Introduction
In the aftermath of the radiation leaks from the Fukushima nuclear plant, there are reports that fears of contamination of ships and cargoes may lead to ports outside Japan imposing specific cleaning requirements, screening or even banning ships which have called at Japanese ports. Exclusion zones have been imposed in the vicinity of the Fukushima plant but all other ports outside the exclusion zone have been declared safe by Japanese authorities so shipowners and operators are having to consider whether and to what extent it is currently safe to trade to Japan. The position is being extensively monitored but the potential for further radiation leaks means the situation remains fluid. However, both the existing and particularly any increased levels of atmospheric and oceanic radioactivity could have a serious practical, commercial and legal impact across the shipping industry, for shipowners, charterers and cargo owners together with port authorities, regulators and safety agencies both inside and outside Japan. We comment on some of the main considerations that may arise.
The current situation
Following the explosion at the Fukushima power plant on 11 March, the Ministry of Land, Infrastructure, Transport and Tourism of Japan has confirmed that as of 23 March 2011 all international sea ports not damaged by the earthquake and tsunami are operating normally and no health risk is detected around the ports, based on the results of measurements of radiation levels by local governments; as at the date of this briefing this still appears to be the case.
The major international ports closest to the Fukushima plant are the ports in the Tokyo Bay area. The Port of Tokyo which is 225 km away from the Fukushima plant was reporting as at 31 March 2011 the highest increased annual exposure to radiation of 0.88 millisieverts (mSv) per year. There are 1,000 mSv in one sievert (Sv); this measurement is used in setting radiological protection standards. To put this in perspective, people are on average exposed to somewhere between 2 - 3 mSv per year from natural background radiation and an airline crew which flies the New York to Tokyo circuit via the polar route is exposed to around 9 mSv per year. The lowest level at which any increase in cancer is clearly evident is an exposure of 100 mSv per year.
The Japanese authorities have advised vessels to keep a 30 km distance from the Fukushima plant, although US authorities recommended a more cautious 80 kilometre distance and many other maritime regulatory authorities as well as some flag states have implemented wider exclusion zones which far exceed the recommendations coming from Japan.
The IMO is currently monitoring the situation with the assistance of the World Meteorological Organization (WMO), the Intergovernmental Oceanographic Commission of UNESCO, the International Hydrographic Organization (IHO), the International Association of Marine Aids to Navigation and Lighthouse Authorities (IALA) and the NAVAREA and METAREA coordinators in the immediate and adjacent regions (including Australia, the Russian Federation and the United States). The status of the automated alerts regarding the exclusion zones and navigational and meteorological warnings issued by the Worldwide Navigational Warning Service (WNWS) are also being regularly updated.
At this stage, therefore, radiation levels in the major ports appear not to create any cause for serious concern. Many of the world's major dry-bulk carriers, container lines and tanker firms have confirmed that they intend to continue to visit Japanese ports falling outside the exclusion zones.
Another potential and perhaps more significant risk is that posed by the carriage of potentially radioactive cargo sourced from closer to the Fukushima plant (and it is for this reason that the global container company APL has recently announced that it intends to scan all containerised exports leaving Japan prior to loading in an attempt to protect its employees). In particular there are concerns with regard to food originating in 12 prefectures in the Fukushima area. The EU has adopted controls stipulating that all products from these prefectures have to be tested before leaving Japan and will be subject to random testing in the EU. Each consignment of food or feed from Japan also has to be accompanied by a declaration (to be provided by the Japanese authorities) attesting that the product does not contain levels of radionuclides that exceed the EU's maximum permitted levels. Feed and foodstuffs not in compliance with the maximum permitted radiation levels will be safely disposed of or returned to the country of origin.
Issues for Ports
Both within and outside Japan, port authorities may need to consider what powers they have to require shipowners and operators to declare potentially radioactive cargo, or to ensure that ships and cargo have undergone appropriate cleaning. More and more ports are developing and publishing procedures. Rotterdam is the largest container port in Europe and over the weekend of 3/4 April, the Rotterdam Port Authority confirmed that it intends to carry out radiation checks on all ships arriving from Japan and it is currently anticipated that the first of the ships headed to Europe from Japan after 11 March is due to arrive in Europe in mid-April.
What ports can or cannot do will depend on the specific legislation in each country governing the port, although most will have powers to impose emergency measures, particularly on safety grounds. For those affected, it may be that measures which are found not to be reasonable and proportionate, or implemented without following proper procedures, can be successfully challenged.
In Germany, the authorities of the port of Hamburg are working on emergency plans and considering the possibility of refusing contaminated vessels access to the port. Such a docking prohibition could be legally based on general public safety law in Germany which gives the authorities the right to prohibit the entry to the port in case of threat to public health. There are currently no binding radiation thresholds for cargo ships. It is likely that emergency plans will contain a threshold level but the thresholds currently discussed would be lower than the typical dose of radiation a person might receive during a long distance flight.
