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Marine Insurance clauses

• Both-to-Blame Collision Clause :If the Vessel comes into collision with another ship as a result of
the negligence of the other ship and any act, neglect or default of the Master, Mariner, Pilot or the
servants of the Carrier in the navigation or in the management of the Vessel, the ow ners of the
cargo carried hereunder will indemnify the Carrier against all loss or liability to the other or non -
carrying ship or her Owners in so far as such loss or liability represents loss of, or damage to, or any
claim whatsoever of the owners of said cargo, paid or payable by the other or non-carrying ship or
her Owners to the owners of said cargo and set-off, recouped or recovered by the other or non-
carrying ship or her Owners as part of their claim against the carrying Vessel or Carrier. The
foregoing provisions shall also apply where the Owners, operators or those in charge of any ship or
ships or objects other than, or in addition to, the colliding ships or objects are at fault in resp ect of a
collision or contact.

New Jason Clause: In the event of accident, danger, damage or disaster before or after the
commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or
not, for which, or for the consequence of which, the Carrier is not responsible, by statute, contract
or otherwise, the goods, Shippers, Consignees or owners of the goods shall contribute with the
Carrier in general average to the payment of any sacrifices, losses or expenses of a general average
nature that may be made or incurred and shall pay salvage and special charges incurred in respect of
the goods. If a salving ship is owned or operated by the Carrier, salvage shall be paid for as fully as if
the said salving ship or ships belonged to strangers. Such deposit as the Carrier or his agents may
deem sufficient to cover the estimated contribution of the goods and any salvage and special
charges thereon shall, if required, be made by the goods, Shippers, Consignees or owners of the
goods to the Carrier before delivery.

Clause Paramount is a provision in Maritime law. Clause paramount is a provision in a charterparty

that specifies what law of the jurisdiction will govern the agreement. This typically incorporates the
Carriage of Goods by Sea Act ((46 U.S.C.A. § 1300) into the charter. Clause paramount is an essential
provision which should be incorporated in any bill of lading according to the federal law. Clause
paramount demonstrates a contract for the transportation of goods by sea from the United States
ports in foreign trade.
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"WAR RISK CLAUSE" IN MARINE INSURANCE
WAR RISK CLAUSE :- Marine insurance act 1963 section 2(e) defines war peril as maritime peril. A
charter party may include a war risk clause under which a vessel may be prohibited to be used in war
zones or to carry goods which will expose her to the risk of capture. War risk cover is normally
excluded from the H&M cover, so it is necessary for the assured to buy cover separately against war
risk. Similarly Institute cargo clauses A,B,C also exclude the cover against war and strike.
War risk clause covers the following perils:-
1) War or war like situations, including civil war, use of arms in course of military exercise in peace
time.
2) Capture at sea, confiscation and other similar intervention by a foreign state power.
3) Riots, sabotage, act of terrorism or other social, religious or politically motivated use
of violence or threat.
4) Piracy and mutiny.

However insurance does not cover:-

1) Insolvency
2) Damage due to any nuclear weapon, chemical, biological or electromagnetic weapon.

For the cargo insurance cargo owners buy cover against war risk and strike. This covers the
loss occurred during above. But the coverage provided by war risk clause do not operate during the
entire course of transit. Marine underwriters only offer cover for war risk whilst waterborne. There
is no war risk cover for any of the goods up to the time they are loaded on to the ship and the cover
terminates immediately after the goods are discharged at the destination port. Marine war policies
also automatically terminates following outbreak of war between major power.
A 12 month war policy gives cover for vessels whilst trading worldwide but outside certain
excluded areas which are deemed areas of increased risk. Cover can be obtained for these areas but
underwriters need to be informed and underwriters can ask for additional premium for the call
which is set no earlier than 48 hrs before entry. Either party can give 7 days notice of cancellation at
any time during the policy period.

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CHARTERER CONTRIBUTION CLAUSE
With inter club agreement. Depending upon what has caused the claim to rise, claims may be
allocated 100% to either owner or charterer or a 50%-50% allocation. Example
1) Unseaworthiness of vessel -- 100% owner
2) Claims due to loading, stowage, lashing, discharge -- 100% charterer unless the word
responsibility is added and master is responsible for above operations, then owner -- 50% and
charterer-- 50%
3) Claims for shortage and over carriage. 50% owner, 50% charterer.

