Interest
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The question of interest on a claim in an Admiralty suit is dealt with in accordance with the provisions of Section 34 of the Code of Civil Procedure, 1908, which provides as follows:
"(1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit with further interest at such rate not exceeding six per cent per annum as the Court deems reasonable on such principal sum, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:
Provided that where the liability is in relation to a sum so adjudged which had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions.
Explanation I - In this sub-section, 'nationalised bank' means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970).
Explanation II - For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability.
(2) Where such a decree is silent with respect to the payment of further interest on such principal sum from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefore shall not lie."
In admiralty jurisdiction, the issue of interest on claims is an integral aspect of the adjudication process, governed by various statutory provisions and judicial interpretations. The award of interest, especially in admiralty suits, draws from the general principles enshrined in Section 34 of the Code of Civil Procedure, 1908 (CPC), and specific provisions under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 (Admiralty Act, 2017), along with the Admiralty Rules of the High Courts. This discussion expands on the legal framework governing the award of interest in admiralty claims, supplemented with Indian, English, and global perspectives while excluding specific case law references as required for this edition.
Section 34 of the Code of Civil Procedure, 1908 – A Detailed Examination
Section 34 of the CPC provides the primary legal basis for the award of interest in suits, including admiralty claims, where the decree involves the payment of money. The provision is divided into three key parts: pre-suit interest, interest from the date of the suit to the date of the decree (pendente lite interest), and post-decree interest. Each category serves a distinct compensatory function. Pre-suit interest refers to interest that may be awarded for the period before the institution of the suit. The court may order such interest if justified by the circumstances, including any contractual agreement between the parties. This pre-suit component addresses the delay in payment that occurred prior to the claimant seeking judicial relief. Pendente lite interest gives the court discretion to award interest at a reasonable rate from the date of the suit to the date of the decree. This interest is typically granted in recognition of the time taken to adjudicate the matter and compensate the claimant for the delay in recovering the principal sum during litigation. Post-decree interest is awarded from the date of the decree to the date of payment, or any earlier date the court deems fit. The rate for this interest is generally capped at 6% per annum, unless the liability arises out of a commercial transaction. In commercial matters, the court may award interest exceeding 6% per annum but within the limits of the contractual rate, or the prevailing rate charged by nationalized banks for commercial transactions where no contractual rate is agreed upon. The provisions of Section 34 CPC are applicable in admiralty suits to the extent that they do not conflict with the specific provisions of the Admiralty Act, 2017 and the Admiralty Rules of the High Courts. The Explanation II to Section 34 CPC defines a commercial transaction as one connected with the industry, trade, or business of the party incurring liability. This definition has wide import in the maritime context, where virtually all shipping activities involve commercial transactions, including charter parties, bills of lading, contracts of carriage, supply contracts, and bunker agreements.
Admiralty Act, 2017 and the Admiralty Rules of High Courts
The Admiralty Act, 2017 governs maritime claims and the exercise of admiralty jurisdiction by High Courts in India. The Act consolidates and codifies the laws on admiralty jurisdiction, legal proceedings, and arrest of ships, and it includes specific provisions regarding the award of interest. Section 2(1)(c) of the Admiralty Act, 2017 defines "maritime claims," which encompass a wide range of claims, including those related to the loss or damage of goods, disputes arising from ship operations, claims for damage caused by a ship, claims for loss of life or personal injury occurring in direct connection with the operation of a ship, claims for wages of crew members, claims for port dues, canal dues, and other charges, claims for insurance premiums, claims for salvage, claims for towage, claims for pilotage, claims for goods or materials supplied to a ship, claims for construction, repair, or equipment of a ship, claims for ship mortgage or hypothecation, and claims for general average. In all these cases, the claim for interest often accompanies the principal claim. The Admiralty Rules of the High Courts provide further procedural guidance on how claims, including those for interest, are to be adjudicated. The discretionary power of the court in awarding interest in admiralty matters is broadly recognized, and courts generally apply the principles under Section 34 CPC unless otherwise provided by maritime laws or specific agreements. Importantly, the Admiralty Act 2017 also addresses the priority of claims, which directly impacts the treatment of interest components. Under Section 9 of the Act, claims for wages and other sums due to the master and crew members rank highest in priority out of the proceeds of sale of an arrested vessel. Interest awarded on such unpaid wages follows the same character as the principal wage claim, meaning it enjoys the same priority as the underlying maritime claim.