Governments may also be able to impose specific regulations, subject to the same safeguards. By way of example, in the UK, the Merchant Shipping Act 1995 (the Act) provides discretion to the Secretary of State to give certain safety directions to persons such as the shipowner, ship's master or harbour authority if there is a risk to safety or of pollution by a hazardous substance (which includes radioactive materials) onboard a ship. Directions include instructions that a cargo is or is not to be unloaded or discharged and that a ship is or is not to be moved.
This would affect a ship and/or cargo contaminated by radiation if the radiation levels are high enough to present a sufficient public health and safety risk. If action taken in accordance with a safety direction either was not deemed to be reasonably necessary or caused loss or damage which could not be justified (e.g. in a situation where radiation levels were too low to present sufficient risk) the Act expressly provides that the Secretary of State must pay compensation to any person who suffered loss or damage as a result of the action under the safety direction. However, if a ship is found actually to be contaminated, then such a claim is unlikely to succeed.
Issues for shipowners and charterers
The ports directly affected by the earthquake/tsunami/high levels of radiation will be closed for the foreseeable future. The concern for shipowners, charterers and others will be those ports that are declared to be open but may be exposed to higher background levels of radiation and where cargoes are to be lifted/discharged.
Charterers and owners may need to consider routing arrangements or instructions to avoid Japanese waters. Container line schedules may have to be revised, or discussions held with sub-contractors or feeder ship operators as to how to service the Japanese market.
Owners will inevitably be considering whether they can legitimately refuse orders to proceed to Japanese ports, on the basis of unsafe port provisions in charterparties. However, owners should exercise caution before refusing to follow charterers' orders to call at Japanese ports which are outside the implemented exclusion zones. It could be argued by charterers in this situation that owners have no justifiable or reasonable right to refuse to follow orders and owners may find themselves facing termination of the charter; while charterers may seek to capitalise on owners' refusal to follow reasonable instructions and re-enter the market to secure an alternative charter at a more favourable rate.
On the other hand, in the event that charterers have ordered owners to take the vessel and crew to a Japanese port where there is a genuine risk of exposure to unacceptably high levels of radiation, charterers could find themselves in breach of charter for failing to comply with the warranty typically found in charterparties that orders should only be given to proceed to a safe port.
As with any such charterparty issue, context and the specific facts of the case will determine what the correct approach should be. Whether ports are safe or unsafe is a matter of fact: assessed (at least under English law) at the time an order to go to that port is given. Much may depend not just on exclusion zones or other operational restrictions but also on weather and sea conditions at any given time and also the situation at the Fukushima power plant itself. Just because certain Japanese ports lie outside the exclusion zone to date does not mean that they may not become unsafe at a future date and it is for this reason that it is so important to keep up to date with developments via the WNWS.
There will inevitably be disputes as between shipowners and charterers over who pays for the delays or the extra costs of having to discharge elsewhere or for the clean-up costs in the event that contamination has been identified. The answer may differ depending upon whether it is the cargo or ship which is contaminated, and on the precise charter terms, including exclusion clauses.
One such issue may be whether charterers are able to put the vessel off-hire in the event that ships are detained or delayed or where ports refuse to accept or off-load potentially contaminated cargo. This will depend on specific charter provisions but possibly also on whether the measures imposed by the port are reasonable and rational. If a port authority has acted arbitrarily or irrationally then a vessel may still be on hire even if detention is an event catered for in an off-hire clause - for instance where a blanket ban is imposed whether or not individual ships are actually contaminated.
While the following cases do not consider cargo contaminated by radiation, they do offer helpful guidance as to considerations the English Court may bear in mind when deciding whether the carriage of contaminated cargo will lead to the vessel being on or off hire. In the case of The Laconian Confidence [1997] 1 Lloyd's Rep. 139, charterers ordered the vessel to sail from Yangon to Chittagong in Bangladesh where, following the discharge of the cargo (bagged rice), the survey established the presence of rejected residue sweepings onboard the vessel. On this basis the Bangladesh port authorities refused to allow the vessel to proceed to her next port incurring a delay of 18 days. A dispute arose between owners and charterers as to whether the vessel was off-hire during this time. Charterers claimed the vessel was off hire on the basis of the following clause (on an amended NYPE form):
"...in the event of the loss of time from deficiency of [and/or default] men or stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, dry-docking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost...".
The tribunal (and the High Court on appeal) held the vessel was on hire throughout as the delay did not arise from the damaged cargo but as a result of the remarkable reaction and interference of the authorities.