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IMPLIED WARRANTIES
A warranty may be express or implied. The implied warranties are set out in
the Act. They are:
 Warranty of legality;
 Warranty of neutrality; and
 Warranty of seaworthiness.
The warranty of neutrality is not really an implied warranty as it applies only when there is an
express warranty of neutrality with respect to insurable property. It merely defines and delimits the
express warranty of neutrality. The implied warranties of seaworthiness and legality are, however,
true implied warranties in that the existence is assumed at law and they will form part of any
contract of marine insurance unless inconsistent with an express warranty.

SEAWORTHINESS
The implied warranty of seaworthiness applies with full effect only to voyage policies. The warranty
is that the ship will be seaworthy "at the commencement of the voyage" for the particular adventure
insured. A seaworthy ship is one that is "reasonably fit in all respects to encounter the ordinary
perils of the adventure insured". In a time policy there is no warranty of seaworthiness but "where,
with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not
liable for any loss attributable to un-seaworthiness". Thus, in a voyage policy the insurer needs to
prove only one thing; that the ship was unseaworthy at the commencement of the voyage. In a time
policy, on the other hand, the insurer needs to prove three things; that the ship was unseaworthy,
that the un-seaworthiness caused the loss, and that the assured was privy to the unseaworthy state
of the ship. The warranty of seaworthiness relates not only to the hull but also to the machinery and
equipment, the crew, and the way in which a ship is loaded (or overloaded). The implied warranty of
seaworthiness often has to be interpreted together with an inchmaree clause which provides
coverage for any latent defect in hull or machinery. Whenever a loss is caused by any such
latent defect it is almost certain that there would be coverage notwithstanding that the same defect
could be a breach of the implied warranty of seaworthiness.

LEGALITY
The warranty of legality is one which is often expressly included in policies as well as implied. Where
there is an express warranty of legality it will have precedence over the implied warranty to the
extent the two are inconsistent.

EXPRESS (EXPLICIT) WARRANTIES

An express( explicit)warranty may be in any form of words from which the intention to warrant may
be inferred. This implies that creation of a warranty is a simple matter of choosing the appropriate
policy wording. The real difficulty is, however, in choosing that policy wording. Further, in many
cases even choosing the correct wording may not result in a warranty being created. A review of
earlier case law indicates that little more than a statement of fact was required to create a true
warranty in a policy of marine insurance. For example, the following words were held to create
warranties:
 To sail on such a day";
 Declarations of interest to be made as soon as possible after sailing";
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SCOPIC CLAUSE
SCOPIC is designed to remedy the practical and legal defects of art. 14, by providing a simple formula
for calculating special compensation, motivating conduct by creating incentives and disincentives
and providing security to the salvors.
Apportionment between salvors - Article 15
1. The apportionment of a reward under article 13 between salvors shall be made on the basis of the
criteria contained in that article.
2. The apportionment between the owner, master and other persons in the service of each salvi ng
vessel shall be determined by the law of the flag of that vessel. If the salvage has not been carried
out from a vessel, the apportionment shall be determined by the law governing the contract
between the salvor and his
servants.
Problem areas - special compensation Art 14
  Art. 14 comes into effect only in respect of salvage operations of a vessel which by itself or
its cargo threatened damage to environment. SCOPIC can be invoked regardless of whether
or not threat of damage to environment.
 Salvors expenses had been defined as out of pocket expenses reasonably incurred by salvor
and a fair rate for equipment and personnel actually and reasonably used. However the
term “fair rate” is vague and is not defined as a “fair rate of expenditure” or a “fair rate of
remuneration” (which includes margin of profit).
 The “increase” or “up lift” in respect of special compensation was from 0% to 100% of the
expenses. This leads to a lot of uncertainty.
 As per SCOPIC – bonus is as follows:
- If actual cost more than tariff, then actual cost +10% or tariff rate + 25% of tariff rate;
whichever is greater .

