others have calledjudicial activism.
It is difficult to think of another area where the case lawhas evolved so quickly—two or three new decisions arereported every week, it seems, and many other rulings areissued as informal “memo endorsements” or from the benchwithout written decision. The Second Circuit’s decision inConsub Delaware LLC v. Schahin Engenharia Limiteda appearsto have laid to rest the question of whether EFTs originatedby the defendant are subject to attachment pursuant to RuleB, though the Consub court declined to rule on the question
The Convention is based on four main principles:
1. The obligation of the States Parties to the Conventionto preserve UCH for the benefit of humanity.
2. The preservation of UCH in situ (i.e., under water atthe current location on the seabed) as the preferredoption before allowing or engaging in any otheractivities. Recovery may be authorized, however, forthe purpose of making a significant contribution tothe protection or knowledge of underwater culturalheritage.
3. No commercial exploitation of UCH for trade orspeculation. This principle is not to be understood aspreventing professional archeology, the depositionof heritage recovered in a research project, or pre-venting salvage activities or actions by finders thathave been authorized by competent authorities andare in full conformity with the Convention’s Rules.
4. Cooperation among States to protect UCH, promotetraining in underwater archeology, and raise publicaware ness of the importance of sunken culturalproperty.
The Convention’s standards of protection for UCHapply only among States that have ratified the Con -vention. Furthermore, the Convention does not regulatethe issue of ownership of wrecks or ruins between theStates concerned. The Convention is not intended to prej-udice the rights or duties of States under international law,including UNCLOS. Every State may become a party tothe Convention, regardless of whether it is a State party toUNCLOS or not.
In addition to the enumerated protection principles,the Convention contains specific regimes for cooperationbetween coastal and flag States depending on the currentlocation of the UCH:
• States Parties have the exclusive right to regulateactivities in their internal and archipelagic waters andtheir Territorial Sea;
• within their Contiguous Zone, States Parties may reg-ulate and authorize activities directed at UCH; and
• within their Exclusive Economic Zone and on theContinental Shelf, States Parties may regulate orauthorize activities directed at UCH in order to pre-vent interference with the state’s sovereign rights orjurisdiction.
For the seabed and ocean floor beyond the limits ofnational jurisdiction, State Parties may only grant authoriza-tion for activities directed at UCH that are in conformitywith the provisions of the Convention.
THOMAS H. BELKNAP, JR.EDITOR
1. As of the date of this article, the twenty States ratifying the Convention are: Barbados, Bulgaria, Cambodia, Croatia, Cuba, Ecuador, Lebanon, Libya, Lithuania, Mexico,Montenegro, Nigeria, Panama, Paraguay, Portugal, Romania, Saint Lucia, Slovenia, Spain, and Ukraine.
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established with the dedicated aim of destroying them ormeting out appropriate punishment for their crimes.
Additional issues to consider include:
• Legislation to make ransom payments illegal, just asthey are for terrorist groups.
• Maritime search and destroy missions.
• Shipowners’ liability for deviation claims under thecharter party if Owners decide to avoid areas knownfor pirate attacks.
If you have questions or would like additional information on thematerial covered in this article, please contact John D. Kimball,International and Maritime Litigation and Alternative DisputeResolution Practice Group Leader, at 212.885.5259, or Jonathan K.Waldron, Partner in the International Trade and Public ContractsPractice Group, at 202.772.5964. �
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passengers of a private ship.”17 This definition of piracyexcludes certain types of attacks, including politically-motivated acts and environmental attacks.18 Second, whenan attack occurs inside the territorial waters of a state, thepursuing state may only continue outside the territorialzone if the pursuit has not been interrupted.19 Further, theright of hot pursuit ends as soon as the fleeing ship entersits own territorial waters or the territorial waters of a thirdparty.20 Finally, article 105 of UNCLOS provides that astate may seize a pirate ship “on the high seas or in anyother place outside the jurisdiction of any State . . . [and][t]he courts of the State which carried out the seizure maydecide upon the penalties to be imposed, and may alsodetermine the action to be taken. . . .” This means that inareas of densely populated states, such as Southeast Asia,fleeing vessels can easily escape into the territory of aneighboring state and avoid punishment if the adjoiningstate is reluctant to act.
