Tackling the perils of piracy

Introduction

‘Piracy’ is defined as “any illegal act of violence, detention or depredation committed by the crew or passengers on board a ship traversing the high seas, typically involving international waters”.(1) Since early 2000 maritime piracy has become a major threat to safety in Nigerian waters(2) as different criminal groups have targeted ships, fishing trawlers and multinational oil company vessels. They force ships to stop and then attack the crew on board.(3) Crew members are robbed, assaulted or kidnapped for ransom,(4) and equipment on board the ship is stolen and sold on the black market. Thus, piracy and armed robbery at sea pose a substantial threat to maritime activities in Nigerian waters. A major step towards suppressing the threat of piracy is the creation of national enabling legislation,(5) incorporating provisions from international conventions such as the United Nations Convention on the Law of the Sea(6) and the Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation,(7) which are vital to the fight against piracy and armed robbery at sea.(8)

Another important step is the establishment of regional agreements with some or all of the states in the Gulf of Guinea region,(9) provided that these states are willing to put their political and economic differences aside and work together.(10) Piracy is a crime under customary international law, which affects all countries. It can occur in a state’s territorial waters, neighbouring jurisdictions and on the high seas. Thus, it is up to all states to take reasonable steps to protect their territory.

Piracy bill

Until recently, piracy was not defined in NIgerian legislation. However, the Piracy and Other Unlawful Acts at Sea (and Other Related Offences) Act(11) is now before the National Assembly. This bill will give effect to the international conventions which have been ratified by Nigeria and provide legal backing to the fight against piracy and other criminal acts in Nigeria’s territorial waters. Under the bill, anyone found guilty of piracy is liable to be sentenced to up to 21 years’ imprisonment, a fine of up to N20 million ($125,000) or both. Anyone found guilty of an unlawful act at sea is liable to imprisonment for up to 15 years, a fine of N15 million ($ 93,750) or both.(12) This is one way of halting piracy within Nigeria’s waters.

Regional agreements

In situations where pirates start attacking from neighbouring states and then flee to those waters when pursued, law enforcement officials may find it hard to apprehend, prosecute and convict offenders. Thus, the next option is to identify the agreements and instruments which have been established to deal with piracy at the regional level. According to a report by the International Maritime Bureau (IMB), in the first nine months of 2006 there were 26 reported incidents of piracy and armed robbery off the western coast of Africa,(13) making it second only to the Malacca Straits as the most dangerous waters in the world.(14) The coastline of Nigeria’s oil­-producing states and their inland waterways are at the heart of this peril.(15) According to the IMB, the security situation in the area costs the sub-region around $2 billion a year.(16) Due to continued maritime insecurity in the Gulf of Guinea, investors have shown little interest in the region’s potential as a profitable industry,(17) thereby hindering development of coastal shipping in the area.(18) The Maritime Organisation of West and Central Africa (MOWCA) is the regional cooperative agreement put in place to ensure efficiency, safety and security in the Gulf of Guinea.(19) MOWCA has created more policy objectives to improve the deteriorating piracy situation in the sub-region.(20) With regard to safety and security at sea, it organised an integrated sub-regional coastguard network(21) to implement conventions relating to the provision of security for passengers and cargo in the sub-region’s coastal waters against piracy, armed robbery and other unlawful acts at sea.(22) With regard to bilateral agreements, Nigeria and Benin Republic have set up a combined maritime patrol of their waters. Codenamed Operation Prosperity, this bilateral cooperation was the first of its kind in the region and is similar to MOWCA’s coastguard network.(23) A joint patrol with Ghana and Togo is expected in order to increase security and protect the region’s waters.(24)

Another effective method of ensuring that piracy is checked at a regional level is to get MOWCA to instruct its member states to submit their national piracy laws and regulations for endorsement; this would encourage member states to enact those laws.(25) If MOWCA encourages states to conclude bilateral agreements among themselves dealing with the pursuit of pirates, law enforcement officials will be able to follow perpetrators into neighbouring waters in order to apprehend them.(26) This will ultimately help Nigeria to control piracy and armed robbery both in and out of its territorial waters as an active member of MOWCA.

Major challenges

Sometimes the only way to solve a problem is to discover the fundamental cause of that problem. Therefore, it would be wise to investigate the origins of piracy in Nigeria. For example, there is overfishing in Nigeria’s waters by unlicensed fishing vessels from Japan, China and Europe, who exploit the marine environment and cost the West African region about $100 million a year in stolen fish,(27) while the people in one of the richest fishing areas of the world suffer from poverty and malnutrition.(28) Other fishers who unable to sail long distances in search of superior fishing grounds fall victim to poverty and desperation, leading them to survive by carrying out pirate attacks on unsuspecting sea merchants.(29) It is also believed that in some cases, “unemployed and desperate fishermen are recruited by organised crime gangs to attack or hijack merchant vessels”.(30) Many Nigerians live on less than $2 a day(31) and almost half the population is unemployed.(32) Those involved in piracy are often unemployed sailors and fishermen who have exhausted all other options.(33)

Thus, it is vital that the Nigerian government addresses the real problem of poverty and unemployment, especially in the coastal areas, as this is the major challenge facing the country’s waters.

