Shipowner’s insurance fall under three main types:
1- Hull & Machinery Insurance
2- War Risk Insurance
3- Protection and Indemnity (P&I) Insurance
Hull & Machinery Insurance and War Risk Insurance are self-explanatory and are usually covered through Lloyd’s of London or insurance companies.
Protection and Indemnity (P&I) is an insurance cover against third-party risks. Protection and Indemnity (P&I) is almost always covered through Mutual Associations (Protection and Indemnity Clubs).
Mutual Associations (Protection and Indemnity Clubs) are not profit-making enterprises. Mutual Associations (Protection and Indemnity Clubs) are operated by groups of Shipowners for their mutual benefit. Mutual Associations’ (Protection and Indemnity Clubs’) operation of day-to-day business is assigned to professional managers.
The risks covered by the Protection and Indemnity Clubs (P&I Clubs) comprise:
– Claims for damage to other people’s property, for example, hitting a quay wall
– Injury to people, for example, a crew member or a stevedore falling into a hold
– Cargo claims, for example, claims made by consignees for damage done to or loss of their cargo while in transit
Even the best-operated vessel may ultimately be involved in damage to cargo. Some cargoes are notorious in that shipowners may be held liable for damage when the damage occurred either before loading or following discharge. For instance, steel products are the abetter known example, and where it is critical to run Pre-Loading Survey and After-Discharge Survey to verify the condition of every item carried to avoid possible claims at a later date.
Most Voyage Charterparty Forms incorporate a Clause Paramount by either the international Hague Rules or Hague-Visby Rules.
Hague Rules or Hague-Visby Rules set out the responsibilities of the Carrier and Cargo Owner at sea.
Broadly, international sea-trading is performed under the terms of English Law, we then will examine the Hague Rules and the Hague-Visby Rules under the English equivalent the Carriage of Goods by Sea Acts (1924 and 1971). We will examine the Hamburg Rules established under a United Nations convention in 1978 and ratified in 1992.
Hague Rules and Hague-Visby Rules:
There was substantial dissatisfaction and unrest with the conditions upon which cargoes were carried by sea in the 19th century. This unrest came about due to numerous complicated Negligence Clauses which were incorporated into the Bills of Lading (B/L).
Negligence Clauses were developed to defeat the effect of legal decisions against Shipowners in the courts. Many of the Negligence Clauses were drafted in an incredibly ambiguous tone and were quite impossible to interpret. As a consequence, the position of many Charterers, Shippers, Bankers, and Cargo Underwriters became ludicrous as they were quite unable to comprehend and interpret the extent of their rights against a Carrier in the scope of carriage of cargo by sea.
The liner companies were in a monopolistic position because, being relatively few, liner companies could cooperate to decide on miscellaneous terms of carriage. On the other hand, Charterers, and Shippers were quite unable to negotiate with Shipowners on equal terms. This widespread dissatisfaction forced governments to introduce legislation to remedy the situation that had developed for the essential protection of Charterers, Shippers, Bankers, Cargo Underwriters, etc.
Consequently, in 1893, the United States passed the Harter Act which stipulates many conditions upon which cargoes were to be carried by sea. Harter Act affected only the carriage of cargoes being shipped to and from the USA (United States of America). Similar legislation was introduced by other countries to correct the unfair situation. For example, Australia legislated the Sea Carriage of Goods Act (1904), and Canada legislated the Water-Carriage of Goods Act (1910).
In 1921, the Imperial Shipping Committee (ISC) made recommendations to the government that there should be some uniform legislation throughout the British Empire to standardize the law regarding the carriage of goods by sea. Nevertheless, the shipping community itself selected the concept of adopting a set of uniform rules for voluntary adoption rather than introducing legislation. Consequently, the Maritime Law Committee of the International Law Association arranged a conference to debate the conflicting views of Shipowners and Cargo Interests. The Maritime Law Committee of the International Law Association drafted a set of rules subsequently to be known as the Hague Rules (1921). However, the voluntary adoption of these rules did not materialize and there was further agitation for legislation on this issue. In 1922, the Conference on Maritime Law at Brussels was organized and the Hague Rules were adopted as the basis of a draft convention for the unification of certain rules relating to Bills of Lading (B/L).