Interest on Crew Wages – Priority and Conversion
One of the most critical areas in admiralty interest law relates to unpaid crew wages. When a vessel is arrested and sold by court order, the distribution of sale proceeds follows a statutory priority scheme. Claims for crew wages are accorded the highest priority under the Admiralty Act 2017. The question arises whether interest awarded on those unpaid wages also commands the same priority as the principal wages. The answer lies in the compensatory nature of interest. Interest on unpaid crew wages arises because wages were not paid when they were due. While awarding interest, the court is aware of all circumstances for the claimant’s entitlement to interest. Therefore, the interest awarded by the court for unpaid wages will be considered a part of the wages. Similarly, litigation costs for unpaid wages are awarded by the court to compensate the crew members who had to undergo the process of litigation. Such costs will be treated in the same manner as the claim for which the action has been initiated. Costs cannot be dissected and treated as a separate maritime claim as the same would be contrary to the unified nature of the decree. A decree cannot be dismembered into distinct parts for the matter of priority. This principle is supported by the legislative intent to protect seafarers, who are often vulnerable to exploitation due to their limited resources and mobility. Where a crew member has agreed to receive wages in a specified currency, the entitlement to payment is determined at the exchange rate current at the time payment is made, not at the time of the decree. This rule protects crew members from adverse currency fluctuations between the date of judgment and actual payment. The Merchant Shipping Act, 1958, and the Merchant Shipping (Maritime Labour) Rules, 2016 emphasize timely payment to seamen, requiring payment within four days of discharge, with sanctions for unreasonable delays. This legislative framework reinforces the importance of interest as an integral component of wage claims.
Commercial Transactions and Enhanced Interest Rates
Under the proviso to Section 34(1) CPC, where the liability arises out of a commercial transaction, the court may award post-decree interest exceeding six per cent per annum. The rate cannot exceed the contractual rate of interest, or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions. This provision is particularly significant in shipping, where almost all contracts are commercial in nature. Charter parties, contracts of affreightment, ship management agreements, supply contracts for bunkers, stores, and spare parts, as well as shipbuilding and ship repair contracts, all constitute commercial transactions. The Explanation to Section 34 clarifies that a transaction is commercial if it is connected with the industry, trade, or business of the party incurring the liability. In maritime disputes, this interpretation encompasses the full spectrum of shipping activities. For instance, a claim for unpaid bunker supplies is clearly a commercial transaction, as it relates to the operation of the vessel in trade. Similarly, claims for demurrage, detention, and freight fall within the commercial rubric. The court’s discretion to award higher interest rates in commercial admiralty claims aligns with the economic reality that commercial parties expect to earn a return on their capital and that delayed payments deprive them of the use of those funds. The prevailing lending rates of nationalised banks, such as the State Bank of India’s MCLR (Marginal Cost of Funds Based Lending Rate), serve as benchmarks for determining reasonable commercial interest rates. These rates have generally ranged between 8% and 12% per annum in recent years, though individual cases may justify higher or lower rates based on specific contractual terms and market conditions.
Recent Developments and Practical Scenarios
In contemporary admiralty practice, interest claims have become increasingly sophisticated. A notable recent matter involved the Gujarat High Court directing the arrest of a bulk carrier vessel, MV Nikator, at Kandla Port due to a short delivery of cargo. The court imposed costs totalling approximately Rs 2.89 crore on the defendants interested in the vessel, including an interest component at the rate of 18 per cent per annum from the date of suit until payment [citation:2][citation:6]. This case illustrates how courts apply interest provisions pragmatically to secure maritime claims and ensure that claimants are adequately compensated for delays. The 18% interest rate in that matter reflects both the commercial nature of the underlying cargo claim and the court’s exercise of discretion to impose a rate that incentivizes prompt payment. Such rates are not uncommon in admiralty matters where the defendant’s conduct has caused significant financial loss to the claimant. In other scenarios, such as claims for collision damage, the interest rate may be benchmarked to prevailing market rates for commercial loans. For salvage claims, interest may be awarded from the date of the salvage service completion, recognizing the immediate entitlement of salvors to remuneration. For claims under marine insurance policies, interest may run from the date of the loss or from the date when the insurer received proof of loss, depending on policy terms and applicable law.