In this case the High Court also considered the inclusion of the term 'any other cause "whatsoever"' in the list of possible reasons why a vessel can be put off hire. The High Court commented that the inclusion of the word "whatsoever" would mean that a vessel could be deemed to be off-hire, even if the port authority's actions in refusing to allow the vessel to continue on its next voyage were capricious.
Conversely, in The Jalagouri [2000] 1 Lloyd's Rep. 515, the relevant port authority refused to allow damaged cargo to be off-loaded unless financial security was put in place due to a dispute; in the meantime, the vessel was ordered off her berth and had to wait at the port's outer anchorage. Charterers put the requisite guarantee in place and sought to deduct the value of the guarantee from hire payments due to owners on the basis that the vessel was off-hire under the terms of clause 53 (the off hire clause) in the charterparty:
"Should the vessel be seized or detained or arrested or delayed by any authority during the currency of this Charter Party, the Charterers' liability for seizure or detention or arrest [or] delay is ceased immediately from the time of her seizure or detention or arrest or delay and all time lost by this reason shall be treated as off-hire until the time of her release unless such seizure or detention or arrest or delay is occasioned by any act or omission or default of Charterers or their Agents. Any extra expenses incurred by and/or during above seizure or detention or arrest or delay to be for Owners' account, unless caused by Charterers as above."
Owners disputed this deduction, but the Court found in favour of charterers on the basis of the terms of the off-hire clause.
If the situation at Fukushima worsens, Japanese shippers, charterers and receivers may increasingly find it problematic to get ships to load or discharge in Japan, or to deliver cargo exported from Japan. Certainly shipowners are likely to demand written assurances from cargo shippers and charterers, possibly backed up by guarantees or indemnities before calling in Japan or loading cargo.
Cargoes found or suspected to be contaminated may be considered dangerous, giving shipowners the right to discharge or refuse to carry them under international conventions such as the Hague-Visby Rules or specific national laws. Article IV of the Hague-Visby Rules provides that where goods of a dangerous nature are being carried without the knowledge or consent of a carrier, master or agent, then the carrier, master or agent may land at any place and destroy or render innocuous the goods without paying compensation. In addition the shipper of such goods will be liable for all damages and expenses directly or indirectly arising out of or resulting from a dangerous shipment.
The article also provides that if goods shipped with the requisite knowledge and consent become a danger to the ship or cargo, they may in the like manner be landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any.
In addition, the IMDG Code provides guidelines for the safe transportation or shipment of dangerous goods which include radioactive goods (classified as "class 7" goods). The IMDG Code provides various packaging, labelling, placarding, marking, stowage, segregation, handling, and emergency response recommendations for the transport of (amongst other goods) radioactive goods. Cargo contaminated by radiation may become subject to these provisions if it has to be carried for disposal.
There may however be practical difficulties in finding appropriate facilities for the reception of such contaminated cargoes, and in extreme cases ships may find themselves refused entry to ports for the purpose of discharge.
Buyers may be unable to import cargoes; or may seek to cancel contracts, for example by use of termination provisions in force majeure clauses. The imposition of specific restrictions on trade might in certain circumstances be sufficient to amount to force majeure in some jurisdictions, but the doctrine is not universal. If an event could be avoided, or mitigated, by reasonable steps, it is likely those steps could or should have been taken, and a force majeure defence may not operate.
While an English Court would be likely to consider that it is acceptable practice for shipowners to rely on information provided by public health authorities, some owners and operators, just as APL has reportedly done, have decided to take steps to measure and monitor radiation levels, and to implement measures to avoid refusal of entry into ports, such as spraying and cleaning the hull while en route. A properly documented measuring of radiation also improves chances not only to take legal action against ports for unjustified refusals of entry by way of interim injunction but also to defend against damage claims by the sender or recipient of goods.
If the situation worsens and contamination in Japan becomes more widespread, charterers may question whether it is commercially desirable to charter in vessels which have called at Japan since the earthquake, and may impose charterparty clauses requiring shipowners to confirm that the vessel has not traded to Japan or carried cargo from Japan since the explosion at Fukushima occurred.
Issues affecting shipbuilding
The majority of Japan's shipbuilding industry is based around the Seto inland sea area, which is located to the south west of the area which was directly hit by the tsunami. Notwithstanding this, two shipbuilding yards are already known to have felt the impact of the tsunami, namely Ishinomaki City situated in the Miyagi prefecture and Yamanishi Shipbuilding; both have sustained significant damage.
The Kitanihon Shipbuilding yard based in Hachinohe has also been badly hit by the tsunami with the result that a newbuild chemical tanker, which was due to launch in a matter of weeks, broke its mooring lines when the tsunami struck and its grounding led to damage to the shell plating.