The International Convention was signed by many participating countries in Brussels on 25th August 1924 and was subsequently given the force of law in the UK by the Carriage of Goods by Sea Act (1924). This legislation remained in existence until 1971 when additional legislation was introduced following amendments to the Hague Rules by a set of modified rules known as the Hague-Visby Rules, which were given the force of law in the UK by the Carriage of Goods by Sea Act (1971).
The original Hague Rules, as embodied in the Carriage of Goods by Sea Act (1924) were modified and extended to a certain degree. The Carriage of Goods by Sea Act (1924) has now been annulled and replaced by the Carriage of Goods by Sea Act (1971). One of the primary reasons for the Carriage of Goods by Sea Act (1971) revisions was to take into account the effect of containerization. Thereafter, numerous prominent maritime countries enacted the Hague-Visby Rules.
The Carriage of Goods by Sea Acts:
The effect of the Carriage of Goods by Sea Act (1971), like its predecessor Carriage of Goods by Sea Act (1924), was to place the Hague-Visby Rules into the United Kingdom’s law, therefore, making it a Contracting State. The majority of maritime nations enacted similar laws.
Hague-Visby Rules apply to any Bill of Lading (B/L) or similar Document of Title (DOT) relating to the carriage of cargoes by sea:
1- The shipment is from a port in a Contracting State, or
2- The Bill of Lading (B/L) is issued in a Contracting State, or
3- The Contract (Charterparty) contained in or evidenced by the Bill of Lading (B/L) provides that the rules or the legislation of any country giving effect to them are to govern the Contract (Charterparty), whatever may be the nationality of the Ship, the Carrier, the Shipper, the Consignee or any other Cargo Interests.
Three sub-paragraphs are part of Article X of the Hague-Visby Rules.
The third way for the Hague-Visby Rules to take effect is to ensure the Bill of Lading (B/L) incorporates a Clause Paramount. The term Paramount is used because the effect of such a clause is to make it clear that if there is anything in the Bill of Lading (B/L) that would place the Shipper in a worse position than provided for in the Hague-Visby Rule then the Hague-Visby Rules take precedence over the wording of the Bill of Lading (B/L) in that regard.
Hague-Visby Rules do not apply to Charterparties automatically, however, it is common practice to incorporate a clause in a Charterparty stipulating that any Bill of Lading (B/L) issued under that Charterparty shall contain a Clause Paramount.
Elements of the Carriage of Goods by Sea Acts
Practically in every Contract (Charterparty), it is implied that a ship shall proceed on a voyage without departure from the proper course as described in the Contract (Charterparty), and, if a ship does, a ship will, in effect, deviate from contractual terms unless such deviation is thoroughly justifiable. Under Common Law, deviation from a contracted voyage will only be allowed when saving or attempting to save Human Life. This situation was modified by the introduction of the Hague and Hague-Visby Rules, whereby any deviation in saving or attempting to save Life or Property at sea, or indeed any Reasonable Deviation, would not be deemed to be a violation or breach of the Hague and Hague-Visby Rules or of the Contract (Charterparty) of carriage. The Carrier (Shipowner or Disponent Owner) would not be liable for any loss or damage resulting from that situation. Whether a deviation is said to be reasonable is in every individual case a question of fact and must be evaluated by the particular events in every case.
Under the Carriage of Goods by Sea Act 1924, the parties concerned in the carriage of live animals were free to contract on any agreed terms. In other terms, the Carriage of Goods by Sea Act 1924 had no application to the carriage of live animals. Nevertheless, where the Contract (Charterparty) is contained in or evidenced by a Bill of Lading (B/L) or receipt which expressly provides that the Carriage of Goods by Sea Act 1971 will apply, then this shall include contracts for the carriage of live animals. In this regard, the Carriage of Goods by Sea Act 1971 goes beyond the demands of the Hague-Visby Rules.
If a Contract (Charterparty) is contained in or evidenced by a Bill of Lading (B/L) or Receipt which expressly provides that the Hague-Visby Rules shall apply, then this shall include contracts for the carriage of deck cargo. Nevertheless, as was the position under the Carriage of Goods by Sea Act 1924, deck cargo means cargo which, by the contract of carriage, is remarked as being carried on deck, and is so carried. If in such cases the Bill of Lading (B/L) is expressly Claused to the effect that cargo is carried on deck at the Shipper’s risk and liability then, in those cases, a Shipowner would be exempt from liability if loss or damage occurred to the cargo.
