Gregory F. Linsin and Dana S. Merkel
Achieving sustained compliance with the requirements of Annex I of the International Convention for the Prevention of Pollution from Ships (“MARPOL”) has been a challenge for the commercial maritime industry. In far too many situations, the detection of noncompliant activity by the U.S. Coast Guard has resulted in criminal prosecutions with devastating consequences for the vessel operator, owner, and crew, and the risks for the maritime industry are only increasing as the deadlines for Annex V compliance loom. This article explains a proven system for commercial vessel owners to minimize or even eliminate these substantial enforcement risks.
APPS Violations and Angelex
The Act to Prevent Pollution from Ships (“APPS”), which implements MARPOL in the United States, authorizes the Coast Guard to detain any vessel if there is reasonable cause to believe the “ship, its owner, operator, or person in charge” may be liable for APPS violations. There have been many legal challenges over the years to the U.S. Coast Guard’s enforcement authority, including its jurisdiction over the vessels, bond amounts demanded, and non-monetary bond requirements, but all have failed. In December 2018, in the case of Angelex Ltd. v. United States, the D.C. Court of Appeals rejected the last untested avenue for potential relief for a vessel owner under APPS.
The underlying APPS prosecution that led to the Angelex decision involved Annex I violations detected aboard the M/V Pappadakis. After contested negotiations and an unsuccessful legal challenge, Angelex Ltd., the vessel owner, and the operator claimed they were unable to meet the $2.5-million-dollar bond requirements set by the Coast Guard. As a result, the Pappadakis was detained for nearly six months while the criminal prosecution of Angelex, the vessel operator, and the former chief engineer went forward. Following trial, the chief engineer was found guilty of the APPS violations, but Angelex and the vessel operator were acquitted.
Angelex then brought a separate action against the United States under a provision of APPS, 33 U.S.C. § 1904(h), which permits a vessel “unreasonably detained or delayed” to recover “any loss or damage suffered thereby.” This was the first action brought under this provision of APPS. Angelex argued that it suffered losses due to a delay prompted by the failure of the Coast Guard to release the vessel earlier during the criminal proceedings and by an unreasonable bond demand. The court rejected Angelex’s claim that the vessel should have been released at some point in the investigation when Angelex claimed that the Coast Guard should have known the owner would not be held liable. The court stated that when there is reasonable cause to detain a vessel for APPS violations, the vessel may be held until legal proceeding are complete. As both Angelex and the vessel operator had been indicted and there was no indication that the indictment was wrongfully obtained, the court held that the Coast Guard was authorized to detain the vessel until the legal proceedings were complete.
Angelex’s main argument was that the detention was unreasonable because the bond demand was excessive. The court held that, generally, any bond amount below the maximum criminal fine is reasonable. Further, because the vessel itself is liable in rem under APPS, the maximum bond amount for a vessel is the sum of all fines potentially imposed on all parties liable under APPS. Thus, as Angelex and the operator were each potentially liable for $1.5 million, the vessel itself was potentially liable for three million dollars and the three-million-dollar bond demand was appropriate.
Angelex also argued that the bond amount was unreasonable in light of Angelex’s financial condition at the time. The court summarily rejected this argument because Angelex failed to submit any proof of the company’s financial state and, thus, there was no evidentiary basis on which to evaluate this claim. It’s unclear whether this type of challenge to a bond amount would have been successful or could be in the future with proper evidence.
This case closes the door on the last untested challenge to the Coast Guard’s enforcement authority under APPS. It is clear that courts will uphold the Coast Guard’s ability to demand both a monetary bond and non-monetary bond conditions, and to detain a vessel throughout the entire legal proceedings if the bond demands are not met. Angelex’s claim for damages was rejected even though Angelex was acquitted of the APPS violations, and its vessel was detained and unable to sail for nearly six months.
Avoiding Enforcement Risks
The decision in the Angelex case is the latest reminder that MARPOL compliance risks must be proactively addressed by vessel owners and operators long before violations are detected in a port state control inspection. In fact, there is a system that has been used successfully by many responsible vessel owners and operators over the past several years that has been effectively and quietly resolving MARPOL compliance problems while avoiding the catastrophic consequences of a criminal enforcement proceeding. This system begins with investing in management improvements and developing a culture of compliance, including:
- Enhanced Compliance Training. Supplemental training for both engineering officers and unlicensed crewmembers is an effective tool to communicate the company’s expectations and commitment to compliance. Training should be repeated periodically and updated as necessary.
