Seabed Mining and the application of Maritime Law Concepts

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2 Shipping and Maritime Seabed Mining and the application of Maritime Law Concepts By Wylie Spicer, Peter L Esperance Introduction Seabed mining (SBM) is an emerging industrial activity involving the recovery of mineral resources from the ocean floor. As a form of resource extraction or mining, SBM is a predominantly industrial activity. Yet, as one which occurs in the marine environment, SBM may also be characterized as a maritime activity. This hybrid character creates uncertainty concerning which legal regime will govern SBM activities and for what purposes? This article engages with that uncertainty by asking to what extent is SBM a maritime activity subject to maritime law s application? The authors suggest that as SBM evolves as a maritime industrial activity, clarity surrounding the applicable legal regime will not only be a necessary pre-condition for commercial certainty and investment, it will also be necessary to safeguard the values at the core of maritime law: protecting life, property and the environment at sea. Seabed Mining Rising prices for non-energy mineral resources coupled with depleting mineral reserves on land, has prompted mining companies to look seawards to satisfy the world s persistent demand for minerals 1. On the ocean floor, minerals occur in the form of polymetallic nodules, sulphides and ferromanganese crusts, containing manganese, copper, zinc, lead, iron, silver, gold, cobalt, platinum and rare earth metals in concentrations far richer than those available from scarce land-based sources. Presently, the International Seabed Authority (ISA), the intergovernmental body established 1 European Commission, Blue Growth: Opportunities for Marine and Maritime Sustainable Growth, Brussels, , COM (2012) 494, online: policy/blue_growth/documents/com_2012_494_en.pdf. by the 1982 United Nations Law of the Sea Convention (UNCLOS) to regulate seabed activities in areas beyond national jurisdiction, has issued exploration licenses to member states to explore defined parcels of the Pacific, Indian and Atlantic Oceans. A Canadian company Nautilus Minerals Inc. ( Nautilus ) is poised to commence commercial extraction of copper and gold from seafloor sulphide systems in the Solwara-1 concession approximately 1600 metres beneath the territorial waters of Papua New Guinea 2. To fulfil this task, Nautilus intends to rely on technologies derived from the shipping, offshore oil and gas, land-based mining and sediment dredging industries, including: Production Support Vessel (PSV): a ship featuring capabilities to navigate to and from the extraction site, equipped with the facilities necessary to process, store and transfer mineral resources recovered from the seabed; Riser and Lifting System (RALS): a flexible pipe through which the materials recovered from the seabed are pumped to the PSV for processing; and Sea-floor Production Tools: consisting of submersible remotely operated machines which prepare the sea floor, gather the excavated materials, and pump those materials through the RALS to the PSV for processing. Although SBM remains in its infancy as an industry, sustained exploration and future production activities suggest that the industry is technically feasible and commercially lucrative, confirming the need for owners, operators, insurers, financiers and governments to turn their mind to the legal framework governing this evolving industry. The Current Legal Framework The technology and operations involved in SBM depict the complex issues which an effective 2 Nautilus Minerals Website, About Nautilus, online: legal framework must address, including: the ownership, financing, classification and insurance of SBM vessels, equipment and activities; SBM s marine spatial footprint and interactions with other maritime uses; occupational health and safety; pollution and environment; and civil liability. Currently, those laws which do apply to the industry derive from a patchwork of legal sources: national and international; private and public. Part XI of the UNCLOS authorizes the ISA to regulate SBM activities in the seabed Area beyond the continental shelves of coastal States 3. Presently, the ISA has adopted regulations on the exploration for and is developing regulations on the exploitation of seabed minerals. Once developed, however, ISA instruments will only apply the seabed Area beyond coastal State jurisdiction. ISA instruments will only apply to State parties to the UNCLOS. ISA instruments are not anticipated to cover subject matter within the scope of traditional maritime law, such as the ownership, financing and insurance of SBM equipment and technologies. Finally, because certain technologies involved in SBM perform essentially maritime activities, such as the PSV navigating to or between production sites, those activities will be subject to the concurrent application of maritime law. SBM activities carried out in maritime zones subject to coastal State jurisdiction, including the territorial sea, exclusive economic zone or continental shelf, will be governed by national laws, subject to relevant international obligations. In these circumstances, coastal States will be required to either craft new regulatory frameworks governing SBM activities or adapt existing ones. The above discussion highlights the complexities inherent in regulating SBM activities, resulting from the fragmented application of present and future regulations across international and 3 UNCLOS, 1982, arts LawyerIssue 3