Under the Carriage of Goods by Sea Act 1924, owing to a strong representation made by parties interested in the Coastal Trade, the Act allowed such parties freedom of Contract so long as the Contract (Charterparty) was not incorporated in a Bill of Lading (B/L) but was contained in a Receipt which had to be marked expressly as a Non-Negotiable Document. However, under the Carriage of Goods by Sea Act 1971, this exemption has disappeared, and even coasting shipments if carried under a Bill of Lading (B/L) will be subject to the Hague-Visby Rules even though the strict application of the rules does not demand this.
Under the Carriage of Goods by Sea Act 1924, voyages covered by the Hague Rules were from ports in the UK and Northern Ireland only.
Nevertheless, this has been amended by the Hague-Visby Rules to the effect that the Rules will apply to every Bill of Lading (B/L) relating to the carriage of goods between ports in two different States:
1- The Carriage is from a port in a Contracting State, or
2- The Bill of Lading (B/L) is issued in a Contracting State, or
3- The Contract (Charterparty) contained in or evidenced by the Bill of Lading (B/L) provides that the Hague-Visby Rules or legislation of any State giving effect to them are to govern the Contract (Charterparty), whatever may be the nationality of the Ship, the Carrier, the Shipper, the Consignee or any other Cargo Interests.
Before the Carriage of Goods by Sea Act 1924 was introduced, the Common Law position was that there was implied in every contract of carriage of goods by the sea an absolute warranty that the ship was seaworthy at the commencement of the voyage and also at the commencement of each subsequent stage of the voyage. Only the most precise and unambiguous wording in a Bill of Lading (B/L) could exclude this implied warranty. The reference to the commencement of each subsequent stage of the voyage brought into consideration what was termed the Doctrine of Stages which meant in effect that a ship had to be seaworthy at the commencement of each particular stage of the voyage. For instance, a ship proceeding in ballast as opposed to having cargo on board or a voyage necessitated the ship having a long down-river passage before setting off across the sea. Different ship seaworthiness considerations would apply depending on the section of the voyage considered.
The Carriage of Goods by Sea Act 1924 and subsequently the Carriage of Goods by Sea Act 1971 categorically abolished the absolute warranty of ship seaworthiness in all Contracts to which it applied. Nevertheless, Shipowners are still under a legal obligation to Exercise Due Diligence to make a ship seaworthy in all respects and to make cargo holds fit for the reception of cargo. However, a Shipowner will not be liable for losses due to Ship Unseaworthiness, unless due to wanting of due diligence.
Obligation to Issue a Bill of Lading (B/L)
When cargo is given into the custody of a Shipowner, that Shipowner is obligated to issue a Bill of Lading (B/L), on-demand, to the shipper, giving full details of the cargoes accepted, and cargoes’ apparent order and condition. When the cargo has been taken into the custody of the Carrier (Shipowner or Disponent Owner) and the Bill of Lading (B/L) issued, then the details of that Bill of Lading (B/L) constitute Prima Facie Evidence that the cargo has been received by the Carrier (Shipowner or Disponent Owner). This obligation to issue the Bill of Lading (B/L) does not indeed depend on the cargoes having been loaded on board the ship. Bill of Lading (B/L) can be issued before actual shipment on board a ship and this is done by Carriers issuing a Received for Shipment Bill of Lading (B/L). When cargoes are eventually loaded on board, a Shipper may demand a Shipped Bill of Lading (B/L) to replace the Received for Shipment Bill of Lading (B/L).
Obligations of the Shipper
In the preparation of a Bill of Lading (B/L), a Shipper provides full details of cargo to be shipped, by confirming that all details recorded thereon are accurate. The Shipper must fulfill an obligation by which the Shipper will indemnify the Carrier if any loss or damage is arising from any inaccuracy in the details provided by the Shipper. Particularly, this applies to dangerous cargoes. To ensure that the Shipper is liable, the Carrier must show that, in the event of subsequent loss or damage, this loss or damage was undoubtedly caused through the actual fault or neglect of the Shipper, or the Shipper’s servants.