- Open Reporting System. Providing a hotline or other electronic means of anonymous reporting to the company provides crewmembers with a means of transmitting information that they feel uncomfortable reporting directly to a supervisor or Designated Person Ashore. These systems allow companies to obtain valuable information that allows them to investigate internally and address the issue effectively, long before an enforcement action is initiated.
- Audit Program. Periodic audits of a vessel’s waste management practices are critical to evaluate a company’s level of compliance and identify opportunities for improvement. These audits should include a comparative analysis of the vessel’s oil record book (“ORB”) and the daily tank sounding logs. Both internal audit teams and third-party auditors can be effective. For improved reliability, some audits should be done unannounced.
- Role of the Superintendent. Frequent shipboard visits by the vessel’s superintendent are vital in the creation of a positive compliance culture. The superintendent’s familiarity with the vessel and crew allows for greater ability to identify potential compliance issues. The superintendent should take the time to engage with the unlicensed crew, as well as the ship’s officers, and should also do spot checks of the ORB, the tank sounding records, and the Vessel General Permit documentation.
Several additional measures are being used by some vessel owners and operators to further enhance their environmental compliance program. CCTVs are used in critical areas of the machinery spaces on vessels. Shoreside debriefing interviews of crew members post-contract have proven to provide valuable insight into vessel operations and personnel. Some companies also offer monetary awards to crew members for information on compliance issues that proves to be reliable.
What to Do When a Problem Arises?
Ultimately, the success of this system is built on the sobering recognition that, even after responsible owners/operators invest in compliance training, expend the resources needed to maintain and upgrade pollution prevention equipment, and then monitor shipboard operations through effective shoreside supervision, the risk of MARPOL noncompliance is not eliminated. Even the most attentive and dedicated owners and operators may be plagued with compliance issues. It has proven to be very difficult to eradicate rogue officers who ignore even the most emphatic training and who continue to engage in improper acts that are often irrational and ineffective. Therefore, the final critical element of the compliance system is for companies to take prompt and effective action when presented with evidence of potential noncompliance.
When there is any indication of potential noncompliance, whether through the open reporting system, audit findings, or superintendent observations, a thorough internal investigation must be undertaken immediately. Seizing the initiative in these circumstances not only helps control potential negative consequences of a violation, but also strengthens the company’s overall environmental compliance culture and program. Depending on the circumstances and the extent of the noncompliant activity, consideration should be given to engaging counsel in assisting with the investigation to develop a complete factual record and provide legal advice concerning corrective actions or reporting obligations.
Vessel owners and operators should also engage with the vessel’s flag state administration early and often. Under MARPOL, a vessel’s flag state has primary responsibility for oversight of environmental compliance. While port and coastal states are authorized to perform port state control inspections or to investigate and consider enforcement actions for pollution events occurring in their territorial waters, these functions are secondary to the primary role of the flag state. The heightened enforcement role that the United States has assumed and the incentives created by the potential whistleblower awards under APPS have distorted the primary enforcement role that MARPOL grants to the flag states. By taking control of potential issues and working with the vessel’s flag state administration to take corrective action, vessel owners are proceeding consistent with the intended assurance regime established by MARPOL and are far more likely to achieve a reasonable and balanced resolution.
By assisting vessel owners in the implementation of this system, we have had success avoiding investigations and vessel delays, even when the vessel has a recent history of noncompliant operations. By working with the vessel owners to investigate issues when they arise and assisting the owners in approaching the vessel’s flag state administration, appropriate corrective actions were ascertained and completed. If warranted, corrective entries are then made in the vessel’s ORB (or other regulatory logs). Assuming none of the noncompliant discharges occurred in U.S. territorial waters and the vessel’s regulatory logs are accurate prior to calling on U.S. port, enforcement action by the United States is precluded.
As the decision in the Angelex case illustrates, U.S. courts will continue to uphold the Coast Guard’s authority to aggressively initiate criminal enforcement actions, to demand both a monetary bond and non-monetary bond conditions, and even to detain a vessel throughout the entire legal proceedings if the bond demands are not met. To avoid these severe consequences, vessel owners and operators must invest in creating a strong culture of compliance and, when compliance issues arise, take appropriate steps to address them head on.