For further information on this topic please contact Mojisola Agunbiade at Bloomfield by telephone (+234 1 791 0702), fax (+234 1 4960 4666) or email (moji.agunbiade@bloomfield-law.com).

Endnotes

(1) Definition by Churchill and Lowe in Pathak, Monica , “Maritime Violence Piracy at Sea & Marine Terrorism Today” Windsor Rev Legal & Soc Issues 65 2005 at 66. See also RR Churchill and AV Lowe, The Law of the Sea, 3rd ed (Manchester: Manchester University Press 1999 at 210.

(2) IMB, “ICC appeals for national protection against pirates”, November 7 2005, http://www.icc-ccs.org/index.

(3) Ibid.

(4) IMB, “IMB piracy report notes decline in piracy”, April 24 2007, http://www.icc-ccs.org/index.

(5) “Akhigbe wants maritime security law in Nigeria”, The Tide Online, May 1 2008. Available at http://www.thetidenews.com.

(6) United Nations Convention on the Law of the Sea 1982, available at http://www.imo.org.

(7) Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation 1988, available at http://www.imo.org.

(8) Robert Beckman, “Combating Piracy and Armed Robbery against Ships in Southeast Asia: The Way Forward” at 319. Available at http://www.southchinasea.org/docs/Beckman.

(9) Von Gagern, Security Council Report United Kingdom of Great Britain and Northern Ireland. Available at http://www.zzc.com.

(10) McFarlane, John, “Regional and International Cooperation in Taking Transnational Crime Terrorism and the Problems of Disrupted states” JFC 2005, 12(4), 301-309 at 304. See also NIMASA, “Summary of discussions and recommendations of procedural workgroup of the conference on piracy and armed robbery at sea”, available at http://www.nimasa.gov.ng/confrence-piracy-paper.

(11) Rasheed Bisiriyu, “NIMASA proposes anti-piracy bill”, available at http://www.punchng.com.

(12) The Piracy and Other Unlawful Acts at Sea (And Other Related Offences) Bill.

(13) Ameachi Chibuike, “Fundamental causes of maritime insecurity”, The Tide Online May 2008. Available at http://www.legaloil.com.

(14) Ibid.

(15) Ibid.

(16) Freedom C Onuoha, “Piracy and Maritime Security in the Gulf of Guinea”, available at http://www.studies.aljezeera.net. See also Raymond Gilpin, “Enhancing Maritime Security in the Gulf of Guinea: Strategic insights, Volume VI Issue 1 January 2007. Center for Contemporary Conflict”, available at http://www.ccc.edu.

(17) Ibid.

(18) Ibid

(19) Maritime Organisation of West and Central Africa, http://www.mowca.org.

(20) Ibid.

(21) Ibid.

(22) Ibid.

(23) Supra at 16.

(24) Freedom C Onuoha, “Piracy and Maritime Security in the Gulf of Guinea”, available at http://www.studies.aljezeera.net.

(25) Association of Southeast Asian Nations, “Overview”, available at http://www.aseansec.org/5616.htm.

(26) Ibid.

(27) “Robbing West Africa”, Greenpeace, available at http://www.greenpeace.org/international/campaigns.
(28) Ibid.

(29) Liss, Carolin, “The roots of piracy in Southeast Asia”, research paper conducted for 2006 PhD thesis. Available at http://www.globalcollab.org/Nautilus.

(30) Ibid.

(31) Ibid.

(32) “Robbing West Africa”, Greenpeace, available at http://www.greenpeace.org/international/campaigns.

(33) Ibid.

