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Cruise industry strikes heavy weather

08 April 2020

#Transport, Shipping & Logistics, #COVID-19

Published by:

Rebecca Niumeitolu, Meshal Althobaiti

Cruise industry strikes heavy weather

From hero, to zero

Even in these current extraordinary times, the speed with which the cruise industry has acquired pariah status is breathtaking. For the last few days, each headline has surpassed the last for hyperbole. The industry is cast as ‘murderous liars’, and scapegoated for many of the ills that the COVID-19 pandemic (C-19) has wrought on Australian shores.

There is a long way to go before the Ruby Princess and similar situations are resolved. From a legal perspective, there is a complicated web of, often global, issues to be negotiated involving multiple laws, jurisdictions and agencies.

Who is responsible to whom, for what?

While the cruise industry is most like a branch of the hospitality sector, it is also significantly part of the global shipping industry.

While the industry players (and the ships) are represented by local agents, with few exceptions where the principals are based overseas, the ships themselves are owned by foreign companies and flagged in places such as the Bahamas or Bermuda.

So if I book a cruise on a ship, it is most unlikely that I am contracting with the ‘owner’ of that ship (much the same way as my booking at the Hilton is not with the owner of the building I actually stay in).

And the local authorities who enter into commercial and regulatory arrangements, which allow the ships to trade in Australian ports and waters, may find that their arrangements are with the principal based overseas, rather than the local agent. One would assume that the relationship between the local agent and principal would be governed by an agency agreement but that may be governed by a foreign law and/or be ‘commercial in confidence'. Of significance in the current environment will be indemnity provisions, perhaps force majeure provisions, and limitations of liability.

So far as the ships are concerned, they are usually regulated by the ‘Flag State’ and the ‘Port State’.

The ‘Flag State’ is not surprisingly the country whose flag the ship flies, so (for example) Bermuda. While the ship is in international waters, the law of the flag applies to activities on the ship.  

The ‘Port State’ in our case is Australia, and one would expect that vessels on international voyages are regulated by Federal legislation, under the supervision of the Australian Maritime Safety Authority (AMSA), and the Australian Transport Safety Bureau (ATSB). The jurisdiction of State entities is less clear, but will usually extend at least to criminal liabilities, which one assumes is why the local police force has become engaged and a coronial inquest has been mooted.

Ticket Terms and Conditions and The Athens Convention

Under Australian law, passage contracts for Australian cruises (that is, cruises marketed and conducted by an Australian entity, often wherever the cruise takes place) will be governed by the ticket terms and conditions, but subject to relevant State and Federal consumer laws including the Commonwealth Competition and Consumer Act 2010. Cruises conducted in other parts of the world, by non-Australian entities may not be subject to Australian law and jurisdiction.

Australia is also a party to Convention on Limitation of Liability for Maritime Claims. The liability limit for the loss of life or personal injury to passengers of a ship is based on the size of the ship and the number of passengers which the ship is authorised to carry. The overall passenger limit is 175,000 SDRs multiplied by the ship’s capacity. For example, a ship with capacity of 1,000 passengers would have a 175,000,000 SDR limitation (approximately $390,250,000).

A person will not be entitled to limit its liability if it is proved that the loss resulted from his personal act or omission.

Australia has been considering ratifying the “Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 1974 as amended by the 2002 Protocol” (Athens Convention) and published a discussion paper in November 2017 seeking comment.

According to the website of the International Maritime Organisation (IMO):

“The Convention establishes a regime of liability for damage suffered by passengers carried on a seagoing vessel.  It declares a carrier liable for damage or loss suffered by a passenger if the incident causing the damage occurred in the course of the carriage and was due to the fault or neglect of the carrier.
However, unless the carrier acted with intent to cause such damage, or recklessly and with knowledge that such damage would probably result, he can limit his liability.  For the death of, or personal injury to, a passenger, this limit of liability is set at 46,666 Special Drawing Rights (SDR) per carriage. The 2002 Protocol, when it enters into force, will introduce compulsory insurance to cover passengers on ships and substantially raise those limits to 250,000 SDR per passenger on each distinct occasion.” 

As at 6 April, 250,000 SDR was equivalent to approximately $557,500.

It perhaps goes without saying that under the common law and most statutes any party pursuing a remedy will bear the onus of proving breach. This can be difficult and is likely to be very difficult when it comes to claims against the cruise companies who are not in the business of harming their passengers.

