Page 1

INTRODUCTION TO THE GUIDE......................................................................................................................3

LIABILITIES IN RESPECT OF THIRD PARTIES OTHER THAN PASSENGERS, SEAMEN AND
STEVEDORES - RULE 20.1.1..............................................................................................................................4
LIABILITIES IN RESPECT OF PASSENGERS - RULE 20.1.2 .........................................................................6
CREW CLAIMS - RULE 20.2.............................................................................................................................11
LIABILITIES IN RESPECT OF STEVEDORES-RULE 20.3 ............................................................................24
COLLISION LIABILITIES FOR DEATH, INJURY OR ILLNESS - RULE 20.4 .............................................27
DEATH, INJURY OR ILLNESS ARISING OUT OF THE CARRIAGE OF CARGO - RULE 20.4.A ............29
REPATRIATION AND CREW SUBSTITUTION - RULES 20.5 AND 20.6 ....................................................30
LOSS OF SEAMAN'S EFFECTS - RULE 20.7. .................................................................................................31
SHIPWRECK UNEMPLOYMENT INDEMNITY - RULE 20.8........................................................................32
PORT AND DEVIATION EXPENSES - RULE 20.9 .........................................................................................33
LIFE SALVAGE - RULE 20.10 ..........................................................................................................................36
COLLISION RULES - RULE 20.11 and 20.12 ...................................................................................................37
DAMAGE TO PROPERTY (OTHERWISE THAN BY POLLUTION) - RULE 20.13 .....................................49
POLLUTION - RULE 20.14 ................................................................................................................................55
POLLUTION TABLES - RULE 20.14 ................................................................................................................65
DAMAGE CAUSED OTHER THAN BY COLLISION (WASH DAMAGE RULE) - RULE 20.15 ................83
TOWAGE CLAIMS - RULE 20.16 .....................................................................................................................84
LIABILITY UNDER CONTRACTS FOR HIRE OF CRANES, LIGHTERS OR OTHER LOADING AND
DISCHARGING APPLIANCES - RULE 20.17..................................................................................................89
WRECK REMOVAL - RULE 20.18 ...................................................................................................................90
QUARANTINE EXPENSES - RULE 20.19........................................................................................................93
CARGO CLAIMS - RULE 20.20 AND 20.21.....................................................................................................94
COLLISION LIABILITY TO CARGO CARRIED IN AN ENTERED SHIP - RULE 20.22...........................114
GENERAL AVERAGE AND SALVAGE - RULE 20.23 & 20.24...................................................................115
FINES AND CONFISCATION - RULE 20.25-29 AND RULE 20.37 .............................................................118
ENQUIRY EXPENSES - RULE 20.30..............................................................................................................123
EXPENSES ARISING FROM INTERFERENCE BY LOCAL AUTHORITIES - RULE 20.31 .....................124
EXPENSES INCIDENTAL TO SHIPOWNING - RULE 20.32 (OMNIBUS RULE) ......................................125
COSTS OF SUE AND LABOUR - RULE 20.33 ..............................................................................................127
EXPENSES INCURRED BY DIRECTION OF THE BOARD - RULE 20.34.................................................128
CONTRACTUAL COVER - RULE 20.35 ........................................................................................................129
SALVORS' LIABILITY - RULE 20.36.............................................................................................................130
EXCEPTIONS, EXCLUSIONS AND LIMITATIONS ON COVER AND DEFENCES OPEN TO THE CLUB
............................................................................................................................................................................131

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INTRODUCTION TO THE GUIDE

We have published two editions of the Standard Club's Guide to P & I, which is intended for
masters and insurance managers. The Guide discusses the Rules under a number of
headings: cover, law, claims prevention and, in some cases, claims handling.

Originally, the Guide was intended for insurance managers to explain to them the cover
provided by the Club, but during the original writing we concentrated as much on claims
control and prevention.

The Board and the Managers of the Club have for some years been convinced that
considerable progress can be made and has been made in reducing claims by explaining to
masters and senior officers the lessons the Club has learnt from its investigation of past
claims. Therefore, we hope that this Guide will prove of interest to the seagoing as well as
the shore staff of the members of the Club.

Page 3
LIABILITIES IN RESPECT OF THIRD PARTIES OTHER THAN
PASSENGERS, SEAMEN AND STEVEDORES - RULE 20.1.1

A. COVER

The Club covers under this Rule any liability a member has for loss of life, injury or illness to
anyone other than seamen, passengers or stevedores, arising out of some negligent act on
board of or in relation to the entered ship, or arising out of an indemnity to the owners of a
dock or drydock, and this includes port authorities.

Note:

* The Rule covers death, injury or illness to visitors, surveyors, pilots or concessionaires but
not to wives of crewmembers who may be on the ship; liabilities for such people are covered
under the seaman's rule, because the definition of seaman in the Club rules includes any
relative of the seaman carried on the ship.

* The injured person does not have to be on the ship. The negligence merely has to have
occurred on board or in relation to the ship. However, liability for injuries on another ship is
covered under Rule 20.4.

* Liability arising under an indemnity is only covered if the terms of the indemnity have
been approved by the Managers. The Club's position on indemnities will be considered in
detail under Rule 20.13. Indemnities arising in the normal course of trading are generally
covered but the clubs try to insist, first, that the shipowners are entitled to limit their liability
under the indemnity, and second, that the shipowners are entitled to a complete defence if
the claim has been caused by the sole negligence of the party seeking the indemnity. Pilots
are often landed from helicopters and there are special provisions governing indemnities to
helicopter operators.

B. LAW

A shipowner is obliged under the law of most countries to take reasonable care to make sure
the ship is safe for anybody who goes on board. The normal rules concerning negligence
apply, but US courts have held that a shipowner owes no duty to warn an experienced pilot
of the obvious dangers of boarding a vessel in rough seas.

C. CLAIMS PREVENTION

Probably the greatest risk under this rule is injury to pilots boarding and leaving ships.
Whenever a pilot boards or leaves a ship an officer should inspect the pilot ladder before
permitting the pilot to use it. During the transfer one seaman should be standing by with a
ring buoy and another to handle the pilot's case. The master should always have in mind a
plan of action if the pilot falls into the sea. Pilot ladders on large ships or ships with very
high freeboards require special consideration and special boarding procedures.

Pilots usually board from high speed launches with the ship making a lee for the launch. The
pilot should always be boarded with the ship at the lowest possible speed consistent with
keeping steerage. As the launch approaches the pilot ladder it may cease to be visible from
the bridge and an officer with a portable radio telephone should report the position of the
launch to the bridge.

There are detailed regulations in the 1974 SOLAS Convention about the construction of pilot
ladders.

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Injured surveyors can also claim under this rule. Surveyors should always be accompanied
and required to wear protective clothing. They should not be allowed to enter an enclosed
space without the atmosphere being tested and the space ventilated properly.

(See Standard Safety Issue 4 – Slips and falls)

Claims for personal injury can be brought in the United States up to three years after the
incident. In three years it is likely that crewmembers will have forgotten what has happened,
whereas a claimant may have given a detailed statement to his lawyer immediately after the
accident. It is therefore very important for ship's officers to carry out a proper investigation
of any incident which has occurred or been reported. This is especially important in the
United States. The Club correspondent should also be advised. The latter, as well as being
able to carry out a full investigation, will be able to check whether the third party returns to
work in the weeks and months after the ship leaves and can give adequate warning of a
potential claim to the Club and the owner.

(See Masters’ Guide to Shipboard Accident Response – Death or Injury)

Page 5
LIABILITIES IN RESPECT OF PASSENGERS - RULE 20.1.2

A. COVER

1. The Rule covers:

(a) damages or compensation for loss of life, personal injury or illness of passengers;

(b) damages or compensation to passengers on board, for which an owner is liable in

consequence of a casualty to the entered ship, including the cost of returning the passengers
to the port of embarkation and of their maintenance ashore;

(c) loss of or damage to passengers' baggage or effects but cash, bonds, jewellery and other
precious objects are excluded.

2. Provisos to and exclusions from cover:

(a) Carriage of passengers by air: liability to passengers transported to and from vessels by
air is excluded regardless of whether such carriage occurs before or after the cruise or
during an excursion. The only cases where the Club covers a member's liability for
passengers being carried by air is when the passengers are ill or injured and have to be
repatriated by air, or when they are on an excursion, subject to the provisos about
excursions set out below.

(b) Shore excursions: the Club covers a member's liability in tort or under the original
passenger ticket to passengers on shore excursions but the Club will not cover a member's
liability if a separate contract has been entered into by the passenger for the excursion, or if
the member has waived his right of recourse against any sub-contractor who has arranged
the excursion.

(c) Ticket conditions: the Rules require that the ticket must exclude liability to the maximum
extent permissible under the appropriate law. The US Federal Maritime Commission requires
passenger ships which embark passengers at US ports to provide two guarantees to the
government; one relates to passenger injuries and death and is provided by the clubs; the
other is a guarantee to refund passage money paid in advance in the event that the voyage
is abandoned (for instance, due to insolvency of the carrier). This second guarantee was
once provided by the clubs against suitable counter security given to the club by the owner
of the ship concerned; the clubs concluded that the risks here were not of a P&I nature and
withdrew these guarantees some years ago.

B. LAW

1. Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 1974
This international convention has been ratified by Argentina, Bahamas, Barbados, Belgium,
China, Croatia, Egypt, Georgia, Greece, Guyana, Ireland, Jordan, Liberia, Luxembourg,
Malawi, Marshall Islands, Poland, Spain, Switzerland, Tonga, UK, Ukraine, Russia, Vanuatu
and Yemen. The carrier can limit his liability for death or personal injury to a passenger to
SDR46,666, for loss or damage to cabin luggage to SDR833, for loss or damage to cars and
luggage within to SDR3,333 and for loss or damage to other luggage to SDR1,200. Germany
and the Scandinavian countries have introduced legislation similar to the Athens Convention,
but with generally higher limits.

Page 6
A new protocol was adopted in 1990, which will provide considerably increased limits of
liability - SDR175,000 for death or personal injury, SDR1,800 for cabin luggage, SDR10,000
for damage to a vehicle and all luggage within it and SDR2,700 for the other luggage but is
unlikely to come into force. The United Kingdom has recently introduced a limit for UK
carriers into its domestic legislation of SDR300,000.

Further points to note are:

• Liability is based on negligence and the burden of proof is generally on the claimant,
but the burden of disproving fault is on the carrier if the loss arises from shipwreck,
collision, stranding, explosion, fire or defect of a ship and also in the case of cabin
luggage which is defined as luggage in the custody of the shipowner;

• Luggage in a car is subject to the overall car limit, not the separate baggage limit;

• The right to limit is lost if it is proved that the damage arose from an act or omission
of the carrier done with intent to cause such damage, or recklessly and with
knowledge that such damage would probably result. The limits will be very difficult to
break;

• The 1976 Limitation Convention provides for a global limitation figure for loss of life
or personal injury to passengers of SDR46,666 multiplied by the number of
passengers which the ship is authorised to carry, but not exceeding SDR25m. If the
individual claims exceed this limit then they are scaled down. There is thus the
illogical position that the worse the disaster, the less the individual claimant receives.

• The 1976 Limitation Convention was revised in 1996 and the limit per passenger was
increased to SDR 175,000 multiplied by the number of passengers which the ship is
authorised to carry but without any lower ceiling figure. Thus the global cap of SDR
25m was removed. This 1996 Protocol is not yet in effect. Bearing in mind the
increasing size of passenger ships, the potential passenger limitation fund under the
1996 Protocol is very large indeed. For a ship carrying 3,000 passengers it would be
$656M (3,000 x SDR 175,000 at SDR 0.80 = $1). (Where both an individual
passenger claim limit e.g. the Athens Convention and the global limit are applicable
under the relevant law, claims up to the maximum individual passenger limitation will
be covered by the clubs without requiring a scaling down of these claims by reference
to the global limit. Where the relevant national law does not provide an individual
passenger limitation figure and the Club has consented in advance to the waiving of
the global limit, the relevant limitation figure for cover purposes shall be deemed to
be SDR175,000 per passenger in accordance with the Athens Protocol in respect of
claims for death and personal injury. Members should discuss this with the
Managers.)

The I.M.O. is considering an amendment to the Athens Convention increasing substantially

the limits and allowing claimants to take direct action against the shipowner’s insurer. An
international conference to consider the changes is scheduled for late this year. As the
protocol is presently drafted it is unlikely that the clubs can comply with the requirements
particularly on direct action.

2. United States

The United States has not ratified the Athens Convention. Shipowners owe an obligation to
exercise 'reasonable care under the circumstances' and this standard applies to all
passenger negligence claims, apart from claims in the Ninth Circuit for assault by
crewmembers on passengers where the courts have held that owners of passenger ships are
strictly liable for such claims. Otherwise, owners are not responsible for defective conditions
aboard their ships unless they have actual or constructive notice of such conditions. A twelve

Page 7
month time limit is common to most passenger tickets in the United States and is generally
upheld if 'reasonably communicated to the passenger'.

3. Domestic ferries (i.e. ferries not operating on international voyages) are usually subject to
special limits of liability, which must be agreed by the Managers.

C. CLAIMS PREVENTION

The majority of all cruise passengers are of United States nationality. However other major
nationalities who take cruises are the Germans and the British. The Far East has begun to
develop a cruise market. The most important geographical areas are the Caribbean, the US
West Coast and the Mediterranean. Most passenger ships, however, are ferries and not
cruise ships. The Club covers ferries in all parts of the world. The advice which follows is
based on the Club's experience with US cruise passengers but has been found to be equally
appropriate for passengers of other nationalities, including ferry passengers.

• Cabin bathrooms. The floor of the bathroom as well as the base of the bath and the
shower should have non-slip coverings. Different colours for the shower tray and the
bathroom floor are essential. Many passengers are elderly and have poor eyesight,
and will inevitably remove their glasses when they take a shower. There must be
adequate handrails.

• Cabins, beds and bunks. Retaining boards must be in position all the time. Ladders to
the upper bunks must be regularly checked to make sure they are secured properly.

• Swimming pools. These must be attended by a lifeguard during the time they are
open. 'No diving' signs must be posted and there must be warnings about the depth
of water. There have been many claims for serious injuries to intoxicated passengers
who have dived into shallow pools. Empty swimming pools must be roped off and
covered with a safety net. Drinks in glass containers should not be served to people
in the pool.

• Floor covers. Slips and falls can occur because of water on decks or because of the
movement of the ship. The average age of cruise passengers is high and therefore
quite a simple fall may cause a fractured hip. It is important that adequate warnings
are given about wet decks and bad weather. Passengers should receive a written
warning when they join the cruise and at the approach of bad weather, warnings
should be broadcast over the public address system. Handrails must be fitted to both
sides of all passageways.

It is important to be aware that passengers on board a ship are not familiar with typical ship
arrangements and typical ship problems. Passengers frequently slip on wet teak decks or
trip over sills. The most dangerous area for slips and falls is the access from the sun deck
into the passenger accommodation. This is because the passengers are leaving an area
exposed to full sunlight and entering an area of artificial light. If the design of the ship
requires passengers to pass through a door onto a platform and then to descend a flight of
stairs it is important to ensure that the floor material of the stairs is non-slip and that
prominent safety notices are displayed and that safety handrails are fitted.

• Gangways. These have to be rigged properly and attended at all times. Elderly
passengers have difficulty when using the gangway and special care must be taken to
make them as stable as possible. Crewmembers must be posted at the top and
bottom to give assistance.

• Crews should be trained in how to deal with rowdy or drunk passengers. A ship is
subject to US law while within US territorial waters whatever her flag and most US
states prohibit consumption of alcohol by anyone younger than 21. Therefore, owners

Page 8
 must consider whether they should serve alcohol to anyone under 21 when the ship
is in US territorial waters. Members should also have a strict policy not to serve
visibly intoxicated passengers.

• Sexual Assault. A not uncommon problem is the allegation of sexual assault on

passengers by crewmembers, particularly cabin, table or bar stewards. Members
must have rigorous policies prohibiting socialising between crew and passengers. Any
crewmember, found in a passenger area where he should not be, should be subject
to dismissal for the first offence. A cruise operator must take reasonable care to
investigate a crew member's background before hiring him. There is at present a split
of authority between the US courts as to whether cruise operators are strictly liable
for assaults by crew or whether operators are only liable if they are negligent in
hiring or supervising crew members. The majority of the circuits have decided that
operators are only liable for negligence.

• Shore excursions. Shipowners are often only agents for shore-side tour contractors
and will therefore not normally be liable for the contractors' negligence, but the
tickets and the advertisements for all shore excursions must make it absolutely clear
that in selling a shore excursion the shipowner is acting only as an agent for the
shore-side contractor and is not accepting liability for the latter's negligence. A line of
cases has held shipowners liable for accidents during shore excursions when the
shipowners knew, or should have known, of the danger. For instance, US courts have
held that where a passenger was murdered on a secluded Bahamian beach, to which
he and other passengers had driven in a rented car, 'the duty of a cruise ship liner to
its passengers is not limited to the point of debarkation and embarkation'.
Shipowners must warn passengers of any dangers or unusual hazards that may
imperil the latters' safety ashore.

(See Standard Safety Issue 7 – Contracts with services suppliers)

Therefore, members must select any shore-excursion contractor very carefully. They
should obtain evidence of the contractor's insurance and that it covers claims brought
in any jurisdiction and, if possible, insist on being named as co-assured on that
policy. Members should attempt to require all shore-excursion contractors to agree
contractually to US jurisdiction in the event of passenger law suits against the cruise
line in the US.

• Ships' doctors. When a passenger falls seriously ill or dies on a cruise, there is the
risk of a claim for medical malpractice. The vast majority of courts in the US have
held that a cruise operator is not liable for the negligence of a doctor in his treatment
of a passenger, because the doctor is not an employee but a sub-contractor.

Even if the doctor is held to be an employee there is nobody on board to 'second

guess' his medical decisions and therefore the operator should still not be liable.
However, the shipowner will have to show that he has used great care in selecting
the doctor and has checked all his credentials and his prior work experience. Even if
the shipowner feels that he has used proper care in selecting the doctor, if both the
shipowner and the doctor are sued, there may be a conflict of interest and the doctor
may try to show that he was not negligent and that the problems were caused by the
lack of proper equipment on the ship, and that the cruise operator will be liable for
failing to provide adequate medical facilities. This can have a disastrous effect on the
handling of a claim and some cruise operators have thought it better to indemnify the
ship's doctor even when the doctor is an independent contractor. Members should
discuss this with the Club.

(See Standard Safety Issue 1 – Correct medical qualifications)

Page 9
 • Car Ferries. Care must be taken to ensure that passengers do not return to the car
decks while the ship is at sea. Car decks are extremely hazardous places.

• Passenger Tickets. US operators should at least make sure that their passenger
ticket:

has a cover which gives the passengers adequate notice of the provisions within. The
cover should contain a clause in bold type and in red ink advising passengers that the
contents govern their legal rights and limit the carrier's liability and the passenger's
right to sue;

requires passengers to give written notice of any claim for injury within six months,
to file suit within one year and to serve the suit within one further month;

contains a federal forum selection clause. Cruise lines normally select the city in
which their main office is based, but they should select a federal court, rather than a
state court. US courts will normally uphold a forum selection provided that the
passenger was aware of the provision before receipt of the ticket. Non-US operators,
who provide cruises from the USA, or even market widely in the USA, may not be
able to rely on a foreign forum selection clause;

contains a baggage liability limit of between $300-$500 per passenger and an

exclusion of liability for money, jewellery, cameras, binoculars, valuable documents,
precious stones, gold or silver;

excludes liability for emotional distress, mental suffering or psychological injury;

contains a definition clause which defines passenger as including actual ticket

holders, as well as the heirs of any passenger. The carrier should be defined as
including the cruise line, the vessel's tenders and the vessel's owners, operators,
managers, charterers, officers, staff, crew-members, independent contractors,
shipbuilders and manufacturers of all component parts.

(See Masters’ Guide to Shipboard Accident Response – Death or injury)

Page 10
CREW CLAIMS - RULE 20.2

A. COVER

For the purposes of the Rules, 'seaman' includes 'any person... engaged or employed in any
capacity in connection with the business of any entered ship as part of such ship's
complement...and includes any relative of a seaman...whom an owner has agreed to
maintain or carry on board an entered ship...and includes any person engaged under articles
of agreement for nominal pay'.

The Rule covers a member's liability for:

1. Medical expenses. Nearly all seamen are entitled to recover the costs of medical attention
from their employers from the time they sign on articles until the date they sign off and
sometimes beyond. The employer is usually obliged to pay whether or not he is in any sense
responsible for causing the accident or illness. Human nature being what it is, seafarers who
come from countries with a poorly-resourced state health care system will naturally see the
benefit in receiving medical care from a shipowner and will do their best to conceal any pre-
existing disability from the prospective employer. The Club recommends that owners require
all their seagoing employees to take a full medical screening examination. The Club,
however, does not pay for these examinations because they are a part of routine good
operating practice and have been required by many countries for a very long time.
The standard medical examinations required by many countries are out of date and
inadequate. Members should contact the Managers for advice on the medical tests which the
Club regards as most appropriate for the part of the world from which the seaman is
recruited. It is therefore very important that all seamen are given a thorough medical check-
up before they are signed on since any pre-existing illness will fall to be paid by the
employer if it manifests itself after the man is on board.

2. Damages or compensation in consequence of death, injury or illness of a seaman whether

or not on board an entered ship arising out of the negligent navigation or management of
the entered ship, or arising under statutory obligation, or under the terms of any crew
contract provided that the contract has been approved by the Managers in writing.

All seamen have contracts of service with their employers, but only in the case of certain
nationalities do these contracts deal with liability for death or injury. This normally happens
with seaman working on foreign flag ships, particularly Asian seamen. When deciding
whether contractual liability should be covered, the Managers look to see whether the
contract stipulates that, in return for the certainty of contractual benefits, the crewmember
or his dependants give up the right to claim damages. The law governing many of these
contracts prohibits such a provision, but it is still important that any contractual benefit paid
by the member goes at least to reduce any claim which the crewmember may have in
damages. In England, and probably in other countries, this can only be achieved if the
contract is carefully worded.

Contracts often deal with relative compensation for different degrees of disability. The Club
will normally approve a clause which provides that a seamen, whose disability is assessed at
50% or more, shall be entitled to 100% compensation or that a seaman, who is not 50%
disabled but nevertheless can only return to sea at a lower rank, shall be entitled to a 50%
enhancement on his disability rating. The degree of disability must be assessed and agreed
by two doctors or at least by a neutral doctor. Certain contracts contain a clause stating that
the assessment of the degree of disability shall be based on 'the most favourable medical
reports'. This seems to mean that compensation will be based on the highest degree of
disability assessed by any doctor.

Page 11
The Club requires an amendment so that if there is disagreement between the doctors, the
matter can be submitted to a third doctor whose decision is binding.

All members are reminded to review their crew contracts to ensure that they comply with
Club guidelines. If in doubt, Members must obtain the advice of the Managers.

3. Repatriation of an injured or ill seaman and the cost of sending out a substitute - (Rules
20.5 and 20.6). The Club also covers the repatriation of any crewmember who absconds
ashore in a foreign country and the ship leaves without him. The Club does not cover normal
repatriation at the end of the crewmember's employment contract period nor when the ship
is sold nor when the crewmember is sacked for a breach of contract unless the Board of the
Club considers that the sacking was necessary in the interests of the safety of the ship or
crew.

4. Liabilities for loss of life, injury or illness to a pre-delivery crew sent to a ship intended to
be entered in the Club but not third party liabilities arising out of their presence on the ship.

B. LAW

1. Australia.

Australia passed the Seafarers' Rehabilitation and Compensation Act 1992, which took effect
on 24th June 1993. Under this Act, a seaman who is totally or partially incapacitated through
injury is entitled for the first 45 weeks of incapacity to 100% of normal weekly earnings, less
any earnings in suitable employment. After the first 45 weeks, weekly benefits reduce to
75% of his normal weekly earnings less any earnings in suitable employment, index linked
up to the age of 65. After the first 45 weeks of incapacity there is a cap on the weekly
benefits set at 150% of the average weekly ordinary earnings of adults in full-time
employment. The cap is currently A$1,197 per week, whereas the maximum amount that a
seaman was entitled to recover under the old scheme was A$240 together with an allowance
of $62 for a dependent wife and $30 for each dependent child under 16. Furthermore, under
the old scheme, the shipowner could redeem the weekly benefits by a lump sum payment,
but he cannot do so under the new scheme unless the amount of weekly compensation is
A$72.82 or less. The death benefit is A$174,730 lump sum plus A$58.23 per week to each
dependent child.

The Act also has a comprehensive assessment of lump sum payments for permanent
impairment and non-economic loss e.g. pain and suffering but liability is capped at
A$160,169. Under the Act, the shipowner is obliged to provide an injured seaman with
rehabilitation services, together with household and attendant care, for as long as these are
considered appropriate by a medical practitioner. The clubs came to the conclusion that the
economic loss and rehabilitation liabilities should not be covered from 20th February 1994.
The clubs are not set up to write this type of long-term pension liability and are not able to
assess the security of any reinsurer for such long periods. Therefore the clubs concluded that
they could not even deal with the problem through reinsuring the risk. Furthermore, for any
club to be entitled to cover these liabilities, it would have to give a written assurance that it
would cover the liabilities directly and not merely by indemnifying the shipowner. This
means that the club would have to agree to waive the pay to be paid rule. Consequently,
from the 1994/95 policy year, the clubs have not covered generally crew liabilities under
Australian law.

Page 12
2. Canada.

Under the Workers' Compensation Acts, either federal or provincial, Canadian seamen get
inflation-linked benefits paid by the compensation boards and funded by levies on
employers. Some employers in some provinces can, however, contract out provided they
give the same benefits and the clubs used to give this cover but because of the indexing of
the benefits the P&I clubs have refused, since the 1970's, to provide this cover. Most
Canadian shipowners now obtain their cover through the SCALA Club which is managed by
Charles Taylor & Company (Hamilton). Note the special position of Prince Edward Island,
where benefits are not inflation-linked and which are covered by the clubs.

3. Continental Europe.

In most continental European countries, employees recover compensation for injury or

illness under the state social security system, which is funded by their employers through
the social security taxes. The clubs are not concerned with the social security benefits. In
some cases where European seamen serve on foreign flag ships, their employers give them,
under the crew contract, the same benefits as those to which they would have been entitled
under their state scheme and the clubs may be able to cover these contractual benefits
provided of course that the contract has been approved by the Club. In theory, in a number
of countries the employees can recover damages from their employers if there is some
serious negligence or almost criminality on the part of their employers. The clubs cover such
claims but in the past such actions have been rare. They are becoming more common. The
following countries have slightly different arrangements:-

(a) Greece.

Under law 551, employers of Greek seamen on Greek flag ships and on foreign flag ships,
where the crew contract is subject to Greek law, are liable to pay compensation irrespective
of fault. Greek seamen can recover damages in excess under the civil code if they can prove
that the loss of life or injury has been caused by a wilful act or a violation of safety
regulations on the part of the employer or his servants or agents. In such a case the seaman
or his dependants are entitled to recover lost earnings and in the case of total incapacity
that means until the seaman would normally have retired. Normally these damages will be
paid by the employer over the period until the seaman would have retired but in exceptional
circumstances the court may order a lumpsum payment and the exceptional circumstances
are if the principal place of business of the shipowner is abroad or if the employer has only
one ship. Also the courts are now sometimes awarding a lumpsum undiscounted, instead of
monthly payments. The clubs cover claims under law 551 and under the civil code.

(b) Italy.

Crew members, irrespective of nationality, when employed on Italian flag vessels are
compulsorily insured for medical costs, for sick wages and for compensation benefits for
disability, injury and illness in accordance with Italian law and the Italian collective labour
agreement. This insurance is not provided by the clubs, but is provided by the Italian social
security system. Italian crewmembers employed on non-Italian flag ships receive benefits on
the same terms provided that they are enlisted in Italy through Italian manning agents, but
the cover is generally arranged through the clubs.

If there is a finding of 'criminal fault', which amounts to serious negligence, then the Italian
social security organisation can recover from the shipowner, who is covered for this risk by
the clubs. In addition, the crew- member is entitled to recover the difference between what
he has recovered from the state and what he is entitled to in civil damages from his
employer and again the shipowner is covered by the clubs, subject to the normal defences
open to the club. It is now becoming increasingly common for criminal proceedings to be
commenced whenever there may be some responsibility on the part of the shipowner for the

Page 13
accident, which there will be in the majority of cases. In a recent case an electrician on an
Italian flag ship had to have two fingers on his right hand amputated after an accident on
board. The member did not inform the Club of the incident since no claim had been brought
against him. Four years after the accident, criminal proceedings were commenced against
the master and against both the president and managing director of the owning company. At
the same time, the crewmember brought a claim for damages for permanent disability. The
Rules of the Club provide that a member must promptly, and in any case within 12 months,
notify the Managers of every incident which may cause him to incur liabilities for which he is
insured by the Club and consequently the claim against the Club was technically time
barred. Therefore, all members with Italian flag ships, or who employ crew through Italian
manning agencies, should note that in order to comply with the rules regarding notification,
the Club should be advised of all serious accidents or injuries to crewmembers on board
ships immediately they occur. As this case shows, long delays can occur before a claim is
actually brought and shipowners cannot assume that because no proceedings are
immediately commenced they will have no ultimate liability.

(c) Spain.

Employees on Spanish flag ships cannot claim against their employers. Everything is covered
by Spanish social security. The clubs exclude seamen's claims as covered by the state
scheme and the Club has never had any crew claims in excess of the state scheme.

4. Hong Kong.

The clubs insure liabilities arising under the Hong Kong Employees' Compensation
Ordinance, which covers seamen employed on Hong Kong registered ships and on other
ships if the employer has agreed to the jurisdiction of the Hong Kong courts and the seamen
were engaged or recruited in Hong Kong. Employers are liable to pay compensation if an
employee suffers personal injury by accident arising out of and in the course of his
employment. The ordinance lays down the amount of compensation for death or incapacity
and the statutory figures are reviewed periodically. At the moment, in the case of death of
an employee under 40 years old, compensation is equal to 84 months' earnings or 84 x
HK$21,000, whichever is the lesser but in any case be no less than HK$303,000. In the case
of the total incapacity of an employee under 40 years old, compensation is equal to 96
months' earnings or 96 x HK$21,000, whichever is the lesser, but in any case be no less
than HK$344,000. Compensation for old seamen is less but still subject to the same
minimum amount. Compensation for permanent partial incapacity is calculated by using a
percentage of the compensation for permanent total incapacity. For certain injuries the
percentage is set out in a schedule e.g. the loss of the dominant arm between the elbow and
the shoulder is considered to amount to an 80% loss of earnings capacity.

5. Philippines.

Filipino seamen are very widely employed by foreign owners. Approximately 197,000 Filipino
seamen were employed at sea in 1996, making up 25% of the total seagoing workforce in
the world. The majority of Filipino seamen serving on foreign flag ships are recruited via
manning agencies licensed by the Government of the Philippine Republic. Records held by
the Philippine Overseas Employment Administration (POEA) show that in 1995 154,376
seamen were employed in this way; a further 30,873 seamen were recruited 'directly'
outside the Philippines.

Contracts for seamen directly employed will not be recognised by the Philippine courts and
their claims for illness, injury and death will fall to be considered by those courts on common
law principles; damages in such cases will generally be larger than the graduated
compensation scheme incorporated in the 'lump sum' contracts which apply to officially
recruited seamen and which are approved by the clubs.

Page 14
Filipino seamen employed 'directly' are much more likely to be able to establish jurisdiction
for a claim against their employer in a place outside the Philippines, such as the USA, where
awards of damages are much higher than those employed through the official system.
Therefore, great caution should be exercised if hiring Filipino seamen outside the official
system.

The position of Filipino seamen employed under approved crew contracts is complicated by
the large number of such contracts, which are often slightly different. Members should check
that the liability conditions satisfy the Club guidelines as set out earlier.

6. United Kingdom.

Liability is based on negligence and is covered by the clubs but the common law prescribes a
special standard of care on an employer for his employees - to see that reasonable care is
taken to provide safe fellow servants, safe equipment, a safe place of work and access to it
and a safe system of work. Furthermore, the Employers' Liability (Defective Equipment) Act
1969, which states that an employer is liable for defective 'equipment' with which the
employee is compelled to work in the course of his employment, applies to ships. The result
of this is that a shipowner is automatically liable to his employees if they are injured by a
defect in the ship whether or not the shipowner has himself been negligent.

7. United States of America.

(a) Jones Act 1920 - A 'seaman' can recover 'pecuniary' damages against his employer for
negligence resulting in injury or death `in the course of his employment'.

NOTE:

(i) Who are 'seamen'? The Jones Act does not define who is a seaman. Since the Jones Act
gives seamen the right to sue their employers for damages, unlike most other employees in
the United States, who are only entitled to workers' compensation benefits, there is an
incentive for employees to try to show that they are seamen. In the past some courts ruled
that only those who actually aid in navigation can be considered seamen whilst other courts
held that seamen need only contribute to the overall mission of the ship. The matter has
now been decided, by the Supreme Court in McDermott International Inc v Wilander (1991),
that a person does not have to aid in the navigation of a ship in order to qualify as a seaman
under the Jones Act. The test for seaman status under the Jones Act should not be
considered in terms of the employee's particular job, but solely in terms of the employee's
connection with the vessel in navigation. The Supreme Court specifically did not decide how
substantial the employee's connection to a vessel must be in order for him to establish
seaman status. The seaman must merely contribute to the function of the vessel or to the
accomplishment of its mission. However, in Chandris Inc. v Latsis (1995) the Supreme Court
held that an employee's connection with a vessel, or an identifiable fleet, must be
substantial in both duration and nature before he will be considered a seaman. The court
rejected a voyage test under which anyone working on board a vessel for the duration of a
voyage in furtherance of the ship's mission would have the necessary employment-related
connection to qualify as a seaman. Such a test would have allowed employees to walk in and
out of seaman status which is quite contrary to the intention of Congress. The Supreme
Court cited for the guidance of the lower courts the rule of thumb given by the Court of
Appeals for the Fifth Circuit that a worker who spends less than 30% of his time on a vessel
in navigation should generally not be considered as a seaman and the Supreme Court
indicated that this rule would be appropriate in most cases. Waiters, musicians and
bartenders have been found to be Jones Act seamen, but a lecturer who agreed to give talks
to passengers in exchange for free passage was held not to be a seaman.

Page 15
(ii) A person cannot be a seaman if the vessel is not 'in navigation', but that term must not
be treated narrowly. It means that the vessel must be engaged as an instrument of
commerce and transportation on navigable waters. A vessel is in navigation although
moored to a pier or in a repair yard for periodic repairs but probably not if laid up for a
considerable period.

(iii) What is a 'vessel'? Permanently fixed drilling rigs and production platforms are not
'vessels' and workers on such structures are entitled to workers' compensation, not damages
against their employer, but a submersible drilling barge is a 'vessel' and so is a mobile
drilling rig

(iv) The Jones Act is not restricted to US seamen on US flag vessels. 'Any seaman who shall
suffer personal injury in the course of his employment' is entitled to claim damages against
the defendant employer. The language of the act is all-embracing. Damages awarded under
the Jones Act are usually much higher than a foreign seaman can obtain in his own country
and, therefore foreign seamen, who are injured, try quite naturally to bring their claims for
damages in the United States under the Jones Act rather than in their home country. The US
courts have put some limitation on the application of the act but they have extended its
application beyond just US seamen injured on US flag vessels.
The Supreme Court laid down certain factors 'which alone or in combination, are generally
conceded to influence choice of law to govern a tort claim, particularly a maritime tort
claim':

• place of the wrongful act;

• law of the flag;
• the allegiance or domicile of the injured man;
• the allegiance of the shipowner;
• the place of the contract, i.e. where the articles were signed;
• the inaccessibility of a foreign forum;
• the law of the forum;
• the base of the shipowner's operations.

(v) The Jones Act gives a right to trial by jury which is retained even if claims under other
statutes or in general common law are made at the same time as the Jones Act claim.

(vi) A claimant under the Jones Act can only recover for 'pecuniary damages'. These include
loss of both past and future earnings; past and future medical costs; loss of services (those
items which can be said to have pecuniary worth e.g. required maintenance to the home and
management of financial affairs); loss of parental nurture to a child (instruction, training and
guidance), but not such non-pecuniary loss as loving parental relationship or society.

(vii) A Jones Act claim can be brought in a state court with a jury, in a federal court with a
jury, or in the federal court in admiralty without a jury. Juries in state courts are generally
more liberal and generous in their awards than juries in federal courts because the juries
come from a narrower area and the plaintiff lawyer will have chosen his venue with care.

(b) General maritime law obliges a shipowner to provide his seamen with a seaworthy vessel
which includes the vessel, her appurtenances and her crew. Under this theory of liability a
shipowner can be liable for any condition which results in an injury on board his vessel even
if he neither knew nor should have known of the existence of this condition.

(c) Death on the High Seas Act 1920 - the survivors of any person who is killed because of
negligence in navigable waters more than three miles from shore may recover their
pecuniary damages from the person or vessel responsible. Claims under this Act can be
brought either for negligence or for unseaworthiness or both in the case of a crew member.

Page 16
C. CLAIMS PREVENTION

Most injuries are caused by carelessness, usually by the injured worker or a fellow worker.
Occasionally, injuries arise after crew members with old injuries are further injured. The
majority of injuries occur because seamen fail to follow established procedures for safe
working and because of failure to wear the appropriate safety clothing – hard hats, safety
boots, eye shields and ear protectors.

1. Pre-employment medical screening

Consideration of claims prevention should start with the member's procedures for hiring
employees. Pre-employment medical screening is an excellent tool in preventing claims from
old injuries or from a physical weakness. The examination should include five-view back x-
rays and members should ensure that the doctor who is carrying out the screening
programme on their behalf is aware of the heavy physical demands of seagoing duties and
has a clear understanding of the requirements in terms of the necessary physical fitness of
prospective employees.

The importance of pre-employment screening can be seen in the following typical US claim.
A seaman had been employed but there was not enough time to conduct a pre-sign on
medical at the load port. When the seaman was examined at the second port he was found
to have severe back strain and was diagnosed as unsuitable for duty. He then alleged that
he had sustained the back injury within the first few days of joining the ship by slipping on
hydraulic fluid. This allegation could not be disproved.

In some countries legislation restricts an employer's right to require medical screening. The
Americans with Disabilities Act strictly limits an employer's ability to require it. No employer,
as defined within the Act, may conduct a medical examination or make enquiries of a job
applicant as to whether such applicant has a disability, the nature of any such disability, or
the severity of any disability. Under the Act, an employer may only enquire into the ability of
an applicant to perform job-related functions. This places a great deal of importance on the
existence and systematic use of a valid job description in hiring procedures. The job
description can be used in interviewing the applicant and, if a job is offered to the applicant,
then used by the doctor in the 'employment entrance examination'. This medical
examination is allowed only after a job has been offered to the applicant. The offer of
employment should be conditional on the result of such an examination. An employment
index system should be consulted to see whether the prospective employee has had
previous claims.

(See Circular 2000/2 – Pre-employment medical screening in Manila and Jakarta)

(See Standard Safety Issue 1 – Pre-sign on medical examination)

2. Procedures for safe working

It is not always possible to supervise closely crew members while they are working.
Procedures for safe working are necessary to stop crewmembers entering dangerous
locations or performing potentially dangerous acts without completing the recognised safety
checks and without wearing proper protective clothing or equipment.