The ancient salvage principle of “no cure – no pay” became a problem in the second half of the
20thCentury as the transportation of oil increased and we discovered the extent of the damage
pollution could cause. The salvage of such tankers was usually expensive to carry out and the
residual value low,making many operations uneconomic, but all too often the problem was
exacerbated by government intervention preventing the completion of the service by a refusal to
grant a place of refuge. This meant „no cure‟ was effected, which in turn meant „no pay‟ – despite
any high salving expense. To encourage the salvor to go to the assistance of such ships the 1989
Salvage Convention ameliorated the harshness of this age old „no cure – no pay‟ principal, by
introducing in Article 14, a new concept – Special Compensation. Article 14 was designed to apply
whenever salvors went to the assistance of ships that threatened damage to the
environment within coastal waters. In such circumstance the salvor was to at least recover his
expenses, and perhaps an uplift of up to 100% of those expenses, if he actually prevented damage.
However such assessment was only to be paid to the extent that it e xceeded the traditional salvage
award. In short it was a safety net, one that that ensured he did not actually lose money. Article 14
was well–intentioned but in practice it turned out to be cumbersome, contentious and expensive to
operate and had the wholly unintended consequence of discouraging salvors from attending
casualties where there was the threat of environmental damage. Traditional salvage awards were
always paid by property underwriters (ship and cargo) but under Article 14 it was the liability
insurers, the P&I Clubs, who were to pay compensation. They were also unhappy with the new
provisions which involved them in salvage for the first time.
In response to the problems, the shipping industry worked cooperatively to devise the SCOPIC clause
– the “Special Compensation P and I Club” Clause, which was specifically designed to replace, and
have the same effect, as Article 14, but avoid the legal problems that the assessment of Special
Compensation under Article 14 caused. SCOPIC is a very large clause, one made up of 16 sub-clauses,
three Appendices and two codes of conduct. While effective, it is not easy to digest.
Due to its complexity there are many misunderstandings about SCOPIC. One is that it is part of every
Lloyd‟s Open Form (LOF) salvage contract. It is not. It is an optional addendum which is only
included into a LOF if the parties specifically record on the contract that SCOPIC is incorporated. If
SCOPIC is not incorporated then Article 14 will apply if relevant. If SCOPIC is incorporated then it
replaces Article 14 which will no longer apply. This is a crucial point for the salvor, for if SCOPIC is
included but not invoked (or is later terminated), the salvor will not be covered by either Article 14
or SCOPIC. If the parties do incorporate SCOPIC, its financial provisions will only kick-in if the salvor
specifically invokes the clause in writing. He has the power to do so at any time and in any
circumstances. The idea behind giving this power to the salvor is to avoid the difficulty of try ing to
codify the variables around the definition of a “threat of damage to the environment”. However, the
point is not given away, for that objective is still achieved by two other provisions in the clause to
which I will later refer – discount and termination of the SCOPIC agreement. It was recognised that a
balance needed to be introduced so as to prevent salvors from invoking the clause every time. Firstly
there is a mechanism to give a discount if the traditional salvage award should exceed the SCOPIC
remuneration (which is discussed later).
Secondly the ship owner is given the right to withdraw from SCOPIC at any time with five days notice
provided shore authorities permit it to do so. The thinking behind this was that the shore authorities
would not agree if there was still a threat of damage to the environment. Both measures discourage
a salvor from invoking the clause unless there is a real need for its protection.
SCOPIC remuneration that a salvor receives for a service is paid by the ship owner or his P&I insurer
but only the sum that is over and above the traditional salvage award made against salved property
under Article 13 of the Salvage Convention. The ship owner or his insurers must pay $3 million in
security within two days of the clause being invoked. The remuneration due is assessed by reference
to an agreed tariff for day rates for equipment and personnel. The rates apply throughout the world
and will thus be more generous to some than to others but as SCOPIC is a safety net, rough justice
was considered sufficient.
Under Article 14 salvors were entitled to a bonus whenever they actually prevented damage to the
environment. There were expensive legal difficulties in establishing the extent of the bonus in
individual cases so SCOPIC decided to take a broad brush and provide for a bonus in every case.
Under Article 14 the uplift averaged out at 26%. To keep matters simple it was agreed that in SCOPIC
such an uplift should be 25%
of the tariff rate remuneration – it is accepted that in some circumstances this may be a “generous”
bonus and in others less so. Given this seemingly favourable framework, what is to stop salvors
invoking SCOPIC in every case? It would seem they have nothing to lose by doing so. To prevent this
there is a clever mechanism. If the traditional salvage award is higher than the assessed SCOPIC
remuneration then not only is no SCOPIC award payable but the traditional property based award is
reduced by 25% of the difference between it and the SCOPIC remuneration. So, for examp le, in a
case where SCOPIC has been invoked and the assessed SCOPIC remuneration is $1 million and the
property based salvageaward was $1.5 million then no SCOPIC money would be paid and the Article
13 award would be reduced to $1.35 million (25% x $0.5 million = $125,000). This mechanism has
been effective in preventing the salvors from over using SCOPIC– it is only invoked in some 30% of
cases. The owner may not escape from the LOF contract once it is signed but is entitled to terminate
the SCOPIC clause on giving five days notice if the shore based authorities permit it. This is unlikely if
there is actually a threat to the environment. However the salvor may withdraw from the entire LOF
contract if SCOPIC is withdrawn by the owner and the salvage operati on is no longer financially
viable. One of the key features of SCOPIC is that the owner may appoint a Special Casualty
Representative (SCR) who attends the casualty and reports on activity. The salvage master retains
full control of the operation but the SCR‟s voice is influential. If he does not agree with the salvage
master‟s daily report the SCR must send a dissenting report. The presence of the SCR ensures that
the owners and their insurers are kept fully informed and comforted and may keep a tally of costs as
they build up. The SCOPIC clause is not perfect but it is an excellent replacement for Article 14.
However, it should be recognised that it is only a safety net, one to
ensure a minimum payment in difficult cases thereby ameliorating the harsh salvage principle of “no
cure no pay”. It is not a method of remuneration. In recent times, environmental issues have
dominated almost every salvage operation leading salvors to claim they should be entitled to be
properly remunerated on salvage terms by a separate environmental award whenever they have
minimised or prevented damage to the environment. But that‟s another story.

