NEWS Issue number 45 October 2013 - Britannia...18 THE ASTRA:Is the obligation to pay hire on time...

The Britannia Steam Ship Insurance Association Limited

Issue number 45 October 2013

NEWS

Contents1 Letter from the Chairman 2 Committee news3 Club news4 Taiwan claims seminar5 Risk management – an update on the technical seminar programme

6 Claims review

8 Crew claims in China10 Cover for specialist operations and towage13 Dumping convention16 Letter from Lamorte Burns, Britannia’s

Correspondent in the US18 THE ASTRA: Is the obligation to pay hire on

time under clause 5 of NYPE a condition?

Claims on the Association continue athistorically high levels which indicatesanother of the periodic ‘step changes’ inclaim levels, with a new plateau beingreached. The number of claims remainsbroadly constant, but the value of each has shown a marked increase in the lastthree years.

Pool claims also continue to be a concern –there has been plenty of press coverage on the cost and difficulty of the COSTACONCORDIAwreck removal (currently theship has been lifted to an upright position,but there is a long way to go before she is refloated and transported to thebreakers), but other recent high profile

Letter from the Chairman


The newsletter for Britannia’sMembers and Correspondents

NEWS

incidents such as the RENA and the MOLCOMFORT are examples of the potential for heavy claims. Inevitably these affect thereinsurance rates on the IG’s programme as the market adjusts to such losses.

Work continues in the International Group to analyse large claims to see whatlessons can be learned to control these –you will see further details about this in this edition.

The scourge of piracy continues to blight our industry. The efforts of naval forces, and the adherence by more ships to theBMP guidelines, has resulted in a welcomereduction in attacks off East Africa.

Welcome to the latest edition of Britannia News. We have had a long hot summer in the UK but sadlythis has not been reflected in freight rates in the shipping market, which continue to bump along atdepressed rates. The effects of this can be seen in issues over maintenance and quality of manning –those of us with grey (or little) hair have seen this all before and can reflect on the lessons of historythat seem to continue to be unlearnt.

2 BRITANNIA NEWS OCTOBER 2013

Sadly attacks off West Africa have becomemore common and these are of a verydifferent nature, usually involving a higherdegree of violence. It really is intolerable thatseafarers have to face these type of attacks inthe 21st century. Britannia offers what supportit can to its Members involved in suchincidents, but action by the internationalcommunity is required to stamp this out.

The global financial recovery continues tooffer hope for a return to robust globalgrowth – a prerequisite for an improvementin shipping markets. Britannia has had agood return on investments over the pastfew years and this has helped partially tooffset the increased claims environment, but markets are volatile and it is unlikely that returns will continue at these levels.

We know that our Members value thefinancial strength and stability of Britanniaand we continue to make decisions toensure the long-term health of the Club.

Best regards

Nigel Palmer OBE Chairman

Letter from the Chairman (continued)

Committee news

Since the last edition of Britannia News,Messrs. D K-L Chao, A Lowry, P-O Lund and K Whang resigned as directors and Messrs. A Cieslinski and A J Cutler were welcomed asnew directors of the Committee.

In October last year, the Committee meetingwas held in the Bauer Hotel in Venice where

Committee members and their partners hadto get to grips with the practical problems ofnavigating around a city only by boat or onfoot. In January the meeting was held at theAssociation’s offices at Regis House inLondon and in May the Committee travelledto Hong Kong where the Conrad Hotelhosted the meeting.

The meeting in October this year will takeplace in Amsterdam – another city full ofcanals. But while boats will still play a part inthe Committee activities, there are plenty ofother options for exploring the city withoutgetting wet feet.

Tony GosdenTony Gosden retired in June thisyear after 16 years with TindallRiley. He joined the company in1997 to work with John Riley,who was then the senior partnerand Chairman of the InternationalGroup.

Tony had qualified as a charteredaccountant with Peat MarwickMitchell (later to become KPMG)and, after 5 years in London,transferred first to Brussels andthen to Luxembourg, workingprincipally with clients in thebanking sector. Although Tonyknew little about marine insurancewhen he joined Tindall Riley, hequickly got to grips with theintricacies of the sector. Indeed,his time in Brussels proved usefulas the International Group was, at that time, grappling with thesecond EU anti-competitioninvestigation and Tony workedclosely with John Riley on that issue.

Tony’s contribution to Britanniahas been considerable, especiallyin the work of the Finance, Riskand Investment Sub-Committee,matters relating to corporategovernance and Solvency II. He was also heavily involved inthe work of the InternationalGroup, sitting on the AccountingStandards and Regulatory AffairsSub-Committees, and chairingthe Capital Adequacy Sub-Committee.

Jo RodgersTony Gosden’s role as ChiefFinancial Officer of Tindall Riley(Britannia) has passed to Jo Rodgers. Jo qualified as achartered accountant in 1991and worked at both KPMG andDeloitte before joining TindallRiley in 2005 as director offinancial reporting. Jo workedclosely with Tony over the pasteight years and is well-placed to carry on the tradition of soundfinancial management of theAssociation.

Grantley Berkeley In November last year, GrantleyBerkeley was elected chairman ofthe International Group followingthe retirement of Claes Isacson,formerly of Gard. Grantley waselected by managers from the 13 Group Clubs and will serve athree-year term in the position.

Grantley Berkeley has been withTindall Riley since 1982. He iscurrently the chairman of TindallRiley (Britannia) and has been amember of the BritanniaCommittee since 2006. The lastBritannia representative to holdthe position as chairman of theInternational Group was JohnRiley who held the post between1994 and 1997. John Riley was atthe helm when the first Europeananti-trust investigation wasconducted and Grantley tookover just as the latest EUinvestigation came to a close. This had taken up much time forthe previous incumbent, but thereare plenty of new challengesfacing the Group during Grantley’schairmanship. One of the mostimportant issues at the momentis how to deal with the rising costof claims, and the InternationalGroup will be looking carefully atwhat can be done to control thecost of the largest claims, inparticular, the cost of wreckremoval. There is also the issue ofthe increasing cost of insuranceand reinsurance at a time whenMembers are experiencing aprolonged recession in theshipping market. There is a strongfeeling that it is important for theClubs to work together, reachingconsensus wherever possible,under the strong leadership of theInternational Group chairman.

Club news

Andrew Cutler Following the retirement of ColinJohnston, Andrew Cutler wasappointed Chief Executive ofTindall Riley (Britannia). Andrewinitially qualified in 1990 as abarrister and in 1992 joinedlawyers Holman Fenwick Willan.He spent his first two years intheir London office qualifying asa solicitor and then went out toHong Kong where he became apartner in 1999. In 2002 hemoved to the Shanghai officeand became partner in chargethere before returning to the UKin 2006. After joining the Club,Andrew became director at thehead of the Scandinavian claimsdepartment. He has a specialinterest in pollution matters,sanctions and maritime security,both within the Club and atInternational Group level.

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The aim of the seminar was to provideMembers with examples of some of themost difficult, complex and unusual claimsthat Britannia has handled recently.Fortunately, most of Britannia’s Membershave never encountered problems involvingpiracy or cargo liquefaction, but few areimmune to the risk. Members’ staff thereforeneed to understand the issues and knowhow to react should a crisis occur. Manyorganisations, including the Club, haveproduced Circulars and Bulletins to keepMembers advised of developments in suchproblem areas. This seminar provided real-life examples and suggested ways ofhandling and, where possible, resolvingthose problems.

The format chosen to provide a practicalexample was an imaginary voyage of theficticious ship MV LION. The ‘voyage from hell’ scenario incorporated a variety ofincidents, problems and disputes all looselybased on actual events. As the ‘voyage’progressed and the problems arose, one by one the various Club representativeswould step in and discuss how to respond.

This involved claims handlers specialisingin P&I, Personal Injury and FD&D. Anunderwriter was also on hand to discussand explain the various additional coversthat might be necessary following events.

