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EDGAR GOLD[*]
Although I feel extremely privileged to be giving this inaugural lecture in honour and memory of the late Justice Richard Cooper, I must also say that if there had been no need to give this lecture at all I would have been much happier—a sentiment shared by everyone in this room I am sure. However, the reality of Richard’s untimely death is with us and here I, who incongruously am quite a few years older than Richard was when he left us, am giving a lecture in honour of a very close personal friend and respected professional colleague. I must say that for two obvious reasons this was not an easy paper to prepare. Firstly, having to write in commemoration of a friend is a very emotional task. Secondly, writing something that even remotely touches the very wide intellectual curiosity and legal interests of a Richard Cooper is virtually impossible. I have therefore taken the easy rather than the heroic route by addressing what had always been Richard Cooper’s and my own primary legal interest—maritime law and shipping law and policy. I have tried to bring in a number of additional, related aspects that Richard and I had frequently discussed in recent years. I refer to the broader international aspects of maritime law, the human sector of seafaring, as well as the commercial context of the international shipping industry. In particular, Richard and I shared a concern that Australia, an island state surrounded by the sea and almost completely dependent on shipping, appeared to have discarded its maritime heritage and either lost interest in the importance of its maritime trade or has simply taken its availability for granted. Although Richard Cooper was certainly capable of developing legal theories and ideas, he was principally an extraordinarily practical individual who had a ‘hands-on’ approach to solving problems and a general dislike for black-letter law categorization if it ignored the real issues at hand. I hope that what I have to say will, in a small way, reflect this also.
It is a well-known fact that the maritime sector is more reactive than pro-active in terms of safety, environmental protection and related legislative rule-making. As a result, the development and establishment of the ‘safer ships and cleaner seas’ principle, as espoused by the International Maritime Organization (‘IMO’), the United Nations specialized agency responsible for shipping, can be attributed almost exclusively to serious maritime accidents, before and since the creation of the IMO. In other words, maritime safety innovations and requirements do not seem to be developed if they are proposed in hypothetical terms, no matter how good or realistic the hypothetical. Instead, it usually takes a disaster to focus the attention of maritime policy-makers at the public and private levels. In maritime safety terms, the Titanic, Morro Castle, Princess Victoria, Lady Gwendolyn, Herald of Free Enterprise, Achille Lauro, Scandinavia Star and Estonia disasters, have provided these developmental milestones. In marine pollution terms, the Torrey Canyon, Amoco Cadiz, Exxon Valdez, Kirki, Braer, Sea Empress, Erika and Prestige accidents have provided similar ‘action incentives’. In fact, it has been suggested by two former IMO Secretaries-General that periodic, even severe, maritime accidents are actually beneficial, as they alone move needed legislative development forward, tighten up regulations and enforcement, focus attention, stimulate pollution and safety control and related scientific and technical research and, generally, raise safety and environmental consciousness in the whole industry![1]
Nevertheless, shipping is a reasonably safe industry and its environmental record is not anywhere as bad as the media seems to project so frequently and easily. Annual Lloyd’s statistics indicate that accidents are quite infrequent when compared to the number of vessels in operation on any given day. For example, about 2 billion tons of oil is moved annually at sea by over 3,000 tankers over an average distance of just under 5,000 miles. 99.9995 per cent of this cargo is delivered safely.[2] Yet the media adores maritime accidents, especially when pollution is involved. Oil pollution provides great video images—far superior than more dangerous, but colourless effluents entering a river from land-based sources. Marine accidents permit reporters, usually totally untrained in maritime matters, to become instant experts on what has happened, and can then be used to embarrass government officials, politicians, and even shipping company personnel, who are usually ill-trained to deal with this type of media attention. Much of this is due to the fact that the shipping industry—affectionately referred to as the ‘Fatcats’—does not have a very good public image. It is perceived by the media and thus the public and political levels, as a borderline industry that reaps huge profits, does not pay taxes, ‘fixes’ freight rates, operates unsafe, sub-standard vessels with down-trodden, ill-trained and exploited third-world crews and is careless about the environment. Although there is, regrettably, a minority in the shipping industry with one or more of these attributes, in the modern context this general perception is harmful as well as untrue. Nevertheless, this minority appears to have succeeded in giving the whole industry a bad name. Yet the great majority of the global shipping industry subscribes to the IMO's ‘safer ships and cleaner seas’ principle and goes about its business as an essential service to international commerce. Ship source-marine pollution has been reduced to the lowest ever level through a combination of stricter coastal and port state controls—the Bloodhounds—better shipboard technology and operations as well as the increased value of the product carried.