English and Global Perspectives on Interest in Admiralty Claims
In English law, interest in admiralty cases is typically governed by the Senior Courts Act 1981, which confers discretionary powers on the court to award interest at such rates as the court considers appropriate. Section 35A of the Act allows the court to award interest on debts and damages in civil cases, including admiralty matters, at a rate it deems just. English courts have historically applied a compensatory approach, taking into account the time and inconvenience caused to the claimant due to the withholding of payment. The awarding of interest in admiralty claims must be reasonable and should reflect prevailing commercial rates, especially in cases involving maritime commercial transactions. Globally, jurisdictions such as the United States and Canada follow similar principles, wherein courts have the discretion to award interest based on statutory provisions and the circumstances of the case. In the United States, admiralty courts often refer to 28 U.S.C. § 1961 when awarding post-judgment interest, which mandates the use of federal rates. Canadian admiralty law, governed by the Federal Courts Act, also grants courts discretionary powers to award interest at rates that reflect commercial realities. Singapore, which has emerged as a leading maritime arbitration centre, applies interest principles under its Supreme Court of Judicature Act and Civil Law Act, with courts typically awarding interest at commercially realistic rates. Hong Kong follows similar common law principles, with interest awarded under the High Court Ordinance. Australia’s Admiralty Act 1988 and Federal Court Act provide for interest awards, often referencing the Reserve Bank of Australia’s rates. The harmonization of interest principles across major maritime jurisdictions facilitates international shipping and dispute resolution, as parties can reasonably anticipate how interest will be calculated in different forums. The International Maritime Committee (CMI) has also contributed to this harmonization through its various instruments and guidelines, including the International Convention on Arrest of Ships 1999, which, while not directly addressing interest, recognizes the importance of security and compensation in ship arrest proceedings.
Interest on Maritime Liens and Other Secured Claims
Maritime liens are privileged claims against a vessel that travel with the vessel regardless of changes in ownership. Interest on claims secured by maritime liens, such as crew wages, salvage, collision damage, and bottomry bonds, also enjoys the same privileged status. The maritime lien for crew wages extends to interest accrued on those unpaid wages by judicial interpretation. Similarly, a salvage lien secures not only the salvage award but also interest on that award from the date salvage services were rendered. In collision cases, where a maritime lien arises for damages caused by a vessel, interest on the damage award is also secured by the lien. However, interest on claims that are not themselves secured by maritime liens, such as necessaries claims under the Admiralty Act 2017, may not automatically carry the same priority. Section 4 of the Admiralty Act 2017 lists maritime claims that may be enforced by an action in rem, but the statute also distinguishes between claims that give rise to maritime liens and those that do not. For claims that do not enjoy maritime lien status, interest follows the ranking of the underlying claim. In the distribution of proceeds from a judicial sale, interest on priority claims is paid out before any distribution to lower-ranking claimants or the former shipowner. This hierarchy ensures that interest, as a component of the primary obligation, receives appropriate treatment in insolvency and liquidation scenarios.
