Ports & Cargo Shipping

Coast Guard Inspection of Towing Vessels RuleThe U.S. Coast Guard Inspection of Towing Vessels Final Rule under 46 CFR Subchapter M takes effect on July 20, 2016. The Rule, published this week, has its roots in the Coast Guard and Maritime Transportation Act of 2004, and creates many new requirements for the equipment, operations, construction and design of towing vessels, and establishes a comprehensive inspection regime. The Rule provides that towing vessel owners/operators must select for their fleet one of two inspection compliance options: (1) the Coast Guard inspection option or (2) the Towing Safety Management System (TSMS) option.

The Coast Guard inspection option is fairly straightforward; under it, the Coast Guard conducts annual routine inspections of towing vessels or fleets. To meet record keeping requirements, vessel owners may use a safety management system (SMS), towing vessel record, vessel operations manual or logbook. The second option, TSMS, requires owners/operators to implement a survey program for vessel compliance, which may be internal or external. Under an external survey program, Third Party Organizations (TPOs), such as certain classification societies, perform routine inspections of the vessels. An internal survey program is conducted using internal resources or contracted surveyors, with the oversight of a TPO. Whatever option is selected, a new towing vessel must obtain a Certificate of Inspection from the Coast Guard before it enters into service. Owners/operators of only one towing vessel must have a valid Certificate of Inspection by July 20, 2020, while owners/operators of a fleet of towing vessels must obtain a Certificate of Inspection for each vessel according to a set schedule (July 2019 for at least 25% of the fleet; July 2020 for at least 50%; July 2021 for at least 75% and July 19, 2022 for 100% of the fleet). Owners/operators that select the TSMS option must obtain a TSMS certificate from a TPO at least six months before their vessels may obtain a Certificate of Inspection.

The Coast Guard estimates that the Inspection of Towing Vessels Final Rule will affect 5,509 U.S.-flag towing vessels and 1,096 owners or operators of towing vessels. The financial impact on the industry is estimated to amount to an annual cost of about $33 million, with some cost savings stemming from certain exemptions in the Rule for existing vessels. Vessel owners/operators are well-advised to fully review the Final Rule to ensure compliance, as failure to timely implement the Rule’s requirements could result in substantial penalties, delay in vessel operations, and other liabilities.

Greek Shipowners Consider Exodus
Greek shipowners facing proposed higher taxes due to the Greek financial crisis are considering an exodus from the country, which would be a blow to the economy and Greek ports such as the Port of Piraeus, pictured above.

The Greek shipping industry will have to sustain additional taxes according to a proposed bailout agreement. Greek shipowners already agreed to voluntarily pay an additional tonnage tax from 2014-2017 to help the embattled economic crisis. However, the Greek government says that isn’t enough and plans to further increase the tonnage tax (a flat annual rate based on a ship’s capacity), and will also cut other tax advantages that have been accorded to shipowners for years.

Greek shipowners are therefore having to weigh their options, and many state that if these measures are enacted they will have to consider relocating to other shipping-friendly places such as Cyprus, London, Singapore and Dubai. In fact, Hong Kong, Singapore, London and Cyprus have sent delegations to lobby disgruntled shipowners. Cyprus has had the most success by recently luring 42 Greek shipping companies to their country. The Central Bank of Cyprus stated that revenues from shipping have increased 9.3% (approximately $491 million) in the past year.

Greece’s unemployment rate is now above 25%, and the Greek shipping industry currently employs about 200,000 people, representing about 3.5% of the country’s workforce. The shipping industry makes up about 7.5% of the already dwindling Greek economy. It is anticipated that the continued exodus of Greek shipowners would cause a blow to the industry and to the economy as a number of people would lose their jobs.

New Orleans Attorney Joanne Mantis


Guest blogger Joanne Mantis is a multilingual attorney in the New Orleans office of King, Krebs & Jurgens. She is admitted to both the Louisiana and Greek Bar, and represents a variety of clients both domestically and internationally. She has previously blogged for Offshore Winds regarding the Greek Tonnage Tax.

Greece has finally imposed a tonnage tax on foreign-flagged vessels operated by shipping companies in Greece. It already had been taxing Greek-flagged ships, and the nation’s debt crisis left the government with no other choice than to tax foreign-flagged ships in an attempt to help raise its revenues. The government is hoping it will raise at least $106 million from the levy.