It is not suggested that there are no problems, nor that there should be a lessening of concern or vigilance in this area. There are still many accidents resulting in injury and loss of life and serious pollution and property damage. Although the human error cause of almost all accidents is of particular concern to the industry this receives insufficient attention. Global prosperity has resulted in significantly increased international trade and a commensurate demand for more and more ships. However, this has been accompanied by a growing shortage of skilled seafarers. This has been caused by the decline of trained seafarers from ‘traditional’ maritime labour suppliers in Europe, North America and Australia, due to the fact that in these regions the seagoing profession is no longer considered very attractive at a time when the younger generation is overwhelmed with options and much better paying jobs and a more attractive life style can be found ashore. The slack has been taken up, but only to some extent, by an influx of seafarers from the developing world—especially South, South-East and East Asia, as well as some from the former Soviet-bloc countries of Eastern Europe. Although many of these are well-trained, quite a number are not. These seafarers, including the well-trained ones, will eventually become the Scapegoats for actions over which they have no or only very limited control. At this stage, neither the majority of ship-owners—the Fatcats—nor the state maritime authorities—the Bloodhounds—have sufficiently considered the critical human resource factor in the industry. This will lead to some of the problems I will refer to later.
The shipping industry, like farming and fishing, is notorious for its continuous complaints about the poor state of the industry which contributes to a perception of the existence of economic ‘incentives’ for substandard and ‘borderline’ operations. A number of years ago, especially in the 1980s and 1990s, international oil and other bulk freight rates were so depressed that there was little encouragement to invest in new vessels. This resulted in an ageing world fleet with many vessels that were not maintained as well as they should have been. Many of these vessels are still in operation and are frequently operated at sub-standard levels by borderline managers. This is despite the fact that for the past 18 months the global shipping industry has been experiencing the greatest economic boom in its long history. The profit margins are astounding and the Fatcats are truly getting fatter by the minute. Spot market earnings for both tankers and bulk carriers exceeded US$30 billion in 2004 and this does not include time-charter earnings that would be at equally high rates in such market conditions.[3] For example, a Panamax bulk carrier would command a charter rate in excess of US$30,000 today, whilst a Cape-size vessel would earn at least US$80,000 per day. Yet the daily operating and capital costs of such vessels would hardly exceed US$10,000 per day. In 2002 a 4,500 TEU container vessel could be chartered for US$10,000 per day, but today the same vessel would command between US$50,000 and US$60,000 per day. This extraordinary wealth creation, which may well exceed US$80 billion during this boom period, would also appear to demand that the industry utilize some of these gains in improving and reforming its whole operational structure. However, apart from new ships being built as fast as the world’s shipyards can produce them there is so far little indication that there is much that is changing.
Despite this ‘shipping boom’, borderline and sub-standard ships survive. In a competitive and busy market they are able to undercut freight rates, because such vessels have long ago more than recovered their initial costs. Furthermore, as the freight market is so overheated, especially with China’s emergence as an economic superpower and the consequent demand for ships, there is not always enough tonnage available. Although some of the international oil and bulk charterers are now much more careful about the vessels they charter to carry their cargoes, many are not. Too many oil receiving, trading and refining charterers, as well as bulk commodity charterers, are still too ‘bottom-line-oriented’, i.e. they will simply charter the cheapest vessel offered or available. That vessel is often elderly, frequently sub-standard, likely to be involved in accidents, and provides work for the coastal and port state Bloodhounds as well as for lawyers and maritime courts.
