ACCIDENTS AND OPERATIONAL RISKS- OWNERS AND

CHARTERERS LIABILITIES

Capt. Govind Kumar GautamCEO- Pacific World Shipping Pte Ltd

19/11/2014

Definition of Risk & Accident• Risk- “Risk is nothing but potential of losing something of VALUE in any

PROPOSITION”

• Accident- “An accident is nothing but a loss of something valuable which is an incidental and unplanned event or circumstance, often with lack of intention or necessity due to factors mainly beyond our control which could have been avoided or prevented had circumstances leading up to the accident been recognized, and acted upon, prior to its occurrence.”

• Risks and accidents – Is not an act in itself rather they are hidden factor of any venture/ Proposition.

NATURE OF SHIPPING• Here we shall focus on underlying venture or proposition-

only “ SHIPPING”

• SHIPPING- Shipping is nothing but synonyms of “ SAMASYA” i.e. PROBLEM (Problem is something which has already occurred and underlying causes could be be failure of mitigation of one or multiple of the risks varying from small extent to large extent)

• Anyone who is exposed to SHIPPING, he is exposed to PROBLEMS and only PROBLEMS and it is hard fact of life but in my personal capacity I feel at least so.

NATURE OF SHIPPING• Shipping professional is like a DOCTOR

• Doctor in his life does not see anyone coming smiling to him and saying doctor I am perfectly alright but operate my heart or replace my kidney to come with problems seeking for solutions. Neither do they hear patients saying I can walk perfectly alright but replace my knees nor I can see perfectly but operate my eyes.

• Therefore I feel that anyone who is related in shipping must ELEVATE himself as to feel like Doctor or even beyond and should be mentally prepared that he/she would be faced with problems and PROBLEMS ONLY so they need to develop an eye, mind and heart to see through beyond the problems with a bird eye view on WP basis which many not truly associated in shipping are unable to see and appreciate and then you will find a solution to problem or will be able to construct solution as needed.

Bottlenecks of Decision Making in Problem SolvingMany feels that Legals/solicitors / PnI clubs has solution to your problems and that is ( in my own perception) is the biggest problem reasons for which are as follows.

1.First of all Many counter parties are involved like ship owner, charterers( disponent owners) and sub-charterers, shippers, receivers , stevedores, bunker suppliers, agents and at times long CP chain can escalate it further.

2.Legal can have his best of opinion to it but they can not understand “SOUL” of business which is value of relationship, value of commitment and then decisions again boiled down practically to us.

3.I have never seen a lawyer making his opinion with “ONE HAND” on any case, majority of the time they would say all good things about the case with us and then will say on “ANOTHER HAND” so and so with CP or clause etc which leads to none but again back to us as Shipping Professional to be decisive and to chart your own course.

CLEAR AND CLEAN INTENTION• Majority of the time , I have seen that if one works with “ WP” basis

keeping HIMSELF OR HERSELF in other counter party position with his “CLEAR AND CLEAN INTENTION AS TO NOT ADVERSELY AFFECT OTHERS” then you can at least find the facts and then able to understand ROOT CAUSE OF PROBLEM and then you can help other counter parties as well like we go beyond even to tell our charterers and guide their legal or to owners and if needed taking them all in conference /meeting as needed so as at least to put forward facts. Majority of time we have been successful to resolve all kind of issues and able to enjoy better relation and boost the relationship further as we grow.

• We at PWSL and even at Group level have “ zero records” almost in arbitration as we have been able to convince or able to make other people who are so sincere and serious about business to realize the facts of BASIC PRINCIPAL OF BUSINESS- the intention should be “NOT CHEAT/DECEIVE OR TO PUT OTHER COUNTER PARTIES AT DIS-ADVANTAGE “ and if one works with this mindset, I am sure there will be much lesser problems and legal costs as well.

SHIPPING- RISKS/GAINS

• As we all understand simple common things that “ No Risks No Gains and High Risks with High Gains”.

• Therefore we sum up that as shipping is a profitable venture , therefore certain risks are bound to be with it.