The most common safety procedure is the permission-to-work system, which requires a
crewmember to receive written permission from his supervisor before entering a dangerous
location or performing a potentially dangerous act. The procedure requires the worker to fill
out a safety checklist and have the completed checklist authorised before starting work. The
purpose of the permission-to-work system is to focus the crewmember's attention on safety
and not merely doing the job.

(See Standard Safety Issue 2 – Application of a permission-to-work system)

Page 17
A common cause of crew injury is a fall on board the ship. Falls can only be prevented by
constant attention to detail, in particular to the need to keep walkways and decks clear of
loose objects and to clearing up oil or grease. Non-slip treads should be used on sloping
surfaces. Seamen sometimes fall from gangways, especially on returning to their ship at
night. The gangways must be properly rigged and linked with a safety net below. Slips and
falls in galleys have resulted in a number of large claims against the clubs, particularly in the
galleys of cruise ships. These are a particular problem because of the amount of activity and
the quantity of food being moved in a very short time. Floors become greasy easily.

(See Standard Safety Issue 1 – Injuries from unsafe working practices)

(a) Supervision of crew members

(See Standard Safety Issue 7 – Lack of supervision)

(b) Safety during mooring

(i) Never stand in the bight of a line or too close to the drum end.

(ii) Never stand in the bight formed between the winch drum and a fairlead or a block.

(iii) Always stand in a visible position and where possible away from the recoil of a mooring
rope.

(iv) Never leave a winch running and unattended; instruct an experienced seaman to
operate the winch.

(v) Avoid excessive surging of the line and leading a mooring rope round sharp bends.

(vi) Never exceed four turns on the drum end.

(vii) Never attempt to stop an unchecked line by standing on it.

Mooring ropes can fail because of a weakness introduced by rot or physical damage and it
will be necessary to check frequently for this. Powdering and fusing of strands are
indications of excessive wear. Ropes with significant chafing, powdering and fusion should
not be used for mooring.

When not in use synthetic ropes should always be stored on gratings in a well ventilated
compartment away from direct sunlight and harmful chemicals, such as paint thinners.
Ropes being removed from stowage should always be inspected before being used.

Lines often fail at the beginning of mooring operations after a single line has been passed to
shore to check the movement of the ship. A sudden surge by the ship or sudden pull by a
tug can result in the line becoming overstressed and failing. Crewmembers should be made
aware of this danger.

(See Standard Safety Issue 1 – Safety procedures at mooring stations)

(c) Entry into enclosed spaces

Experience shows that asphyxiation in tanks and void spaces is one of the most frequent
causes of death and injury to seamen; as a rule it is not the 'obviously dangerous' spaces
such as cargo tanks, which have carried hazardous cargo, which present the most risk but
places such as void spaces and the cargo holds of dry-cargo ships.

Page 18
Seamen on dry-cargo ships are less aware of the risk of oxygen deficiency in enclosed
spaces than their tanker colleagues. They may take fewer precautions before entering. All
enclosed spaces should be treated as hazardous, whether a store room, void space or cargo
hold, if the space has been closed for a long period without ventilation. Members must
consider this risk and prepare detailed working procedures which involve permission to work.

There are three reasons for lack of oxygen in a space:

(i) the development of rust scale in a ballast tank which removes oxygen from the
atmosphere;

(ii) the filling of the space with poisonous gases. Oil and chemicals are known to give off
dangerous gas; some dry cargoes do as well, particularly coal which can give off methane
and carbon monoxide, and chilled fruit, which gives off carbon dioxide. Also fishmeal, when
wet, may give off hydrogen sulphide and other cargoes such as iron ore, grain and tapioca
are known to consume oxygen.

(iii) an enclosed space being filled with carbon monoxide from a leaking gas exhaust pipe.
The Club makes the following recommendations:

* Prior to seamen entering, the space should be thoroughly ventilated and the oxygen
content in the space tested with a calibrated oxygen meter. A tank or void space entry form,
detailing the space concerned and the work to be carried out, should be completed and
signed by the chief officer. A copy of it should be kept in the ship's office. No crewmember
should enter the space without the knowledge and consent of a responsible officer.

* In the case of bulk carriers, which have carried coal, and refrigerated cargo ships, which
have carried chilled fruit, it is advisable to test also the atmosphere for carbon monoxide and
carbon dioxide, respectively.

* A responsible watchman, equipped with a VHF transceiver, must be posted outside the
space so that he can communicate with the person inside the space, who should be similarly
equipped, and with the duty officer.

* Effective means must be provided for the removal of an unconscious person. (Regular
safety drills should include the use of a stretcher or similar equipment. In the case of
tankers with very deep tanks, hoisting gear may be needed and this should be rigged at the
tank entrance).

* All persons entering the space must wear a safety belt and carry a portable safety light
(intrinsically safe in the case of tankers), and an oxygen meter;

* A spare set of breathing equipment, with an additional full tank, and additional lights,
must be kept at the tank entrance.

* If a crew member is working in the tank the atmosphere in the tank should be checked
periodically.

* If the space has recently contained toxic cargo, and has not yet been cleaned or ventilated
or if it contains inert cargoes such as tallow, crewmembers should only enter the space in
the event of an emergency. When they do, they must wear breathing apparatus. This also
applies to entry into holds containing dry bulk cargo such as coal and timber products, which
have not been ventilated for at least 24 hours. Crew members should never routinely enter
cargo tanks which contain cargo or have not been cleaned and cargo holds containing
cargoes such as coal which have not been ventilated.

(See Standard Safety Issue 1 – Entering confined spaces)

Page 19
(d) Training of Cadets

Adequate training and close supervision must be given to junior employees especially when
they are working with dangerous machinery. The Club has been faced with a number of
claims involving grinding machines. In two of these, cadets lost fingers when working
unsupervised on grinding machines. A member should never assume that a cadet has been
adequately trained during pre-sea training. Eyeshields must be worn and guards must be in
place. Members must also make sure that eyeshields are in good order and are not
scratched. Frequently, when ships are surveyed for condition by the Club, the surveyors
report that fixed grinding machines are without spark shields and adequate tool rests.
Members must check the equipment on their ships and carry out repairs when necessary.

(See Standard Safety Issue 1 – Safe use of grinding machines)

(See Standard Safety Issue 2 – Grinding machine injury)

(e) Access ladders

The Club had to pay substantial damages on behalf of a member when a crew member fell
off the second rung of a ten foot ladder. The platform at its base was so narrow that the
man fell backwards over a rail and fell another twenty feet to a lower deck. All ladders need
to be examined to make sure that they are so positioned that a modest fall cannot lead to a
seaman falling further down to an even lower deck. The condition of the rungs should also
be checked regularly and repaired if damaged. Members should not allow crewmembers to
use access ladders that are defective.

(f) Protective clothes and equipment

Crewmembers, who are expected to work in hazardous spaces, should be provided with hard
hats and safety boots. Crewmembers working in engine rooms must also be provided with
earplugs or earmuffs. Exposure to low level noise for a long period can cause industrial
deafness. Overalls and boiler suits should not be made of synthetic materials but of natural
fibres, cotton or paper.

(g) Guards on winches

The Club has faced claims from seamen whose hands or feet have been caught in the spokes
of unguarded winch drums. Members are reminded that they should ensure that guards are
placed in any location where there are moving parts which may pose a hazard to
crewmembers. It is also important that anyone operating machinery in these circumstances
has a clear view of the working area or that there is a proper system for ensuring that
machinery is only set in motion when crewmembers have retreated from the area.

(See Standard Safety Issue 1 – Guards on winches)

(h) Return of inebriated seaman

The Club has, over the years, been faced with a number of claims for the death of or injury
to seamen who return drunk from visits ashore and fall off the gangway. The law in most
countries imposes a duty on shipowners to make sure that intoxicated seamen are met at
the bottom of the gangway and are escorted safely to their accommodation and that their
condition is monitored until it is clear that they are reasonably sober. Although it is
appreciated that watchmen have other duties, it should be possible to estimate when
crewmembers are likely to return and the watchman should be instructed to be at the top of
the gangway at those times. If the returning seaman appears drunk, the watchman must go
down the gangway and escort him up. Proper netting must be rigged under the gangway,
and the gangway must be adequately lit at night.

Page 20
Any oil or grease on the handrails must be wiped off immediately. If the weather is freezing
the gangway treads should be kept free of water.

(See Standard Safety Issue 1 – Responsibility for drunken seamen)

(i) Lifting

Work on board ship can involve lifting heavy weights, both on deck and in the engine room.
There is a natural tendency for a man to attempt to carry a weight without calling for help.
Very heavy weights should always be lifted with certified lifting equipment. However, it is
weights, which can be lifted by one or two crew members, that are most likely to cause back
injury. Poor lighting and slippery surfaces are additional hazards, particularly in the engine
room and galley, and care should be taken to clean thoroughly any spilt oil or grease. All
crewmembers should be taught how to lift correctly both heavy and light weights. The Code
of Safe Working Practice for Merchant Seaman, published by the UK Department of
Transport, contains advice on how to lift safely. Small weights can also cause injury if they
are picked up by a crewmember with straight legs and a bent back.

(See Standard Safety Issue 6 – Slips and falls)

Heavy weights are frequently moved in the galley and domestic freezer spaces. It is
important for galley staff to be taught how to lift properly and, when necessary, instructed
to wear a lifting belt. Heavy cartons of food can be broken down into smaller units and
stores should be arranged with heavy cartons placed on the lower storage racks. There are
particular problems in the galleys of cruise ships because galley staff, waiters, cooks and
stewards often carry trays laden with dishes and plates. It is essential for the access to and
from the galley to be kept clean and dry.

The requirement to handle heavy weights is rarely unexpected and often can be planned for
by ensuring sufficient men are available for the task and instructing them beforehand. In the
case of some types of ship such as tugs and some dry cargo ships, the requirement to
handle heavy weights is part and parcel of everyday operations.

Routine maintenance can also involve lifting heavy weights and again this should be pre-
planned with crewmembers being instructed how to lift safely.

(See Standard Safety Issue 3 – Back injury)

(j) Repatriation of ill or injured crewmembers

Shipowners in most countries have a duty of care towards their employees until they are
home. This is particularly the case if the seaman is apparently mentally disturbed and must
be protected against himself. The Club had a case involving a US flag ship in Saudi Arabia
where a new crew member became paranoid and clearly had to be repatriated. He was
however handed over to the ship's agents, who left him in a hotel for the night before his
plane left. He jumped from the fourth floor of the building under the delusion that two fellow
guests were trying to kill him. He was severely injured and the members were liable for that
injury. Members are advised to call for the assistance of the Club correspondent to take care
of such employees because the correspondent is probably better trained in claims prevention
and perhaps more concerned in taking proper care of mentally ill seamen than the ship's
agent, who has many other responsibilities.

Page 21
In summary, crew injuries are caused by lack of training, poor supervision or unsafe
practices. A significant improvement in crew safety can be achieved by properly instructing a
crew upon safe working practice, supplying safety clothing and insisting upon the use of this
clothing. Crewmembers, who behave in an unsafe manner or have a negative attitude to
safety, should be disciplined and if necessary have their contracts terminated.

(See Standard Safety Issue 1 – Responsibility for physically or mentally ill seamen)

(j) Working on car decks.

3. Risk Assessment and Safety Management

Risk assessment is a recognised method to improve safety. It involves and examination of

work activities, identification of hazards and unsafe acts. Risk is quantified in terms of being
trivial, tolerable, moderate, substantial and intolerable. These categories are based upon
the degree of harm and likely occurrences. An intolerable risk is an extremely harmful event
which is likely to occur. During risk assessment and action plan is devised so that all risks
are reduced to tolerable levels.

Risk assessment should always be held before and during the development of systems and
procedures for compliance with the ISM Code or whenever developing procedures for safe
working.

(See Standard Safety Issue 8 – Risk Assessment)

D. CLAIMS HANDLING

The greatest problems are in the United States and so our comments below are mainly
designed for members who have serious claims there.

1. Reporting

An accident report should be completed whenever an accident occurs, whether to a seaman

or to anyone else. A fine line must be drawn between giving too much and too little
information. Such reports are discoverable and they should recite only a brief narration of
the facts of the incident rather than speculation and opinion as to its causes. It is however
important to record the injured man's allegations and injury complained of as soon as
possible.

2. Lawyers

The appointment of a lawyer must be made with great care. Never appoint a firm, but
always an individual. Find out how much trial experience he has in state courts. Some
lawyers have the reputation of never trying cases but always settling. If this reputation is
known to the other side the defence is at a great disadvantage. On the other hand, some
lawyers do not think it their job to explore settlements. They consider they are trial lawyers
and nothing more. If such a lawyer is appointed, settlement is very difficult and the case
must be expected to proceed to trial.

3. Investigation

The initial investigation should be undertaken by the lawyer rather than by an investigator.
An investigation carried out by the lawyer will not be discoverable and there is no substitute
for the trial lawyer having done the investigation himself.

Page 22
4. Estimating liability

This depends on the plaintiff lawyer, the court, the jury and the deposition of the plaintiff. A
realistic estimate can probably not be given until the plaintiff's deposition has been taken.
Many cases only get worse and therefore it does make sense to attempt to settle early.
Lawyers should be encouraged to depose the plaintiff as early as possible. Apart from the
estimate of the settlement, members should remember that they are obliged to pay
maintenance and cure to their seamen who are injured in the course of their work. Cure
covers medical bills and these can be remarkably high. Any estimate given by the lawyer will
normally be just for the settlement and will not include maintenance and cure. The lawyer
should be asked to make an estimate of the ultimate liability, including fees, at three points
during a claim; an initial estimate; an estimate after the plaintiff's deposition and the
interrogatories; and an estimate just before trial.

Page 23
LIABILITIES IN RESPECT OF STEVEDORES-RULE 20.3

In the USA stevedores are referred to as longshoremen, the stevedore being the employer,
and in Australia as waterside workers.

A. COVER

The Club covers members for their liabilities for loss of life or personal injury or illness to
stevedores, or any other person, arising in relation to the handling of the cargo of an
entered ship, or in consequence of the negligence of persons employed solely for that
purpose, from the time the cargo is received for shipment on the quay or wharf until final
delivery from the quay or wharf at the port of discharge. Until 1992 the clubs also covered
the liability arising under any indemnity given by the member to the stevedore employer,
provided that the Managers had approved such an indemnity. The clubs became concerned
about the long tail nature of such indemnities and declined to cover such indemnities after
20th February 1992.

B. LAW

In most countries a shipowner is only liable for injuries to a stevedore if he or his employees
have been negligent. The position is similar in the USA, where longshoremen are paid
workers' compensation benefits by their employers in the case of a work related injury but
cannot sue their employers for damages. They can recover damages from the shipowner but
only if they prove negligence on the part of the shipowner. The shipowner is liable for all the
longshoreman's damages if the shipowner is in any way negligent. His liability is not reduced
by the negligence of the longshoreman's employer but only by that of the longshoreman
himself. In Scindia Navigation Company v de los Santos (1981), the Supreme Court laid
down the standard of care a shipowner must use: 'ordinary care under the circumstances to
have the ship and its equipment in such condition that an expert and experienced stevedore
will be able, by the exercise of reasonable care, to carry on cargo operations with reasonable
safety to persons and property', and the shipowner must also warn the stevedore of any
hazards on the ship or with respect to its equipment that are known to the owner, or should
be known to him by the exercise of reasonable care, that are likely to be encountered by the
stevedore in the course of his cargo operations and that are not known by the stevedore and
would not be obvious to or anticipated by him if reasonably competent in the performance of
his work.

Once the stevedore has started work, the shipowner normally has no continuing duty to
inspect, to supervise or to correct any dangerous condition that develops during loading or
discharging. However, there are circumstances where the shipowner may have a duty to
intervene. If the ship's gear malfunctions and a dangerous condition results, making it
obviously imprudent to continue to work, but the stevedore, although aware of the
dangerous condition, continues to work, then the shipowner may have a duty to intervene
provided he is also aware of the malfunction.

This is especially so in the case of a defective winch since under US law such a defect must
be reported to and repaired by the shipowner immediately. The Supreme Court commented
that under the relevant health and safety regulations, which deal with the use of the ship's
gear by the stevedore, malfunctioning of a winch must be reported to the ship's officer and
the obligation to repair rests with the ship and not with the stevedore.

The decision makes it clear that the crew must inspect the ship before she is handed over to
the stevedore at the loading or discharging port, and must remedy any defects in the ship's
cargo gear and such obvious traps as slippery or cluttered decks or gangways.

Page 24
It will help in fighting any eventual claim if the master or chief officer has the stevedore sign
a document confirming that the ship's gear is in good order when the ship is handed over. At
the second port of loading, and at any port of discharge, the crew must inspect the stowage
of the cargo already loaded to see if anything is wrong. During loading or dischargeing
operations, the crew must immediately remedy any defect in the ship's gear brought to their
attention by the longshoremen. Members must impress upon their officers that if any
complaint is made by the longshoremen then action must be taken to remedy that defect.

C. CLAIMS PREVENTION

Most of the information listed below comes from experience of cases in the USA but the
lessons that can be learned are of universal application.

1. Gangways and Accommodation Ladders

Gangways can be supplied by the stevedore or the ship but may be lashed to the deck by
the crew. They are used both by crew members and longshoremen and are therefore not
solely within the confines of the cargo operations and not solely under the control of the
stevedore. Shipowners have a general duty to use reasonable care to inspect and supervise
gangways and to discover and to remedy dangerous conditions which may exist or develop
in the course of their use. The shipowner therefore owes a greater standard of care for the
gangway than that set down by the Supreme Court in Scindia v de los Santos.

Accommodation ladders are always provided by the ship and rigged by the ship’s crew.
When rigging accommodation ladders, stanchions should be secure, hand rails or ropes taut
and a net rigged between the ladder and the ship.

(See Standard Safety Issue 2 – Gangways)

(See Standard Safety Issue 8 – Gangways)

2. Ladders

A shipowner will be liable if a longshoreman is injured using a ship's ladder which does not
have non-skid feet and which he has provided to the longshoreman. Although such a danger
may be obvious the shipowner is not protected if he is actively negligent in supplying an
unsafe ladder. In recent years there have been conflicting decisions on this point. The Court
of Appeals for the Fifth Circuit held in Morris v Compagnie Maritime des Chargeurs Reunis
that the shipowner was not liable where a longshoreman used a ship's portable ladder, which
had no rubber feet although other ladders were available. In this case the crew apparently
did not know that the longshoreman was using the ladder and therefore there was no active
negligence on the part of the crew or shipowner. However, in McGuire v Lykes Brothers the
shipowner was held 95% liable when a longshoreman was allowed to use a permanent ship's
ladder which the crew knew to be in a highly defective condition. In this case there was
active negligence by the shipowner or crew since the ladder was permanent. Therefore, the
lesson seems to be that if crew hand over ladders to stevedores then they must ensure that
the ladders have non-skid feet and are properly maintained.

3. Winches

Shipowners will be liable for any defect existing when the ship is turned over to the
stevedoring contractor, but not if the crane or the winch malfunctions for the first time only
at the time of the accident. This position has been reaffirmed by the Court of Appeals for the
Third Circuit in Manning v Mars Limited. A ship's crane had just been repaired by the crew
and when it was next used it began to vibrate violently causing its window to fall into the
hold and strike the plaintiff. The Court of Appeals held that a shipowner has no general duty
by way of supervision or inspection to exercise reasonable care to discover dangerous
conditions that develop within the confines of cargo operations.

Page 25
If the winch starts malfunctioning during the stevedoring operations but before the accident,
the shipowner will be liable only if the crew knows of the malfunction and should have
intervened and prevented further work being done until the defect was remedied.

4. Decks

Longshoremen regularly claim for falls on deck. A shipowner will not be liable where a
longshoreman trips on lashings scattered by fellow longshoremen, or on cargo spilt from
bags during cargo operations. These are hazards which the stevedore employer must clear
up. However, a shipowner may be liable if a longshoreman slips on a patch of oil and the
mate has promised to clean up the deck but has failed to do so.

(See Standard Safety Issue 4 – Slips and falls (shore worker)

(See Standard Safety Issue 6 – Slips and falls)

5. Cargo stowage

Accidents often occur during discharge because the stowage of cargo at the loading port is
unsatisfactory. In the past it was considered that a shipowner has a duty through the crew
to inspect the work of the loading stevedores before the ship arrives at the discharge port so
that any dangers can be remedied. Some courts may well have laid down that ruling in the
past, especially where the ship comes to the USA from a foreign port, although even those
courts seem to accept that the shipowner will not be liable for the negligence of US
stevedores. This seems to be the position of the Court of Appeals for the Ninth Circuit, which
has held that the foreign stevedore is probably beyond the reach of the courts in the USA
and therefore the safety of the longshoremen is improved by making the shipowner
responsible for cargo loaded by foreign stevedores. However, the Court of Appeals for the
Third Circuit has held that a shipowner has no general duty towards longshoremen to
supervise or to inspect the stowage of an independent stevedore. The shipowner need only
warn of known and non-obvious dangers.

Whatever the strict position of the law may be, members should impress upon their
employees the importance of checking, as far as possible, the stowage of the ship before she
arrives at a US port, and especially that they must act upon any complaint by longshoremen
of any hazard which could cause an accident. It is only by members' vigilance that these
claims will be further reduced.

6. Container ships

Container ships present particular dangers because conventional lashing arrangements

necessitate working on the tops of containers to place twistlocks and to remove them; and
when these have been removed longshoremen often throw them to the weatherdeck with
the risk of striking someone. Recently semi-automatic and fully automatic twistlocks have
replaced manually opened or closed twistlocks. These are fitted and removed before the
container is loaded. With these types of twistlock it is unnecessary for longshoremen to work
on the top of a container.

7. Ship's cranes

It is customary for longshoremen to drive ship's cranes. An officer should check the ladders
in the crane tower and access to the cab before cargo work is started to ensure that they are
safe. Hydraulic oil leaks within the crane should be repaired immediately.

Page 26
COLLISION LIABILITIES FOR DEATH, INJURY OR ILLNESS - RULE
20.4

A. COVER

The Club covers any liability which a member may have for death or injury to persons on
another ship arising out of negligence on board of or in relation to the entered ship. The
greatest exposure arises out of collisions. Hull underwriters do not cover loss of life or
personal injury claims arising out of collision and, therefore, whether or not the Club has
one-fourth, four-fourths or none of the collision risk, the Club covers any liability that
members may have for loss of life or personal injury to anyone on another ship, whether
caused by collision or not.

B. LAW

The laws governing collision generally will be discussed under the collision Rule 20.11. Here
the comments are restricted to the law as it deals with personal injury claims arising out of a
collision.

1. The Brussels Collision Convention of 1910. (See later discussion under Rule 20.11 for
those countries which have ratified the convention.) Claims in respect of loss of life and
personal injury are treated in a different way to property claims under this convention. The
colliding ships (where both are to blame to any extent) are jointly and severally liable for
personal injury. A claimant can recover damages in full from either ship, subject to
limitation. The liability between the ships is apportioned according to the separate degrees of
fault. However, if one owner has paid out damages which exceed his degree of fault and
seeks to recover the excess from the other owner, that other owner may rely on any defence
which would have been available if he had been sued direct, e.g. passenger contract limits.

2. Non-convention states: China, Panama and Liberia. Liability is generally apportioned on

the basis of fault and the degree of fault.

3. United States of America. The position on personal injury claims is the same as that for
the convention states. The injured person can recover in full from either of the ships if both
are at fault to any extent. The right of recovery between the two ships is subject to limits
and contractual terms although passenger limits and defences are not upheld in the US.

C. LIMITATION

1. The 1957 Limitation Convention.

Under this convention there is a limitation, in respect of claims arising on any one occasion
solely for loss of life or personal injury, of 3,100 gold francs per limitation ton (i.e. a flat rate
per ton unlike the sliding scale under the 1976 Convention). If there are property damage
claims alone then the limitation is 1,000 gold francs per ton. If there are both personal
injury and property claims then the limitation is 3,100 gold francs per ton of which 2,100
gold francs is to be exclusively available for loss of life or personal injury claims. Where this
limitation is not sufficient to pay the personal injury claims in full such claims are to rank
rateably with the property claims against the balance of 1,000 gold francs per limitation ton.
Many of the states have converted the francs into SDRS. Gold francs 3,100 = SDRs 206.67,
gold francs 1,000 = SDR 66.67, gold francs 2,100 = SDRs 140.

Page 27
2. The 1976 Limitation Convention.(See later discussion under the collision Rule 20.11 for
the list of countries which have ratified the 1976 Limitation.)

Under this Convention there is a separate limitation for personal injury claims (apart from
passenger claims which have their own limitation per person, and overall - see the earlier
discussion under the passenger Rule). For a ship with a tonnage not exceeding 500 tons
there is a limitation of SDR333,000. For a ship exceeding 500 tons and up to 3,000 tons an
extra SDR500 per ton must be added. When the tonnage of the ship exceeds 3,000 and up
to 30,000 tons an extra SDR333 per ton must be added. When the tonnage exceeds 30,000
tons and up to 70,000 tons an extra SDR250 per ton must be added. When the tonnage
exceeds 70,000 tons an extra SDR167 per ton must be added. The value of the SDR can be
found daily on the currency page of the financial newspapers. If the event gives rise to both
personal injuries claims and to property claims and the personal injury fund is not sufficient
to satisfy the personal injury claims in full then the property fund, which will be discussed
under the collision Rule, is available to meet the unsatisfied balance of the personal injury
claims as well as the property claims with no priority.

At a diplomatic conference in London in 1996, a protocol revising the 1976 Convention was
passed. It does not alter the structure since separate funds are maintained in respect of
personal injury and property claims, but the protocol does increase the figures and also
introduces a rapid amendment procedure. The protocol will enter into force 90 days after
being accepted by ten states. The new figures for personal injury, excluding passengers, are
as follows:

TONNAGE Personal Injuries [excluding passengers]

Up to 2,000 gt SDR 2m
From 2,001 - 30,000 gt Add SDR 800 per gt
From 30,001 - 70,000 gt Add SDR 600 per gt
From 70,001 gt Add SDR 400 per gt

3. United States.

The US is not a party to the Limitation Conventions. The law is governed by the Limitation of
Liability Act 1851, which allows an owner or demise charterer to limit in respect of most
types of claim, which arise out of the operation of the ship, to the value of the shipowner's
interest in the ship plus the pending freight, provided that the claim arises out of acts or
unseaworthiness of which the owner does not have privity or knowledge. In practice, the
courts in the United States are extremely reluctant to allow owners to limit.

Page 28
DEATH, INJURY OR ILLNESS ARISING OUT OF THE CARRIAGE OF
CARGO - RULE 20.4.A

The normal personal injury rules restrict cover to 'negligence in relation to the entered ship',
or at most 'negligence in relation to the handling of the cargo from the time of receipt on
quay until final delivery ex-quay'. Through-transport operators need cover if the cargo or the
container or trailer causes any claims away from the port. A typical example is a road
accident involving a container or trailer. In the United States, the injured party is likely to
sue the shipowner who has his name emblazoned on the side of the container, as well as the
haulier. Normal P&I cover does not take care of such claims because the negligence has to
be 'in relation to the entered ship'. The Club has therefore taken out reinsurance to cover
such risks and this is the cover set out in Rule 20.4.A. Members are covered for any liability
for loss of life, personal injury or illness of any person arising out of the carriage of any
cargo or container provided the cargo or the container is intended to be or has been carried
on the entered ship.

Note:

The certificate of entry has to be endorsed to show that cover has been granted under this
Rule. There is a limit of liability of $10m any one accident or occurrence. Punitive damages
are not covered.

There is similar cover for third party property damage claims (Rule 20.15.A) quarantine
claims (Rule 20.19.A) and fines (Rule 20.29.A) with similar restrictions.

Page 29
REPATRIATION AND CREW SUBSTITUTION - RULES 20.5 AND 20.6

A. COVER

These rules cover the repatriation of an injured or ill seaman and the cost of sending out a
substitute. The Club also covers the cost of repatriating any crewmember who absconds
ashore in a foreign country and the ship leaves without him. The Club does not cover normal
repatriation at the end of the crewmember's period of employment.

The Club does not cover repatriation when the ship is sold, or repatriation when a
crewmember is dismissed for breach of contract unless 'the Board considers that the
dismissal was necessary in the interests of the safety of the ship or crew or the proper
running of the ship'. The Board has sometimes been sympathetic to claims involving the
repatriation of a crewmember who is violent or a trouble-maker on board because his
removal can be considered as sue and labour to prevent a personal injury claim from
another crew member.

B. CLAIMS HANDLING

When a crewmember deserts in some countries, especially Canada, the owner has to put up
a deposit to cover the cost of repatriating the crewmember if he is found. The owner
normally seeks immediately to recover the deposit from the Club. The deposit is refunded to
the owner by the government if the crewmember has not been found within a certain period,
and the Club is of course entitled to the refund.

In the USA, if a crewmember is designated as a prohibited immigrant by the immigration

authorities when the ship arrives, then he is not allowed even to go down the gangway on to
the dock. If he does leave the ship, there is a minimum fine of US$3,000, even if he returns
safely. The immigration authorities may require guards to be posted if there are 'prohibited
immigrants' on the ship. (See further details under the discussion on immigration fines.)
It is unfortunately quite commonplace for some nationalities to abscond in foreign ports.
Historically, there was a very high incidence of Chinese and Filipino crew absconding in the
USA; currently there are many reports of Burmese crew absconding in Japan. Crewmembers
seldom walk ashore on the spur of the moment; organised crime is often involved.

Masters should brief their crews on the risks involved in absconding and should take care to
ensure that their officers, particularly the radio operator (where carried), are suitably
vigilant.

Page 30
LOSS OF SEAMAN'S EFFECTS - RULE 20.7.

Members are covered for their liability to reimburse their crew for damage to or loss of
'effects', which includes clothes, documents, navigation and other technical instruments and
tools, but not cash. Such claims normally arise after a casualty, but members are covered
for any liability to reimburse their crew for loss of effects whenever the loss occurs and even
if the loss occurs through theft, provided only that the members are liable to their crew
either under a statute or under a crew contract previously approved by the Managers in
writing. Claims for loss of effects following attacks by pirates are now commonplace.
Visitors should not be allowed to wander unaccompanied around the accommodation and
should be escorted. Visitors who do not have any business on the ship should be escorted
ashore. It is important to instruct crewmembers and officers to watch the gangway for
visitors. In some ports it will be necessary to have a continuous gangway watch and to raise
the gangway at night. Masters should always ask the ship's agent if this is necessary.
Experience shows that human nature tends to exaggerate the value of lost possessions;
employment contracts should specify a reasonable amount as a limit for the owners' liability.
All claims must be approved first by the head of department on the ship.

Page 31
SHIPWRECK UNEMPLOYMENT INDEMNITY - RULE 20.8

Many contractual terms provide that seamen are entitled to receive pay until the estimated
end of the voyage (or even beyond) when their articles are terminated prematurely because
of the loss of the ship in a casualty. The Club covers this liability if the Managers have
approved the contract terms. Under certain jurisdictions, including the United Kingdom and
Greece, the seaman does not get this pay if he goes back to sea before the voyage would
have ended.

Page 32
PORT AND DEVIATION EXPENSES - RULE 20.9

A. COVER

The Club covers expenses incurred in consequence of having on board the entered ship
stowaways, refugees, survivors from another ship or sick or injured seamen. The Club
covers the cost of maintaining such people on board, the running costs of the ship incurred
in deviating to land them, and the running costs incurred in waiting for a substitute for a sick
or injured seaman.

B. CLAIMS HANDLING

1. Stowaways

Most countries allow a stowaway to be landed only if he has the necessary travel documents
to return to his own country. Stowaways discovered on board rarely have any
documentation. It is often very difficult, time-consuming and expensive to arrange for the
landing and repatriation of stowaways and the cost should never be underestimated. Owners
should obtain the following information from each stowaway prior to the ship's arrival at the
port where the Club and the owners are trying to land him:

* name of stowaway;

* stowaway's date and place of birth;

* nationality of stowaway;

* name, date and place of birth of either or both of the stowaway's parents;

* postal and residential address of the stowaway and either parent;

* stowaway's passport, together with date and place of issue;

* stowaway's next of kin, if different from above.

Under the United States Refugee Act 1980 a stowaway who arrives in the US can request
political asylum and the Immigration and Naturalisation Service in the past ruled that
shipowners are required to provide 24 hour armed guards during the entire asylum process,
which can take months. The Court of Appeals for the Third Circuit held that this policy was
imposed without consultation and due process. Subsequently, the Illegal Immigrant Reform
and Immigrant Responsibility Act of 1996 laid down that review of the request must be
concluded within seven days and the shipowner is only responsible for the costs of caring for
the stowaway for 15 days, and also for the cost of returning the stowaway to his home
country.

2. Refugees

When dealing with stowaways or others who claim they are refugees and, therefore, wish to
seek asylum, shipmasters, shipowners and their agents should be guided by the following
considerations:

(a) Under no circumstances should the asylum-seeker be returned to the country of origin or
disembarked in any other country from where he would risk being returned to the country of
origin or where his life or freedom would be threatened on account of race, religion,
nationality, membership of a particular social group or political opinion.

Page 33
(b) The shipowners, their agents and shipmasters, in conjunction with UNHCR, should seek
disembarkation of the asylum-seeker at the next port of call where he would not be exposed
to any of the risks mentioned above.

(c) To this effect, the master should immediately inform the shipowners, and/or their agents
of the presence on board of the stowaway asylum-seeker, and they should in turn contact
UNHCR providing as much information as possible on the reasons indicated by the asylum-
seeker in support of his claim to refugee status.

(d) If unable to contact the nearest UNHCR representative in the field, shipowners or their
agents may consider as a focal point for this, and all other communications between them
and UNHCR, the UNHCR Headquarters in Geneva.

(e) Under no circumstances should the identity or any other details concerning the stowaway
asylum-seeker be revealed to officials of an embassy, consulate or other representation of
his country of origin.

(f) UNHCR will provide practical information/advice on the local authorities who are
competent in the country of disembarkation to deal with asylum claims.

(g) The shipowners or their agents, if required together with UNHCR, should arrange for an
interview of the asylum-seeker upon disembarkation in order to identify the principal
elements of his case. The interview should preferably be conducted by the immigration
authorities from the country of the port of call competent to deal with asylum claims, using
an interpreter when this is necessary, in the presence of a UNHCR officer or an attorney co-
operating with UNHCR. A transcript of the interview should be communicated to UNHCR. If
the interview cannot be conducted by the immigration authorities, a UNHCR officer or an
attorney co-operating with UNHCR should interview the asylum-seeker.

(h) Where countries are adamant in refusing disembarkation of the asylum-seeker,

shipowners or their agents should arrange for him to be interviewed on board. The
procedure followed, and UNHCR's involvement, should be as above.

(i) If the asylum-seeker is determined to be a refugee, UNHCR will assist in finding a durable
solution for him.

(j) Where the asylum-seeker is determined not to be a refugee, he should remain under the
shipowner's responsibility and should be treated as any other stowaway.
Check-list on action to be taken:

(i) By the ship's master.

The following information is generally required by all ports before permission for the
disembarkation of refugees can be granted and should be radioed or cabled to the next
scheduled port of call as soon as possible:

* Name of the rescuing ship;

* Flag and port of registry of the rescuing ship;

* Name and address of the owner of the ship;

* Owner's agent at the next port;

* Estimated date and time of arrival at the next port;

* Exact number of refugees on board;

Page 34
* Date, time, latitude and longitude of rescue;

* State of health of refugees on board and whether any are in need of emergency medical
treatment upon arrival.

It will hasten disembarkation if a list of refugees' full names, by family groups, showing date
of birth, nationality and sex, is typed out and handed to the port immigration authorities
upon arrival or, if possible, is transmitted to the ship's agent prior to arrival.

(ii) By the ship's agent.

All information supplied by the ship's master should be conveyed to the ship's owner, or
diplomatic representative of the ship's flag state and the UNHCR office in the country of
disembarkation.

3. Survivors

There should be little difficulty in landing survivors since their employers and their
employers' P&I club should make the necessary arrangements to receive them. However, it
is advisable to contact the Club since the Managers will have access to the club with which
the lost vessel was entered; this is usually the simplest way of contacting the owners.

C. CLAIMS PREVENTION

There are certain high-risk areas for stowaways, particularly certain African ports in the case
of those hoping to get to Europe, and such European ports as Le Havre, Antwerp,
Zeebrugge, Hamburg, Lisbon, Valencia and Cadiz for stowaways from Eastern Europe and
China hoping to get to Canada or the United States. The breakdown of borders and security
in Eastern Europe has led to a significant increase in the number of people trying to get into
the US and Canada illegally. At such ports, great care must be taken to ensure that
stowaways do not board. A watch should be kept on the gangway. Stevedores should only
be allowed to work in restricted areas and again a watch should be kept on them. Doors
should be locked. A search of the ship should be carried out before the ship leaves.

Le Havre is an especially high risk area for Romanians hoping to get to Canada or the UK.
Members should arrange for all open-top containers on the quay to be checked and all
containers on the quay should be stacked door-to-door if possible, since although stowaways
originally concentrated on open-top containers they have become more sophisticated and
now often enter closed containers leaving no sign of the seals having been tampered with.
Again, security guards should be posted on the gangways. Members are recommended to
read ''Stowaways by Sea' recently published by the Nautical Institute which lays down a
number of measures to take in particular high risk areas:

• checking everyone embarking and disembarking;

• sealing off certain parts of the ship to prevent access and reduce the areas and
compartments which may need to be searched;

• conducting searches of vehicles and loose cargo;

• posting a lookout to prevent people climbing aboard.

(See Marine Matters Issue 2 – September 1998 – Cracking down on the stowaway)
(See Masters’ Guide to Shipboard Accident Response – Stowaways and ships security)

Page 35
LIFE SALVAGE - RULE 20.10

The Club covers life salvage, but 'to the extent only that the same is not recoverable from
hull underwriters on the entered ship'. Life salvage is a reward for the saving of life, but
historically salvage has not been payable where lives alone have been saved, and even
under the 1989 Salvage Convention, life salvors are only entitled to a fair share of the
remuneration awarded for salving a vessel and her cargo and such award would be payable
only by the underwriters on vessel and cargo. There is no award if lives alone are saved.
Therefore, under the rules, the term has come in practice to mean any remuneration, not
just an award, payable to a third party in respect of services rendered in saving or
attempting to save the life of a person on board the entered ship. The US Court of Appeals
for the Second Circuit held in Peninsular and Oriental Steam Navigation Co. v Overseas Oil
Carriers Inc. (1977 AMC 283) that a passenger ship, which altered course in response to a
radio request to take on board an ill seaman from another ship, having no medical staff, was
entitled to recover from that other ship the reasonable value of the services rendered. Italian
law also allows the assisting ship to recover from the assisted ship. There is a very loose
unofficial understanding between the clubs that the cost incurred by one ship to give medical
assistance to save the life of a person on another ship should be paid for by the ship
receiving assistance.

Page 36
COLLISION RULES - RULE 20.11 and 20.12

A. COVER

1. Traditional cover

The clubs traditionally cover only one-fourth of the collision risk and this cover was one of
the reasons for the clubs starting in the middle of the 19th century because the Lloyd's
market considered that to insure shipowners fully against collision would make them
reckless. Therefore, shipowners were to bear at least one-fourth of the collision risk to keep
them on their toes. Shipowners thereafter clubbed together to cover themselves against this
uninsured risk.

Rule 20.11 states that a member can only recover a liability.

'..which would have been covered under the usual form of Lloyd's policy with the institute
time clauses (hulls) attached or other form of hull policies....provided such other policies
have previously been approved by the Managers in writing.