Some of these problems are also caused by the significant changes that ship operations have undergone in the past three or four decades. The traditional, family-owned or single-purpose shipping company is almost a thing of the past and flags flown by ships are almost irrelevant. Today, many vessels are more likely ‘owned’ by financial or leasing institutions that may not be in the least interested in actual ship operations. In many cases the higher management level of such conglomerates may not even be aware that they actually own ships. Often more than one institution in different states may be involved. Although ship operations may be delegated to operating companies, these may hand over actual day-to-day operations to management companies who may also not be aware who the real owners are. Maritime lawyers are quite skilled in wrapping the whole operation in the necessary corporate veils that ostensibly are designed to keep voracious tax authorities at bay. However, this system, linked closely to single-ship incorporation, open registry, and third world crewing, also lends itself to abuse in a number of ways. One of the solutions to this is that charterers, importers and exporters must be more willing to hire better vessels, even at higher cost. If charterers, especially those operating in the major oil and bulk cargo sectors, would take this step, then sub-standard ship operations would disappear from the seas almost overnight!
There is ample evidence today that if the shipping industry will not regulate itself better, governments and their Bloodhounds will. However, action from within the industry is preferable to international action, which is to be preferred over unilateral state action. At this stage, action from within the industry has had only limited success, although there are signs of positive change. A number of prominent shipping bodies have and are making considerable efforts to raise safety and environmental consciousness at all levels throughout the industry.[4] On the other hand, the very diversity and fragmentation of the industry makes these efforts difficult and, in many instances, these groups are simply ‘talking to the converted’ by addressing the better owners. Many of the border-line operators are not members of these groups and often carry very limited liability insurance, if any at all.
As a consequence, governmental and inter-governmental action to achieve better maritime safety and marine pollution control has been proliferating and has been quite successful. This positive result has been assisted by a combination of other factors. Firstly, greater global environmental concerns have focused very sharply on the shipping industry, despite the fact that ship-generated pollution has, for many years, contributed less than 10 per cent of all pollutants entering the oceans.[5] However, addressing the other 90 per cent involves much greater economic and political difficulties for most states. It has been and continues to be administratively and politically convenient to let the regulatory Bloodhounds loose on the shipping sector. Much of the regulatory leadership has been provided at the international and regional levels. For example, almost 100 international maritime conventions, treaties and related instruments address ‘safer ships and cleaner seas’ either directly or indirectly.
The real leader in this area has been the IMO, which has developed its Global Programme to Protect the Marine Environment as a central part of its ’safer ships and cleaner seas’ principle and as its response to the conclusions of the United Nations Conference on Development and Environment (‘UNCED’).[6] However, as a UN specialised agency, the IMO is dependent upon the will of its states members and must, therefore, seek general agreement before an international instrument can be concluded and be implemented at the national level. Furthermore, at that stage wide acceptance is required in order to ensure uniformity in the international regulatory system. Nevertheless, IMO conventions enjoy wide-spread acceptance and implementation, due to the very professional and practical approach taken by the organization. However, there are also problems. Very often, important conventions take far too long to enter into force, due to national and industry opposition, generally based on economic concerns. In other cases, even conventions that enter into force are frequently not widely enough accepted, especially by developing states. Finally, even when accepted, proper regulatory implementation of convention provisions often presents difficulties for many states.
As UN specialised agencies have no enforcement powers, in the maritime sector this task has traditionally been left to flag states. It is a fact that some flag states are better than others and that the acceptance of an international safety or environmental convention does not necessarily mean that the accepting state is willing or able to enforce it. Added to this is the problem of the ‘open registry’ or ‘flag of convenience’ ship registration system that results in some open registry states not being involved in any enforcement at all. This ‘enforcement leakage’ has directly contributed to the sub-standard vessel problem that has plagued the shipping industry in recent years. In response the maritime authorities in various regions of the world have concluded a series of regional administrative agreements that establish in their ports a harmonized system of port state control inspections, with the aim of eliminating sub-standard vessel operations by enforcing IMO and other relevant maritime conventions.[7]
In other words, a growing ‘regulatory net’ of Bloodhounds at the international, regional and national levels, has had a significant effect on vessel operations generally and sub-standard ships specifically. A factor which has contributed to this is, of course, the rapid development of shipboard technology and better navigational and security systems. With modern tankers deliberate pollution is now virtually unnecessary. New automated systems, vessel traffic services, electronic charts, global positioning systems and satellite communication systems have also made navigation more accurate and safer. All of this has almost imperceptibly moved the maritime sector into a more preventive mode.
