Did some more thinking on this one and got to the conclusion that the current system I set up is pretty darn good.
I can't think of many major improvements to make, because:
1. Capture/Sink Already-Hostile Ship Without LoM (current situation)
This is also BY FAR the most likely scenario to occur for most players, I reckon.
At the moment if you do this, the game considers it a "minor act of piracy".
You drop down a few points with the nation you attacked and gain a few points with the pirates.
For the nation, it doesn't matter since they probably were already hostile. You can't get those points back until you make peace, but that only makes sense.
For the pirates, a few points don't matter either; it only matters once you hit Friendly, which doesn't happen in one go.
This can serve as a warning that you're sliding into piracy AND I want to tie the "Relations Tutorial" into this event so people notice this functionality.
You can easily compensate by attacking some pirates and bringing your points with the pirates right back down.
So no actual huge gameplay problem here, but it DOES provide potential gameplay AND an "early warning" system.
2. Hypothetical Scenario: Capturing/Sinking Already-Hostile Ship Without LoM does NOT adversely affect your relations (suggested for future development)
First of all, should you not lose points with the nation whose ship you sank/captured
regardless of whether they started out being hostile?
One way or another, they lost a ship and they're not going to be happy about it, are they?
So then the query is purely with the gaining of those few(!) pirate points.
This would throw away potential gameplay (gradually sliding into being a pirate)
and the "early warning system/tutorial".
The only advantage I can think of is that this would probably be a lot EASIER to accomplish and make for very clean code.
But I don't think I would like to do this for the reasons described above.
Worse, such a change would completely throw the "minor acts of piracy" out of the game.
That means that either it is NO act of piracy or it is a BAD, BAD, BAD one (see below).
3. Fire on a ship that is FRIENDLY, making them hostile and then capturing/sinking them
This is at the moment the worst possible act of piracy in the game and affects your relations with ALL nations.
Yes, it is bad. But how likely are players to ever do this? And if they do, it MUST be on purpose.
Hitting the friendly ship by accident does NOT trigger this response.
4. Approaching a ship under a false flag, then hoisting a hostile flag before being recognized and capturing/sinking them
At the moment, the game does NOT heavily penalize you for this and it would most likely be considered a minor act of piracy.
It could even be a valid attack if you had a LoM hostile to that nation at the time.
Perhaps this SHOULD be more heavily penalized? Might be quite simple by adding the "betrayed" attribute to those ships that now see you with a hostile flag.
That would trigger the REALLY BAD response as described above. I don't think we should do this; would be too nasty.
5. Approaching a ship under a false flag, being recognized and manually hoisting a hostile flag before before capturing/sinking them
As far as the game is concerned, this is equivalent to number 5 above. Maybe a minor act of piracy or a valid attack.
Either way, nothing truly bad happens to the player.
6. Approaching a ship under a false flag, being recognized and NOT hoisting a hostile flag before before capturing/sinking them
As the attack finished with you flying a friendly flag to the other ship, the game considers this a betrayal.
This triggers the REALLY BAD response from number 3 above.
I can imagine this being annoying, so my suggestion would be to auto-hoist your Served Nation flag once you are recognized.
@Grey Roger doesn't like that, but it can be tied in with Arcade Game Mode which he doesn't use.
This basically lets the game automatically take the needed action that the player should do him/herself.
Just imagine that an officer did it.
7. Being caught smuggling by a hostile nation and capturing/sinking the coastguard ship
Nothing special here. Depending on your flag flown when you do this, it can be either a minor or major act of piracy.
Assuming you don't have a LoM covering you, of course. Otherwise you'll gain points with your served nation(s).
8. Being caught smuggling by a NON-hostile nation and capturing/sinking the coastguard ship
This is an annoying one as coastguard ships are deliberately coded to be hostile to you REGARDLESS of your actual relations to their nation.
So if you're friendly to England, the English coastguard ship will still be hostile. And it should be, no? It's a coast guard ship that caught YOU!
If you follow through with this attack, England will turn hostile as you attacked one of their ships. You lose any LoM you may have had.
Seems fair enough to me. You wouldn't expect England to just let that one slide, would you?
In any case, this would probably be another minor act of piracy,
unless you did all this under an English flag so don't do that.
Of course if you want to smuggle and NOT lose your LoM,
@Levis actually added a sidequest that lets you do just that!
If you DO want to smuggle with non-hostile England and want England to REMAIN non-hostile, then don't sink/capture their ships!
Shoot their rigging and escape. Or force them to surrender, board them and let them go. (After looting, of course).
All of this would be acceptable behaviour and shouldn't affect nation relations one way or another because the applicable function doesn't get called.
9. Sinking/capturing a ship of a nation hostile to YOU but belonging to an ally of a nation FRIENDLY to you
Again, depending on the flag you used, this may be a minor or major act of piracy.
The nation you attacked was already hostile to you. You lose a few points, but that doesn't matter.
However, their allies turn WARY of you, unless you had a single LoM from another nation that
did allow you this act.
In that case, it is OK for the allies. In any case, the allies only turn Wary. Unless they already were, in which case they'll slide into hostile too.
This seems fairly reasonable behaviour to me and makes alliances actually MEAN something. That definitely wasn't the case before.
However, I can also imagine that this behaviour may puzzle players who don't thoroughly pay attention to all nation relations.
Might get especially complicated when you throw Changing Nation Relations into the mix.
My suggestion: Disable the effect of Allied Nations in Arcade Game Mode for simplicity's sake.
10. Final Thoughts
Unless I am very much mistaken, I have covered pretty much all major cases.
Based on the above, I'm pretty happy with the current system for Realistic Game Mode.
Perhaps some simplifications for Arcade would be in order to not make this too difficult on players just looking for some quick fun.
If I am wrong on any of the above, please explain why and I'll think it through again.
And if you can think of any examples that may prove difficult but I didn't mention here, also let me know.
Plus most important of all: If you observe the game behaving in ways contrary to my above description, that would be an unintentional BUG that needs to be fixed ASAP!