The Greek state is targeting an estimated 762 managers with the new laws, which went into effect as of January 2013. Fortunately, ship owners and management companies’ ship earnings are excluded from the tax, as it only applies to the tonnage of their ships.

The Greek Ministry of Finance has issued the following guidelines as to who is liable for this new tax and how to calculate it:

  • The tax is levied on ships managed by companies in Greece which own foreign-flagged vessels.
  • The tax will be calculated using the gross tonnage of the vessel and the age of the vessel.
  • The tax will be calculated in U.S. Dollars and converted into and paid in Euros.
  • The foreign ship owner and the ship management office will be jointly liable for payment of the tax.
  • The responsibility for filing the tax return lies with the ship owner, the ship manager and their representatives or their attorneys-in-fact.
  • The annual return must be filed by the end of February for the previous calendar year; 25% of the tonnage tax assessed must be paid at the time the return is filed (February) with the remaining 75% paid in three equal installments due in June, September, and December.

The first year the tax was implemented was for 2012, meaning to be in compliance with the new law, 2012 taxes should have been filed by the end of this past February, with additional payments made in June, this month and in December 2013. Ship owners or ship managers that have not yet filed their 2012 tonnage tax will accrue a 1.5% monthly penalty fee (interest) which will be added to their outstanding taxes for filing untimely. If Greek authorities feel that an owner cannot pay his taxes, they could revert to arresting the vessel, but this extreme measure is unlikely to be implemented. Those needing further guidance should contact their attorney and accountant.

The Union of Greek Ship Owners (EEE) informed its members that it had reached an agreement with the government to implement an extraordinary additional voluntary contribution to the tonnage tax, in addition to the mandatory amount owed, for the next three years. This voluntary tax applies to Greek-owned shipping companies, whether they have Greek- or foreign-flagged ships. This contribution is voluntary, but the Union hopes that many ship owners will participate to help increase the government’s revenues.

New Orleans Attorney Joanne Mantis

Guest blogger Joanne Mantis is an attorney in the New Orleans office of King, Krebs & Jurgens. She is a member of both the Louisiana and Greek Bar, and represents a variety of maritime clients both domestically and internationally.

 

 

Supreme Court of the United States
The Supreme Court of the United States may soon be deciding the definition of a vessel.

The very question of what makes a structure a “vessel”  under Section 3 of the Rules of Construction Act, 1 U.S.C. §3 is before the United States Supreme Court in City of Riviera Beach v. That Certain Unnamed Gray, Two-Story Vessel Approximately Fifty-Seven Feet in Length, 649 F. 3d 1259 (11th Cir. 2011). In Part 1 of this blog post, we looked at the position of the owner of the alleged vessel, who argued that use and intention should be considered and that a watercraft like his floating house should not be considered a vessel. The Eleventh Circuit, however, ruled otherwise.

In determining that the floating house was a vessel, the Eleventh Circuit distinguished and disagreed with jurisprudence from the Fifth and Seventh Circuits. According to the Eleventh Circuit, the Fifth and Seventh Circuits “focus on the intent of the ship owner rather than whether the boat has been ‘rendered practically incapable of transportation or movement.’” Compare Board of Commissioners of the Orleans Levee District v. M/V Belle of Orleans, 535 F.3d 1299 (11th Cir. 2008) with Pavone v. Mississippi Riverboat Amusement Corp., 52 F.3d 560 (5th Cir. 1995); Tagliere v. Harrah’s Ill. Corp., 445 F.3d 1012 (7th Cir. 2006). The Eleventh Circuit submitted that by injecting the owner’s intention into determining whether a floating structure was a vessel, the Fifth and Seventh Circuits have deviated from the United States Supreme Court’s decision in Stewart v. Dutra Construction Company, 543 U.S. 481 (2005).

In the amicus briefs filed by the National Marine Bankers Association and numerous maritime plaintiff attorneys, it was argued that the Eleventh Circuit’s decision should be upheld, and they too criticized the jurisprudence of the Fifth and Seventh Circuits. As argued by National Marine Bankers Association, under the Fifth and Seventh Circuits’ jurisprudence, “a once-valid marine security could at a later date be adversely affected because the craft is no longer deemed a vessel” by its owner, which would create uncertainty for lenders and banks. The plaintiff’s attorneys also supported the Eleventh Circuit’s decision as it potentially could expand admiralty jurisdiction to include, among other things, floating casinos, and other floating offshore installations.

