“Terrorist Attacks – Being Prepared”

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					                              “Terrorist Attacks – Being Prepared”
                           by David Gardner, Partner, Curtis Davis Garrard LLP


With the ever present risk of terrorist attacks being targeted against Middle East and Western oil and
gas installations both the Owner and the Charterer should be aware of what they should do if a
terrorist attack directly or indirectly affects the safety and operation of a loading or receiving LNG
terminal. This Article by David Gardner, a Partner with Curtis Davis Garrard, looks at the charter
contracts typically in use in the LNG industry and assesses the extent to which it defines the parties’
obligations where the risk or reality of a terrorist attack impacts on the carriage of LNG.

What is a terrorist attack?

It is perhaps self evident that terrorist attacks are violent acts committed against people or property
which are carried out by individuals or a group who are or who claim to be terrorists. This seems clear
but it is often less obvious as to what actually constitutes a terrorist. The definition of a terrorist is
largely subjective in the sense that one person’s terrorist is often regarded as another person’s
freedom fighter. Thus, for example, it is often difficult assess when terrorist activity carried out by a
separatist group develops into a civil war or when criminal activities become terrorist activities? There
are no black and white answers and in the shipping or insurance context it is usual to work on the
premise that a terrorist is an individual or group who will:

               “… kill, maim and destroy for the sake of doing so. The public cause which
               they espouse may be hazy, incoherent, and to the logical mind totally
               meaningless. It is still however a public cause, and this separates it from
               other criminals who do things for their own gain”6.

The motives of terrorists may well be irrational or hazy and can range from political or religious
motivation to simple revenge. British security sources report that there are in excess of 20,000 terror
groups currently active in the world in varying degrees. Overwhelmingly, the attacks that are carried
out are aimed to cause fear and confusion rather than loss of life and damage. So why does this
matter and why is it relevant to a charter? The reason is the definition of “war” that is used in the
charter and whether this definition is wide enough to include terrorist attacks.

Is terrorism a “war risk” under the charter?

Where “war” is not defined in the charter the English courts adopt a commercial approach to defining
war without going into the ‘niceties of international law’. As one Judge remarked when considering
whether war had broken out between China and Japan in September 1937

               “I have no doubt that a Captain of a tramp steamer arriving at Shanghai and
               finding the state of things described by the umpire would have no difficulty in
               recognising that a state of war existed”.7

It does not follow from a pragmatic approach that the definition then given to the term “war” is
particularly wide. The definition will not ordinarily extend to terrorism as we have described it above.
It is because of this that charters routinely include war risk clauses taken from well known printed
charter forms such as clause 35 of the Shelltime 4 as these clauses have more extensive definitions of
war risks. However these standard form charters are themselves often amended by the parties who
chose to incorporate a standard war clause such as BIMCO’s Conwartime 2004 clause.                  The
definition of war risks used in the Conwartime clause is:


6
    Marine War Risks (2nd Ed) M.D.Miller Lloyd’s of London Press Ltd p.193
7
    Kawasaki Kisen Kabushiki Kaisha of Kobe v Bantham SS Co. ltd (1939)



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              “……… any actual, threatened or reported: war; civil war; hostilities;
             revolution; rebellion; civil commotion; warlike operations; laying of mines;
             acts of piracy; acts of terrorists; acts of hostility or malicious damage;
             blockades …by any person, body, terrorist or political group, or the
             Government of any state, which may make it dangerous for the Vessel, her
             crew or authorised persons on board…”

This is a very wide definition of war which will almost certainly covers all forms of terrorism be these
actual or threatened attacks. The new ShellLNGTime1 Charterparty uses a shorter and perhaps
narrower definition of war risks which are described as:

             “…blockade, war, hostilities, warlike operations, civil war, civil commotions,
             revolutions, acts of piracy, acts of terrorists, acts of hostility or malicious
             damage”

This definition includes most of the core terms from Conwartime clause and is probably as effective a
definition. ShellLNGTime1 limits itself to the act of war and does not, perhaps very sensibly, try to
define those who commit the act. However the Conwartime clause is wider in one sense in that the list
of war risk events is more extensive and the term “war risks” include any actual threatened or reported
acts. From the owner’s perspective, this can provide useful protection where the risk of an attack by
terrorists is reported without hard evidence being available that the attack will or is likely to take place.