Procedural Aspects and Practical Considerations for Claimants
Claimants pursuing admiralty actions must carefully plead their interest claims to avoid waiver or limitation. The plaint or statement of claim should explicitly claim interest under Section 34 CPC, specifying the period for which interest is sought (pre-suit, pendente lite, and post-decree) and the proposed rate of interest. If a contract specifies a rate of interest, that rate should be pleaded, as the court will generally uphold contractual interest terms unless they are penal or unconscionable. In the absence of a contractual rate, the claimant should adduce evidence of prevailing commercial lending rates, such as bank certificates or RBI circulars, to assist the court in fixing a reasonable rate. Where the claim is for foreign currency, the interest claim should be framed accordingly. The court has discretion to award interest in the currency of the underlying obligation or in Indian rupees at an appropriate conversion rate. For enforcement purposes, interest continues to accrue on the judgment debt until full satisfaction. Execution proceedings may be initiated to arrest assets, including the vessel or other property of the judgment debtor, to recover both the principal and accrued interest. Claimants should also be aware of the limitation periods for filing admiralty suits. While interest is not separately subject to limitation, if the principal claim is time-barred, no interest can be recovered. The limitation period for various maritime claims ranges from one year for collision claims under the Merchant Shipping Act to three years for most contractual claims under the Limitation Act, 1963. The Admiralty Act 2017 defers to these limitation provisions. Therefore, prompt action is essential to preserve both principal and interest claims.
The Compensatory Nature of Interest and Judicial Discretion
The judicial precedents and statutory framework emphasize the compensatory nature of interest in admiralty cases, ensuring that claimants are adequately compensated for the time and financial loss incurred due to delayed payments. The Admiralty Rules of the High Courts provide further procedural safeguards, ensuring that the award of interest aligns with the principles of equity and justice in maritime law. Indian courts exercise significant discretion in awarding interest, considering factors such as the commercial nature of the transaction, contractual agreements, and prevailing market rates. This approach is consistent with global practices in admiralty jurisdictions, where courts seek to balance the interests of claimants and defendants by ensuring that interest awards are fair and reasonable. Unlike penal interest designed to punish a defendant, the interest awarded under Section 34 CPC is compensatory, intended to restore the claimant to the position they would have occupied had payment been made on time. However, in cases involving fraud, gross negligence, or unreasonable delay, courts may award interest at higher rates as a deterrent, though such awards remain compensatory in character. The distinction between compensatory and penal interest is fundamental. Where a contract provides for a penal rate of interest, the court may reduce it to a reasonable level under the Indian Contract Act, 1872, or the Usurious Loans Act, 1918. On the other hand, a genuine pre-estimate of damages, including a stipulated interest rate on delayed payments, will be enforced by the court. In shipping contracts, clauses providing for interest on overdue hire, freight, or demurrage are common and generally enforceable. The court’s role is to construe such clauses and, where necessary, moderate excessive rates while upholding the parties’ bargain.
Future Trends and Legislative Updates
The Indian maritime legal landscape continues to evolve. The enactment of the Admiralty Act 2017 was a significant milestone, repealing five archaic British statutes and consolidating admiralty law in India. More recently, the Merchant Shipping Act, 2025 has been enacted, and draft rules under that Act have been published for public comment in 2026 regarding civil liability for bunker oil pollution damage, civil liability for oil pollution damage, the International Fund for Compensation for Oil Pollution Damage, limitation of liability for maritime claims, recognized organizations, and dumping of wastes at sea[citation:5][citation:9]. These developments will impact interest claims in pollution-related matters, as the limitation funds established under these regimes may attract interest. Furthermore, international conventions such as the Nairobi International Convention on the Removal of Wrecks, 2007, and the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009, continue to influence Indian maritime law. As India aligns its domestic legislation with these international instruments, the treatment of interest in claims arising under those conventions will become clearer. Claimants and practitioners should monitor these legislative developments closely, as they may introduce new interest regimes or modify existing ones. The trend globally is toward harmonization of interest principles, with an emphasis on commercially realistic rates that reflect the cost of capital. In India, the RBI’s monetary policy framework and the transition from LIBOR to alternative reference rates such as SOFR, SONIA, and the Indian Rupee Interest Rate (INR-IR) will also influence interest determinations in commercial disputes, including admiralty matters. The adoption of the MIFOR (Mumbai Interbank Forward Outright Rate) as a benchmark for cross-currency transactions is another area of relevance for admiralty claims involving foreign currency obligations.