The outcome of this case may have far reaching implications likely broader than those briefed, including whether the courts would revisit whether certain floating offshore installations used in the petroleum industry are vessels. That is, if the matter is decided at all. The U.S. Solicitor General has argued that the case is moot as the floating houseboat at issue has already been destroyed, and the Supreme Court has requested the parties further brief that issue. Stay tuned.

Under Section 905(b) of the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), a vessel owner owes three duties to longshore employees. In October 2012, the Fifth Circuit granted a summary judgment dismissing serious personal injury claims a cargo supervisor filed under LHWCA because the defendants had not breached any of these three duties. In doing so, the Court restated the law applicable to the claims of discharging stevedores based on conditions of the cargo stow, providing a legal primer on the recurring issues concerning the vessel owner’s duties under these circumstances.

In Sobrino-Barrera v. Anderson Shipping Co., No. 11-20826 (5th Cir. Oct. 23, 2012), a cargo supervisor employed by stevedore Gulf Stream Marine was injured during cargo discharge operations from the M/V GRETA. The injury was allegedly caused by the faulty stowage of the cargo of steel pipes. This raised the question of whether the vessel owner breached any of its duties to Sobrino-Barrera, the injured longshore worker.

It is settled that a vessel owner owes longshore employees three duties under LHWCA § 905(b): (1) a duty to turn over the vessel to the stevedore in a reasonably safe condition or to warn the stevedore of any hidden dangers of the vessel or its equipment; (2) a duty of reasonable care to prevent injuries to longshore employees in work areas under the active control of the vessel; and (3) a limited duty to intervene in the stevedore’s operations. The summary judgment evidence on each of the three duties is briefly discussed below.

As an initial matter, the Court concluded that the GRETA’s cargo at the discharge port was an open and obvious condition based on the deposition testimony of Sobrino-Barrera and a fellow employee. Because the “turnover duty” only implicates hidden (non-obvious) defects in the ship and its equipment, no “turnover duty” was owed.

The Court also rejected Sobrino-Barrera’s argument that the ship’s participation in the cargo plan at the load port rendered the cargo within the vessel’s active control at the discharge port. “Involvement in the cargo plan does not constitute active control.”

Lastly, the Court concluded that the vessel interests had no duty to intervene in the cargo discharge operations. The duty to intervene is extremely limited and arises only after the vessel has both “actual knowledge” of a dangerous condition and “actual knowledge” that the stevedore in the exercise of “obviously improvident judgment has failed to correct that dangerous condition.” There was no evidence that the vessel interests knew that the cargo presented a danger to Sobrino-Barrera and his crew. Moreover, Sobrino-Barrera’s deposition testimony indicated that prior to his accident the stevedore had followed its normal and customary procedures in discharging the cargo. Accordingly, there was no duty to intervene on the part of the vessel.

A feisty dachsund and its owner, Fane Lozman, have stirred up troubled waters regarding the definition of a “vessel” in City of Riviera Beach v. That Certain Unnamed Gray, Two-Story Vessel Approximately Fifty-Seven Feet in Length, 649 F. 3d 1259 (11th Cir. 2011). That case, which is now before the 2012–2013 session of the United States Supreme Court, started out with the City of Riviera Beach, Florida, attempting to evict Mr. Lozman and his floating home from the city’s marina because, among other things, he refused to keep his dog—a small Dachshund—muzzled.

The case may have far reaching implications. It has attracted interest and amicus briefs from the federal government, numerous floating home owners and their associations, lawyers, law professors, the Marine Bankers Association, carpenters, and owners and operators of riverboat casinos, all of whom claim they will be affected by the Supreme Court’s decision. In a two-part blog post, Offshore Winds will look at both sides of this argument over the definition of “vessel.”