Restrictions at the Loading Terminal

Under most LNG charters, the charterer assumes either an absolute obligation, or agrees to exercise
due diligence, to order the chartered ship only to a port or ports that are safe. A safe port is one which
can be:

             “…used without, in the absence of some abnormal occurrence, being
             exposed to danger which cannot be avoided by good navigation and
             seamanship”.8

If the risk of a terrorist attack at the nominated port or terminal is sufficiently real to deter a reasonable
owner or master from proceeding to the port then the port will be deemed unsafe. However under the
charter the charterer does not guarantee absolute safety and sporadic incidents of hostile attack will
not of themselves make a port unsafe. For example, The Saga Cob9 chartered under a Shelltime3
charter, safely carried out 20 voyages from Assab to Massawa between January and August 1988.
On 26 August, on her 21st voyage, she was attacked and damaged by Eritrean guerrillas who attacked
the ship in motor boats. Despite sporadic guerrilla attacks in the area during the period, including one
such attack using a similar speed boat method, the English courts refused to hold the charterer in
breach of the charter. The court found that the terrorist attack was an abnormal occurrence and that
the risk of such attack was not a characteristic of the port sufficient for a reasonable owner or master
to decline to send the ship to the port.

The charterer’s obligation to order the vessel only to safe ports arises at the time when the order is
given by the charterer to proceed to that port. The port or terminal must be safe in the sense that the
ship must be able to enter use and leave the port or terminal at the time when that ship is scheduled to
be there. It does not matter that at other times the port has been or will become unsafe. The
obligation is not a continuing one, so it does not extend to the situation where the safe port becomes
unsafe as a result of some unexpected and abnormal event occurring after the order has been given.
For example, The Evia10 was ordered in March 1980 to discharge its cargo at Basra which is situated
in the Shatt-al-Arab waterway between Iraq and Iran. The ship berthed on 20 August and completed
discharge on 22 September, the very day on which war broke out between Iran and Iraq. The ship

8
  Leeds Shipping v Societe Francaise Bunge (The Eastern City) [1958] 2 Lloyd’s Rep. 127 at 131
9
  The Saga Cob [1991] 2 Lloyd’s Rep. 398
10
   The Evia (No.2) [1981] 2 Lloyd’s Rep. 307




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was trapped and was unable to leave because of the dangers of navigating in the Shatt-al-Arab
waterway. However, it was found that Basra was a safe port for the ship when it was ordered to
proceed there. The outbreak of the conflict was an ‘unexpected and abnormal event’ for which the
charterer were not to be held liable.

However charterer is not relieved of responsibility where it gives orders to a ship to proceed to a port
or terminal that is safe when the order is given but which then becomes unsafe before the ship arrives
at the port. Where the port or terminal subsequently becomes unsafe, the charterer is required to
issue a new order to ensure that the ship is sent to a port which is safe. If the ship is already in port
and a subsequent state of unsafety arises which can be avoided by leaving, then there is an
immediate duty to give orders to leave the now unsafe port. In The Evia, no new obligation arose
because by the time the war broke out and endangered the ship it was too late for the ship to leave
port and thereby avoid the danger.

Where the obligation is absolute, a charterer may be in breach of its duty even if it is unaware that the
port is unsafe. For this reason the charterer will often seek, as in the ShellLNGTime1 form of charter,
to limit its obligations to an agreement to exercise due diligence to ensure that the port or terminal to
which the ship is sent is safe. If the obligation is one of due diligence then charterer will only be in
breach if it fails to take reasonable care to ensure that a port or terminal is safe. Most LNG charter
will list the specific “primary” terminals to which the ship is entitled to trade and the owner will often
expressly acknowledge the safety of such ports. In these circumstances, the charterer is not generally
under a primary duty to ensure that the named port is safe, for in such cases the owner is deemed to
have accepted that the port is safe by agreeing to load or discharge cargo there. The charterer will
only be obliged to ensure that orders are given to protect the safety of the ship if the terminal becomes
unsafe after the order is given to proceed to there.

The significance of this complex and rather convoluted case law is this. If the charterer orders the
ship to an unsafe port in breach of a warranty, the owner will be entitled to damages if the master
reasonably obeys the charterer’s order and the ship is damaged or lost as a result of the port being
unsafe. If the charter does not name a specific loading port or terminal then there is usually no duty
on the owner or the master to check on the safety of any port or terminal which is then named by the
charterer. However this does not mean that a master can or should enter ports which are obviously
unsafe and then hold the charterer responsible for the consequences which then follow. The owner or
the master may be obliged, if they know the port is clearly unsafe, to refuse to obey the order. Indeed
if an owner or master proceeds to a port or terminal in circumstances where it reasonably ought not to
have done so and they had the right either at law or by virtue of a clause such as the Conwartime
2004 to decline such an order, then the owner may well be deemed to have accepted any risk of
unsafety.