3 Shipping and Maritime national jurisdictional boundaries, the exclusive Mode of propulsion irrelevant. Applying this consideration to the vessels market for SBM vessels will be smaller than application of maritime law for select aspects of Applying the above elements to the vessels, employed in SBM activities suggests that that for ships, creating valuation difficulties and SBM activities, and the concurrent application of installations and equipment employed in current such vessels will be characterized as ships for compounding challenges faced by lenders in maritime law for others. and proposed SBM activities suggests those purposes of ship registration, following the determining whether to enforce the mortgage. The Application of Maritime Law Concepts vessels may meet the definition of ship for select purposes. Nautilus proposed PSV satisfies many of the common elements of ships, especially when independently navigating practice in the offshore oil and gas industry of registering a wide variety of offshore installations. Similar questions may be posed regarding the application of marine insurance hull and machinery; protection and indemnity to SBM In gauging maritime law s application to the between extraction sites. Indeed, applying flag State jurisdiction to the vessels, equipment and activities. Many risks and SBM industry, an orienting question is what SBM vessels through registration may be the only liabilities present in the evolving SBM industry qualifies as a ship, for what purposes and with This characterization aligns with case law from option consistent with maintaining legal order will be shared with the commercial shipping what consequences? Although an ostensibly the offshore oil and gas industry characterizing on the ocean the objective at the heart of flag and offshore oil and gas industries, specifically simple question, characterizing whether a vessel MODUs, drill ships and FPSO s as ships or vessels State jurisdiction as articulated by the PCIJ in the those relating to operating in a hostile marine or an installation is a ship has and continues to while in transit between production sites S.S. Lotus Case. 8 environment. Equally, however, the SBM generate controversy given the far-reaching legal However, when PSVs are permanently moored industry s development will reveal new risks consequences attending that designation. or positioned to engage in SBM activities for an Once a vessel is characterized as a ship for and liabilities which insurers and P&I clubs must extended period of time, their status as ships purposes of vessel registration, it follows that respond to in determining the application of and The first step in this analysis is considering the becomes more tenuous. such vessels may also be classed, mortgaged, indemnity available under traditional marine definition of ship and evaluating whether SBM insured (both hull insurance and protection insurance, such as: vessels, installations and submersibles fall within that definition. As a starting point, section 313 of the U.K. Merchant Shipping Act 1995 defines ship to include every description of vessel used in navigation 4. Canada s Federal Courts Act defines ship more expansively as any vessel or craft designed, used or capable of being used solely or partly for navigation, without regard to method or lack of propulsion, and includes a ship in the process of construction from the time that it is capable of floating, and a ship that has been stranded, wrecked or sunk and any part of a ship that has Whether Nautilus s proposed submersible SPTs constitute ships, for what purposes, and with what consequences is a more ambiguous. Canadian case law has characterized a remotelyoperated submersible tree harvester tethered to and operated from a barge as a ship, albeit for purposes of grounding admiralty jurisdiction 7. Whether such an argument is compelling or indeed relevant for the remotely operated submersible equipment employed in the SBM context and operating largely on the seafloor is an open question. and indemnity) and chartered in a manner akin to ships. 9 However, substantive differences in SBM vessels, equipment and activities and their use will likely render the blanket application of maritime law concepts inappropriate. By way of example, marine mortgages enable shipowners to finance the costs to build, operate and decommission a vessel. If the shipowner defaults, the lender forecloses on the mortgage and takes possession of and sells the mortgaged property through an in rem action and forced judicial sale. Financing an SBM vessel through a maritime mortgage, however, poses unique long term exposure of SBM vessels to hostile environmental conditions distant from commercial repair facilities; stresses induced by SBM submersible production tools associated with operating in estimated water depths of 6000 m; collision risks with collection and support vessels; pollution risks associated with the transfer of the recovered ore to collection vessels; and, pollution risks associated with the disturbance of marine benthic communities. broken up. 5 Fundamentally, characterizing an object as enforcement challenges for lenders. First, unlike Further, characterizing an object