Pirates operating in international waters off of Somaliahave been successful in collecting ransom money withvery low cost operations. It has been easy to recruit morepirates because the rewards are high and the risk seems tobe low. In order to successfully combat piracy, the risks ofbeing a pirate must be made much higher. Potentialrecruits need to know they may get killed and that highlycapable naval forces have made it their aim to capture anddestroy them.
Since piracy has long been recognized as a crimeagainst the law of nations establishing an internationalcourt to undertake the great expense and challenge of try-ing and convicting pirates may be the best solution. UNResolution 1851 encourages regional cooperation amongAfrican nations to “facilitate the investigation and prose-cution of persons detained . . . for acts of piracy and armedrobbery at sea off the coast of Somalia.”21 A possibleresource for trying captured pirates is the InternationalTribunal for the Law of the Sea (“ITLOS”) based inHamburg. ITLOS is an underused tribunal established pur-suant to UNCLOS to deal with disputes arising under theconvention. To effectively implement this resource, how-ever, the rules of jurisdiction concerning ITLOS wouldhave to be revised to give it the power to deal with suchdisputes. Utilizing ITLOS to try and punish piracy willreduce the burden on individual states in having to dealwith the lengthy and costly prosecution. This idea shouldbe considered as part of a longer term solution for dealingwith piracy.
Pirates have been the scourge of the high seas for cen-turies and are bound to be around for years to come unlesseffective international military and judicial agencies are
Parties take “all practicable measures” to ensure that theirnationals and vessels flying their flag do not engage inactivities that are not in conformity with the Convention’sprovisions and the Rules of the Annex and establishesbroad authority to impose sanctions for violations ofmeasures a State has taken to implement the Convention,“wherever they occur.” The Convention also broadlyrequires States Parties to “use the best practicable means”at their disposal to prevent or mitigate activities that mayinadvertently or incidentally physically disturb or otherwisedamage UCH. Also, included within the Conven tion’sregime for activities occurring within a State’s ExclusiveEconomic Zone, on the Continental Shelf, and on areas ofthe seabed outside of national jurisdiction is the require-ment that the master of any vessel flagged by a State Partywho discovers or intends to engage in activities directed atUCH report such discoveries or activities to the State Partyin whose waters the activities take place.
It remains to be seen how signatories to the Conventionwill implement these provisions, especially those concern-ing inadvertent or incidental activities affecting UCH. Forexample, vessels that inadvertently drag an anchor or atrawl net through a shipwreck could be at risk of sanctions.At a minimum, shipowners and managers of vessels flaggedby States Parties should expect flag state inspections willinclude reviews of measures involving UCH activity andreports. Until some practice has been developed in this area,shipowners and managers of vessels flagged by–or operatingin the jurisdiction of—States Parties should be aware of thepotential risks and exercise caution when planning and con-ducting any underwater activities.
The Convention also contains control-of-entry andnon-use provisions that affect all vessels. The Conven tionrequires States Parties to prohibit the entry into their terri-tory or the possession of UCH that was not recovered incompliance with the Convention’s provisions. The use ofa State Party’s territory, including its maritime ports, byvessels that engaged in activity directed at UCH that wasnot done in compliance with the Convention is also pro-hibited. The Convention further authorizes the seizure ofUCH found in a State’s territory that has been recoveredin a manner not in conformity with the Convention.
Accordingly, shipowners and managers of vesselsinvolved in activities directed at UCH must be aware ofwhich nations are States Parties when planning their vessel’s movements, including the designation of potentialports of refuge, otherwise they run the risk of inadvertentlybringing their vessels within the Convention’s authority.Vessels that transport UCH artifacts, even possibly con-tainer vessels, also should be aware of the possibility ofhaving cargo seized and sanctions imposed if they enterthe jurisdiction of States Parties.
