
This is an official Pilot Flag, since 1934 and is called a Code H Flag and replaced the Pilot Jack

Here is some info from this site http://flagspot.net/flags/xf-pilt.html
4 March 1935. The Honourable Company of Master Mariners wrote to the Admiralty asking, “Is the Pilot Jack a proper flag to be displayed at stem head of a merchant ship ?”
The letter was circulated for comment, and the Admiralty Librarian, D.B.Smith wrote, “Commander Mead is carrying on Perrin’s research into the record material about flags, and is finding many preconceived notions are not in accordance with the intentions of the regulations, when studied in the light provided by the actual papers on which they were issued.”
4 May 1936. The Head of the Naval Law Department concluded, “Nobody has yet disclosed any official authority for it to be flown as a jack. This flag is not legal as a jack under present law. The phrasing of Article 73(2) of the Merchant Shipping Act of 1894 is ambiguous, but refers to its use as a pilot flag only.”
At the same time the Naval Law Department was being pressed by the Board of Admiralty to permit use of the white-bordered Union Jack in combination with International Code letter ‘ M ‘ as a signal for ships entering and leaving Dockyard Ports. On 18 December 1936 the Department Head wrote,
“Random use of the Pilot Jack would appear to be illegal in view of the terms of the Pilotage Act 1913, Section 45. That section says that HM may, by Order in Council, make rules as to the signals to be used where the services of a pilot are required, and that to use any pilot signal for any other purpose than that of summoning a pilot is an offence punishable with a fine not exceeding twenty pounds. Order in Council 9 October 1933 constituted Pilot Jack hoisted at the fore as a pilot signal for the purpose of this Act. The law clearly has not been strictly enforced, but its existence does seem a reason for not acting in contravention of it. It is true that by the same Order in Council other ships present hoist the Pilot Jack when Red Ensign over ‘ M ‘ is flown by a ship under way and this practice has not been challenged. Two wrongs do not make a right. It would also be illogical for the Admiralty, after opposing on the grounds above, the flying of the white-bordered Union Jack as a jack by merchant ships, (as a consequence of which other designs for the Merchant Jack are under consideration at the Board of Trade), should then require their ships to fly it in certain Dockyard Ports.”
Later that month, Head of Naval Law wrote, “It is true that this Act has not been strictly enforced, and indeed under those very Dockyard Port Orders in Council the Pilot Jack is laid down for a purpose other than summoning a pilot, but this usage was introduced during exceptional wartime conditions, and in any case is hardly a reason for extending its illegal use.”
The Admiralty sought the opinion of the Board of Trade who replied on 19 Apr 1937 that, “The Board are disposed to think that the use of the Pilot Jack for any purpose other than summoning a pilot is undesirable, and is probably in contravention of Section 45 of the Pilotage Act 1913.”
The possibility of issuing an Admiralty warrant to legalise use of the white-bordered Union Jack as a merchant jack was considered. However on 7 May 1937 the Marine Department wrote to the Admiralty, “The Board (of Trade) are advised that there is doubt whether a ship is entitled to fly the Pilot Jack for any purpose other than summoning a pilot. Further advised that though there is power under Section 73 of Merchant Shipping Act 1894 to issue warrants authorising substituting other national colours for those laid down in that section, it is doubtful whether there is power by warrant to authorise the use of any national colours in addition to those not already agreed.”
This was followed by a letter to Naval Law, “We have replied to various merchant service organisations, which have advocated the use of the Pilot Jack to be flown as a jack at the bows of merchant ships, that we cannot support the adoption of this particular flag on legal grounds.”
However at some time in 1937 a Board of Trade Notice was issued stating that British merchant ships might wear a square Red Ensign, or Blue Ensign, as appropriate, at the jackstaff, though no official exception would be taken to continuance of the frequently adopted practice of displaying a small Pilot Jack, the Union Jack surrounded by a white border.
In 1939 Naval Law wrote (NL 863/39) to the Board of Trade that the white-bordered Union Jack was used by the Navy, but only as a signal, and recommend that the merchant jack should be a square Red Ensign for which there was a precedent of 1694.
The discussion was interrupted by the Second World War, but continued in 1946. There was now a campaign to make the ordinary Union Jack the official Merchant Jack, in recognition of the contribution made to the war effort by the Merchant Navy . Questions were asked in Parliament on 16 October, 23 October, 11 December 1946, and 21 January 1947.
On 5 February 1947 the Private Secretary to the Parliamentary and Financial Secretary, Ministry of Transport wrote that, “The Merchant Navy already flies a flag which incorporates the Union, and that being so, the First Lord and the Minister of Transport do not consider there is a reason to change the present practice.”
The Ministry of Transport, which had taken over the Maritime Department of the Board of Trade, were not particularly interested in the question of a merchant jack, and the Admiralty’s only concern was that it should not be the Union Jack.
13 May 1949. The Ministry of Transport wrote to Naval Law asking how queries about use of the white-bordered Union Jack should be answered. Naval Law apparently suggested that the Ministry should take legal advice.