Marine Environment Sea Protection Levy for Ships

The Maritime Administration and Safety Agency, in conjunction with the Federal Ministry of Transport, has released 12 new marine environmental management regulations.(1) The new regulations are in line with the agency’s mandate to protect the nation’s waters.(2)

Among the new regulations is the Sea Protection Levy Regulation 2012, the proceeds from which will be paid to the Department of Marine Environmental Management. Foreign ships calling at Nigerian ports and ships registered in Nigeria will pay the following as a levy.(3)

To read the rest click on the link below:

http://www.internationallawoffice.com/newsletters/Detail.aspx?g=c0fc3aec-4f10-4d56-86dc-f025d12da09f

Accidents do happen: Limitation of shipowner liability

Scope of limitation

Due to the volatile and cost-intensive nature of the shipping industry, shipowners are given the right to limit the extent of their liability. In Nigerian law, this right is governed by the Merchant Shipping Act 2007. Section 353(1) allows carriers, protection and indemnity clubs, insurers and salvors to limit their liability with respect to:

“(a) claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbor works, basins and waterways and aids to navigation), occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefore;

(b) claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;

(c) claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship or salvage operations;

(d) claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship;

(e) claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this Part, and further loss caused by such measures;

(f) claims in respect of floating platforms constructed for the purpose of exploring the natural resources of the sea-bed or the subsoil thereof;

(g) claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship.”

Section 353(2) states that:

“Claims set out in subsection (1) of this section shall be subject to limitation of liability even if brought by way of recourse or for indemnity under a contract or otherwise. However, claims set out under subsections (1) (d), (e) and (g) of this subsection shall not be subject to limitation of liability to the extent that they relate to remuneration under a contract with the person liable i.e. crew members.”

These claims are in line with those subject to limitation under the Convention on the Limitation of Liability for Maritime Claims 1976, as amended by the 1996 protocol. The convention regulates the limitation of liability of shipowners, charterers, managers and salvors. It has been ratified by many countries, including Nigeria, which has incorporated its provisions into the Merchant Shipping Act. However, Section 12 of the Constitution states that all treaties and conventions must be enacted into law by the National Assembly. Thus, the act itself is unclear on whether its incorporation of the convention serves as enactment of the protocol into law by the National Assembly for this purpose.

The act also excludes application in some instances. Section 354 of the act states that:

“The rules of this Part shall not apply to:

1. claims for salvage or contribution in general average;
2. claims for oil pollution damage within the meaning of the International Convention on Civil Liability for Oil Pollution Damage or of any amendment thereto which is in force;
3. claims subject to any International Convention or national legislation governing or prohibiting limitation of liability for nuclear damage;
4. claims against the shipowner of a nuclear ship for nuclear damage;
5. claims by servants of the shipowner or salvor whose duties are connected with the ship or the salvage operations, including claims of their heirs, dependants or other persons entitled to make such claims, if the under the law governing the contract of service between the shipowner or salvor and such servant the shipowner or salvor is entitled to limit his liability in respect of such claims, or if he is by such law only permitted to limit his liability to an amount greater than that provided for in section 357 of this Act.“

In addition, Section 355 of the act does not apply if it can be shown that a loss was the result of the personal acts or omissions of the shipowner or those under its duty of care, committed either with the intention of causing loss or recklessly and in the knowledge that such loss would occur.

Calculation

The limit of the shipowner’s liability is calculated based on the ship’s tonnage and the type of claim being made before the court. When calculating limitation, the special drawing rights (SDR) of the International Monetary Fund are used as the unit of account, and in the absence of an agreement between contracting parties, the applicable currency is the naira rate at the date on which payment is due to be made or security is due to be provided.(1) Each claim gives rise to a different unit of account and is calculated as indicated in the act. Section 357 of the act sets out this system as follows:

“(1) (a) in respect of claims for loss of life or personal injury

(i) two million Units of Account for a ship with a tonnage not exceeding 2,000 tons;

(ii) for a ship with a tonnage in excess thereof, the following amount in addition to that mentioned in (i)above; for each ton from 2,001 to 30,000 tons, 800 Units of Account for each ton from 30,001 to 70,000 tons, 600 Units of Account; and for each ton in excess of 70,000 tons, 400 Units of Account;

(b) in respect of any other claims:

(i) one million Units of Account for a ship with a tonnage not exceeding 2,000 tons,

(ii) for a ship with a tonnage in excess thereof, the following amount n addition to that mentioned in (i) above; for each ton from 2,001 to 30,000 tons, 400 Units of Account,

(iii) for each ton from 30,001 to 70,000 tons, 300 Units of Account; and

(iv) for each ton in excess of 70,000 tons, 200 Units of Account.

(2) Where the amount calculated in accordance with subsection (1)(a) of this section is insufficient to pay the claims mentioned in full, the amount calculated in accordance with subsection (1)(b) shall be available for payment of the unpaid balance of claims under subsection (1)(a) and such unpaid balance shall rank rateably with claims mentioned under subsection(1)(b)

(3) The limits of liability for any salvor not operating from any ship or for any salvor operating solely on the ship to or in respect of which he is rendering salvage services, shall be calculated according to a tonnage of 1,500 tons.