Shipowners should consider the extent to which theserequirements may affect their operations. One solutionfor avoiding them is to re-flag in a country which has not ratified the Convention.
For activities in the Exclusive Economic Zone, on theContinental Shelf, and areas of the seabed outside ofnational jurisdiction the Convention establishes a specificinternational cooperation regime encompassing notifica-tions, consultations, and coordination in the implementa-tion of protective measures.
An important part of the Convention is its Annex—containing “Rules concerning activities directed at under-water cultural heritage.” The operational schemes found inthe Rules are widely recognized by marine archeologistsas the standard reference document for interventions atUCH sites and largely mirror standards established forland based cultural sites.
The UNESCO Convention’s RulesAffecting Vessel Operations
The UNESCO Convention contains provisions that mayhave a significant impact on the operations of vesselsflagged both by States Parties and non-States Parties. TheConvention contains the broad requirement that States
17. See Preamble to the United Nations Convention on the Law of the Sea, Article101(a)(1) and (2) and 101(b).
18. Id. 19. See Preamble to the United Nations Convention on the Law of the Sea, Article
111(1).20. See Preamble to the United Nations Convention on the Law of the Sea, Article
111(3).21. See United Nations Resolution 1851(3).
Problems Ahead: The UNESCO Convention on the Protectionof Underwater Cultural Heritage (continued from page 9)
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The Status of the UNESCO Convention in theUnited States and Other Maritime Nations
The UNESCO Convention contains several key provi-sions that are unacceptable to the United States and theother maritime nations that voted against its adoption orabstained from voting. In particular, these nations objectto the Convention’s creation of new coastal State rightsand regulatory authority over UCH located in exclusiveeconomic zones and on continental shelves and are con-cerned that the Convention does not provide adequateprotection for sunken warships.
With respect to jurisdiction, the United States andother maritime nations opposed the Convention because,in effect, it would have established a “cultural heritagezone” beyond 24 miles and the outer edge of the conti-nental shelf, in which coastal States would have directauthority to regulate access to UCH. The view of theUnited States and other maritime nations is that such newdirect coastal State regulatory authority over UCH would,in fact, improperly alter UNCLOS’ carefully constructed balance of rights and interests.
With respect to sunken warships, military aircraft, andother national vessels the view is that the Conventionwould alter customary international law and practiceregarding title to such vessels. It would also permit coastalStates to recover such vessels located in internal waters orthe territorial sea without the consent of the flag State oreven an obligation to notify them. The United States’position is that: (1) the Convention should instead codifycustomary principles of international law that title to asovereign vessel or aircraft, wherever located, remains vested in the original flag State unless expressly aban-doned; (2) it is not lost through the passage of time; and(3) salvage or recovery of such vessels or aircraft is not permitted without the express consent of the flag State.
The Future of the UNESCO ConventionIt is uncertain whether the UNESCO Convention will
re sult in a significant improvement in the protection ofUCH. As the late Robert Bloomberg, the head of theUnited States delegation to the panel of experts whonegotiated the Convention’s text, put it, “Ultimately, theConvention will not be effective unless it is broadlyratified and imple mented throughout the internationalcommunity, including by countries in which the mostadvanced undersea technology resides and whose nationalsare most active in regard to underwater cultural heritage.”Because of their objections to expansive jurisdictional pro-visions or concerns about the lack of warship protection,these countries, which include France, Germany, theNetherlands, Norway, Russia, Sweden, the United Kingdom,and the United States will likely remain outside the UCHregime. As a result, the Convention’s Rules and other positive provisions may ultimately have only limitedimpact on the protection of UCH. �
In the United States, Article I, Section 8, clause 10 ofthe Constitution expressly authorizes Congress to “defineand punish Piracies and Felonies committed on the highSeas, and Offenses against the Law of Nations.”11 Someinterpretations of this clause allow Congress to pass legis-lation to punish pirates for crimes that are considered universally cognizable. “The universality principle is basedon the assumption that some crimes are so universallycondemned that the perpetrators are the enemies of allpeople,” and “[t]herefore, any nation which has the cus-tody of the perpetrators may punish them according to itslaw applicable to such offenses.”12 Because the high seas,by definition, lie outside United States territory, Article I,Section 8, clause 10 grants Congress the power to applyfederal law beyond the borders of the United States.13
Congress codified its constitutional authority to “extra-dite or prosecute” offenders in 18 U.S.C. § 2280. Section2280(a)(1)(A) defines a pirate as a person who unlawfullyand intentionally seizes or exercises control over a ship byforce or threat thereof, and Section 2280(a)(1)(B) prohibits“acts of violence against a person on board a ship” that are“likely to endanger the safe navigation of that ship.”
