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The Association may, in its discretion, authorise payment, in whole or in part, of a Member’s claim for loss of the Ship following confiscation of the Ship by any legally empowered court, tribunal or authority by reason of the infringement of any customs law or customs regulations, or any fines involving such confiscation, provided that:
a the amount recoverable from the Association shall under no circumstances exceed the market value of the Ship without commitment at the date of the confiscation;
b the Member shall have satisfied the Association that he took such steps as appear to the Association to be reasonable to prevent the infringement of the customs law or regulation giving rise to the confiscation;
c no such claim shall be considered by the Association until such time as the Member has been irrevocably deprived of his interest in the Ship;
d the Association shall be under no obligation to give reasons for its decision.
In exceptional circumstances, a Member may encounter a situation where the authorities of a country decide to enforce a claim against the Member for infringement of customs laws or regulations by taking the draconian measure of confiscating the Ship, or by imposing fines that are commensurate to such confiscation. In such circumstances, Rule 49 allows the Association to exercise its discretion to authorise payment of a Member’s claim for the loss of his Ship.
(A) The Association may, in its discretion, authorise payment, in whole or in part… (Rule 49)
The Member is not entitled as of right to receive compensation for loss of the Ship by confiscation. The loss of a Ship is an excluded loss pursuant to Rule 63.1.a ‘except to the extent that it forms part of a claim recoverable under Rule 49 (Confiscation of the Ship).’ Compensation is payable under Rule 49 only if and when the Association, which in this context means the Board of Directors,2 exercises its discretion to extend cover for such loss following the application of the Member. In exercising such discretion, the Board will have regard to the factors outlined in Rule 49.
It is unusual for a Member to make a claim on the Association for loss of a Ship since such loss is usually insured under the marine or war Hull Policies. If the loss is recoverable under the Hull Policies, cover is not available from the Association.3 However, the confiscation of a Ship as a result of the infringement of customs laws or regulations may not be an insured peril under standard marine Hull Policy terms and it is unlikely that the infringement of such laws or regulations will be considered to be a war peril for the purpose of a war Hull Policy. Therefore, if the loss of the Ship as a result of confiscation is uninsured under such policies, the Member may request the Association to make a discretionary payment under Rule 49.
The Association has the discretion whether to compensate the Member in full or in part in such circumstances. When assessing the merits of the Member’s application, the Association will have regard to all the facts of the case, as well as the provisions of paragraphs a, b, c and d of Rule 49. The Association’s decision may also be influenced by whether the Member had knowledge of the circumstances that caused the infringement of the relevant customs laws or regulations, and by circumstances such as those that are outlined in Rule 74, i.e. has the Ship been employed on or in an unlawful, unsafe or unduly hazardous trade or voyage. In this regard, the Member is obliged to provide the Association with all relevant information and documentation and to render all assistance that may be required by the Association for the investigation of the claim.4
(B) …loss of the Ship following confiscation of the Ship…or any fines involving such confiscation… (Rule 49)
‘Confiscation’ occurs when private property is appropriated by, or forfeited to, the official (de jure) or unofficial (de facto) government of a country. The relevant authority may not initially confiscate the Ship, but may impose a fine that is either equivalent to the value of the Ship and/or subject to the condition that if the fine is not paid by a certain date, the Ship will be confiscated. Such fines are considered to be ‘fines involving…confiscation’ for which cover may be made available by the exercise by the Association of the discretion that it has pursuant to this Rule.
(C) …by reason of the infringement of any customs law or customs regulations… (Rule 49)
Cover is available under Rule 49 only if the reason for the confiscation of the Ship or, alternatively, for the imposition of fines that are equivalent to the value of the Ship, is the infringement of customs laws or regulations. The term ‘customs law or regulation’ means any law or regulation that may be enforced by the customs authorities in the country in question. If the Ship is confiscated, or such fines are imposed, for any other reason, e.g. for the non-payment of port dues or sheriff’s expenses (which constitute grounds for arrest in many jurisdictions) the Association is not entitled to exercise its discretion to provide cover for the loss of the Ship under Rule 49.
However, it is not a pre-requisite for the provision of cover under Rule 49 that the Ship that has been confiscated is the one that has committed, or has been involved with, the infringement of the customs laws or regulations that has caused the confiscation. The Ship that has been confiscated may have had no such involvement, but the relevant authorities may, nevertheless, confiscate it if it is deemed by them to be the property of the party who is responsible for the infringement in question.5 However, see (F) below.
(D) …confiscation…by any legally empowered court, tribunal or authority… (Rule 49)
Discretionary cover is available under Rule 49 only if the Ship has been confiscated, or the imposition of a fine that is equivalent to the value of the Ship, has been ordered by a legally empowered court, tribunal or other authority. In other words, the act must be one that is both official and legitimate under the laws of the particular country and not the illegitimate act of persons who merely purport to have authority to confiscate the Ship, such as a group of rebels that may wish to acquire the Ship for other reasons.