One of the features of the Athens Convention is that it reverses the onus of proof where personal injury of death is caused by defined “shipping incidents” (which include for example shipwrecks and collisions). It is worth noting that under the Athens Convention, the carrier will not be liable for death or personal injury caused by ‘natural phenomenon of an exceptional, inevitable and irresistible character” (Art 3 Rule 1(a)).

It remains to be seen whether affected Australian passengers would have been better off under the Athens Convention, and whether C-19 acts as a spur to the adoption of the Athens Convention.  

Jurisdiction under the Admiralty Act 1988 (Cth)

C-19 may produce a scramble for parties seeking security for claims, and damages. Interested parties will be looking at the Admiralty Act 1988 (Cth) (Admiralty Act).

Under the Admiralty Act, in certain circumstances a person with a ‘maritime claim’ may arrest a ship to obtain security for the person’s claim.

Maritime claims

Under the Admiralty Act, the Court may hear and determine 'proprietary' and 'general' maritime claims, as well as claims for damage done to a ship.

Claims under the Admiralty Act can be made in rem against a ship for maritime liens (defined as including a lien for salvage, a lien for damage done by a ship, a lien for the wages of a master or crew member, and a lien for a master's disbursements), proprietary maritime claims, and general maritime claims.

Under the Admiralty Act proceedings are commenced as either:

  • an action in rem – an action against a ship or cargo or other property on, or related to, the ship; or
  • an action in personam – a proceeding against a person, including a corporation.

Relevantly, general maritime claims attach to a ship in rem and include claims in connection with:

  • damage done by a ship (whether by collision or otherwise)
  • liability of the owner of a ship arising under the Protection of the Sea (Civil Liability) Act 1981 (Cth)
  • loss of life, or personal injury
  • an act or omission of the owner or charterer of the ship in the navigation or management of the ship, including in connection with the loading of or unloading of goods, embarkation or disembarkation of persons, and the carriage of goods or persons on the ship
  • an agreement that relates to the carriage of goods or persons by a ship or to the use or hire of a ship, whether by charter party or otherwise.

Class Actions

Inevitably we will see a rise in class action lawsuits in the cruise ship industry. The NSW Health Department has reported that there have been 342 confirmed cases of C-19 diagnosed in passengers who all acquired their infection while on, or in some cases, possibly before boarding the Ruby Princess cruise.

Ruby Princess cruise

It is expected that a class action lawsuit against owners on behalf of passengers who sailed on the Ruby Princess will be the first in a wave of class actions.

Such class actions are likely to involve a focus on passengers being entitled to compensation for loss and suffering experienced since they have disembarked from cruise ships affected by the coronavirus, whether directly affected themselves or perhaps due to the distress caused by the experience.

The cruise ship also accounts for at least seven deaths in Australia. The NSW police have now launched a criminal investigation into the incidents.

Scenic Tours Pty Limited 

It also worth keeping an eye out for the High Court of Australia’s reserved judgment from an appeal by Australian tourists against Scenic Tours on whether damages for loss of enjoyment when a cruise does not live up to expectations are limited by the Civil Liability Act 2002 (NSW) (CLA) provisions relating to damages.

In the case of Moore v Scenic Tours Pty Limited, Mr Moore who commenced representative proceedings on behalf of himself and over one thousand other individuals who booked and paid for several river cruises with Scenic Tours claiming compensation and damages arising from breach of the consumer guarantees for services under the Australian Consumer Law (ACL).

In the Supreme Court of NSW, Scenic argued that the services provided were defined by the contract and its terms and conditions and not by the ACL. The Supreme Court of NSW however found that Scenic Tours cannot use the terms and conditions of a contract to prohibit or limit the operation of consumer protections afforded under the ACL.

Upon appeal to the NSW Court of Appeal, Scenic Tours was successful in arguing that ACL and the CLA meant the claim had to be brought under state laws. 

The NSW Court of Appeal found that in accordance with the CLA, a determination of damages for non-economic loss applied and that no damages may be awarded for such loss unless the severity of the non-economic loss is at least 15 per cent of a most extreme case. The law provides that the maximum amount of such loss is $350,000.

Leave was granted in the High Court to appeal from the Court of Appeal's judgment and the hearing took place on 11 February 2020. It is likely that the High Court’s decision will have an impact on the way which damages may be assessed in claims involving the Ruby Princess cruise.

Insurance

Most, if not all, cruise ships and operators will be insured through a specialist marine liability underwriter called a Protection and Indemnify Club, or P&I Club, to the extent of their legal liability.

