Friday, March 29, 2024 | ISSN 0719-241X
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February 09, 2004 Liability under the different security levels Observations

A)  Is the carrier liable to the shipper if the port is closed because the security level is high?

B) If not, the shipper bears the risk and if so, who should be ultimately responsible, the port authority or the government who took the decision to close the port or the customer?

C) If the carrier is liable, can he recover under insurance? Is it something that is covered by antiterrorist risk insurance, or is it  an exempted risk?

The ISPS code in Part B of Section A, subsection 2.1.9; 2.1.10 and 2.1.11 describes three security levels. These are:-

        “Security Level 1, Normal - The level at which ships and port facilities normally operate.

          Security Level 2, Heightened - The level applying for as long as there is a heightened risk of a security incident.

          Security Level 3 - Exceptional - The level applying for a period of time when there is probable or imminent risk of a security incident.”

The US Customs and Border Protection has five alert levels of status.  These are:

           Alert Level Green – Low Condition Green- Low risk of terrorist attacks. The following protective measures may be applied:

  • Refining and exercising pre-planned Protective Measures
  • Ensuring personnel receive training on HSAS, departmental, or agency- specific Protective measures; and
  • Regularly assessing facilities for vulnerabilities and taking measures to reduce them.

           Alert Level Blue – Guarded Condition Blue- General risk of terrorist attack - In addition to the previously outlined Protective Measures, the following may be applied:

  • Checking communications with designated emergency response or command locations;
  • Reviewing and updating emergency response procedures; and
  • Providing the public with necessary information.

           Alert Level Yellow.  Elevated condition yellow - Significant risk of terrorist attacks.  In addition to the previously outlined protective Measures, the following may be applied:

  • Increasing surveillance of critical locations;
  • Coordinating emergency plans with nearby jurisdictions;
  • Assessing further refinement of Protective Measures within the context of the current threat information; and
  • Implementing, as appropriate, contingency and emergency response plans.

           Alert Level Orange.  High Condition Orange - High risk of terrorist attacks.  In addition to the previously outlined Protective Measures, the following may be applied:

  • Co-ordinating necessary security efforts with armed forces or law enforcement agencies;
  • Taking additional precaution at public events;
  • Preparing to work at an alternate site or with a dispersed work force; and
  • Restricting access to essential personnel only.

           Alert Level Red.  Severe Condition Red.  Severe risk of terrorist attacks.  In addition to the previously outlined Protective Measures, the following may be applied:

  • Assigning emergency response personnel and pre-positioning specially trained teams;
  • Monitoring, redirecting or constraining transportation systems;
  • Closing public and government facilities; and
  • Increasing or redirecting personnel to address critical emergency needs”.

Under the UK Port Facility Security Plan which has been opened on its internet site by the United Kingdom Department for Transport,  the document states at section 6 (which deals with measures at Security Level 3) that “at Security Level 3, specific security requirements may be placed on a port facility by government.  This requirement will depend on the specific intelligence obtained by, and available to, government.  The requirement may include some or all of the actions outlined below.”  Consideration must be given to the title “emergency closure”. Under this title, “procedures for ceasing port operations upon request by TRANSEC [Transport Security Directorate].  Procedures and measures for denying all access to the port facility upon request by TRANSEC.” are dealt with.

Under the Draft Civil Contingencies Bill issued by United Kingdom Cabinet Office dated June 2003, in respect of security levels, a Responder or Responders, according to its explanatory notes have “new duties”,Responders being those engaged “in civil protection work at the local level”.  It appears that the intention is to give a direct duty to local authorities, emergency services and those under the miscellaneous respective sections.  Also it is stated that these duties “would give organisations that form the core of the local response a clear and consistent set of expectations and responsibilities”.

The drafted bill in its Schedule 1 Part 2 Responders, states, under the title Transport, three categories of Responders.  These are:

13 A person who holds a licence under Section 8 of the Railways Act 1993 (C.43) (Operation of Railway Assets).

14 an airport operator within the meaning of Section 82 (1) of the Airport Act 1986 (C.31)

15 a harbour authority within the meaning of Section 46 (1) of the Aviation and Maritime Security Act 1990 (C.31)

The Bill in its “Explanatory Notes” states that “ The Bill places no duties on category 2 Responders but makes provision for regulations to do so”

Therefore, it would be reasonable to suggest that in a particular situation, the UK Government may declare a level 3 of security under the discretion given by the proposed bill, and may order the closure of a port or all ports throughout the United Kingdom as well as its facilities.  It would be difficult to prove wrongful use of discretion in such cases as discretion would be based on intelligence information which would be secret.  Under administrative law wrongful use of discretion may be actionable in damages.  