The London market has introduced new conditions for hull insurance from November 1995 -
the ITC Hulls 1.11.95. These have been fiercely resisted successfully by many owners for a
number of reasons - the tougher classification clause; the exclusion from cover of certain
damage including bursting of boilers , breakage of shafts or any latent defect in the
machinery or hull if the damage results from want of due diligence by superintendents and
on-shore management as well as owners and managers; a requirement to notify
underwriters promptly of any loss or damage which may result in a claim and if notice is not
given within 12 months then the claim is extinguished; a new restricted perils clause, which
may be imposed on owners with poor records or those who do not wish to pay higher
renewal premiums, which does not include loss or damage caused by the negligence of the
master, officers and crew, barratry of the master, officers and crew and bursting of boilers
and breakage of shafts. None of this affects the cover available from the Club for collision
liabilities.

However, most importantly for the clubs, considerable restrictions were imposed on the
cover for expenses or liabilities incurred in respect of damage to the environment. The clubs
have advised members that in order to maintain the same level of cover as was available
under previous hull policies, they should ensure that they purchase the additional cover
under the buy-back provision known as 'the institute general average - pollution expenditure
clause hulls' with an amendment to ensure that the buy-back provision applies to whatever
type of York-Antwerp Rules is incorporated into the contract of carriage. This will be further
discussed under the pollution Rule 20.14 [the pollution rule].

(a) What is covered?

The collision risk includes those risks which are covered by the Institute Time Clauses
(Hulls). These are loss of or damage to any other ship, loss of or damage to its cargo, delay
to the other ship or its cargo, general average or salvage to any other ship or its cargo.

Page 37
(b) What is excluded?

The UK hull market always excludes wreck removal of the other ship, loss or damage to
docks (i.e. the other ship being pushed on to a dock and damaging it), loss of life or
personal injury or pollution. These risks excluded by the hull insurance are covered in full by
the Club either under the collision rules - wreck removal and dock damage (see Rule
20.11.2) or other rules - loss of life or personal injury on the other ship (Rule 20.4) and
pollution from the other ship (Rule 20.14.8).

Note:

(i) Claims involving damage between an entered ship towing and a ship being towed are
excluded from this Rule and are always dealt with under the towage Rule (see proviso v to
Rule 20.16.2) - 'notwithstanding anything provided in this paragraph 16.2 or elsewhere in
these Rules, there shall be no recovery by a Member in respect of liability for loss of, or
damage to, or wreck removal of, a towed ship or object and/or its cargo or other property,
whether such liability arises under the terms of the contract or otherwise, unless the
Managers have agreed in writing to cover such liability.'

(ii) The liability of an entered ship being towed to the ship towing arising under the terms of
the contract, even if the damage was caused by contact, is not covered by the Institute Time
Clauses and is therefore not covered under the collision rule. The liability of hull underwriters
is only for such damages as would be payable by the owner in the absence of any special
terms in the contract of towage. Scandinavian hull underwriters may cover the risk. Such
liability under the contract will be covered entirely by the Club under Rule 20.16.1, subject
to the provisos in that Rule.

(c) Differences between different hull insurances.

(i) The basic English policy covers only what is set out above.

(ii) Scandinavian, US, German, Dutch, Japanese and French underwriters normally do not
limit liability to 3/4ths of the risk. They cover all the risk.

(iii) Scandinavian conditions do not cover damage by an anchor but all other insurances
generally do.

(iv) Scandinavian, German, Dutch and French conditions cover damage to third-party
property other than a ship (i.e. dock damage claims), whereas the other hull markets only
cover damage to a third-party ship.

(v) Scandinavian, German, Dutch and French conditions cover removal of the wreck of the
other ship.

(vi) Italian underwriters cover damage by 'urto' (contact) with fixed and floating objects.
That will probably include damage by an anchor.

(d) What is a collision for the purposes of the Institute Time Clauses?

The vessel insured must 'come into collision with another vessel' for there to be recovery
under the Institute Time Clauses and therefore under this Rule of the Club. There does not
have to be an actual contact between the hulls of the two ships. It is sufficient if some part
of one of the ships comes into contact with a part of another ship e.g. contact with the
anchor, but not fouling of the nets of a fishing boat. If what occurred is not considered a
collision then the claim will normally be covered entirely by the Club under Rule 20.15, being
damage to another ship without collision.

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(d) What is a vessel or ship for the purposes of the Institute Time Clauses?

A hopper barge is a ship and so are dumb barges. A pontoon being towed for the purpose of
transporting part of a crane was considered a ship and so was a structure shaped like a ship
with a deck and hatches but flat bottomed without rudder or means of propulsion and which
was used to force sludge through a pipe. However, there are a number of cases where
structures, whose primary purpose is fulfilled whilst the structure is moored in a stationary
position, have been held not to be ships. A flying-boat is not a ship. The test is navigability
but not necessarily under the ship's own power. If the object with which the entered ship
collides is not a ship for the purposes of the hull insurance then the whole risk is normally
covered by the Club as damage to a fixed or floating object under Rule 20.13.

(f) If a ship collides with a sunken ship the test of whether the sunken ship is a ship or a
wreck depends on whether there was a reasonable expectation of salving the sunken ship. If
the other ship is a wreck then the Club again will cover normally four-fourths and not one-
fourth because the incident will be considered damage to a fixed or floating object.

2. Extensions to traditional cover

(a) Four-fourths

Since 1985 the clubs have been able to cover the entire collision liability if members so
require. Note that such cover must be specifically recorded in the certificate of entry.
Members do not automatically have this cover.

(b) Excess Collision Liability - (Rule 20.12)

The collision liability covered by a hull insurer is always limited to the insured value of the
ship. Under Rule 20.12 the Club provides cover for collision liability which normally falls
within the scope of the hull policy but is in excess of the ship's insured value under that
policy.

Proviso (i) makes it clear that the Board has the power to consider whether the ship was
underinsured and, if the Board considers that the ship should have been insured at a higher
figure, the Club pays only the excess which would not have been recovered by the member
from his hull underwriters even if the ship had been insured at that higher figure. Note that
the Board must determine the proper value. The Board cannot just say the ship was
underinsured and reject the claim.

The Board has generally considered this question of the proper insurance in respect of claims
arising under Rule 20.24, which covers the ship's proportion of general average that
members cannot recover from their hull underwriters because the ship has been valued by
the average adjusters higher than the amount for which she was actually insured. The Club
sent out a circular on 9th February 1989 stating that ships should be insured for at least
their market value without commitment and the Board expects members to review the
values regularly. An annual review may not be adequate when values are increasing rapidly.
The Board in 1993 had to consider a case where the ship had last been revalued for her hull
insurance 11 months before an incident which gave rise to heavy general average
expenditure. In those 11 months the market value of the ship had doubled and the member
could not recover a substantial amount of ship's proportion of general average from the hull
underwriters. The Board considered that the member should have reviewed the values at
least quarterly and held that the Club should only reimburse the member for a small amount
of the unrecovered ship's proportion.

Page 39
In the same year the Board had to consider a case where a ship was valued at $3.43m but
only insured for $2.5m. Her hull and machinery policy had been renewed at this value only
three months before the casualty, at which time the value had been confirmed by sale and
purchase brokers. In these circumstances the claim was accepted by the Board.

The Club covers the wreck removal of the other ship and damage by the other ship to a fixed
or floating object in full if these are not covered by the hull insurance (Rule 20.11.2.).

The Club does not cover any deductible borne by the member under his hull insurance.

3. Guarantees

There is no obligation on the Club to give security where it does not have the entire risk.
Indeed there is no obligation on the Club to give security even if it does have the entire risk
(see Rule 25). It is, however, normal for the club to give 4/4ths security where it has either
the entire risk or 1/4 of the risk.

Where security is given and the Club does not bear the entire risk, the Club

(i) charges at least half of one per cent on the amount of the risk not covered by the Club,
and;

(ii) requires adequate counter-security from the other insurers. The hull insurers must be a
first-class credit risk. The decision as to the acceptability of the counter-security lies solely
with the Managers. It is therefore important for members to have discussed the acceptability
to the Club of a counter guarantee from the hull underwriters before a collision occurs.
If the collision is subject to the 1976 Limitation Convention, the ship should be released once
the limitation fund is put up, and the Club will not normally be prepared to give security for
more than the limitation fund. However, in both France and Australia, courts have held that
the payment into court of the limitation fund does not automatically entitle a detained vessel
to be released. Those courts have held that courts must first determine whether the
shipowner's conduct debars him from limiting liability. This may give the Club and the
owners problems because the circumstances in which an owner loses his right to limit under
the 1976 Convention, wilful or reckless conduct, may be similar to the circumstances in
which an owner loses his right to recover from his insurer under the Marine Insurance Act,
'where with the privity of the assured the ship is sent to sea in an unseaworthy state. . . '. If
the Club puts up a guarantee above the 1976 Limitation Fund then it may be giving up its
rights to defences under the Marine Insurance Act. Indeed, whenever the Club puts up a
guarantee it may be waiving its defences under the Marine Insurance Act if the member
does not have sufficient assets to reimburse the Club.

4. Recovery from Club and Hull Underwriters - Single and Cross Liability - (See proviso v to
Rule 20.12).

When liability and quantum are agreed between the parties then there are no longer two
separate liabilities between the parties. These are replaced at law by the one single liability
of the shipowner, who owes a net figure to the other side.

A shipowner is only entitled to limit liability in respect of this single liability. However, the
liability of the respective underwriters (both Club and hull insurers) is based on the original
gross liability of both parties to each other - the so-called cross-liability (as if the respective
owners had been compelled to pay each other such proportion of each other's damages),
unless the liability of one or both vessels becomes limited by law, and the estimate on the
member's record will be based on the gross liability.

Page 40
B. LAW

1. Liability

(a) The Brussels Collision Convention 1910

The Collision Convention has been ratified by most countries apart from China, Liberia,
Panama and the USA. The Convention provides that, apart from claims for death or personal
injury, the liability of each of the colliding ships is to be apportioned as follows:

(i) If the collision is accidental, or is caused by force majeure, without the fault of either
ship, the damages are borne by those who have suffered them.

(ii) If the collision is caused by the fault of one of the ships, the other being entirely
blameless, the ship solely at fault is liable for the loss or damage caused.

(iii) Where each of the colliding ships is at fault, liability for both damage to the ship and
cargo is apportioned in relation to the degree of fault of each ship. A cargo owner may of
course be prevented from recovering from the carrying ship because of exceptions in the bill
of lading e.g. negligence in navigation defence.

(iv) Where each of the ships is at fault, but the degree of fault of each vessel cannot be
determined, liability is apportioned equally.

Claims for loss of life or personal injury are dealt with under the discussion under Rule 20.4.
The colliding ships (where both are to blame to any extent) are jointly and severally liable
for personal injury.

(b) Non-Collision Convention States:

China, Panama and Liberia. In general, liability is apportioned on the basis of fault.

(c) United States.

(i) Liability to the owner of the other ship.

Where both ships are to blame, liability is allocated in proportion to their respective degrees
of fault. This is the same as the Collision Convention.

(ii) Liability to cargo. (This is different from the Collision Convention.)

Where both ships are to blame the owners of cargo lost or damaged can recover in full from
either ship subject to the shipowner's right to limit and the provisions of the contract under
which the cargo is carried. If the Hague or Hague-Visby Rules apply the cargo owner may
not be able to recover from the owner of the ship on which his cargo has been carried
because of the defence of negligence in navigation, but he is entitled to recover in full from
the non-carrying ship. The non-carrying ship can then claim by way of recourse a proportion
of those damages from the carrying ship. The amount of the damages payable by the
carrying ship to the non-carrying ship is calculated in proportion to the respective degrees of
fault of each ship. An attempt has been made to get round this by incorporating in any
contract of carriage, which may be subject to US jurisdiction the so-called 'Both-to-Blame
Collision Clause'. Under this clause the cargo owner agrees to indemnify the shipowner for
any amount of the cargo owner's damages for which the shipowner has had to indemnify the
other shipowner. Such a clause is invalid in bills of lading but may be valid in charter parties.
Liability for damage to cargo in the entered ship that is recoverable from the entered ship
under a recourse action by the other ship ('a cross-claim') is covered under Rule 20.22.

Page 41
2. Rules of the Road - The Collision Regulations.

The International Regulations for Preventing Collisions at Sea 1972 (in force 1977). See the
comments under claims' prevention later.

3. Limitation.

Originally, shipowners were entitled to limit liability to the value of the ship and her freight
i.e. to abandon the ship to the claimant. That explains the hull insurance cover for two funds
based on the value of the insured ship. Now with the crucial exception of the United States,
limitation is based on tonnage.

(a) 1957 Limitation Convention:

(i) This convention is still applied by Algeria, Fiji, Ghana, Iceland, India, Iran, Israel, Italy,
Malagasay Republic, Malaysia, Monaco, Papua New Guinea, Peru, Portugal, Singapore, Syria,
Tonga, Holy See and Zaire Republic.

(ii) Who can limit?

Shipowners, charterers, managers or operators, masters, crew or other servants of the

owners, charterers, managers or operators in respect of any act or omission committed in
the course of their employment. Salvors cannot limit liability.

(iii) The relevant tonnage is the net tonnage of the ship with the addition of the amount
deducted from the gross tonnage in respect of the engine room space. There are separate
limits for personal injury [3,100 gold francs per ton] and property damage [1,000 gold
francs per ton]. If there are claims for both personal injury and property then there is a total
limit of 3,100 gold francs of which 2,100 gold francs are exclusively available for personal
injury claims and the unpaid balance of such claims rank with the property claims against
the remaining 1,000 gold francs. Many of the states still applying the Convention have
converted the francs into Special Drawing Rights 3,100 gold francs equals 206.67 SDR,
1,000 francs equals 66.67 SDR, 2,100 francs equals 140 SDR.

(iv) The loss of the right to limit.

This is lost if the accident was caused with the actual fault or privity of the person
attempting to limit. The fault or privity must not merely be that of the servant or agent for
whom the company is vicariously liable but somebody for whom the company is liable
because his action is the very action of the company itself. This need not be the action of a
director if the management has been sub-contracted.

(b) Convention on Limitation of Liability for Maritime Claims 1976, has been ratified by
Australia, Bahamas, Barbados, Belgium, Benin, Canada, China, Croatia, Denmark, Egypt,
Finland, France, Georgia, Germany, Greece, Guyana, Japan, Liberia, Marshall Islands,
Mexico, Netherlands, New Zealand, Norway, Poland, Spain, Sweden, Switzerland, Trinidad
and Tobago, Turkey, United Kingdom, Vanuatu and Yemen.

(i) Who is entitled to limit?

Apart from the parties entitled to limit under the 1957 Convention, a salvor is also entitled to
limit providing he is rendering services in direct connection with the salvage or wreck
removal operations and so is an insurer of liability for any claim which is subject to the
convention.

(ii) Limitation amounts.

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There are two quite separate limits of liability - one in respect of claims for loss of life or
personal injury to the passengers of a ship, which has been discussed in the section on
passenger claims, and the other in respect of other claims. The general limits are contained
in article 6. A sliding scale has been adopted in preference to the simple system used in the
1957 Convention. The second limitation fund is itself divided into two parts: one for personal
claims (other than passengers) and the other for property claims. Under article 6, paragraph
ii, unsatisfied death and personal injury claims rank rateably with property claims in the
property part of the fund. Accordingly, if there are no property claims, the total amount
available for personal claims is the sum total of the two article 6 funds.

The fund for claims for loss of life or injury of persons other than passengers:
333,000 SDR
Tonnage not exceeding 500 tons

For a ship exceeding 500 tons, the following sums must be added to 333,000 SDR:
an extra 500 SDR per ton
Tonnage between 501 and 3,000 tons
an extra 333 SDR per ton
Tonnage between 3,001 and 30,000 tons
an extra 250 SDR per ton
Tonnage between 30,001 and 70,000 tons
an extra 167 SDR per ton
Tonnage in excess of 70,000 tons

For a salvor not operating from any ship (or operating 833,000 SDR
solely on the ship being salved):

The fund for other claims:

167,000 SDR
Tonnage not exceeding 500 tons

For a ship exceeding 500 tons, the following sums must be added to 167,000 SDR:
an extra 167 SDR per ton
Tonnage between 501 and 30,000 tons
an extra 125 SDR per ton
Tonnage between 30,001 and 70,000 tons
an extra 83 SDR per ton
Tonnage in excess of 70,000 tons

For a salvor not operating from any ship (or operating 334,000 SDR
solely on the ship being salved):

A conference in London in 1996 produced a protocol revising the 1976 Convention, which
does not alter the structure of the two separate funds in respect of personal injury and
property claims, but increases the figures as follows:

Tonnage Personal Injury Property

(excluding passengers)
Up to 2,000 gt SDR 2m SDR 1m
From 2,001 - 30,000 gt Add a further SDR 800 per gt Add a further SDR 400 per gt
From 30,001 - 70,000 gt Add a further SDR 600 per gt Add a further SDR 300 per gt
From 70,001 gt upwards Add a further SDR 400 per gt Add a further SDR 200 per gt

(iii) The 1957 Convention used the limitation ton, i.e., the net tonnage of the ship plus the
amount deducted from the gross tonnage on account of engine room space for the purpose

Page 43
of ascertaining the net tonnage. Under the 1976 Convention, the ship's tonnage is the gross
tonnage calculated in accordance with the rules contained in annex 1 of the International
Convention on Tonnage Measurement of Ships 1969. The effect of this is to increase the
tonnage of a ship for limitation purposes by an amount which varies according to the type of
ship.

(iv) Limitation Fund.

The convention states that once a limitation fund has been constituted at the port where the
event occurred, or at the first port of disembarkation ,in respect of personal injury claims, or
at the port of discharge in respect of cargo claims, or in the state where the ship was
arrested, then the ship should be released; but there have been decisions in Australia and
France denying release even though a guarantee for the limitation fund has been put up.

(v) Loss of right to limit.

There is no right to limit if it is proved that the loss resulted from a personal act or omission
on the part of the person liable, which was committed with the intention of causing such loss
or recklessly in the knowledge that such loss would probably result.

(c) United States.

The 1851 Limitation of Liability Act allows an owner or part-owner and a demise charterer,
but not other charterers, operators, managers, salvors, or liability insurers, to limit liability
to the value of the shipowner's interest in the ship after the event plus the pending freight,
in respect of all claims arising on one voyage. Limitation is lost if the loss, damage, injury or
death occurred with the privity or knowledge of the shipowner or bareboat charterer. The
idea of limitation is considered 'hopelessly anachronistic' by most US courts and limitation is
rarely allowed.

C. CLAIMS PREVENTION

The primary aid to claims' prevention in respect of collisions is the strict enactment by all
bridge watchkeepers of the Regulations for Preventing Collisions at Sea, the Collision
Regulations.

The Collision Regulations define what action should be taken to avoid a close-quarters
situation when two or more vessels are crossing, overtaking, proceeding down a narrow
channel or navigating in restricted visibility. The English Admiralty judge, Sheen J. said in a
collision case that "the deplorable fact is that these rules are disregarded all too frequently.
The structure of the Collision Regulations is designed to ensure that whenever possible ships
will not reach a close-quarters situation in which there is risk of collision and in which
decisions have to be taken without time for proper thought." The important rules to note are
as follows:

Rule 5 Every vessel shall at all times maintain a proper lookout.

Rule 6 Every vessel shall proceed at a safe speed.

Rule 7 Assumptions should not be made on scanty radar information.

Rule 8 Alterations of course (to avoid a collision) should be positive, made in ample time and
large enough to be readily apparent.

Rule 9 When a vessel is navigating down a narrow channel, she should keep to starboard.

Rule 13 An overtaking vessel shall keep out of the way of the overtaken vessel.

Page 44
Rule 14 When vessels approach head on, each shall alter course to starboard.
(See Standard Safety Issue 8 – End on ships)

Rule 15 When two vessels are crossing, the one which has the other to starboard shall 'give
way' and must avoid crossing ahead of the other.
Rule 17 In all circumstances, the 'stand on' vessel shall maintain course and speed, except if
the action of the give-way vessel alone is not sufficient to avoid a collision.

Rule 18 Power-driven vessels shall give way to vessels engaged in fishing, sailing vessels,
vessels 'not under command' and vessels with restricted manoeuvrability.

Rule 19 Vessels navigating in restricted visibility shall:

* have engines ready for immediate manouevre;

* avoid altering course to port;

* on hearing an unidentified fog signal forward of the beam, reduce speed and navigate with
extreme caution until the danger of collision is over.

After reviewing many collision claims the Managers believe it to be an incontrovertible fact
that, had these regulations been followed without deviation by either vessel, most collisions
would have been avoided. However, it is not lack of knowledge of the action required by the
collision which appears to lead to collision but failure to apply the action correctly.

Many of the collisions sustained by ships entered in the Club involve common factors which
frequently recur. Typical examples of these are as follows:

1. In fog or otherwise restricted visibility, the ships have failed to proceed at a safe speed
appropriate to the prevailing circumstances and conditions.

Excessive speed is often compounded by failure to have engines ready for immediate
manoeuvre, by failure to take positive avoiding action in good time before a close-quarters
situation develops and by an alteration of course to port.

2. Failure to keep a proper radar watch.

Collisions often result from avoidance measures initiated as a result of assumptions made on
scanty radar information. Frequently, little or no effort has been made to plot the other
vessel to ascertain if a risk of collision exists or to ascertain the other vessel's course and
speed in order to determine the proper collision avoidance measures.

Misuse of the clutter controls such that small or weak echoes are suppressed is often a
factor in collisions with small craft such as fishing vessels. The clutter controls should always
be adjusted to ensure optimum radar performance under the prevailing conditions.

(See Standard Safety Issue 1 – Radar watch keeping)

(See Standard Safety Issue 3 – Use of radar)

3. Failure to make alterations of course for collision avoidance purposes sufficiently large to
be readily apparent to other vessels. Collisions often result from a series of minor alteration
of course which remain undetected by the other vessel.

Page 45
4. Use of the VHF to agree a departure from the Collision Regulations, often resulting in a
subsequent misunderstanding as to what had been agreed.
Sheen J. said "Owners' superintendents should prohibit officers from using the VHF to agree
the manner of passing because it is fraught with the danger of misunderstanding. Officers
should be instructed instead to comply always with the Collision Regulations".

5. In narrow channels, failure to keep to the starboard side of the channel or failure to
proceed at a safe speed.

(See Standard Safety Issue 2 – Keep to starboard)

6. Failure to maintain a proper lookout. This is an increasingly significant factor in collisions

and is symptomatic of a marked decline in the standard of watchkeeping on board merchant
ships.

(See Standard Safety Issue 6 – Collision in mid-Pacific)

A significant number of collisions involve fishing vessels. These are almost invariably
attributable to a failure on the part of both vessels to maintain a proper lookout, often
compounded by the unpredictability of the manoeuvres of vessels engaged in fishing.
Watchkeepers on ships operating in the vicinity of fishing grounds should be vigilant at all
times, should give fishing vessels a wide berth and ensure that both visual and radar
watches are strictly maintained.

(See Standard Safety Issue 1 – Collision with fishing vessels)

7. Failure to reduce speed in addition to an alteration of course to avoid a collision.

Many watchkeepers rely on an alteration of course to avoid a collision, when a reduction in
speed may also be required or be more effective under the circumstances. Watchkeepers
should be encouraged to reduce the ship's speed at any time they deem it appropriate.

In order to reduce the risk of collision, the following measures are recommended in addition
to the strict enactment of the Collision Regulations:

(a) All deck officers should be familiar with the contents of the Bridge Procedures Guide,
published by the International Chamber of Shipping, and with the requirements of the
International Convention on Standards of Training, Certification and Watchkeeping for
Seafarers (the STCW Convention). Both set out clear guidelines with regard to the keeping
of a navigational watch.

(b) The ARPA (Automated Radar Plotting Apparatus) is a very valuable aid to collision
avoidance. In order to optimise the benefits of the equipment, the following are
recommended:

* Plotting and trial manoeuvres should be practised in good visibility to enhance familiarity
with the equipment and to gain confidence in its reliability and capabilities for use in poor
visibility.

* Practice in manual radar plotting should also be maintained.

* The closest point of approach (CPA) should be decided taking into account the prevailing
circumstances and conditions. The Master should ensure that the watchkeepers are fully
aware of his requirements in respect of the minimum acceptable CPA.

Page 46
(c) The development of Bridge Team Management procedures for navigation, passage
planning and collision avoidance is strongly recommended. A number of aids exist to assist
in the development of these procedures, including practical courses run by many nautical
colleges, a text book produced by the Nautical Institute a video produced by the Club.

(See Standard Safety Issue 8 – Bridge Team Management Training Video)

(See Standard Safety Issue 5 – Bridge team management)
(See Standard Safety Issue 1 – Collisions, Collisions in fog, Collisions in heavy rain)
(See Masters’ Guide to Shipboard Accident Response – Collisions and property damage)

Procedures for passage planning, pilotage and the master/pilot relationships are an essential
element of good bridge team management. Pilots can only be supervised when the master
and watch officer is familiar with the pilots intended route, of the alter course positions and
of the voyage hazards.

(See Standard Safety Issue 5 – Passage planning and pilotage, Master/pilot relationships)
(See Standard Safety Issue 6 – Passage planning)

D. CLAIMS HANDLING

There are two distinct differences between collision cases and most other claims. First, there
is a certain 'foreseeability' to a collision where often the ships have plotted one another on
radar and have then concluded that the right steps have been taken to avoid the incident.
The fact that a collision then occurs is traumatic in itself and causes a great deal of concern
to those personally involved, particularly masters who may have an otherwise impeccable
record. Secondly, there are two sets of facts which have to be considered as against the
usual one set.

As a result, the collection of evidence becomes the most crucial part of claims' handling.
Prompt action is needed in particular:

1. Witness Statements

Statements should be obtained from those on watch, both on the bridge and in the engine
room, at the next port and as soon after the collision as possible. If the damage to the
member's ship is of a minor nature and she sails on to complete a voyage, the owner should
ask for those involved to make written reports while their memories are fresh. Such
statements should be restricted to the facts and should not comment on responsibility.
Competent lawyers in foreign ports can take statements but consideration should be given to
the employment of London solicitors with suitable marine experience to get the facts, even
where another jurisdiction may ultimately be involved. London solicitors have more
experience of collision claims than lawyers elsewhere. The officers and the crew should not
discuss the case with anyone other than the lawyer or correspondent approved by the owner
and the Club. The master should check the credentials of anyone who comes on board to
take statements.

2. Records and Documents

The following must be preserved:

* the working chart, without any alterations;

* the bridge log book, without any alterations;

* the engine room log and movement book;

* the course recorder trace with times;

Page 47
* the echo sounder trace (if operating) with times;

* a copy of the record of the Global Position Fixing System (GPS);

* any notebooks or other scraps of paper on which details of navigational fixes may have
been recorded;

* the ship's radio log, including a record of radio forecasts received - particularly relevant if
a collision occurs in fog;

* copies of the captain's night orders, in the case of a collision at night;

* a copy of the captain's general orders concerning close quarters;

* a copy of the company's standing instructions on watchkeeping.

* a defects' log or owner's requisition book, if such is kept;

In connection with these documents, the synchronisation between the various clocks must
be checked since there will frequently be discrepancies between the times recorded in these
various documents.

3. Surveys

A survey of the damage needs to be conducted on the entered ship, to which the other
ship's insurers should be invited. A request should be made to the owners of the other ship
to be allowed to survey their damage. Cargo must be surveyed if there is any breach of
either ship's holds. If there are any serious injuries, investigation as part of the survey
should also be conducted to ascertain how these occurred.

4. Speed and Angle-of-Blow Surveys

It is often possible, by inspection of both ships, to get an idea of their speed at the moment
of contact and the angle between the centre-lines of the two ships upon impact. Consulting
surveyors will be needed for such a survey.

5. Shore-side Evidence

If there are suggestions that visibility was affected in any way or that rough weather
contributed to the collision, there may be weather stations with records of actual conditions
and forecasts. For many confined waterways there are traffic control schemes where radar is
used to watch all ships. The radar picture is usually recorded on video tape. For example, in
the Dover Straits it is possible to obtain a complete picture of the movement of all traffic.
The same is true of many major ports.

6. Other Information

Once the above initial evidence collection has been carried out, it is important to assess it
quickly. For example, if the suggestion is that the ship was turning sharply at the time, it is
worth asking the owners for the ship's turning circle data. Alternatively, if there has been a
power breakdown or blackout immediately prior to the incident, establish the reasons. It is
always worth spending a little extra money at the beginning of a case to obtain as much
information as possible, which may save much time, effort and speculation at a later stage.

Page 48
DAMAGE TO PROPERTY (OTHERWISE THAN BY POLLUTION) - RULE
20.13

A. COVER

'Loss of or damage to or interference with rights in relation to any harbour, dock ... or any
fixed or moveable thing whatsoever, not being another ship or any property therein, or the
cargo or other property intended to be or being or having been carried in the entered ship, if
liability for such loss or damage is imposed by statute or arose out of the negligent
navigation or management of an entered ship or other negligent act or omission on board or
in relation to an entered ship', (Rule 20.13.1) '[or]... if the liability arises ... under the terms
of an indemnity ... to the owners or operators ... of any dock or drydock' [Rule 20.13.2].
[Cover under Rule 20.13.2 includes damage to another ship unlike cover under 20.13.1].

1. There does not have to be contact. Under this Rule, the Club covers any loss or damage
to anything, apart from another ship, whether by contact or without contact. Damage to
another ship is also covered if the liability arises under an indemnity to a port authority.

2. When does a ship become a wreck and therefore a floating object? See the comments
under the collision Rule. The test is not whether the shipwreck is any longer navigable but
whether 'any reasonably-minded owner would continue salvage operations in the hope of
completely recovering the vessel by those operations and subsequent repairs.'
Note the comments of Greer J. in Pelton v North of England P&I 1925 22 Lloyd's List Reports
at page 510 - "a ship like any other thing remains entitled to its description until the facts
are established which show that it has become disentitled to its ordinary name or
description. Just as a man may be moribund without ceasing to be a man, if the doctors are
hopeful that they will be able to secure his recovery by treatment, so I think a ship may
remain a ship or vessel even though she be damaged and incapable of being navigated if
she is in such a position as would induce a reasonably minded owner to continue operations
of salvage."

3. Indemnities

Liabilities, costs and expenses which would not have arisen, but for the terms of a contract
or indemnity entered into by an owner are not covered, unless that contract or indemnity
has been accepted or approved by the Club by the exercise of a discretion granted under its
Rules.

Liability under indemnities can arise under other rules, particularly Rule 20.17 - liability
arising under contracts for hire of cranes, lighters or other loading or discharging appliances
if the indemnity has been approved by the Club Managers.

Indemnities are classified by the clubs into three grades for the purposes of deciding
whether they can be covered.

Category A

Indemnities arising in the normal course of trading (e.g. to ports, terminals and lay-up
berths or for the hire of cranes or for the carriage of hazardous cargo) are covered whatever
their terms, but the Club tries to obtain a limit and an exception of sole negligence if time
permits. Indemnities to the Panama Canal Commission, permitting certain large ships to
make an initial trial transit of the Canal at a draft greater than that assigned to the ship by
the Commission, fall within this category.

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Category B

Indemnities where club cover is not automatic e.g. indemnities to repair yards and
indemnities required after casualties and for dry docking with cargo on board. This category
includes indemnities to the Panama Canal Commission required by reason of the trim or
loading of the vessel. The decision lies with the club concerned. There may be more time to
negotiate changes particularly where the repair work is arranged some time in advance and
in the case of casualties the risk can sometimes be laid off by the purchase of SOL
insurance, the cost of which may fall to the account of the hull insurance.

Category C

Indemnities which are not poolable and which the member or the Club should reinsure into
the market:

(a) Some Panama Canal indemnities are not covered. Certainly those relating to the
construction and fittings of the ship are not covered.

(b) Excluded helicopter indemnities. Cover will not be prejudiced provided that:

(i) there is no contract between the shipowner and the helicopter operator, or; if there is a
contract, there is no indemnity or waiver required from the shipowner; or any indemnity is
only in respect of loss or damage arising out of the shipowner's breach of any law or
regulation or permit relating to his performance of the contract; or the contract terms,
including the indemnity and/or waiver, are no more favourable to the helicopter operator
than the old KLM Rotterdam contract terms. Under the KLM contract, the helicopter operator
limited his liability to $30,000,000 and the shipowner indemnified the helicopter operator to
the excess of that amount. KLM no longer provides the service, but the principle still applies.

(ii) The clubs advise members, where applicable, to comply with the recommendations
contained in the ICS "Guide to Helicopters/Ship Operations". However, compliance with the
guide is neither a prerequisite to, nor a guarantee of, Club cover and shipowners should
obtain the approval of the Club to helicopter/ship operations and to the terms of any
contract between them and the helicopter operator.

(c) Indemnities to doctors and stevedores.

4. Hull policies

Scandinavian, German, French, Dutch and Italian hull insurances cover contact damage by
the entered ship to third- party property other than a ship and therefore if the ship is
covered by one of those hull policies the Club will not cover the particular claim; or at least
the Club will not do so until the liability has exceeded the value of the entered ship. Hull
insurers cover liabilities only up to the insured value of the ship. The Club provides excess
cover and, where the ship is insured under one of these terms, club cover will exclude
damage to fixed and floating objects covered by the hull insurance.

B LIABILITY

It is very difficult, if not impossible, to escape liability for a collision between a ship and a
fixed object. The ship is moving and the object is stationary and there must therefore be a
presumption of fault on the part of the ship. In some countries, e.g. England, there is
absolute liability in certain circumstances - the Harbours, Docks and Piers Clauses Act 1847.
However, in certain circumstances an owner may have one of the following defences:

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(a) Unsafe berth.

It may be possible to argue that the berth was unsafe and therefore the
owners of the berth do not have a right to recover, but this argument does not normally
succeed.

(b) Compulsory pilotage.

In the nineteenth century it was thought that shipowners should not be liable for the acts of
compulsory pilots because they were considered to have been compelled to take such pilots
on board and therefore they should not be responsible for the acts of those persons.
Shipowners were however responsible for the acts of voluntary pilots because such pilots
were hired at the behest of the ship and the shipowners were therefore deemed to have
become the employers of the pilot. Now in most countries shipowners are considered liable
for the acts of both compulsory and voluntary pilots, who are both deemed to have become
the servants of the shipowner.

(c) Panama Canal.

In about 1950 the United States assumed liability without fault for casualties both to the
ship and fixed objects occurring within the locks on the premise that the control of the vessel
by Canal personnel was almost absolute while the vessel was being moved in the locks. For
casualties occurring outside the locks but within the Canal waters, the United States
assumed liability only when the casualty was caused by the negligence of Canal personnel.
In either case, the amount of the award would be reduced in proportion to any contributory
fault on the part of the vessel, her master or crew. In 1979, the Panama Canal Treaty
entered into force and the waterway and facilities of the Canal were operated by the Panama
Canal Commission, until the year 2000 when the Republic of Panama assumed exclusive
control. The treaty left unchanged the liability position.

Economic loss

The Rule covers a shipowner's liability for 'interference with rights in relation to any harbour
or dock.' These words cover claims which arise when a ship has blocked a waterway, or has
knocked down a bridge, and where third parties, not owning the property, which has been
damaged, suffer economic loss, e.g. other ships trapped inside the waterway or unable to
get into a port, or factories having to send goods the long way round because a bridge is out
of use.

In English law there is a general rule that claims in negligence for economic loss are not
recoverable if the claimant has not suffered any damage to his own property. One of the
exceptions was created by the House of Lords in a case in 1947 - Morrison Steamship
Company Limited v Greystoke Castle. The Greystoke Castle was damaged in a collision but
her cargo was not damaged. The cargo owners were liable to contribute in general average
to the shipowners and the cargo owners sued to recover their proportion of the general
average contribution from the owners of the other ship. This was a claim for pure financial
loss but, nevertheless, the claim was upheld by a majority in the House of Lords. The court
held that the owners of the Greystoke Castle, who had suffered damage to their property,
and the owners of the cargo on board, who had not, were involved in a joint venture.
The position in the United States is also fairly clear since the 1928 decision of the Supreme
Court in Robins Dry Dock & Repair Company v Flint. A ship was damaged by a dry dock
company which was repairing her. Her time charterers claimed damages for the loss of profit
they would have made from the time the ship should have been delivered from the dry dock.
The claim was rejected on the grounds that a tort to the personal property of one man does
not make the tortfeasor liable to another merely because the injured person has a contract
with that other person unknown to the tortfeasor.

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It has been argued by plaintiffs in other cases that this decision should be confined to cases
where the claimants have a contract with the injured person and that the decision does not
go as far as stating that physical damage is a prerequisite to recovery for economic loss.
This argument has normally been rejected by various courts of appeals in the USA. There
are two exceptions: first, claims by fishermen, who have long been considered as deserving
of special protection akin to that enjoyed by seamen. Therefore, where fishing is prohibited
over an area because of an oil spill or a chemical spill, fishermen have normally been able to
recover, even though they have not suffered any physical damage, but merely loss of
earnings. Second, the Oil Pollution Act 1990 has excluded the rule in Robins Dry Dock
generally from oil pollution claims. (Even though CERCLA does not expressly address the
rule of Robins Dry Dock, there is a likelihood that USA courts could, because of the OPA
precedent, apply the exclusion to CERCLA as well.)

The position is not so favourable to shipowners in Canada, where the Supreme Court has
allowed railway companies to claim for pure economic losses suffered as a result of not
being able to use a bridge, not owned by them, which was damaged by a vessel - the Jervis
Crown. According to precedent the railways would only have been able to sue for loss of use
if they had owned the bridge. However, all the judges held that there is no general rule in
Canada prohibiting recovery for pure economic loss.

The position in Australia is also not as clear cut as that in England and the United States. In
Caltex Oil (Australia) Pty v The Dredge Willemstad , the High Court of Australia held that
there is no firm rule that economic loss can never be recovered where there has been no
damage to the plaintiff's personal property. Caltex owned a terminal at Botany Bay, which
was fed with oil through a pipeline from a refinery owned by Australian Oil Refining Limited.
This pipeline was damaged by the Willemstad. During the period the pipeline was out of
action, Caltex incurred extra expenses in obtaining oil from other sources and Caltex claimed
these pure economic losses from the owners of the Willemstad.

Although the judges held that there is no firm rule that economic loss cannot be recovered in
these circumstances, they found it very hard to find some other test to decide when pure
economic claims can be recovered. Some of the judges seem to have relied on the joint
venture test. Australian Oil Refining and Caltex were in a joint venture by which the former
supplied the latter with oil and therefore any extra cost incurred by Caltex, consequent upon
damage to AOR's property, could be recovered from the negligent party. Other judges
thought that economic loss can be recovered where the court finds that the defendant owes
the plaintiff an appropriate duty of care and reasonably foresees that a specific individual,
distinct from a general or indeterminate class of person, will suffer financial loss as a
consequence of his conduct. Other judges held that if it was foreseeable that a particular
plaintiff might suffer physical loss from the consequences of the defendant's conduct, then
even if the particular plaintiff does not suffer such physical loss, he can still recover
economic loss. One of the judges thought that all economic loss should be recoverable
unless there are sufficient reasons of public policy to limit such recovery.

C CLAIMS PREVENTION

Claims for dock damage are extremely expensive. Claims for damage to bridges are
amongst the most costly claims ever handled by P&I clubs, especially when loss of life is
involved. Claims for damage to pipelines and subsea cables (usually because a ship's anchor
has fouled them) are likewise expensive.

