A dormant legal framework could reshape maritime risk
A maritime legal mechanism that has remained unused in the United States since the 1950s could soon return to the forefront, with potentially far-reaching consequences for international shipping. The US District Court for the Southern District of Texas is considering new procedures that would govern the seizure of vessels and cargo during armed conflicts under the country’s long-dormant prize law.
The court has invited the public to submit comments by 23 October on its proposed Prize Rules and Standing Interrogatories for Prize Proceedings. The 30-page document, if adopted, could significantly affect shipowners, charterers, vessel operators, cargo interests and marine insurers.
Currently, maritime boardings, detentions and seizures carried out to enforce US sanctions, export controls and anti-smuggling restrictions generally fall under civil forfeiture procedures established by federal law. Prize law operates under a different legal framework, rooted in the US Constitution and last invoked in the period immediately following the Second World War.
As explained in a legal alert published earlier this month by Holland & Knight, prize proceedings determine whether a vessel or its cargo was lawfully captured under the laws of armed conflict. This can include enemy property, contraband, goods involved in blockade-running or other assets legally subject to capture.
The proposed rules would establish modern procedures for applying this framework, covering evidence collected at or near the time of capture, verified ownership claims, restricted discovery, summary judgment, interim sales of seized property and appeals.
Holland & Knight warns that the implications could extend beyond vessels directly targeted by US sanctions. Under the Prize Act, ships and cargo belonging to third parties could also face capture and eventual forfeiture if they become involved in blockades targeting sanctioned countries.
A different legal and commercial exposure for shipping companies
The potential return of prize law would introduce a substantially different set of risks for maritime businesses. Allison Luzwick, an associate at Holland & Knight who specialises in maritime casualties, told Seatrade Maritime News that companies should not treat the proposed framework as a simple extension of existing civil forfeiture rules.
Instead, she said, operators need to assess the implications for insurance coverage, voyage planning and maritime security, while taking account of the broader geopolitical environment.
One of the most significant distinctions concerns ownership of seized assets. Under civil forfeiture procedures, shipowners, lienholders, cargo owners and other interested parties can submit claims concerning a vessel or its contents.
Prize law, by contrast, provides for ownership to transfer immediately to the capturing nation. The government can then appropriate the property for public use or sell it, with the proceeds deposited into the US Treasury, Luzwick explained.
For shipping stakeholders, understanding how the proposed procedures would operate before they take effect is therefore essential. Early assessment could help companies make better-informed decisions about routes, counterparties, insurance arrangements and exposure to conflict-related enforcement actions.
Why the United States is considering the move now
The escalation of military operations in the Middle East may help explain why a federal court is considering the revival of wartime seizure procedures. The Southern District of Texas is particularly relevant because its jurisdiction includes the Port of Houston, a major hub for energy transportation.
The prospect of seizing neutral vessels suspected of violating a blockade could also strengthen the effectiveness of such restrictions. According to Luzwick, the possibility of capture may give blockades greater weight by increasing the consequences for ships that breach them.
Charlie Brown, senior adviser at United Against a Nuclear Iran (UANI), believes the return of prize law could fundamentally alter the risk calculations for shipping businesses connected to Iran.
The exposure, he warned, might no longer be confined to sanctioned tankers or financial penalties. Under applicable wartime rules, third-party vessels and cargoes could also be captured if they violate a lawful blockade or carry contraband that is subject to seizure.
Iran’s maritime trade under increasing pressure
That possibility comes as prize law is being used in the ongoing war involving Iran. The limitation on the ability of the country to sell and ship its products is an increasingly important part of the broader strategic picture.
Michael Frevola, a partner at Holland & Knight with a focus on maritime casualties, said limiting Iran’s access to shipping capacity could influence the calculations the country makes about whether to pursue an end to the conflict. The more the US can limit the shipment of Iranian products, whether on Iranian ships or third-party ships, the less pressure Iran might feel to end the war, he said.
The fallout could go well beyond the Middle East, especially in Southeast Asia, where the movement of Iranian crude oil has raised fears of murky shipping practices.
Based in Singapore, Brown identified the Eastern Outer Ports Limit (EOPL) anchorage of Malaysia as a major location for ship-to-ship transfers of Iranian crude for China. The determination of the origin, ownership and ultimate destination of cargoes may be complicated by such operations.
But the dangers don’t stop at oil tankers. Other goods on cargo ships could also be looked at more closely where ownership structures are opaque, shipping practices are misleading or the movement of cargo takes indirect routes that hide the underlying trade.
Brown urged regional authorities to strengthen maritime surveillance, improve intelligence sharing and beef up enforcement. “These steps are necessary to avoid ports and strategic sea lanes becoming weak points for evasion of sanctions or circumvention of blockades, and also potential flashpoints in a wider conflict,” he said.
Implementation and oversight questions remain
Even with the potential consequences, the practical impact of reintroducing prize proceedings remains to be seen. Frevola cautioned that it is too early to tell how the proposed system would work in practice.
“Transparent procedures would provide a clear framework for the application of the law,” he said. However, there is a danger that the powers could be used too widely and that this could lead to opposition to their use.
Uncertainty in itself is a reason for maritime operators to review existing risk-management arrangements. Companies may have to reconsider their approach to risk assessments for exposure to conflict zones, the legal status of cargoes, trading relationships and the potential for vessels to be caught in a blockade even if they are not directly sanctioned.
The question is whether the proposed rules will turn an old legal tool into an effective mechanism for contemporary maritime enforcement. If enacted they could extend the scope of vessels and cargoes liable to wartime seizure, with consequences for ownership, insurance and commercial activities.
More broadly, Holland & Knight cautioned against reading into the age of the statute a sign that it is no longer relevant. Prize law might be an old concept, but it could be a significant factor in international shipping once more. The importance of such exposure before the rules come into force is growing for shipowners, operators, charterers and insurers.