The presentations were candid inrevealing certain circumstances where theClub representatives struggled to find asolution – either because of difficultpolitical circumstances or because someelements of the claim were not within P&Icover, such as loss of hire or operationalexpenses.

It was clear from the feedback receivedthat this ‘warts and all’ approach providedmuch food for thought and there was, at times, a lively debate over some of theissues raised. There is no doubt thateveryone benefited from the seminar,though we can only hope that none ofBritannia’s Members experience in onevoyage what the imaginary shipexperienced in the course of the seminar!

In June this year, Britannia organised a claims seminar for itsTaiwanese Members at the Far Eastern Plaza Hotel in Taipei. The seminar was organised with the help of Chiang MarineServices, Britannia’s exclusive Correspondents in Taiwan andattracted over 100 representatives. Members’ staff were joinedby representatives from various government agencies andTaiwanese law firms.

Taiwan claims seminar


Below: risk management technical seminarwhich took place in Manila in June 2013.

Risk management – an update on the technical seminar programme

The programme of technical seminarscontinues with regular presentations in India,the Philippines and Taiwan in addition tovisits to other areas where Members sourcetheir crew. Safety culture and the humanelement are themes running throughout thepresentations, which strive to improve thestandard of crew competence and training.The case studies shown in the presentationsare based on the Managers’ experience ofhandling claims, and this enables us to raiseawareness of safety issues based on what cango wrong and communicate this informationto those at the sharp end. Learning frommistakes is a powerful message and our aimis to get the seafarers to participate at theseminars. Every crew member has a part toplay, whatever their individual experience,and each person can readily spot defects onboard the ship.

The condition survey programme allows the managers to review the quality of theentered tonnage and seek to ensure themaintenance of standards. It also enables the risk managers to spot trends and providehelp and support to the membership to helpMembers avoid potential claims and alsounwanted attention from Port State Controlinspectors. Trends associated with lapses inshipboard planned maintenance routineswere debated at these seminars, with best

practice recommendations and guidelinesdiscussed with the seafarers. In addition therewas a detailed review of various aspects ofcargo handling and stowage combined witha discussion on the recommended bestpractices relevant to different types of cargo.Both presentations provided an opportunityto encourage delegates to reflect on theirown safety culture and actively record andreport any defects as they go about theirdaily routines, with an aim to continuouslyimprove the Safety Management System(SMS) and ensure maintenance and cargoissues are raised at safety briefings and riskassessments.

The trends from the condition surveyprogramme and claims analysis feed throughto the root cause analysis work undertakenby the risk managers. The seminars providean opportunity to disseminate some of the lessons learned from such analysis.Unfortunately, the analysis of a number ofcollision claims handled by the Club showsthat the infringement of one or more of theInternational Regulations for PreventingCollisions at Sea (COLREGs) is the single mostcommon cause of collisions. A workshop wasconducted during the seminars using theexamples of cases where there had been alack of understanding of the COLREGs by theofficer of the watch and a failure to apply

them properly. The case studies, illustratingareas of navigation, were familiar to many in the room and the audience participationwas lively. The sessions were evenly matchedin terms of comments from the floor and thespeakers. Particular emphasis was placed ondiscussing possible human failings in thevarious scenarios and highlighting ways thebridge team could anticipate human errorsby situational awareness and team work. The presentations also explored safeguards,including the use of navigation audits andreviewing the quality and relevance of bridge resource training. Above all, despitethe advances in electronic assistance formariners on the bridge, everyone agreed that the officer of the watch and the bridgeteam should maintain situational awarenessat all times and must remember to look outof the window.

The seminar programme reinforces themessage that the best safeguard againstaccidents is a genuine safety culturethroughout the organisation with awarenessand constant vigilance by everyone in thecompany. The presentations and the ensuingdiscussions highlight ideas and ways eachindividual participant can positivelycontribute within their own organisation to continuously improve the safety culture, both on board and ashore.


The recent IMO symposium on the future of ship safety made a number of recommendations to theMaritime Safety Committee, including ways of encouraging a safety culture beyond simply enforcingcompliance with the various regulations. It also recommended a review of the existing safetyregulatory framework to ensure that it meets future challenges, including the use of new technologiesand the continued importance of the human element.

So, what is the picture at the attritional level –that is, claims below US$1 million?

In the Annual Report, it was noted that thenumber of cargo claims had fallen, and thisseems again to be the case in the first 5months of this policy year. However, yetagain, the overall cost of cargo claimsappears to be on the increase. Indeed, if oneremodels the figures to take account of theincreased deductibles already referred to, theincrease in cost is dramatic – around 40% byvalue. This increase will need to be studiedand, as ‘harder’ figures appear over the year,the possible causes identified. We will adviseMembers about our findings.

On a more positive note, both the numberand cost of attritional crew claims havereduced in the first 5 months (compared to the similar position in 2012). It will needmore time before it can be seen whether thecost of crew claims has peaked. If it has andthe number of claims continues to fall, this will be a very positive development.

After just 5 months of the 2013/14 policyyear, it is clear that claims levels haveremained stubbornly high. While the totalcost of all claims is only slightly lower than at the same point last year, in part this can be attributed to the effect of a number ofMembers having opted for higherdeductibles at the last renewal. Indeed, when the figures are adjusted for this change, the actual total cost of all claims has increased slightly.

It must be remembered, of course, that the 5-month point is still very early in a year’sdevelopment. 2008 produced a 5-monthtotal claims cost that was just over 10%higher than the 5-month figure in 2012 – but at the 12-month point was 22% lower. It is therefore difficult, if not impossible, topredict with absolute certainty how any yearwill develop based on the 5-month figure.The main reason for this difficulty is theextreme volatility in large claims – that is,claims that cost, or are estimated to cost,more than US$1 million. By number, they

represent a tiny percentage of total claims on the Association, but they often have asignificant impact on the total cost.

Currently, the 2013/14 policy year has 13‘large’ claims out of a total of 2,133 notifiedthus far. In other words, these claims accountfor just 0.6% of all claims, by number. Byvalue, however, they currently account foralmost exactly 50% of the total cost. So,ultimately, it will be the number and level ofthese high value claims that will determinethe total claims result for the year.

Of these 13 large claims, 8 are estimated tocost between US$1 and 2 million and 3 fall in the US$2–4 million range. Unusually, these contain a high proportion of cargoclaims – rather than the bias towardscollision, grounding, property damage andpollution that has been seen in previousyears. Of the 13 notifications, 9 involvealleged damage to cargo. This lends weightto the belief that the value of cargo claims isincreasing significantly.


The claims review published in the most recent Annual Report and Financial Statements noted that, by 20 February 2013, total incurred claims on the Association had reached the highest level everrecorded. It also noted the considerable increase in the average value of both cargo and crew claims –categories of claim which together represent approximately 57% of the Association’s total retainedclaims expenditure.

Claims review

The Association has put a considerableamount of effort into tackling crew mattersin its risk management programme –through seminars and its publication, HealthWatch. It would be heartening to think thatthis might now be having a positive effect.

It is also far too early to consider the possibleeffect of Pool claims on the policy year. Todate, the Club has notified the Pool of oneclaim that is likely to exceed the new Clubretention of US$9 million.

As Members will be aware from reports in themedia, the impact of certain Pool claims(from all Clubs) on previous years has beensignificant. In particular, the dramaticdeterioration in the estimates for the COSTACONCORDIA and RENA claims during the2012 policy year resulted in the InternationalGroup establishing a large casualty workinggroup to review the 20 most expensivecasualties involving wreck removal and,where appropriate, SCOPIC expenditure.

The purpose of the review was to identify key common features driving cost and also to identify areas of operational planningwhere improvements could be made. A questionnaire was created and key dataprovided by the relevant Clubs for review bythe working group. Six factors were identifiedwhich individually, or when combined, werebelieved to increase costs significantly.