• Quantification of risk taking ability depends on Risk Management of each company which can varies to a large extent from one company to another company depending on their assets, diversity and values at stake.

MAJOR SHIPPING ACCIDENTS• Major Shipping Accidents- which has brought some of our safety

regulations as follows:

1. Titanic- SOLAS2. Exxon Valdez- Oil Pollution- MARPOL2. MV Estonia Ro-Ro - 3. Broken Ships while loading due to heavy density cargo and stability issue4. Grounding due to wrong DR position 5. Collisions 6. Fire/ Explosions on Tanker vessels7. Fire on board

Crux of the matter is that all regulations are driven by some or other maritime accidents in past. However new accidents keep taking place due to various reasons

MAJOR SHIPPING ACCIDENTS

• Human error• Competition• Piracy• Use of non-OEM parts Over-dependence on technology Lack of skilled

workforce 5. Increasing ship sizes • Ice shipping• Non-standardized training• Poor monitoring and enforcement of regulation Complacency• Non-sector specific Safety Management systems Reduced crewing

numbers• Crew fatigue

MAJOR SHIPPING ACCIDENTS

• Classification and Flag: potential for conflicts of interest

• Poor communications

• Operational pressures

• Bureaucracy onboard

• Build quality

• Inspections

• ECDIS implementation

• Commerciality of Class and flag

Risks Owners Risk (Head Owners)

Operators Risk ( Disponent Owners)

Charterers ( Trader & or Utility Companies)

Counter Party – Major risks Yes but only one side

Yes on both side * Yes but only one side

Knowledge Risk (HR risk) as all costs based on assumption

Yes Yes Yes

Market Risk Yes Both side risk – need to have FFA

Yes

Charter Party- Numerous risks as Majority of operational lies in it which we can discuss based on queries and on experiences

Time CP risks Both Time CP and Voyage CP specially there is always a gap related to warranties, BL clause, LOI , Cargo Shortage/ Damage , Wx risk, Canceling , hire and freight risk, delays and demmurage risk, Bunker risk etc etc

Voyage CP risks

Vessel /owners related risk ( MV Bao Shun arrested by Iran Navy for 6 months with cargo on board)

Yes Yes Yes

Operational Risk- Comparative Analysis

OWNERS LIABILITY

12

Owners Liability – Covered under Standard P&I Cover ( Source as per Gard)

Cargo liability: Loss Shortage Damage. Breach of Obligation to load handle stow carry keep care for discharge or deliver. Cargo on the ship. B/L or other contracts.Rule 34. 1.2.

General AverageRule 41 (a) and (b)

Damage to Fixed Floating ObjectRule 37

Disinfection /Quarantine Rule 48

CollisionRule 36. 1 (a) (b) and 2

PollutionRule 38 1.2.3

Liability to Crew Passengers Persons on/not on board Stowaways. Diversion and Life Salvage. Rules 27 to 33.

Extra handling costsRule 35

Liability for Obstruction and Wreck Removal

Rule 40 (a) and (b)

Property DamageRule 35

Legal Costs Rule 44

TowageRule 43 1.2.3.

Cargo liability.Rule 34 Provisos (i) to (xi)

FinesRule 47.1.2.3

Confiscation of the shipRule 49

Damage to Members own property

Rule 29A

Enquiry ExpensesRule 45

Measures to minimise lossRule 46

14

A: ILLNESS, INJURY, DEATH, MEDICAL EXAMINATION

i Liability to pay damages or compensation for personal injury, illness or death of any seaman whether or not on board a vessel and hospital, medical, funeral or other expenses incurred in relation to such injury, illness or death.

ii Liability to pay expenses incurred in medical examination of seamen prior to engagement.

B: REPATRIATION AND SUBSTITUTES' EXPENSES

i The expense of repatriating a seaman of the insured vessel who has been ill or injured or has died or whose repatriation has been necessitated by a casualty to the insured vessel.

ii The expense of repatriating a seaman who has been left ashore when there is a statutory obligation to do so.

iii The expense of substituting a seaman who has been ill, injured or has died.

iv The expense of substituting a seaman who has been left ashore or been repatriated as a result of illness, injury or statutory obligation.