(4) For the purpose of this Part the ship’s tonnage shall be the gross registered tonnage.”

For example, in the event of loss or damage, where the SDR value is N239 ($1.50) and the ship’s tonnage is 1,320 tons, the act provides that the ship owner’s liability may not exceed N239 million (approximately $1.475 million) – N239 multiplied by one million.(2)

Limitation in cases of death or personal injury is twice that for damage and loss of property. Limitation for cases involving passengers is calculated at 175,000 units of account, multiplied by the number of passengers that the ship is authorised to carry under its certificate.

Procedure for limiting liability

Section 9 of the Admiralty Jurisdiction Act 1991 and Order 15 of the Admiralty Jurisdiction (Procedure) Rules 2011 deal with the procedural aspects of bringing a limitation action before the Nigerian courts. Once it is proved that the shipowner is liable with respect to damage or loss of a ship or persons carried on the ship, it may bring an action by way of summons at the Federal High Court, asking the court to determine whether its liability can be limited.(3) The application must be supported by an affidavit bearing the names and addresses of everyone who may have been affected by the incident.(4) If the court finds that limitation is applicable,(5) the shipowner may be asked to advertise the fact that proceedings were held and the nature of determination of the liability, giving notice to anyone that may have a maritime claim to prosecute it. If the determination is not advertised, only those persons with identified claims are bound by the court’s determination.

Forthcoming changes

On April 19 2012 the 1996 Protocol was amended, increasing the limits of liability for maritime claims. These amendments will come into effect 36 months after the date of adoption (ie, on June 8 2015). The limits are shown in the table below.

Limitation category (claim and tonnage)	Old limit (units of account/SDR)	New limit (units of account/SDR)
Loss of life or personal injury
Less than 2,000 tons	2 million	3.2 million
2,001 to 30,000 tons	800 per ton	1,208 per ton
30,001 to 70,000 tons	600 per ton	906 per ton
More than 70,000 tons	400 per ton	604 per ton
Damage and loss of property
Less than 2,000 tons	1 million	1.51 million
2,001 to 30,000 tons	400 per ton	604 per ton
30,001 to 70,000 tons	300 per ton	453 per ton
More than 70,000 tons	200 per ton	302 per ton

For further information on this topic please contact Mojisola Agunbiade at Bloomfield by telephone (+234 1 791 0702), fax (+234 1 4960 4666) or email (moji.agunbiade@bloomfield-law.com).

Endnotes

(1) Section 359 of the Merchant Shipping Act.

(2) Section 358 of the act.

(3) Section 9 of the Admiralty Jurisdiction Act.

(4) Order 15, Rule 3.

(5) Section 9 of the Admiralty Jurisdiction Act.

Going, going, gone!: Judicial sale of ships

Introduction

The judicial sale of a ship in Nigeria is carried out by the admiralty marshal at the Federal High Court. Such sales are governed by the Merchant Shipping Act 2007, the Admiralty Jurisdiction Act 1999 and the Admiralty Jurisdiction Procedure Rules 2011. This update explains the procedure and considers the recognition of foreign judicial sales in Nigeria.

The judicial sale of a ship is:

“any sale of a ship accomplished by or under the control of a court in a state by way of public auction or public treaty or any other appropriate ways provided for by the law of the state in which the sale by which clean title to the ship is given to the purchaser and proceeds of sale are made available to the creditors.“(1)

Procedure

A court can order a ship under arrest in proceedings within its jurisdiction to be valued and sold on application by an interested party before or after final judgment.(2) The application may be based on the owner’s failure to pay its mortgage, creditors, cargo carriage, crew wages or other debts, or could result from the ship’s deterioration in value while in the court’s custody.

The procedure takes place in seven steps:

• An interested party files an application at the Federal High Court for the valuation and sale of the vessel by way of summons accompanied by supporting documents, as required by the Admiralty Jurisdiction Procedure Rules 2011.(3)
• The admiralty marshal must advertise the sale of the vessel in two national newspapers, giving 21 days’ notice of the auction, to allow interested parties to make their bids. After all bids have been received, the admiralty marshal gives written notice of the time and place of the judicial sale to all interested parties (eg, holders of registered mortgages, holders of maritime liens and the registrar of ships) no less than 30 days before the sale.(4) The sale must be by auction.
• After the auction, the admiralty marshal files a return of sale with the court, pays the proceeds of sale into a court bank account and files an account of sale.(5)
• The court orders the admiralty marshal to notify all other claimants against the vessel through a newspaper advertisement, giving a set timeframe (usually 14 days) within which claims for the determination of priorities must be filed. All interested parties must file an application at the Federal High Court for determination of the order of priority of claims against the ship.(6) If a party is not already a party to the action, but has an interest in the ship, such party can file a verifying affidavit with the Federal High Court stating its interest in the matter.(7)
• All mortgages, rights, liens, charges and encumbrances against the ship are extinguished, except for those assumed by the purchaser.(8)
• If all of the above steps have been complied with, the court will issue a certificate to the effect that the ship is sold free of all mortgages, rights, liens, charges and encumbrances held by the previous owner of the ship, except those assumed by the purchaser.(9) Thus, full ownership of the vessel is transferred to the purchaser.(10)
• The purchaser must deliver a signed declaration of transfer, approved by the minister of transport, and the bill of sale and other supporting documents to the registrar at the port of registry.(11) At the end of this process, the purchaser is entered in the port register as the ship owner and the previous registration is deleted.(12)