The City of Riviera Beach claims Mr. Lozman’s structure is a vessel and brought an in rem proceeding against it. Mr. Lozman disputed that claim. The position of Mr. Lozman, along with the American Gaming Association, the carpenters, certain lawyers, and the floating homeowners, was that in determining whether a structure was a “vessel” under Section 3 of the Rules of Construction Act, 1 U.S.C. §3, the Court must take into account practical considerations such as historical use, its current use, and its reasonable intended use for the future. The matter is being watched closely within the Fifth and Eleventh Circuits, where employees of semi-permanently moored riverboat casinos are subject to workmen’s compensation laws, not federal maritime law. Additionally, floating homeowners argue that expanding the definition of vessel to include their floating homes would subject them to new federal laws, including maritime liens, which would frustrate certain local regulations. They argue that practically their homes are a mere extension of the land, and should be treated as such in the courts.

The United States Court of Appeals for the Eleventh Circuit agreed with the City of Riviera, disagreeing with jurisprudence from the Fifth and Seventh Circuits defining what is a vessel. In Part 2, we will look at why that Court held Mr. Lozman’s floating home was a vessel.

In the unpublished opinion of  Adams Offshore, Ltd. v. Blake Marine Group, No. 11-12753 (11th Cir. Apr. 27, 2012), the Eleventh Circuit Court of Appeals adopted the Fifth Circuit’s suggestion in Beauregard, Inc. v. Sword Servs., L.L.C., 107 F.3d 351, 353 n. 8 (5th Cir. 1997), and affirmed the district court’s allocation of costs to each unsuccessful attaching party in proportion to the value that each party alleged was owed them by Oceanografia to the alleged value of all claims asserted against Oceanografia.  This decision addressed the infrequent scenario when significant expenses are incurred by a party in initially arresting/attaching the property, other creditors intervene in that suit, but the arrest/attachment of the property is subsequently vacated, resulting in there being no fund for which to pay the expenses of arrest/attachment and preservation of the property, more commonly referred to as custodia legis, literally expenses incurred “in the custody of the law.”

Oceanografia owned a modular diving system that had been installed on a vessel engaged in oil field work off the coast of Mexico.  Seizing on the opportunity to assert its claims against Oceanografia while the vessel and Oceanografia’s diving system were in Mobile, Alabama, Adams Offshore filed suit against Oceanografia and requested the attachment of the diving system under Rule B as security for its claims, alleged to be worth $7 million.  Thereafter, similarly situated creditors, Blake Marine and Cashman Equipment, intervened in Adams’ action, and asserted their respective claims of roughly $61 million and $1.7 million against Oceanografia.  Over one year after Adams had the diving system attached, the district court vacated the attachments of Adams, Blake and Cashman for equitable reasons.

During the time Oceanografia’s diving system was in the custody of the court, more than $200,000 in costs and expenses had accrued, including the Marshall’s fees, dockage, expenses to clear the diving system through customs, expenses to survey, oversee and remove the diving system from the vessel, storage and insurance, all of which had been initially borne by Adams as the first attaching creditor.  However, because the maritime attachments were vacated, there was no fund generated by the sale of Oceanografia’s property to pay the costs of attachment, much less the underlying claims of Adams, Blake and Cashman.

Local Admiralty Rule 6(c) for the Southern District of Alabama provided as follows:  “Intervenors under this rule shall be liable for costs together with the party originally effecting seizure on any reasonable basis determined by the court.”  S.D. Ala. Loc. Adm. R. 6(c).  The district court concluded that it was reasonable to assess the attachment costs against Adams, Blake and Cashman in proportion to the value that their respective claims bore towards the total of all claims asserted in the pleadings:  Adams – 10%, Blake – 87.5% and Cashman – 2.5%.  On appeal, the Eleventh Circuit affirmed the district court’s assessment of costs, concluding that allocating costs based on the respective value of the parties’ claims was reasonable.  Id. at 5 (citing Beauregard, supra.)

The Adams Offshore decision provides several lessons.  First, it is reasonable to share the costs of an unsuccessful attachment among all unsuccessful maritime claimants, not just the claimant that filed suit first.  Second, the days of a “costs free lunch” appear to be ending for creditors who subsequently intervene in another party’s action after the arrest/attachment of the property has been initially perfected.  Third, attorneys should avoid the temptation to “overstate” the value of their clients’ claims in cases of maritime arrest/attachment because the amount alleged is one basis a court could utilize in apportioning the costs of an unsuccessful maritime arrest or attachment.