Issues such as these will be particularly pertinent for the yards and purchasers but also the financiers of newbuildings. Those financing ships, particularly on refinancings, may need to pay closer attention to the progress of the vessel builds; many Japanese shipyards have already issued warnings that there will be significant delays to the scheduled delivery dates for many newbuild vessels. Financiers will also need to consider bareboat charter terms and whether to seek appropriate assurances to avoid exposure to contaminated cargoes for existing vessels. However, for those with contracts at these yards, it is very likely, as long as the shipbuilding contract was well drafted, that the tsunami, the earthquake and the aftermath all fall firmly within the force majeure clause and will give remedies to the parties.
Insurance issues
Most cargo, hull and P&I insurance contracts contain exclusions for damage or delay by nuclear risks, including radiation, such as those contained in the Institute Radioactive Contamination, Chemical, Biological, Biochemical And Electromagnetic Weapons Exclusion Clause. The insurance position may be relatively straightforward for any cargoes and ships actually damaged by radioactive contamination, but coverage disputes could easily arise in other situations, especially when considering claims that do not involve actual contamination. For example, if a port is found to be unsafe for a vessel because of legislation imposed as a result of fears over fallout from Fukushima, do the typical nuclear exclusions apply to a claim under a charterers' liability policy? The answer to these issues will lie in a proper consideration of the policy terms set against findings of fact as to the proximate cause of the loss.
Liability and compensation
The Vienna Convention on Civil Liability for Nuclear Damage of 1963 and the Paris Convention on Third Party Liability in the Field of Nuclear Energy of 1960 (along with subsequent amending conventions/protocols) set out an international liability regime to provide compensation for nuclear damage.
These conventions in general adhere to the principles of strict liability of the nuclear operator; exclusive liability of the operator of a nuclear installation; compensation without discrimination based on nationality, domicile or residence; mandatory financial coverage of the operator's liability; exclusive jurisdiction of the courts in the state in which the nuclear accident occurs; and limitation of liability in amount and in time.
Japan is not party to any international liability convention but its law generally conforms to similar principles.
According to the World Nuclear Association plant operators in Japan must provide a financial security amount of JPY 120 billion (US$ 1.4 billion). For claims in excess of this, the government provides coverage, and liability is unlimited. Strict liability is not imposed on the operator where a leak is caused by a natural disaster such as an earthquake or tsunami, and in such cases it is the government to whom injured parties must look for compensation.
It seems likely that most claims for direct damage to property in Japan resulting from the nuclear explosion at the Fukushima power plant will be brought in the Japanese courts and will be subject to Japanese law.
However, for the international shipping community, there may be ways and means to seek recovery of losses under contracts subject to English law. Consequently, it may be helpful to look briefly at some decisions of the English courts as regards liability arising from nuclear incidents.
In Merlin v British Nuclear Fuels [1990] 2 Q.B. 557 [1], the English courts rejected a home owner's claim for damages under the Nuclear Installations Act 1965 as a result of the reduction in value of their house due to radioactive contamination following the Sellafield disaster. Radioactive contamination of the house was not enough to constitute physical damage, and a claim for economic loss did not fall within the terms of the statute. However, in Blue Circle Industries v MoD, compensation was ordered to be paid for the reduction to the value of Blue Circle's land as a result of radioactive contamination which was above regulatory levels. More recently, the Scottish case of Magnohard Ltd v United Kingdom Atomic Energy Authority [2004] S.C. 247 recognised there was potential for recovery of compensation and expenses incurred as a result of cleaning up contamination to a beach following radiation leakage from Dounreay power station.
There is therefore perhaps some precedent under English law for considering increased levels of radioactivity on ships or cargoes as being physical damage for which compensation, in the form of loss of value and cleaning costs, might be recoverable, where the exposure was due to breach of contract or negligence.
Conclusions
Last month's earthquake and tsunami have devastated local communities and cost countless lives. However, Japan is still very much open for business. Despite the concerns over radiation leaks the increase in radiation levels are still very low and most shipowners and operators are continuing to trade with and support Japan while putting appropriate safeguards in place.
It seems likely that the fallout from Fukushima will be felt far and wide, and perhaps in unexpected ways, across the shipping industry. For all those involved in shipping the Fukushima disaster will require evaluation and assessment of commercial and operational arrangements and risks, and the implementation of practical measures in response.
The issues outlined above are not exhaustive. Each situation is likely to require its own analysis, and those involved may need to seek appropriate advice and guidance from professional bodies and national administrations. However, with a degree of commonsense and commerciality most parties affected should be able to reach agreement as to how the risks and costs of such measures should fairly be allocated.
Ultimately, the impact on the industry will in reality be determined by what it perceives as the extent of the risk, whether or not that perception reflects the actual effects of the natural disaster. It is however to be hoped that the international commercial and official reaction continues to be driven by pragmatism and a desire to assist Japan in its recovery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