Loading to Discharging
A Shipowner has particular obligations also towards the cargo before loading the cargo on board the ship and also following the cargo discharge from the ship. Nevertheless, the Carriage of Goods by Sea Act 1971 leaves the Shipowner free to contract on any agreed terms in respect of the transit of the goods before loading and after discharge. It is just for the actual period of the voyage itself that the Hague-Visby Rules will apply.
General Average (GA)
The Carriage of Goods by Sea Act (1971) states expressly that the parties to the Contract are free to make any reasonable agreements about the application of General Average (GA), usually stated in Charterparty Forms, for instance, as General Average to be adjusted in London per the York-Antwerp Rules, 1990. Hague-Visby Rules have no application to General Average.
Limitation of Liability
In the Carriage of Goods by Sea Act 1924 (Hague Rules), the Limitation of Liability provisions available to a Shipowner was that, unless the value and nature of the cargoes were declared and inserted in the Bill of Lading (B/L) before the cargoes were shipped on board, liability was limited to £100 per package or unit. Nevertheless, the parties to a Contract (Charterparty) were free to insert a higher limit if they so wished. A Shipowner was unable to limit his liability to any amount less than £100. This limitation had been effective since 1924 and since that time great steps forward had been taken within the shipping industry regarding the modes of carrying cargo by sea. These new and modern methods included such concepts as containerization, palletization, and roll-on roll-off methods of loading and discharge.
Therefore, it was decided that as well as the Limitation of Liability itself being too low, the Limitation of Liability provisions were outdated and require amending. Amendments took place following the introduction of the Hague-Visby Rules and were brought into English Law by the Carriage of Goods by Sea Act (1971):
1- In any circumstance, there shall be no liability in respect of loss or damage to goods unless legal action is commenced within one (1) year of cargo delivery or of the date when they should have been delivered. It is allowable to extend this period should the parties so compromise.
2- Recourse actions may be brought by the Plaintiff after the expiration of the one (1) year time limit, within the time limit allowed by the Law of the Court seized of the case. Depending upon the Law of the Country under which the claim was being brought then if that jurisdiction provided for a time limitation period over the one (1) year time limit laid down in the Hague-Visby Rules, such time limit, as defined by the Law of the Country would prevail.
3.1- Under the Hague Rules and therefore the Hague Rules (Carriage of Goods by Sea Act 1924), the Limitation of Liability was £100 per package or unit. Inflation surpassed this small level of payment to such an extent that the British Maritime Law Association produced a voluntary agreement in 1950 called the Gold Clause Agreement which doubled the limit of compensation to £200. Gold Clause Agreement inherently ceased to exist when the United Kingdom ratified the Hague-Visby Rules.
Under Hague-Visby Rules, the purpose was to protect the limitation from inflation by linking it to the Gold Franc (Poincare Francs). Hague-Visby Rules specified the exact weight and degree of fineness of the Gold Franc. The new rate was 10,000 of these Gold Franc (Poincare Francs). Thereafter, in 1981, a protocol was approved to replace the Gold Franc (Poincare Francs) with Special Drawing Rights (SDR’s) which are manufactured currency by the IMF (International Monetary Fund) and for which a rate of exchange is published each day in the financial press.
Consequently, if we examine especially how these Special Drawing Rights (SDR’s) impact the Hague-Visby Rules the alteration can be described:
(i)- For the equivalent of 10,000 Gold Franc (Poincare Francs) substitute 666.67 Special Drawing Rights (SDR’s)
(ii)- For the words, 30 Gold Franc (Poincare Francs) per kilo substitute 2 Special Drawing Rights (SDR’s) per kilo
The Merchant Shipping Act (1981) which gave effect to this change, specifies for the schedule of the Carriage of Goods by Sea Act (1971), as amended the value, on a particular day, of one Special Drawing Rights (SDR’s) shall be treated as equal to such a sum in Sterling as the IMF (International Monetary Fund) have fixed as being the equivalent for that particular day.
3.2- The Limitation of Liability provisions have been added to by the introduction of an Alternative Limit to the package of the unit using weight per kilo as a basis for limitation. The basis of limitation providing the higher outcome shall be considered for application to claims.
3.3- The total amount recoverable in consideration of any claim is to be computed by reference to the value of the cargoes at the time and place at which the cargoes are discharged from the ship.