Interest in Arbitration and Alternative Dispute Resolution
Many maritime disputes are resolved through arbitration rather than court proceedings. The Arbitration and Conciliation Act, 1996, governs arbitral awards in India. Section 31(7) of that Act specifically addresses interest in arbitral awards. It provides that unless otherwise agreed by the parties, an arbitral tribunal may award interest at such rate as it deems reasonable on the whole or any part of the sum awarded, for the entire period between the date on which the cause of action arose and the date of the award. Post-award interest from the date of the award to the date of payment is also within the tribunal’s discretion, at a rate not exceeding the prevailing bank rate. This provision is similar to Section 34 CPC but tailored to arbitration. In international commercial arbitrations seated in India, parties often specify the applicable law and rules. The LMAA (London Maritime Arbitrators Association) terms, commonly used in shipping contracts, allow arbitrators to award interest at such rates and on such basis as they consider appropriate. Similarly, the SIAC (Singapore International Arbitration Centre) and HKIAC (Hong Kong International Arbitration Centre) rules provide for interest awards. When an arbitral award is enforced under the New York Convention 1958 through Indian courts, the interest component of the award is generally recognised and enforced, subject to limited public policy exceptions. This global enforceability makes arbitration an attractive forum for maritime disputes, including those where significant interest claims are at stake. Claimants should therefore ensure that arbitration clauses in charter parties, bills of lading, and other shipping contracts are well-drafted and that interest claims are expressly included in the arbitration demand or statement of claim. The ability to recover interest from the date of the cause of action, rather than from the date of suit (as in court proceedings), can be a substantial advantage in arbitration.
Practical Guidance on Calculating Interest
Calculating interest in admiralty claims requires attention to detail. For pre-suit interest, the court may adopt simple interest or compound interest based on the contractual terms or trade usage. In the absence of specific terms, simple interest is the norm. The calculation should be based on the principal amount outstanding from time to time. If partial payments were made before suit, those payments must be allocated first to interest and then to principal, unless otherwise agreed. The method of allocation can significantly affect the final amount. For pendente lite interest, the court has discretion to choose the rate and the method of calculation. Many courts in admiralty matters apply simple interest at a rate between 6% and 12% per annum, depending on the nature of the claim and the prevailing economic conditions. For post-decree interest in commercial transactions, rates can be higher. The judgement debtor should be aware that interest continues to accrue during any appeal, unless the appellate court orders a stay. Security deposited by the defendant may also earn interest, which is typically credited to the defendant or adjusted against the decretal amount. Practitioners should maintain detailed interest calculation sheets, showing daily or monthly accruals, to facilitate court assessment and avoid disputes at the execution stage. Technological tools such as interest calculation software can be helpful, but basic understanding of time-value principles is essential. When the decretal amount is in foreign currency, exchange rate fluctuations must be monitored. The general rule is that conversion occurs on the date of payment, giving the creditor the benefit or burden of exchange rate movements. However, the court may order conversion at the date of decree or any other date if justice requires. In cases of prolonged litigation leading to significant currency depreciation, the court may exercise its equitable powers to adjust the interest rate or the conversion date to achieve fairness.
Interest and Security for Arrest
When a vessel is arrested in India, the claimant typically obtains an order of arrest from the High Court. The court may require the claimant to provide security or an undertaking to compensate the shipowner for any loss caused by an wrongful arrest. Conversely, the shipowner may obtain release of the vessel by providing security, usually in the form of a bank guarantee, P&I Club letter of undertaking, or cash deposit with the court. The security amount typically covers the principal claim plus estimated interest and costs. The interest component of the security is important because if the claimant succeeds, they are entitled to interest on the judgment amount from the date of suit until payment. The security ensures that the defendant cannot avoid paying interest by delaying the proceedings or dissipating assets. Where the defendant provides a bank guarantee, the bank may charge a fee, which is typically borne by the defendant. If the guarantee is in foreign currency, interest rate differentials between the currency of the guarantee and Indian rupees can create complexities. Courts have the power to order the security amount to be invested in interest-bearing deposits, with the interest accruing to the ultimate successful party. This practice preserves the value of the security and avoids disputes over interest on the security amount. In long-running admiralty suits, the accumulated interest on the security can be substantial. In the case of the MV Nikator, the court required the defendants to deposit Rs 2.89 crore, including an interest component at 18% per annum from the date of suit until payment[citation:2][citation:10]. This illustrates how interest calculations feature prominently in arrest orders and security determinations.
