Section 9 Confiscation of ship
7.9.1 General
General insurance protection for an Owner against loss of the entered ship is provided by either the Hull insurance or by the War Risk insurance. The P&I policy is not affected. It acts as a shield against claims for third party liabilities and does not cover – with some exceptions – property belonging to the Member. This is confirmed by Rule 11 Section 2 (l).
An Owner may lose a ship for reasons other than casualties such as grounding, collision and fire. One reason is confiscation of a ship by authorities. In most cases, such losses concern the Hull underwriters or War Risk insurers. See the comments under 11.5.4.
Under special circumstances, described in this section, the risk of confiscation is covered under the P&I policy.
7.9.2 Club’s decision is discretionary
It is important to note that this clause does not constitute a right to compensation for the Member. It obliges the Club to consider the Member’s claim for compensation and to exercise its discretion in deciding if the Member’s claim should be met and, if so, whether it will be met in whole or in part.
The general conditions for discretionary compensation are contained in Rule 19, the Omnibus Rule. The fact that discretionary compensation for confiscation has been singled out, indicates a difference from the Omnibus Rule.
As the Omnibus Rule is applicable to risks “which are not covered under these Rules”, there is a presumption against compensation. That presumption is weakened where, as here, the provision indicates that confiscation might be compensated and specifies the conditions for such compensation.
From the Omnibus Rule it appears that only the Board has the power to allow compensation for risks not covered. See the comments under 19.2. Since this provision indicates that confiscation might be compensated and specifies the conditions for such compensation, discretion can, in principle, be exercised by the Club’s ordinary claims processing functions. A claim of this nature and magnitude will, however, still be reported to the Board.
The Club is under no obligation to give any reason for its decision.
7.9.3 “Confiscation”
The reason for the loss must be confiscation of the entered ship by a competent authority. There are situations similar to confiscation – for instance, when a fine is imposed equal to or exceeding the ship’s value and the ship is arrested to obtain payment of the fine. If the fine is covered under Rule 7 Section 6 (a), the cover will be for the value of the ship, if that is the amount of the fine. This provision is intended to cover situations where confiscation is a separate sanction imposed upon the Member.
It follows from the discretionary nature of the cover that the Club may consider compensation when a part of the ship or its equipment has been confiscated.
7.9.4 Infringement of customs law
To be covered, the confiscation must arise as a result of a violation of customs law or regulation. The most common reason for confiscation of a ship is smuggling, especially of drugs, and non-manifested or inadequately described goods.
No cover is provided under these Rules for confiscation for other reasons such as illegal fishing, entering prohibited areas or the ship being used for other illegal purposes. Confiscation may result even if the Member has no knowledge of the offence.
There are a number of countries where confiscation of the ship is an option legally available to the authorities. This is the case in Colombia, Venezuela, and the U.S.A.
For further comments on the cover for fines for smuggling or any infringement of customs law see 7.6.2.4.
7.9.5 Duration of confiscation
A claim for compensation under this clause will be considered by the Club only if the Member has been deprived of his interest in the entered ship for a time of not less than six months. This period will allow the Member and the Club to examine opportunities for appeal or otherwise to raise the issue of confiscation and have the title of the ship restored to its Owner. Such a length of time is also justified in establishing that the effect of the authorities’ action is not just temporary but final and irrevocable.
If, at the end of the six-month period, it has not yet been finally decided if the Member has actually lost his title to the ship, the discretionary nature of the clause would allow the Club to defer any decision on the question of compensation pending the result of an appeal, negotiation with the authorities or further legal analysis of the situation.
7.9.6 Security
Since it is a condition for compensation under this clause that the confiscation is final and irrevocable, the Club would probably not exercise its discretion to put up bail or other security at an initial stage of the case. When the confiscation is final there is no longer a need for security.
7.9.7 Member’s burden of proof
To obtain compensation under this clause, the Member must satisfy the Club that he has taken all steps which in the Club’s opinion were reasonable to prevent the violation of the customs law or regulation on which the order of confiscation is based. Elements which may be considered by the Club appear from the comments under 7.6.2.4. The requirements under this clause underline how important it is that a Member spend not only sufficient effort, time and money to comply with customs regulations internationally, but also be able to show authorities and the Club after the event, what was actually done in that respect.
7.9.8 Market value
The amount to be compensated under this clause is limited to the market value of the ship at the time of confiscation. The market value will be assessed without consideration of the Hull insurance value. It will not be affected by the ship’s employment or the existence of profitable freight contracts.
7.9.9 Recourse against authorities
With payment of compensation under this clause, the Member’s rights against the authorities are transferred to the Club in accordance with Rule 14. Should the Club eventually succeed in having the confiscation rescinded, it follows from Rule 14 that the Club acquires title to the ship or its value.