Recognition of foreign judicial sales

Judicial sales of ships in foreign jurisdictions are recognised in Nigeria,(13) provided that an application is made by or on behalf of the purchaser to the court and the registrar of ships. The evidence of the sale and change in ownership must be provided as supporting documents.(14) On production of such documents, the registrar shall delete the previous ownership and enter the purchaser as the owner of the ship.(15) However, a foreign judicial sale will not be recognised by the court if it is found to be contrary to public policy or that it was obtained by fraud or in breach of natural justice.(16)

Comment

The judicial sale of ships in Nigeria is similar to that in many other jurisdictions; most of the procedures accord with the Draft Instrument on the Recognition of Foreign Judicial Sale of Ships, to be passed by the Comité Maritime International.

For further information on this topic please contact Mojisola Agunbiade at Bloomfield by telephone (+234 1 791 0702), fax (+234 1 4960 4666) or email (moji.agunbiade@bloomfield-law.com).

Endnotes

(1) Article 1 – definitions, Draft Instrument on the Recognition of Foreign Judicial Sale of Ships, available at www.comitemaritime.org.

(2) Order 16, Rule 1 of the Admiralty Jurisdiction Rules 2011.

(3) Order 3 of the Admiralty Jurisdiction Rules.

(4) Section 73 of the Merchant Shipping Act 2007.

(5) Order 16, Rule 3 of the Admiralty Jurisdiction Rules.

(6) Ranking of all maritime liens is provided for in Section 67 of the Merchant Shipping Act.

(7) Orders 17 and 18 of the Admiralty Jurisdiction Rules. See also Section 75 of of the Merchant Shipping Act.

(8) Section 74 of the Merchant Shipping Act.

(9) Section 76 of the Merchant Shipping Act.

(10) Sections 77 and 78 of the Merchant Shipping Act. See also Luois Mbanefo, Commentary on Answers to Third Group of Questions, Comité Maritime International International Working Group, available atwww.comitemaritime.org.

(11) In this case, the port of registry is the Nigerian Maritime and Safety Agency.

(12) Section 78 of the Merchant Shipping Act.

(13) Sections 80 and 81 of the Merchant Shipping Act.

(14) Section 78 of the Merchant Shipping Act 2007. See also Luois Mbanefo, Commentary on Answers to Third Group of Questions, Comité Maritime International International Working Group, available atwww.comitemaritime.org.

(15) Section 78(3) of the Merchant Shipping Act 2007.

(16) Article 8(2) of the Second Working Draft Instrument on the Recognition of Foreign Judicial Sale of Ships, available at www.comitemaritime.org. See also Section 6 of the Foreign Judgments (Reciprocal Enforcement) Act of 1990.

Cabotage Act : Compliance in a nut shell

Introduction

In 2003 the Coastal and Inland Shipping (Cabotage) Act(1) was passed in an effort to improve indigenous participation in maritime and coastal trade within the country’s waters. The act restricts foreign-owned vessels from trading in Nigeria’s coastal waters without a waiver, which is granted by the transport minister(2) on certain conditions.(3)

However, since its inception, the act has not fulfilled its mandate to empower indigenous shipping: more than 60% of coastal trade in Nigeria is still handled by subsidiaries of international oil companies.(4) This update explains why foreign companies should try to support the act’s objectives and how they can work with their indigenous counterparts in an effort to comply with the act.