The Treasury Solicitor reported to the Ministry of Transport that in relation to Order in Council 1933 (SR&O 1933 No.976), the white-bordered Union Jack was a signal, only if hoisted at the foremast, and that there was no offence committed, under that section, if it was hoisted elsewhere. Nor did he think that use of the flag as a merchant jack was an offence under Article 73 of the Merchant Shipping Act 1894. He wrote, “It may well be that the intention was to bring this section into line with the fact that this flag was in use as a pilot signal, but unfortunately, in my opinion, failed to do so. What it should have done was to except this flag only when used as a pilot signal. As it stands however, there is in the section no qualification regarding the use of this flag.”
On 21 June 1949 this legal opinion was passed on to Naval Law, who, on 7 September 1949 wrote back, “The Board (of Admiralty) has no objection to you writing to interested bodies informing them that the Union Jack is incorrect and that the correct jack is a square version of the Red Ensign, but there is no reason to discourage the existing practice of flying the Pilot Jack at the jackstaff.”
This is the most recent information that I have been able to find. It is in the National Archives (PRO) at Kew, mainly in ADM 116/3799, but also ADM 116/3566, ADM 1/19969, ADM 1/21665, MT 9/4365 and ADM 205/55. I hadn’t time to read everything closely, but I think that I extracted a fair summary. The white-bordered Union Jack ceased to be a signal for a pilot in 1970, which obviously removes one objection to its use as a civil jack. However I think that to say that the white-bordered Union Jack “is a legally permitted jack for merchant ships” is wrong. It was introduced as the signal for a pilot, and although it is no longer that, no legal action has been taken to make it a civil/merchant jack. It is more accurate to say that its use as such, “is permitted”, or “is not illegal”.
David Prothero, 11 September 2003
He goes on to explain the current rules for pilot flags
When the Signal Code was revised in 1934, another Order in Council of 9th October 1933 (effective 1st January 1934) changed the list to;
- The International Code Signal G
- The International Code Signal P.T.
- The Pilot Jack hoisted at the fore.
As far as I know the Pilot Jack (the white-bordered UJ) ceased to be a pilot signal in 1970.
The flag for a pilot boat was defined in the Pilotage Act of 1808. It specified that a Pilot Boat was to be, “fitted with black sides and have the upper strake next the gunwale painted white and shall carry a vane at the masthead or else a flag on a sprit or staff or in some other equally conspicuous situation; which vane or flag shall be of large dimensions proportioned to the size of the boat or vessel carrying the same and shall be half red and half white, in horizontal stripes of which the uppermost shall be white.”
This white over red flag was confirmed in section 612 of the Merchant Shipping Act 1894 and section 613 added; “When a qualified pilot is carried off in a vessel not in the pilotage service he is required to exhibit a pilot flag (i.e white over red) to show that the vessel has a qualified pilot on board.”
This flag could be flown under the ensign, at the jack staff, or the triadic stay. I think it was normally flown under the ensign when the captain of the ship was also a qualified pilot, which was likely in ferries or vessels on regular coastal runs.
In 1934 International Code Signal H replaced the white over red flag.
David Prothero, 9 July 2001
Some interesting searches re the Kiama Pilot in the SMH (Sydney Morning Herald) archives now online
http://ndpbeta.nla.gov.au/ndp/del/article/3719621
DISMISSAL OF THE KIAMA PILOT.-Cap-
tain Stobo lins been dismissed from .the
offico which ho held as pilot of Kiama. It
is asserted that he took up the Government
moorings in the harbour, and when the
Rapid steamer went into port, there was
nothing to moor her to, and she was com-
pelled to steam about in consequence. The
matter being represented to the Government,
Mr. Stobo has been dismissed
Also Captain Arthur Bell, who died when the ‘Bombo’ sank, liked writing to the Sydney Morning Herald.
http://news.google.com/newspapers?id=9o8TAAAAIBAJ&sjid=tZYDAAAAIBAJ&pg=1977,983326&dq=kiama+pilot
This letter defends the master of the Kiama, after it sank
Another letter from Captain Arthur Bell rfers to neon lights from a hotel (probably the art deco revamped New Brighton) interfering with the ’leads’ (guides ot approaching ships) at the Kiama harbour
http://news.google.com/newspapers?id=6oQTAAAAIBAJ&sjid=SJUDAAAAIBAJ&pg=3335,5173633&dq=kiama
This one refers to the Pilot’s Cottage decorated with bunting for the Prince of Wales’s birthday.
http://news.google.com/newspapers?id=WH8QAAAAIBAJ&sjid=l5UDAAAAIBAJ&pg=4826,5337598&dq=kiama+pilot
Bunting was the order of the day at the Lighthouse by the Kiama Pilot, another time.
http://news.google.com/newspapers?id=qFwQAAAAIBAJ&sjid=SpMDAAAAIBAJ&pg=3351,4190403&dq=kiama+pilot
Here is a reference to the stand-off signals the Pilot would hoist if the weather was too stormy.
http://news.google.com/newspapers?id=h3oQAAAAIBAJ&sjid=upEDAAAAIBAJ&pg=7033,5943416&dq=kiama+pilot