Incidents during Loading

Once the vessel has started to load, the position is, of course, potentially significantly different in that
the ship may now have cargo on board belonging to a third party with whom, if a bill of lading has not
yet been issued, the owner may have no direct contractual relationship. It is important to remember in
this regard that although, in an LNG charter, the cargo will typically belong to an entity within the
charterer’s group of companies, it will not necessarily belong to the charterer itself. Under general
principles however, if the owner acts in a way that is inconsistent with the cargo owner’s rights, then
the owner risks being held liable to the cargo owner for conversion. It is in these cases that the
standard war clauses such as those in the ShellLNGTime1 form and the Conwartime 2004 clause
prove, from the owner’s perspective, so useful.

Under the ShellLNGTime1 form, if, in the reasonable opinion of the master or the owner, it becomes
dangerous for the ship to continue to load the cargo at the specified loading port, then the charterer
must be notified immediately so that alternative orders can be given. If no response is received from
the charterer within 48 hours, then the owner have the right to discharge the cargo at any place within
the trading limits of the charter.




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In practical terms two questions arise. The first is what should the owner do during the 48 hour period
if charterer do not immediately respond and the second is what if charterer disagree with the owner
that there is a genuine terrorist threat and orders the master to continue loading? The answer to both
of these questions lies in the long established maritime principle that the master always remains
responsible for the safety of the ship and her cargo. As Lord Hobhouse said in the House of Lords
decision in the Hill Harmony11:

                 “the master remains responsible for the safety of the vessel, her crew and
                cargo. If an order is given compliance with which exposes the vessel to a
                risk which the owner have not agreed to bear, the master is entitled to refuse
                to obey it: indeed, as the safe port cases show, in extreme situations the
                master is under an obligation not to obey the order.”.

Accordingly, if the master believes that the vessel is in danger, he can leave the port immediately even
if he has not received any orders from the charterer to do so or the ship has been ordered to continue
loading. Once the ship is at sea she will then again be subject to the charterer’s orders, and provided
that the master acted reasonably in the interests of the safety of the ship, the charterer will have no
claim for any losses suffered.

Incidents at the Receiving Terminal

From a contractual point of view, the owner’s position may be more complicated if there is a terrorist
incident at the receiving terminal which prevents or interferes with the discharge of all or part of the
cargo. The starting position under the ShellLNGTime1 form is essentially the same as it is for a
terrorist incident at the loading port. Thus if in the reasonable opinion of the master or the owner, it
becomes dangerous for the ship to discharge the cargo at the named discharge port or terminal then
the charterer must be notified and they must give alternative orders. If no response is received from
the charterer within 48 hours then the owner have the right to discharge the cargo at any place within
the trading limits of the charter.

If the charterer give instructions to discharge at an alternative port, then hire will continue to be
payable throughout the period of deviation although if the charter is coming to an end this can put an
owner in difficulties with their next fixture. If, as a result of these alternative orders, the ship misses a
cancelling date on a subsequent profitable fixture, does the owner have any recourse against the
charterer? The short answer to this is that the owner will only be able to claim for such losses if (i) the
port where discharge should have taken place is not a named port in the charter; (ii) that port was
unsafe at the time that the discharge order was given, and (iii) the charterer failed to exercise due
diligence to ensure that the original port was safe.

Plainly if the discharge port remains unsafe, the charterer will be under considerable commercial
pressure to nominate another discharge port. If the charterer fails to do so within 48 hours of the
charterer having been notified of the danger or risk then the owner is contractually entitled to
discharge the cargo anywhere within the trading limits of the charter and this will be treated as
fulfilment of the owner’s obligations in relation to the discharge of the cargo.

Finally of course since the ship remains on hire during any waiting or deviation, any boil off during
these periods will, where the boil off is within that warranted by the owner, be for the account of the
charterer.

Conclusion

LNG ships are potentially a tempting target for terrorists. Given the inherent nature of a terrorist attack
it is difficult for either owner or charterer to make plans which deal with every eventuality were such an
attack to happen. Whilst it may be impossible to trade ships in complete safety the impact of any
terrorist attack can be minimised if the issue is properly addressed at the time when the charter is
concluded and, particularly in the case of long term charters, that operational plans are reviewed on a

11
     [2001] 1 Lloyds Rep. 147 at 160.




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regular basis. Perhaps one of the most important points to stress that any problems or difficulties are
more likely to be resolved if the parties co-operate rather than insist on the strict application of legal
rights. However it is equally important to consider the threats faced by the particular routes taken on
charters; to check that standard war clauses are sufficient not only to protect legal rights but also to
deal with the practical aspects of any terrorist incident; and to ensure that any operational manuals
used by the ship and charterer’s personnel deal with the practicalities of a terrorist attack and that the
relevant people are familiar with that procedure.


December 2005




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