London & Singapore
„„ Litigation, Arbitration & Mediation
„„ Insurance & Reinsurance
„„ Shipping & Maritime
„„ Banking & Finance
„„ Commodities & International Trade
„„ Civil Fraud
„„ Energy & Natural Resources
„„ Employment
„„ Road, Rail & Air Transport
„„ Company & Insolvency
www.stonechambers.com
T +44 (0)20 7440 6900
The FLNG Facility: A Jurisdictional Enigma
William Hooper
Introduction
The publicity surrounding the Shell Floating Liquefied Natural
Gas (“FLNG”) facility, Prelude, is set to increase over the coming
months as the construction reaches its later stages. As more
such facilities begin development, interesting regulatory and
legal questions will arise in respect of them. One such question
concerns jurisdiction over the activities on a FLNG facility in
circumstances where it is flagged State X yet moored offshore
State Y. If the facility is in the territorial waters of State Y, then
State Y would have jurisdiction over such activities, but the matter
becomes more complicated if it is moored not in the territorial
waters, but in the Exclusive Economic Zone of State Y, where
different rules apply. Given that the Prelude flies the Australian
flag and is moored off the Australian coast, this issue remains a
hypothetical one at present. Nonetheless, the scenario in which
it arises is highly conceivable and, as we shall see, essentially
depends on the categorisation of a FLNG. In the absence of clear
guidance from the UN, the issue is likely to become increasingly
pertinent and complicated. This article considers how it might
be resolved.
The UNCLOS regime
Under the United Nations Convention on the Law of the Sea
1982 (“UNCLOS”), the Exclusive Economic Zone (“EEZ”) of a
coastal state comprises waters up to a maximum of 200 nautical
miles from the baselines (essentially the coast) of the state.1 The
EEZ regime is contained in Part V UNCLOS. By Art. 56(1)(a),
in the EEZ the coastal state may claim sovereign rights over the
exploration and exploitation, conservation and management of
the living and non-living resources. Art. 56 provides:
1. In the exclusive economic zone, the coastal State has:
(a) sovereign rights for the purpose of exploring and
exploiting, conserving and managing the natural
resources, whether living or non-living, of the waters
superjacent to the seabed and of the seabed and its
subsoil, and with regard to other activities for the
economic exploitation and exploration of the zone,
such as the production of energy from the water,
currents and winds;
1 UNCLOS art. 57.
(b) jurisdiction as provided for in the relevant provisions of
this Convention with regard to:
(i) the establishment and use of artificial islands,
installations and structures;
…
2. In exercising its rights and performing its duties under this
Convention in the exclusive economic zone, the coastal
State shall have due regard to the rights and duties of
other States and shall act in a manner compatible with the
provisions of this Convention.
…
By Art. 60 UNCLOS, the coastal state has the exclusive right
to construct and to authorise and regulate the construction,
operation and use of ‘installations and structures for the purposes
provided for in article 56 and other economic purposes’ in its
EEZ. Moreover, and most significantly for now, by Art. 60(2), the
coastal state shall have ‘exclusive jurisdiction over such artificial
islands, installations and structures, including jurisdiction with
regard to customs, fiscal, health, safety and immigration laws and
regulations’ [emphasis added] in its EEZ.
By Art. 58(2), Arts. 88-115 of the High Seas provisions (contained
in Part VII UNCLOS) are imported into the EEZ regime, insofar as
they are not incompatible with the EEZ rules. Art. 92(1) provides:
Ships shall sail under the flag of one State only and, save
in exceptional cases expressly provided for in international
treaties or in this Convention, shall be subject to its exclusive
jurisdiction on the high seas… [emphasis added]
By Art. 94 UNCLOS, a state ‘shall effectively exercise its
jurisdiction and control in administrative, technical and social
matters over ships flying its flag.’