Background

‘Cabotage’ is the carriage of goods or passengers by a vessel 9or any other mode of transport) from a place in Nigeria or outside Nigerian waters to another place in Nigeria or outside, either directly or through a place outside Nigeria:(5)

“This includes the carriage of goods in relation to exploration, exploitation or transportation of minerals and non-living natural resources and operation by vessel of any other marine activity of a commercial nature in Nigerian waters including towage, pilotage, dredging, salvage, bunkering etc.”(6)

Goods referred to in the act include crude oil, cash crops and other general cargo. Thus, international cargo destined for Nigerian ports does not fall under the act.(7)

The types of vessel that fall under the scope of the act are:

“passenger vessels; crew boats; bunkering vessels; fishing trawlers; barges; off-shore service vessels; tugs; anchor handling tugs and supply vessels; floating petroleum storage production, storage and offloading and storage and offloading units; tankers; carriers; and any other craft or vessel for carriage on, through or under Nigerian waters of persons, property or any substance whatsoever.”(8)

Before a ship can be categorised as a cabotage vessel, it must be:

wholly owned by Nigerian citizens – this excludes corporate citizenship;(9)
built in Nigeria;
manned by Nigerian citizens; and
registered under the Nigerian flag.
The problem with these requirements is that there are not enough wholly owned Nigerian vessels with the capacity to carry on capital-intensive activities, and the existing shipbuilding yards do not have the capacity to build deep sea vessels. In addition, there are not enough skilled Nigerian crew and there are few ships under the Nigerian flag.

Why foreign companies should support the act

Business continuity
Although the government is currently having problems enforcing its cabotage policy, this may not be the case in the near future, as evidenced by the enactment of the Oil and Gas Industry Content Act in 2010,(10) which applies to all operations in the oil and gas sector.(11) This act gives first consideration to indigenous operators when awarding contracts for all projects, including oil lifting contracts.(12) It also gives exclusive consideration to indigenous service companies that demonstrate ownership of equipment, Nigerian personnel and capacity to execute work on land and swamp operating areas.(13) This means that preference will be given to indigenous carriers when awarding oil service contracts. Although there are few indigenous carriers with the capacity to lift crude or liquefied natural gas, preference will be given to bids which have the most Nigerian content; hence, the more cabotage-compliant a company, the greater its chance of success. Although a wavier clause is in place to handle situations where no Nigerian carriers are available, the time will come when the cabotage policy will be fully operational and waivers will no longer be issued.

Investment opportunities
The cabotage policy offers significant investment opportunities to willing investors. The four pillars of the act alone require cabotage vessels to be owned, built, manned and registered in Nigeria. Thus, there is a market for ship builders and ship repair yards that are willing to set up in Nigeria, build vessels and sell to indigenous shippers. The market is also open to ship brokers, financial institutions and ship owners involved in bareboat charters, as well as crew management and training institutions.

Corporate social responsibility
By supporting the objectives of the Cabotage Act, foreign companies can fulfil their social responsibility obligations within their area of operation. Most areas where these companies operate are fishing communities which suffer from numerous ecological problems and unemployment. The youth in these host communities are familiar with the coastal terrain and can be trained as seafarers or vessel pilots on their ships, thereby providing jobs for the unemployed and improving the local economy. By satisfying their social obligations, foreign companies also increase their chances of being awarded lifting contracts by the government.

How to be cabotage compliant

Companies should consider taking the following measures:

Joint ventures – companies should conclude joint venture agreements with indigenous shipping companies, offering them 60% equity ownership of the vessel and 60% equity shares in the shipping company, and identify the objects of the company and outline each party’s obligations. Such joint ventures will fulfil the requirements of the Cabotage Act and still have the required capacity to handle lifting contracts awarded by the government.
Registration – companies should register vessels intended for use in coastal trade under the Nigerian Ship Registry with the Nigerian Maritime Administration and Safety Agency (NIMASA) and under the relevant cabotage register.(14)
Licensing – if a foreign company insists on participating in coastal trade with vessels owned by other nationals and flying foreign flags, the company should apply for the appropriate waivers and licences form NIMASA.
Crew training – companies should provide employment and training for a few indigenous seafarers and ensure that they get the required sea time and skill needed to man a vessel competently, with proper supervision from other experienced crew members.
Comment

The Cabotage Act is not the first of its kind; other developed countries have similar laws, such as the Jones Act in the United States and the Cabotage Law in Singapore. The policy has been referred to as a ‘double-edged sword’:(15) it could turn out to be either the saving grace or the death of the Nigerian shipping industry.

For further information on this topic please contact Mojisola Agunbiade at Bloomfield by telephone (+234 1 791 0702), fax (+234 1 4960 4666) or email (moji.agunbiade@bloomfield-law.com).

Endnotes

(1) Coastal and Inland Shipping (Cabotage) Act No 5 of 2003 (known as the ‘Cabotage Act’).

(2) ‘Minister’ means the head of the ministry with responsibility for matters relating to shipping, and ‘ministry’ has the corresponding meaning (Part I, Cabotage Act).

(3) Parts II and III of the Cabotage Act.

(4) Ernest Nwapa, “Nigerian Content Development and Cabotage Implementation”, paper presented at cabotage stakeholders meeting, March 27 2012.