However, this trend is only in its early stages of development and a number of key questions still remain: Why is the shipping industry so bottom line driven, even if safety and environmental concerns are clear? Why does the industry often only react after a disaster rather than proactively attempt to prevent such accidents in the first place? Why is any reaction by the industry generally only driven by legislative requirements and enforcement? Why does the industry's liability and property underwriting sector condone this attitude even if very substantial payments are often involved? Why is the industry, which is creating extraordinary levels of wealth not doing enough to drive its sub-standard, borderline operators out? Are there some lessons in managerial and corporate responsibility that still await acceptance in the maritime industry? These are not easy questions but they remain to be addressed.
An important, initial attempt has been made through the development of the IMO’s International Safety Management Code (‘ISM Code’), designed to make the industry more responsible at all levels. The surprisingly simple language of the ISM Code disguises a much more difficult moral and ethical base which, business generally and the shipping industry specifically, must address squarely if any progress is to be made. Anyone who does not know the shipping industry, as well as those in the aviation industry, may well question why there is a need for an ISM Code that contains such obvious, basic, moral and ethical requirements. Should a shipping company that has hundreds of millions invested in its enterprise really be told that its vessels must be operated safely and in an environmentally friendly manner? Yet we seem to live in a cynical world that makes such requirements necessary and appears to discard moral and ethical principles as commercially expendable.
The loss of the ferry Herald of Free Enterprise at Zeebrugge in 1987 with the loss of almost 200 lives, and the subsequent enquiry and legal proceedings, examined some of these ethical and moral principles for the first time. It was found that the lessons of the Zeebrugge disaster were not confined to the maritime sector alone. In the operation of shipping and passenger services, directors and managers are clearly expected to carry out their duties in such a way as to foresee and prevent breakdowns in the operation. It was suggested that almost all corporate operations, products and services have a certain impact on public safety and that:
there are disasters waiting to happen in energy, medicine, pharmaceuticals, food distribution and many other industries. Even a natural product such as water can injure or kill people if the procedures governing its distribution are poorly designed and managed.[8]
In the past few decades a number of very serious marine and other accidents and disasters that involved heavy loss of life and/or significant property damage have confirmed this prognosis: Torrey Canyon, Amoco Cadiz, Ixtoc, Aberfan, King's Cross, Piper Alpha, Ocean Ranger, Herald of Free Enterprise, Hillsborough, Marchioness, Haven, Aegean Sea, Chernobyl, Bhopal, Sea Gem, Alexander Kielland, to name just a few. Disaster after disaster seems to reveal a pattern of incompetence and irresponsibility. There is often a lack of foresight and safety systems and procedures have not been updated to address technological change and operating conditions. In many cases:
employees have not been adequately trained. Communications between top management (where the safety ‘buck’ starts as well as stops) and front line employees have been poor. Directors ... defend themselves against legal action by claiming that this or that was ‘not my job’—even when they had clearly failed in their responsibility to make it someone’s job—or that no one had told them what was going on.[9]
Very often the national or international legal system is blamed for failing to deter corporations from putting the ‘bottom line’ before safety, or for condoning poor management practices when the highest standards are required. This is based on the erroneous belief that legal systems initiate legal changes. In fact, the system simply implements requirements set out in legislation.
However, in many states the legal requirements dealing with corporate ‘crime’ are not clearly spelt out or are not appropriate for complex technical situations. This has resulted in some basic flaws in the regulation of the corporate sector. In many accidents the first line of defence is to find someone to blame, a scapegoat, usually situated lower on the operational or management ladder. Yet as almost all accidents show, it is not usually single individuals who are to blame for what has occurred, but a combination of omission, commission or error, that lies much deeper within the system, outlook, philosophy, attitude and involvement of the whole organization. The common link between many disasters, marine and otherwise, is that management could and should have played a much greater central role in preventing them. Management could and should have developed attitudes and systems that would have created responsible and safe working practices.