While, of course, a matter of pure fortuity, thelocation of the casualty was found to be ofsignificance – both in terms of its proximityto heavy-lift and portable salvage equipmentand also due to the weather conditions likelyto be prevailing during any casualty response.

In general, the working group found thatappropriate and effective contractualarrangements were put in place to deal withcasualties and that wreck removal operationsfollowed a thorough tendering process. A clear preference on the part of Clubs tocontract on a ‘fixed price’ or ‘staged payment’basis was identified and attributed to anatural desire to ensure a fair allocation of

risk between the contractor and the Clubconcerned. The working group endorsed thisapproach. On occasion, however, it was notedthat contractors were only willing to work onthe basis of ‘daily rate’ contracts. The workinggroup recommended that the 2010 BIMCOwreck removal contract forms should beutilised whenever possible and that betteruse should be made of additional bonus/penalty provisions, in order to improve risk-sharing where unforeseen delays arose.

On the whole, the Club’s responses indicateda high degree of satisfaction with theperformance of both the contractors’personnel and the on-site Special CasualtyRepresentatives (SCRs). The working groupalso identified growing environmentalconcerns approaching almost zero tolerance.This frequently resulted in the need to removebunkers and other potential pollutants, oftenwithout any formal cost/benefit appraisal.Similarly the removal, recovery, storage anddestruction of containerised and otherproblematic cargo was seen as an area where,in certain circumstances, substantial increasedexposure to cost was likely to be seen.

The most significant driver of cost wasidentified as being unreasonable ordisproportionate orders being issued byauthorities overseeing removal operations.This has perhaps been most starklydemonstrated by the COSTA CONCORDIAcase and the well-publicised involvement by the local authorities in the removalmethodology.

Concerns were also raised by the workinggroup at the apparent interference by anumber of authorities in the attemptedtermination of SCOPIC. The working groupviews SCOPIC as a private funding agreement,which should not be of consequence orconcern to authorities who are, instead,charged with ensuring that removaloperations are properly conducted. Theworking group stressed that the funding ofSCOPIC operations is a strictly private matterbetween the Club concerned and thecontractors employed.


… the Association believes that a continual and increased focus on risk management – a focusthat works in practice and not just on paper – remains the way forward.

As a result of the review undertaken by theworking group, the International Group willbe reaching out to international shippingorganisations, as well as national andsupranational authorities, to ensure that theGroup’s concerns are fully articulated andunderstood. Furthermore, the Group will tryto ensure that key contacts are made withinthese organisations to enable the smoothhandling of future major casualties. Furtherwork is also planned to help identify themain reasons why authorities so often feelthe need to interfere in fundingarrangements.

In short, our ongoing analysis indicates thatthere are different drivers operating ondifferent types of claim and different levels of claim. However, not surprisingly, the driversbehind high value claims and Pool claims areclosely linked. While there is little optimismfor the future, the Association believes that a continual and increased focus on riskmanagement – a focus that works in practiceand not just on paper – remains the wayforward. There is little evidence to show that the claims environment will grow any less hostile for shipowners in theforeseeable future.

There are two main elements: first, the ever-increasing levels of contractual compensationwritten into standard collective bargainingagreements and, secondly, the apparentshortage of competent seafarers that istempting some owners to engage seafarerseven though they are not sufficiently fit.Unfortunately, the combination of these twoelements has made it very attractive formany seafarers who are not fully fit torecover compensation for permanentdisability, rather than returning to sea.

During the boom years of shipping, when the number of new ships being deliveredwas outstripping the availability of suitablytrained crews to man them, people lookedincreasingly to China to fill the gap. Indeed,some commentators predicted that Chinawould eventually overtake the Philippinesand India as the primary source of seafarers.Although the number of Chinese seafarershas not reached that level, there are signsthat more shipowners are indeed turning to this market.

Although it cannot be said that the level ofcrew claims in China has increased to theextent of other countries, there are indicationsthat the value of crew claims in China isincreasing, particularly following a recentchange in the law relating to the calculationof damages in personal injury claims.

Until relatively recently, foreign owners wereafforded some protection by limitationsimposed by the Chinese Supreme Court’s1992 Specific Provisions on compensation forloss of life and personal injury at sea involvingforeign interests (the 1992 provisions).

Amongst other things, the 1992 provisionscontained a limitation for personal injuryclaims of RMB800,000 per claimant (attoday’s rate of exchange, about US$130,600).

The Supreme Court has now stipulated thatpersonal injury claims shall be subject to theMaritime Code of the PRC and, where claimsdo not fall within the scope of the Code, theCourt’s interpretation of the application ofthe law for personal injury (known forconvenience as the 2003 JudicialInterpretation) will apply. The 2003 JudicialInterpretation came into force on 1 May 2004and applies to claims in tort and also claimsbased on employment.

The most important point to note is that the2003 judicial interpretation does not provideany cap on the amount of compensation thatis recoverable. On the contrary, it extends thescope of personal injury claims to include thefollowing heads of claim:

1) Medical expenses including treatmentfees, nursing costs, transportation andaccommodation.

2) Loss of income.

3) In case of disability, necessary livingexpenses incurred due to disability and lossof income, including disability compensation,necessary rehabilitation and nursing costs.

4) In case of death, funeral costs, living costsof persons who were dependent on thedeceased, death compensation.

5) Compensation to the family for mentaltrauma.


In previous issues of Britannia News, we have referred to evidence of a growing ‘compensation culture’, particularly in the Philippines. This has had the effect of increasing both the average and overall cost of crew claims. Recent changes in the method of calculating damages for personal injury claims in China signals that the cost of claims involving Chinese seafarers is also set to increase.

Crew claims in China

From this, it will be appreciated that, wherethere is any suggestion of the injury or deathbeing caused by the negligence of theshipowner, it will rarely be possible to limitcompensation to the contractual limit. Ourexperience is that, even in cases where thereis no apparent tortious liability, it is still verydifficult to limit compensation to thatprovided by the contract.

Despite the fact that the 2003 JudicialInterpretation remains silent on cappingpersonal injury claims for the moment, theremay not be a significant uplift whenquantifying compensation for damages forpersonal injury or death. This is because thecalculation of loss of income and/or livingexpenses is not based on the actual incomeof the seafarer during his service on boardthe vessel at the time of the incident; rather,at the moment, it is calculated for a period of20 years on the per capita disposable incomepublished by the government for the provincewhere the Court seizes the case. For example,in 2012, the average disposable income inShanghai was RMB40,188 per annum orabout US$6,540 (this is the highest in allChinese cities). Furthermore, if a deceasedseafarer is aged 60 or more, the deathcompensation calculation will be reduced byone year for each additional year over 60.

Another factor driving the increase in costs isthe need for foreign shipowners, employingChinese nationals and wishing to trade

internationally, to adopt collective bargainingagreements (CBAs) with terms that have beenapproved by the International TransportWorkers’ Federation (ITF) and employers. The most notable of these is the InternationalBargaining Forum (IBF) CBA. In the event ofdeath, the 2013 IBF CBA provides for apayment of US$93,154, plus $18,631 for eachdependent child under the age of 21 (up to a maximum of four children). For disability,the maximum compensation is US$155,257 –almost 20% higher than the amountsprovided in the 1992 Specific Provisions.

Furthermore, Chinese law requires thatseafarers are deployed through licensedmanning agents and the deployment will bepursuant to a contract of employment, whichis subject to Chinese labour law. While thosecontracts may incorporate the terms of theshipowner’s CBA, often they do not. Thisinconsistency can and does lead to disputesin the event that the seafarer considers he is entitled to disability compensation, or his next of kin to compensation for hisuntimely death.