(5) Part I (2) of the Cabotage Act.

(6) Ibid.

(7) Guidelines on Implementation of Coastal and Inland Shipping Act 2003, revised 2007.

(8) Infra.

(9) Guidelines on Implementation of Coastal and Inland Shipping Act 2003, revised 2007.

(10) Nigeria Oil and Gase Industry Content Act 2010.

(11) Dayo Okusami, “Overview of Nigerian Local Content Act”, paper presented at Africa Energy Week Conference, September 29 2010.

(12) Section 3(1) of the Nigeria Oil and Gas Industry Content Act 2010; see also Dayo Okusami, “Overview of Nigerian Local Content Act”.

(13) Section 3(2) of the Nigerian Oil and Gas Industry Content Act 2010.

(14) Guidelines on Implementation of Coastal and Inland Shipping Act 2003, revised 2007.

(15) Suresh Marcandan, managing director of Stella Maris International.

Awarding Compensation in Cargo Claims

Every year, billions of dollars are lost by shippers carrying goods to and from Nigeria. The cause of such loss is attributed to loss or damage by the carrier, the use of independent contractors, a breach of international contracts of sale and, in recent years, hijacking by pirates off the Nigerian coast. Piracy alone costs the global shipping industry more than $9 billion a year.(1) This update looks at different ways in which shippers can mitigate their losses and claim compensation.

Mitigating loss

There are three ways in which a shipper can mitigate its loss. Cargo claims in Nigeria are governed by the Carriage of Goods by Sea Act 2004. This act embodies the Hague Rules of 1924. In JFS Investments Ltd v Brawal Line(2) the Supreme Court confirmed that the rules are applicable to all contracts of carriage of goods by sea covered by a bill of lading where such goods are inward-bound cargo, and parties will not be allowed to contract out of the obligations imposed.(3) Thus, actions arising from inward shipments must be instituted within one year of the cause of action arising – that is, one year after delivery of the goods or the date on which the goods should have been delivered.(4)

Shippers which have suffered loss or damage can claim compensation either from the carrier,(5) through their legal representatives, or through the Nigerian Shippers Council’s Cargo Defence Fund. They can also claim compensation from their insurance companies.(6) In addition, shippers can claim compensation from negligent third parties such as independent contractors – for example, stevedores engaged by the carrier can be sued for damage done at the point of loading and unloading the cargo. Most insurers will pay out only if they are satisfied that the insured has taken steps to avert or minimise the loss by instituting claims against the carriers or any other responsible third party.(7)

Before a claim can be made against the carrier:

it must be verified that the claim is a maritime claim covered by the Admiralty Jurisdiction Act;(8) and
notice of the loss or damage must be put in writing and given to the carrier at the port of discharge or within three days after the damage is discovered if such damage could not be checked at the point of removal.(9) Such notice will not be required if the state of the goods were inspected by both parties at the point of receipt.(10)
Filing a claim

In order to file a claim against the carrier or a third party, the shipper must:

give immediate notice of loss or damage to the carrier or negligent third party;
insist on a joint survey of the goods and take photos of damaged goods;
document all evidence of damage by taking statements and collecting proof of the condition of the goods;
investigate the cause of the damage; and
decide which carriage of goods by sea rules apply and whether a claim can be brought in Nigeria (according to the contract of carriage entered into between the parties).
The shipper can then institute a claim at the Federal High Court against the carrier or the negligent third party averring that cargo was received by the carrier in good order and condition but did not arrive as such. If the Hague Rules apply, the shipper can argue that the cause of the loss or damage was the carrier’s lack of due diligence in either ensuring that the ship was seaworthy or properly manned, equipped and supplied, or in making the hold refrigeration and cool chambers safe for the receipt, carriage and preservation of the goods.(11)

The shipper must then prove the essential requirements for the loss on a balance of probability. If the shipper succeeds, the carrier may, on the balance of probability, prove its right to limit its liability to a lesser amount, provided that the loss was not a result of its personal act or omission.(12)

Alternative dispute resolution (ADR) mechanisms such as mediation or arbitration can be used in commercial dispute situations. In fact, it is advisable to explore these routes and to institute an action at the Federal High Court only if ADR fails. The limitation period for cargo claims is one year from the date on which the cause of action arose; thus, shippers engaged in ADR mechanisms must ensure that proceedings are concluded before the limitation period ends.

Cargo Defence Fund

The Cargo Defence Fund is a non-profit mutual scheme for shippers set up by the Nigerian Shippers Council (NSC) in pursuit of international commercial claims recovery.(13) The fund provides the mutual scheme beneficiary with legal advice, a loan to pursue a litigation or arbitration claim, payment for risk management services, foreign legal representation and cover for specified risks as agreed to by the fund.(14) Any registered Nigerian importer or exporter which has subscribed to the fund and paid the relevant registration fees can benefit from the fund.