Most contracts for the sale of goods and services contain a standard provision regarding the application of payments on overdue accounts, such as:  “When more than one invoice is past due at the same time, Seller shall be entitled, at its sole discretion, to specify the particular invoice to which any subsequent payment shall be applied.”  Additionally, those contracts also may contain a provision that payments on overdue invoices shall first be applied to any accrued interest, and thereafter to any amounts outstanding.

The U.S. Fifth Circuit recently concluded that a seller’s confirmation of payment of an invoice in full precluded “reallocation of that payment in a different manner at a different time.”   World Fuel Services, Inc. v. MAGDALENA GREEN M\V, No. 11 – 30722 (5th Cir. Mar. 14, 2012).  As a result, a bunkers supplier’s arrest of a vessel for alleged late payment of an invoice for fuel was properly vacated because the seller had acknowledged the underlying debt had been paid in full.

SESL executed a general bunkers contract with WFS, which contained the payment allocation provisions mentioned supra.  SESL subsequently time chartered the MAGDALENA GREEN and another vessel, the UTA, and thereafter purchased approximately $245,000 in bunkers from WFS for both vessels.  After WFS demanded payment in full for fuel supplied to both vessels, SESL forwarded an e-mail:  “Please find the attached remittance slips.  All payments are made.  Please re-confirm thanks.”  WFS replied, “Thanks – confirmed all paid.”

Six months later, WFS filed suit against the MAGDALENA GREEN for SELS’s untimely payment for fuel, and the vessel was arrested.  In response to the owners’ defense that the invoice for the bunkers provided to the vessel had been paid in full, WFS argued that the provisions of its contract allowed it to apply payments to accrued contractual interest and fees from older invoices, presumably from other vessels, leaving the invoice for the bunkers provided to the MAGDALENA GREEN outstanding after receipt of the $245,000 payment from SESL.  The Fifth Circuit affirmed the district court’s dismissal of WFS’s suit.

The court noted the payment allocation provisions of WFS’s contract.  However, the court concluded WFS’s unconditional acceptance of that payment as “all paid” nullified those payment allocation provisions.

By confirming “MAGDALENA GREEN paid today,” WFS exercised its discretion to specify the invoice to which SESL’s payment would be applied.  WFS has the contractual right to allocate payments when they are made, but it does not have the right to then allocate those payments in a different manner at a later time.

Id. at 4.  Once the MAGDALENA GREEN’s debt to WFS had been paid, its liability and WFS’s maritime lien were extinguished.

In order for ship suppliers to take advantage of the payment allocation provisions of their contracts, they need to first decide how they are going to allocate such payments.  If they allocate the payment first to older invoices and/or to interest, prudent practice suggests that they advise their purchasers within a reasonable time after payment is received as to how the payment has been applied to the overdue account.  As the Fifth Circuit concluded, much like Lady Macbeth’s lament, once the seller tells the purchaser that an invoice is “all paid,” it cannot undo what’s been done.

One of the recurring issues in handling maritime wrongful death and personal injury claims is determining what information is sufficient to start the vessel owner’s six-month deadline to file a complaint seeking exoneration or limitation of liability under the Shipowners’ Limitation of Liability Act, 46 U.S.C. § 30501 et seq. from that claim.  It is clear that a written demand for payment/settlement before suit is filed which exceeds the value of the vessel will start the running of the six-month period.  Additionally, when the petition alleges recovery of damages in excess of the value of the vessel, the vessel owner’s receipt of that petition will start the clock.  However, it is less certain when the written notice of the claim is via service of a state court petition in which the plaintiff has not alleged a specific damages amount, as is generally the case in Louisiana and Texas state courts, but thereafter makes an initial settlement demand that exceeds the vessel’s value.

The U.S. Fifth Circuit, in In re Eckstein Marine Service L.L.C., No. 10 – 20600 (Feb. 22, 2012), recently examined this issue.  Jackson, a Jones Act seaman employed by Eckstein, filed suit in Texas state court.  Eight months after it was served with Jackson’s state court suit, Eckstein filed a limitation proceeding in Texas federal court.  The Fifth Circuit affirmed the federal court’s judgment dismissing Eckstein’s limitation proceeding for lack of subject matter jurisdiction, concluding that the limitation proceeding had been filed too late.  Although Jackson’s state court petition was silent on the quantum of damages, the Fifth Circuit concluded that pleading revealed a reasonable possibility that Jackson’s claim would exceed the value of Eckstein’s vessel, and therefore the clock started running for Eckstein to file a limitation suit upon its receipt of service of the state court petition.