There is also scope for the seaman to bring aclaim for compensation against the manningagent, as well as the shipowner. Provisions

introduced by the Chinese Ministry ofTransport require that manning agents,engaged in the employment of crew fordeployment of foreign flagged vessels,purchase personal accident insurance forseamen assigned overseas. Regrettably, theprovisions do not specify the amount ofinsurance that is required. Therefore, someagents may only arrange insurance withminimal levels of cover in order to complywith the provisions.

The Chinese economy has grownexponentially over the last 10 years. This has had the inevitable effect of increasingboth the cost and the standard of living,especially for those living in the cities. Thatlimitation amount has been under attack forsome time as being outdated and out of stepwith inflation. As noted above, limitation haseffectively now been abolished and will nolonger apply to the calculation ofcompensation for personal injury claims,except in cases of a marine casualty in whichthe owner has the ability to limit liability.


In the context of P&I insurance, risks arisingfrom the performance of so-called ‘specialistoperations’ are considered to be differentfrom the risks that arise from conventionalshipping activities. For this reason, all IGClubs have specific rules excluding cover forliabilities arising from specialist operations –exclusions that are mirrored in the IG PoolingAgreement.

In Britannia’s case, the relevant rule is Rule21(8). This Rule provides that there shall beno recovery from the Club in respect of anyclaim relating to liabilities, costs andexpenses of an Entered Ship which is:

‘Used for specialist operations including but notlimited to dredging, blasting, pile-driving, wellstimulation, cable or pipe-laying, construction,installation or maintenance work, coresampling, depositing of spoil, professional oilspill response or professional oil spill responsetraining or tank cleaning where the claim arisesout of or is incurred during those operations.

PROVIDED ALWAYS THAT:(i) special cover may be agreed between theMember and the Managers under Rule 7.

(ii) to the extent that the Member has cover inaccordance with these Rules the exclusion in Rule21(8) shall not apply to the liabilities, costs andexpenses incurred by a Member in respect of:

(a) loss of life, injury or illness of crew and otherpersonnel on board the Entered Ship;

(b) the wreck removal of the Entered Ship;

(c) oil pollution emanating from the EnteredShip or the threat thereof.

The following features of Rule 21(8) shouldbe noted:

1. The list of excluded specialist operations isnot exhaustive.

2. Cover is only excluded if the claim arisesout of or is incurred during the performanceof the specialist operation.

3. Not all P&I cover is excluded under Rule21(8). If Members’ terms of entry provide P&Icover for the risks referred to in paragraphs(a), (b) and (c) of proviso (ii), the Member willhave cover for those risks even if they areperforming specialist operations otherwiseexcluded by Rule 21(8).

4. Pursuant to Rule 7, special cover may beagreed which reinstates cover excludedunder Rule 21(8).

We now look at some of these features inmore detail.

What is a specialist operation?Many specialist operations reflect activitiescarried out by vessels working in the offshoreindustry. Rule 21(8) gives examples of someof the better known types of specialistoperation and is not intended to beexhaustive. This is mainly because theoffshore industry is constantly developingnew technologies and the vessel’s activitieshave to be evaluated according to theparticular circumstances of each case. Someexamples of common activities that may beconsidered to be specialist operations incertain circumstances are as follows:

• Diving and ROV (remotely operatedvehicle) operations:The test of whether this is a specialistoperation depends upon how the Member’svessel is being used. If the Member is carryingout the diving/ROV operations from thevessel using its own personnel andequipment, this would be considered aspecialist operation. If, however, theMember’s vessel is simply chartered out as aplatform from which the operations takeplace, leaving the engagement of divers andthe operation of the ROV to others (with theMember having no contractual obligation orliability for the divers/ROV), this would not bea specialist operation.

1 0 BRITANNIA NEWS OCTOBER 2013

Cover for specialist operations and towageOne of the fundamental features of mutual insurance is that all the participants in a mutual schemeshould face similar risks. If one participant is performing activities that are very different from theactivities of the other participants, it is unlikely that the risks will be similar.

• Well intervention/drilling operationsperformed by supply vessels:Well intervention/drilling operations arefrequently carried out by ordinary supplyvessels and crane barges and are consideredto be specialist operations. This is because itis not the type of vessel or craft used for theoperation that is relevant but the nature ofthe operation itself. Activities associated withdrilling such as stimulation and capping offare also considered to be specialist operations.

• Windmill installation:Liabilities arising from the operation ofwindmill installation vessels are covered inthe usual way subject to the specialistoperations exclusion. However, workundertaken by a vessel in actually installingthe windmill is considered to be an excludedspecialist operation.

•Anchor handling:Anchor handling operations that assist in thenavigation of another property, for exampleanother ship or a rig, are not considered to be specialist operations. Similarly, picking upa mooring line of, for example, a rig in adeveloped field and then repositioning theanchor is not a specialist operation. On theother hand, installing anchor wires and/oranchors in, for example, a field prior to arrivalof an FSPO is an excluded specialist operation.

When does the specialist operationsexclusion apply?As already mentioned, the exclusion in Rule21(8) applies only to the operation and notthe ship itself. In addition, a claim will only beexcluded if it arises out of or is incurredduring the performance of the specialistoperation. So, for example, liabilities arising

from the activities of a dredging vessel willbe covered in the normal way but subject tothe specialist operations exclusion. Therefore,if a liability arises while a dredging vessel issteaming to or from the place where thedredging will be performed, that would notbe considered a specialist operation andnormal P&I cover would apply. However,liabilities arising from the dredging operationitself, e.g. damage caused to an underwaterinstallation, will be excluded under thespecialist operations exclusion.

Furthermore, even if the performance of thespecialist operation has started, the exclusionwill only apply if the claim arises out of thespecialist nature of the operation. Therefore,if a vessel that was involved in installationwork at an offshore site suffered an enginebreakdown for reasons that were notconnected with that work and, consequently,lost power, drifted and came into contact witha third party’s property, liability for damage tothat property would not be excluded becausethe claim did not arise out of the nature ofthe specialist operation. On the other hand,the exclusion would apply if a claim arosefrom the fact that the vessel had damaged athird party’s property due to the way inwhich it performed the installation work.

Special cover for specialist operationsand contract termsUnder Rule 7 the Managers may agree toinsure ships on special terms regardingmembership and contribution and, withinthe scope of the Rules, regarding the natureand extent of risks covered. It is, therefore,possible for Members to buy a reinstatementof cover for liabilities arising from theperformance of specialist operations that

would otherwise be excluded under Rule21(8). It should, however, be noted that suchreinstatement of cover would not provideblanket cover for claims arising from thespecialist operations. Any claim would stillhave to be covered under one of the Rulesand all other normal cover exclusions wouldapply. For example, claims arising fromimprudent trading would still be excludeddespite cover being reinstated to coverspecialist operations. Alternatively, if aMember’s P&I cover excludes, for example,crew death and personal injury claims, suchclaims will still be excluded even if cover isreinstated to respond to claims that wouldotherwise be excluded under the specialistoperations exclusion.

Ordinarily, most specialist operations,particularly in the offshore industry, will beperformed pursuant to a written contract.Therefore it should be noted that, as withnormal P&I cover, liabilities that the Memberhas accepted under a contract to carry outspecialist operations will be excluded if theyexpose the Member to liabilities that itotherwise would not have in law or theliabilities are not apportioned on appropriate‘knock for knock’ terms. Knock for knockterms are those under which each party hasaccepted similar responsibility for, andindemnifies the other party against, claims in respect of its own and/or its contractor’sand/or their subcontractor’s and/or otherthird party’s property or personnel regardlessof fault. If the Member wishes to be coveredfor such ‘onerous’ contracts, they will need to buy cover for liabilities arising from thespecific contract as well as a reinstatement of cover for the otherwise excluded specialist operations.

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When entering into an offshore contract,Members should always pay close attentionto references in the liability and/or indemnityprovisions to such items as ‘property’, the‘contract works’ and the identity of theparties. Such terms should always becarefully defined in the contract. So, forexample, ‘property’ may need to be definedby reference to the specific items that formpart of the property of the project includingthose items on which, or in the vicinity ofwhich, the Member is carrying out work. Itshould also be borne in mind that the otherparty to the contract may not own theproperty that the vessel is working on or thatit is in close proximity to.