Normal Insurance - Anti Terrorist Insurance – contractual protection.

If a government elects to close a port under security level ISPS 3 or US Alert Level Red, the following issues require consideration:

1. Under a commercial contract, how should such a situation be dealt with?

2. When an insurance contract does not bite in terms of cover under a terrorist situation due to an exemption and when antiterrorist insurance may extend cover.

            With regard to these issues one has to look at the relevant prevailing convention and laws in relation to sea carriage and insurance being:
                                 
                                 (i) The Hague Visby Rules and

                                (ii) The U.K. Marine Insurance Act 1906

Under the Hague Visby Rules Article IV-exceptions, 18-47, 2:

”Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from: (g) Arrest or restrain of princes, rulers or seizure under legal process” which is effectively  when a government acts within its powers and replaces the authority of the shipowner. Therefore a carrier would not be liable if delay resulting in losses for the party who has a contract with him as a result of port closure under security level 3 being such an exercise of sovereign power.

 

Under the U.K. The Marine Insurance Act 1906,s.48 it states that:

“In the case of a voyage policy, the adventure insured must be prosecuted throughout its course with reasonable despatch, and, if without lawful excuse it is not so prosecuted, the insurer is discharged from liability as from time when the delay became unreasonable”. Under s.49 of the Act it is stated that “ (1) Deviation or delay in prosecuting the voyage contemplated by the policy is excused -(b) Where caused by circumstances, beyond the control of the master and his employer; or (d) Where reasonable necessary for the safety of  the ship or subject matter insured;” Depending on the circumstances in which a port took the decision to close the entrance and exit, from land or sea, the carrier would not be liable. The next question to consider is if the Port Authority or respective government in closing the port has used their discretion reasonably which would raise issues of public and administrative law.   

 Also the Official Secrets Act may well require consideration as inevitably the decision to close the port will have been exercised in consideration of secret intelligence relating to terrorism.

Therefore it would appear that standard marine insurance extends no cover for losses arising out of port closure, on the grounds of a security threat.

Under the “Terrorism Risk Insurance Program Final Rule”, issued by the US Department of the Treasury dated July 7 2003, it is stated that “….title 1 of the Act establishes a temporary federal program of shared public and private compensation for insured commercial property and casualty losses resulting from an act of terrorism as defined in the Act”.

If the United States were to declare an “Alert Level Red” and order port closure, would this amount to a terrorist act and would losses be paid under this Act?  It appears not as the programme is only designed to deal with actual losses arising out of an act of terrorism.  Whilst port closure may thwart an act of terrorism it is designed to prevent it so actual losses that arise out of the prevention of a terrorist act and not the act itself are insured.

Under the Civil Contingencies Bill in the UK, if approved as drawn, if the Government were to declare a Security Alert Level 3 and order port closure, would this amount to a terrorist act and would compensation be paid for commercial losses?  Again, this is unlikely for the same reasons as stated in the previous paragraph.

Conclusions

If the temporary closure of any port results in commercial losses for any party, where the closure is effected to prevent a potential terrorist act under a standard marine insurance policy, the cover will not operate as the circumstance would fall under  one of the usual exemptions.  The Hague-Visby Rules if applicable will exempt the carrier from responsibility to cargo.

If Hague-Visby Rules do not apply carriers should ensure their private contractual terms exempt them from liability in such circumstances and, as a matter of customer care, should warn that the ultimate burden for losses arising will fall on the customer, unless it may be  proved that the exercise of discretion in closing the port or ports has been unreasonable which is unlikely given the fact that such decisions inevitably will be taken on the basis of secret intelligence.

Post September 11th Antiterrorist legislation has been drafted to such an extent and with some speed that legal consequences have yet to be tested. It does appear that governments will draft more antiterrorist legislation which will affect other areas of the law including commercial, environmental, land and insurance, just to mention a few. When drafting a private commercial agreement for example, antiterrorist and transport law may have to be considered in the sense that a commercial agreement  may be subject not just to the prevailing law of contract but also considerations of prevailing antiterrorist laws and apportionment of liability in respect of losses arising out of terrorism or the prevention of terrorism which may relate to damage of goods or the environment and the losses flowing from delay.

Authors:
Kay Pysden. Head of The Marine & Goods in Transit Department
Samuel Perez-Goldzveig. Legal Assistant
Davies Lavery Solicitors. London United Kingdom.  
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