Jackson’s state court petition had alleged that on February 28, 2009, Jackson had sustained serious and debilitating injuries on Eckstein’s M/V ST. ANDREW when his left leg became entangled in a line and was thereafter pulled into a mooring bit, causing him to suffer serious and debilitating injuries of a permanent nature.  The petition also alleged the standard laundry list of damages categories:  past loss of earnings, future loss of earnings capacity, past and future disability, past and future disfigurement, past and future medical and hospital expenses, past and future pain and mental anguish and maintenance and cure.  Moreover, as part of Eckstein’s cure obligation, it monitored Jackson’s medical treatment, which revealed multiple surgeries during Jackson’s initial two-week hospitalization to insert hardware to treat his bone fractures, as well as to perform debridement and skin graft procedures.  Based on the foregoing information, the Fifth Circuit concluded that the service of Jackson’s petition on April 28, 2009 started the six-month period for Eckstein to file its limitation complaint.

Eckstein, who filed the limitation complaint on January 18, 2010, argued that the six-month period should have started on December 2, 2009, when Jackson made his initial settlement demand for $3 million.  Under that theory, Eckstein’s limitation complaint clearly would have been timely.

The Fifth Circuit affirmed the federal district court, concluding that service of the Texas state court complaint on April 28, 2009, coupled with Eckstein’s knowledge of Jackson’s initial two – week medical treatment, raised a “reasonable possibility” that Jackson’s damages would exceed the value of the M/V ST. ANDREW.  As the Fifth Circuit explained:

Once a reasonable possibility has been raised, it becomes the vessel owner’s responsibility to initiate a prompt investigation and determine whether to file a limitation action.  The Limitation Act provides generous statutory protections to the vessel owners who reap all of its benefits.  When there is uncertainty as to whether a claim will exceed the vessel’s value, the reasonable possibility standard places the risk and the burdens associated with that risk on the owner.  In other words, if doubt exists as to the total amount of the claims or as to whether they will exceed the value of the ship the owner will not be excused from satisfying the statutory time bar since he may institute a limitation proceeding even when the total amount claimed is uncertain.

Id. at p. 9.  Accordingly, the Fifth Circuit concluded Eckstein’s limitation complaint should have been filed by October 28, 2009 and not on January 18, 2010.

Vessel owners – as the title suggests, when in doubt, file the limitation complaint.

Photo via ABC News

When the Costa Concordia ran aground on a reef off Giglio Island near the Tuscan coast of Italy last month, owners and insurers of vessels certainly paid attention.  How could they not?  The incident was the most noteworthy shipping casualty since the Exxon Valdez disaster, and it is now being called the biggest ever shipping loss for insurers.

While the investigation into the causes of the incident is ongoing, early indications are that it could have been avoided.  And even if it was unavoidable, the management of the ensuing emergency by the captain and the crew of the Costa Concordia apparently left a lot to be desired.  The fallout has been immense, and a magnifying glass has been placed over many issues relating to proper navigational practices and emergency management.  Environmental concerns have arisen amid reports of spilling oil and fuel  from the Costa Concordia’s hull.  And, now, the ship’s owner is faced with determining whether it should salvage, cut or sink it, a decision that should have major financial, logistical, and environmental risks and ramifications.

In short, the current and potential issues associated with the incident are limitless.  Thus, marine companies should view the matter as motivation to shore up their own policies and procedures.  As suggested by Kevin Gilheany of Maritime Compliance International, marine companies should take this opportunity to review their own navigation standards, as navigational error by the captain of the Costa Concordia is widely regarded as the main cause of the entire incident.  It also would be beneficial to use this incident to refresh both captain and crew with those navigation standards and to drive home the need to be vigilant at all times.  Marine companies also should ensure that their crew knows their emergency and evacuation protocol.  Moreover, if passenger vessels are in their fleet, they should ensure captain and crew understand that, in emergency evacuation scenarios, there is a responsibility on their part to evacuate the passengers first.  By taking such steps, vessel operators will improve their chances of avoiding a casualty of their own and certainly be in a better position to handle such a casualty in the event that one occurs.