Any knock for knock provisions shouldinclude a term that both parties indemnifythe other for claims arising in respect ofdamage to third party property regardless offault. This is because claims could otherwisebe brought by a third party against theMember and, in the absence of a specificindemnity clause, the Member may not beable to make a recovery from the other partyto the contract.

Members should always ensure that they donot waive any rights of limitation in suchcontracts.

Towage by an entered shipTowing is not ordinarily considered to be aspecialist operation. However, there areparticular considerations relating to towagecontracts and, for this reason, towing is dealtwith in a specific rule, namely Rule 19(14)(B).This Rule provides that cover will be providedfor liabilities, costs, and expenses which aMember may incur arising out of the towageby their ship of any ship or object, providedthat the ship is specially designed orconverted for the purpose of towage and thetowage contract has either been approvedby the Managers or the Member has agreedto pay an additional premium if the contractis not approved. Acceptable forms of towagecontract include those on UK, Netherlandsand Scandinavian standard towage conditionsand BIMCO’s Towcon and Towhire forms.

The towage contract should include a‘Himalaya’ clause. This is a clause stating thatthe servant, agent or independent contractor(i.e. the tug owner, master etc.) employed bythe contracting party (i.e. the owner of thetow) will be entitled to the protection andbenefit of all the rights, limitations anddefences available to the owner of the towunder the towage contract. The clause shouldalso provide that the contracting party iscontracting not only on its own behalf but as agent or trustee for the contractor.

Final commentsWhenever a question arises about the natureof an operation, or the suitability of a contractin the context of a specialist operation, it isessential that the Club is contacted and ouradvice sought. If an operation is deemed tobe ‘specialist’ in nature, or the terms of anyrelevant contract are not considered topreserve an appropriate balance of liabilitiesbetween the parties, additional cover can be arranged.

DumpingconventionPollution from ships usuallyoccurs in one of two ways –either as the result of a marineaccident (such as a collision orfire) or following operationaldischarges (such asunintentionally duringbunkering). Internationalconventions such as CLC andthe Bunkers Convention havebeen introduced to deal withthe consequences of botheventualities and the potentialliabilities of those responsible.Occasionally, however, a casualtymay require the intentionaldisposal of property at sea – inwhich case, different legalprinciples will apply.

Members will be aware of the provisions ofMARPOL (the International Convention forthe Prevention of Pollution from Ships 1973,and subsequent protocols thereto), whichincludes regulations aimed at preventing andminimising pollution from ships – bothaccidental pollution and that from routineoperations. Indeed, the Association hasrecently published a number of articlesrelating to the convention – in particular, therevised Annex V (dealing with garbage andcargo residue disposal).

On the other hand, the 1972 InternationalConvention on the Prevention of MarinePollution by Dumping of Wastes and OtherMatter (commonly known as the LondonDumping Convention (LDC)), and its 1996Protocol, may be much less familiar. Whilstthere are some similarities between the twoconventions, they are actually designed todeal with two different aspects of pollutionfrom ships: MARPOL deals primarily withpollution prevention and deliberatedischarges as part of the normal operation ofthe ship (such as disposing of waste andgarbage), whilst LDC deals with deliberate

dumping that is not incidental to theoperation of the ship and, indeed, todumping of the ship itself.

The purpose of this article, therefore, is tofocus on the provisions of the LDC, providingan overview of the LDC and the 1996Protocol, before discussing its applicationwith reference to a recent case dealt with bythe Association.

Basic provisions of the London DumpingConvention 1972The LDC came into force in 1975 and was oneof the first international conventions aimedat protecting the marine environment fromhuman activities and, in particular, frompollution caused by the dumping of waste atsea. At the time of writing, the LDC has beenratified by 87 states.

In general, the LDC operates by obligingcontracting states to take steps to preventpollution by giving effect to various controlsset out in the convention. Waste iscategorised into a Black List, a Grey List and afinal category for all other types of waste.

Where the LDC terms apply, generally BlackList waste must not be dumped, Grey Listwaste may be dumped if a contracting stategrants a special permit and all other wastemay be dumped providing a general permitis obtained from the contracting state.

The criteria governing the issue of specialand general permits is set out in the LDCterms. These include:

• the characteristics and composition of thewaste;

• the characteristics of the proposed site;

• the method of dumping;

• general considerations, such as the possibleeffects on amenities, marine life and otherusers of the sea; and

• the practical availability of alternative land-based disposal.

The LDC applies to the dumping of ‘wasteand other matter that is liable to create


©David Sims/Greenpeace


hazards to human health, to harm livingresources and marine life, to damage amenitiesor to interfere with other legitimate uses ofthe sea’.

Dumping only includes the deliberatedisposal of waste or other matter, and mustspecifically take place from ‘vessels, aircraft,platforms or other man-made structures’. The LDC also applies to the deliberatedisposal of vessels, aircraft, platforms or otherman-made structures themselves.

The LDC applies to any vessel or aircraft, inany marine waters other than internal watersof a state and to any material or substance ofany kind. The substance, therefore, is lessrelevant than the activity. If a substance isbeing deliberately disposed of at sea, it couldbe within the scope of the LDC.

The 1996 Protocol to the LondonDumping ConventionIn 1996, a Protocol to the LDC was agreed inorder to bring the convention more in linewith modern views on pollution anddumping. The 1996 Protocol entered intoforce on 24 March 2006 and is currently inforce in 42 states.

Under the Protocol, all dumping is prohibited,except for certain wastes on the so-called‘reverse list’ – which may be acceptable. The reverse list is restricted to only sevenitems, which include ‘vessels and platforms’, ‘inert, inorganic geological material’, ‘organicmaterial of natural origin’, and ‘bulky itemsprimarily comprising iron, steel, concrete andsimilarly un-harmful materials’.

If a material is on the reverse list, furthergeneral provisos apply, as follows:

i. Materials capable of creating floating debrisor otherwise polluting the marineenvironment are to be removed to themaximum extent possible;

ii. Materials dumped must pose no seriousobstacle to fishing or navigation;

iii. Materials dumped must contain nothingmore than de minimis levels of radioactivity.

Any dumping requires a permit from therelevant contracting state. When consideringapplications for permits, contracting statesmust take into account a number of provisionswhich are set out in Annex 2 to the Protocol.Every effort must be made to avoid dumpingin favour of environmentally preferablealternatives.

If a material qualifies to be considered fordumping, then the Protocol requires a furtherassessment of the waste to reduce anypotential requirement for dumping. Detailedcriteria are contained in Annex 2 of theProtocol and require:

• a waste prevention audit;

• consideration of alternative wastemanagement options;

• consideration of the chemical, physical andbiological properties of the material;

• compliance with an ‘action list’ imposed bythe contracting state to evaluate particularsubstances;

• consideration of dump site selection;

• monitoring to ensure that permit conditionsare met (in particular, relating to theenvironment and human health); and

• compliance with stipulations of the permit itself.

It is also worth noting a requirement in theProtocol that contracting states take steps toprevent pollution arising from incineration atsea. (Incineration is defined in the Protocol.)

Accident, force majeure and emergencyThe LDC and the Protocol both provide forsimilar circumstances where their terms will not apply:

(i) Any entirely accidental disposal of material.

Dumping is defined in both conventions asbeing a ‘deliberate’ disposal.

(ii) Force majeure events, due to either (a) stressof weather or (b) where there is a danger tohuman life or a real threat to vessels, platforms,etc. Furthermore, the provisions of the LDC andits Protocol will not apply ‘if dumping appears tobe the only way of averting the threat and ifthere is every probability that the damageconsequent upon such dumping will be lessthan would otherwise occur’. Dumping in suchsituations must be reported forthwith to thecontracting state.