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Dock damage claims only occur when a ship is entering or leaving a port, mainly because of
a blackout, machinery failure, excessive speed or pilot error. Investigations have shown that
the conduct and application of tugs is decisive in avoiding dock damage. Other factors are
the angle of approach and the allowance made for wind and tide.

(See Standard Safety Issue 1 – Dock damage)

Excessive speed during berthing is a major cause of dock damage; however, it is the use
and conduct of tugs, which has the greatest influence on dock damage. Tug boats in
sufficient number should be deployed in good time. In confined waters, they should provide
the main motive power, the ship's engine being used only to maintain steerage. Additional
tugs may be needed when strong winds or currents are expected.

(See Standard Safety Issue 3 – Tugs)

Owners may seek to employ as few tugs as possible and ships equipped with both bow and
stern thrusters may be able to dispense with tugs entirely. Masters of ships fitted with this
equipment will always be put under pressure to dispense with tugs. However, the Club's
experience has shown that when large ships manoeuvre in confined waters, without the
assistance of tugs, the risk of dock damage increases, even though the ship may be fitted
with bow and stern thrusters. This is because the effects of wind and current are not always
predictable; sudden change can cause loss of control.

The berthing of large tankers and bulk carriers is assisted by the use of a doppler log. This
measures speed over the ground, and is unaffected by current. It accurately displays the
speed at which a ship approaches the berth.

Pilot error is a frequent source of claims. It is important that the master knows exactly what
the pilot intends and can intervene with the pilot to suggest a safer approach. If the master
has any doubts about the pilot's intentions he should always take control and not wait until
the ship is in difficulties. The Club recommends the following procedures.

(See Standard Safety Issue 3 – Pilots)

(See Standard Safety Issue 1 – Supervision of pilots)

* The pilot should board the vessel early, thereby allowing plenty of time for discussion with
the master. The master should present the pilot with a pilot card and not hand over control
to the pilot until the pilot has informed him of the intended passage, and the master is
satisfied that the pilot is aware of his ship's manoeuvring characteristics;

(See Standard Safety Issue 5 – Master/pilot relationships)

* The master should prepare a detailed passage plan which shows the intended track, areas
to avoid for safety reasons, areas of shallow water, other hazards to navigation, wrecks,
course changes and when it will be necessary to move to the next chart. Plans for river
passages or passages in narrow channels should include tidal information, speed restrictions,
alternative routes and parallel index lines. Particular attention should be paid to sharp and
difficult bends and areas of cross currents or where strong winds are possible;

(See Standard Safety Issue 5 – Passage planning and pilotage)

* The master, at all times, should closely monitor the course and speed being followed by
the pilot, and pay particular attention when a change of course is being made;

* The master should monitor closely any change in the weather or tide;

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* The ship's anchors should be ready for immediate use (out of the pipe if necessary);

• Before berthing the master should check that cranes and other shore equipment are
clear of the ship's bow.

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POLLUTION - RULE 20.14

A. COVER

The Club covers:

1. liability for loss, damage or contamination caused by the discharge, or escape from the
entered ship, of any substance, not just oil, but also smoke, hazardous noxious substances,
sewage and garbage;

2. clean up costs;

3. preventive measures where there is an imminent danger of discharge of any substance;

4. the costs of any extraordinary measures taken to comply with government directions to
prevent pollution or reduce the risk, other than any alterations to the hull;

5. liability under a salvage agreement for salvors' work on preventing pollution. An

international conference in 1989 agreed a new salvage convention which made a profound
change in the nature of salvage. The previous convention of 1910 had been based on the
traditional principle of 'no cure no pay'. The awards were paid pro-rata by hull and cargo
underwriters in proportion to the respective salved values and the clubs were not involved.
The fear under the old convention was that salvors might think twice about attempting to
salve a ship where the risk of failure was great and the costs likely to be incurred also great.
The intention behind the Salvage Convention 1989 was to encourage salvors to act in cases
where there is a threat to the environment. Under the 1989 Convention the main salvage
award is still to be based on 'no cure no pay', but the award will take into account 'the skill
and efforts of the salvors in preventing or minimising damage to the environment', as well
as the traditional factors of salved value, danger, out-of-pocket expenses, success, time,
and skill. This basic 'no cure no pay' award is dealt with under article 13. The Salvage
Convention also introduces a safety net where the salvor has worked on a ship or cargo,
which threatens damage to the environment, and has failed to earn, under article 13, an
award which covers his out-of-pocket expenses. In such circumstances, he is entitled to
special compensation under article 14.

Article 14 states, in part:

'Special Compensation

(1) If the salvor has carried out salvage operations in respect of a vessel which by itself or
its cargo threatened damage to the environment and has failed to earn a reward under
article 13 at least equivalent to the special compensation assessable in accordance with this
article, he shall be entitled to special compensation from the owner of that vessel equivalent
to his expenses as herein defined.

(2) If, in the circumstances set out in paragraph 1, the salvor by his salvage operations has
prevented or minimised damage to the environment, the special compensation payable by
the owner to the salvor under paragraph 1 may be increased up to a maximum of 30% of
the expenses incurred by the salvor. However, the Tribunal, if it deems it fair and just to do
so and bearing in mind the relevant criteria set out in article 13, paragraph 1, may increase
such special compensation further, but in no event shall the total increase be more than
100% of the expenses incurred by the salvor.

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(3) Salvor's expenses for the purpose of paragraphs 1 and 2 means the out-of-pocket
expenses reasonably incurred by the salvor in the salvage operation and a fair rate for
equipment and personnel actually and reasonably used in the salvage operation, taking into
consideration the criteria set out in article 13, paragraph 1 (h), (i) and (j) [which are '(h) the
promptness of the services rendered; (i) the availability and use of vessels or other
equipment intended for salvage operations; (j) the state of readiness and efficiency of the
salvor's equipment and the value thereof.']

(4) The total special compensation under this article shall be paid only if and to the extent
that such compensation is greater than any reward recoverable by the salvor under article
13.'

The hull and cargo underwriters will continue to pay article 13 awards even if they are
increased because of environmental factors but the clubs cover article 14 awards.
The Convention entered into force in 1996, but was already law in the United States,
Canada, China and the United Kingdom. It has also been introduced into LOF 1990 and LOF
1995, and therefore most contractual salvages have been governed by it for some time.
There have been a number of problems about the working of articles 13 and 14, which have
been raised in the arbitrations since the introduction of LOF 90 and some of these
outstanding problems have been settled in the appeals in The Nagasaki Spirit. This tanker
was involved in a disastrous collision with a container ship, the Ocean Blessing, in
September 1992 in the Malacca Strait.

(a) Should special compensation under article 14 continue to be paid once the threat of
damage to the environment has been lifted? In The Nagasaki Spirit all the oil on board was
transferred on the sixtieth day of the salvage, and during the last twenty days of the salvage
there was no threat of damage to the environment. Therefore, the shipowners argued that
once the threat had been lifted, the salvors could not claim for further special compensation.
The special compensation should be restricted to the expenses incurred only until the
environmental threat was over. The original arbitrator held that the whole period of the
salvage operation was to be taken into account; the appeal arbitrator upheld that decision.
The Commercial Court (Clarke J.) agreed that special compensation under article 14 should
continue to be paid even if the threatened damage to the environment has been lifted but
Clarke J. did say that, in his opinion, special compensation under the Convention only
extends to salvage services rendered after a threat to the environment has arisen. The Court
of Appeal unanimously upheld Clarke J's decision on this point, and so did the House of
Lords.

(b) What is meant by a 'fair rate' for equipment in article 14.3? Is it the basic cost of
operating the tug and equipment or does it include an element of profit? The problem can be
seen by the difference in the daily cost of one of the tugs used in The Nasgasaki Spirit. Her
basic daily cost averaged over a full year, plus overheads, amounted to $1,990. On the
assumption that she would only be used 50% of the time the daily cost was $3,980. A
further uplift of 50%, reflecting a minimum actual service performed, increased the figure to
$5,970. Finally, a figure was shown of $7,000 per day per tug of that size engaged in a
straightforward commercial ocean towage, without taking into account specialist or
extraordinary services. From these figures the arbitrator built upwards to a fair rate of
$16,000 per day. He held that a fair rate is neither the basic rate nor a market rate; it
means a remuneration which is seen to be encouraging to the salvor. Mere reimbursement
of expenditure will not be encouraging. The shipowners argued that profit should be
recovered only under article 14.2 which allows for an increment of up to 30%, or in some
cases of up to 100%, if the salvor by his efforts has prevented or minimised damage to the
environment. To include an element of profit in a fair rate assessed under article 14.1 and
then to give an increment under article 14.2 would duplicate the profit and the only sensible
way of dealing with the two clauses is by treating compensation under article 14.1 as being
the basic cost. The appeal arbitrator held that special compensation is plainly not the same
thing as a salvage reward or remuneration. A contractor should not be out of pocket, but a

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fair rate should not be at such level as by itself leads to a profit for the contractor and thus
he overturned the original arbitrator's decision. The salvors appealed the decision but Clarke
J. agreed that the fair rate, for equipment and personnel actually and reasonably used in the
salvage operation, means a fair rate of expense, including both direct and indirect expenses,
but not a fair rate of remuneration. In other words the salvor cannot recover a profit on his
fair rate. That must be dealt with only in the uplift. The Court of Appeal, by a majority of 2
to 1 [Staughton L.J. and Swinton Thomas L.J. against Evans L.J.], upheld Clarke J's decision.
The House of Lords unanimously upheld the decision and dismissed the appeal. The House of
Lords had to consider the parties' agreed statement of facts and issues which was in part as
follows:

i. is it a fair rate of remuneration, having regard to the circumstances of the case, including
the type of craft actually used and the type of work required...and a rate which acts as an
incentive to the salvor (i.e. normally including a profit element, but without amounting to a
salvage award) or,

ii. does it mean a fair rate of expense which is to be comprehensive of indirect or overhead
expenses and to include the additional cost of having resources instantly available?
The House of Lords decided that fair rate in article 14.3 means a fair rate of expenditure and
does not include any element of profit. "This is clear from the context and in particular from
the reference to 'expenses' in article 14.1 and 2 and the definition of 'salvor's expenses' in
article 14.3...The profit element is confined to the mark up under article 14.2 if damage to
the environment is minimised or prevented" (Lord Lloyd.) Salvors are clearly very unhappy
about this decision. They make the point that the decision encourages those with no
investment in salvage capabilities - the so-called yellow page salvors - and discourages
professional salvors who have invested in equipment. If a yellow page salvor is contracted,
and has to charter in other salvors' equipment, for which he has to pay a market rate which
would normally include a profit to the owner of the equipment, then the salvor will recover
that market rate under article 14, but if the actual owner of the equipment has contracted
for the salvage he will now only be able to recover the basic expense cost, exclusive of his
profit. On the other hand, no salvor hoping to receive an article 13 award would contract in
equipment because salvage arbitrators take into account a salvor's use of his own equipment
when deciding the normal award under article 13.

(c) On what basis should the uplift be awarded? The original arbitrator in The Nagasaki Spirit
had increased the special compensation by 65%. The appeal arbitrator held that the 30%
increment must be regarded as the normal maximum and any further increment up to 100%
should be given only when the justice of the case requires it. The appeal arbitrator ruled that
a greater increase than 30% might be reasonable in cases "such as the avoidance of a major
disaster to the environment; dealing with a particularly toxic or dangerous substance; the
incurrence of high risk for the salvors' personnel or vessels; the necessity to assemble a
large number of vessels or other resources; the brevity of the operations; the requirement
of skills or qualifications; frustration or difficulties arising from the intervention of
authorities; lack of co-operation or inability to assist of those in charge of the casualty; the
nature of the services required." The appeal arbitrator held that a 65% increment was
reasonable in the circumstances of this case.

(d) Although the point was not argued in The Nagasaki Spirit, a salvor probably cannot
recover under article 14 in the case of a salvage of a laden tanker in mid ocean because,
for special compensation to be payable under article 14, the ship or her cargo must
constitute a threat of damage to the environment which is defined as 'substantial
physical damage to human health or marine life or resources in coastal or inland waters
or areas adjacent thereto...'. Salvors maintain that there can be environmental damage
anywhere and that the geographical restriction therefore has no logic. They also maintain
that the restriction makes it impossible for them to know in a number of situations
whether there is any chance of their being entitled to an article 14 award. This removes
any incentive for them to act or avoid damage to the environment.

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 The clubs consider that they are liability underwriters and are involved in covering
shipowners only for their legal liabilities. Liability arises only in respect of clean-up
measures and economic loss for which claims can be made. There can only be a risk of a
pollution claim if there is a spill in an area which is subject to the jurisdiction of a
country. The clubs are not, therefore involved in cleaning up spills worldwide, where
there cannot be any threat to coastal waters.

(e) All these issues have lead to arbitrations involving article 14 being long and expensive,
costs generally being for the account of the shipowners and the clubs. Negotiations to solve
the problems took place initially between the salvors and the Clubs but subsequently
including property underwriters with a view to agreeing a simplified framework for special
compensation which would promote fast response to casualties but reduce the potential for
legal disputes. As a result of these discussions, the Special Compensation P&I Clause
(SCOPIC) has been developed as an alternative to article 14 for dealing with special
compensation. The idea is that for a trial period of two years SCOPIC will be incorporated by
reference into LOFs signed between members of the ISU and owners entered in an
International Group club, and the clubs will recommend the members to contract on these
terms. If the trial period shows that the scheme works well, then LOF will be formally
amended. The main changes are as follows:

(i) The contractor has the option to invoke the special provisions of SCOPIC at any time of
his choosing, regardless of the circumstances. He does not have to prove environmental
threat and no geographical restriction applies. The assessment of the SCOPIC remuneration
commences from the time of that notice. Prior to such invocation, salvage is undertaken on
a "no cure no pay" basis without any safety net. Under the current article 14 provisions,
calculation of special compensation commences from the start of the salvage operation.

(ii) The shipowner must provide security in an amount of $3m within two working days of
the contractor invoking the SCOPIC remuneration provisions. If at any time thereafter the
shipowner think that this is too much or the contractor thinks it is too little he shall be
entitled to require the other to reduce or increase the security. If the shipowner does not
provide security within the two working days the contractor can withdraw from the
provisions of SCOPIC and revert to his rights under article 14

(iii) Rates. SCOPIC remuneration is based on time and materials, plus an uplift in all cases of
25%. The clubs have reached agreement with the ISU on rates for tugs, personnel and
equipment. These are rates which are ‘profitable’ for salvors. Charges for portable
equipment are to be capped at 1.875 x the replacement cost of the equipment inclusive of
the 25% uplift. If the contractor has to contract in for equipment and the price exceeds the
applicable tariff rates then the contractor is entitled to the contracted-in price plus an uplift
of 10% on the tariff rates, or the tariff rate plus 25%, whichever is the greater. It is
impossible to tell whether these SCOPIC rates are higher or lower than the article 14 rates,
because since the decision in the Nagasaki Spirit, article 14 rates depend on how much the
tug is used in any particular year.

(iv )Salvage services will continue to be assessed in accordance with article 13, even if the
contractor invokes SCOPIC. SCOPIC remuneration will be payable only to the extent that it
exceeds the total article 13 award. If the contractor invokes SCOPIC and the article 13
award is greater than the SCOPIC remuneration, then the article 13 award will be discounted
by 25% of the difference between it and the amount of the SCOPIC remuneration that would
have been assessed had the SCOPIC provisions been invoked on the first day of the
services. If there is no potential article 13 award then the undisputed amount of SCOPIC
remuneration is to be paid by the shipowner within one month of the presentation of the
claim. If there is a claim for an article 13 award then 75% of the amount by which the
assessed SCOPIC remuneration exceeds the total article 13 security should be paid by the
shipowner within one month.

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(v) The contractor can terminate the services if he reasonably expects that the total cost of
past and future services will exceed the value of the property capable of being salved plus
his SCOPIC remuneration. Shipowners can terminate the SCOPIC agreement subject to 5
days’ notice.

(vi) The shipowner has the right to send on board a casualty representative (SCR) and hull
and cargo underwriters each have the right to send on board one special hull and one special
cargo representative. The SCR will be selected from a panel appointed by a committee made
up of three representatives from the International Group, three representatives from ISU,
three representatives from IUMI and three representatives from the ICS. The salvage master
shall send daily reports to Lloyd’s and the shipowner until the SCR arrives on site, and after
that only to the SCR. The SCR can disagree with the daily salvage report and prepare a
dissenting report. If the SCR gives a dissenting report, then the initial payment by the
shipowners will be based only on what the SCR considers the appropriate equipment or
procedures until any dispute is resolved

(vii) A non-binding Code of Practice has been agreed between the ISU and the International
Group. The clubs confirm that although they expect to provide security for SCOPIC it is not
automatic. The clubs will not refuse to give security solely because the contractors cannot
obtain security in any other way. The clubs confirm that they will be willing to consider the
provision of security to a port authority to permit a ship to enter a port of refuge and will not
refuse to give such security solely because the contractors cannot obtain such security in
any other way.

Please click on icon to view the International Group circular explaining the amended SCOPIC
for summer 2000.

Filename : SCOPIC CIRCULAR & APPENDIX A.doc

The advantages for shipowners and clubs in the new SCOPIC provisions are as follows:

1. There should be little need for arbitrations in future on special compensation awards. The
problem areas (environmental threat, geographical restriction, tug rates, and uplift) have all
been settled.

2. Owners/clubs have much more control or at least knowledge over what happens during
salvage.

3. The shipowners’ right to terminate under clause 9 of SCOPIC is clearer than the right
under clause 4 of LOF.

4. The uplift is capped at 25%.

The disadvantages for shipowners/clubs are as follows:

1. The salvors may recover more for the agreed tug rates than they would under the
Nagasaki Spirit decision, but this is not certain because of the different utilisation factors.

2. Shipowners/clubs have given up the environmental threat and geographical restriction

defences.

The advantages for salvors are as follows:

1. It is no longer necessary for salvors to prove environmental threat and to overcome any
geographical restriction defence.

2. Salvors will be paid profitable tug rates.

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3. Cash flow problems will be eased.

The disadvantages are:

1. Salvors can never recover more than a 25% uplift.

2. There is a risk that the owner terminates.

The new proposals have been endorsed by the boards of all the clubs in the International
Group for a trial period of two years, and they have also been endorsed by the ISU, and UK
property underwriters. Overseas property underwriters have been kept advised and have not
objected.

It is recommended that SCOPIC be incorporated into all LOF contracts signed from 1st
August 1999, in the following words: "It is agreed that the SCOPIC clause is incorporated
into this contract".

(6) escape of oil or any other substances from a wreck;

(7) liability for pollution which might arise under any other rule e.g. pollution from another
ship whether caused by collision or not, damage to property, liability under a towage
contract;

(8) cover for salvors - the normal cover for a salvage tug provides for pollution from the
entered tug, but under Rule 20.36.2 the Club will also give cover for oil pollution absent the
tug - see discussion under Rule 20.36.
Historically, at least in the common law countries, liabilities to third parties arising out of a
general average act, even though the liabilities were for pollution, were allowed in general
average. The York-Antwerp Rules, which govern what is recoverable in general average,
were amended as from the 31st December 1994, so that expenses in respect of damage to
the environment or expenses incurred in consequence of the escape or release of pollutant
substances from the ship, are excluded from general average, even if the consequence of a
general average act, unless they are the equivalent of salvage, or incurred as a condition of
entry to, or departure from a port of refuge or are incurred as a condition of remaining there
or are incurred in consequence of discharging, storing or reloading cargo when the cost of
such an operation is itself admissible in general average [Rule XI(d)]

The York-Antwerp Rules of 1994 seem to create a compromise between hull and cargo
underwriters on one hand and the clubs on the other. In the majority of cases, pollution
expenses will be for the clubs, but in certain situations, set out in Rule XI(d) preventive
measures will fall into general average. However, clause 10.5.2 of the Institute Time Clause
(Hulls) [ITC] 1.11.95 which governs what is recoverable from London hull underwriters,
provides that 'no claim...shall...be allowed for, or in respect of, expenses or liabilities
incurred in respect of damage to the environment, or the threat of such damage, or as a
consequence of the escape or release of pollutant substances from the vessel, or the threat
of such escape or release'. This clause seems to exclude from recovery from hull
underwriters preventive and precautionary measures as well as pollution damage. Additional
cover to include preventive and precautionary measures is available from the hull market in
the form of a buy back, but it is restricted to cases where the contract of affreightment
provides for adjustment under York-Antwerp Rules 1994, and many contracts still provide
for York-Antwerp Rules 1974. The problem is that the rules of the Club require ships to be
fully insured under hull policies not less wide than ITC Hulls 1.10.83, which of course do not
exclude all environmental liabilities from recovery under the hull insurance. Therefore the
clubs recommend members, who are insured under ITC hulls 1.11.95, to insist on a wider
buy back reading:

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'In consideration of an additional premium to be agreed, this insurance is extended to cover
vessel's proportion of general average expenditure, reduced in respect of any under-
insurance, which is allowable under Rule XI(d) of the York-Antwerp Rules 1994 and which
would be recoverable under Clause 10 of the Institute Time Clauses - Hulls 1.11.95, but for
Clause 10.5.2. therein...'

If members cannot get this clause they should discuss the matter with the Managers.
Some spot charterers of tankers are attempting to exclude from general average certain oil
pollution prevention measures which should fall into general average under the York-
Antwerp Rules 1994 (YAR). They have inserted in their charters provisions which amend YAR
and attempt to restrict the cost of prevention measures falling into general average if oil has
already escaped. Thus owners and their clubs can be faced with paying claims which should
under YAR be paid by hull and cargo underwriters. The International Group decided to
exclude from cover for the 1999/2000 and future policy years claims which should fall into
general average under YAR (Proviso V to Rule 20.14). Members are recommended to reject
such clauses in voyage charters. If they have to accept them there is, at least at the
moment, cover available on the London insurance market to cover the claims which are
excluded from club cover.

Limit on cover. Unlike all other rules there is a limit on the cover for all claims in respect of
oil pollution for each entered ship, any one accident or occurrence, of $1bn, at least for the
2000/2001 policy year. If the ship is salving or assisting another ship following a casualty,
all claims from the salving ship in respect of oil pollution shall be aggregated with all claims
from other ships which are entered in the International Group and which are involved in the
salvage and shall be subject to a single limit of $1bn. Oil is not defined and should be
considered to include all types of oil, including persistent and non-persistent, and whether
petroleum or non-petroleum.

The Club has the right to increase rates mid-year in the event of any legislation coming into
effect in the year affecting liability for pollution from any substance.

B LAW

1. Marpol 1973/1978/1997 (the International Convention for the Prevention of Pollution from
Ships 1973 and its 1978 protocol).

This convention entered into force in October 1983 and sets out to eliminate operational
pollution from any type of ship. Marpol has a number of annexes which are the core of the
convention, and which cover pollution by oil, noxious liquid substances, harmful substances
in packages, sewage (not yet in force) and pollution of the air (not yet in force) and
garbage.

2. CLC and Fund Conventions

The main international conventions governing tanker owners’ liability for oil pollution are the
Civil Liability Conventions of 1969 and 1992 (CLC 1969 and 1992). The tanker owner is
strictly liable for oil pollution damage, but to a limited amount depending on the tonnage of
the ship. The main difference between the two versions is that the compensation limit under
CLC 92 is substantially higher. The Fund Conventions (1971 which complements CLC 69 and
1992 which complements CLC 92) provide supplemental compensation where the claims are
not adequately compensated under CLC, usually because the claims exceed the liability
limits. Payments under the Fund Conventions are funded by levies on oil receivers in
member states. CLC 92 and Fund Convention 92 are now in operation in the vast majority
of the states (46 and 62 by October 2001) with CLC 69 and Fund Convention 71 applying
only in a small minority (39 and only 27 by October 2001). The United States has signed
none of these conventions.

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(a) Scope:

The 1992 Conventions apply to spills of either cargo or bunkers from tankers whether laden
or in ballast. The CLC 1969 and the Fund Convention 1971 cover only spills of cargo or
bunkers from laden tankers. In both cases the spill must be of persistent oil which excludes
LNG, LPG, gasoline, kerosene and distillates.

CLC 92 states that a ship which is ‘capable of carrying oil and other cargoes shall be
regarded as a ship only when it is actually carrying oil in bulk as cargo and during any
voyage following such carriage, unless it has proved that it has no residues of such carriage
of oil in bulk abroad’. This proviso was probably meant to be restricted to combination
carriers, which may trade either as tankers or as non-tankers. However, the term ‘oil’ is
defined in the convention as persistent oil and it must follow that the phrase ‘other cargoes’
refers to cargoes other than persistent oil, including non-persistent oil. Therefore, the
proviso probably covers clean product tankers as well as combination carriers.

(b) Geographical Scope:

The 1992 Conventions cover damage to the territorial sea and the exclusive economic zone
and to preventive measures wherever taken to prevent or minimise pollution damage within
such areas, but the 1969 and 1971 conventions are restricted to pollution damage in the
territorial sea and to preventive measures taken to prevent or minimise such damage.

(c) Limitation Amounts:

Under the CLC 1992 the limits are as follows:

For a tanker of not exceeding 5,000 gross tons of gross tonnage, a minimum of SDR3m.

For tankers exceeding 5,000 tons, an additional SDR420 per gross ton up to a maximum for
shipowners of SDR59.7m at 140,000 gross tons.

Under the 1992 Fund Convention there is a flat ceiling on SDR135m per incident irrespective
of the size of the tanker, which is inclusive of the owner’s limit under CLC.

Under the 1969 convention the owner is entitled to limit his liability in respect of any one
incident to an aggregate amount of SDR 133 per limitation ton or SDR 14m whichever is the
lesser. Under the 1971 Fund Convention there is an additional compensation up to
SDR60m, again inclusive of owner’s limit.

(d) Tanker owners must carry insurance to meet their liabilities under these Conventions.
Most arrange oil pollution insurance with a P&I Club, and claims can be brought
directly against the club by claimants.

(e) Exceptions

There is no liability if the owner proves that the damage resulted from an act of war or was
wholly caused by an act or omission done with intent to cause damage by a third party, or
was wholly caused by the negligence or other wrongful act of any government or other
authority responsible for the maintenance of lights or other navigational aids in the exercise
of that function.

(f) Breaking of Limitation

Under CLC 69 an owner is not entitled to avail himself of the right of limitation if the incident
occurred as a result of his actual fault or privity. Under CLC 92 the owner only loses his right

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to limit ‘if it is proved that the pollution damage resulted from his personal act or omission
committed with the intent to cause such damage, or recklessly and with knowledge that
such damage would probably result’.

(g) Pollution Damage

The shipowner is liable to pay for pollution damage and this is defined in both conventions as
‘loss or damage caused outside the ship by contamination resulting from the escape or
discharge of oil from the ship, wherever such escape or discharge may occur and including
the costs of preventive measures and further loss or damage caused by preventive
measures’. CLC 92 adds that ‘compensation for impairment of the environment other than
loss of profit from such impairment shall be limited to costs of reasonable measures of
reinstatement actually undertaken or to be undertaken’.

The words ‘loss or damage’ in the definition of ‘pollution damage’ mean that more than mere
physical damage, such as damage to fishing boats and nets, oyster beds, harbour works and
beaches, is covered by the CLC. The interpretation of those words is for the courts, but
there are strong grounds for contending that economic loss consequent upon physical
damage is recoverable, but the ‘loss or damage’ must have been caused by contamination.

There has been considerable doubt and dispute as to the circumstances in which claimants
can recover for financial loss following an oil spill, when their own properties have not been
damaged. In most countries plaintiffs can normally only recover for financial loss if they
have suffered physical injury or property damage and in an oil spill normally only the shore
is contaminated not an individual’s property. [See the discussion under Rule 20.13.] This
problem was considered by the Comit  Maritime International [CMI] at its meeting in
Sydney in October 1994, and the CMI has drafted some guidelines. These state that a
claimant can recover for financial loss, not caused by physical loss or damage to his
property, provided it is caused by contamination by oil when there is a reasonable degree of
proximity between the contamination and the loss and this proximity will be determined by a
number of tests:

the geographic proximity between the claimant’s activities and the contamination;

the degree to which the claimant is economically dependent upon an affected

natural resource;

the extent to which the claimant’s business forms an integral part of economic
activities in the area which is directly affected by the contamination;

the scope available for the claimant to mitigate his loss;

the foreseeability of the loss;

the effect of any concurrent causes contributing to the claimant’s loss.

Normally, for a claimant to succeed he must show that he depends for his income on
commercial exploitation of the affected coastal or marine environment e.g. fishing,
agriculture, hotels, restaurants, shops, beach facilities and related activities, the operation of
desalination plants, salt evaporation lagoons, power stations and similar installations reliant
on the intake of water for production or cooling processes.

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The CMI guidelines on oil pollution damage, adopted at the conference in Sydney in October
1994, also deal with preventive measures and state that these should be recoverable so long
as the measures themselves and the costs were reasonable in the particular circumstances.
If the measures taken were likely, on an objective basis at the time they were taken, to be
successful in avoiding or minimising pollution damage, then they should be recoverable.
Where a government agency, or a public body, takes an active operational role in preventive
measures or clean-up, then it can recover for a proportion of the normal salaries paid to
employees engaged in performing the measures taken. Where a claimant uses plant or
equipment he may claim reasonable hire charges for the period of its use. However, no
remote overhead charges are to be recoverable. Where equipment or material is reasonably
purchased for the preventive or clean-up measures then the claimant can recover the cost
but subject to a deduction for the residual value of the equipment or material after
completion of the measures. Compensation is payable for the reasonable cost of repairing
damage caused by the preventive or clean-up measures and compensation should be
payable for the cost of reasonable measures to clean birds, mammals or reptiles
contaminated by oil. Compensation for the impairment of the environment shall be limited
to the cost of reasonable measures of reinstatement actually undertaken or to be
undertaken, but it is not payable where the claim is made on the basis of an abstract
quantification of damage calculated in accordance with theoretical models.

(h) Channelling of Liability

The CLC 92 provides for exclusive channelling to the shipowner alone, so that all other
parties: servants, agents, members of the crew, pilots, charterers, salvors, etc. are excluded
from the operation of the convention, ‘unless the damage resulted from their personal act or
omission, committed with the intent to cause damage, or recklessly and with knowledge that
such damage would probably result’. This closes one of the loopholes in CLC 1969which only
prohibited claims being made under the CLC, or otherwise, against the servants or agents of
the owners. Consequently a claimant may be able to claim under CLC 69 against the
managers (if they are agents not of the owner, but of the bareboat charterer) or bareboat
charterers if there is liability under the local law for oil pollution.

Page 64
 POLLUTION TABLES - RULE 20.14

STATUS OF THE CIVIL LIABILITY AND FUND CONVENTIONS

(as at 31 December 2001)

Contracting State CLC 69 Fund 71 CLC 92 Fund 92

Albania In Force In Force
Algeria In Force In Force
Angola From 04.10.02 From 04.10.02
Antigua and Barbuda In Force In Force
Argentina In Force In Force
Australia In Force In Force
Bahamas In Force In Force
Bahrain In Force In Force
Barbados In Force In Force
Belgium In Force In Force
Belize In Force In Force
Benin In Force In Force
Brazil In Force
Brunei Darussalam In Force In Force
Cambodia In Force From 08.06.02 From 08.06.02
Cameroon Until 15.10.02 Until 15.10.02 From 15.10.02 From 15.10.02
Canada In Force In Force
Chile In Force
China In Force
China (Hong Kong
In Force In Force
SAR) - see note
Colombia In Force In Force From 19.11.02 From 19.11.02
Comoros In Force In Force
Costa Rica In Force
Cote d’lvoire In Force In Force
Croatia In Force In Force
Cyprus In Force In Force
Denmark In Force In Force
Djibouti Until 17.05.02 Until 17.05.02 From 08.01.02 From 08.01.02
Dominica From 31.08.02 From 31.08.02
Dominican Republic In Force In Force In Force
Ecuador In Force
Egypt In Force In Force
Equatorial Guinea In Force
Estonia In Force In Force
Fiji In Force In Force
Finland In Force In Force
France In Force In Force
Gabon In Force In Force
Gambia In Force In Force
Georgia In Force In Force In Force
Germany In Force In Force
Ghana In Force In Force
Greece In Force In Force
Grenada In Force In Force
Guatemala In Force
Guyana In Force In Force
Honduras In Force
Iceland In Force In Force

Page 65
India In Force In Force
Indonesia In Force In Force
Ireland In Force In Force
Italy In Force In Force
Jamaica In Force In Force
Japan In Force In Force
Kazakhstan In Force
Kenya In Force In Force
Kiribati Provisional
Kuwait In Force In Force
Latvia In Force In Force In Force
Lebanon In Force
Liberia In Force In Force
Lithuania In Force In Force
Luxembourg In Force
Malaysia In Force In Force
Maldives In Force In Force
Malta In Force In Force
Marshall Islands In Force In Force
Mauritania In Force In Force
Mauritius In Force In Force
Mexico In Force In Force
Monaco In Force In Force
Morocco In Force In Force
Mozambique In Force In Force
Netherlands In Force In Force
New Zealand In Force In Force
Nicaragua In Force
Nigeria In Force In Force
Norway In Force In Force
Oman In Force In Force
Panama In Force In Force
Papua New Guinea In Force In Force
Peru In Force
Philippines In Force In Force
Poland In Force In Force
Portugal In Force In Force From 13.11.02 From 13.11.02
Qatar In Force In Force From 20.11.02 From 20.11.02
Republic of Korea In Force In Force
Romania In Force
Russian Federation In Force In Force
Saint Kitts and Nevis In Force In Force
Saint Vincent and
In Force From 09.10.02 From 09.10.02
Grenadines
Sao Tome and
In Force
Principe
Saudi Arabia In Force
Senegal In Force
Seychelles In Force In Force
Sierra Leone Until 04.06.02 Until 04.06.02 From 04.06.02 From 04.06.02
Singapore In Force In Force
Slovenia In Force In Force
Solomon Islands Provisional
South Africa In Force
Spain In Force In Force

Page 66
Sri Lanka In Force In Force
Sweden In Force In Force
Switzerland In Force
Syrian Arab Republic In Force In Force
Tonga In Force In Force
Trinidad & Tobago In Force In Force
Tunisia In Force In Force
Turkey From 17.08.02 From 17.08.02
Tuvalu In Force In Force
United Arab Emirates In Force Until 24.05.02 In Force In Force
United Kingdom In Force In Force
Uruguay In Force In Force
Vanuatu In Force In Force
Venezuela In Force In Force
Yemen In Force
Yugoslavia In Force In Force

Note: China (Hong Kong SAR) – CLC 69 and Fund 71 were originally extended to Hong Kong as a
dependent territory of the United Kingdom. Since returning to Chinese control on 1st July 1997, Fund
71 has been denounced and China has now ratified Fund 92 with respect to Hong Kong SAR only.

The table has no bearing on the political status of States or dependent territories and no responsibility
is accepted by ITOPF for any errors or omissions.

Source : The International Tanker Owners Pollution Federation Limited (ITOPF)

The biggest contributors to the 1992 fund will be in descending order Japan, Netherlands,
France, Germany, United Kingdom and Australia.

In October 2000 the I.M.O. Legal Committee adopted proposals to increase the limits in the
1992 CLC and Fund Conventions by 50.37% so that the 1992 Conventions will rise from SDR
135m to SDR 203m. The increases will come into force in November 2003.

Following the Erika spill the IMO has appointed an IOPC Fund Working Group to consider the
adequacy of the current limits.

It seems to be agreed that the most pressing issue, the apparent inadequacy of the current
1992 IOPC Fund limit, can be dealt with by providing an optional third tier of compensation
in excess of the current 1992 Fund limit (which will in any case increase by some 50% in
November 2003). This third tier will be funded by oil receivers in the same way that they
contribute to the 1992 Fund.

It has already been made clear in submissions to the 1992 Fund Working Group and to the
EU Commission and Parliament that shipowners are supportive of the notion of sharing of
financial responsibility. Analysis of statistics shows that whilst shipowners alone have borne
the cost of the vast majority of individual claims a small number of very large claims means
that the overall financial burden has been shared approximately 50/50 between ship and
cargo. If further responsibility for compensation is to be imposed on oil receivers by the
introduction of a third tier then the current sharing will potentially be distorted.

In order to maintain the balance of cost sharing shipowners might under certain
circumstances voluntarily provide an increase in the minimum limits of liability under 1992
CLC in anticipation of the changes which may be brought in when the Conventions are
reviewed in detail.

5. International Convention on Liability and Compensation for Damage in connection with

the Carriage of Hazardous Noxious Substances by Sea (the 'HNS Convention'.)

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The IMO approved the HNS Convention in May 1996, but it will only enter into force eighteen
months after at least twelve states, including four states each with a fleet of more than 2
million of gross tons, have ratified the Convention and this may take some time. There is no
list of the substances regarded as hazardous and noxious. The Convention defines what is
covered by reference to substances included in annexes or schedules to existing instruments
such as the 1973 Convention for the Prevention of Pollution from ships, but coal and nuclear
materials are excluded.

There is almost strict liability on the shipowner, with the latter only entitled to a very limited
range of defences, but he can limit his liability. In the case of ships up to 2,000 gt the limit
is SDRs 10m and for ships between 2,001 gt and 50,000 gt the limit is SDRs 10m plus an
additional SDRs 1,500 per gt in excess of 2,000 gt. For ships in excess of 50,000 gt the limit
is the previous amounts plus an additional SDRs 360 per gt up to a maximum of SDRs
100m. To break the limit it must be proved that 'the damage resulted from the personal act
or omission of the owner, committed with the intent to cause such damage, or recklessly
and with knowledge that such damage would probably result'. The Convention requires
compulsory insurance against which claims can be brought directly. In excess of the
shipowners' limit there is an HNS fund, contributed to by cargo interests, to provide a
supplementary sum for claims, which exceed the liabilities imposed on the shipowner under
the first tier, up to a total amount of SDRs 250m, which includes the shipowners' limit.
The clubs had always argued for linkage between the Limitation Convention and the HNS
convention. In other words, the clubs preferred an HNS convention which merely provided
additional resources especially for HNS claims in excess of the normal limitation amount,
rather than one which imposes a separate liability from the ground up, but that argument
seems to have been rejected since the convention sets up a separate limit. Contributions to
the fund will be made on a post-event basis. The fund will consist of a general account into
which most contributions will go but there will be separate accounts for oil (other than CLC
oil) LNG and LPG.

The time limit for claims under the HNS Convention will be three years from the date when
the claimant 'knew or should have known of the damage and identity of the owners or ten
years after the incident.'

6. United States - Oil Pollution Act ('OPA') 1990

The United States passed its own oil pollution legislation prior to the drafting of the CLC in
1969 [the Water Quality Improvement Act, later retitled the Federal Water Pollution Control
Act (the 'FWPCA'), or Clean Water Act].

The clubs always hoped that the United States would ratify the CLC particularly with the
passing of the 1984 Protocols on which the 1992 Protocols were based. The United States
government had participated in the Protocols and there was hope that the US would ratify
them, but this hope was destroyed by the Exxon Valdez spill. Congress passed the Oil
Pollution Act in direct response to that spill. It came into force on 18th August 1990.