This is even more complicated in the shipping industry where the corporate veil that hides or disguises the actual management levels results in the Scapegoats at the lower operational level often being left to take the full brunt of the administrative frustrations of the port or coastal state. When responsible management cannot be found, or if it has disappeared at the same rate as the ship beneath the waves, political, media and public pressure demands that the Bloodhounds do something and find someone—anyone—to blame. Today this frequently results in the Scapegoats, who are usually ships’ masters and crew members, being treated harshly and unfairly. In some cases they are imprisoned, held for long periods, often without being charged, ostensibly as ‘material’ witnesses, without much access to a fair legal process and often abandoned by their ship-owner. Increasingly criminal responsibility, instead of, or in addition to, damage liability, is now used in maritime accidents. For the Scapegoats the problem is not that the Bloodhounds resort to criminal action, but rather how it is being used or misused—even in states that generally pride themselves in the fair administration of the criminal justice system.
Though management attitudes are changing, there is still a discernable belief that profitability and impeccable operational standards are incompatible. It is often thought that such standards are simply add-ons that do not please shareholders and will make the company less competitive. As a result, only the lowest common denominator of legally permissible standards is accepted. For the better run corporations it has become apparent long ago that good safety and environmental standards can indeed mean profitable business. Investment in the safety and environmental area will in the end reduce delays as well as insurance, administrative, maintenance, legal and other costs. However, this has generally longer-term advantages that may not be of interest to many corporations who are mainly in the business for short-term profitability. This is a special problem in the shipping sector where such attitudes are still quite prevalent and, thus, encourage sub-standard, borderline operations. As already indicated above, they only survive because other, often very reputable, companies still purchase their services.
Insurers are also finally taking a more proactive role in this area. This is another very competitive business that must balance its premium income with its claims record. In the recent past a large shipping company operating 45 fine vessels and 5 elderly, possibly sub-standard, vessels was accepted as a 50-vessel risk without too much question by most underwriters. However, the claims records, and the general difficulties of the marine insurance sector, have forced insurers to become more involved in safety matters. Loss records are now affecting premium rises more directly than ever before. This is especially so within the industry’s liability sector—the protection and liability underwriters (P&I Clubs). They must also balance the interests of their ship-owner members with their claims records. However, most of the P&I underwriters are now clearly discriminating against high-loss members and are actively engaged in surveys of vessels of prospective members.[10] This is becoming an important part of the safety and environmental system as it addresses the attitude of companies that simply hand their responsibilities over to their insurance policy.
Nevertheless, maritime law is still balanced in favour of this type of attitude. Only transport law permits carriers to limit their liability for damages arising out of accidents that occurred without their ‘actual fault and privity’,[11] or unless the accident resulted from a ‘personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.’[12] In terms of the shipping industry this means that liability for property damage and loss of life and personal injury is based on the vessel’s tonnage and, in many cases, may be far below the actual damage caused.[13] In marine pollution cases there is a similar limitation ceiling that, in catastrophic spill incidents, may be far below the damage caused.[14] In recent years this principle has become less and less palatable to claimants, courts and governments and, as a result, it is now more often reserved for those cases where limitation is really appropriate and where there is no question of any management culpability.
All of this leads to the conclusion that the management level of industries generally, and the shipping sector specifically, has been losing many of its defensive barriers in recent years. Although the Fatcats are getting fatter their lapses are now targeted in terms of greater insurance costs, higher fines, increasing legal expenditures, less sympathetic court hearings, an unfriendly media, more and more restrictive legislation, business image problems affecting competitiveness, more discriminatory users of services, and much higher claims payouts. In many jurisdictions the door for criminal proceedings at the management level has been opened much wider. The Bloodhounds are indeed on the prowl and are slowly learning to seek out the borderline operators amongst the Fatcats, rather than conveniently targeting only the Scapegoats. In other words, one of the principal lessons drawn from past maritime disasters appears to be that ‘prevention is better than cure’. If an accident can be prevented through better management both on board and ashore, high costs related to damage, fines, litigation and even business exposure, can be reduced significantly. That has been shown to be a key part of good business operations. On the other hand, better regulatory enforcement, without too many loopholes by flag, coastal and port states, comprises the other part of this important equation. International, regional and national public responses also seem to reflect that important lessons have been learnt from maritime disasters. Initiatives such as port state control, the ISM Code, the various IMO safety and marine pollution conventions, as well as the increasing efforts appearing from within the industry itself, are all designed to provide the global community with safer ships and cleaner seas. If one of the by-products is less work for national and international courts and tribunals so much the better. But there is still much work to do.