(iii) A permit may be issued by a contractingstate if there is an emergency posing anunacceptable threat to human health, safety orthe marine environment and there is no otherfeasible solution. Granting a permit requiresconsultation with all countries that are likely tobe affected.

When considering the three exceptions above, it would seem that the important factors to takeinto account should be the time available (toconsider the possible options) and the level ofcontrol that can be exercised by the dumpingparty. For example, in (i), it would seem that there must be neither time nor any possibility of controlling the disposal if it is to beconsidered ‘accidental’ rather than ‘deliberate’.For (ii), it would seem that there should be adegree of control to enable consideration ofavailable options, but insufficient time to consult contracting states. Finally, for (iii) thiswould seem to require that some control can be exercised to permit sufficient time for bothconsultation and application for a permit.

©David Sims/Greenpeace


Application of the LDC and 1996 Protocolin practiceIf the dumping of any material is arranged in advance and under permit, the applicationof either the LDC or 1996 Protocol should be a relatively straightforward matter (inlegal terms).

In this context, however, it is important thatthere is a clear distinction from dumping ofwaste or material under MARPOL. The LDCconvention specifically excludes the dumpingof waste that is ‘incidental to, or derived fromthe normal operations of vessels… and theirequipment’ (i.e. dumping/disposal coveredunder MARPOL). So, for example, if a cargobecomes distressed and needs to bedumped at sea, this is not incidental to avessel’s operation and would be within thescope of the LDC. If, however, a shipdischarges an oily mixture of the kindproduced by the operation of the ship, thiswould fall under MARPOL.

It is in the circumstances of maritimecasualties that some interesting questionsarise. In purely accidental cases, where cargois lost without any control of the vessel, theterms of the conventions will not apply (seeexception (i) referred to above). Likewise if,for example, a ship becomes a CTL and nosalvage assistance is given such that shesinks with her cargo, this should not be‘deliberate’ dumping. The same would be trueif salvage assistance was provided, but thesalvor was unable to prevent the vessel fromsinking with, or without, her cargo.

A recent case handled by the Association alsoprovides an interesting example of the issuesarising under the convention. A bulk carrierwith a cargo of grain dragged her anchor andbeached just outside a port in Chile. Chile is a1996 Protocol state. Over time, the ship’scondition deteriorated and she was declareda CTL. The ship had significant bunkers onboard, meaning there was a risk of pollution.There was no facility to scrap the ship nearby.

Salvors and experts advised that refloatingmight be possible but her condition waslikely to be so poor that she could not betowed any distance. In other words, there wasa serious risk of her sinking and becoming ahazard to navigation.

In consultation with the authorities, Members made arrangements for the ship to be refloated and subsequently dumped in accordance with the 1996 Protocol terms,providing the cargo, loose equipment,bunkers and other polluting substances were successfully removed to the greatestextent possible.

It was perhaps helpful that the waters off the port fell away to a great depth relativelyquickly. Within only a few kilometres of thecoast, the vessel could be dumped in deepwater, such that it could be certain she wouldpresent no future hazard to navigation. Thepermit specifically stated that the dumpinghad to be carried out within a short timeperiod to minimise the risk of her sinking. The permit allowed just sufficient time toassess the vessel’s condition and remove any remaining loose equipment (includingthat of salvors which remained on boardafter refloating).

The case of the BRENT SPAR incident in 1995is also worth considering, as it illustrates thedifference between the LDC and the 1996Protocol (indeed, the Protocol was specificallyintroduced to remedy this problem). TheBRENT SPARwas a decommissioned oilplatform whose owners had obtainedpermission to dispose of the platform at seaunder the terms of the LDC, due to a lack ofother practical alternative means of disposal.Ultimately, the decision to dump at sea hadto be abandoned due to a public outcryfollowing a campaign by Greenpeace, whichargued that the platform should be disposedof onshore. It was shown to be possible todispose of the platform ashore, and theplatform was eventually towed to Norway

where, after cleaning, it was used as thefoundation for a quayside extension. Under the 1996 Protocol it would thereforebe impossible to obtain a permit for disposalat sea where a practical shore-basedalternative existed.

Another case involving the Association wasthe well-reported incident of the NEWCARISSA, which grounded off the Oregoncoast in 1999 (notably after the 1996 Protocolwas created, but before it came into force).The NEW CARISSAwas in ballast, but hadsignificant bunkers on board, a proportion ofwhich had been spilled and had causedpollution damage. The vessel initially failed torefloat and, after the authorities attempted toburn the bunkers using explosives, the vesselbroke in two (though not as a result of theuse of explosives). Another attempt was madeto burn oil in the forward half of the ship,which was partially successful, but somebunker oil remained in the larger bow sectionof the ship. The decision was therefore madeto tow the bow section out to sea and sink itin deep water. The expectation was that thelow temperature at the great depth wouldmake the bunker oil congeal, preventing orminimising further leakage, which wouldcreate less pollution damage than any otheravailable option and dumping was, therefore,permitted under LDC.

The 1996 Protocol is now in force incontracting states and is much morerestrictive than LDC in cases where there arealternative methods of disposal and there issome control over ship and/or cargo.However, it is still possible that a contractingstate may permit dumping of a ship and fuelor polluting cargo in the event that suchaction is deemed likely to reduce the impactof coastal pollution that would result if thedumping was not permitted.


For example, New York State recently passedballast water regulations that are generallyconsidered to be the most stringent in NorthAmerica. The regulations have also been atopic of considerable controversy since thetechnology necessary to comply with theregulations does not yet exist.

While the numerous regulations issued bothby the federal and state governments areoften confusing, they can include significantfines and penalties if not closely adhered to.One of the more troublesome aspects of USlaw is that each state can set their own oilspill and environmental regulations andapply them more stringently than the FederalGovernment, as has happened in New York.This is where the advice of an experiencedClub Correspondent can prove invaluable.

Lamorte Burns & Co., Inc. has been providingadjusting and counselling services to themaritime industry – and to the Britannia P&IClub – since our humble beginnings in 1938as Monroe & Ard. Over the last 75 years, wehave grown from a small firm with one officein downtown Manhattan into a companyproviding full maritime regulatory compliance,consulting and claims adjusting servicesfrom nine offices. Our offices are located atmajor ports around the US – New York, New Jersey, Port Everglades/Miami, New

Orleans, Houston, Long Beach, Oakland,Seattle and Portland. We have also expandedour focus to meet the changing needs of theindustry, from P&I to hull & machinery claimsas well as US Federal & State WorkersCompensation Claims.

Lamorte Burns has assisted BritanniaMembers in a number of complex cases inthe last few years. In one recent example, ourLong Beach office negotiated with auniversity hospital to save the Club morethan $500,000 in medical charges after twoseamen were severely injured falling into thecargo hold while performing ship cleaningwithout wearing harnesses.

In addition to the numerous legal andregulatory issues faced by shipowners in theUS, there are also the natural disasters thatrequire the assistance of local Correspondents.Hurricane Sandy was an historic storm thatdevastated huge areas of the north easterncoast of the US in October 2012. There wereflooded and closed terminals in New Yorkand New Jersey, ships were delayed enteringand leaving ports and there was significantdamage to cargo on board – particularly tocontainerised cargo carried on deck. In manycases, the ports, agents and local authoritieswere overwhelmed by the size and scope ofthe storm which meant that Members were

facing an emergency situation without thefull assistance of their local agents, the ports,US Coast Guard, US Customs and local police.Lamorte Burns stepped in to assist where wecould and provide Members with optionsand alternatives wherever possible, includingworking with other terminals on theEast/Gulf coasts that could accommodate thetraffic. Again, we were able to do this as aresult of our disaster planning, which workedseamlessly. While many companies in thearea were closed and/or cut off fromcommunications, our staff was up andrunning, even when the Connecticut andNew Jersey offices were closed for two daysat the height of the storm. Our informationtechnology (for all our offices) is secured off-site to prevent any catastrophic loss andcan be remotely accessed by our staff, whileat the same time our security protocolsprevent any unauthorised use. The stormcaused billions of dollars of damage to cargoand disrupted port operations for weeks. Theeconomic effects of the storm are still beingcalculated and assessed almost a year later.According to the International Union ofMarine Insurance (IUMI) the storm cost theglobal marine insurance marketapproximately US$3 billion. When disasterstrikes, the importance of good, localrepresentatives and correspondents cannotbe over-exaggerated.