Courts have been willing to broadly apply 18 U.S.C.S. §2280 to acts of piracy. In a recent decision of the UnitedStates Court of Appeals for the 9th Circuit, a three judgepanel upheld the conviction and 36-year prison sentence ofa Chinese cook who was convicted in Honolulu of forciblyseizing control of a foreign vessel in international watersand killing a Taiwanese Captain and Chinese First Mate.14
In the Lei Shi decision, the court held that the nexusrequirement under the Fifth Amendment Due ProcessClause does not apply to pirates because they are statelessand universally condemned.15 Therefore, a pirate will beprosecuted by any state where he is found even if he wasbrought within the jurisdiction of the United Statesagainst his will.16
The legal regime for dealing with piracy is well estab-lished, both as a matter of international law and domesticlaw. However, while governments are concerned aboutthe risk piracy now poses for commercial shipping, thecost of capturing, trying and punishing pirates puts a strainon a state’s judicial system and economic resources. Addi -tionally, it is questionable whether isolated arrests will really solve the problem.
Further challenges arise in the ratification of, accessionto, and implementation of relevant international Conven -tions. For example, states that are heavily targeted by piratesbecause of their close proximity to high-traffic shippinglanes, specifically Indonesia, Malaysia, the Philippines, andSomalia have not signed the SUA Convention.
Additionally, not only is there a lack of state participa-tion in international Conventions, the Conventions them-selves have various limitations. For example, article 101 ofUNCLOS defines piracy as “all illegal acts of violence ordetention . . . committed for private ends against anothership, aircraft, persons, or property on board by the crew or
Passage of this Resolution demonstrates the urgency of thesituation, as Somalia has requested international assistanceto deal with this extraordinary crisis and has given up someof its sovereignty in return.
Resolution 1851 also urges state parties to theConvention for the Suppression of Unlawful Acts Againstthe Safety of Maritime Navigation (“SUA Convention”) tofully implement their obligations under the SUA Conven -tion and cooperate with the Secretary-General and theIMO to create criminal offences, establish jurisdiction,accept delivery, and build judicial capacity for the success-ful prosecution of persons responsible for or suspected ofseizing or exercising control over a ship by force or threatthereof, or any other form of armed robbery or intimida-tion off the coast of Somalia.7
In response to the recent escalation of pirate attacks,the European Union has recognized the need for an inter-national military force to deal with piracy. On December8, 2008, the United Nations Security Council launched aEuropean Union military operation, called EU NAVFORSomalia (operation “Atalanta”), to support Resolutions1846 (2008) and 1851 (2008). Operation Atalanta wasestablished to contribute to the protection of vessels of theWFP (World Food Programme) delivering food aid to displaced persons in Somalia; the protection of vulnerablevessels cruising off the Somali coast; and the deterrence,prevention, and repression of acts of piracy and armedrobbery off the Somali coast.8
What Rights Does a State have to Punish Piratesfor Offenses Committed Outside their Jurisdiction?