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Define CTL
A constructive total loss in marine cargo insurance means that the cost of repair of a damaged item
is more than the current value of the item. The insurer settles the insured the entire amount on the
basis of the fact that the repairing cost exceeds the replacement or market value. Often a loss equal
 to 50% or 60% of the stated value of the item is considered by insurance companies for ascertaining
constructive total loss
The situation of constructive total loss arises when the ship is abandoned as it is not commercially
viable to retrieve the ship or cargo. Though, the ship or cargo is not completely damaged, it is not
feasible to get it repaired or restored to its original position. When the ship is badly damaged and
the cost of repairs is expected to be more, it will be recommended to abandon the ship.

Similarly, if the ship is abandoned, but the cargo is safe on it, however, if the cost of bringing the
cargo to the coast is more than its total cost, it will be fine leaving the cargo. All these scenarios will
be considered as a constructive total loss.
When a constructive total loss arises, the policyholder informs the insurance company and
surrenders its interest in the subject-matter to the insurance company.

In particular, there is a constructive total loss in marine cargo insurance when:

 The policyholder is deprived of the possession of goods by insured perils and it is unlikely that the
policyholder can recover the ship or goods as the case may be, or the cost of recovering the ship
would be more than its recovery value
 The ship is severely damaged by an insured peril and the cost of repairing a ship is more than its
value.

In the case of damage to goods, it will be considered as a constructive loss if the repairing cost is
more than their value on the arrival.

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Role of Average adjuster

Average Adjusters are expert in the law and practice of general average and mari ne insurance.
Fellows of the Association of Average Adjusters have demonstrated their expertise by rigorous
examination. Average Adjusters prepare claims under marine insurance policies which generally
involve loss or damage to marine craft, their cargoes or freight. They may also be called upon to
prepare statements of claim against third parties and to deal with the division of recoveries from
third parties. General Average is a particular area of expertise. Average Adjusters are usually
instructed to collect general average security, and also salvage security, and to prepare general
average statements and to assist in effecting settlements there under. Average Adjusters may be
appointed by any party involved in a marine claim. However, irrespective of the identity of that
party, the Average Adjuster is bound to act in an impartial and independent manner.