When settling, in cases where the mode of consolidating cargo is by container, pallet, or another similar type of transport, whether the Limitation of Liability is to be based on Per Package or Unit or indeed on Weight, this is to be settled by referring to the Bill of Lading (B/L) itself. If the packages or units are enumerated in the Bill of Lading (B/L) as being packed inside the container, then the unit basis of limitation will be adopted, otherwise, the container itself will be the basis of limitation.
The Hague-Visby Rules have introduced thoroughly new rules, and provisions so that any Servants or Agents of the Carrier would be entitled to benefit from the definitions and Limits of Liability directly available to the Carriers. Nevertheless, such Servants or Agents of the Carrier would not be able to avail themselves of these provisions if it were to be proved that any loss or damage resulted from an Act or Omission of the Servant, or Agent, done with intent to cause damage or with the understanding that damage would likely result. The Himalaya Clause fetches its name MV Himalaya, as this was the ship concerned in the case of Adler v Dickson (1955) when a passenger injured herself on a poorly fastened ladder but found that the conditions on the passenger ticket prevented her from taking action against the Shipowner under their contractual agreement so instead she successfully sued the Captain under Tort. The Himalaya Clause expressly prevents this by specifying that Servants of the Shipowner have the same Limitation of Liability protection as the Shipowner under the Bill of Lading (B/L). Before the Hague-Visby Rules, Himalaya Clause had to be expressly incorporated into the contract of carriage.
The provisions of the Hague-Visby Rules relative to the carriage of Dangerous Cargo are very much similar to the conditions incorporated in the Merchant Shipping Act (1984). If any Dangerous Cargo is shipped on board a ship without the knowledge or approval of the Ship Master or the Carrier then the Carriage of Goods by Sea Act (1971) would authorize the Carrier to take suitable action to have the cargo landed or indeed destroyed at the Shippers’ expense should any loss or damage be sustained to those goods. Likewise, if during a ship voyage, Dangerous Cargo becomes a danger to the Ship and the Crew Members, even in cases where the cargo has been shipped on board correctly and legally, then the Ship Master is authorized to take measures to destroy or dispose of such Dangerous Cargo. The Carrier shall not incur any liability whatsoever other than an obligation to contribute to General Average (GA) if any.
Rights and Immunities
There are numerous rights available to a Shipowner with exemptions or immunities from liability. A number of these including unseaworthiness, deviation, and limitation of liability provisions have already been examined in some detail. Nevertheless, there are numerous other exemptions:
1- Fire, unless caused by the actual fault or privity of the Carrier: This exception is an absolute exemption for loss or damage arising out of the fire. Nevertheless, it is subject to the fact that the fire had not been generated by the actual fault or privity of the carrier and the burden of proof is on the Carrier in this respect.
2- Act, Neglect, or Default of the Ship Master, Mariner, Pilot in the navigation or the management of the ship: This exemption from liability must be assessed extremely carefully and a comparison made between faults or errors in the navigation of the ship as opposed to faults or errors in the management of the ship. Related to navigation, such errors would refer to navigational errors maybe result in a collision or grounding and may result in the Shipowner being able to avoid liability by pleading the referred exception. Concerning the exception related to Act Neglect or Default of the Ship Master, etc. in the management of the ship, then this is somewhat complicated in that it must be determined what circumstances would result in an error in the management of the ship as opposed to Act, Neglect or Default of the Master, Mariner, Pilot, etc. in the management of the cargo itself. Consequently, a distinction must be made between want of due care of the cargo and want of due care of the ship by itself indirectly affecting cargo.
3- Act of God: A shipowner would have to prove that the loss or damage materialized without human intervention. It is a case whereby an occurrence may take place without human intervention and one which could not have been prevented by any amount of human foresightedness or care of a practical nature.
4- Acts of Public Enemies: This covers Enemies of the Queen, or of the country to which the Carrier (Shipowner or Disponent Owner) belongs.
5- Act of War: Act of War is self-explanatory and can be described as mean losses due to War or Hostile circumstances. Act of War would comprise the phrase Queen’s Enemies.
6- Perils, Dangers, and Accidents of the sea or other navigable waters: A Shipowner must produce evidence that the damage was caused by such peril of the sea and was without the Shipowner’s negligence or fault. Furthermore, it has to be proved that the ship had encountered abnormally bad weather caused by terrible conditions in respect of which there would presumably be structural damage to the ship as well. The ship is anticipated to meet the normal hazards and weather conditions at sea in any case so any evidence would have to substantiate significantly abnormal circumstances.