(a) Liability

The liability is placed on the "responsible party", who is defined as the owner, operator or
demise charterer. The Supreme Court in a decision on similar wording in CERCLA has held
that there is a general principle in corporate law that a parent corporation is not liable for
the acts of its subsidiaries and neither OPA nor CERCLA purport to reject this bedrock
principle. A corporate parent that actively participates in, and exercises control over, the
operations of the vessel may be held directly liable under OPA, but not otherwise.
The responsible party for a vessel from which oil (which includes most petroleum based
products, vegetable oil and animal fats) is discharged, or which poses a substantial threat of
a discharge of oil, into or upon the navigable waters or adjoining shorelines, or the exclusive
economic zone, is strictly liable for:

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(i) Removal costs incurred by the Federal or State government, or by any person
undertaking clean-up consistent with the national contingency plan;

(ii) Damages:

* To natural resources including the reasonable costs of assessing the damage. OPA
provides for officials to act on behalf of the public as trustees for natural resources, and to
recover damages. The Act requires the President to promulgate regulations for the
assessment by the trustees of such damages and this job has been delegated to the National
Oceanic and Atmospheric Administration. In January 1994 the NOAA issued its initial draft
rules and issued revised rules in July 1995. The NOAA's final rules took effect from 5th
February 1996.

The final rules require trustees to invite the identified responsible party to participate in a
natural resource damage assessment. If a responsible party accepts the invitation to
participate, the scope of participation is determined by the trustees. In deciding the level of
participation, the trustees may consider, among other things, the responsible party's
willingness to fund assessment activities. A participating responsible party may request that
trustees use assessment procedures other than those selected by the trustee if the
responsible party advances to the trustees the trustees' reasonable estimate of the cost of
using the proposed alternative procedures, and agrees not to challenge the results of the
proposed alternative procedures.

The final rules set down three phases for natural resource damage assessment. First, during
the pre-assessment phase the trustees must decide whether to pursue restoration. They
must decide whether injuries have resulted, or are likely to result, which have not been
adequately addressed by the clean-up, but which can be addressed by restoration.
Second, there is the restoration planning phase, during which the trustees must evaluate
information on potential injuries and use that information to determine the need for, the
type and the scale of restoration. They must consider a reasonable range of restoration
alternatives, before selecting their preferred alternatives and each restoration alternative is
comprised of primary and/or compensatory restoration components. For each alternative the
trustees must consider a natural recovery alternative, but also an alternative comprised of a
primary restoration which is intended to restore directly the natural resource and services to
the baseline on an accelerated time frame. For each alternative the trustees must also
consider 'compensatory' restoration actions intended to compensate for interim loss of
natural resources and services pending recovery.

Once the trustees have developed a reasonable range of alternatives they must evaluate the
proposed alternatives, based on cost, the extent to which each is expected to meet the
trustees' goals and objectives in returning the injured natural resource services to their pre-
spill condition and/or compensating for interim losses, the likelihood of success of each
alternative, the extent to which each alternative will prevent further injuries as a result of
the incident, the extent to which each alternative benefits more than one natural resource
and/or services, and the effect of each alternative on public health and safety.

Third, the restoration and implementation phase, during which trustees ensure
implementation of their preferred alternatives. In this phase, the spiller is presented with the
trustees' restoration plan, either to implement or to fund.

One of the major disputes about the previous draft regulations had centred on the
assessment of compensatory damages and, in particular, the use of 'contingent valuation'
methodology. This determines the value of the damaged resources based on the result of
surveys of the public who did not actually use the resources but who value their existence.
Although the final rules do not mention the words 'contingent valuation', the concept is still
discussed in the preamble and appendices to the rule as one of the many recommended

Page 69
techniques for trustees to use in calculating natural resource damage claims. If the trustees
determine that it is not possible to replace services of the same type, quality and
comparable value, then they must identify actions that provide natural resources and
services of comparable type and quality as those damaged. The NOAA rules expressly
endorse contingent valuation methodology as one of the techniques which may be used for
this purpose, and, as a result, the final rules still allow trustees to use the threat of an
exorbitant claim calculated by using contingent valuation methodology to pressure
settlement of natural resource damage claims. In addition, the rules still authorise trustees
to use established computer models to provide damage estimates in the case of some small
spills. Another problem, which continues to give rise to concern, is that any determination of
damages made by trustees in accordance with these regulations has the force and effect of a
rebuttable presumption, i.e. the burden of proof lies on the responsible party to disprove the
assessment.

The final rules are clearly much better than the initial draft rules because they concentrates
on restoration. However, the rules still create the very real likelihood that trustees will
produce large and speculative claims in the United States in respect of damages to natural
resources;

* to real or personal property, recoverable by a claimant who owns or leases that property;

* for loss of subsistence use of natural resources, which will be recoverable by any claimant
who uses natural resources without regard to ownership or management of the resources;

* for the net loss of taxes or other income by the Federal or State government because of
the damage to real or personal property or national resources;

* for the loss of profits suffered by any claimant, not necessarily the owner of the damaged
resources, caused by the damage to real or personal property or natural resources. This is a
significant change to the present US law which holds that, generally, a claimant cannot
recover damages if he has not suffered physical damage to his property. (See the discussion
under Rule 20.13) and

* for the net cost to the State or Federal government of providing increased public services
during or after the clean-up.

The Federal Court for the District of Marine has ruled that the punitive damages are not
available under OPA.

(b) Defences

A responsible party is not liable if he proves, by a preponderance of evidence, that the

discharge of oil, or substantial threat thereof, was solely caused by:

(i) an act of God;

(ii) an act of war;

(iii) an act or omission of a third party (other than an employee or agent or independent
contractor of the responsible party); or,

(iv) any combination thereof,

unless he fails or refuses to report the incident if he knew or had reason to know of it; to co-
operate with a responsible official on removal; or without sufficient cause, to comply with an
order issued under section 311(c) or (e) of the (Clean Water Act) regarding clean up.

Page 70
An owner or operator is not liable to a particular claimant to the extent that the incident is
caused by the gross negligence or wilful misconduct of that claimant.

(c) Limits (Section 1004):

$1,200 per gross ton or $10m, whichever is the greater, for tank vessels of over 3,000 gross
tons and for tank vessels of less than 3,000 gross tons, the greater of $1,200 per gross ton
or $2m. In the case of a tank vessel which carries edible oils, such as animal fats or
vegetable oils, the limit is 50% lower than the liability limit for a tank vessel of equal size
that carries petroleum oils. For other vessels the limit is $600 per gross ton or $500,000,
whichever is the greater.

However, liability is unlimited if the incident was proximately caused by: (A) gross
negligence or wilful misconduct; (B) violation of any applicable federal safety, construction
or operating regulations; (C) the owner or operator fails or refuses to report the incident or
co-operate with a responsible official in a removal action; or (D) without sufficient cause fails
or refuses to comply with an order under Sections 311(c) or (e) of the Clean Water Act. It is
unlikely that in practice the responsible party will be able to limit.

Under OPA it is not advisable for a responsible party to set up a limitation fund and then
leave the clean-up to the Coast Guard; because if he tries to do so, he may lose his right to
limit. The responsible party must pay all removal costs and damages recoverable under OPA
1990 without regard to the OPA 1990 limits and then seek reimbursement of the excess over
the limitation from the Federal Oil Spill Liability Trust Fund administered by the Coast Guard,
which is funded by a tax on imported oil and which is available to pay removal costs, costs
incurred in assessing natural resource damages, or uncompensated damages.

(d) Financial Responsibility

Evidence of financial responsibility is required for any ship over 300 gross tons (except a
non-self propelled ship which does not carry oil as cargo or fuel) using a place subject to US
jurisdiction and in respect of any ship using the waters of the exclusive economic zone to
tranship or lighter oil destined for the United States, sufficient to meet the maximum
amount of the limits prescribed under Section 1004. OPA states that the financial
responsibility may be established by any one or a combination of the following methods
which the Secretary for Transportation determines to be acceptable: evidence of insurance,
surety bonds, guarantee, letter of credit, qualification as a self-insurer or 'other evidence of
financial responsibility'.

The International Group of P&I Clubs has consistently refused to provide anticipatory
guarantees for risks anywhere in the world and will only provide security in respect of a
known claim arising from an accident which has already happened. The only exceptions to
this policy were certificates under the CLC and under the Clean Water Act when it was
believed the Act would be a temporary measure until the CLC came into effect and the US
government ratified the CLC. The clubs, therefore, made it clear to the US government that
they would not be prepared to give certificates under OPA. Nevertheless the Coast Guard
issued final regulations which rejected the solution of treating club membership as an asset
for self-insurance purposes; in the Coast Guard's opinion, OPA requires the provider of
evidence of financial responsibility to be a guarantor.

Under the regulations tankers had to submit acceptable evidence of financial responsibility in
the new form by 28th December 1994, tank barges by 1st July 1995 and other vessels at
the latest by the 28th December 1997. A number of owners have obtained certificates
through self-insurance or surety bonding methods. The remainder have had to use one of
the alternative insurance/guarantee schemes: Shoreline/Arvak Limited and the Shipowners
Insurance & Guarantee Company (SIGCo).

Page 71
Shoreline is a mutual offering insurance. It provides certificates of financial responsibility,
but the member of the mutual, who has the claim which is not paid by his underlying club,
does not automatically have to reimburse Shoreline. The claim is mutualised, but there is
reinsurance through Centre-Re in Bermuda and the sponsors of Shoreline consider that the
reinsurance is such that there is no possibility of a mutual call other than as a result of an
incident involving nuclear or radioactive substances. Nevertheless, Shoreline's rules require
the members to act as prudent uninsured and to maintain ships in class. If a member is in
breach of these requirements, and Shoreline has had to pay under the guarantee, then the
guilty member has to reimburse Shoreline.

Arvak is managed by the same managers as Shoreline, but the two facilities apparently
remain separate and Arvak is a fixed premium facility.

SIGCo is a fixed premium facility. The shipowner has to reimburse the guarantor for any
payments the guarantor has to make under the guarantee, if the applicant is in breach of
any of his undertakings, which include keeping the ship fully classed, complying with all
regulations issued under OPA, and complying with all rules of the P & I clubs. If the
shipowner is not in breach of any of his undertakings to SIGCo, then he is not liable to
reimburse SIGCo for any payments the guarantor has to make under the guarantee if the
owner cannot recover such payments for his P & I club.

Once the redeemable preference shares have been paid back, which SIGCo estimates will
take between 5 and 10 years (presumably on the basis that there will be no claims), the
company will be wholly owned by its ordinary shareholders who will be the shipowners
insured through the SIGCo trust.

Another new facility offering fixed-premium cofrs, called Arvak started business at the
beginning of 1997.

The clubs will continue to cover liabilities under OPA but will not provide certificates.

(e) Tank Vessel Response Plans

Every tank vessel must have a plan for responding to the maximum extent practicable, to a
worst-case discharge of oil or hazardous substances or a substantial threat thereof. The
Coast Guard has issued regulations requiring such plans to deal with three types of spill
occurring at every port a tanker visits: a most probable discharge (50 barrels), a maximum
most probable discharge (2,500 barrels), and a worst-case discharge (discharge in adverse
weather conditions of an entire cargo), but there are certain caps on the owner's obligation
for this possibility. The owner must also nominate a qualified individual (QI) with authority
to implement the vessel's response plan. The clubs have always argued that a shipowner can
only clean up on board and not once the oil has reached the water. This is in accordance
with the IMO 1990 International Convention on Oil Pollution Preparedness, Response and
Co-operation. Moreover the clubs have argued that owners should be able to rely on the
terminal contingency plans, and not have to prepare their own plans for clean-up away from
the ship.

(f) New Californian legislation prohibits any non-tank vessel (defined as a vessel that is ‘not
designed to carry oil as cargo’) of 300 gross tons or more from operating in the marine
waters of California (three miles from the shore) after 1999 (deadline now extended), unless
her owner or operator has prepared and submitted to the California Office of Spill Prevention
and Response (OSPR) an oil spill contingency plan. This must name, amongst other things, a
qualified individual (QI), a spill management team (SM) and response organisations. Her
owner or operator must also have obtained a Californian Certificate of Financial
Responsibility from OSPR upon demonstrating the ability to pay at least $300m to cover
damages caused by a spill. Owners should be able to obtain such certificates of financial

Page 72
responsibility from the Californian authorities on production of their P & I certificates of
entry.

These new requirements in California have led the Club to look afresh at the entire question
of planning for spills from non-tank vessels anywhere in the United States, not just in
California. The Club has decided that it should provide members with an alternative to the
PMSA plan not only for California but for the entire country. We have concluded that the key
to the handling of oil spills in the United States is control by the shipowner; otherwise the
Coast Guard will take over the handling and that will generally be far more expensive than if
the shipowner and the Club deal with the pollution themselves with spill response
organisations working directly for them. Consequently, the Board has authorised the Club
to:-
1. Obtain block entries in the two national response organisations, MSRC and NRC,
for all non-tank vessels in the Club.

2. Recommend that all non-tank vessels visiting the United States, not only those
visiting California, should have a plan.
(g) Contracts With Response Organisations

The clubs have agreed certain principles which govern whether or not contracts from
qualified individuals, oil spill response organisations (OSROs), or response managers are
acceptable:

(i) The ultimate control of the clean-up operation must remain with the shipowner, rather
than the contractor being allowed to proceed with the contracted operations at his discretion
and to charge the owner accordingly. Companies offering QI services may wish to have
absolute authority for the decision-making process, but the contract should make it clear
that the QI should consult with the owner (and the club or the club representative) and take
decisions only with his approval.

(ii) Funding. The clubs will not provide guarantees in advance of an accident. However, after
a casualty has occurred the clubs may be prepared to guarantee payment by the member of
invoices relating to the services provided under the contract in accordance with the contract
terms, subject to the following provisos:

* fixed amount;

* a fixed time limit for the services, i.e. the guarantee will only cover expenses incurred in
providing response services up to a fixed period of time as appropriate, subject to extension
by written agreement of the Club;

* a haul-off clause which allows the Club's liability to be terminated upon twenty-four hours'
notice.

(iii) Insurance and Indemnities. The clubs will not offer insurance to OSROs or QIs but will
cover members' liabilities under contracts as follows. The OSRO/QI must indemnify the
shipowner against liabilities arising from his gross negligence, or his wilful misconduct, or
breach of law, regulations or contracts. The shipowner must indemnify the OSRO/QI against
liabilities arising from the shipowner's gross negligence, or wilful misconduct, or a breach of
law, regulations or contracts. The shipowner will indemnify the OSRO/QI against removal
costs and damages arising out of or consequent upon the discharge or escape of oil from the
vessel save to the extent that:

* the OSRO/QI is entitled to responder immunity under Federal or State laws; or

* the OSRO/QI was grossly negligent or guilty of wilful misconduct, or

Page 73
* the owner would not have been liable if sued direct, or

* the owner would have been able to limit his liability if sued direct, or

* the liability is incurred in respect of personal injury or death.

(iv) Contractors warranties

The contract should contain some form of warranty on the part of the contractor that he is
legally and professionally competent to perform the contracted service.
A number of contracts have been "approved" by the clubs, but this only means that the
owner's liability to indemnify the contractor pursuant to the indemnity provisions in the
contract is covered by the Club, and that the contract contains provisions which are
considered adequate to give the owner adequate control over the operations. Approval does
not mean that the Club has verified the qualifications of any contractor, nor that the
contractor's charging rates are reasonable.

Page 74
 The following contracts have been "approved" by the International Group:

CONTRACTS CONFORMING WITH THE INTERNATIONAL GROUP GUIDELINES ON

VESSEL RESPONSE PLAN CONTRACTS

QUALIFIED INDIVIDUAL
Identification
ABS (5.2.93 - Rev. 1700)
Compliance Systems Inc. 1993 Version
Eco-Tankships
Norwegian Marine Services (1.6.93)
Rapid Response Corporation (19.5.94)
Seacoast Maritime Services Inc 121399a
SMQI No longer exists

SPILL MANAGER
Identification
ERST Inc Rev. 12/8/97
Global Protection Services Inc. Tanker Contract 1/8/99
Global Protection Services Inc. Non Tanker
1/8/99
Contract
NRC Amendment No. 4

QI/SPILL MANAGER
Identification
Corbett & Holt September 22, 1997
Corbett & Holt (Non-tank vessels) November 27, 1999
ECM/Hudson Rev 6/97
ECM/Hudson Rev 8/97 (similar to Rev 6/97)
ECM/Hudson Rev. 12/00
ECM Maritime Services LLC Rev. ½ with effect from 01.01.02
Contract/qi.agt (Conforms with the International
Gallagher Marine Systems
Group Guidelines - Doc.IG - 1 January 1999)
Contract/smt.agt (Conforms with the
Gallagher Marine Systems, Inc International Group Guidelines –
Doc.IG - 1 January 1999)
Gallagher Marine Systems Inc
G:\word\finance\contract\1999\california\gms_m
Marispond Inc
ar-nt.doc
Combined contract for non-tank vessels
HMMS client contract – Revision 1
Hudson Marine Management Services
November 1, 2000
Jamestown Tanker Contract 9th June 1997
Jamestown Non-tanker Contract 9th June 1997
Marispond (oil tankers) 20.2.95 (later version not “approved”)
Marispond non-tanker May 1997
Maritime Alliance Group QI 8/98
Maritime Alliance Group SMT 8/98
1999/09/15 plus attachments A,B,C,E
Meredith Service Agreement
1999/06/21
OOPS Tanker (28.1.93 Standard RM)
OOPS/O’Brien (28.1.93 Standard QI)
OOPS for vessels other than tankers Revised 1st January 1995
OOPS ////////tanker Stan-W-Con (Combined RM/QI)
Patriot Maritime Compliance
Contract Version Number 2
Maritime Compliance Service Order
SMQI 7/97 (no longer exists)

VESSEL ENROLMENT AGREEMENTS

PMSA Vessel Enrolment Agreement 21106071.26

Page 75
 OIL SPILL RESPONSE ORGANISATIONS
Identification
Clean Bay Incorporated Associate Member Oil
07/28/99
Spill Cleanup Agreement
Clean Coastal Waters Indemnity clause “approved”
CCW Non-Tank Vessel Subscription Agreement
Clean Coastal Waters
(Version 1.0)
Clean Harbors Environmental Services Inc. OG080393
03/25/96 (pages 1-48)
Attachment ‘A’, September 14, 1993
Clean Seas Contract Response Agreement Attachment ‘B’, September 3, 1993
Attachment ‘C’, October 1, 1995
Attachment ‘D’ December 20, 1995
Clean Sound Co-operative Inc November 30, 2000
Version 8.1.A
Donjon Environmental Marine Services Version 9.0 January 1, 2000
Version 10.0 January 1, 2001
Vessel COTP Response Services Agreement
Foss Environmental Services Company (Tankers) 1/9/93 Number 6361
(General contract not “approved”)
Contract “approved” on 28/7/93
Garner Environmental Services Inc.
New contract not “approved”
Marispond (Tankers) 2/8/93
Marine Pollution Control (MPC) Contract “approved” on 26/9/93
Marine Spill Response Corporation (MSRC) Version submitted 27/9/96
National Response Corporation (NRC) Standard
July 1, 1994
(Tankers)
National Response Corporation (NRC) (Dry cargo) October 1, 1995
National Response Corporation (NRC) (Dry cargo) NRC Non-Tank Vessel Contract
National Response Corporation (NRC) Pacific
Addendum 3
Alliance
Pacific Environmental Corporation (Hawaii) Contract “approved” on 13/10/93
(Penco) (New contract not “approved”)
Riedel Environmental Services (Succeeded by August 3, 1993 - Legal Department 0876
ECI) (New contract not “approved”)

SALVAGE, FIREFIGHTING AND EMERGENCY CONTRACTS

Identification
Donjon Marine Co. Inc. (Not 1996 version)
Marine Fire Fighting Services (MFF) Rev 11-280901
(15.2.94)
Marine Response Alliance (MRA) There exists an amended agreement which has
Response per diem Salvage Towage not been “approved”
Indemnity clauses “approved”
There exists an amended agreement which has
Marine Response Alliance (MRA) High Capacity
not been “approved”
Lightering - fendering
Indemnity clauses “approved”
OPA 90 Agreement Version 2002
Resolve Towing and Salvage
“Approved” January 28, 2002
Weeks Jamestown June 9, 1997

PERSON IN CHARGE - TEXAS

Identification
ECM/Hudson Rev. 6.97
ECM/Hudson Rev. 8/97 (similar to Rev. 6/97)
ECM/Hudson Rev. 12/00
ECM Maritime Services LLC Rev.1/02 with effect from January 1, 2002
Contract\tex_ap.agr (Conforms with the
Gallagher Marine Systems Inc International Group Guidelines –
Doc IG – January 1, 1999)
Meredith Service Agreement 1999/09/15 plus attachment D

Page 76
 1999/06/21
SMQI No longer exists

WILDLIFE REHABILITATION CONTRACTS

Identification
Entrix Agree 1.doc
International Bird Rescue Research Center
N.B. a not “approved” version is also circulating
(IBRRC)

WASTE DISPOSAL
Identification
Superior Hazardous Waste Group

CANADA
OIL SPILL RESPONSE ORGANISATIONS
Identification
Burrand Clean Western Canada (Marine Response
Standard Ship (Non-Bulk), WCMRC,
Corporation)
September 29, 1995
(Non-Bulk Oil)
Burrand Clean Western Canada (Marine Response
Standard Ship (Non-Bulk), Burrard
Corporation)
Clean June 1, 1996
(Non-Bulk Oil)
Burrand Clean Western Canada (Marine Response
Standard Ship (Bulk Oil), WCMRC
Corporation)
September 29, 1995
(Bulk Oil)
Eastern Cananda Response Corporation Ltd Ship Standard Bulk Oil ECRC August 31, 1995
(Bulk Oil) Membership Agreement Standard Ship Bulk Oil ECRC April 1, 1996
Eastern Cananda Response Corporation Ltd Ship Standard Ship (Non-Bulk) ECRC August 31, 1995
(Non Bulk Oil) Standard Ship Non-Bulk ECRC April 1, 1996
Great Lakes Response Corporation (Bulk Oil) Standard Ship (Bulk Oil) GLRC April 1, 1996
Standard Ship (Non-Bulk) GLRC August 31, 1995
Great Lakes Response Corporation (Non-Bulk Oil)
Standard Ship (Non-Bulk) GLRC April 1, 1996
Combined ECRC, GLRC, ALERT and PTMS Ship Standard Form Agreement Agreement SNBO
(Non-Bulk Oil) Contract October 1, 1997
Combined ECRC, ALERT and PTMS Ship (Non-Bulk
Oil) Membership Agreement and Confirmation of SNBO 99-1, January 1, 1999
Arrangement
ECRC (Great Lakes Region) Ship (Non-Bulk Oil)
Membership Agreement and Confirmation of SNBO 99-2, January 1, 1999
Arrangement
ECRC (Quebec/Maritimes/Newfoundland Region)
Ship (Non-Bulk Oil) Membership Agreement and SNBO 99-3, January 1, 1999
Confirmation of Arrangement
Combined ECRC, ALERTand PTMS Ship (Bulk Oil)
Membership Agreement and Confirmation of SBO 99-1, January 1, 1999
Arrangement
ECRC (Great Lakes Region) Ship (Bulk Oil)
Membership Agreement and Confirmation of SB0 99-2, January 1, 1999
Arrangement
ECRC (Quebec/Maritimes/Newfoundland Region)
Ship (Bulk Oil) Membership Agreement and SB0 99-3, January 1, 1999
Confirmation of Arrangement
A new combined contract for ECRC, GLRC, Point Tupper and Alert for non-bulk oil shipments
has been “approved” and will be issued shortly.

Page 77
 SPILL MANAGER
AUTHORISED INDIVIDUAL
Identification
ECM/Hudson Rev. 6/97
ECM/Hudson Rev. 8/97 (similar to Rev. 6/97)
ECM/Hudson Rev. 12/00
ECM Maritime Services LLC Rev.1/02 with effect from January 1, 2002
Contract\can_ai.agr (Conforms with the
Gallagher Marine Systems, Inc International Group Guidelines - Doc.IG)
January 1, 1999)
Jamestown Tanker Contract June 9, 1997
Jamestown Non-Tanker Contract June 9, 1997
Marispond Non-Tanker Contract May 1997
OOPS (Tankers) Canadian Addendum February 1996
Canadian Addendum, Non-oil tankers
OOPS ( Non-Tankers)
February 1996
Seacoast 121399a Addendum
SMQI 9/97 (SMQI/CDN) (no longer exists)

LIST OF CONTRACTORS WHO HAVE SUBMITTED CONTRACTS TO THE

INTERNATIONAL GROUP WHICH HAVE NOT BEEN CONSIDERED TO COMPLY WITH
INTERNATIONAL GROUP GUIDELINES

QUALIFIED INDIVIDUAL
Identification
ABS Marine Services
Agreement for QI individual services for non-tank
Editorial Chgs 23 Nov 98 & 30 Jul 99
vessels
ABS Group name change 1 Feb 99
Response to operational bunker fuel/lubricant oil
discharges
Compliance Systems Inc 1998 Version
WAM Inc., Maritime Services

SPILL MANAGER
Identification
Ancon Marine, Emergency Services Agreement
Hartec Management Consultants, Inc.,
Response Action Contract (State of Alaska)

QI/SPILL MANAGER
Identification
Ancon Marine, Emergency Services Agreement
Contract for Combined QI and Spill Response
OOPS/O’Brien Management (non-tank)
submitted for review March 2001
Hartec Management Consultants, Inc.,
Response Action Contract (State of Alaska)

PERSON IN CHARGE - TEXAS

Identification
ABS Rev. February 15, 1996
WAM Inc., Maritime Services

Page 78
 OIL SPILL RESPONSE ORGANISATIONS
* Contract not “approved” but indemnity clause “approved”
A & A Waste Oil Company (Environmental Services) Maryland
Alaska Chadux
Ancon
Ashco, Guam
Clean America Inc. Maryland
*Clean Coastal Waters Inc. (CCW) Subscription Agreement
(CCW Subscription Agreement Version 2.0)
Clean Coastal Waters Inc, Members Services Agreement (Version 2.0)
Clean Islands Council (Hawaii)
Clean Sound Co-operative Inc – Property Damage Agreement and Listing and Per Voyage Oil Spill
Services Agreement
Cook Inlet Spill Prevention & Response, Alaska
Crowley Marine Services (Puerto Rico)
Delaware Bay S. River Co-operative, Pennsylvania
Diversified Environmental Services, Tampa, Florida
Ecology Control Industries – MSA001
*Emergency Environmental Services
*Environmental Recovery Group Inc
Florida Spill Response Corporation, Florida
Garner Environmental (new)
Guardian Environmental Service, Delaware
Guam Response Services (Ashco) (see above)
H&H
Industrial Clean-up Inc.
International Technology Corporation
Marine Logistics Inc.
*Marine Response Alliance (MRA)
OVAC Inc. Louisiana
Penco (new)
Petrochem Recovery Services Inc.
P.O.R.T.
Port of Newport / Yaquina Bay Oil Response Plan
Remac USA, Delaware
Riedel (new)
*Seacoast Ocean Services (SOS), Maine
*So-Cal Ship Services, California
SEAPRO (South East Alaska Petroleum Resource Organisation)
Tesoro Alaska Petroleum Company / Cook Inlet

VESSEL ENROLMENT AGREEMENT

Coos Bay, Oregon
Marine Fire and Safety Association / Clean Rivers Co-operative
Newport (Oregon) Enrolment Agreement
WSMC – Washington State Maritime Co-operative Vessel Enrolment Agreement

SALAVAGE, FIREFIGHTING AND EMERGENCY CONTRACTS

Identification
Marine Response Alliance (new) Indemnification clauses “approved” only
Marine Pollution Corporation (MPC)
OMI Petrolink

SALVAGE
Identification
Wijsmuller

WILDLIFE REHABILITATION CONTRACTS

Identification

Page 79
Tristate Bird Rescue

Page 80

* Point Tupper (Bulk Oil)
* Point Tupper (Non-Bulk Oil)
* Alert (Bulk Oil)
* Alert (Non-Bulk Oil)
CANADA
OSROS
Identification
Indemnity Clause “approved”.
Final sentence of Cl.6.9 (b) which deems charge out
costs to be reasonable should be withdrawn
Indemnity Clause “approved”.
Final sentence of Cl.6.9 (b) which deems charge out
costs to be reasonable should be withdrawn
Indemnity Clause “approved”.
Word “reasonable” should be inserted before “fees
charged” in Clause 8.1.
Indemnity Clause “approved”.
Word “reasonable” should be inserted before “fees
charged” in Clause 11.1.

AUTHORISED INDIVIDUAL
Identification
ABS Marine Services
Compliance Systems Inc.
Norwegian Marine Services
WAM, Inc., Maritime Services 70VW0163, 165, 173, 174, 175, 176

NON-US OSROS
Identification
East Asia Response Pte Ltd – EARL (Third
Party Agreement)( Exxon and Shell)
Australian Marine Oil Soill Centre Pty Ltd –
AMOSC Service Contract
Petroleum Industry of Malaysia Mutual Aid
Group – PIMMAG
Non-Member User Agreement
CINTRA – Argentina OSRO Currently under review
Clean Caribbean Co-operative Byelaws
(Exxon)
Singapore Oil Spill Response Centre
- SOSRC (OSRO Agreement)
Oil Spill Response Limited – OSRL
Non-participants Agreement (Exxon)
Marine Spill Response Co-operation
- MSRC (International Addendum)

7. US CERCLA - The Comprehensive Environmental Response compensation and Liability Act

of 1980 ('CERCLA')

This deals with contamination of the entire environment of the US by hazardous substances
except for oil falling under OPA. Liability for any such spill is strict with extremely narrow
defences: act of God, act of war, an act or omission of a third party other than an employee
or agent of the responsible party or any combination of these three defences. Ship owners
can limit their liability to $300 per gross ton or $5m whichever is the greater. An owner will
lose his right to limit if the spill was as a result of wilful misconduct or wilful negligence
within the privity or knowledge of such person, or was primarily caused by a violation, within
the privity or knowledge of such person, or applicable safety, construction or operating
standards or regulations, or was accompanied by the failure or refusal of such responsible
person to provide all reasonable co-operation and assistance requested by the official in
connection with the response activities under that national contingency plan.

8. Oil Pollution from dry cargo ships

Page 81
Bunker spills from ships other than oil tankers fall outside the scope of the International
CLC/Fund regime, although they are covered by the United States Oil Pollution Act. Some
countries, for instance, the United Kingdom have introduced legislation, which imposes
liability for bunker spills from non-tankers almost akin to liability under the CLC. In some
countries the 1976 London Convention (LLMC) may apply to pollution claims outside the
scope of CLC i.e. to claims for bunker spills for non-tankers

An International Convention on Civil Liability for Bunker Oil Pollution Damage 2001 was
adopted by a diplomatic conference held at IMO in 2000.

Following entry into force, the International Convention on Civil Liability for Bunker Oil
Pollution Damage 2001 will establish a liability regime for pollution damage caused by
bunker spills from all ships other than those covered by the 1992 Civil Liability Convention.

The Convention will apply to pollution damage caused in the territory, territorial sea and
exclusive economic zone of a State Party and to preventive measures wherever taken to
minimise such damage.

The Convention will impose joint and several strict liability on a group of persons – “the
owner, including the registered owner, bareboat charterer, manager and operator of the
ship” – for pollution damage caused by any bunker oil on board or originating from the ship.

Liability may be limited by reference to the applicable limitation regime. A conference

resolution was adopted urging States to ratify the 1996 Protocol to the 1976 Limitation of
Liability for Maritime Claims Convention and recommending that States clearly identify the
applicable limitation regime when implementing the Convention.

The registered owners of ships greater the 1,000gt will be compulsorily required to maintain
insurance in respect of their liabilities under the Convention. In addition, they will be
required to obtain and carry on board State approved certificates attesting that insurance is
in place. States may declare that this requirement does not apply to ships operating
exclusively on domestic voyages within their territorial seas.

Claims for compensation for pollution damage may be brought directly against the insurer,
who will be entitled to invoke the defences which the shipowner would have been entitled to
invoke (other than bankruptcy and winding up of the shipowner) together with the addition
defence of wilful misconduct of the shipowner.

The time bar for claims will be three years from the date of the damage and in no case more
than six years form the date of the incident which caused the damage.

The Convention will enter into force one year following the date on which 18 States,
including 5 States each with not less than 1 million gt, indicate their intention to be bound
by it.

Page 82
DAMAGE CAUSED OTHER THAN BY COLLISION (WASH DAMAGE RULE)
- RULE 20.15

A. COVER

The Club covers loss or damage to another ship or any property therein 'occasioned
otherwise than by collision'. This is the so-called wash damage rule, which covers damage to
another ship that is not caused by a collision and which is therefore not covered by the hull
insurance on the entered ship. See the discussion under the collision rule on 'what is a
collision for the purposes of the Institute Time Clauses'.

B. LAW

The law in most countries is that a shipowner has a duty to make sure that his ship proceeds
at such a speed that she does not cause loss of, or damage to, other ships.

C. CLAIMS HANDLING

The first thing to do is to obtain a list of all other vessels which passed at or near the time;
there is a tendency to attribute wash damage to the largest and smartest vessel regardless
of the facts.

If the allegation is that a ship's wash caused another vessel to surge off the berth then the
obvious counter-allegation is that the damaged ship had failed to tend her warps correctly
and a surveyor should be appointed immediately.

D. PREVENTION

Allegations of wash damage are unpredictable. Modern ships usually make excessive wash
due to interaction effects and if a ship is making a transit in which she has minimal clearance
over the bottom it is wise to engage extra tugs rather than to attempt to hold the ship with
main engine and rudder.

Page 83
TOWAGE CLAIMS - RULE 20.16

A. TYPES OF TOWAGE

1. Traditional harbour towage: a tug or tugs are contracted by the ship to assist in docking
or undocking. The charterer's agents may instruct tugs but this appointment will not
normally transfer to the charterer the risk of tug negligence. The normal conditions are the
following:

(a) UK Standard Towage Conditions (Revised 1986). Under clause 4, the tug owner purports
to contract out of any liability for any loss or damage done to or by the tug or tow or done
by or to any cargo on board the tow or to any other property even if caused by his
negligence or the unseaworthiness or unfitness of the tug. The shipowner indemnifies the
tug owner for any such claim and for any damage to the tug. The only exceptions are set out
in clauses 4(c) - (if the claim results 'directly and solely from the personal failure of the tug
owner to exercise reasonable care to make the tug ... seaworthy for navigation at the
commencement of the towage') and 4(e) ('notwithstanding anything in clauses 4(a) and (b)
....., the liability of the tug owner for death or personal injury resulting from negligence is
not excluded, or restricted').

The conditions exempting the tug owner from liability for the negligence of his crew, and
forcing the shipowner to indemnify the tug owner for damages even where the damage is
caused by the negligence of the tug's crew, have been consistently upheld in the United
Kingdom and Commonwealth countries, provided the normal requirements of an enforceable
contract have been complied with.

(b) Continental Europe

(i) Netherlands Towage Conditions 1951. The owner of the tug remains responsible for
damage to the tug caused by any defect in the tug or the negligence of the tug's crew. The
tug owner is responsible for damage caused by collision between the tug and ships or
property of third parties if the tow can prove that the damage was not caused or contributed
to by the tow. Otherwise, the shipowner is liable for all damage. These conditions are far
less onerous on the shipowner than are the UK conditions.

(ii) Scandinavian Conditions

The tug company is liable only for negligence of the management and not for the negligence
of the master or crew of the tug. The shipowner indemnifies the tug owner for all damage
caused to the tug owner, which includes damage to the tug, unless the shipowner proves
that he and his employees were not at fault.

(c) Canada

The Eastern Canada Towage Conditions. These are obscurely worded. The tug owner is not
responsible for the negligence of his employees, provided he has exercised due diligence to
make his tug seaworthy and has a right of indemnity from the shipowner for any third-party
claims and for loss or damage to, the ship being towed, or for injury claims of the crew of
the ship being towed. However, the indemnity does not apply to loss of, or damage, to the
tug, or loss of life or injury to the crew of the tug, unless the damage or injury or loss of life
has been caused, or contributed to, by the fault or negligence of the ship being towed.

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(d) United States

In Bisso v Inland Waterways Corporation (1955) the Supreme Court held that clauses
relieving the tug owner of liability for negligence e.g. the UK Standard Towage Conditions,
were invalid as being against public policy, since negligence should be discouraged by
making wrongdoers pay for damage, and those requiring services should not be
'overreached' by others who have the power to drive hard bargains. The Supreme Court has
also ruled as invalid clauses in towage contracts which provide that the master and crew of
the tug shall be the servants of the tow in the performance of the towage services, and
therefore if they are negligent the liability will rest with the owners of the tow rather than
the tug owners. Such employment clauses are considered fictitious. However, the Supreme
Court had previously, in Sun Oil Company v Dalzell Towing, sustained the validity of a
pilotage provision in a towage contract, which relieved the tug owner from any liability for
the negligence of a tug's captain acting as a pilot on board the towed ship. Therefore, in the
United States, a tug owner can protect himself from negligent pilotage but not from
negligent towage. A partial way around the problem for tug owners may possibly be found
by a cross insurance endorsement in the towage contract, requiring the owners of the tow to
name the tug and her owner as additional assured in their hull and P&I policies, and
requiring the owner of the tug to name the tow and her owner in his hull and P&I policies.
The result is that those underwriters are unable to subrogate against their own additional
assured. Such a solution has been upheld at least in the Fifth Circuit but the wording has to
be absolutely clear and the waivers of subrogation must be reciproca l.

(e) Japan - Nippon Towage Contract

The tug owner must exercise due diligence to make the tug seaworthy at the time she
leaves the port, and is liable for any damage to the tow caused by any failure to do so. The
shipowner must exercise due diligence to place his ship in a seaworthy condition for the
towage and is liable for failure to do so. The shipowner and the tug owner are liable for their
own negligence, and that of their employees except that the tug owner is not liable for the
negligence of the tug's crew in the navigation or handling of the tug, but is liable for gross
negligence, neither is he liable for fire on the tug nor the tow unless caused by gross
negligence of the tug owner.

2. Ocean Towage: Towage of a ship from port to port - often to a breaker's yard. This is
normally carried out either under:

(a) UK Standard Towage Conditions

or

(b) Towcon and Towhire [Bimco approved contracts]. Towcon and Towhire are on a 'knock-
for-knock' basis i.e. they contain a term as between the owner of the tug, on the one part,
and the owner of the tow, on the other part, that each shall be responsible for any loss of or
damage to his and his sub-contractors' own ship, cargo and property, and for wreck removal
thereof and for loss of life or personal injury for his own employees and those of his sub-
contractors without any recourse whatsoever against the other. Each party will indemnify
the other for such liabilities. Under the contracts, the owner of the tug remains responsible
for collisions by the tug and the tow owner for collisions by the tow.

3. Integrated tug and tow, where the tug and tow are owned by the same company. This is
really no different from a one-ship operation and there are no problems about covering the
combined unit.

4. Coastal or river towage, where tug owners tow other companies' barges. The company
will normally be on the same terms as harbour towage in that particular country.

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B. COVER

1. Towage of an entered ship (Rule 20.16.1)

There is no special restriction on cover for normal liabilities arising when an entered ship is
being towed e.g. cargo claims or a collision arising because of the negligence of the tow.
Rule 20.16.1 only deals with, and restricts cover for, a claim arising during towage 'for which
the Member may become liable under the terms of the towage contract'. This restriction is
imposed because most towage contracts transfer liability from the tug to the ship being
towed. The Club will cover liabilities arising under the terms of any contract of 'customary
towage', which means normal port towage or the towage of and entered barge. There is no
geographical restriction on the towage of a barge, provided it is in the normal course of
trading.

If the towage is not 'customary' (and non-customary normally means ocean towage of a
conventional ship) and the member needs cover for the contractual liabilities under this rule,
then he has to advise the Managers, who will decide whether cover can be granted and, if
so, on what terms.