General Average is a particular area of expertise and is unique to the marine world. The principal
behind general average is that when the property (ship, cargo, bunkers, freight etc) involved in a
maritime adventure is in peril, any extrordinary sacrifice or expenditure that is voluntarily
and reasonably made or incurred in order to save that property is defined as a general average loss.
All parties involved in the marine adventure will then pay a ratable contribution towards that
general average loss. These days, the majority of contracts for the carriage of goods by sea state that
general average should be adjusted in accordance with the York Antwerp Rules. Average Adjusters
are usually instructed to collect general average security, and also salvage security, and to prepare
general average statements and to assist in effecting settlements thereunder.
Average Adjusters may be appointed by any party involved in a marine claim. However, irrespective
of the identity of that party, the Average Adjuster is bound to act in an impartial and independent
manner.
The Association of Average Adjusters promotes professional standards and correct principles in the
adjustment of marine claims by ensuring, through examination or otherwise, that those entering
into membership possess a high level of expertise.
It aims to achieve uniformity of practice amongst Average Adjusters by providing a forum for
discussion and by establishing rules of practice where necessary. It ensures the independence and
impartiality of its fellows/associates by imposing a strict code of professional conduct.

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What do you understand by the term “General Average”. Differentiate General and Particular
Average with at least two examples of each case.
b) State the Salient Features of York Antwerp rules 2004.
What are the Key differences between 1994 and 2004 amendments for the same?

General Average stands apart for Marine Insurance. In order for General Average to be properly
declared,
1) there must be an event which is beyond the shipowners control, which
imperils the entire adventure;
2) there must be a voluntary sacrifice,
3) there must be something saved. The voluntary sacrifice might be the jettison of certain cargo, the
use of tugs, or salvors, or damage to the ship, be it, voluntary grounding, knowingly working the
engines that will result in damages.
General Average requires all parties concerned in the maritime venture
(Hull/Cargo/Freight/Bunkers) to contribute to make good the voluntary sacrifice. They share the
expense in proportion to the 'value at risk" in the adventure.

"Particular Average" is the term applied to partial loss be it hull or cargo.

The law of GENERAL AVERAGEis a legal principle of maritime law according to which all parties in a
sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or
cargo to save the whole adventure (voyage, the ship and the cargo) in an emergency.
General average requires three elements:
1. "A common danger: a danger in which vessel, cargo and crew all participate; a danger imminent
and apparently 'inevitable,' except by voluntarily incurring the loss of a portion of the whole to save
the remainder."
2. "There must be a voluntary jettison, or casting away, of some portion of the joint concern for the
purpose of avoiding this imminent peril or, in other words, a transfer of the peril from the whole to a
particular portion of the whole."
3. "This attempt to avoid the imminent common peril must be successful". So, we can say that there
is a General Average Act, WHEN and ONLY when, any EXTRAORDINARY SACRIFICE or EXPENDITURE is
INTENTIONALLY and REASONABLY made for THE COMMON SAFETY for the purpose of PRESERVING
FROM PERIL the property involved in a COMMON MARITIME ADVENTURE.

Examples of General Average in the present day shipping world can be:
1. The extraordinary sacrifice could be to cut a hole in the side of the ship and then fighting a
fire through that hole. Any cargo which may be damaged as a direct result of this fire
fighting will be considered an extraordinary sacrifice, but that which is burnt from the fire
will not be considered a sacrifice but will be a particular average claim against insurers.
2. There can also be the cost of running the engines at high speed to remove her from being
aground. The extra fuel which is used plus the extensive damage which this can cause the
engines for running at these high speeds will all be considered as a sacrifice in terms of a
general average as if it were not for the engines running at the high speed using the
excessive fuel plus the resulting damage to the engines, the voyage would not have been
saved.
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Differences between YA 1994 and 1974
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How General Average works ?
Let me give an example. A loaded ship is hijacked in Somalian waters and pirates demanded the
ransom for release of the ship. After much of negotiations the ransom was brought down to
30,00,000 (3 Million) US dollars.
The ransom amount was delivered and the ship was released. Let us see the break up of total
expenses incurred in releasing the ship.

Now who do you think will pay this huge amount ?