Stone Chambers London, 4 Field Court, Gray’s Inn, London WC1R 5EF | LDE 483 | T +44 (0)20 7440 6900
Stone Chambers Singapore, 10 Collyer Quay, Ocean Financial Centre Level 40, Singapore 049315 | T +65 6808 6161
London & Singapore
„„ Litigation, Arbitration & Mediation
„„ Insurance & Reinsurance
„„ Shipping & Maritime
„„ Banking & Finance
„„ Commodities & International Trade
„„ Civil Fraud
„„ Energy & Natural Resources
„„ Employment
„„ Road, Rail & Air Transport
„„ Company & Insolvency
There are no provisions in the EEZ regime which specifically deal
with jurisdiction over ships. A flag state’s exercise of jurisdiction
over activities on board its ship when the ship is in the EEZ
of another state is not, therefore, incompatible with the EEZ
regime. The upshot of this is that if a ship is flagged State X and
is in the EEZ of State Y, then State X would have jurisdiction over
activities on it. By contrast, if the thing itself is not a ship, but
an installation or structure referenced in Art. 60(2), then State Y
would have exclusive jurisdiction over it, regardless of the thing
being flagged State X.
This gives rise to a deceptively simple question: what is a FLNG
facility?
Structure or Ship?
“Artificial islands”, “installations and structures” are not defined
in UNCLOS, nor is there a clear definition in international law.
A definition was posited in 1996 in a Draft “Convention on
Offshore Units, Artificial Islands and Related Structures Used in
the Exploration for and Exploitation of Petroleum and Seabed
Mineral Resources” put forward to the CMI by the Canadian
Maritime Law Association.2 This provided:
For the purposes of this Convention:
(a)“Artificial Island” shall mean a permanent installation or
structure of whatever nature that is rigidly affixed to the
sea bed and used or intended for use in the exploration,
exploitation, processing, transport or storage of crude oil,
gas or natural gas liquids and mineral resources of the
sea bed or its subsoil or in ancillary activities or related
occupant accommodation…
(b)“Coastal State” shall mean the Contracting Party which
exercises sovereign rights for the purposes of exploring for
and exploiting the resources of the seabed and its subsoil
in the area in or above which the Offshore unit is situated
…
(f) “Offshore Unit” shall mean any structure of whatever
nature while and when not permanently fixed into the sea
bed which:
(i) is capable of moving or being moved while floating in
or on water, whether or not attached to the sea bed
during operations, and
(ii)is used or intended for use in the exploration,
exploitation, processing, transport or storage of crude
oil, gas or natural gas liquids and mineral resources of
the sea bed or its subsoil or in ancillary activities;
2 See CMI 1996 Yearbook, pp. 139-155.
www.stonechambers.com
T +44 (0)20 7440 6900
(iii)is used or intended for use in the accommodation
of personnel and equipment related to the activities
described in (ii).
That this draft or a similar one has not been effected is an
obstacle to clarity in this area of international law. A convention
specific to FLNGs or FPSOs (Floating Production, Storage
and Offloading vessels) would be of great assistance to the
international community. Still, when and if the political will arises
to adopt such a convention, it seems not unlikely that the 1996
Draft would provide a template. It is clear from the Art. IX of the
Draft that “Artificial Islands” was intended to cover oil platform
structures (which are not flagged) but not necessarily structures
such as FLNGs. However, the definition of “Offshore Units”
would seemingly include FLNGs and implicit in that definition
is that those would be “structures” for the purposes of UNCLOS
Part V.
Attempting to define a “ship” under international law is scarcely
easier. There are a number of international conventions with a
definition but those definitions are specific to the conventions
where they are found. For example:
(a)‘…a vessel of any type whatsoever not permanently
attached to the sea-bed, including dynamically supported
craft, submersibles, or any other floating craft’ 3;
(b)‘…any seagoing vessel and seaborne craft, of any type
whatsoever’ 4; and
(c)‘… any sea-going vessel and seaborne craft of any type
whatsoever constructed or adapted for the carriage of oil
and other cargos… only when it is actually carrying oil
in bulk as cargo and during any voyage following such
carriage unless it is proved that it has no residues of such
carriage of oil in bulk on board’ 5.
