Seabed Mining and the application of Maritime Law Concepts

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 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:

  1. 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;
  1. Riser and Lifting System (RALS):  a flexible pipe through which the materials recovered from the seabed are pumped to the PSV for processing; and
  1. 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 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 national jurisdictional boundaries, the exclusive application of maritime law for select aspects of SBM activities, and the concurrent application of maritime law for others.

The Application of Maritime Law Concepts

In gauging maritime law’s application to the SBM industry, an orienting question is what qualifies as a ship, for what purposes and with what consequences? Although an ostensibly simple question, characterizing whether a vessel or an installation is a ship has and continues to generate controversy given the far-reaching legal consequences attending that designation.

The first step in this analysis is considering the definition of “ship” and evaluating whether SBM 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 broken up.”[5] Case law interpreting what constitutes a ship is voluminous. However, a cursory survey of legislation and case law suggests that meeting the definition of “ship” requires an object to satisfy at least some of the following elements:

  • Partial navigational use;
  • Navigational capabilities;
  • Navigation through or above water;
  • Vessel under construction; and
  • Mode of propulsion irrelevant.

Applying the above elements to the vessels, installations and equipment employed in current and proposed SBM activities suggests those 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 between extraction sites. This characterization aligns with case law from the offshore oil and gas industry characterizing MODUs, drill ships and FPSO’s as ships or vessels while in transit between production sites.[6] However, when PSVs are permanently moored or positioned to engage in SBM activities for an extended period of time, their status as ships becomes more tenuous.

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 remotely-operated 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.

Fundamentally, characterizing an object as a “ship” triggers the application of the law of the flag and obligation to register that ship in a national registry as a pre-condition to the ship receiving the nationality and right to fly the registering State’s flag. Significantly, possession of nationality is a pre-condition for ships to exercise the rights and freedoms under international law, such as freedom of navigation and rights of innocent passage. Applying this consideration to the vessels employed in SBM activities suggests that such vessels will be characterized as ships for purposes of ship registration, following the practice in the offshore oil and gas industry of registering a wide variety of offshore installations. Indeed, applying flag State jurisdiction to the SBM vessels through registration may be the only option consistent with maintaining legal order on the ocean – the objective at the heart of flag State jurisdiction as articulated by the PCIJ in the 1927 S.S. Lotus Case.[8]

Once a vessel is characterized as a ship for purposes of vessel registration, it follows that such vessels may also be classed, mortgaged, insured (both hull insurance and protection 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 enforcement challenges for lenders. First, unlike ships, which may be intercepted or arrested in ports or territorial waters, SBM vessels may be moored outside territorial waters for extended periods of time making the practical enforcement of a mortgage difficult. Second, the primary value of SBM vessels resides in their capacity to produce. Accordingly, lenders may be reluctant to enforce a mortgage through taking possession of SBM vessels where it impairs the vessel’s ability to generate revenue. Third, the secondary market for SBM vessels will be smaller than that for ships, creating valuation difficulties and compounding challenges faced by lenders in determining whether to enforce the mortgage.

Similar questions may be posed regarding the application of marine insurance – hull and machinery; protection and indemnity – to SBM vessels, equipment and activities. Many risks and liabilities present in the evolving SBM industry will be shared with the commercial shipping and offshore oil and gas industries, specifically those relating to operating in a hostile marine environment. Equally, however, the SBM industry’s development will reveal new risks and liabilities which insurers and P&I clubs must respond to in determining the application of and indemnity available under traditional marine insurance, such as:

  • 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.

Further, characterizing an object as a “ship” may trigger the application of the constellation of maritime law instruments regulating areas ranging from collision avoidance to marine environmental protection to maritime labour to the limitation of liability. Ultimately, the application of many of these instruments will depend on the precise definition of “ship” provided within each and their underlying functional rationale.

Conclusion

Notwithstanding the SBM industry’s novel characteristics, marine classification, financing 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.

 

[1] European Commission, “Blue Growth: Opportunities for Marine and Maritime Sustainable Growth”, Brussels, 13.9.2012, COM (2012) 494, online: http://ec.europa.eu/maritimeaffairs/policy/blue_growth/documents/com_2012_494_en.pdf.

[2] Nautilus Minerals Website, “About Nautilus”, online: http://www.nautilusminerals.com/irm/content/overview.aspx?RID=252.

[3] UNCLOS, 1982, arts. 147–47.

[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.

[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.

Wylie Spicer

Wylie Spicer

Counsel at McInnes Cooper

Email: wylie.spicer@mcinnescooper.com
Tel: +1 403 585 1543

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 1995.
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

Peter L’Esperance

Articling Student at McInnes Cooper
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About Wylie Spicer

Email: wylie.spicer@mcinnescooper.com
Tel: +1 403 585 1543
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 1995. 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.