Owner’s Liability

15

• Liabilities in respect of persons other than seamen or passengers

A ILLNESS, INJURY OR DEATH Liability to pay damages or compensation for personal injury, illness or death of any person and hospital, medical or funeral or other expenses incurred in relation to such injury, illness or death.

B LOSS OF OR DAMAGE TO EFFECTS Liability to pay damages or compensation for loss of or damage to the effects of any person on board an insured vessel.

Owner’s Liability

16

• Liabilities and expenses in relation to deserters, stowaways and refugees

Liabilities and expenses, other than those covered under Section 4 of this Rule, incurred by the Member in discharging his obligations towards or making necessary arrangements for deserters , stowaways and refugees or persons saved at sea, including rescue expenses, but only if and to the extent that the Member is legally liable for the expenses or they are incurred with the agreement of the Managers.

Owner’s Liability

17

•LOSS, SHORTAGE, DAMAGE OR OTHER RESPONSIBILITYLiability for loss, shortage, damage or other responsibility arising out of any breach by the Member or by any person for whose acts, neglect or default he may be legally liable, of his obligation properly to load, handle, stow, carry, keep, care for, discharge or deliver the cargo or out of unseaworthiness or unfitness of the insured vessel.

•DISPOSING OF DAMAGED CARGO The additional costs and expenses, over and above those which would have been incurred by him in any event under the contract of carriage, incurred by the Member in discharging or disposing of damaged or worthless cargo, but only if and to the extent that the Member is unable to recover those costs from any other party.

Owner’s Liability- Related to cargo

18

Cargo Liability - continued

• HAGUE AND HAGUE-VISBY RULES

Unless the Member has previously obtained appropriate special cover by agreement with the Managers or the Board in its discretion otherwise determines, there shall be no recovery from the Association in respect of liabilities which would not have been incurred or sums which would not have been payable by the Member if the cargo had been carried on terms no less favourable to the Member than those laid down in the Hague or Hague-Visby Rules, save where the contract of carriage is on terms less favourable to the Member than those laid down in the Hague or Hague-Visby Rules solely because of the relevant terms of carriage being of mandatory application

19

Cargo Liability - continued

• Unless the Board in its discretion shall otherwise determine, there shall be no right of recovery from the Association in respect of any liabilities, costs and expenses arising from:

• Delivery of cargo carried under a negotiable bill of lading without production of that bill of lading by the person to whom delivery is made.

20

Discretionary Claim - Unless and to the extent that the Directors shall in their absolute discretion otherwise determine (and in any event only if they are satisfied that the Member took such steps as appear to those Directors to be reasonable to avoid the event or circumstances giving rise to such liabilities, costs and expenses), there shall be no recovery from the Club under:

the failure to arrive or late arrival of an entered ship at any port of loading

21

22

23

24

25

26

27

• Collision with other vessels (P& 1/4 RDC)

A CONTACT WITH OTHER VESSELS OR CARGO OR PROPERTY ON OTHER VESSELS One fourth, or such other proportion as may have been agreed by the Managers in writing, of the liabilities arising out of the collision other than the liabilities identified in paragraph B of this Section.

B OTHER LIABILITIES (4/4 full liability – viz. RDC )Liability arising out of the collision for or relating to: i the raising, removal, disposal, destruction, lighting or marking of obstructions, wrecks, cargoes, or any other thing;ii any real or personal property or thing whatsoever (except other vessels or property on other vessels); iii pollution or contamination of any real or personal property except other vessels with which the insured vessel is in collision and property on such other vessels; iv the cargo or other property on the insured vessel, or general average contributions, special charges or salvage paid by the owners of that cargo or property; v loss of life, personal injury or illness.

• (ii & iv P&I )

28

29

2007.4 – Fu Wei

30

31

32

33

34

35

36

• Loss of or damage to property

Liability to pay damages or compensation for any loss of or damage to any property, or for infringement of rights, whether on land or water and whether fixed or moveable.

• & ITC

Owner’s Liability

37

CE Express – 2007.4

38

• Pollution

- Liability for loss, damage or contamination.

