On December 15, 2015, a panel of the U.S. Court of Appeals for the D.C. Circuit held that the U.S. Coast Guard could impose nonfinancial conditions, in addition to a bond, before permitting ships under suspicion of a MARPOL violation to leave U.S. ports.
The case involved two foreign-flagged vessels that were accused of falsifying their oil record books. The Coast Guard determined that it had reasonable cause to believe the vessels’ operators had violated the Act to Prevent Pollution from Ships, 33 U.S.C. §§ 1905-1915, which implements the provisions of MARPOL (the International Convention for the Prevention of Pollution from Ships). Therefore, the Coast Guard ordered Customs to withhold departure clearances for the two ships, which were held at ports in Louisiana.
Eventually the vessels were released, but not until their owners/operators had posted a bond and executed a security agreement. Concerned that the government would lose its ability to prosecute the alleged crimes after the ships sailed, the Coast Guard designed the security agreements to assist the government in prosecuting the cases later if merited. As such, the agreements required the owners/operators to leave behind certain crew members who were witnesses to the alleged crimes and to pay their wages, housing and transportation costs. The agreements also required the owners/operators to help the government serve subpoenas on foreign crew members, waive jurisdictional objections, and enter an appearance in court.
The vessel owners/operators subsequently challenged the legality of the security agreements as being beyond the Coast Guard’s statutory authority. The federal district court ruled for the government. On appeal, the D.C. Circuit panel affirmed. The Court focused on 33 U.S.C. § 1908(e), which provides
If any ship subject to the MARPOL Protocol, Annex IV to the Antarctic Protocol, or this chapter, its owner, operator, or person in charge is liable for a fine or civil penalty under this section, or if reasonable cause exists to believe that the ship, its owner, operator, or person in charge may be subject to a fine or civil penalty under this section, [Customs], upon the request of the Secretary [the Coast Guard], shall refuse or revoke … clearance …. Clearance may be granted upon the filing of a bond or other surety satisfactory to the Secretary [the Coast Guard].
The owners/operators acknowledged that § 1908(e) allowed the imposition of a bond or other financial security to ensure payment of any potential fines or penalties, but argued that the statute did not authorize the Coast Guard to demand nonfinancial terms before granting clearance to depart.
The Court disagreed. The Court held that this provision plainly provided authority to the Coast Guard “to simply hold the ship in port until legal proceedings are completed.” Accordingly, the nonfinancial conditions in the security agreements could “be thought of as simply the quid pro quo for allowing the ships to depart.” Since the ships and crew could be held until a civil or criminal proceeding was completed, it followed that “the Coast Guard can agree to notify Customs to release the ship upon condition that a civil or criminal proceeding would not be jeopardized.”
The Court was clear that such conditions could be required independently of a bond: “a financial bond, given its limited use, is ordinarily not satisfactory, so the Coast Guard need not accept bonds without accompanying nonfinancial conditions.”
The Court’s holding provides the Coast Guard with a powerful tool in the prosecution of ship owners and operators suspected of violations of MARPOL. Refusing to agree to the terms of such security agreements could mean indefinite detention of vessels, possibly resulting in breach of contractual provisions, loss of charter hire, delay of cargo deliveries, etc. On the other hand, owners/operators could incur significant expense in meeting the terms of such security agreements, especially the requirement that they pay the wages and lodging of crew members detained and housed in motel rooms for extended periods of time. Depending on the circumstances, such terms could drive owners/operators to settle cases they might otherwise dispute.