7- Quarantine Restrictions: A shipowner may anticipate avoiding liability for loss or damage to cargo caused through quarantine of the ship.
8- Strikes, Lock-Outs, Stoppage, or Restraint of Labor from whatever cause, whether Partial or General: This is self-explanatory, however, it would also incorporate any Boycott.
9- Arrest or Restraint of Princes, Rulers, or People, or Seizures under Legal Process: This exception would include forcible interference by a country. This exception incorporates such items as Blockage of Discharge, Embargo, or Arrest of ships by the Action of a Country.
10- Riots and Civil Commotions: This particular exception would include any local disturbance in respect which is included lawlessness and/or violence.
11- Acts or Omissions of the Shipper or Owner of the Goods, Agent, or Representative: If it can be proved under this exception that any act or omission on the part of a shipper was directly responsible for the loss or damage to the cargo then the carrier can be relieved from liability.
12- Saving or Attempting to Save Life or Property at sea: This exception provides the Shipowner the right to deviate from the terms of the Contract (Charterparty) for the stated purposes.
13- Wastage in bulk or weight or any other loss or damage arising from the inherent defect, quality, or vice of the goods: This is self-explanatory, exceptions all link to defenses available to the Shipowner for the quoted losses.
14- Insufficiency of packing or inadequacy of marks: This is self-explanatory, exceptions all link to defenses available to the Shipowner for the quoted losses.
15- Latent Defects not discoverable by Due Diligence: In the case of Brown & Company v Nitrate Producers steamship Company (1937), the cargo was damaged due to leakage through rivets, used in the building of the ship, which was latent. Despite meticulous investigations, such leaks could not be discovered by the Shipowner in the exercise of Due Diligence. Therefore, the Shipowner is not responsible for the damage sustained to the cargo.
16- Catch-All Clause: Any other cause arising without the actual fault or privity of the Carrier, or without the fault or neglect of the Agents or servants of the Carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the Carrier nor the fault or neglect of the Agents or servants of the Carrier contributed to the loss or damage. Catch-All Clause protects the carrier from responsibility for loss or damage, of whatever nature that may be, which has not already been expressly covered by the Hague-Visby Rules, providing that such loss or damage did not arise with the fault or privity of the Carrier or with the fault or neglect of the Agents or other Servants of the carrier.
The Hamburg Rules
The Hague-Visby Rules define the responsibilities and liabilities of the parties, particularly the Carrier. The Hague-Visby Rules define at which point the Shipper’s insurance ends and at which point the Carrier’s insurance starts.
Usually, the premium charged to a Shipper for the goods and trade, which would be well-known to a Shipper’s insurer, will inevitably be lower than the premium insurers would have to demand from the Carrier to cover all the different sorts of cargoes that a ship might carry. As the cost of insurance, like any other expense, ultimately has to be passed on to the Shipper, it is bound to be more affordable for the Shipper to cover the insurance. The Hague-Visby Rules enable all involved because they know the point at which their risks start and end.
UNCTAD (The United Nations Council for Trade and Development) deemed that the Hague-Visby Rules were weighted too much in favor of the Carriers. Consequently, in 1978, the United Nations issued a draft convention entitled the Hamburg Rules which required 20 Nations to ratify them before they became an International Convention. It took 14 years for the requisite number of signatories to be found. None of the ratifying nations are significant maritime nations.
The Hamburg Rules shift liability onto the Carrier as well as increase levels of compensation for the Cargo Owner or Shipper. Firstly, the exporters and importers will be no better off because the Carriers will have to pass on their inflated expenses. Secondly, the clauses in the Hague Rules have stood the test of time in the law courts and the Hague-Visby Rules did not modify the fundamentals. Nevertheless, the Hamburg Rules introduced untried areas of possible legal disputes.
Time Charter Cargo Claims
The rights and responsibilities listed in the notes about the Hague Rules and the Hague-Visby Rules apply to Carriers and Cargo Owners/Shippers whether or not the ship is employed on Voyage Charter or on Time Charter terms and conditions. Nevertheless, where Time Charter involves, there is a difficulty because the Carrier can be expressed as either the Time Charterers in the role of Disponent Owner”, or the Actual Shipowners themselves. Undoubtedly, some claims can emerge due to default by the Time Charterers whilst others may be entirely the ship’s fault.