Article 100 of the UN Convention on the Law of theSea (“UNCLOS”) provides “[a]ll States shall cooperate tothe fullest possible extent in the repression of piracy onthe high seas or in any other place outside the jurisdictionof any State.”
This provision is consistent with customary internationallaw which has long recognized the principle of universaljurisdiction. This principle is based on the idea that “offens-es against all states may be punished by any state where theoffender is found.”9 Universal jurisdiction permits a “stateto claim jurisdiction over an offender even if the offender’sact occurred outside its boundaries and even if the offenderhas no connection to the state.”10 Since pirates are knownas hostis humanis generis, or “the enemy of mankind,” theycan be apprehended and prosecuted in any state under theuniversal jurisdiction principle.
ARE YOU READY?Whales and Discharge Permits–Two Big Wintertime Challenges
by Jeanne M. Grasso
As if a bad economy is not enough,the maritime industry faces implemen-tation of two key rulemakings thatcould have a significant impact on vessel operations—and on a shipowner’sbottom line. The first relates to vesselspeed restrictions on the east coast ofthe United States to reduce the mor -tality of North Atlantic Right Whales.The second relates to permitting–yes,
permitting–discharges incidental to the normal operationsof vessels.
A Whale of a RequirementRegarding whales, the National Oceanic and Atmospheric
Administration (NOAA) issued a Final Rule on October 10,2008, imposing a 10-knot speed restriction on commercialvessels in specific waters off the east coast of the UnitedStates in an effort to reduce the mortality of NorthAtlantic right whales from ship strikes. The 10-knot speedrestriction is applicable to all vessels 65 feet in lengthor greater that operate in certain U.S. waters and will be effective, seasonally, from December 8, 2008 throughDecember 9, 2013. During this period, NOAA will assesswhether the speed restrictions are effective. If so, the rulewill likely be extended.
The Final Rule, published after protracted litigation,was based on several years of investigation and study andis intended to reduce the threats to right whales posed byvessel traffic along the east coast of the United States.According to NOAA’s data, right whales live for about 70years, range from 45 to 60 feet in length, and weighbetween 30 and 80 tons. They are currently the mostendangered large whales in the world and NOAA estimatesthat they could become extinct unless protective steps aretaken. NOAA estimates that there are about 300 rightwhales living off the U.S. and Canadian east coasts duringmuch of the year, as they transit from the warm birthinggrounds of Florida and Georgia in the winter to the NorthAtlantic in the summer. Approximately one third of allright whale deaths reportedly result from ship strikes andentanglement in fishing gear.
Based on the seasonal migration of the right whales,the speed restrictions involve three Seasonal ManagementAreas (SMAs), the Southeastern Atlantic US region (SEUS),the Mid-Atlantic US region (MAUS), and the Northeast USregion (NEUS). A map depicting the “seasonal manage-ment areas” and a NOAA published compliance guide canbe accessed at http://www.nmfs.noaa.gov/pr/shipstrike/.
NOAA intends to work closely with the U.S. CoastGuard to implement an effective enforcement strategy.
7. Id.8. See European Union, European Security and Defense Policy, Military operation
of the EU, EU NAVFOR Somalia.9. See United States v. Lei Shi, 525 F.3d 709 (9th Cir. Haw. 2008) quoting Stephen
Macedo, Universal Jurisdiction 2-12 (2004).10. Id.11. See http://www.house.gov/house/Constitution/Constitution.html.12. Demjanjuk vs. Petrovsky (1982), 776 F.2d 571, at 582.13. See United States v. Lei Shi, 525 F.3d 709 (9th Cir. Haw. 2008) quoting United
States v. Davis, 905 F.2d 245, 248 (9th Cir. 1990).14. United States v. Lei Shi, 525 F.3d 709 (9th Cir. Haw. 2008).15. Id. at 722.16. Id. at 724.