Letter from Lamorte Burns, Britannia’s Correspondent in the US

The maritime industry is changing rapidly with new regulations and requirements being placedon shipowners, charterers and underwriters all the time. For better or worse, the US has been atthe forefront of new security, shipping and environmental regulations over the past few years,particularly those relating to cargo discharge, port/vessel security, oil spills, carbon emissions andballast water treatment.

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Lamorte Burns prides itself on the quality ofits staff around the US. In New York and onthe east coast of the US, P&I matters arehandled from their headquarters in Wilton,Connecticut. Harold Halpin, the President and CEO, has been working with Britanniaand shipowners from around the world formany years. Charles Johnson and AdamIsherwood are also based in the Wilton office. Charles is a Vice President of LamorteBurns and an attorney with 20 years ofexperience, both for the US Government andfor private law firms. Adam, who joinedLamorte Burns in 2012, is a graduate ofMassachusetts Maritime Academy and hasshoreside operations experience. Hal Halpin,Executive Vice President of the company,grew up inside the organisation and startedworking full-time for the company in 1993.Hal is responsible for the day to day businessoperations.

In the New Orleans office, David Genevayjoined Lamorte Burns in 1999 havingpreviously worked with Lykes Lines and thenStolt. Bob Hanson in the Houston officebegan his career with Liberty Mutual and hasbeen with the company for more than 25years. David and Bob both specialise in allaspects of P&I work such as cargo, personalinjury, defence, pollution and collisions.

On the west coast, P&I matters are handledmostly by Wendy Wang who is based in theLong Beach office. Wendy is a Vice Presidentof the company and joined almost 30 yearsago after completing a Masters degree fromSUNY Maritime College at Fort Schuyler.

Lamorte Burns values the relationship that ithas enjoyed with Britannia for the past 75years and looks forward to working togetherfor many years to come.

Satellite image ©NASA

1 Harold Halpin 2 Adam Isherwood (left) and Charles Johnson 3 Hal Halpin 4 Bob Hanson 5 Wendy Wang1

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5

IntroductionIn the recent decision of Kuwait Rocks Co v.AMN Bulkcarriers Inc (THE ASTRA) [2013]EWHC 865 (Comm), Mr Justice Flaux held, in an arbitration appeal to the CommercialCourt, that the obligation to pay hire on timein clause 5 of NYPE was a ‘condition of thecontract’, any breach of which gives theshipowner a right to terminate the charterand claim damages for loss of future hire.

This article examines Flaux J’s reasoning,considers whether it justifies his decision, andconcludes that the market still awaits anauthoritative resolution of this long-standingquestion. While THE ASTRAwill no doubtimprove the bargaining position of ownerswhen times are tough, both owners andcharterers alike should be cautious beforeusing it as a basis for action until a highercourt concurs with Flaux J.

FactsThe Appellant charterers hired the vesselfrom her disponent owners for a period offive years. The charterparty, on an amendedNYPE 1946 form, was dated 6 October 2008,and from the outset the rate (US$26,800 perday) was above market. Charterers soonattempted to negotiate the rate down,warned that they might have to declarebankruptcy if no reduction was forthcomingand ultimately defaulted.

There followed a period of distress which ledto negotiations, the agreement of addendadesigned to accommodate Charterers’situation, but finally to withdrawal andtermination by Owners in August 2010following service of an anti-technicalitynotice (required by rider clause 31 of thisparticular amended NYPE charterparty).

Approximately one month later, Ownersmitigated their loss by concluding asubstitute fixture for the balance of thecharter period, but the rate under thesubstitute fixture was only US$17,500 perday. With more than three years of the

original charter period remaining, Ownerswere facing a very substantial loss of hire.

Basic principlesWhen a shipowner terminates a time charterfollowing a breach of contract by his chartererin circumstances where the charterparty giveshim an express right to do so, he will alsonormally be entitled to whatever damageshe has suffered as a result of his charterer’sbreach. However, it does not necessarilyfollow that he is entitled to recover damagescompensating him for his loss of future hirefollowing termination; the charterparty (and his right to hire) came to an end as aresult of his decision to withdraw, not thecharterer’s breach.

In order to recover his loss of profit followingtermination, the shipowner must go furtherand show that the charterer either breachedan important type of term, a ‘condition’, orthat the charterer breached a less importanttype of term, an ‘intermediate’ or ‘innominate’term, but in a serious, or ‘repudiatory’, manner.It is only if the shipowner exercises his rightto terminate the charterparty in thosecircumstances that the law provides theshipowner with a right to claim damages forloss of future hire following withdrawal.Broadly speaking, that is because thecommon law will then regard the charterer’sbreach as having itself struck a life-threatening blow to the contract, entitlingthe owner to place financial responsibility forthe end of the charterparty (i.e. his future lossof hire) on the charterer. There is no suchremedy where the charterer has breached aterm in the charterparty that is a mere‘warranty’ or if his breach of an intermediateterm is non-repudiatory.

In general, unless the parties have expresslyagreed otherwise, a term will be a conditionif each and every breach of it should betreated as ‘going to the root of the contract’,and an intermediate term if non-seriousbreaches of it should not be considered tohave that effect.

It will now be clear that the question raised inTHE ASTRA is very important: if the shipowner’sright of withdrawal is accompanied by a claimfor damages for loss of future hire even inrelation to minor breaches, it becomes apowerful weapon indeed. If, alternatively, hehas no right to such damages until thecharterer’s breach is serious, one would expectthe right of withdrawal to be used morecautiously, being a right that, in the absence ofa repudiatory breach by the charterer, achievesrelease from the charterparty’s obligationsonly at the expense of its future benefits.

Decision of the TribunalIn order to recover their very significant lossof hire following early termination, Owners inTHE ASTRA therefore had to establish either abreach of condition or a repudiatory breachof an intermediate term.

The Tribunal, despite being attracted to theproposition that the obligation to pay hireunder clause 5 was a condition, concludedthat English law was not to that effect.Owners nevertheless succeeded in theirclaim for damages for loss of future hirebecause the Tribunal was satisfied that, evenif the obligation to pay hire on time was onlyan intermediate term, Charterers’ breach,considered in light of the surroundingcircumstances, amounted to a repudiation.

Decision of Flaux JCharterers appealed the Tribunal’s decisionon the repudiation point. The condition pointwas raised by Owners as an alternative basisfor upholding the Tribunal’s award.

After a detailed examination of the case law,the judge gave four essential reasons foragreeing with Owners that there had been abreach of condition.

First, clause 5 provides a right of withdrawalwhenever it is breached. This was a ‘strongindication that it was intended that failure to payhire promptly would go to the root of the contractand thus that the provision was a condition’.


THE ASTRA: Is the obligation to pay hire on timeunder clause 5 of NYPE a condition?Kuwait Rocks Co v. AMN Bulkcarriers Inc (THE ASTRA) [2013] EWHC 865 (Comm)We are very grateful to James Shirley of Stone Chambers for a critical analysis of this important case.

Second, time is normally considered of theessence in a commercial contract requiringsomething to be done by a certain time.

Third, certainty in commercial transactions isof considerable importance to businessmen:‘a ‘wait and see’ approach to breach ofcharterparty is inimical to certainty’.

Fourth, there was obiter judicial support inthe authorities for the view that theobligation in question was a condition.