Consequently, to avoid any misunderstanding where simultaneous dual negotiations might be carried out between an unfulfilled Cargo Owner and both the Actual Shipowners and the Disponent Owners, a code of practice has developed around the New York Produce Time Charterparty, into which it is typical to incorporate the Inter-Club New York Produce Exchange Agreement, a copy of which here below.
Inter-Club New York Produce Exchange Agreement was last amended in 2011. Inter-Club New York Produce Exchange Agreement sets out what is to happen if cargo claims are lodged against the Carrier. Furthermore, Inter-Club New York Produce Exchange Agreement sets out the responsibilities and liabilities in the relationship between the Time Charterer and the Shipowner.
Shipbrokers should read and comprehend the Inter-Club Agreement, particularly if Shipbrokers are involved with Time Charter deals. Shipbrokers should realize the importance of the incorporation or absence of the term Responsibility in Clause 8 of the New York Produce Exchange Charter Party and/or the words Cargo Claims in Clause 26.
Under English Law, there is a one (1) year time limit for Charterers and/or Cargo Owners to bring claims against Carriers (Shipowners or Disponent Owners). Nevertheless, one (1) year time limit may be exceeded in certain cases under the terms of the Arbitration Act (1950), if an English arbitration applies and if the claimant can demonstrate to the court that undue hardship might otherwise occur. Generally, though, one-year time limitations mean what it expresses for Charterers, although many feel it to be unfair that Shipowners are not prevented from bringing claims against Charterers in similar circumstances. Nevertheless, in Inter-Club New York Produce Exchange Agreement, there is a provision in respect of a Time Bar in which claims are subject to a time bar of two (2) years, no matter whether claims are made by Owners or by Charterers.
Inter-Club New York Produce Exchange Agreement (1996 – Amended 2011)
This Agreement, the Inter-Club New York Produce Exchange Agreement 1996 (as amended September 2011) (the Agreement), made on 1st September 2011 between the P&l Clubs being members of The International Group of P&l Associations listed below (hereafter referred to as “the Clubs”) amends the Inter-Club New York Produce Exchange Agreement 1996 in respect of all charterparties specified in clause (1) hereof and shall continue in force until varied or terminated. Any variation to be effective must be approved in writing by all the Clubs but it is open to any Club to withdraw from the Agreement on giving to all the other Clubs not less than three months’ written notice thereof, such
withdrawal to take effect at the expiration of that period. After the expiry of such notice, the Agreement shall nevertheless continue as between all the Clubs, other than the Club giving such notice who shall remain bound by and be entitled to the benefit of this Agreement in respect of all Cargo Claims arising out of charterparties commenced before the expiration of such notice.
The Clubs will recommend to their Members without qualification that their Members adopt this Agreement to apportion liability for claims in respect of cargo which arise under, out of or in connection with all charterparties on the New York Produce Exchange Form 1946 or 1993 or
Asbatime Form 1981 (or any subsequent amendment of such Forms), whether or not this Agreement has been incorporated into such charterparties.
Scope of Application
1- This Agreement applies to any charterparty which is entered into after the date hereof on the New York Produce Exchange Form 1946 or 1993 or Asbatime Form 1981 (or any subsequent amendment of such Forms).
2- The terms of this Agreement shall apply notwithstanding anything to the contrary in any other provision of the charterparty; in particular the provisions of clause (6) (time bar) shall apply notwithstanding any provision of the charterparty or rule of law to the contrary.
3- For the purposes of this Agreement, Cargo Claim(s) means claims for loss, damage, shortage (including slacking, ullage, or pilferage), over carriage of, or delay to cargo including customs dues or fines in respect of such loss, damage, shortage, over carriage or delay and include:
3a- any legal costs claimed by the original person making any such claim;
3b- any interest claimed by the original person making any such claim;
3c- all legal, Club correspondents’ and experts’ costs reasonably incurred in the defense of or in the settlement of the claim made by the original person, but shall not include any costs of whatsoever nature incurred in making a claim under this Agreement or in seeking an indemnity under the charterparty.