Pirates of Somalia (continued from page 1)
JEANNE M. GRASSO
(continued on page 12)
Pirates of Somaliaby John D. Kimball, Jonathan K. Waldron,
and Lauren B. Wilgus
Do not look for Johnny Depp tostar in this movie. The issue of piracy isonce again on the public’s radar afterrecent vessel seizures in the Gulf ofAden and the near capture of a passen-ger vessel. The notion that pirates arethe scourge of the high seas is hardly anew idea. Like their forebears, modernpirates are the enemy of global maritimetrade and deprive the international seafaring community of freedom of thehigh seas. Pirates “attack the rights ofmankind, and menace with destructionthe lives and property of all who resisttheir unlawful acts.”1
The biggest difference between thepirates of old and those now plying thewaters off Somalia is the latter are farbetter armed.
Maritime pirate attacks worldwidehave steadily increased over the past few years. As ofOctober 27, 2008, the total number of acts of piracy andarmed robbery against ships reported to the InternationalMaritime Organization (“IMO”) since it began keeping trackwas 4,730. Pirates commonly focus their attacks mainly inthe Caribbean, the Strait of Malacca, the South China Sea,and Africa, where law enforcement is generally weak.
According to IMO’s website, a total of 440 acts of piracyand armed robbery have taken place off the coast ofSomalia since IMO started compiling relevant statistics in
CONTENTSPAGE
Pirates of Somalia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Notes from the Editor: Rule B Explosion . . . . . . . . . . . . . . . . . . . . . . . 4
Shipping, Finance, and Insolvencies: . . . . . . . . . . . . . . . . . . . . . . . . . 6The Black Swan Comes Home to Roost
Blank Rome Maritime Business Restructuring & Bankruptcy . . . . . . . 7
Problems Ahead: The UNESCO Convention on. . . . . . . . . . . . . . . . . . . 8the Protection of Underwater Cultural Heritage
ARE YOU READY? Whales and Discharge Permits– . . . . . . . . . . . . . . . 11Two Big Wintertime Challenges
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© 2009, BLANK ROME LLP. Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. Additional information on Blank Rome may be found on ourwebsite www.blankrome.com.
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JOHN D. KIMBALL
JONATHAN K. WALDRON
1984, with more than 120 attacks reported in 2008.2 Morethan 35 ships have been seized by pirates and more than600 seafarers have been kidnapped and held for ransom.3
Currently, 14 ships and some 280 seafarers from 25 nationsare being held hostage in Somalia and two seafarers havealready lost their lives.4
In response to the escalating pirate attacks in Somalia, onDecember 16, 2008, the United Nations Security Counciladopted Resolution 1851, which gives states authority for thenext twelve months to assist Somalia’s transitional federalgovernment in taking “all necessary measures that are appro-priate in Somalia for the purpose of suppressing acts of piracy and armed robbery at sea.”5 In effect, the Resolutionallows UN Member states to conduct air attacks or go ashorein Somalia to fight piracy over the next year.
The Resolution also calls upon states to “deploy navalvessels and military aircraft to seize pirate boats, vessels,arms and other related equipment” and encourages statesto create a regional office “in order to effectively investi-gate and prosecute piracy and armed robbery at sea.”6
Given the expansive area encompassed by the SMAs, it maybe difficult for the Coast Guard to effectively enforce thisrule given the country’s current homeland security focus, aswell as the Coast Guard’s numerous other maritime-relatedmissions. NOAA suggests that it is aware that some exist-ing technologies could assist in the enforcement effort, butdoes not provide any details. Given the fact that any devi-ation from the 10-knot speed restriction in the SMAs mustbe logged in the ship’s logbook and signed by the Master,it is likely that enforcement actions will be based on log-book entries rather than real-time violations. Fines can beassessed up to $8,500 for a first time violation. It is impor-tant to note, however, that the falsification of a logbookentry can be criminally prosecuted.
This Final Rule may significantly affect vessel opera-tions on the east coast of the United States and ownersand operators are encouraged to factor these restrictionsinto their voyage planning.