Notably, Flaux J rejected the view put forwardin the leading textbook, Time Charters, 6th Ed,that the clause 5 obligation is an intermediateterm, albeit one that has been given onecharacteristic of a condition, namely the rightto terminate for any breach (see furthercomment below).

Each of the judge’s reasons will be consideredin turn.

1 Express right of withdrawalWhile it is true that clause 5 provides forwithdrawal on any breach by non-payment ofhire, and therefore does not tie terminationto any analysis of the seriousness of breach, itis submitted that Flaux J was too dismissive ofthe argument that clause 5 merely possessesone of the characteristics of a condition.

One of the main authorities on which Flaux Jrelied in saying that the right of withdrawalwas a strong indication that any breach ofthe obligation to pay hire on time should beconsidered to go to the root of the contractwas the judgment of Moore-Bick LJ in StoczniaGdanska v. Gearbulk Holdings [2009] 1 Lloyd’sRep 461, but it is arguable that Gearbulk doesnot support such a view. In fact, Moore-BickLJ’s judgment might be thought to illustrateprecisely why Flaux J ought not to have foundin favour of Owners on the condition point.

Gearbulkwas concerned with a shipbuildingcontract that provided for various differentremedies, responding to breaches of various

types. Relatively minor delay and inefficiencyled to damages only, with serious delay orinefficiency required before the buyers hadthe right to terminate. The court had todecide whether, in addition to this right toterminate, the buyers had a right to damagesfor loss of bargain.

Although Moore-Bick LJ held that there was aright to such damages, an important factor inhis decision was arguably that the right toterminate was only provided in respect ofserious delay, the kind of delay that wouldperhaps have amounted to a repudiatorybreach of an intermediate term in any event.By contrast, clause 5 of NYPE entitlestermination on any failure to pay hire on time.

Flaux J recognised that Moore-Bick LJ did notendorse a blanket rule according to which allterms providing a right of termination forbreach were conditions, but if that is right,then surely a prime candidate for the sort ofclause that, despite providing for terminationin case of breach, is not a condition, is aclause that provides that right of terminationeven in relation to non-serious breaches.

Flaux J’s answer would presumably be that itis this very fact about clause 5 that suggeststhat the obligation in question is a condition,but it is suggested that, if anything, Moore-Bick LJ’s judgment points to a different, morepersuasive answer, namely that suggested bythe authors of Time Charters.

2 Time of the essenceIn support of his point that time is normallyconsidered of the essence in a commercialcontract requiring something to be done bya certain time, Flaux J’s main reliance was onthe decision of the House of Lords in BungeCorp v. Tradax Export SA [1981] 1 WLR 711.

Although certain statements made by theirLordships in Bunge support Flaux J’s verywide statement of the law on time clauses incommercial contracts (i.e. that time isnormally considered of the essence in a

commercial contract), it is suggested thatBunge is better understood as supporting anarrower principle.

In Bunge, the court decided that the buyers’obligation to give a timely 15-day notice ofprobable readiness of a vessel under a GAFTAFOB contract was a condition. Since the givingof the notice was necessary before the sellerscould nominate a load port, they might havefaced difficulties if the obligation to serve thenotice on time was merely an intermediateterm: the buyers might in practice have beenable to delay giving notice for so long thatthe sellers (never quite sure that they couldsafely terminate for repudiatory breach) nolonger had time left to perform their ownobligations once notice was actually given.

By contrast, payment of hire under a timecharter is not necessarily a conditionprecedent to the shipowner’s ability toperform his side of the bargain and it issuggested that it is actually far from clearthat a court should ‘normally’ regard termsproviding for something to be done by acertain time to be conditions rather thanintermediate terms or warranties. Indeed,there are a great many obligations incommercial or mercantile contracts thatenvisage something being done by aparticular time but which are not conditions.

3 Commercial certaintyIt is true that certainty is important tobusinessmen, but on its own that does nottake us very far: the law often consists of awrestling match between certainty and othervalues.

Whether the result in THE ASTRA reflected thecorrect balance may be doubted. As counselfor Charterers is reported by Flaux J to haveargued in THE ASTRA:

‘in a rising market the charterers will lose outthrough being deprived of the vessel, in afalling market the only situation in which theowners would wish to withdraw the vessel



would be if they were fed up with persistentlate payment by the charterers, but thatwould amount to repudiatory breach, whichwould entitle the owners to claim damages.In those circumstances, there was no need tohold that clause 5 was a condition, breach ofwhich would give rise to a right to claimdamages independently of any repudiation.’

4 Support in the authoritiesSome of the main authorities relied on byFlaux J have already been considered.However, it is worth recording that, as Flaux Jacknowledged, the authorities also containjudicial opposition of various kinds to theproposition that the obligation to pay hire ontime in clause 5 amounts to a condition. Mostimportantly, in The Brimnes [1972] 2 Lloyd’sRep 465, Brandon J decided that theobligation to pay hire on time in clause 5 wasnot a condition and Flaux J expresslyrecognised that he ought to follow Brandon Junless The Brimnes could be distinguished, orwas wrongly decided.

The fact that there was no anti-technicalityclause on the facts before Brandon Jpersuaded Flaux J to distinguish the earlierdecision. In any case, it will by now be clearthat Flaux J did indeed conclude that thecondition point was wrongly decided in TheBrimnes, taking the view that Brandon J’sdecision could not be reconciled withdecisions of the House of Lords, and wasbased on a subsequently discrediteddecision of the Court of Appeal.

Those on both sides of the debate probablyhave to accept that there is uncertainty onthe authorities. Although Brandon J’sdecision in The Brimnes is on point, it is hardto be too critical of Flaux J’s view that itmight not represent the current state ofEnglish law.

Anti-technicality clausesWhile Flaux J hesitated before concludingthat a failure to comply with the paymentobligation in clause 5 would alwaysamount to a breach of condition, thejudge apparently had no such hesitationin relation to the position followingservice of a contractually-required anti-technicality notice: clause 31 combinedwith clause 5 to confer condition status onthe obligation to pay hire in a timelyfashion.

Arguably, the presence of the anti-technicality clause did improve Owners’case because it meant that the right toterminate was unavailable for minorbreaches, i.e. those remedied within thegrace period. It was therefore easier forOwners to argue that any breaches inrespect of which the right to terminatewas available would go to the root of thecontract.

However, against that it might be said thatclause 31 provided no answer to the,arguably crucial, question of whether theparties intended Owners to have a claimfor damages for loss of future hirefollowing termination. Perhaps clause 31did no more and no less than to giveCharterers a period of grace within whichto avoid withdrawal. The argument that italso provided a period of grace withinwhich to avoid liability for a claim fordamages for loss of future hire mightsimply beg the question with which westarted: was failure to pay on time abreach of condition?

ConclusionFlaux J’s decision in THE ASTRA is one of themost interesting and important charterpartydecisions of recent years, and no doubt oneof the most controversial.

This article has attempted to demonstratethat there is room to question the reasoningsupporting the judge’s conclusion on thecondition point. Given that Flaux J’s decisionon that issue was also not essential to theresult of the appeal, and in light of the earlier decision of Brandon J in The Brimnes, it is suggested that arbitrators might bepersuaded not to follow THE ASTRA and thatthe point in issue remains in need ofauthoritative determination.

For essentially the same reasons, it issuggested that only a brave shipowner wouldrely on Flaux J’s decision as a guarantee thatdamages for loss of future hire will beavailable following termination in theabsence of a repudiatory breach. Until thepoint reaches appellate level, and possiblythe Supreme Court, it is suggested that theissue of whether the obligation to pay hireon time under clause 5 of NYPE is a conditionwill remain as controversial as ever.

An extended version of this article isavailable online at:www.stonechambers.com/barristers/james-shirley.asp.

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NEWS Issue number 45 October 2013 - Britannia...18 THE ASTRA:Is the obligation to pay hire on time...

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