The persuasiveness of such wordings in the context of UNCLOS
may be limited but interestingly, the Bunker Convention 2001
touches on the issue under consideration within the scope
of that convention. If a vessel is a ship according to its broad
definition (which would probably include a FLNG), a pollution
incident involving that ship in the EEZ of a state different from
the flag state would be a matter for the courts of the coastal state:
see Art. 9(1) and Art. 2(a)(ii) of the Bunker Convention. This does
3 Art. 1 of the UN Convention for the Suppression of Unlawful Acts
Against the Safety of Maritime Navigation (which came into force in
March 1992 but has been ratified by notably few states (of which
the UK is one))
4 Art. 1(1) of The International Convention on Civil Liability for Bunker
Oil Pollution Damage 2001
5 Art 2(1) 1992 Protocol to Amend the International Convention on
Civil Liability for Pollution Damage 1969.
Stone Chambers London, 4 Field Court, Gray’s Inn, London WC1R 5EF | LDE 483 | T +44 (0)20 7440 6900
Stone Chambers Singapore, 10 Collyer Quay, Ocean Financial Centre Level 40, Singapore 049315 | T +65 6808 6161
London & Singapore
„„ Litigation, Arbitration & Mediation
„„ Insurance & Reinsurance
„„ Shipping & Maritime
„„ Banking & Finance
„„ Commodities & International Trade
„„ Civil Fraud
„„ Energy & Natural Resources
„„ Employment
„„ Road, Rail & Air Transport
„„ Company & Insolvency
little to assist in the more general question of jurisdiction over
activity on the thing itself.
In the absence of a clear and consistent definition of the key
concepts under international law, those faced with the issue are
in the undesirable position of supposing what the outcome might
be if both flag and coastal state sought to exercise jurisdiction
over the facility.
Practical Implications
There are two probable scenarios where this question would
arise in practice:
(1)Where the coastal state has an established definition of
installation/structure/ship; and
(2)Where it doesn’t.
Situation (1) seems unlikely to present a great degree of difficulty.
UNCLOS Art. 58(3) provides:
… In exercising their rights and performing their duties under
this Convention in the exclusive economic zone, States shall
have due regard to the rights and duties of the coastal State
and shall comply with the laws and regulations adopted by
the coastal state in accordance with the provisions of this
Convention and other rules of international law in so far as
they are not incompatible with this Part.
So if the coastal state provides by its domestic law that the FLNG
would be an installation/structure, then the absence of a relevant
definition in UNCLOS means that the coastal state provision
would not be incompatible with the Convention: the flag state
would be bound to comply with the coastal state position.
By means of example, in English law, a ship is essentially a vessel
used in navigation.6 A FLNG may be capable of navigation
(because it could be towed around) but it would ordinarily be
moored in service for a prolonged period of time. The Prelude,
for example, is set to stay at location for 20-25 years7. On a high
level assessment, then, it is unlikely that a FLNG would be a
ship under English law because its purpose is not navigational.
This probably means that it would be considered an installation/
structure, so that the activities on a FLNG facility moored in
England’s EEZ would be subject to English jurisdiction regardless
6 There is a good deal of case law on this subject (the discussion of
which is beyond the scope of this article) but should the matter be of
interest, of particular note are two relatively recent Court of Appeal
decisions: Perks v Clerk [2001] EWCA Civ 128 and R v Goodwin
[2005] EWCA Crim 3184.
7 www.shell.com/global/aboutshell/major-projects-2/prelude-flng/bynumbers.html [accessed 8 October 2015]
www.stonechambers.com
T +44 (0)20 7440 6900
of the FLNG’s flag, pursuant to Art. 60(2) and Art. 58(3) UNCLOS.
By contrast, and interestingly, if the Prelude itself were not flying
the Australian flag, then Australia may not have jurisdiction
over its activities. For the purposes of the Australian Shipping
Registration Act 1981, a ship is ‘any kind of vessel capable of
navigating the high seas and includes… (b) a structure that is
able to float or to be floated and is able to move or be moved as
an entity from one place to another’, which would presumably
include a FLNG. So insofar as that Act’s definition would apply,
the Prelude might well be a “ship” under Australian law (and
not an installation/structure). If so, Australia would have no
UNCLOS Art. 60 basis upon which to assert jurisdiction over
it were it flagged differently. The flag state would be able to
exercise its jurisdiction pursuant to UNCLOS Art. 58(2) and the
High Seas regime.