4- Apportionment under this Agreement shall only be applied to Cargo Claims where:
4a- the claim was made under a contract of carriage, whatever its form,
(i) which was authorized under the charterparty; or
(ii) which would have been authorized under the charterparty but for the inclusion in that contract of carriage of Through Transport or Combined Transport provisions, provided that
(iii) in the case of contracts of carriage containing Through Transport or Combined Transport provisions (whether falling within (i) or (ii) above) the loss, damage, shortage, over carriage, or delay occurred after the commencement of the loading of the cargo onto the chartered vessel and before completion of its discharge from that vessel (the burden of proof being on the Charterer to establish that the loss, damage, shortage, over carriage or delay did or did not so occur); and
(iv) the contract of carriage (or that part of the transit that comprised carriage on the chartered vessel) incorporated terms no less favorable to the carrier than the Hague or Hague Visby Rules, or, when compulsorily applicable by operation of law to the contract of carriage, the Hamburg Rules or any national law giving effect thereto; and
4b- the cargo responsibility clauses in the charterparty have not been materially amended. A material amendment makes the liability, as between Owners and Charterers, for Cargo Claims clear. In particular, it is agreed solely for the purposes of this Agreement:
(i) that the addition of the words “and responsibility” in clause 8 of the New York Produce Exchange Form 1946 or 1993 or clause 8 of the Asbatime Form 1981, or any similar amendment of the charterparty making the Master responsible for cargo handling is not a material amendment; and
(ii) that if the words “cargo claims” are added to the second sentence of clause 26 of the New York Produce Exchange Form 1946 or 1993 or clause 25 of the Asbatime Form 1981, apportionment under this Agreement shall not be applied under any circumstances even if the charterparty is made subject to the terms of this Agreement; and
4c- the claim has been properly settled or compromised and paid.
5- This Agreement applies regardless of the legal forum or place of arbitration specified in the charterparty and regardless of any incorporation of the Hague, Hague Visby Rules, or Hamburg Rules therein.
6- Recovery under this Agreement by an Owner or Charterer shall be deemed to be waived and barred unless written notification of the Cargo Claim has been given to the other party to the charterparty within 24 months of the date of delivery of the cargo or the date the cargo should
have been delivered, save that, where the Hamburg Rules or any national legislation giving effect thereto are compulsorily applicable by operation of law to the contract of carriage or to that part of the transit that comprised carriage on the chartered vessel, the period shall be 36 months. Such notification shall if possible include details of the contract of carriage, the nature of the claim, and the amount claimed.
7- The amount of any Cargo Claim to be apportioned under this Agreement shall be the amount borne by the party to the charterparty seeking apportionment, regardless of whether that claim may be or has been apportioned by application of this Agreement to another charterparty.
8- Cargo Claims shall be apportioned as follows:
8a- Claims arising out of unseaworthiness and/or error or fault in navigation or management of the vessel:
save where the Owner proves that the unseaworthiness was caused by the loading, stowage, lashing, discharge, or another handling of the cargo, in which case the claim shall be apportioned under sub-clause (b).
8b- Claims arising out of the loading, stowage, lashing, discharge, storage, or another handling of cargo:
unless the words “and responsibility” are added in clause 8 or there is a similar amendment making the Master responsible for cargo handling in which case:
save where the Charterer proves that the failure properly to load, stow, lash, discharge, or handle the cargo was caused by the unseaworthiness of the vessel in which case:
8c- Subject to 8a and 8b above, claims for shortage or over carriage:
unless there is clear and irrefutable evidence that the claim arose out of pilferage or act or neglect by one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.
8d- All other cargo claims whatsoever (including claims for the delay to cargo):
unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim
9- If a party to the charterparty provides security to a person making a Cargo Claim, that party shall be entitled upon demand to acceptable security for an equivalent amount in respect of that Cargo Claim from the other party to the charterparty, regardless of whether a right to apportionment between the parties to the charterparty has arisen under this Agreement provided that:
9a- written notification of the Cargo Claim has been given by the party demanding security to the other party to the charterparty within the relevant period specified in clause (6); and
9b- the party demanding such security reciprocates by providing acceptable security for an equivalent amount to the other party to the charterparty in respect of the Cargo Claim if requested to do so.
10- This Agreement shall be subject to English Law and the exclusive jurisdiction of the English Courts unless it is incorporated into the charterparty (or the settlement of claims in respect of cargo under the charterparty is made subject to this Agreement), in which case it shall be subject to the law and jurisdiction provisions governing the charterparty