Have you heard of the VGP? The Environmental Protection Agency (“EPA”) issued
its final Vessel General Permit for Discharges Incidental toNormal Operation of Vessels (“VGP”) on December 18, 2008.The VGP covers 26 discharge streams incidental to the normal operation of a commercial vessel, except fishingvessels (unless they discharge ballast water). The 26 dis-charges are addressed by using existing U.S. Coast Guardregulatory regimes (e.g., bilge water and ballast water) andspecific best management practices (BMPs) to minimizeincidental discharges. On December 19, demonstrating abit of holiday cheer, the U.S. District Court for theNorthern District of California extended the compliancedate until February 6, 2009. The link to the EPA websitecontaining the VGP and other supporting documents is:http://cfpub.epa.gov/npdes/home.cfm?program_id=350.EPA estimates that about 61,000 U.S.-flag vessels and 8,000foreign-flag vessels will be subject to these permittingrequirements. If this is news to you or if you’ve not takenany action to prepare for compliance with the VGP whenit goes into effect, read on!
By way of background, in 1972, the Clean Water Act(CWA) established a permitting program governing dis-charges of pollutants from point sources into U.S. navigablewaters (i.e., out to three miles). Under the CWA, vessels are“point sources” when they are within three miles of the U.S.coast. Since implementing the CWA permitting require-ments nearly 35 years ago, however, EPA has exempted dis-charges “incidental to the normal operation of a vessel.”Incidental discharges include ballast water, graywater, bilgewater, stern tube discharges, cooling water discharges, anddeck runoff, among more than 20 others. More than 30 yearslater, various environmental groups sued EPA claimingthat the vessel exemption was illegal under the CWA. InSeptember 2006, the Court sided with the environmentalgroups and ordered EPA to eliminate the longstandingexemption. As a result, EPA issued the VGP.
Compliance with the VGP’s discharge requirementsgoes into effect on February 6, 2009, though industry willhave an extra two weeks (until February 19, 2009) to imple-ment inspections, training, and recordkeeping require-ments. In addition to the weekly, quarterly, and annualinspections, all of which must be logged, the VGP alsoincludes requirements for corrective actions and reporting.Vessel owners/operators will have to submit a Notice ofIntent (NOI) to be covered by the VGP sometime betweenJune 19 and September 19, 2008. Until that time, how ever,vessels are deemed automatically covered. While there is agrace period for owners to file the NOI, compliance isother wise required with the VGP on February 6, 2009.
Under the CWA, states are required to accept, object,or waive their acceptance of the VGP terms, and all havedone so except Alaska and Hawaii. Thus, the final VGPdoes not provide for coverage in the waters of those twostates at this time. The final VGP also contains numerousadditional state and tribal permit requirements. These state-specific requirements will need to be examined closelybecause some impose significant new and different, andmore stringent, regulatory requirements. For example,California: (1) requires that all vessel discharges in itswaters comply with the numeric effluent limitations con-tained in its statewide and regional water quality controlplans, and (2) mandates that effluent monitoring be per-formed on all waste stream discharges to determine wastestream quantity and quality.
This last minute action gives the maritime industry timeto analyze the final VGP and implement operational andrecordkeeping procedures to comply with its requirements.The implications of the VGP, however, remain huge. Eventhough EPA intends to instruct its field personnel thatenforcement should be a low priority for the first six monthsand to focus on compliance assistance, owners and operatorsshould immediately start taking actions to comply. �
1. The Ambrose Light, 24 F. 408, 413 (S.D.N.Y. 1885).2. See http://www.imo.org/Safety/mainframe.asp?topic_id=1709&doc_id=10497.3. Id.4. Id.5. See United Nations Security Council Resolution 1851 (2008).6. Id. (continued on page 2)
ARE YOU READY? Whales and Discharge Permits–Two Big Wintertime Challenges (continued from page 11)
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January 2009 No. 1
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