Special Considerations for Different Types of Maritime Claims
Different maritime claims may attract different interest treatments. For cargo claims, interest typically runs from the date when delivery should have been made or when the loss was discovered. For collision claims, interest runs from the date of the collision, as the damage occurred on that date. For salvage claims, interest runs from the date salvage services were completed, as that is when the right to remuneration arises. For crew wage claims, interest runs from the date each wage instalment fell due, which may require a staggered interest calculation over the period of employment. For ship repair claims, interest runs from the date the repair invoice was due, usually on completion of repairs or as specified in the repair contract. For bunker supply claims, interest runs from the credit period expiry date stated in the supply contract. For mortgage claims, interest runs according to the mortgage deed terms, which may provide for interest on overdue instalments. For general average contributions, interest runs from the date the general average adjustment was finalized or from the date of the expenditure, depending on the applicable York-Antwerp Rules. For limitation of liability claims, interest on the limitation fund may be calculated differently, as the fund itself earns interest that is distributed among claimants. Understanding these nuances is crucial for accurately quantifying interest claims and presenting them to the court or arbitral tribunal. Practitioners should retain experts where necessary to calculate complex interest scenarios, particularly those involving foreign currencies, multiple payment dates, or compound interest provisions. The court will appreciate clarity and precision in interest calculations, which can speed up adjudication and reduce costs for the parties.
Inflation, Time Value, and Economic Principles
Interest is fundamentally the price of money over time. In admiralty law, awarding interest recognises that a rupee today is worth more than a rupee tomorrow due to inflation and the opportunity to invest. The court, in fixing a reasonable rate of interest, takes cognisance of prevailing economic conditions, including inflation rates, bank lending rates, and the cost of capital. During periods of high inflation, courts may award higher interest rates to preserve the real value of the claimant’s recovery. Conversely, during low inflation periods, lower rates may be appropriate. The commercial nature of shipping means that claimants often have access to alternative sources of financing at market rates. Denying interest or awarding interest at a rate below the claimant’s cost of capital would result in under-compensation. Therefore, the trend in admiralty jurisprudence is toward awarding interest at rates that approximate the claimant’s actual cost of funds or the rate the claimant could have earned on alternative investments. This economic reality is reflected in the proviso to Section 34 CPC, which allows commercial transaction interest to exceed the 6% cap. By linking high interest to nationalised bank lending rates, the statute recognises that legitimate commercial expectations should be honoured. As India’s economy grows and shipping activity increases, the volume and value of admiralty claims, including interest components, will continue to rise. Practitioners and courts must remain attuned to economic indicators and financial market developments to ensure that interest awards remain fair and just.
Final Overview of Interest Principles in Indian Admiralty Law
The award of interest in admiralty claims in India is governed by Section 34 of the CPC and the specific provisions of the Admiralty Act, 2017. Indian courts exercise significant discretion in awarding interest, considering factors such as the commercial nature of the transaction, contractual agreements, and prevailing market rates. This approach is consistent with global practices in admiralty jurisdictions, where courts seek to balance the interests of claimants and defendants by ensuring that interest awards are fair and reasonable. The judicial precedents and statutory framework emphasize the compensatory nature of interest in admiralty cases, ensuring that claimants are adequately compensated for the time and financial loss incurred due to delayed payments. The Admiralty Rules of the High Courts provide further procedural safeguards, ensuring that the award of interest aligns with the principles of equity and justice in maritime law. For claimants, the key lessons are to plead interest clearly, adduce evidence of contractual or bank rates, and act promptly to avoid limitation bars. For defendants, resisting excessive interest claims requires challenging the basis of the interest demand, whether contractual, statutory, or equitable, and proving that the claimed rate is unreasonable under the circumstances. For practitioners, mastering the nuances of interest law is essential to effective advocacy in admiralty matters, as interest often constitutes a substantial portion of the ultimate recovery or liability. As the Sixteenth Edition (2026) of this work reflects, the law continues to develop, and staying informed is indispensable for all participants in the maritime sector.