The fund’s claims procedure is as follows:

The shipper must be a beneficiary of the fund by subscribing to the fund and paying the relevant registration fees.(15)
The claim should be made in writing to the secretary of the fund, including the date, place and details of the transaction causing the loss, the amount of the claim and the efforts made by the shipper to remedy the situation.
Claims are processed by the secretariat and presented before the board of trustees.
Settlements are dealt with promptly and in accordance with the rules of procedure.(16)
The fund is available to all shippers, regardless of their nationality, provided that they are registered Nigerian shippers.

Protection and indemnity insurance

Over the past two years the level of piracy has doubled on the Gulf of Guinea. Nigerian protection and indemnity clubs and insurance companies (in conjunction with the Nigerian Insurers Association) offer indemnity cover for loss or damage to cargo, and war risk cover to vessels trading in areas prone to hostilities such as Nigeria, where piracy is on the rise. International protection and indemnity companies and insurance companies now offer coverage designed to deal with threats from pirates by including services such as ransom reimbursement(17) and loss of earnings cover in the case of contracts cancelled due to delay.(18) Thus, shippers which have suffered loss due to hijacking and cargo theft can claim compensation from their insurers.

To claim from an insurance company in the event of loss or damage,(19) a shipper should:

give immediate notice in writing to the insurance company;
insist on a cargo loss joint survey of the goods and take photographs of the damaged goods;
provide full documents as stated on the back of the marine certificate (including the stamped copy of the bill of lading from the bank);
provide a full estimate of the loss (after the joint survey);
show the salvage amount if it is different from the total loss amount of cargo;
surrender all correspondence with third parties to the insurer (eg, bank documents);
claim against any negligent third party (eg, ship agents, master of the vessel and road transporters) and provide copies of such claim documents to the insurer; and
ensure the proper follow-up of the claim with the insurer in writing, speak to the relevant officers of the insurance company and document every follow-up in writing.
For further information on this topic please contact Mojisola Agunbiade at Bloomfield by telephone (+234 1 791 0702), fax (+234 1 4960 4666) or email (moji.agunbiade@bloomfield-law.com).

Endnotes

(1) Nirmala George, “Piracy Costs World Shipping Industry $9B a Year”, Insurance Journal, October 4 2011, http://www.insurancejournal.com.

(2) (2010) 4 CLRN.

(3) Ibid. See also Leventis Technical v Petrojessica Enterprises Ltd (1999) 6 NWLR (Pt 605) 45 and Mike Igbokwe & Co, “Effect of Section 2 of Nigerian Carriage of Goods by Sea Act (COGSA) CAP 44 on Inward Bills of Lading Transactions 2000”, http://www.mike.igbokwe.com.

(4) JFS Investments Ltd v Brawal Line Ltd SC (2010) 4 CLRN (Pt 1) 3. See also Leventis Technical v Petrojessica Enterprises Ltd (1999) 6 NWLR (Pt 605) 56 and Article 3, Rule 6 of the Hague Rules 1924.

(5) “The owner or the charter who enters into a contract of carriage with a shipper” – Article 1 of the Hague Rules.

(6) Protection and indemnity insurance.

(7) Standard marine cargo cover policy in Nigeria.

(8) Section 2 of the Admiralty Jurisdiction Act 1991.

(9) Infra.

(10) Article 3, Rule 6 of the Hague Rules.

(11) Article 3, Rule 1 of the Hague Rules.

(12) Section 354 of the Merchant Shipping Act (27/2007).

(13) Cargo Defence Fund, Nigerian Shippers Council, http://www.cargodefencefund.org.

(14) Nigerian Shippers Council Subscription Form – services provided.

(15) Nigerian Shippers Council Subscription Form – registration fees are subject to the company’s turnover for every year.

(16) Cargo Defence Fund, Nigerian Shippers Council, http://www.cargodefencefund.org.

(17) Charles E Boyle, “Ongoing Pirate Menace Triggers Special Coverage Security Measures”, Insurance Journal, October 25 2011, http://www.insurancejournal.com.

(18) Aon, “Aon Launches ‘Loss of Earnings Piracy Insurance Policy”, Insurance Journal, December 4 2008, http://www.insurancejournal.com.

(19) Notice to shippers, “Procedure or steps to claim successfully from insurance companies in the event of loss or damage to cargo during transit or storage in an international trade transaction”, Cargo Defence Fund, Nigerian Shippers Council, http://www.cargodefencefund.org.