Last but not least, much more consideration must be given to the human factor in this whole discussion. Both the Fatcats and the Bloodhounds need to focus more on the critical role of seafarers today. Sophisticated, high-speed ships, small crew numbers, very short port stays, extra-long working hours, and new security measures preventing shore leave, are placing enormous pressure on seafarers today. The additional risk of unfair treatment by coastal and port states in the aftermath of maritime accidents is making seafaring even less attractive. This is already causing a widespread shortage of skilled seafarers today. This has a global domino effect as mariners are not just operating ships but also fill positions in maritime administrations, pilotage, maritime surveying and other marine related tasks. The Australian maritime industry, which no longer operates ships, is already feeling these shortages. Yet without skilled seafarers ships cannot operate and without ships the commercial life of the world would grind to a halt. It is a resource that cannot be taken for granted and needs to be considered as an equal partner in the maritime world.
This has been a very wide-ranging address and has attempted to provide an overview of the maritime sector as it enters a new and critical phase in its long history. I am not certain if what I have said adequately reflects some of Richard Cooper’s varied interests. However, I am quite certain that Richard would have agreed with most of the points I have made. More importantly, had any come up before him as a judge, he would have had the combined ability not only to strengthen Australia’s maritime legal system, but, at the same time, ensure that it dealt with the various interests in the fairest possible manner. This ability will be greatly
missed nationally and internationally.
[†]This paper was originally given as a lecture in the Inaugural Annual Richard Cooper Memorial Lecture Series, Commonwealth Law Courts, Brisbane 8 August 2005.
[*] Adjunct Professor, TC Beirne School of Law, The University of Queensland, AM, CM, QC.
[1] As stated on a number of occasions by former IMO Secretary-General C.P. Srivastava, as well as his successor, former IMO Secretary-General William O’Neil.
[2] C Anderson, ‘Clean Seas — Oil Pollution: An Independent Tanker Owner’s View’ in Edgar Gold (ed) Gard Handbook on Marine Pollution (2nd ed, 1997), 318.
[3] H. Haralambides, ‘World Shipping Today’ (2005) 17 Port of Singapore 20.
[4] Such as the International Chamber of Shipping (ICS), the International Association of Independent Tanker Owners (INTERTANKO), the International Tanker Owners Pollution Federation (ITOPF), the International Group of P&I Clubs, the International Association of Classification Societies (IACS), and the Baltic and International Maritime Council (BIMCO).
[5] National Research Council, Oil in the Sea III (2003) 63.
[6] United Nations, Agenda 21: The United Nations Programme of Action from Rio (1993), ch 17.
[7] This system has been established in Europe, Asia, South America, the Caribbean, the Indian Ocean region, the Mediterranean, West and Central Africa, and the Black Sea. See, Institute of Maritime Law, The Ratification of Maritime Conventions (1990) vol I.
[8] Stuart Crainer, Zeebrugge - Learning from Disaster: Lessons in Corporate Responsibility (1993) xiii.
[9] Ibid.
[10] Edgar Gold (ed), Gard Handbook on P&I Insurance (5th ed, 2002), chs 7-8.
[11] International Convention Relating to the Limitation of the Liability of Owners of Sea-Going Ships, opened for signature 10 October 1957, 1981 ATS No. 2, art 1(1) (entered into force 31 May 1968).
[12] Convention on Limitation of Liability for Maritime Claims, opened for signature 19 November 1976, 1456 UNTS 221, art 4 (entered into force 1 December 1986).
[13] Patrick Griggs and Richard Williams, Limitation of Liability for Maritime Claims (2nd Ed, 1991).
[14] Gold, above n 2, ch 7.
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