The principle of general average says that all the parties that benefit from this sacrifice of the ship
owner should pay. But how much each one need to pay ?
Cargo owner who had small parcel on board the ship should not pay same as other cargo owners
who had huge amount of cargo on board.
So the break up need to be in proportion of how much each party saved from this sacrifice.
As per general average, each party will pay the same percentage of amount that they have saved.
For example of the total value saved, 60% belongs to the ship owner. So ship owner need to
contribute 60% of the expenditures or amount sacrificed.
Here are the general average contributions from each party in this example.
Now in this example, I have over simplified this for the sake of understanding but in realty these
calculations can be extremely complex.
Some can even argue if the ransom paid for piracy can give rise to claims under general average ? All
this may not be that simple.
For example it may be that ship was taken to Somalia and then upon release ship joined its planned
route after one day sailing.
In this case the ship owner’s expenses like fuel cost and ship staff’s wages etc for this period also
need to be shared.
But if we do not have a pre defined set of rules, the cargo owners may refuse to share the fuel costs
or crew wages. They may say that we will only share the ransom amount.
So there need to be rules which each party will agree upon before the start of voyage. These rules
already exists and are known as “York Antwerp rules”.
York Antwerp rules
The first version of York Antwerp rules were issued in 1890. But it was second version of York
Antwerp rules that got much of applaud. Even though the latest version of the rules were issued in
2004, most companies use 1994 version of the rules.
Recently a new version of rules were issued in 2016.
York Antwerp rules has two sections. First section has rules that are identified by the letters (Rule A,
Rule B .. ). These rules give general guidelines on what can be included in the general average.
Second section has rules that are identified by numbers (Rule I, Rule II .. ). These rules give specific
situations, sacrifices and expenditures that can be included in the general average.

Let is discuss few of the important rules.

Rule Paramount
While all the rules in York Antwerp rules are named either with a number or an alphabet, this one
rule is named differently. This is because this rule is paramount to all the rules.

Sacrifices made by ship owners should be reasonable and they cannot over spend. For example let
us say the vessel was towed even when the ship’s engine were working.
This would be considered as “not -reasonable” and this amount will not be included in the general
average.
What is General average act (Rule A)
What expenditures will be shared by all parties ? When we talk about general average and York
Antwerp rules, this is most important question.
If ship owner places armed guards on board, can this be considered as general average act ? Will
these expenses be shared between ship owner and cargo owners ?
Rule A of the York Antwerp rules defines the limits of general average act. It says There is a general
average act, when and only when, any extraordinary sacrifice or expenditure is intentionally and
reasonably made or incurred for the common safety for the purpose of preserving from peril the
property involved in a common maritime adventure So there are four essential requirements for an
action to fall under General average.

1. The expenditure or sacrifice need to be extraordinary

The ship owner is bound by his duty to deliver the cargo safely at the destination. There is nothing
extraordinary in any actions that a ship owner performs to fulfill this duty.
This also answers my earlier question if placing the armed guards would come under general
average act. It won’t. Ship owner is placing the armed guards to fulfill his duty of delivering the
goods safely.
2. The act must be intentional
If the ship ran over a wreck and to release the ship a part of ship or the wreck need to be cut away.
The expenditure involved in this will not come under general average because this was not
intentional. Jettisoning part of cargo to re-float the ship or flooding the water in a hold to extinguish
the fire are intentional acts.
3. The Action must be for the common safety
Let us understand the term “Common safety: with an example.
Let us say a container ship has few of the refrigerated containers. The referigeration system of the
ship failed and ship had to be diverted to a nearest port for repairing it to avoid damaging this cargo.
Will the expenditures incurred by the ship owner in this case come under general average ?
No, because the action is only for saving part cargo and not for the common safety of ship owners
and for other cargoes loaded on ship.
For the general average, the action has to be for the common safety.
The action of Jettisoning some cargo to avoid sinking of entire ship is for common safety.
4. There must be a peril
If the master jettison a cargo to save the ship from sinking, it is a peril. But if the master jettison the
cargo because he feels that the ship is overloaded, is not a peril.
Dictionary meaning of “peril” is “Grave danger”. If there is no grave danger, general average cannot
apply.
But in the context of York Antwerp rules and General average, the interpretation of grave danger
can be different.
In fact that is the difference between “a ship in distress” and “a ship in peril“.
For example take a ship that has broken engine in the mid sea with calm weather. The ship is not in
distress but the ship is in peril.
General average Sacrifices
The sacrifices that can be made and are included in the general average fall under three categories.