The Managers will normally approve contracts which are based on the knock-for-knock
philosophy for non-customary towage. Thus the Club will normally approve Towcon or
Towhire, but not the UK Standard Towage Conditions, nor Scandinavian, Dutch or Nippon
Towage Contracts, since these attempt to place all liability on the ship being towed. The
Eastern Canada Towage Conditions are not acceptable because they are so obscurely worded
that one cannot be satisfied that they are on an absolute knock-for-knock basis, and under
these conditions the shipowner agrees contractually to pick up third party liabilities in certain
circumstances which are not acceptable to the Club.

It is important that members remember that if they request cover for non-customary or
ocean towage for their ship being towed and the Managers confirm cover, all that is being
confirmed is that the contractual liabilities picked up by the member under the terms of the
towage contracts are covered. Unless specifically asked the Managers are not confirming
that the ocean towage itself is acceptable and does not fall foul of Rule 18.2 "the carriage
trade or voyage (is) imprudent, unsafe, unduly hazardous or improper." If the Managers are
asked to approve a tow, rather than approve the terms of a towage contract then they will
require a pre-tow survey by approved surveyors.

In the past the Managers have argued that if a ship is being towed after a casualty then they
will normally lay off the entire risk, whatever the terms of the towage contract, because the
cost of a special cover will form part of the claim by the member on his hull underwriter. It
may well be that general average adjusters will reject such a charge because the normal
cover for towage of an entered ship remains in place and there is no need for special
permission by the Club for the towage, unless the towage is inherently dangerous and
therefore falls foul of Rule 18.2, or if the contract imposes additional liabilities on the
shipowner.

The Club gives normal cover for liabilities arising when an entered ship is being towed e.g.
collision arising because of the negligence of the tow. Rule 20.16.1 only deals with, and
restricts cover for, a claim arising during towage 'for which the Member may become liable
under the terms of the towage contract'. This restriction is imposed because most towage
contracts transfer liability from the tug to the ship being towed. The Club will cover liabilities
arising under the terms of any contract for 'customary towage', which means normal port
towage or the towage of an entered barge. There is no geographical restriction on the
towage of a barge, provided it is in the normal course of trading. Otherwise, the contractual
liability has to be specifically advised to the Managers, who will decide whether cover can be
granted and, if so, on what terms. The Managers will normally approve contracts, which are
based on the knock-for-knock philosophy, for non-customary towage.

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Thus the Club will normally approve Towcon or Towhire, but not the UK Standard Towage
Conditions, nor Scandinanvian, Dutch or Nippon Towage Contracts, since these attempt to
place all liability on the ship being towed. The last edition of the Guide stated that the
Eastern Canada Towage Conditions are acceptable for ocean towage, but on reflection this is
wrong. They are so obscurely worded that one cannot be satisfied that they are on an
absolute knock-for-knock basis, and under these conditions the shipowner agrees
contractually to pick up third-party liabilities in certain circ umstances which are not
acceptable to the Club. We also stated in the last edition that if a ship is being towed after a
casualty then the Managers will normally lay off the entire risk, whatever the terms of the
towage contract, because the cost of a special cover will form part of the claim by the
member on his hull underwriter. This has been our view for many years, but it may well be
that general average adjusters will reject such a charge because the normal cover for
towage of an entered ship remains in place and there is no need for special permission by
the Club to the owner for the towage unless the towage is inherently dangerous and
therefore falls foul of Rule 18.2 'the carriage trade or voyage [is] imprudent, unsafe, unduly
hazardous or improper' or if the contract imposes additional liabilities on the shipowner. The
restrictions on cover for towage of an entered ship relate only to contractual liabilities and
not to normal P&I liabilities arising during the towage.

2. Towage by an entered ship - (Rule 20.16.2)

The Rule may appear somewhat difficult to follow but the main points are clear:

(a) Liability arising out of the towage by an entered ship is covered exclusively by Rule
20.16.2 whether the liability arises in tort or under the contract, see the introductory words
of Rule 20.16.2 ‘liability...under the terms of a contract for, or arising out of, the towage by
an entered ship...’. There is a crucial difference from towage of an entered ship.

(b) Cover is only for risks otherwise falling within the Rules e.g. damage to a ship, personal
injuries, oil pollution, dock damage – proviso i.

(c) An entered ship which is specially designed for towing must be declared to the Club at
the time of entry – proviso ii.

(d) The towage contract has to be approved prior to commencement of the tow for there to
be any cover, whether for third-party liabilities of damage to the tow – proviso iii.

(e) Above all, there is no cover for loss of or damage to the tow, or for the cargo on the tow,
or for the wreck removal of the tow or her cargo, unless the Managers have agreed in
writing to such cover. The following contracts will be approved in the case of a specially
designed tug:

(i) UK, Dutch or Scandinavian towage conditions, but not the Nippon Towage conditions.

(ii) Towcon/Towhire.

(iii) Lloyd’s Open Form.

(iv) A strict knock-for-knock contract. However, see comments earlier on the position in the
United States and the comments in the Rules on supply boat charters in special note (ii) to
Rule 20.16.2. If a supply boat is chartered and if the work includes towage, the charter must
contain a knock-for-knock clause covering the property of the charterers’ sub-contractors in
the tow or there must be a separate clause, acceptable to the Club, dealing with towage.

(v) Salvage. The Club will normally cover liabilities arising out of a towage which is made to
save property or life.

Page 87
These guidelines for cover really mean that the Club only gives cover for loss or damage to
the tow where the Club is fairly certain that the tug owners will have no liability. It is a
safety net cover.

Page 88
LIABILITY UNDER CONTRACTS FOR HIRE OF CRANES, LIGHTERS OR
OTHER LOADING AND DISCHARGING APPLIANCES - RULE 20.17

A. COVER

The Club covers liability for loss or damage arising under a contract for the hire of a crane,
lightering or other loading and discharging appliance or craft used during the loading or
discharging of the ship, or for carrying passengers or crew to or from the ship. However, the
terms of the contract must have been approved by the Managers. Such contracts arise in the
normal course of trading and therefore, under the principles discussed under Rule 20.13, the
Club will generally approve such indemnities provided there is a limit and an exception of
sole negligence. Proviso ii to the cargo rules also states that a member can recover for loss
or damage to cargo incurred under this type of contract, provided it has been approved by
the Managers.

B. LAW

Generally, crane operators, which normally means the port authorities, require the
shipowners who use their cranes to indemnify them for any third-party claims, any personal
injury to the crane driver, and any damage to the crane, but the liability will be limited to
some high figure, often US$20m, and the authority will normally accept liability where the
incident was caused by the sole negligence of the operator. In recent years the indemnities
have become less onerous.

Page 89
WRECK REMOVAL - RULE 20.18

A. COVER

Under this Rule, the Club covers more than just the removal of a wreck or its cargo. The
Club also covers liabilities incurred as a result of the removal and liabilities incurred as a
result of the presence of the wreck, for instance another ship hitting the wreck:

1. Removal of the wreck (Rule 20.18.1)

The Club covers the costs of removing a wreck provided the member is liable to remove that
wreck by law (i.e. a wreck removal order has been made against the owner by the
competent authorities) or under a contract which the Managers have previously approved in
writing. The English Court of Appeal in The Mare (1991) held that instructions from a port
authority to lift a wreck outside the authority's territorial waters did not give rise to a legal
liability, even though the port authority could quite legally put commercial pressure on the
shipowner to remove the wreck. However, it had been established in evidence that the port
authority could not enforce its order in the courts of its own country.
It is only when the hull underwriters have decided that they do not wish to salve the sunken
ship that the problem passes to the P&I club. Even if a ship is legally not a wreck, but she is
accepted as a constructive total loss by hull underwriters, then the Club may reimburse the
owner for the costs of her removal, either under the wreck removal rule or under the
omnibus rule. If the Club pays for the wreck removal, the Club is entitled to any proceeds
from the sale of the wreck.

There are two types of relevant contract which may impose liability for wreck removal on an
owner: an indemnity to a port authority, or a supply boat charter. Provided that the
Managers have approved the contract in writing, then the contractual wreck removal risk is
covered. The Managers would normally approve a contract which requires a supply boat
owner to remove the wreck of the supply boat, or any of her equipment, or part of it which
is a risk to the oil field structures.

2. Liabilities incurred as a result of the raising, removal or destruction of the wreck - i.e.
negligent wreck removal (Rule 20.18.2).

There is no recovery unless the owner has acted reasonably, and has employed independent
contractors, and has done his best to make sure that, under the terms of the contract, the
risks of incurring the relevant liabilities fall upon the contractors, and that those contractors
take out insurance. No liability insured under a contractors' liability policy shall be
recoverable from the Club. See proviso (iii).

3. Liabilities incurred because of the presence of a wreck. (Rule 20.18.3).

The owner must have taken reasonable steps to remove, light and mark the wreck. There
will be no automatic recovery in respect of any liability incurred more than two years after
the ship became a wreck. [See proviso iv.] This time limit was introduced when there was
the risk that the clubs were subject to the Third Parties (Rights Against Insurers) Act and
when many years after the event, the Club could be faced with a claim for a ship hitting the
wreck of a ship which had been entered in the Club long before the incident occurred. The
clubs are not subject to this Act and therefore the risk is lessened.

4. Removal of cargo - (Rule 20.18.4)

Again, the Club pays if the member is liable to remove the cargo by law or under a contract
which the Managers have previously approved in writing.

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The Managers would normally not approve a contract whereby the supply boat owner is
obliged to remove the charterers' property because that goes against the knock-for-knock
principle which underlies so many contracts in the offshore industry. The obligation to
remove charterers' property should remain with the charterers. The Club is entitled to the
proceeds of the sale of any cargo saved, at least up to the cost of removing the cargo.

B. LAW

1. General

In most countries, the shipowner has the legal obligation to remove the wreck of his ship if it
becomes a hazard to navigation, irrespective of whether or not he was at fault in the
sinking. In many countries, the authorities have the right to order the removal of an
obstruction, and if the order is not complied with, they have the right to carry out the
removal operations themselves and recover the cost from the shipowner. The shipowner is
also likely to have a duty to mark or light the wreck and he will be liable for any damages
suffered by other ships if he does not do so. In some countries, the authorities have a legal
duty to mark the position of wrecks and, where they have such a duty, a shipowner can
usually satisfy his obligation to light or mark the wreck by notifying the authorities that the
ship has become a wreck. The shipowner may be relieved of liability to other ships after
notice has been given to the relevant authorities and members must therefore notify the
relevant authorities of a casualty as soon as advice of the casualty is received. The
shipowner can limit his liability under the 1976 Limitation Convention for wreck removal. The
governments of Germany, Netherlands and the United Kingdom are pressing in the IMO for
an international convention on the issue to allow states in certain circumstances to order the
removal of wrecks outside their territorial waters and to require shipowners to have
insurance for the risk against which claimants can seek recovery.

2. United Kingdom

Under the English Merchant Shipping Act, a harbour, or conservancy authority, has the
power to remove any wreck in its port, or in or near any approach thereto, and to sell the
wreck and the contents, but there is no power to claim against the shipowner for the
difference between the removal costs and the proceeds of the sale. If the sinking was caused
by the negligence of the shipowner, then the latter is liable in common law to reimburse the
authority the cost of removing the wreck either on the grounds of negligence or public
nuisance. However, section 56 of the Harbour, Docks and Piers Clauses Act of 1847 provides
that the harbour-master of a port authority may remove any wreck in the port or the
approaches thereto and the costs thereof shall be repaid by the owner of the wreck. This
section has been incorporated into the special acts setting up many port authorities. The UK
has not brought into force the clauses of the 1976 Limitation Convention which apply
limitation to wreck removal.

3. United States

Since 1986 there has been a statutory obligation on the owner, lessee, or operator of a
sunken ship in navigable waters, to remove the wreck. This imposes strict liability for wreck
removal rather than liability only for negligent sinking. If the owner does not do so then he
is liable to reimburse the government for the costs of removal. There is no right to limit for
claims from the Federal Government for wreck removal.

C. CLAIMS HANDLING

Huge sums can be lost if the wrong wreck removal contract is entered into and therefore in
all cases of a potential wreck removal, advice should be taken from experts. It often
happens that it is not, in fact, necessary to remove a wreck entirely, provided the issue is
approached intelligently.

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It may be sufficient to remove the bunkers, or to cut the wreck down to a safe depth for
navigation. An owner, or the club, should always consider the following items in any wreck
removal contract: (a) whether it is cheaper and safer to have a no-cure-no-pay contract, a
cost-plus contract, or a fixed-price contract; (b) the contractor must take out contractor's
liability insurance for his own account, and name the shipowner as co-assured; (c) whether
there should be a time limit within which the contractor has to complete the work.

The International Salvage Union, the clubs and BIMCO have produced three recommended
contracts for wreck removal – WRECKFIXED 99 (fixed price – no cure no pay addition),
WRECKSTAGE 99 (lump sum – stage payments addition) and WRECKHIRE 99. The
WRECKSTAGE 99 will be the version which contractors will normally prefer because it
provide for staged payments, each of which is lump sum no cure no pay an the contractor is
also entitled to additional payments if the work is delayed through bad weather or any other
reason outside his control. The clubs and shipowners will prefer the WRECKFIXED 99
because the risk of delay lies with the salvor and there is no payment at all unless the wreck
removal is successful. The WRECKHIRE 99 is a daily rate contract.

These are not intended to supplant LOF, which will continue to be the preferred contract for
salvage where there is good value in the ship and the cargo. They are intended for the
removal of what has become a wreck in a location where it would not be economically viable
for salvors to contract on LOF terms.

The clubs have endorsed the recommendations of the Salvage Working Group that, when
contracting salvage and wreck removal services, the shipping and insurance services should
give more weight to salvors who have a major investment in salvage equipment and
expertise, and have the capacity to deal with very large salvage incidents.

Page 92
QUARANTINE EXPENSES - RULE 20.19

The club covers expenses incurred by the member because of the outbreak of an infectious
or contagious disease on the entered ship, unless the ship was ordered to a port where the
member should have known that she would be quarantined. The member can recover
additional costs such as relate to fuel, loading and discharging cargo, feeding crew and
passengers, after deduction of the costs which he would have incurred anyway had the ship
not been quarantined. Under Rule 20.19.1.A, a member is entitled to recover the cost of
disinfecting any cargo or container under quarantine, or public health regulation, but the
cargo or container must have been scheduled to be carried on an entered ship, and cover
under this paragraph must be specifically agreed in writing with the Managers and recorded
in the certificate of entry. Cover under this sub-rule will be limited. See discussion under
Rule 20.4.A.

Page 93
CARGO CLAIMS - RULE 20.20 AND 20.21

A. COVER

'Loss of ... or damage to or responsibility in respect of cargo or other property intended to

be, or being, or having been carried ... by an entered ship arising out of any breach by the
Member, or by any person for whose acts ... he may be legally liable, of his obligation ... as
a carrier by sea property to load, handle, stow, carry, keep, care for, discharge and deliver
such cargo ... or arising out of unseaworthiness or unfitness of the entered ship'. Rule 20.20
and 20.21.

1. Extent of Cover

The Club covers not only loss or damage but also delay, loss of market or interest or
consequential loss, provided the member is liable for such damages, and carriers generally
purport to exclude liability for delay in their bills of lading, but such exclusions may be
invalid under the Hague/Visby Rules. The Club covers claims arising in contract or in tort:

(a) Contractual claims can arise under:

(i) bills of lading, non-negotiable receipts,

(ii) voyage charters,

(iii) time charters - liability by owners to indemnify time-charterers and vice-versa.

(b) Tort Claims. The Club will cover liabilities, which members may have in tort to cargo
owners, if there is no privity of contract, arising out of the unseaworthiness or unfitness of
the entered ship.

(c) Other Property - bunkers - The Club intends to cover owners' liability for time charterers'
bunkers under this cargo rule, although London arbitrators in 1986 held that the cargo rules
of most clubs are not wide enough to cover bunkers. They stated that the tenor of the
language of the rules is associated with cargo. The rules state that the cargo or the other
property must be received for shipment or carried and the word 'carried' denotes a
beginning and an end so that one automatically thinks of a loading or a discharging of
goods. Bunkers are consumables and, as such, do not fit into the context of 'carried or
having been carried'. Despite this, it is the Club's intention to cover owner members for their
liability for time charterers' bunkers under this Rule.

2. Extension of Cover

(a) Extra costs of discharging damaged or worthless cargo. The Club covers the extra costs
incurred directly in the actual discharge or disposal of damaged cargo but not running costs
nor any deviation, delay nor detention costs. This is closely connected with the sue and
labour Rule (20.33) but under the sue and labour Rule, members can recover running costs.
For a member to be entitled to recover the extra costs of discharging, he does not have to
be liable for the damage. He will still have a claim if the cargo has, for example, congealed
without his fault. An increasing risk is the extra cost of disposing of worthless hazardous
waste. If a shipper has shipped waste, and both shipper and receiver go into liquidation, the
shipowner may be left with the heavy cost of disposing of hazardous waste. The Club has
had cases where the ultimate cost has been more than ten times the initial estimate.

Page 94
The regulations relating to the disposal of waste in many countries are extremely onerous.
Members are therefore warned to be very careful about agreeing to carry hazardous waste
from unknown shippers. Members cannot recover from the Club if they have recourse to any
other party.

(b) Sue and Labour (Rule 20.33)

Members can also recover the costs and expenses which they incur in avoiding or attempting
to avoid any liability for which they are indemnified. This applies to all the rules, not just the
cargo rule, but the subject can best be dealt with under the discussion of the cargo rule.
There are three provisos which apply to all such claims:

(i) a casualty must have occurred or, at least, there must be the real danger of a casualty
and,

(ii) the preventive measures must be of an unforeseeable or extraordinary nature and,

(iii) they must be voluntary.

In other words, a member cannot recover his running costs just because his ship is arrested.
He has not voluntarily incurred these costs. Under Rule 22, he is under an obligation,
anyway, to sue and labour. Members cannot always recover the cost of suing and
labouring.The dominant purpose of the expense must be to minimize a loss which falls to be
indemnified by the Club, rather than save time for the member. Therefore, if the ship's
pumps have failed the Club will probably reimburse the costs of a shore pump to pump out
liquid cargo, which might otherwise solidify, but not the costs of hiring a shore crane to
discharge dry cargo, where the ship's crane has broken down. The dominant purpose of
pumping out liquid cargo is to prevent the cargo solidifying but in the case of dry cargo,
there is no risk to the cargo. The dominant purpose there is to save time for the ship.
Members can only recover in the case of dry cargo if they can prove that there was a real
risk of loss of market or of some other claim for delay in delivery for which they would be
liable and that the hiring of shore equipment clearly mitigates or minimizes.

The costs must either have been approved in writing by the Managers prior to their having
been incurred or approved by the Board after they have been incurred, for the costs to be
recovered - proviso i to Rule 20.33. The deductible applying to the main claim will always
apply to the sue and labour expenses unless the Managers or the Board decide otherwise.

(c) Carriage on a means means of transport other than the entered ship

Under Rule 20.21.2, the member is covered even if the cargo is damaged on 'a means of
transport other than the entered ship' if the member is liable 'under a through or
transhipment bill of lading or other form of contract of carriage issued for a carriage partly to
be performed by an entered ship or carried in a container under a combined transport bill of
lading...'. However the Managers must approve such carriage and the certificate of entry
must be endorsed. The Club will cover liabilities for loss or damage during the land carriage
if liability is no more onerous than that based on (a) the ICC Rules or (b) the standard road
or rail conditions applicable in the state where the land carriage takes places or by the
internal law of the state governing such land carriage, or (c) CMR or CIM terms. Liabilities in
respect of loss of or damage to cargo during any period of transportation by air will be
acceptable if the liability in the contract is:

(i) subject to and in compliance with the Warsaw Convention 1929 or that convention as
amended at The Hague 1955 whichever is applicable or any equivalent national law; or

(ii) based on the International Air Traffic Association's air waybill conditions of carriage
adopted by IATA resolution 600b(II).

Page 95
Storage will not be acceptable unless it can be considered as a reasonable and necessary
part of the through transport operation. If the terms of the through bill are more onerous
than that, they will be approved only after careful consideration and the liability will probably
be reinsured at the cost of the member.

(d) Slot Charterers'/Consortium Cover

Members may be confused about the cover the Club can give to container operators who
work in a cross slot-charter consortium and, therefore, incur liabilities which are more akin
to those of a shipper than of a shipowner. The Club accepts an entry from a container
operator for his owned and time-chartered ships entered in the consortium, and also the
entry of all the other ships in the consortium from that particular member as a slot or space
charterer. This is because, to the extent that the member has liabilities in respect of the
cargo and other rules on other ships, his liabilities on his own ships are decreased.
The main risks for container operators working in a consortium are:

(i) Damage to the ship - consortium or feeder:

* Consortium: this risk is not covered by the Club because the rules exclude damage to the
entered ship, and the consortium vessel has been entered by the member as her space
charterer. Therefore, members are warned to make sure that the risk is placed on their time
charterers' damage to hull policy or that Club cover has been specifically extended to cover
it.

* Feeder ship: this risk is covered under Rule 20.15.A, but if this cover is required, then it
must be specifically agreed in writing with the Managers, and specified in the certificate of
entry.

(ii) Personal injuries on board the consortium or feeder ship:

* consortium ship - this risk is covered under Rule 20.3;

* feeder ship - this risk is covered under Rule 20.3;

(iii) Damage to other cargo on the consortium ship or on the feeder ship:

* consortium ship: this risk is covered under proviso v to Rules 20.20 and 20.21;

* feeder ship: this risk is covered under Rule 20.15.A but if insurance is required then it
must be specifically agreed in writing with the Managers and specified in the certificate of
entry.

This covers the common case of a cross slot-charter consortium where each member is
carrying cargo on his own bills of lading. Where the consortium does not operate on a cross
slot-charter basis, but employs some other form of space sharing, or revenue pooling
agreement, the situation may differ. It is essential that such agreements are discussed in
detail with the Managers. Indeed, the risks of damage to a feeder ship, injury to persons on
a feeder ship, or damage to cargo on a feeder ship, will fall to any shipowner who tranships.

3. Restrictions on and Exclusions from Cover

(a) The contract of carriage must be subject to the Hague or Hague/Visby Rules and, if not,
recovery from the Club will be reduced to the amount that the member would have had to
pay if the contract had been subject to such Rules, or the members must advise the
Managers who can reinsure the liability at the expense of the members (proviso i).

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A number of countries are still sticking to the old Hague Rules, e.g. certain African countries,
Iran, Ireland, Israel, Kuwait, Malaysia and the United States. The Hague/Visby Rules, which
are applied by the majority of the major trading nations, are in need of revision and the
Hamburg Rules, which have only been ratified by a small number of countries including
Egypt and Chile, seem unlikely ever to achieve wide-scale acceptance, although Australia
and Canada have enacted them conditionally and the Scandinavian countries apply the
Hamburg Rules for carriage between themselves, although they have retained the nautical
defence - negligence in navigation. The US may be about to introduce a new law doing away
with the nautical fault defence. The CMI is working on a new convention reflecting elements
of the Hague/Visby and Hamburg Rules.

Nevertheless, the clubs can give cover even if the particular area does not uphold the Hague
Rules' defences - an example is the Philippines inter-island trades - although the Managers
may decide that the risk should be reinsured for the member's account, in the interests of
mutuality.

Members are covered for liabilities under the Hamburg Rules, provided the Rules are
compulsorily applicable by statute to the particular carriage. Members will not be covered if
they incorporate the Rules voluntarily into their contracts.

Some forms of cargo retention clauses in tanker charter parties may increase the liabilities
of the member in excess of the Hague and Hague/Visby Rules. Tanker charters often include
cargo, or freight, retention clauses, which provide that the charterers are entitled to make a
deduction from freight for the value of any cargo, which an independent surveyor ascertains
is remaining in the ship's tanks, and which is pumpable after discharge. Whether or not the
charterers have a right to deduct from the freight under such a clause, there may still be a
cargo claim against the carrier for any cargo, that apparently remains on board after the
completion of discharge. If members accept such clauses, and freight is deducted by the
charterers, they cannot assume that they can recover from the Club for the lost freight. The
English Court of Appeal considered such a clause in The Olympic Brilliance (Lake Port
Navigation Company Panama SA v Anonima Petroli Italiana Spa 1982 2 Lloyds Rep 205) and
held that such a clause deals solely with the payment of freight, and not the apportionment
of liability for the cargo claim. Under such clauses, the owners do not have any of the
defences under the Hague Rules. The charterers may not be the owners of the cargo and it
is theoretically possible to envisage the owners being liable to both the charterers, under
such a clause, and to the cargo owners, under the bill of lading. Furthermore, the general
exclusion clause in the Club Rules - Rule 19 - states, inter alia:

'Except as provided in this Rule or otherwise agreed in writing with the Managers, the Club
shall not ... pay for ... loss of freight or hire or any proportion thereof ... save where such
loss, with the agreement of the Managers, forms part of a claim for liabilities in respect of
cargo.' [19.4]

Under the reasoning of the Court of Appeal, it is clear that such clauses, allowing charterers
to deduct freight for pumpable cargo, or for differences between bill of lading and outturn
figures, deal only with the payment of freight and not with liability for loss or damage.
Some voyage charters and contracts of affreightment warrant that the ship is seaworthy and
some owners are concerned that by signing such a contract they are prejudicing their cover
because they are increasing their liability over and above the obligation in the Hague and
Hague Visby Rules only to exercise due diligence to ensure that the ship is seaworthy at the
commencement of the voyage. However, in most cases the voyage charter or contract of
affreightment will contain a clause paramount incorporating the Hague or Hague Visby Rules
and such a clause should prevail in relation to cargo claims at least over the more onerous
warranties as to seaworthiness. Also in the majority of cases, the charter party will not be
the contract of carriage. The underlying bill of lading will be.

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It is only if the charterer sill owns the cargo, no bills of lading are issued and there is not
clause paramount in the voyage charter of the contract of affreightment that the owner may
be at risk of prejudicing his cover.

(b) Refrigeration Spaces

Proviso iv to Rule 20 and 21 states 'the Board may ... require to be satisfied as to the
spaces, plant and apparatus, and means used for the carriage of refrigerated cargo in an
entered vessel, the instructions given to those on board, and the terms of the contract of
carriage... . If ... the Board withholds its approval and so notifies the owner in writing, he
shall not be entitled to recover from the Club in respect of any loss of or damage to such
refrigerated cargo carried upon a voyage which began after the receipt... of such notice'. The
special note to the Rule reads 'the Board will not normally require to be satisfied ... in the
case of ships owned by lines long established in refrigerated trades and of which the Board
has satisfactory experience, but if the Board does require to investigate the fitness of a
particular ship to carry refrigerated cargo, its approval of the refrigerated spaces, plant and
apparatus is usually conditional in any event upon regular inspection by Classification
Society Surveyors'.

(c) Deviation

Proviso vii states that members cannot recover for 'liabilities ... arising out of or which are
incurred as a consequence of a deviation, which includes... a geographical departure or any
other departure from the contractually agreed voyage or adventure, by reason of which the
member may be deprived of the right to rely on defences or rights of limitation which would
otherwise have been available to him to reduce or eliminate his liability... unless (i) in the
case of a deviation authorised by the Member, prior notice has been given to the Managers
or (ii) in the case of a deviation without the Member's authority the earliest possible notice
has been given to the Managers after the Member has received information thereof and (iii)
in either case the Managers have confirmed to the Member in writing that his cover...,
continues unprejudiced. Nevertheless the Board shall have power to authorise the
payment... of such a claim... if in its discretion it considers that, having regard to all the
circumstances...the member should be excused for failure to give such notice'.

(i) 'Geographical departure... from the contractually agreed voyage': this means an
intentional and unreasonable change in the geographical route of the voyage as contracted.
The contractual route is not necessarily the most direct route:

* Sailing cards: these may allow the shipowner to use a different rotation of the loading or
discharge ports or the use, for instance, of the Cape of Good Hope rather than the Suez
Canal;

* Custom may also mean that the direct route is not the contractual route: e.g. a deviation
to take bunkers at particular ports for the particular voyage;

* Allowable deviations. Article IV, rule 4 of the Hague and Hague/Visby Rules reads:
'any deviation in saving or attempting to save life or property at sea or any reasonable
deviation shall not be deemed to be an infringement or breach of this convention or of the
contract of carriage and the carrier shall not be liable for any loss or damage resulting
therefrom'.

The United States Act adds: 'provided, however, that if the deviation is for the purpose of
loading or unloading cargo or passengers, it shall, prima facie be regarded as unreasonable'.
* The bill of lading will normally contain a liberty clause allowing (amongst other things) the
shipowner to use any route and to use any means of transport or tranship. Some textbooks
say that such a clause is unnecessary and invalid.

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Under the Hague Rules, the carrier may deviate to save life and property and for other
reasonable purposes, and a liberty clause which purports to give rights of deviation in excess
of those granted under article IV(4) of the Hague Rules is contrary to article III(8), which
states that any clause which relieves the carrier from liability contrary to the Rules shall be
null and void. The only test is of reasonableness, which itself is a question of fact in the light
of the interests of all the parties to the common venture. This view is probably too extreme
but any express liberty clause, however widely worded, must be construed with reference to
the contracted route and in accordance with the general principles of reasonableness.

(ii) 'Any other departure from the contractually agreed voyage': These words are meant to
cover the US theory of quasi-deviation but most of the instances considered as quasi-
deviation by some US courts, such as unjustified deck carriage, intentional non-delivery and
over carriage, are excluded elsewhere in the cargo rule. Therefore, these words are probably
only important in the area of unauthorised transhipment, dry docking with cargo on board,
and the taking of another ship in tow.

(iii) Effect of Deviation

The old position was that the carrier was liable, not only for the delay, but also for any loss
or damage that happened to the goods unless the cargo owner waived the deviation. If the
cargo owner waived the deviation, and the terms of the contract remained in force, the
carrier was entitled to rely on any exception clause, and was liable only for damages
resulting from the deviation itself. If the cargo owner did not waive the deviation then the
carrier was liable for any loss of or damage to the goods, unless he could show that the loss
was caused by an act of God, an act of the Queen's enemies or by inherent vice of the
goods, and that the loss or damage must equally have occurred even if there had been no
deviation. It was immaterial whether the loss or damage arose before, during, or after the
deviation.

Effect of deviation on carriage subject to the Hague Rules: The House of Lords, in Stagg Line
Limited v Foscolo, Mango and Company 1932 AC 328, held that where there is an
unauthorised deviation then the carrier is liable for any loss or damage resulting from the
deviation and loses his statutory exceptions and limits under the Hague Rules. However, in
the US some courts have held that the carrier is still entitled to the package limitation
because section 4(5) of the Cogsa states that neither the carrier nor the ship shall in any
event be or become liable for any loss or damage to or in connection with the transportation
of the goods in an amount exceeding $500 per package'.

Effect of deviation if the contract is subject to the Hague/ Visby Rules. An unreasonable
deviation causes the carrier to lose the benefit of the defences under the Hague/Visby Rules,
including the time limit, but not the package limitation unless the deviation was done 'with
intent to cause damage or recklessly and with knowledge that damage would probably
result'.

(iv) Cover

A club can now take a black or white decision as to whether something is a deviation and, if
so, whether it can be covered, subject to guidelines that divide deviations into flagrant and
non-flagrant categories. The following examples are considered as non-flagrant deviations,
and will be covered by the Club:

* A liner member has break-bulk general cargo from Tokyo for scheduled ports, namely New
York, Philadelphia and New Orleans, but on a particular voyage has a small quantity only for
Philadelphia and therefore omits that port altogether, forwarding the Philadelphia cargo by
truck from New York;

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* The same as above, but the relevant cargo is in a container for a factory in the
Philadelphia suburbs;

* The same as above, but the owner, fearing congestion in New York, discharges the New
York and Philadelphia cargo at Montreal with carriage from there by truck, Montreal not
being an advertised port of call;

* A liner owner on a scheduled service calls at an unscheduled port in order to pick up cheap
bunkers which are not necessary for the relevant voyage. His bill of lading specifically
provides that he may do so;

* An owner stops his ship at a point on her voyage while crew or maintenance men come or
go to her by launch or helicopter. (NB: opinions have differed as to whether the same
decision should be made when the ship, for the same purposes, does not simply stop but is
diverted into an unscheduled port).

The following are considered flagrant deviations which should fall outside club cover and be
subject to separate insurance:

* A liner owner has a direct service from Hong Kong to Europe; he gives a bill of lading for
cargo from Korea intending to tranship onto his own liner at Hong Kong but gives no
indication on the face of the bill, which names his Hong Kong liner as the carrying ship, that
in fact the cargo will be carried from Korea to Hong Kong by feeder service. (Even a well
drafted liberty clause is considered very unlikely to cover a situation such as this).

* Many liner operations are now built around the hub and spoke concept, with a small
number of hub ports, such as Felixstowe, Rotterdam, Singapore and Hong Kong. Such
operations are covered, provided the bill of lading makes it clear that the cargo will be
transhipped at hub ports. However, if the transhipment is not clear from the face of the bill,
and the bill implies that there is a direct service from the spoke port, then the carrier may
well be found to have deviated from the contractually agreed voyage. There is only a
problem with transhipments if the shipper requires a shipped-on-board bill. Under a normal
combined transport movement with no shipped-on-board requirement, transhipment is
acceptable to banks because of article 29C(iii) of the Uniform Code Of Practice for
Documentary Credits, which permits banks to ignore no-transhipment provisions in the letter
of credit. However, this article only relates to through bills which mean bills where there is
no shipped-on-board endorsement. Many shipments, which might be moved acceptably on
normal through transport documentation, are in fact moved on shipped-on-board bills
because an importer will specify a shipped-on-board bill and the exporter will not question
this for fear of losing the sale. If at the same time the letter of credit prohibits transhipment,
as is usually the case, then the shipowner is under great pressure to give a shipped-on-
board bill relating to the ocean ship at the spoke port. Liner members should therefore
review their policy on such shipments, and if they have any worries, discuss the matter with
the Managers;

* A tramp owner agrees by voyage or trip time charter to carry cargo to Lagos, which he
knows to be badly congested; after waiting some time off Lagos, he goes to another port
and arranges land carriage from there onwards;

* As above but under a voyage charter party without specific liberty;

* A liner owner loads cargo despite a prior decision that, after loading, the ship will enter dry
dock to carry out repairs or survey work.
The above lists have to be treated with great caution. They are intended to be lists of
examples to test how such situations should prima facie be treated.

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The presence or absence of a well drafted liability clause is a highly relevant consideration in
many of these situations. The Managers, when faced with a potential deviation which under
the above guidelines is prima facie non-flagrant, may still refuse cover if the contract is
subject to the laws in a particular country which are particularly unfavourable to shipowners.

(d) Discharge at another port

'Unless the Board in its discretion otherwise determines there shall be no recovery... in
respect of a Member's liability arising out of the discharge of cargo at a port... other then
that stipulated in the contract of carriage' - proviso viii a. Most bills of lading give the carrier
the right to deliver the cargo at another port if delivery at the contractual port becomes too
difficult (the so-called Caspiana clause - Renton v Palmyra 1957 AC 149). A typical example
reads:

'If at any time the performance of the contract evidenced by this bill of lading is or is likely
to be affected by any hindrance, risk, delay, difficulty or disadvantage of whatsoever kind
which cannot be avoided by the exercise of reasonable endeavours, the carrier (whether or
not the transport is commenced) may without notice to the merchant treat performance of
this contract as terminated and place the goods or any part of them at the merchant's
disposal at any place or port which the carrier may deem safe and convenient, whereupon
the responsibility of the carrier in respect of such goods shall cease. The carrier shall
nevertheless be entitled to full freight and charges on goods received for transportation, and
the merchant shall pay any additional costs of carriage to and delivery and storage at such
place or port'.

If it turns out that the carrier was not entitled to invoke the Caspiana clause, and discharge
or abandon the cargo at an alternative port, the Club is not liable, save at the Board's
discretion, for the costs of on-carriage or any other damages. In the old days, before the
coming of full-scale containerisation and when stevedore strikes were common, shipowners
often used to invoke the Caspiana clause and abandon the cargo at another port. The
Managers of the Club were often requested to advise members as to whether they had a
right to invoke the Caspiana clause. The duration of the anticipated delay had to be such
that it would be unreasonable, in all the circumstances, for the carrier to go on performing
the contract - 'inordinate delay' and 'unreasonable delay'. The interests of both parties of the
contract had to be taken into account, not just the carrier's interest. With the decline of
industrial trouble in most ports, the Caspiana clause is hardly ever invoked today.
However, the delivery port for oil cargoes is often changed during the voyage, and carriers,
who are asked to comply with such a change, should require a bank guarantee or the
presentation of all the bills.

(e) Failure to arrive or late arrival at the port of loading

Proviso viii b states that 'unless the Board in its discretion otherwise determines there shall
be no recovery... in respect of a member's liability... arising out of the failure to arrive or
late arrival of the entered ship at a port of loading, or out of the failure to load any particular
cargo... otherwise than under a bill of lading already issued'.

Although the liability for such claims is not covered, members should be aware of the liability
an owner accepts when he gives an 'expected readiness to load' date in a voyage charter.
The date must be one which is honestly given and which is reasonably accurate at the time
that it is given. Furthermore, the ship must set out on the approach voyage to the loading
port on such a date as will allow the ship, proceeding with reasonable dispatch, to arrive at
the loading port and be ready to load by the date given. There is an absolute obligation to
set out on such a date. The owner may be relieved of liability for damages for late arrival if
the ship is delayed on the approach voyage because of some incident covered by the
exceptions clause in the charter, but the owner will not be protected by the exceptions'
clause for any problem which arises before the ship sets out on the approach voyage.

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(f) Delivery of cargo without bills of lading

'Unless the Board... otherwise determines there shall be no recovery for liability arising out
of the delivery of cargo carried under a bill of lading or similar document of title without
production of that bill of lading... by the person to whom delivery is made, except where the
cargo has been carried on the entered ship under the terms of a non-negotiable bill of
lading, way bill or other non-negotiable document, and has been properly delivered as
required by that document, notwithstanding that the Member may be liable under the terms
of a negotiable bill of lading... issued by... a party other than the Member providing for
carriage in part on the entered ship and in part upon another vessel' (Proviso viii c). This is
because a bill of lading is a negotiable document and to give the cargo away without
receiving the bill of lading goes against the whole basis of international trade. There are a
number of points to be made on this exception:

(i) The rule prohibits delivery which is sometimes different from discharge. The owner of a
ship on time charter is still under an obligation to discharge cargo in accordance with the
instructions of the time charterer, provided the discharge is not direct to the consignee, but
is to the time charterer, who has the obligation to make sure that delivery is only against
the presentation of the relevant bill of lading. Thus, a shipowner cannot refuse to discharge,
even if he is not presented with the bill of lading, provided that it is clear that the discharge
is into the custody of the charterer or the agent. Clause 8 of the New York Produce Exchange
Charter (line 78) is normally amended to include the words 'and discharge' and this makes it
clear that the position is as stated above. Therefore, in a liner trade the master may not be
able to refuse to discharge, but often can in the case of bulk carriage where discharge is
normally the same as delivery. The fact that the owner is obliged to discharge does not
prevent him falling foul of the rule if the charterer then delivers wrongly - see (iii) below.

(ii) The cargo has to be carried under a bill of lading or similar document, meaning a
negotiable document, for the exception to take effect. If the cargo is carried under a non-
negotiable receipt then the exclusion is not effective. If the member delivers to the wrong
party, where the cargo has been carried under a non-negotiable receipt, then the member is
covered unless his act is intentional. The exception to the exclusion in the rules ('except
where the cargo has been carried on the entered ship on the terms of a non-negotiable bill
of lading...and has been properly delivered as required by that document notwithstanding
that the member may be liable under the terms of a negotiable bill...issued by...a party
other than the member providing for carriage in part on the entered ship and in part upon
another vessel') deals with the case of a member, running a feeder operation, who issues a
receipt to the through- carrier and delivers under that receipt to the consignee named by the
through-carrier but is found liable for a wrongful delivery under the through bill. He is still
covered.