- Any loss, damage or expense which the Member incurs, or for which he is liable, as a party to any agreement approved by the Board, including the costs and expenses incurred by the Member in performing his obligations under such agreements.

- The costs of any measures reasonably taken for the purpose of avoiding or minimising pollution or any resulting loss or damage together with any liability for loss or damage to property caused by measures so taken.

- The costs of any measures reasonably taken to prevent an imminent danger of the discharge or escape from the insured vessel of oil or any other substance.

- The costs or liabilities incurred as a result of compliance with any order or direction given by any government or authority for the purpose of preventing or reducing pollution or the risk of pollution, provided always that such costs or liabilities are not recoverable under the hull policies of the insured vessel.

Owner’s Liability

39

Tzini – 2006.12

40

41

42

43

Surf Washing

44

• Wreck liabilities

- Liabilities and expenses relating to the raising, removal, destruction, lighting or marking of the wreck of the insured vessel and of any cargo or other property which is or was carried on board such wreck, when such raising, removal, destruction, lighting or marking is compulsory by law or the costs thereof are legally recoverable from the Member.

- Liabilities and expenses incurred by the Member as the result of any such raising, removal, destruction, lighting or marking of the wreck of the insured vessel or of such cargo or other property or any attempt thereat.

- Liabilities and expenses incurred by the Member as the result of the presence or involuntary shifting of the wreck of the insured vessel or any cargo or other property which is or was carried on board such wreck or as a result of his failure to raise, remove, destroy, light or mark such wreck or such cargo or other property.

Owner’s Liability

45

Samho Brother – 2005.10

46

Royal Pacific – 2005.6

47

48

Chain Cut Through

49

50

CHARTERERS’ LIABILITY

Charterer’s LiabilityCharterers P & I club covers following risks as below for 3rd party liabilities arising in direct connection from the operation of the vessel.

• Standard P & I risks which is covered by owners under their P & I club as discussed earlier - ( As a Charterers always ensure that owners whom you contract they are entered with an IG group P & I club)•Damage to or loss of the chartered ship ( DTH) •Consequential losses for on going hire obligation •Charterers General Average risks i.r.o. Liability for freight and bunkers contribution•War risk P & I Liability, including liability for damage to or loss of the ship•Cargo Owner’s Liability for pollution following accidental escape from the ship•Cargo Owner’s Legal Liability which can be extended as follows.

Charterer’s Liability – Continue

• Liability for detention and other delay of the Ship• Liability for salvage ( even if no damage to the ship)• Liability for Confiscation• Pollution damage to assured’s own property • Removal and replacement of bunkers to avoid or

minimize damage to the ship which could cause DTH • Charterers on going obligation to pay hire where the

ship is prevented from performing the service due to detention/delays/arrest

• Optional cover- Cargo owners/trader’s legal liability on all ships, whether or not entered in the association

Comprehensive Charterers Cover -- Cover for Cargo Owners and Traders

1. Extends charterers’ cover to affiliated cargo owners /buyers /sellers /traders

2. Provides cover to cargo owner or trader for 1. Pollution2. Damage to the hull3. Wreck removal 4. Damage to other property5. Etc.

3. Can apply to carriage on non-chartered vessel: buying CIF or selling FOB

4. Applies to contractual as well as legal risks – not just charterparties and bills of lading but also risks

5. arising in sales contract and terminal contracts

6. The SCC cover responds to the risks listed as well as liability for related consequential losses. This includes shipowners’ claim for cancellation of subsequent charter and other

7. economic losses as a consequence of the DTH incident.