as a ship a ship triggers the application of the law of ships, which may be intercepted or arrested in may trigger the application of the constellation Case law interpreting what constitutes a ship the flag and obligation to register that ship ports or territorial waters, SBM vessels may be of maritime law instruments regulating areas is voluminous. However, a cursory survey of in a national registry as a pre-condition to moored outside territorial waters for extended ranging from collision avoidance to marine legislation and case law suggests that meeting the ship receiving the nationality and right to periods of time making the practical enforcement environmental protection to maritime labour the definition of ship requires an object to fly the registering State s flag. Significantly, of a mortgage difficult. Second, the primary to the limitation of liability. Ultimately, the satisfy at least some of the following elements: possession of nationality is a pre-condition for value of SBM vessels resides in their capacity to application of many of these instruments will ships to exercise the rights and freedoms under produce. Accordingly, lenders may be reluctant depend on the precise definition of ship Partial navigational use; international law, such as freedom of navigation to enforce a mortgage through taking possession provided within each and their underlying Navigational capabilities; and rights of innocent passage. of SBM vessels where it impairs the vessel s functional rationale. Navigation through or above water; Vessel under construction; and 4 Merchant Shipping Act 1995, c 21, s 313 (UK). 5 Federal Courts Act, RSC 1985, c F-7 (Canada). 6 See Bow Valley Husky (Bermuda) Ltd. v Saint John Shipbuilding Ltd, [1997] 3 SCR 2010 at para 85; see also Perks v Clark, [2001] 2 lloyd s Rep 431 (Eng QB). 7 Cyber Sea Technologies Inc v Underwater Harvester Remotely Operated Vehicle, Serial No. UHROV-101, [2003] 1 FC 569 at para 14. ability to generate revenue. Third, the secondary 8 The SS Lotus Case (France v Turkey), [1927] Permanent Court of International Justice, Ser. A, No. 9, p 53 (dissenting opinion by Lord Finlay). 9 Canadian Maritime Law, supra at 281. Conclusion Notwithstanding the SBM industry s novel characteristics, marine classification, financing 4 LawyerIssue 5

4 and insurance professionals are extrapolating from experiences in the shipping, offshore oil and gas, land-based mining and sediment dredging industries to develop new standards to apply to the vessels, equipments and activities engaged in SBM activities. Governments, independently and in concert with inter-governmental organizations such as the ISA, are in the process of crafting new regulatory frameworks and adapting existing ones to respond to and anticipate the unique challenges posed by the industry in areas such as accommodating SBM activities with other maritime uses, safeguarding occupational health and safety, protecting the environment, and addressing civil liability for pollution. This article suggests that many concepts of maritime law are applicable to and indeed necessary for the emerging SBM activity. As vessel owners, operators, insurers, financiers and governments navigate the emerging SBM industry, practical and functional legal guidance will be essential to understand maritime law s application and adaptation to the next generation of vessels equipment and activities. Such guidance will not only be a necessary condition for commercial certainty and responsible investment it will also be necessary to safeguard the values at the core of maritime law: protecting life, property and the environment at sea. Wylie Spicer Counsel at McInnes Cooper T: wylie.spicer@mcinnescooper.com Wylie acts as Counsel at McInnes Cooper. As former Managing Partner of McInnes Cooper, and with 40 years of industry experience, Wylie brings a strong presence to our firm. Wylie s practice focuses on maritime law, as well as offshore and seabed mining. Highlighted through an extensive list of worldwide publications, Wylie exhibits a great breadth of knowledge earning his title as a respected leader within his field. Throughout his career Wylie has handled complex litigation matters in Courts throughout Canada from the trial level to the Supreme Court of Canada. A past President of the Canadian Bar Association for Nova Scotia, Wylie is admitted to the Bar of three Canadian Provinces: Nova Scotia, Newfoundland & Labrador, and Alberta. Wylie has been awarded Martindale-Hubbell s highest rating ( AV ) and is repeatedly named in various publications as a Leading Practitioner in Maritime Law in Canada and alternative dispute resolution, including Best Lawyers 2010 Halifax Best Maritime Lawyer of the Year. He was awarded the Queens Counsel designation in Wylie is an executive of the CBA National Maritime Law section, a member of the Canadian Maritime Law Association, the International Bar Association and a member of the International Association of Petroleum Negotiators. Through a sharing of knowledge, Wylie engaged students at Dalhousie University s Schulich School of Law, where he previously taught part-time in the area of maritime law. Wylie currently acts as a Sessional Lecturer at the Faculty of Law, University Of Calgary on the topic of Law of the Sea. Peter L Esperance Articling Student at McInnes Cooper 6 LawyerIssue 7

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