As to Situation (2), a resolution is elusive and the lack of definition
in UNCLOS frustrating. Where both flag and coastal state seek
to exercise jurisdiction over the FLNG, Art. 59 provides that the
conflict would be resolved ‘…on the basis of equity and in light
of all relevant circumstances, taking into account the respective
interests involved to the parties as well as to the international
community as a whole’. Under Arts. 279 and 280, the dispute
is to be settled via peaceful means of the parties’ choice. Failing
that, the dispute resolution procedures in Part XV UNCLOS
would apply, including possible referral to the International
Tribunal of the Law of the Sea (“ITLOS”). In the absence of an
internationally recognized definition, it may be that the 1996
Draft Convention would be of some persuasion, but this is
unpredictable. States might be forced to turn to various domestic
law positions of questionable weight in the international context.
There is support in the academic community for the view that the
coastal state will ‘enjoy jurisdictional primacy in most respects’8
but the point remains decisively unsettled. Indeed, in The Artic
Sunrise ITLOS, 22 November 2013, Case: No. 22, the ITLOS
acknowledged an issue regarding interpretation of the meaning
of Art. 60 UNCLOS9. This is a step in the right direction, but a
resolution is not forthcoming.
8 Hewitt and Ryan, “What’s different about floating LNG? A legal and
commercial perspective”, Journal of Energy and Natural Resources
Law (2010) 28, 503-532, 515.
9 The case concerned a Dutch Greenpeace vessel in the EEZ of the
Russian Federation, some of whose crew attempted to scale an oildrilling platform. The vessel was boarded by the Russian authorities
who arrested and detained those on board. The Netherlands sought
provisional measures and the tribunal ordered that the vessel and
her detainees be released upon the Netherlands posting security.
See:
https://www.itlos.org/cases/list-of-cases/case-no-22/#c1471
[accessed 12 October 2015]
Stone Chambers London, 4 Field Court, Gray’s Inn, London WC1R 5EF | LDE 483 | T +44 (0)20 7440 6900
Stone Chambers Singapore, 10 Collyer Quay, Ocean Financial Centre Level 40, Singapore 049315 | T +65 6808 6161
London & Singapore
„„ Litigation, Arbitration & Mediation
„„ Insurance & Reinsurance
„„ Shipping & Maritime
„„ Banking & Finance
„„ Commodities & International Trade
„„ Civil Fraud
„„ Energy & Natural Resources
„„ Employment
„„ Road, Rail & Air Transport
„„ Company & Insolvency
www.stonechambers.com
T +44 (0)20 7440 6900
Conclusion
It is the view of the author that the 1996 Draft Convention
proposed to the CMI nearly twenty years ago provided a sensible
definition of “off-shore unit”, which would include FLNGs, and
that those units would probably be “installations and structures”
for the purposes of UNCLOS Art. 60. Whilst that draft, or a similar
convention, lacks international consensus, the position remains
unpredictable. Coastal states will be more likely (and would be
wise) to adopt their own definitions of “installations/structures”
so as to ensure their jurisdiction over activities on FLNGs in
their EEZ. But this may well lead to state specific, disparate
applications of UNCLOS in an area where international unity is
so important if FLNGs are to be a viable and continued source of
energy in the future. A uniform international position is needed.
William Hooper
Willliam Hooper joined Chambers in October 2015 upon successful completion of his pupillage. His pupil
supervisors were Tom Whitehead, Ravi Aswani, and Philip Riches. He is developing a broad commercial
practice with a particular emphasis on shipping and international trade.
[email protected]
Stone Chambers London, 4 Field Court, Gray’s Inn, London WC1R 5EF | LDE 483 | T +44 (0)20 7440 6900
Stone Chambers Singapore, 10 Collyer Quay, Ocean Financial Centre Level 40, Singapore 049315 | T +65 6808 6161