The good news is that P&I Clubs are highly reputable and solvent, and are well placed to manage and settle claims.

The bad news is that P&I Clubs often operate on a ‘pay to be paid’ basis, that is, the operator must first settle the claim, then seek indemnity from the P&I Club. A problem would arise if the cruise company becomes insolvent, and so cannot settle claims. In such cases, the claimant will have little scope for recovery direct from the P&I Club.

It is worth noting that one of the features of the Athens Convention is that it allows claimants direct access to insurers.   

Cross-border insolvency and shipping

C-19 is likely to cause cruise companies significant financial distress, with almost complete loss of revenue and escalating claims.

We could see an increase in cross-border insolvencies that involve international shipping companies. Consequently, there will be a rise in creditors and claimants seeking competing relief in admiralty law and the UNCITRAL Model Law on Cross-border Insolvency.

To stay or go – and what about the crew?

On 27 March 2020 the Health Minister exercised his discretion under section 477 of the Biosecurity Act 2015 (Cth) to prohibit certain cruise ships from entering Australian ports and to direct those which enter the Australian territory before 15 June 2020 to leave immediately.

As cruise ships refused to leave with crew and passengers affected by C-19 or at risk of contracting it, the complex health and biosecurity concerns that cruise ship operators and the Government find themselves grappling with have surfaced. The situation is obviously more complicated than first thought.

First, the orders to leave were not absolute. A foreign cruise vessel could remain in Australian waters if:

  • it has permission by the Collector of Customs to remain in the territory for a specified period
  • it is exercising a right of innocent passage; or
  • it is necessary for the ship to remain in the Australian territory for the purpose of securing the safety of the ship or saving life at sea.

For cruise ships with essential crew affected by C-19 or without sufficient medical resources to manage a suspected or actual on-board outbreak, the question arises – is it necessary to stay in Australian waters to secure the safety of the ship or to save life at sea? 

Secondly, the direction to leave immediately might be at odds with Australia’s and cruise ship owners’ obligations under Australian law relating to crew access to health services. The Navigation Act 2012 (Cth) and Marine Order 11 (Living and working conditions on vessels) 2015 (Cth) give effect to the Maritime Labour Convention 2006 (MLC), which recognises seafarers key rights in respect of their working and living conditions.

Section 64 of Marine Order 11 requires owners to implement “measures for the health protection, medical care and essential dental care for seafarers on board”. This includes ensuring that crew “have health protection and medical care as comparable as possible to that available to workers on shore, including prompt access to: (i) necessary medicines, medical equipment and facilities for diagnosis and treatment; and (ii) medical information and expertise.”

Australia also has obligations under the MLC to ensure seafarers have access to medical care. This includes obligations to facilitate the treatment of seafarers suffering from disease and to ensure that they are promptly admitted to onshore clinics and hospitals (Guideline B4.1.3).

Presented on 6 April with about 200 crew on board affected or showing symptoms of C-19, it is evident that if operators of Ruby Princess abided the direction to leave immediately and headed to its Flag State the Bahamas (also a Member under the MLC) that owners would risk contravening their health care obligations to seafarers.

Ethical and political considerations aside, the above obligations perhaps also explain why Australian enforcement and regulatory agencies have taken steps to assess crew for C-19 and to provide health care and limited hospital access to crew on cruise ships notwithstanding clear messages from authorities such as NSW Police Commissioner Mick Fuller, to stop “lingering” and to go home.

Thirdly, the refusal of cruise ships to leave has brought to bear considerations as to whether Australia can under customary international law direct cruise ships to leave if they are in distress, and whether cases where there is a C-19 outbreak on board constitute situations of distress. There is scope for arguing that if essential crew are affected by C-19 or other health-related issues then the vessel would be in distress and would justify the cruise ship remaining in Australian territorial waters and the provision of humanitarian assistance by the State. The strength of this argument will be dependent on a case-by-case basis. Operations to test crew members for C-19 before turning cruise ships away is perhaps indicative of steps taken to observe this obligation.


The above legal considerations are just the tip of the iceberg but they go to show why the Government’s ‘clear’ orders to leave did not result in the immediate exodus of cruise ships from Australian waters.

Authors: Geoff Farnsworth, Nathan Cecil, Rebecca Niumeitolu & Meshal Althobaiti

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Rebecca Niumeitolu, Meshal Althobaiti

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