(iii) The exclusion applies whoever delivers wrongly. The innocence of the member is
irrelevant to the exception applying, although it may affect the Board's decision under its
discretion. There does not have to be personal fault on the part of the member or his
servants. The exception will apply if the agent delivers completely in contradiction to the
member's instructions, or if the time charterer delivers wrongly after the member has
discharged the cargo correctly to the charterer.

(iv) The clubs have a recommended guarantee wording, but even if the member obtains
such a guarantee counter-signed by a first-class London bank, it does not mean that he is
covered by the Club if something goes wrong.

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(v) 'Sealed envelope trick'. To overcome the problem of the bills of lading being held up in
the banking chain, some oil traders have come up with the idea that one of a set of three
original bills should be retained on the ship, perhaps in a sealed envelope, by the master
who has instructions to deliver the envelope containing the bill, at the port of discharge, to
whomsoever the shipper instructs him. The International Group of P&I Clubs is not in favour
of this practice but has not forbidden it and recommends that if members have to comply
with their charterers' requests, then the original bill should be claused:
'one original bill of lading retained on board against which bill delivery of cargo may properly
be made on instructions received from shippers/charterers'.

(vi) The English Court of Appeal in The Houda (1994 2 Lloyd's Rep 541) has reconfirmed
that whether the cargo is carried under a bill of lading, under a voyage charter, or under a
time charter, if negotiable bills have been issued, the charterer cannot direct the owner or
master to deliver the cargo otherwise than against presentation of the bill of lading. The
Commercial Court had held that, under a timecharter, the charterer can lawfully order the
master to deliver cargo without presentation of the bill in circumstances where the charterer
is entitled to possession of the cargo, or gives the order with the authority of the person so
entitled. This left the shipowners in the unenviable position of being required to comply with
all lawful orders without necessarily having any means of knowing whether those orders are
indeed lawful, because they would have no means of knowing whether the charterer was
entitled to possession. Fortunately, the Court of Appeal overturned the Commercial Court's
decision. There was also a dispute between owners and charterers over delay. The ship had
been time chartered to the Kuwait Petroleum Corporation and was loading a cargo of crude
oil in Kuwait on the day the Iraqis invaded. She sailed with only a part cargo, leaving behind
blank signed bills of lading. The charterers, who had by then moved to London, ordered the
ship to Ain Sukhna. The owners delayed for 12 days before agreeing to these orders because
their standing instructions had been that all orders from the charterers would be given by
the Kuwait Petroleum Corporation in Kuwait. The charterers claimed damages for this delay
and the Commercial Court found that there was no implied term in the charter which would
allow the owner any period of delay, however reasonable, in order to allay their concerns
before complying with the charterers' orders. The Court of Appeal held that the owners had
a reasonable time in which to decide on the authenticity of the orders.

(vii) Bolero and paperless trading:

Bolero (Bills of Lading for Europe) is a scheme to replace paper in international trade with
electronic messages sent by computers. The Bolero electronic bill of lading is a contract
between the carrier and the shipper. If the shipper transfers the bill of lading to a purchaser
of cargo he will inform the carrier that this has happened, whereupon the initial contract for
carriage between the carrier and the shipper is dissolved and a completely new contract on
identical terms as the original contract comes into existence between the carrier and the
new holder. The rights and liabilities in the contract are transferred to the new holder. The
holder of the bill of lading wishing to take delivery of the cargo at the discharge port will
identify himself to the carrier through the Bolero system. The advantage of the Bolero
system over the present paper bill of lading is that the carrier will be able to rely on the
Bolero system to identify the one party entitled to the cargo at the discharge port. This
should remove the need for the carrier to demand a letter of indemnity. The main
disadvantage of the Bolero scheme for carrier is the risk that courts in certain jurisdictions
may not recognise electronic documentation as evidence or the carrier may find that the
Hague or Hague Visby Rules do not as a matter of national law apply to electronic bills with
the result that the carrier loses his defences and rights of limitation under these
conventions. Therefore all members’ certificates of entry have since the 20th February 1999
incorporated the ‘paperless trading clause’ which provides that the Club does not cover
liabilities arising under an electronic bill unless such liabilities would have been covered by
the Club under a paper bill. In other words the clause places electronic and paper bills on an
equal footing.

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The International Group has arranged market insurance which covers members direct for
P&I liabilities arising under electronic bills which would otherwise be excluded from normal
Club cover by virtue of the paperless trading clause. The cover is subject to a limit of $15m
any one accident or occurrence. This market insurance is not designed to cover members for
non-marine liabilities, which may arise from participation in the scheme. The most obvious
example of such a liability is if the member is found responsible for having introduced a
computer virus into the Bolero system.

(g) Ante-dated or post-dated Bills of Lading

Proviso viii d states that 'unless the Board in its discretion otherwise determines there shall
be no recovery... in respect of an owner's liability... arising out of an ante-dated or post-
dated bill of lading, waybill or other document containing or evidencing the contract of
carriage, recording the loading or shipment or receipt for shipment on a date prior or
subsequent to the date on which the cargo was in fact loaded, shipped or received...'. Such
a practice is a clear deception of the receiver who may have bought the goods on condition
that they are shipped by a particular day and if they are not he should be entitled to reject
them. If the shipowner gives an ante-dated bill then the receiver has lost his rights and he
will then have a claim against the shipowner for the deception. An English Commercial Court
Judge has said in a recent case concerning the practice of giving falsely dated bills of lading
that: "antedated and false bills of lading are a cancer in international trade. A bill of lading is
issued in international trade with the purpose that it should be relied upon by those into
whose hands it properly comes - consignees, bankers, and endorsees. A bank, which
receives a bill of lading signed by or on behalf of a shipowner (as one of the documents
presented under a letter of credit), relies upon the veracity and authenticity of the bill.
Honest commerce requires that those who put bills of lading into circulation do so only
where the bill of lading, as far as they know, represents the true facts.

The Admiralty Court in The Saudi Crown (1986 1 Lloyd's Rep 261) held that where the
shipowner's agents had issued ante-dated bills, and the buyers would have been able to
reject the cargo if the bills had been correctly dated, then the shipowner was liable for the
misrepresentation of his agents. An innocent principal is liable for the fraud of his authorised
agent acting within his authority to the same extent as if it were his own fraud. In a more
recent case - The Lalazar (Standard Chartered Bank v Pakistan National Shipping Corp. 1996
2 Lloyd's Rep 365), the Admiralty Court had to consider a case where a company had agreed
to sell bitumen to a purchaser who opened a letter of credit in the company's favour. The
letter of credit required the bitumen to be shipped not later than 25th October 1993. The
seller chartered The Lalazar, owned by Pakistan National Shipping Corporation, to carry the
bitumen but the cargo was not completely loaded until 5th December. Nevertheless, the
seller persuaded the shipowner to authorise the agents to issue bills of lading dated 25th
October. The buyer, therefore, paid $1,155,772 to the seller against the letter of credit and
on the basis of the genuineness of the bill of lading. The shipowner was sued in England, but
argued that the bill of lading provided for jurisdiction in Pakistan. The Admiralty Court
refused to stay the litigation. It was clear that the shipowner must have intended that the
bank, to which the bill of lading was presented, should be misled by the misrepresentation
as to the date of loading, or at the very least, the shipowner must have been reckless as to
whether the bank was misled or not. It was irrelevant that the shipowner did not intend to
defraud the bank. He must have intended to deceive the bank. It was therefore clear that
the buyer should be entitled to summary judgement against the shipowner for damages.
Since the shipowner had no arguable defence on liability, there was no sense in staying the
action in order to enable the liability to be determined in Pakistan. The decision again shows
how dangerous is the practice of giving wrongly dated bills.

In The Almak (Oetker v Internationale Frachagentur) 1985 1 Lloyd's Rep 557, the English
Commercial Court held that a master owes a duty to his shipowner to take reasonable care
to see that the bill of lading bears the correct date. Presentation of a mis-dated bill of lading
by the shipper gives the shipowner a right of indemnity against the charterer.

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The obligation to sign bills of lading as presented can never require the master to sign bills
of lading which contain a falsehood. He will always be entitled to refuse if he notices a
mistake. If the master does notice a mistake but nevertheless signs, the shipowner may lose
his right of indemnity, either because the decision to sign breaks the causal connection
between the request to sign and the subsequent loss or because the act of signing is
'manifestly unlawful in itself', so as to take the case outside the owner's implied right of
indemnity.

(h) Clean Bills of Lading

'Unless the Board in its discretion otherwise determines, there shall be no recovery... in
respect of a Member's liability ... arising out of a bill of lading, waybill or other document
containing or evidencing the contract of carriage issued with the knowledge of the Member
or his Master with an incorrect description of the cargo or its quantity or its condition' -
proviso viii e. This exception to cover applies to contracts mis-describing the quality or the
quantity of the cargo loaded.

There is not a blanket exception for clean bills. The clean bill must have been issued with the
knowledge of the member or his master for the exception to apply. Therefore, if the
charterers issue clean bills, without the knowledge of the owner or the master, the exception
does not bite. The stipulation in line 78/79 of the NYPE, that the captain is 'to sign bills of
lading for cargo as presented', coupled with the provision in line 77 that he is to be under
the orders and directions of the charterers as regards employment and agency, generally
give the charterers or their agents authority to sign bills as agents for the master.

(i) Quality of the cargo

Pre-shipment steel surveys are generally paid for by the Club. Members should read the Club
circular dated 28th February 1964. The UK Club's widely read publication "Carefully to Carry"
advises: "nowhere is the need to clause bills of lading greater than in the case of rust.
Without exception, whenever a cargo is rusted this should be stated in the bill of lading..the
master's job is not to concern himself with the marketability of the cargo that he carries; he
is simply to describe its condition as he sees it". Rebars are notoriously difficult to trade.
Anything more than slight surface rust may adversely affect their marketability and value in
certain markets when demand is low, even thought the are perfectly suitable for the purpose
for which they are intended. If there is over supply receivers will prefer lightly rusted rebars
and will insist on a discount for more heavily rusted rebars, even though these are, at the
time, equally fit for use. If the master is persuaded to issue clean bills because the rusted
rebars seem perfectly adequate for their use, he is risking a claim for such a discount. The
Managers also recommend a loss prevention guide on steel pre-shipment surveys published
by The North of England P&I Association in association with Arthur Sparks. This sets out the
terms of reference which should be given to a surveyor, and it recommends a set of
eighteen standard surface condition clauses and sixteen mechanical damage clauses which
are acceptable and sensible, and it translates them into eleven languages. It also sets out
the inspection and testing necessary for the hatch covers prior to the ship sailing. If the
shippers will not accept any of these detailed clauses members should use the following
clauses:

a Rust Damage

• 'Rust Spotted': where 1-25% of the surface area of the coils/packs is affected;
• 'Partly Rusty': where 26%-75% of the surface area of the coils/packs is affected;
• 'Rusty': where 75% plus of the surface area of the coils/packs is affected.

b Physical/Mechanical Damage

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Galvanised Steel Coils and other Coated Products (i.e. with protective covers):

• 'Outer protective covers with edge damage'

• 'Outer protective covers with edge crimping'
• 'Outer protective covers dented/buckled/torn'

Hot Rolled Steel Coils (i.e. no protective covers)

• 'Edge damage'
• 'Edge crimping'
• 'Dented/buckled/torn'

c General Damage

• 'Broken Straps'
• 'Telescoped cores'
• 'Insufficiency of Packaging'

If at the time of the survey, any coils or packs of steel products are considered by the
surveyor to be insufficiently packed (i.e. inadequate protective covers or banding), the coil
or pack number should be identified and a recommendation given to the master that the bill
of lading be claused as follows:

'Coil/Pack Nos. (specify) found to be insufficiently packed'.

Clausing should, if possible, identify the actual coil or pack damaged and, at the same time,
quantify the number of coils or packs damaged in preference to using general expressions
such as 'some' or'several'.

It should be noted, however, that in no case should any general reference be made to the
degree of rust such as 'atmospherically', 'superficially', as, in practice, it has been found that
clauses of this type provide no protection to the carrier.

One US steel shipper, Retla, devised a clause which it hoped would allow shipowners to issue
clean bills of lading even though the steel might be slightly rusty:

'The term 'apparent good order and condition' when used in this bill of lading with reference
to iron, steel or metal products does not mean that the goods, when received, were free of
visible rust or moisture. If the shipper so requests, a substitute bill of lading will be issued
omitting the above definition and setting forth any notations as to rust and moisture which
may appear on the mate's or tally clerk's receipts'.

The clause was approved by the District Court for the Southern District of Texas in 1981 and
by the District Court in New Jersey in 1987. The Court of Appeals for the Sixth Circuit has
upheld the Retla Clause and extended its principle to the plywood clause in G.F. Co. v. Pan
Ocean Shipping 1994. AMC 1739. The clubs are still reluctant to approve such a clause.
Members should not assume that if they issue clean bills for damaged cargo, they will always
be able to recover any claims from the charterers. In The Nogar Marine 1987 1 Lloyd's Rep
456, the English Commercial Court held that the shipowner's right to indemnity against the
consequences of signing inaccurate bills of lading presented by charterers, is lost if the
master's negligence intervenes between presentation and signature, so that the loss is
caused not by presentation but by the intervening negligence. The intervening negligence
was the failure to clause the mate's receipts. See the similar point with regard to mis-dated
bills.

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Shippers of damaged cargo may offer an indemnity to the owners in return for clean bills.
Such an offer should be rejected. In many countries the indemnity will not be enforcable,
since it has been issued to persuade the shipowner, to collude with the shipper in the
deception of the receiver.

(ii) Quantity of cargo

The exclusion also applies to the issue of a bill of lading or other contract with the knowledge
of the owner or the master, which misdescribes the quantity of cargo on board The
calculation of the quantity of liquid cargoes, particularly crude oil, is always difficult,. A
master should not sign a bill of lading for a quantity of oil which is more than 0.2% or 0.3%
higher than the quantity that he calculates his ship has loaded. If the master is satisfied that
the ship's figures are correct, then he should attempt to clause the bill of lading. In practice
it is extremely rare for a master to be able to clause the bill of lading, but the English
Commercial Court has held that in such a case the master should clause the bill of lading
either generally 'quantity and weight unknown' or by recording the ship's figures against
those of the shippers. The former solution is probably sufficient to protect owners, under
English law, against claims by a receiver under the bill of lading, but it cannot be assumed
that such a clause will necessarily protect owners in all jurisdictions.

In the 'Boukadoura', 1989 1 Lloyd's Rep. 393, Evans J. held that a master's refusal to sign a
bill of lading giving the terminal figures, which were at least 0.6% higher than the quantity
he calculated to be on board, was reasonable. The case was not concerned with a claim by
cargo receivers for loss, but with a dispute between owners and charterers over the delay
while the problem was sorted out. Evans J. held that there is a basic and implied
requirement that the bills as presented shall relate to goods actually shipped and that they
should not contain a description of the goods which is known to be incorrect. Evans J. said,
"what then is the position when the charterer presents, through the shipper or an agent, a
bill which accurately states the shore measurements, but which the ship's records suggest is
an over-statement of the quantity in fact loaded? It is common ground that the
measurement of cargoes such as this one may appear precise, but the figures can never be
precisely accurate. A difference between ship and shore figures is both inevitable and
notorious. The sensible course for the master to adopt in such circumstances is to clause the
bill of lading, either generally (quantity and weight unknown) or by recording the ship's
figures alongside the shippers'. One can foresee that the latter course might cause
difficulties when the charterers are called upon to pay the shippers for the cargo, but it has
the advantage of making the shipowner's position clear beyond a doubt. The former
alternative (quantity etc. unknown) is probably sufficient to protect the shipowner against
claims under the bill of lading under English law... but it cannot be assumed... that these or
other general phrases will necessarily protect the shipowner in other jurisdictions, nor can it
be doubted that even under English law a party whose servant or agent has acknowledged
the receipt of a stated quantity, even with a general qualification, is in a worse position than
if the ship's figure, itself not necessarily accurate, is stated also."

The charterers argued that the master's signature of the bill of lading as presented would
have involved no misrepresentation by him as to the quantity actually loaded because the
quantity was claused'said to be' making it clear that the figures were a shore measurement.
Evans J. held that there was an appreciable risk that merely identifying the figure as a shore
measurement would not be sufficient to prevent a representation from arising and the
shipowners being liable to the receivers.

At many tanker loading ports what is called the 'early departure procedure' is in operation.
The master has to authorise the agents to sign bills of lading on his behalf on receipt of the
master's radioed advice of the agreed loading figure. That is acceptable because the ship's
agents should be able to qualify the quantity if the ship's and the terminal's quantities do not
agree. It is not acceptable for the master to sign blank bills of lading and give them to the
terminal, thereby losing the right to insert the ship's figures or to qualify the shore figures.

Page 107
(i) Deck cargo carried with under-deck bills of lading

'Unless the Board in its discretion otherwise determines there shall be no recovery... for loss
of, damage to or responsibility in respect of cargo carried on deck unless either the cargo is
carried under a contract of carriage which permits the cargo to be carried on deck, states
that the cargo is being carried on deck and exonerates the Member from all liability in
respect of such cargo or such carriage has been approved by the Managers in writing' -
proviso viii f.

(i) On-deck bill of lading. The bill must contain a liberty clause and a clause relieving the
carrier from all liability where the face of the bill states that the cargo is carried on deck. The
face of the bill must state that the cargo is being carried on deck and refer to the clause
relieving the carrier from liability. A clause such as 'on-deck at shipper's risk' by itself is
probably not good enough, in English law, to protect the shipowner from all liability.

(ii) Approval of the Managers for on-deck carriage against 'under-deck' bill. The Managers
will only approve the carriage on deck against a clean bill of lading (which is sometimes
called an under-deck bill, but that is really a misnomer) if there is a clear custom in the
trade to carry such cargoes on deck. The Managers will only approve such carriage if the
cargo is suitable for deck carriage and will not inevitably be damaged. The Managers will
normally approve the carriage of logs, sawn timber, and closed containers on-deck of a
purpose-built container ship or a ship especially converted or equipped for the carriage of
containers on deck. The Managers will not normally approve the carriage of open-topped
containers or flatracks, but see O'Connell Machinery Company Inc v Americana 1986 AMC
2822, where the Court of Appeals for the Second Circuit held that a very large flatrack could
be carried on deck without a declaration to that effect because there was strong evidence
that it was customary so to carry in the Italian port of loading and there was no evidence
that such carriage was unreasonable. In the case of hatchless container ships the club will
normally cover open top containers or flat racks, being stowed at the top of the stack.
Members should note the particularly unfavourable position for shipowners in Belgium. The
Belgian Maritime Code makes the carrier liable for damage to goods shipped on deck without
the consent of the shipper, even in the case of a purpose-built container vessel carrying
containers on deck.

If the Managers have not approved carriage on deck, then members must take out SOL
cover. Normal cover provided by the market does not cover wetting damage to cargo carried
on deck but only particular risks enumerated in the clauses such as fire, explosion and
collision, with the addition of washing overboard. There is no general cover for perils of the
sea, for instance, wetting damage. If a member requires full cover, the premium is likely to
be prohibitive, if such cover is available at all.

(j) Arrest or detention of a ship

'Unless the Board in its discretion otherwise determines there shall be no recovery... in
respect of a Member's liability ... arising out of the arrest or detention of the ship pursuant
to a claim against the Member, liability for which is not the subject to cover under these
Rules', proviso viii g. This is meant to protect the Club, for example, if the member goes
bankrupt and his ship full of cargo is seized and the cargo rots.

(k) 'Ad Valorem' Bills

'Unless the Board in its discretion otherwise determines there shall be no recovery...for
goods carried under an ad valorem bill of lading where the value per unit, piece or package
has been stated to be in excess of US$2,500' proviso viii h. The limit is a franchise and not a
deductible. If the figure is higher than $2,500, there is no cover at all and the whole
shipment needs to be reinsured. There are three problems which shipowners may face:

Page 108
(i) On occasions, letter of credit requirements call for details of the letter of credit or the
invoice to be inserted on the face of the bill. Cargo underwriters have sometimes argued
that this by itself makes an 'ad valorem' bill. Such arguments have on occasion succeeded in
Egypt and Arabian Gulf countries. The practice, however, is of long standing and problems
can probably be overcome by inserting the following clause on the face of the bill:
'Where any particulars of any letter of credit and/or import licence and/or the sale contract
and/or invoice or order number and/or details of any contract to which the carrier is not a
party are shown on the face of this bill of lading, such particulars are included solely at the
request of the merchant for his convenience. The merchant agrees that the inclusion of any
such particulars shall not be regarded as a declaration of value and in no way affects the
carrier's liability under this bill of lading. The merchant further agrees to indemnify the
carrier against all consequences of including such particulars in this bill of lading. The
merchant acknowledges that, except where the provisions of clause ... apply, the value of
the goods is unknown to the carrier'.

(ii) Some US courts, especially the Ninth Circuit (West Coast), have held that before a
carrier can limit his liability per package he must show that the shipper has been given a
'fair opportunity' to declare a higher value and that this requires, at least, a box on the face
of the bill for the shipper to insert an excess value declaration. Other courts have held that,
if the bill of lading itself refers to the package limitation and. if the shipowner's published
tariff gives the shippers an option to declare a higher value, then that is enough. It may well
be that a clause paramount by itself is not enough to allow the carrier to limit liability per
package or unit. Therefore, to be on the safe side, members trading to the US should make
sure that their bill of lading contains a specific box for the declaration of a higher value.
Certainly they should ensure that the tarrif gives the shipper an opportunity to declare a
higher value. If the carriage is not on liner terms then the bill must refer to the opportunity
given to the shipper to declare a higher value.

(iii) In certain countries, including the United Kingdom, when a shipowner is carrying export
cargo, which would incur a duty if it had been used or consumed on the home market, the
inland carriage prior to loading on board the ship must be performed under a general
removal bond given by the carrier to the customs. If the cargo is lost, i.e. stolen, on the
inland leg, the shipowner has to reimburse the customs with the lost duty on the grounds
that the customs will assume that the cargo has been consumed in the country. This liability
can be covered provided the Club agrees limits with the member, and these should not be
higher than the 'ad valorem' limits mentioned above, although this is strictly not an 'ad
valorem' bill. The reason why the liability can be covered is that, under Rule 20.20, the Club
covers a member's liability for loss of cargo. That means liability to the world at large and
would cover liability to customs.

B. LOSS PREVENTION

There is no doubt that cargo claims, a ship's condition and her age are linked. Ships in poor
condition have more expensive cargo damage claims, more frequently, and regardless of the
type of ship. Some ship types are more liable to give rise to claims than others.
Sophisticated ships such as gas carriers rarely, if ever, have cargo damage claims, whilst
flexible ships, tween-deckers, parcel tankers and multi-purpose ships are a much higher
risk. This is especially true if they are stretched to the limits of their flexibility.
Cargo claims are either shortage claims or damage claims, caused by contamination from
other cargoes, or by ingress of the sea, or by a shift or collapse of a stow. Cargo claims can
be avoided if care is taken during loading and provided the ship is loaded only with cargo
that she is fit to carry. The following table lists, in simple terms, types of cargo, the most
common damage and preventive measures:

Page 109
CARGO TYPE MOST COMMON PREVENTIVE MEASURES
DAMAGE
Dry cargoes Test ballast tanks, hatchcovers and bilge lines for
such as: leakage prior to loading. Do not load if they leak. In
Grains winter months, use sealing tape for additional
Potash protection. Make sure non-return valves in the bilge
Cement lines are not leaking and branch pipes to deep tanks
Fertilisers and floodable holds are blanked off. Check hatch-
Sugar coaming drains for blockages.
Wetting
(See Standard Safety Issue 1 - Maintenance of
hatchcovers)
(See Standard Safety Issue 2 – Wet damage)
(See Standard Safety Issue 6 – Leaking Hatchcovers)
(See A Masters’ Guide to Shipboard Accident
Response)

Avoid loading if ship has a known rust problem in

cargo spaces. Clean the cargo spaces thoroughly with
a high-pressure hose, giving special attention to the
Rust contamination
undersides of the hatch covers. Note: rust removal
with a high-pressure hose will not be sufficient to
prevent claims when rust scales are numerous.

Steel products Rusting: As for grains (wet damage).

To avoid ship sweat, ventilate daily if proceeding from

Water Ingress warm, humid climate to cold areas, (e.g. Thailand to
Northern Europe in winter months).

To avoid cargo sweat do not ventilate when

proceeding from a cold area (e.g. North European
Winter) to a warm climate.

(See Standard Safety Issue 4 – Ship and cargo hold

sweat)
(See Standard Safety Issue 6 – Cargo hold
Condensation
ventilation)

(Note: steel products should be surveyed before

loading to establish the extent of pre-shipment
damage).

Cargo in open Supervise the stowage;make sure heavy cargoes are

Collapse of stow
stow: loaded first, and stowage is a tight block.

Supervise the stowage; make sure 'blocks' are tight

and where necessary secure with timber and
dunnage. Check lashings prior to departure from port
and daily during the voyage. Drums may need to be
Bags, drums,
Shift of stow secured in a cradle.
cartons or boxes
(See Standard Safety Issue 7 – Inadequate cargo
stowage)
(See Standard Safety Issue 8 – Broken stowage)

Page 110
 Check loading plans; identify sensitive cargoes, check
Tainting adjacent cargoes. Do not load odorous cargo adjacent
to hygroscopic cargo. Thoroughly clean cargo space
before loading.

Crushed cargo Check loading plan. Identify heavy cargoes and make
sure they are loaded first.

(See Standard Safety Issue 1 – Stowage of drums of

chemicals)

Ingots
Collapse of tween Check that tween-deck stowage factor is not
Machinery in
deck exceeded by the proposed stowage.
boxes
Rust staining As for grains (water damage).

Test reefer plant before loading. Complete ice test

before loading to calibrate the temperature sensors.
Check recommended cooling-down rates. Bananas are
a particular problem when they are loaded hot in
ports which have hot, humid climates.
Test generator output before loading. Do not load if
generators are in poor condition or have mechanical
Chilled cargoes Cargo overripe or cooling problems.
(fruit) Take regular pulp temperatures; monitor brine
delivery and return temperatures closely.
Accelerated ripening can be caused by vapours from
other cargoes. For example when pineapples are
stowed nearby, bananas ripen more quickly. Check
proposed stowage arrangements very carefully. Note:
air returns can cause this problem. The cargoes need
not be stowed in the same compartment.

Monitor brine delivery and return temperatures and

make sure the delivery temperature is not too low.
Cargo over-chilled Complete an ice test to calibrate temperature sensors.
Check air fans, ensure that cargo is loaded so that air
flows freely around it. Do not exceed recommended
cooling-down rates.

Tainting Check cargo compatibility before loading. Clean cargo

spaces thoroughly before loading.

Most probable cause will be poor performance of

reefer plant, usually associated with generator failure.
Cargo rejected by Examine cargo before loading to make sure it is
Frozen cargoes
receivers delivered to the ship in good condition. If cargo is
loaded in containers, where possible check the
temperature daily.

Normally caused by incorrect lashing or failure of

lashings. More common with a cone system than a
Containers Loss or damage
twistlock system. Lashing components, rods, wires,
chains, D-rings should be tested on a regular basis.
Haphazard lashing should be avoided and lashing

Page 111
 should be in accordance with the approved lashing
plan or manual.

(See Standard Safety Issue 5 – Loss of containers)

(See Standard Safety Issue 8 – Lost containers)

Containers, stowed below deck on a multi-purpose

ship, should be secured to the tank top with
twistlocks. A buttress should be fitted to prevent
lateral movement.

Special care is needed for containers loaded into No.1

hold as the fine shape of the bows prevents the fitting
ofa buttress. Also pitching forces are greatest in the
tween deck of No.1 hold.

Associated with lashing failure and poor stowage. Lash

in accordance with the guidance in the Code of Safe
Heavy
Shift of stow Practice for Cargo Stowage and Securing. Load heavy
machinery
weights in the middle cargo spaces in the lower hold.
Always pre-plan the stowage.

Most probable cause is cargo contamination.

Ensure adequate cargo segregation (two valves) is
possible before loading. Check cargo valves and
Tanker Rejection by heating coils for leakage and check the gaskets on
problems receivers closing appliances.
Contamination is also possible if tanks are not
properly cleaned, or if a pipe leaks, or a pipe contains
cargo residues.

Most probable cause is heating coil failure, although

pump failure can also cause problems. Test heating
coils before loading. Do not load heated cargoes if
heating coils are leaking or if the ship's boiler is
faulty. Test stripping pumps before loading cargo.

(See Standard Safety Issue 4 – Cargo shortage)

High ROB's can also result from cargo solidifying after

loading. The problem occurs mainly on tankers that
High ROB, shortage are fitted with double bottom ballast tanks and have a
claims cargo heating system which recirculates the cargo
through heat exchangers. When cargoes that have a
melting point of more than 5°C above the seawater
temperature, are loaded in winter, and the ballast
tanks are full, the cargo can solidify when it touches
the bottom of the cargo tank because the bottom of
the tank will be very cold. A large volume of cargo can
solidify in this way. To avoid the problems, ballast
tanks should be empty or only partially full.

(See Standard Safety Issue 1 – Importance of first

foot samples)

Page 112
Pre-shipment cargo damage [see also the section on clean bills of lading]

Pre-shipment cargo damage, which has not been noticed before loading, can lead to claims
against the shipowner when clean bills are signed. A good example is rusted steel. If rusting
is not recorded on the mate's receipts, and on the bills of lading, then receivers can claim
against the ship. Another example is contaminated liquid cargo. This can occur before
loading. If proper samples have not been taken, it may be impossible to prove pre-shipment
damage.

There are simple procedures available to protect the owner and the Club. In the case of
steel, pre-loading surveys should always be held. These surveys are paid for by the Club and
involve a thorough examination of the cargo before loading. In the case of liquid cargoes,
first-foot samples should always be taken during loading, and composite samples taken
before discharge. Cargo surveys can be arranged during any stage of loading, especially
when the master believes the cargo is being loaded badly or is in sub-standard condition.
When heavy cargoes are carried, a lashing survey can be arranged, although these are not
paid for by the Club.

Masters are advised to record the weather conditions during loading, especially periods of
rain and periods when cargo loading starts and stops. During the voyage, soundings,
weather, and, if applicable, cargo hold temperatures should be recorded daily. Masters
should be aware that if cargo is delivered damaged receivers can claim against the ship,
alleging unseaworthiness. To defend an allegation of unseaworthiness it is necessary to
demonstrate careful loading and carriage or to prove that the damage occurred before
loading.

Page 113
COLLISION LIABILITY TO CARGO CARRIED IN AN ENTERED SHIP -
RULE 20.22

The Club covers the liability a member has, in a collision action, to indemnify the other
owner for liability for damage to cargo on the entered ship. If the action is governed by the
Brussels Collision Convention 1910, then such an indemnity action will not occur because
liability for all claims, apart from personal injury claims, is apportioned according to the
degree of fault of each ship. Therefore the other owner will only have had to pay his
proportion of fault but the USA has not ratified this Convention and cargo owners can
recover in full from the other ship. See the discussion under the collision rule. Hull
underwriters never cover liabilities for damage to cargo on the insured ship.

Page 114
GENERAL AVERAGE AND SALVAGE - RULE 20.23 & 20.24

A. EXPLANATION OF GENERAL AVERAGE, SPECIAL CHARGES AND SALVAGE

1. General Average

When a ship and her cargo are threatened by a common danger, and an extraordinary
sacrifice is voluntarily made or an extraordinary expense is voluntarily incurred, which
succeeds in saving the ship and cargo, the cost is shared amongst the various parties who
have an interest in the voyage and who have therefore had that interest saved: the
shipowner, the cargo owner, the party entitled to be paid freight on delivery of the cargo
and the owner of the bunkers. A typical example of a general average is a ship being forced
into a port of refuge for reasons of safety, to carry out repairs necessary to enable her to
continue the voyage. The extra expenses incurred in deviating and the costs of the
temporary repairs are allowed in general average, but the costs of the final repairs are not.
A general average adjuster, who can be appointed by any party to the common adventure
but most often by the shipowner, draws up an adjustment showing who has sustained loss
and who should contribute to that loss. The contributing parties pay in proportion to the
value of their property saved. The adjuster ensures that the rights of all the parties are
safeguarded by collecting a cash deposit, or an average bond, from the cargo backed by a
guarantee from the cargo underwriters.

If the general average act arose from a breach of the contract of carriage by the shipowner
e.g. unseaworthiness caused by the shipowner's failure to exercise due diligence before and
at the commencement of the voyage, then the shipowner will not be entitled to a
contribution from the other parties. In the United States, a shipowner cannot normally claim
a contribution if the casualty was caused by the negligence of his servants, e.g. negligence
in navigation, but if the contract of carriage contains a New Jason clause, he is entitled to
recover a contribution in general average, unless the casualty resulted from any fault for
which he is legally liable. The New Jason clause reads:

'In the event of accident, danger, damage or disaster before or after the commencement of
a voyage, resulting from any cause whatsoever, whether due to negligence or not, which or
for the consequences of which, the carrier is not responsible by statute, contract or
otherwise, the goods, shippers, consignees or owners of the goods shall contribute with the
carrier in General Average to the payment of any sacrifices, losses or expenses of a general
average nature that may be made or incurred and shall pay salvage and special charges
incurred in respect of the goods'.

Members are recommended, in the Rules, to incorporate a New Jason clause if there is any
risk that general average may be determined in the United States courts.

2. Special charges

These are expenses, incurred on behalf of the cargo owner for the safety and preservation of
the cargo, which are not admissible in general average because the safety of the ship itself
is not at risk and thus there is no common peril.

3. Salvage

Salvage is based on the principle that compensation should be provided for persons who
voluntarily save maritime property from danger at sea. The salvor must show that the ship
or cargo was in danger, that he acted voluntarily, in other words there was no pre-existing
duty, and that the service was partially successful in preserving the property from danger.

Page 115
The amount of the award cannot be greater than the value of the property saved, except
under the Salvage Convention 1989, which allows recovery in the case of an unsuccessful
salvage of a ship that was threatening environmental damage. [See comments under
pollution - Rule 20.14.)

B. COVER

The Club covers general average, special charges or salvage in three circumstances:

1. Cargo's proportion of general average, including special charges or salvage, which is not
legally recoverable solely by reason of a breach of the contract of carriage. The provisos
relating to the incorporation of the Hague and Hague/Visby Rules into the contract of
carriage and the provisos relating to deviation in Rules 20.20 and 20.21 apply also to Rule
20.23.

The clubs are prepared to make advances to members against cargo's proportion of general
average even if they think that the cargo's proportion is legally recoverable, provided that
the advance shall never exceed 80%, no advance shall be made earlier than six months
after the actual adjustment has been issued, and general average bonds and/or average
guarantees have been obtained by owners from cargo interests and/or cargo underwriters
and/or other acceptable guarantors and a formal assignment of all sums and all rights to
recover general average has been executed by the owners in the Club's favour together with
a loan agreement.

2. The Club also covers that part of a ship's contribution to general average which exceeds
the ship's insured value under her hull policies - Rule 20.24. Note the provisos:

(a) Members are under an obligation to keep the ship properly insured. Proviso i makes it
clear that the Board has the power to consider whether the ship was under-insured and, if
the Board considers that the ship should have been insured at a higher figure, then the Club
only pays the excess which would not have been recovered by the members from their hull
underwriters, even if the ship had been insured at that higher figure. Note that the Board
must determine the proper value. The Board cannot just say that the ship was under-insured
and reject the claim. The Club sent out a circular on 9th February 1989 stating that ships
should be insured for at least their market value without commitment, and that the Board
expects members to review the values regularly. An annual review may not be adequate
when values are increasing rapidly. In 1993 the Board had to consider a case where the ship
had only been revalued for her hull insurance eleven months before an incident which gave
rise to heavy general average expenditure. In those eleven months the market value of the
ship had doubled and the member could not recover a substantial amount of ship's
proportion of general average from the hull underwriters. The Board considered that the
member should have reviewed the values at least quarterly and held that the Club was only
liable to reimburse the member for a small amount of the unrecovered ship's proportion.

(b) Proviso ii states the Managers shall have the power, but shall not be bound, at the
request of a Member, to agree for the purpose of paragraph 24 of this Rule, the proper value
at which an entered ship should be protected and indemnified for the current year...'. The
Board has instructed the Managers not to agree with members specifically what is
reasonable. The Board wishes to retain its own discretion to consider each case on its
merits.

3. Under Rule 20.14.5, the Club covers the liability a member may
have to pay salvage for oil pollution prevention measures taken by a salvor under the LOF
1980, 1990, or 1995, or under the Salvage Convention 1989. [See the discussion under Rule
20.14].

Page 116
Exclusions from Cover

(a) If an adjustment contains an element of ship's sacrifice, e.g. bottom damage incurred by
a ship in attempting to free herself from a grounding, then the shipowner can always recover
this amount from his hull insurer (subject to the deductible) and then the hull insurer can be
reimbursed by cargo, in the adjustment. If a hull insurer is not reimbursed by cargo,
because cargo can repudiate liability alleging a breach of contract by the shipowners, there
is no reason why the Club should reimburse the hull insurers. Indeed, such claims are
probably excluded from the Club's rules under Rule 17.1 '...there shall be no recovery from
the Club... against any of the risks, liabilities, costs or expenses against which the owner
would be insured if the entered ship was fully insured under hull policies on terms not less
wide...than those of the Lloyd's Marine Policy'.

(b) Where the total expenses of general average or salvage exceed the value of the ship and
cargo saved, cargo underwriters have no liability to pay more than the insured value of the
cargo, and hull underwriters, who will have paid a total loss and also ship's proportion of
salvage or general average, have no liability to pay cargo's proportion of excess general
average or salvage. A number of text-book writers have stated that an agreement was
reached between the hull market and the clubs in 1952 that in these circumstances the clubs
would reimburse their members for cargo's proportion of excess general average or salvage.
There was no such agreement and there is no liability on the clubs to reimburse their
members in such circumstances, but the members can always put such a claim to the club
under the omnibus rule. In Scandinavia there is an accepted practice for a club to pay in
these circumstances.

C. CLAIMS HANDLING

Cargo underwriters increasingly repudiate their obligation to contribute to general average

especially where there is some evidence of engine failure. Therefore, members should advise
the Club of any general average incident. It is the Managers' obligation then to consider
whether the cause of the incident should be investigated further to protect the Club's
position. It is also the Managers' obligation to keep in regular contact with the adjusters to
get an estimate as to cargo's proportion and to estimate the member's record accordingly. It
is not satisfactory for members to wait a number of years until the adjustment is issued and
then express surprise that cargo is refusing to contribute and that the eventual claim falls to
the Club.

Page 117
FINES AND CONFISCATION - RULE 20.25-29 AND RULE 20.37

A. COVER

1. Definition

Fines are a sanction imposed by the criminal law. They are therefore different to the other
legal hazards of shipowning. The only reason why the clubs cover them at all is that in very
many cases they are imposed either for offences of absolute liability, i.e. there does not
have to be any criminal intent, or as a means of gaining foreign exchange so that those fines
covered by the clubs are really risks incidental to shipowning.