General/Special exclusion under P&I/CCCGeneral Exclusions under P&I/CCC

*Product liability Excluding liabilities, losses, costs and expenses caused by or arising in connection with the processing or manufacturing of cargo, or damage to or loss or reduced value of Cargo arising as a consequence of a condition, quality or specification of the Cargo which existed prior to the Cargo being accepted for carriage or which was caused by treatment or processing, including blending, of Cargo other than treatment necessary for transportation. *DelayExcluding liabilities, losses, costs and expenses resulting from delay, including but not limited to the vessel's delayed arrival at the terminal. *Performance guarantees and penaltiesLiabilities, losses, costs and expenses arising from performance guarantees provided by the Assured. *Breach of law and regulationsLiabilities arising from warranties given by the Assured of the Assured's or any other party's strict compliance with applicable laws and regulations. *Operational costsOperational costs and expenses of the Assured including but not limited to taxes, fees or charges. *Nuclear perils*Loss of Market

*Consequential or pure economic losses are excluded from the CCC and SCC covers except in the cases where there are a damage to, or loss of the chartered ship for which the Assured is liable. Special Exclusion – Member’s own cargo

Gard aims to offer a complete range of insurance products for Charterers and Traders

Comprehensive Carriers Cover

Comprehensive Carriers’ CoverThe CCC cover extension is subject to the Cover Note and our Rules. Standard P&I covers Members in respect of liability, losses, costs and

expenses which arise in direct connection with the operation of the ship and in respect of the Member’s interest in the ship (Rule 2-4.b).

However, the CCC cover FOLLOWS THE CARGO, not the entered ship, so that liabilities arising off the ship as well as on the ship can be

covered. The main categories of liabilities covered by CCC are:

•Liabilities for 3rd party personal injury (Rule 30, Rule 57,c)

•Liabilities for loss of or damage to third party cargo (Rule 34, Rule 57c)

•Liabilities for third party pollution and environmental damage (Rule 38, Rule 57c)

•Liabilities for loss of or damage to third party property (Rule 39, Rule 57c)

•Liabilities arising due to terms of contract (Rule 55, Rule 57C)

Assured’s LEGAL LIABILITY as Trader/Cargo Owner arising in connection with for example “inland transit and storage” of cargo at the

locations identified in the SCC/CCC Cover Note are covered under the CCC without any declaration/notice. In other words, if Assured is

negligent or there is some other basis for legal liability, they are covered for damage to/loss of third party cargo and third party property.

On the other hand, if Assured has a contractual liability – based not on fault but a different distribution of risk arising from contract – then the

CCC cover is conditional upon PRIOR APPROVAL of the Contract.

Standard limit: Maximum USD 50 Million

Deductible - as per cargo deductible under normal P&I cover and only one deductible to apply in the event of a clash

Defence Cover

• A legal costs cover as well as a general advisory and claims handling service for non-P&I matters

• Operation, acquisition or disposal of an entered ship

• Limit – USD 10 million

• EXTENDED Defence for CoA and Cargo Owners/Traders under Sales Contracts

What is Defence insurance?

• Freight, Demurrage, Defence

• Legal costs cover

– … in establishing or resisting claims…

– … a named risk insurance

– … relating to the operation of the ship…

Bunkers coverThe insurance is offered on standard terms based on the Institute Bulk Oil Clauses 1.2.83.,

Institute War Clauses (Cargo) and Institute Strike Clauses (Cargo) 1.1.82.

Loss of or contamination of bunkers caused by•Fire or explosion•Stranding, grounding, sinking•Collision or contact•Negligence of Master, Officers or Crew in pumping cargo, ballast or fuel•Discharge at port or place of distress•Earthquake, volcanic eruption or lightning•General Average sacrifice•Jettison•Leakage from connecting pipelines•Stress of weather

Charterers’ Loss of Use (CLU) - Risk and cover structure

• Risk:– The CLU responds to Charterers liability to pay hire under a contract in certain

situations where the Ship while on charter is prevented from performing the service required of her

• Cover structure:– Daily sum insured agreed with Assured with basis in current hire and a review

of relevant contracts (with Shipowner and sub-charterers, if any)– Worldwide cover, excluding war risks conditional areas– Cover on ”call basis” for transit through war risks conditional areas on

additional premium basis– Conditional areas - defined and updated by JWC (LMA)

• The cover is triggered by H&M/P&I events or other circumstances beyond Charterers control

• The cover would also include piracy related delays and drugseize cover

Resources

• From Gard P & I club, MFB Solicitors UK and PL Ferrari Italy

THANK YOU !

QUESTIONS?