(E) …the amount recoverable from the Association shall under no circumstances exceed the market value of the Ship without commitment at the date of the confiscation… (Rule 49 proviso a)
Rule 49 permits the Association, in its discretion, to reimburse the Member for the loss of his Ship. Consequently, the Association is not entitled to pay more than the value of the Ship. The Ship’s value is assessed on the date that the confiscation occurs and the relevant value is the Ship’s market price6 assessed by reference to a ship of the same specifications, age and condition, but without taking into account its current and future employment.
(F) …the Member…took such steps as appear to the Association to be reasonable to prevent the infringement… (Rule 49 proviso b)
The Member is expected to be familiar with the customs laws and regulations that are usually enforced in most country(ies) to which the Ship will normally trade. However, the Member cannot be expected to be familiar at all times with the individual, and perhaps unusual, requirements of all countries. The laws and regulations of some countries may permit confiscation where prohibited or undeclared goods are found to be on board, regardless of whether the shipowner was aware of, or privy to, the offence. Therefore, whilst Rule 49 is designed to protect the Member in such circumstances, it does not do so in circumstances where the Association is of the opinion that the Member did not take reasonable steps to avoid the infringement of the relevant customs law or regulation.
When considering the exercise of its discretion to authorise payment, the Association will wish to be satisfied that the Member has taken all reasonable steps to prevent the infringement that has resulted in the confiscation. Such steps include:
a the establishment and maintenance of an adequate system of supervision for the preparation of Bills of Lading, inward and outward cargo manifests and other shipping documents;
b giving the master and Crew proper instruction and training as to how to prevent illicit goods, especially drugs, being brought on board;
c putting out conspicuous notices warning the Crew etc., of the anti-smuggling or anti-drug laws that can be expected in forthcoming ports of call; and
d the maintenance of an adequate number of guards on the Ship whilst in port.
(G) …no such claim shall be considered by the Association until such time as the Member has been irrevocably deprived of his interest in the Ship… (Rule 49 proviso c)
The initial seizure of the Ship by the authorities is not considered to be ‘confiscation’ for the purposes of Rule 49. Such seizure may be temporary at that stage, and the Member may have the right to appeal against the decision or otherwise to have the seizure lifted. Discretion can be exercised under Rule 49 only when the confiscation has become final and the Member is, therefore, ‘irrevocably deprived of his interest in the Ship’. This is considered to have occurred when the Ship has become the property of the confiscating authority and the Member has no further right of appeal to avoid or revoke the confiscation. Therefore, it would be premature for the Member to make any application for compensation for the loss of the Ship pursuant to Rule 49 before the confiscation is final and the Ship has been irrevocably lost, or before a fine that is equivalent to the value of the Ship has been imposed and is no longer subject to appeal. Consequently, the Association will not normally consider an application for compensation before that time. Furthermore the Association will not normally provide bail or other security for the release of the Ship before making a final decision in relation to the confiscation.7
(H) …the Association shall be under no obligation to give reasons for its decision. (Rule 49 proviso d)
The decision of the Board of Directors is final in this regard and it need not give any reasons for its decision. By agreeing to the Association’s Statutes and Rules, Members have agreed and confirmed that claims made pursuant to Rule 49 are to be decided by the Board of Directors of the Association as the sole and highest decision-making authority of the Association. The decision of the Board is subject to judicial review only when it is alleged that the Directors have exceeded their authority or have failed to apply the rules of natural justice.8 A court will normally assume that the Directors have acted in good faith, and the onus of proving otherwise, which is not easily discharged, is on the party making the allegation.9
1 This Rule was initially introduced on 20 February 1988 in response to the US Anti-Drug Abuse Act 1986, that gave the US authorities the authority to confiscate a ship that was involved in drug smuggling.
However, the scope of the Rule extends to confiscation for infringement of customs law or regulations other than that relating to drug smuggling.
2 See Article 6.2.h of the Bye-Laws of Gard P. & I. (Bermuda) Ltd. and Article 9.2.g of the Statutes of Assuranceforeningen Gard -gjensidig-.
3 See the Guidance to Rule 71.1.a.
4 See the Guidance to Rules 82.1.d and e.
5 This is to be distinguished from the cover that is available under Rule 47.1.d which applies if the fine or penalty has been imposed upon the Member in respect of the Ship, i.e. the Ship entered in the Association.
6 The Ship, being a mobile asset, is unlikely to have a market value that is particularly sensitive to the location of the market. Valuations are normally obtained from experienced sale and purchase brokers.
7 The Association is, in any event, under no obligation to provide security. See the Guidance to Rule 88.
8 See the VAINQUEUR JOSE (1979) 1 Lloyds Rep 557. This is a decision of the English court but other
courts and tribunals are likely to follow the same approach.
9 See Steven J, Hazlewood and David Semark, P&I Clubs law and Practise, 4th Edition, London,