'Fines include penalties and other impositions similar in nature to fines imposed in respect of
any entered ship by any court, tribunal or authority of competent jurisdiction'. Note the fine
must be imposed in respect of an entered ship. Therefore, such fines as those imposed by
the US Federal Maritime Commission for illegal rebates etc. are not covered because they
are not imposed in respect of an entered ship. Also, the fine must be imposed not by a
voluntary industry organisation, but by an authority established by law.

2. What Fines are Covered?

Not all fines in respect of an entered ship are expressly covered, only:

(a) Customs fines - Rule 20.25 and 20.26.

There are three types: fines for smuggling; fines and duties levied for cargo manifested but
not discharged, where the duty owed by the receivers is therefore lost to the customs, and is
recovered by the latter from the shipowners; fines for unmanifested goods on board, for
instance, for alcohol not manifested in the bonded store, a particular problem in Muslim
countries.

(b) Immigration fines - Rule 20.27. There are two common types: fines for deserting crew,
and immigration fines for passengers arriving without visas.

(c) Fines for any offence relating to the carriage of any cargo or container by a member
provided that the cargo or container is intended to be, or has been carried, on an entered
ship - Rule 20.29A. Cover under this sub-rule must be agreed in writing and specifically
endorsed in the certificate of entry.

(d) Fines for the accidental escape and discharge of oil or any other substance.

(e) Since not all fines are covered if in future a ship is arrested by the US Coast Guard and
the latter demands a Club Letter of Guarantee, to cover any fine that the Coast Guard may
latter impose the Club will continue to put up security but will have to require a Letter of
Counter Security from the Member because of the discretionary nature of the cover.

Page 118
3. Exclusions and Restrictions on cover

(a) Other fines are not covered automatically but only to the extent that the member
satisfies the Board that he took reasonable steps to avoid the event giving rise to the
fine and any amounts claimed in respect of such a fine should be recoverable to the
extent the Board decides to be reasonable.

(b) The Club prima facie covers only fines on the Member. The Club does not directly cover
fines imposed on the master or on crew-members. A fine imposed on the master, or on a
seaman, is recoverable only if the Member is liable to reimburse him or has 'reasonably'
reimbursed or paid the fine. The Club also covers a fine imposed upon any other person
whom the Member is legally liable to reimburse. This includes fines imposed on the other
party to a charter party, whom the Member is liable to reimburse under the terms of the
charter party, provided the terms have been approved by the Club.

(c) The Club will not reimburse the owner if a fine is imposed for wilful misconduct of the
master or of a seaman unless the owner has been compelled to pay, or the owner has paid
to prevent the arrest of the ship, or the Board in its sole discretion otherwise determines.

(d) There is no cover for a fine imposed for illegal fishing, or for a fine incurred by reason of
any personal act or default on the part of the owners or their managers, or for overloading
unless the Board in its discretion otherwise decides. There is a crucial difference between
fines and other types of claim. In the case of a fine, the Club has a defence if there is
negligence on the part of senior management, whereas in the case of other types of claims,
the Club has a defence only if there is a deliberate misconduct on the part of the owners or
senior management. This is because it is highly unusual for insurance companies to cover
fines imposed on their insured.

(e) There is probably a prohibition, for public policy reasons against the reimbursement of a
fine imposed for a criminal offence involving culpability on the part of the member.

4. Confiscation - Rule 20.37

Until 1988 the clubs did not cover confiscation of the ship, e.g. for smuggling, and neither
did hull underwriters, but clubs would pay a fine based on the value of the ship, which in
some cases came to almost the same thing. Now, recovery can be made for the confiscation
of a ship, at the discretion of the Board, provided that confiscation is for infringement of any
customs' law. The following requirements must be satisfied:

* a member can only recover the market value without commitment;

* the Board must be satisfied that the member used reasonable steps to prevent the
infringement;

* an owner must have been deprived of his interest in the ship;

* recovery is totally discretionary;

* recovery is possible only if the ship is confiscated for a customs' violation. In at least the
United States and Colombia ships can be confiscated for such violations in certain
circumstances.

Page 119
5. Deductible

The general deductible rule states 'all other claims shall be limited to the excess of US$7,000
in respect of any one accident or occurrence'. It is not easy to apply this deductible to a
fairly common case where the US Coast Guard levies a large number of fines for individual
breaches, either of the regulations relating to the oil record book, or to deficiencies aboard
the ship, all found on one date. Does one deductible apply to all the fines levied on one
particular day or to each fine? The club considers that each visit by the Coast Guard is the
occurrence for the purposes of the deductible..

B. LAW

There are a number of areas of particular concern:

1. Customs' Fines

(a) Smuggling - US Anti-Drug Abuse Act 1986. The fine is based on the drugs found - $500
per ounce of marijuana , $1,000 per ounce of cocaine or heroin. The fine may be mitigated if
the shipowner shows that he has exercised 'the highest degree of care and diligence'. In
particular, the shipowner should probably sign and comply with the Sea Carrier Initiative
Agreement. The new one requires that the carrier implements more stringent security
measures than did the previous version. Countries are divided into low, medium and high
risk, and the agreement requires different actions depending upon the countries to which the
shipowner trades. Requirements relate to the designation of a company representative to
deal with this type of problem at every US port to which the ship trades, the notification to
the customs of major structural repairs, the provision of adequate lighting, the securing of
compartments which could be used to conceal illegal drugs, the establishment of gangway
security, the carrying out of vessel searches, the notification to the customs of first-time
shippers and unusual cargo values to shipping charge ratios and any other suspicious
circumstances surrounding particular cargo shipments and the inspection and securing of
empty containers.

Liability between owners and time charterers - BIMCO has a recommended clause:

"(a) In pursuance of the provisions of the US Anti Drug Abuse Act 1986, or any re-
enactment thereof, the charterers warrant to exercise the highest degree of care and
diligence in preventing unmanifested narcotic drugs and marijuana to be loaded or concealed
on board the Vessel'.

Non-compliance with the provisions of this Clause should amount to a breach of warranty,
for the consequences whereof the Charterers shall be liable, and shall hold the Owners, the
Master and the crew of the Vessel harmless and shall keep them indemnified against all
claims whatsoever, which may arise, and be made against them individually or jointly.
Furthermore, all time lost and all expenses incurred, including fines, as a result of the
Charterers' breach of the provisions of this clause, shall be for the charterers' account and
the vessel shall remain on hire.

Should the vessel be arrested as a result of the charterers' non-compliance with the
provisions of this clause, the charterers shall at their expense take all reasonable steps to
secure that within a reasonable time the Vessel is released and at their expense put up bail
to secure the release of the Vessel.

The Owners shall remain responsible for all time lost and all expenses incurred, including
fines, in the event that unmanifested narcotic drugs and marijuana are found in the
possession or effects of the vessel's personnel."

Page 120
"(b) In pursuance of the provisions of sub-clause (a) above, the Owners and the Charterers
warrant that they shall both become signatories to the Sea Carrier Initiative Agreement on
signing this Charter Party or on delivery of the Vessel under this Charter, whichever is the
earlier, and will so remain during the currency of the Charter."

The charterers have only to exercise 'the highest degree of care and diligence' to prevent
narcotics being taken aboard. At line 24 of the NYPE charter there is probably an absolute
prohibition on 'unlawful merchandise' being loaded. Therefore, it is possible that owners are
in a better position if they do not insert the Bimco clause than if they do. If they do insert
the clause, then if the charterers are shown to have exercised the highest degree of care
and diligence they will not be liable for the consequences of drugs being put on board within
the cargo. Under the amended NYPE It may be that the charterers are absolutely liable for
the consequences of any drugs being loaded within the cargo.
(b) Indian Customs Fines

Section 116 of the Customs Act states:

'If any goods loaded in a conveyance for importation into India...are not unloaded or are
short of the quantity to be unloaded at that destination, and if the failure to unload or the
deficiency is not accounted for to the satisfaction of the Assistant Collector of Customs, the
person in charge of the conveyance shall be liable...(a) in the case of goods loaded in a
conveyance for importation into India...to a penalty not exceeding twice the amount in duty
that would have been chargeable on the goods not unloaded or the deficiency of the goods,
as the case may be, had such goods been imported.'

Although the act allows a final penalty of double the duty, normally the customs charge only
the lost customs' duty. The duties are set out in the tariff and the percentages range from
40% to as much as 250% of the value of the cargo. The Club, and the members, should
make an initial estimate for the customs' penalty of 75% of the cargo value and then review
the estimate when full details of the cargo values are received.

There are a number of different tallies in India. The cargo is tallied off the ship both by the
port and by the stevedores, and then there is normally another tally into the port authority
shed, and another tally when the cargo is delivered from the port authority shed.
Apparently, the port and the stevedore tallies are separate because the port authorities have
instructed all their tally clerks to under-tally. Consignees frequently take six months to take
delivery and there is often an attempt by the port authority to pretend that the final outturn
tally records the position at the time of discharge from the ship which it does not. The Club
must be careful to ensure that the liability for customs duty is based only on a tally ex-ship.

(c) Syrian Customs Fines - For many years, the Syrian Customs have imposed heavy fines
for alleged shortages which are normally caused by clerical errors and by differences
between the weight ascertained by the customs and that on the bill. Such fines can be
reduced if evidence is produced to show that the loss could not have occurred on the ship.

2. Immigration Fines - Rule 20.28

Problem areas:

(i) USA - There is a fine of $3,000 if any 'detainee' goes ashore. The US Immigration Service
reviews the crew list prior to the ship's arrival and lists those crewmembers who must be
'detained' on the ship and are not allowed to go ashore. The costs of watchmen are not
recoverable from the Club.

Page 121
(ii) Canada - If any crewmember deserts, then the shipowner has to put up a deposit of at
least C$7,000. The sum of Canadian $3,000 is considered to be an administrative fee of the
Federal Government and will not be refunded. The balance is the estimated cost of
repatriation and is refundable if not used. In the case of stowaways, the cash security is set
by the Senior Administration Officer at whichever level he feels appropriate in the
circumstances but it will not be less than C$7,000 of which C$3,000 is the administrative
fee.

(iii) UK - The Immigration (Carriers Liability) Act 1987. The carrier must ensure that persons
carried have valid documents for entry into the United Kingdom. There is a £2,000 fine for
each breach.

(iv) Italy - Italian ferries operating across the Mediterranean face a similar problem with the
Italian immigration authorities.

C CLAIMS HANDLING

It is essential to involve the Club's correspondents as soon as possible, since the negotiation
of fines always requires local knowledge and experience.

Page 122
ENQUIRY EXPENSES - RULE 20.30

Most countries have the legal right to hold a formal enquiry into any marine casualty which
occurs within their territorial waters or involves a ship flying their flag. The findings of the
enquiry do not normally affect third party claims, since they will not be binding on any legal
proceedings, but they may often be strongly persuasive and, therefore, the Club will
normally pay for the member's representation, provided the Club is satisfied that a claim on
the Club is likely to arise. The Club will not normally pay for the representation of the master
which should be arranged by his union.

Page 123
EXPENSES ARISING FROM INTERFERENCE BY LOCAL AUTHORITIES -
RULE 20.31

The Club covers the cost of a member defending himself in cases of interference by any
lawful authority of any country, but the cost must be incurred with the authority of the
Board, and the Board must decide that the interference was unwarranted or requires
investigation. There have been few, if any, claims under this Rule.

Page 124
EXPENSES INCIDENTAL TO SHIPOWNING - RULE 20.32 (OMNIBUS
RULE)

This is the so-called Omnibus Rule, under which a member can request the Board to
reimburse him for 'liabilities, costs and expenses incidental to the business of owning,
operating or managing ships which the Board may decide to be within the scope of the
Club...'. The Board has an absolute discretion to decide whether or not such a claim is
'within the scope of the Club' and the Club cannot reimburse the member if liabilities costs
or expenses are specifically excluded or limited elsewhere in the rules. The Board has an
absolute discretion to decide also the extent to which the member should recover.

(a) In the past few years the Board has approved the following claims under the omnibus
rule:

(i) A ship, which was entered but not covered for collision risks, was being towed and was
under pilotage when she collided with an anchored ship. Both ships were on time charter to
the same company. The owners of the other ship did not claim collision damages from the
member but claimed under the time charter and recovered. The time charterers then
claimed against the member under the time charter for the entered ship, alleging that they
were entitled to recover the damages since the members were liable for the negligence of
the tug and of the pilot. Such a claim was not recoverable under the member's hull policy,
because the claim arose by way of an indemnity under the time charter and not by way of
tortious collision damages, and the Board approved recovery from the Club.

(ii) A ferry operator incurred heavy costs for the detention, accommodation and repatriation
of passengers who had been refused leave to enter the country of destination. The rules of
the Club cover the cost of repatriating seamen, in certain circumstances, and also cover
fines imposed for a breach of immigration laws involving passengers, but do not specifically
cover the cost of the detention and repatriation of passengers even when required as a
matter of law. The Board approved recovery.

(iii) An LPG carrier had an explosion on board when discharging propylene. The crew were
evacuated and the mooring ropes cut so that the ship could be towed to a safe position off
shore. Eventually, the port authority ordered the ship and her cargo to be destroyed and this
was done successfully at the expense of the members. The Board ruled that the costs
incurred in removing the ship from the port could be recovered under the omnibus rule if
they were not recoverable under the sue and labour rule.

(b) The Board has rejected the following claims:

(i) The member had entered into an agreement in the United States with the International
Longshoreman's Association, providing that all work, within 50 miles of a port and carried
out within 30 days of containers being discharged from the ship, had to be performed by ILA
members. Breach of the agreement obliged the member to pay liquidated damages of
$1,000 per container. The receivers of a number of containers had taken the containers from
the port area prior to the expiry of the 30 day period and discharged the containers with
non-ILA labour thereby causing the member to incur penalties under his contract with the
ILA.

(ii) A ship, which had been discharging at a buoy in the Mississippi, prepared to leave but
could not heave the anchor because her windlass had failed. She ordered a floating crane
and, while she was waiting for the crane, one of the mooring buoys became fouled in her
propeller.

Page 125
Tugs, which had initially been called to assist her departure, were used throughout the
period she was at anchor to hold her in position and to prevent her swinging across the
river. The member sought to recover the costs of the floating crane and the extra towage
from the Club under the Omnibus Rule, but the claim was turned down.

(iii) A ship under time charter loaded a cargo of steel coils. The charterers failed to provide
enough information about the cargo to allow the master to prepare a proper stowage plan
and they also failed to provide adequate dunnage. When 10,000 tons had been loaded, the
owners advised the charterers that the ship could not sail because she was unseaworthy.
The owners and the charterers agreed to discharge half the cargo already loaded and the
entire cargo had to be re-dunnaged and re-stowed at a cost of $80,000. The owners and the
charterers agreed to split the cost. The owners sought to recover the extra cost from the
Club under the Omnibus Rule, but the Board rejected the claim.

(iv) A ro-ro ship encountered heavy weather, and the lashings of seven vehicles on deck
failed. The ship put into a port of refuge where the harbour master found that all the
vehicles on deck had been stowed too closely together and he ordered them to be properly
re-stowed. The member sought to recover the re-stowage expenses under the omnibus
Rule. The claim was rejected by the Board.

(v) A member time chartered two bulk carriers to the same company which went into
liquidation halfway through a voyage. The member then had to reach an agreement with the
cargo owners for the completion of the voyages largely at his expense. The member sought
to recover his extra costs from the Club, under the Omnibus Rule arguing that his action in
completing the voyages had avoided serious delay to the ship with the possibility of claims
for cargo deterioration. The claim was rejected by the Board.

Page 126
COSTS OF SUE AND LABOUR - RULE 20.33

See the comments under cargo claims.

Page 127
EXPENSES INCURRED BY DIRECTION OF THE BOARD - RULE 20.34

This type of claim does not often come before the Board. On occasions the Board has
instructed the Managers, and the members, not to put up security for a particular demand in
relation to a claim covered by the Club because the demand was considered outrageous. In
return, the Board has agreed to reimburse the member for running costs. There has to be a
demand, and a rejection by the Club and the member, for such a recovery from the Club to
be possible. If the authorities will not accept any form of security, then there is no possibility
of the Board reimbursing the member.

Page 128
CONTRACTUAL COVER - RULE 20.35

The Club can cover claims falling within the other sections of Rule 20 which arise under the
terms of an indemnity or contract. However, the terms of the indemnity or contract must be
approved by the Managers in writing, the cover must be specified in the Certificate of Entry
and the Managers may lay off the risk by reinsurance, for which the members must pay. The
concept of mutuality means that members are covered only on the basis of certain standard
risks, and members should not be covered automatically for liabilities which they incur only
through entering into special contracts that impose upon them liabilities in excess of those at
common law, and in excess of those accepted by generality of the membership. See the
discussion under Rule 20.13.

Page 129
SALVORS' LIABILITY - RULE 20.36

There is some misunderstanding about how the Club covers salvors' liabilities. The position
is as follows:

A. Normal P&I cover - Rule 20.36.1. A normal entry in the P&I club for any type of tug,
whether or not she is designed for salvage, covers all types of P&I claims which flow from
operating the tug. The same applies to any ship, e.g., a crane-barge, which is used in a
salvage (but for ease we will refer to tugs in future). It covers any damage the tug may do
to the ship being salved whether with or without contact (provided the tug has four-fourths
collision cover with the Club). It also covers any damage to the salved ship even if she was
being towed by the tug, provided the salvage/towage was on the LOF form. The normal P&I
cover also includes oil pollution from the salved ship provided the fault flowed from the tug,
e.g., a collision or damage to the salved ship without collision.

B. Oil pollution 'absent tug' extension - Rule 20.36.2. In the case of the Tojo Maru, the
English House of Lords held that salvors, who had one of their salvage employees working
away from the salvage tug and who caused damage to the ship being salved, were not
entitled to limit liability to the tug because the negligent act did not occur on board or in the
management of the tug. After this decision, Lloyd's excluded oil pollution cover from their
normal salvors' policy and the salvors attempted to get round the problem by insisting that
the ship being salved gave them a complete hold-harmless backed up the relevant club.
This delayed the salvage and the clubs came up with a salvors' pollution cover 'absent tug'.
The club concerned retains the first US$375,000 any one salvage operation and the excess
up to US$100m goes into a special reinsurance written for the whole Group. This extended
cover is only granted to professional salvors whose competence and expertise is approved
by the clubs and who have entered, or who have offered for entry, all the vessels under their
management/ownership.

C. A specialist salvor probably needs additional cover for negligent salvage, which may not
be related to the specific tug, for instance, negligent planning ashore, or negligence 'absent
tug,' and for contractual liabilities. There is a perfectly adequate market with Lloyd's, or with
the ILU companies, for this liability, excluding oil pollution, but the Club can also give this
cover under Rule 20.36.3 but only by special agreement and provided full reinsurance has
been specifically arranged.

Page 130
EXCEPTIONS, EXCLUSIONS AND LIMITATIONS ON COVER AND
DEFENCES OPEN TO THE CLUB

A. GENERAL EXCEPTIONS - RULES 17, 18 AND 19.

[The exceptions in Rules 17 and 19 do not apply if the Managers have reached an agreement
to the contrary with the member. The exceptions in Rule 18 apply in all cases]

1. There is no recovery in respect of any liability, apart from excess collision liability, which
would have been recoverable by the member under a full hull cover not less wide than the
Lloyd's Marine policy MAR 1.1.82 with the Institute Time Clauses (Hulls) 1.10.83 (including
the three-quarters collision liability) attached - Rule 17.1. This makes it clear that the
extension for four-quarters collision risk is not part of the normal cover and must be
specifically agreed. Any clause in the terms of entry such as 'full P&I risks' would not cover
the four quarters extension, but only the one quarter.

2. War Risks - Rule 17.2.

There is no recovery when the incident was caused by: war, civil war, revolution, rebellion,
insurrection or civil strife arising therefrom, or any hostile act by or against a belligerent
party; capture, seizure, arrest, restraint or detainment (barratry and piracy excepted) and
the consequences thereof or any attempt thereat; mines, torpedoes, bombs, rockets, shells,
explosives or other similar weapons of war (unless liability arose solely out of the transport
of such weapons whether on board the ship or not or the use of such weapons to avoid
liabilities, costs or expenses which would otherwise fall within the cover given by the Club).
'Barratry' is defined by the Marine Insurance Act 'as including every wrongful act wilfully
committed by the master or crew to the prejudice of the owner, or as the case may be the
charterer'. The act must be against the interests of the shipowner and therefore any crime
or fraud committed with the knowledge and consent of the owner, for instance scuttling or
theft of fuel oil or crude oil cargoes, does not amount to barratry. Piracy has been defined by
the Geneva Convention on the High Seas (1958) as 'any illegal act of violence, detention or
any act of depredation committed for private ends by the crew or the passengers of a
private ship...and directed (a) on the high seas, against another ship...or against persons or
property onboard such ship... (b) against a ship...persons or property in a place outside the
jurisdiction of any state'. Under this definition, acts committed onboard a ship by her own
crew or passengers and directed against the ship do not amount to piracy, but the Marine
Insurance Act has a definition which includes 'passengers who mutiny and rioters who attack
the ship from the shore'.

The clubs can now offer 'war risk P&I' (i.e. any liabilities which would have been covered by
the rules but for the exclusion in Rule 17.2) but subject to a limit of US$50m and subject to
an understanding and agreement that the member will maintain 'standard hull war risk
cover with P&I clauses attached' for not less than the hull value of the entered ship.
Therefore, this is an excess cover which responds only if the claim exceeds the amount
recoverable under the hull war risk cover. This cover also gives the Club the right to cancel
with seven days notice and the cover is terminated automatically in certain other
eventualities.

Page 131
3. Radioactive Contamination - Rule 18.1

There is no cover for claims arising directly or indirectly from ionising radiations or
contamination by radioactivity from any nuclear fuel or from any nuclear waste or from the
combustion of nuclear fuel or from the radioactive, toxic, explosive or other hazardous or
contaminating properties of any nuclear installation, reactor or other nuclear assembly or
nuclear component thereof, or from any weapon of war employing atomic or nuclear fission
and/or fusion or other like reaction or radioactive force or matter, but the exclusion does not
apply to claims caused by the carriage of 'excepted matter' as defined under the United
Kingdom Nuclear Installations Act 1965 being carried as cargo on an entered ship.
'Excepted' matter is nuclear matter consisting of isotopes prepared for use for industrial,
commercial, agricultural, medical or scientific purposes, or natural uranium, or depleted
uranium, or small quantities of nuclear matter as prescribed under the United Kingdom
Nuclear Installations (Excepted Matter Regulations 1978), the limit being that the total
radioactivity for the consignment does not exceed 50,000 curies.

4. Loss of or damage to the entered ship, or any part thereof or her stores or bunkers,
unless the bunkers are not the property of the member, (apart from any recovery under
Rule 20.37 - confiscation of vessels by customs authorities) - Rule 19.1.

5. Loss of or damage to any container owned, operated or used by a member - Rule 19.2.
Containers being used by a fellow member of a consortium, and carried on the member's
ship, would not be caught by this exclusion. There would be cargo being carried by the
member and his liability would be covered by the Club.

6. Repairs to an entered vessel unless they form part of cargo's or ship's proportion of
general average - Rule 19.3.

7. Loss of freight or hire unless the loss forms part of the settlement of a cargo claim with
the agreement of the Managers - Rule 19.4.

8. Salvage or other services in the nature of salvage rendered to an entered ship apart from
life salvage, a pollution payment under article 14 of the Salvage Convention, unrecovered
cargo's proportion of salvage or excess ship's proportion of salvage - Rule 19.5.

9. Liabilities arising out of salvage operations conducted by an entered ship unless the
operations were conducted for the purpose of saving life at sea - Rule 19.6.

10. Loss arising out of the cancellation of a charter or other engagement of an entered ship -
Rule 19.7.

11. Loss arising out of debts or fraud or the insolvency of any person, including the
insolvency of agents of a member - Rule 19.8.

12. Demurrage or detention costs or running costs of an entered ship unless falling under
the port and deviation rule (Rule 20.9) or unless with the agreement of the Managers they
form part of the settlement of a cargo claim - Rule 19.9.

13. Specialist Operation - Rule 19.11

Page 132
Normal cover

The clubs in the International Group normally exclude liabilities incurred by a member during
the course of performing specialist operations for

• damage to the contract work;

• failure to perform the work;
• the quality of the work;
• claims in respect of the specialist nature of the operations, brought by any party,
whether it be someone for whose benefit the work has been performed or any third
party.

The exclusion does not apply to personal injury claims to crew or other personnel on board
entered vessel; not to wreck removal of the entered vessel not to oil pollution emanating
from the entered vessel.
The exclusions for failure of performance, poor performance and for damage to the contract
work are straightforward and have applied since 1986. However, following an incident
involving a pile-driving vessel working in the Chicago River which accidentally punched
through the bottom of the river allowing water to escape into the underground transport
system, the clubs agreed from 20th February 1993 on an additional wording excluding
claims brought by any party (including, importantly, any third party) in respect of the
specialist nature of the operations.

There is no specific definition of 'specialist operations'. Certain operations [dredging,

blasting, pile-driving, well stimulation, cable or pipe laying, construction, installation or
maintenance work, core sampling, depositing of spoil, professional oil spill response or
professional oil spill response training] are included but the list was deliberately not
exhaustive because of the rate of technological advance. The fact that the list was not
exhaustive has lead to some criticism from members. The rule specifically excludes fire-
fighting from specialist operations because fighting fires has historically been treated as an
essential service to preserve life and property at sea, and should therefore be supported and
covered by the clubs.

The exclusion is defined by reference to the operations themselves rather than the type of
ship. What unites the specialist operations category is the potential that the operations have
to produce vast claims which are felt to be non-mutual in that the operators concerned are
few in number and yet the risks that they bring are considerable in terms of their size.
Nevertheless, the exclusion does not apply only to the catastrophic risks but also the more
typical claims which arise out of specialist operations.

The exclusion refers to certain types of operations, including construction, installation or

maintenance work. Construction, installation and maintenance mean the fabrication,,
installation and maintenance of offshore structures. Operations which are not considered to
be specialist are fishing, normal supply boat operations, towage (towage liabilities are dealt
with separately in Rule 20.16), heavy lift carriage, (but remember that the contract of
carriage must be on terms no worse than Hague Rules and normally the Club insists on a
knock-for-knock provision) and oceanographic and hydrographic research (provided no
seabed penetration is involved e.g. core sampling).

Claims for damage to the contact work, for failure to perform, liability for poor quality work
and for non-performance (Rule 19.11.ii and iii) are fairly straightforward. For example, a
cable-laying ship lays cables in the wrong place or lays them badly and claims are made as a
result. These are clearly excluded. A crane ship engaged in construction work on an offshore
structure damages the structure because of an error in navigation. The resulting claims
would be excluded because they are for damage to the contract work. What is more difficult
to define is the exclusion concerning claims brought by any party in respect of the specialist
nature of the operations. This additional restriction, does not exclude risks merely because

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they arise during the course of the specialist operation nor does the restriction necessarily
exclude claims which arise because the ship is engaged in specialist operations. The
exclusion is narrower. In order to fall foul of the exclusion the claim must relate to, and
result from, the specialist nature of the operation. For example, a collision involving a spill
response vessel or construction vessel on site is not automatically excluded. Only if the
collision is a direct result of the specialist nature of the operation is it excluded from Club
cover; for example two clean-up ships manoeuvring at close quarters and colliding because
they are carrying out anti-pollution measures. In most other cases the collision liability will
be a normal navigation risk and therefore covered.

The Club can offer special limited cover, normally up to $20m but higher limits are available,
to reinstate the cover excluded for third party liabilities arising in respect of this specialist
nature of the operation, but not normally for liability for poor or non-performance or for
damage to the contract work, since such liabilities are generally covered by the lead offshore
operator under a physical damage (all risks) cover which is extended to his sub-contractors.
Sometimes the lead operator will try to pass liability to the sub-contractor under the terms
of the contract, usually for lower amounts that correspond to the deductible on the
operator's policy. Such contractual liability, whether specialist or not, can, depending on the
circumstances, be covered by market insurance.

14. Drilling and production vessels - Rule 19.12

Normal Cover

The clubs exclude liabilities incurred in respect of drilling or production vessels to the extent
that the liabilities arise out of or during drilling or production operations. A vessel is deemed
to be carrying out production operations if it is a storage tanker and either the oil is
transferred directly from a producing well or the storage tanker has oil and has separation
equipment on board and gas is being separated from oil on board other than by natural
venting. This definition of a vessel carrying out production operations means that generally
the clubs can give cover to FSUs but not to FPSOs because FSUs do not normally have
production facilities on board not do they take product direct from the well. An
accommodation unit positioned on site as an integral part of the operation is covered by the
definition and therefore falls foul of the exclusion.

There are a number of differences between this exclusion and the exclusion for specialist
operations.

• First, the exclusion for drilling or production vessels refers to particular types of ship
whereas the exclusion for specialist operations covers any type of ship performing
certain types of work.

• Second, the exclusion for specialist operations is restricted to claims in respect of the
specialist nature of the operations while the exclusion for drilling or production
vessels covers all claims arising out of or during drilling or production, irrespective of
whether they are caused by such operations.

• Third, the exclusion for drilling or production vessels covers all claims arising out of
or during drilling or production operations, whereas the exclusion for specialist
operations does not apply to personal injuries to the crew or other personnel on
board the entered ship, wreck removal or oil pollution from the entered vessel.

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Special Cover

Much of the cover excluded by the exclusions can be reinstated for a limited amount but
certain liabilities will always be excluded, particularly pollution from or damage to the well or
damage to the charterer's property and damage to property belonging to any party having
an owning interest in the field. Occasionally it is possible to reinstate the exclusion of liability
for pollution from the well or the hole being drilled where the contractor is obliged to accept
such liability under the contract despite every effort to resist. The reinstatement would be
for a low limit, normally the deductible on the operator's policy.

15. Waste incineration - Rule 19.13.I

The clubs exclude liabilities arising out of waste incineration or disposal operations other
than where such activities occur as an integral part of other commercial activities, for
example disposal of the ship's own waste. This exclusion does not apply to the normal
carriage of ordinary waste as cargo.

16. Divers and diving operations - Rule 19.13.ii & iii

The clubs exclude claims arising out of the operation by the member of submarines, mini-
submarines or diving bells or out of the activities of professional or commercial divers where
the member is responsible for such activities. This latter exclusion covers cases where the
member is the employer of the diver, or is otherwise responsible for the diving operations,
not cases where, for example, the member has chartered out his ship for diving operations,
or where diving takes place off his ship under the control of diving contractors, provided he
has not accepted or contracted into liability or responsibility for the diving operations. The
Club would normally expect there to be a hold harmless agreement between the member
and the charterer or diving contractor in these circumstances. The exclusion of the activities
of divers does not relate to activities arising out of salvage being conducted by an entered
ship where the divers form part of the crew.

17. Accommodation, Hotel and Restaurant Vessels - Rule 19.14

The clubs exclude liabilities for personnel (apart from marine crew and employees of the
member) on board an accommodation vessel, unless there has been a contractual allocation
of risks between the member and the employer of the accommodees and this has been
approved by the Club. This exclusion does not apply to passenger vessels carrying
passengers in their normal trade. The clubs also exclude liabilities to guests and catering
crew when the ship is permanently moored and open to the public as a hotel, restaurant, bar
or club

B. POSSIBLE DEFENCES OPEN TO THE CLUB

1. The rules are subject to the English Marine Insurance Act 1906 (Rule 2.2), and section
39.5 of that Act provides: 'in a time policy there is no implied warranty that the ship should
be seaworthy at any stage through the adventure, but where, with the privity of the
assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss
attributable to the unseaworthiness'. The English Court of Appeal has considered the
application of this section to a P&I policy and has held that for a club to succeed in a defence
under section 39.5, the shipowner must have known that his vessel was unseaworthy or
must have closed his eyes to facts making the vessel unseaworthy. The knowledge must be
of the unseaworthiness and not just of facts causing the ship to be unseaworthy: "if the
owner of a ship said to himself: 'I think a reasonably prudent owner would send her to sea
with a crew of 12. So I will send her with 12', he is not privy to unseaworthiness, even
though a judge may afterwards say she ought to have had 14. He may have been negligent
in thinking so, but he would not be privy to unseaworthiness.

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But, if he says to himself: 'I think that a reasonably prudent owner would send her to sea
with a crew of 12, but I have only 10 available, so I will send her with 10' then he is privy to
unseaworthiness if a judge afterwards says he ought to have had 12. The reason being that
he knew that she ought to have had 12 and consciously sent to her sea with 10."

It is the privity of the owners personally, or of their alter ego, that is material. In many
cases owners now sub-contract the management of the ship and the classic test for the alter
ego is 'who is really the directing mind and will of the corporation, the very ego and centre
of the personality of the corporation'.

The seaworthy or unseaworthy state of the ship is gauged at the time when the ship is sent
to sea on any particular adventure, voyage, leg or stage of a voyage and the seaworthiness
or unseaworthiness must relate to that particular adventure, voyage, leg or stage of the
voyage upon which the ship is embarking. There is an absence of direct authority on the
exact meaning of the words "sent to sea" but the concept is not limited to any contractual
voyage under a bill of lading, since this has no relevance to the risk undertaken by the
insurers. The underlying rationale of the defence under the Marine Insurance Act is that the
time policy is not to cover loss caused by unseaworthiness to which the insured is privy,
when he chooses to send the ship on an adventure in such a state. If an insured knows, or is
to be treated as knowing, that the ship is not reasonably fit for the adventure, voyage, stage
or leg upon which he is then sending it, he should not be able to recover from the insurers in
respect of that risk which he has undertaken. If an express decision is taken by the member
to send the ship on a particular transit for which it is not fit, in the full knowledge of such
unfitness, when the ship is in a place of comparative safety, then section 39.5 will operate.
For the defence to apply the unseaworthiness need not be the sole cause of the loss, as long
it is a proximate cause.

2. 'No claim shall be recoverable from the Club, if it arises out of, or is consequent upon, an
entered ship carrying contraband, blockade running or being employed in an unlawful trade,
or if the Board, having regard to all the circumstances, shall be of the opinion that the
carriage, trade or voyage was imprudent, unsafe, unduly hazardous or improper'. - Rule
18.2.

The Rule falls into two distinct parts. The first part deals with claims arising out of or
consequent upon the carriage of contraband, blockade running or the employment of the
vessel in an unlawful trade. Contraband is cargo which, if carried to a country at war, may
be seized by the other party to the conflict, even if carried on a neutral ship. Blockade
running is an attempt to reach a country, access to which is denied by military force. A trade
can be unlawful either by the law of the country where the ship is trading or by the law of
the ship's country of registry.

The second part depends upon the decision of the committee in relation to a number of
characteristics of the carriage, trade or voyage in question and these are distinct from the
first half of the Rule. The first half deals with claims which, objectively, arise out of or are
consequent upon the specific matters there set out, but the second half provides for the
committee to form an opinion as to whether the carriage, trade or voyage was imprudent,
unsafe, unduly hazardous or improper.

Contraband is cargo which, if carried to a country at war, may be seized by the other party
to the conflict, even if carried on a neutral ship. Blockade running is an attempt to reach a
country, access to which is denied by military force. A trade can be unlawful either by the
law of the country where the ship is trading or by the law of the ship's country of registry.

3. Classification and Condition of Ship. Unless otherwise agreed in writing by the Managers
the ship must remain throughout the period of entry classed with a classification society
approved by the Managers (Rule 21.1).

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The member must report promptly to the classification society 'any incident or condition' in
respect of which the society might make recommendations as to repairs (Rule 21.1.ii). The
member must comply with all the rules, recommendations and requirements of the society
relating to the ship within the time specified by the society. The member must report any
change of classification society forthwith to the Managers. A member, who breaches any of
these conditions, shall not be entitled to any recovery from the Club in respect of any claim
arising during a period when he is in breach unless and to the extent that the Board
otherwise decides. The Club circulated all members in February 1992 reminding them of
these rules and recommending that they set up a system whereby defects or damage, in
respect of which the classification society might make a recommendation, are reported to
the society.

The Board of the Club, at its meeting on 6th May 1994, decided that all new entries to the
Club of 500 gt or more engaged upon international voyages, must be classed by a member
or associate member of IACS as a condition of entry and cover. Vessels of less than 500 gt
and vessels engaged on voyages within territorial waters, need not be classed provided the
voyages are of less than 72 hours in duration and the national administration has issued a
safety contruction certificate, a load-line certificate or equivalent certificate. If any member
has any concern about this policy insofar as it relates to his ships, he should contact the
Managers immediately.

4.The Millennium Bug.

In relation to any claims arising directly or indirectly from Millennium non-compliance,

members will be expected to demonstrate to the satisfaction of the Board that they have
taken such steps as an uninsured person acting reasonably in similar circumstances would
have taken to avoid such a claim. Where an individual member has not so acted, recovery in
respect of any claim will be at the Board’s sole discretion. Members must therefore act
prudently as their cover may be prejudiced if they fail to do so - Rule 21.

C. EXCEPTIONS TO PARTICULAR RULES.

1. Liabilities arising under indemnities are covered only if the terms of the indemnity have
been approved by the Managers - Rules 20.1.1, 20.13.2, 20.17.

2. Liability to passengers transported to and from vessels by air is excluded unless the
passengers are being carried by air because they are ill or have been injured and are being
repatriated - Rule 20.1.2. Liability for death or injury to passengers during excursions is
excluded in certain circumstances - Rule 20.1.2.

3. Liability to seamen arising under a crew contract is only covered provided the crew
contract has been approved by the Managers in writing - Rule 20.2 (The same applies to
cover for repatriation, for the loss of seamen's effects and for shipwreck unemployment
indemnity.)

4. A member is only covered for liabilities arising during the towage of his entered ship, for
which he becomes liable under the terms of a towage contract, if the towage is normal port
towage or the towage of an entered barge. Otherwise, the liability has to be specifically
advised to the Managers who will decide whether cover can be granted and, if so, on what
terms - Rule 20.16.1.

5. Towage by an entered ship - Rule 20.16.2.

There is no cover for loss of or damage to the tow or for the cargo on the tow, or for the
wreck removal of the tow or her cargo unless the contract has been approved by the
Managers.

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6. Restrictions on, and exclusions from, cargo cover. There are restrictions on cover in the
following respects:

(a) Bills of lading must be subject to the Hague or Hague/Visby rules

(b) There are restrictions on cover for

(i) ad valorem bills of lading.

(ii) Deviation.

(iii) Delivery of cargo at a port other than that stipulated in the contract of carriage

(iv) Failure to arrive or late arrival at the port of loading.

(v) Delivery of cargo without bills of lading.

(vi) Ante-dated or post-dated bills of lading.

(vii) Clean bills of lading for damaged cargo.

(viii) Bills of lading wrongly describing the quantity of cargo carried.

(ix) Deck cargo carried with under-deck bills of lading.

(x) Arrest or detention of a ship.

7. Fines for overloading a ship, illegal fishing or for any personal act or default on the part of
the member or his managers

D. TIME LIMITS ON THE MEMBER FOR NOTIFICATION AND RECOVERY OF CLAIMS

1. A member must promptly, and in every case within twelve months, notify the Managers in
writing of every casualty, incident or other event which is likely to lead to a claim for
recovery and of every event which may cause the member to incur liabilities costs or
expenses for which he may be insured by the Club - Rule 23.1.

2. A member must notify the Managers of every claim made by a third party against him as
soon as possible but in no case later than twelve months after he has received notice that
the claim may be made against him - Rule 23.2.

4. A member must submit his claim for reimbursement on the Club within twelve months
after he has settled the claim or has incurred expense - Rule 23.7.

If a member fails to comply with any of these time limits the Club is not under any obligation
to reimburse him 'save at the discretion of the Board'.

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