MLC crew abandonment claims are on the rise

In American Club’s latest “Currents” George J. Tsimis has noted a trend in claims where MLC crew abandonment claims were “on the rise and leading P&I clubs into uncharted waters”.

Tsimis said that “the 2017 policy year saw the emergence of a new and unique P&I exposure – the payment of repatriation and outstanding wages of abandoned crew due to a vessel owner’s financial default”.

Certain amendments to the Maritime Labour Convention of 2006 (MLC) were established in 2014 and these amendments entered into force on January 18th 2017.

Subsequently vessels subject to the MLC were required to display on board certificates demonstrating and verifying the existence of insurance or other financial security to meet the costs of

(1)  crew repatriation costs;

(2)  outstanding crew wages and other entitlements contractually owed to the seafarer for up to four months.

Prior to the establishment of these MLC amendments, these expenses, particularly crew wages, were not liabilities of a vessel owner that traditionally fell within the scope of P&I cover.

In exchange for the Club’s assumption of these new risks, the Member vessel owner / operator was obliged to provide corporate letters of counter security wherein the Member agreed to indemnify the Club if it was ever called upon to perform any of its obligations under the MLC certificate in the context of an abandoned crew. Unfortunately, noted Tsimis, when a crew was abandoned the Member would probably be unable to satisfy any indemnity claims by the Club for repatriation and unpaid wages claims initially paid by the Club.

The likely scenario of a vessel owner disappearing following the abandonment of its crew and presumably its assets was that Clubs would have to fend for themselves when satisfying their MLC obligations for crew wages and repatriation costs.

During policy year 2017, the American Club experienced six separate MLC-related crew abandonment incidents in various countries around the world, with each matter resulting in the initial outlay of approximately $250,000 per incident.

The jurisdictions seeing these MLC cases included the Netherlands, Bulgaria, the United Arab Emirates, China, Mexico and Nigeria. In each instance American Club initially had to respond to the specific circumstances of each case, much of which was driven, not only by the laws of the jurisdiction where the vessel and crew had been abandoned, but also by the actions of local maritime authorities.

Tsimis said that, consistent with the underlying spirit of the MLC itself, American Club’s main priority in each incident was the health, safety and well-being of the crew. “We ensured that the crew had sufficient food and stores. We resupplied the vessel with diesel fuel and other supplies to keep the vessel operational and to keep the crew warm and safe during the winter months. We arranged for medical exams and checkups for any officer or crew member needing or asking for medical assistance. Additionally, we coordinated our efforts through our local correspondents to maintain close contact with the crew and communicate our intentions. And we regularly liaised with local maritime authorities, the vessel’s Flag State authority, the ITF and other organizations to make sure that crew compensation and repatriation efforts were pursued in as transparent and as trustworthy a manner as possible”. However, prior to making the necessary arrangements for repatriation and payment of back wages for the four month period (if applicable) provided for under the MLC, the Club exercised its best efforts to protect and preserve the rights of the crew to seek wages beyond the four month period (where applicable), as well as safeguard the Club’s right of priority to seek recovery, secure and enforce its liens or otherwise protect its claims to recoup its repatriation and crew wage claims up to four months.

Tsimis said that this was where the fun began. Despite all the articles and newsletters on the significance of the MLC amendments in the context of seafarer abandonment, there remained a dearth of information on the Club’s ability to recover these MLC-related expenditures. Adding to this nebulous landscape was the fact that the 13 International Group Clubs were independently managed, domiciled in several different countries, and governed by different legal regimes.

Consequently, the rights of each Club under its governing bylaws, rules and laws to recover MLC-related expenses or seek to secure or to recoup those claims might vary, making it hard to create a “one size fits all” playbook.

With no case law or other precedents to guide the Club or its locally appointed lawyers and correspondents, Tsimis said that it was “no exaggeration to say that we had sailed into uncharted waters”.

The six MLC cases that the Club faced presented several questions of first impression, including:

  • Did the Club have a maritime lien or an in rem right to arrest the abandoned vessel to secure its claims for outstanding MLC related expenses incurred under the P&I policy?
  • Under local law, could the Club receive an assignment from the abandoned crew and maintain the same rights that the crew would have had?
  • Would the local court recognize the assignment of a crew wage claim by a crew member to the Club?
  • When a Club paid its MLC-related claims, did those claims thereafter become a contractual claim, or were they now a subrogation claim?
  • Upon paying a crew member’s wages, could the wording of the Release and Receipt prejudice the Club’s lien or priority rights vis à vis third party claimants against the vessel or its owners?
  • Which country’s lien laws and rights of priority applied vis à vis the mortgage holding bank?
  • Could the Club’s MLC related claims prime the mortgagee bank’s rights against the vessel?
  • Did the law governing the P&I insurance contract or the law of the forum apply?
  • What was the nature of the Club’s claims under the MLC Certificate which carried indemnity rights as against the vessel owner / vessel manager?

Tsimis wrote that these questions had yielded different answers in different cases. This lack of predictability had made it increasingly challenging for the managers of American Club to devise consistent strategies to fulfil the Club’s MLC obligations without prejudicing its recovery rights.

If preventive efforts fail and crew abandonment becomes inevitable, Clubs should share their experiences with fellow IG Clubs and identify the practices and approaches that most effectively protect a Club’s recovery rights in the MLC context. “Lastly, and perhaps most importantly, we must stay true to and rely upon our basic claims handling philosophy of seeking proactive, practical and innovative solutions, and maintaining an open channel of communication and cooperating with our legal and general correspondents worldwide to create awareness of these potential MLC related exposures so that appropriate remedies can be developed”, said Tsimis.