The numbered rules gives the examples of the sacrifices that can be included in the general average.
Jettison of cargo: Jettison of cargo will include in the general average if the cargo was carried as per
customary trade. For example if the deck cargo was loaded on a ship that i s not allowed to load on
deck, sacrifice of such cargo will not include in the general average.
Extinguishing fire: General average will include the damages (to ship or the cargo) because of
extinguishing fire on board.
Voluntary stranding: Damage and loss because of intentional stranding in “common safety” is
allowed to be included in general average.
General Average Expenditures
Apart from the sacrifices, one party may spend lot of money in the common interest of saving the
ship and the cargo. As per York Antwerp rules, these expenditures also can be included in the
general average.

Some of these expenditures can be

- Salvage expenses
- Port of refuse expenses
- Wages of master and crew during the prolongation period because of port of refuse
- Fuel during the prolongation period because of port of refuse

No general average for environmental pollution (Rule C)

As per Rule C of the York Antwerp rules, the costs involved in handling environmental pollution
cannot be included in the general average.
This is a logical rule as if the general average was to include the environment damage claims, it
would have taken the domain of the general average too far.

It does not matter whose fault it is (Rule D)

Let us say a vessel ran aground. The vessel had to sacrifice (Jettison) some of the cargo to re -float it.
As per rule D, the cargo owners cannot claim that the grounding was due to the fault of ship owners
and they would not contribute to the general average.
Irrespective of the fault which led to the event (in this case grounding), all parties have to contribute
to the general average.
But this will not be the case if the ship was unseaworthy. If the grounding resulted because the
vessel was unseaworthy, then ship owner cannot benefit from the general average.
In spite of the rule D of the York Antwerp rule, US law does not allow the navigation fault of the ship
owner to be neglected. As such most of the ship owners make sure to include “new Jason Clause” in
the bill of lading and charter party agreement.
Application of York Antwerp rules and General average
In most countries these rules do not have any legal force in themselves. The York Antwerp rules and
principle of general average have legal force only if these are included in the bill of lading or charter
party agreement.
If you get to see an actual bill of lading, read the term, conditions and clauses on the back side. Most
likely you will find a clause regarding York Antwerp and General average there.

Recovery of general average contribution

In “taxi fare” example, if one person refuse to pay his share what options one can have to recover it.
May be we can let it go as the amount will not be that big.
In the perils at sea, in most of the situations it will be ship owner who would make sacrifices and
expenditure to come out of these situations.
So how can a ship owner ensure that everyone will contribute to general average amount that ship
owner should get.
In the maritime law a ship owner has the lien on the cargo for the general average contribution. So
ship owner will only release the goods once he receives a guarantee that he will get his dues. This
guarantee can be in form of
- General average bond
- Guarantee from the underwriter
- Guarantee from the bank
- Cash deposit

Role of Average adjuster

Don’t go by the name. Average adjuster are not average people. They are the expert in one field
of marine insurance, that is general average.
During a general average situations, usually a average adjuster is appointed by one party. The role of
the average adjuster is to
- Collect all the information following a general average action
- Make a statement of general average contribution of each party
- Collect general average security from each party
- Assist in effective settlement of the general average

Irrespective of which party has appointed average adjuster, it i s the duty of the average adjuster to
be impartial towards general average settlement.
Association of average adjusters sets the standards for the training of average adjusters.

Conclusion
General average allows sharing of loss in an unfortunate incident. General average is a good old
maritime practice. Not only for ship owners and other parties involved but also for ship’s masters.
To some extent it allows the master of the ship to be a boss and take actions what he believes is the
best for that situation.
Take an example where master need to beach the ship to save it from sinking. Because of general
average, master would face lesser resistance from all the parties as the loss would be shared.
In the absence of general average, condition would be different. Master may have to convince all
parties that beaching is the only option.
Another example where master has to jettison some cargo to save the ship. In the absence of
general average, the cargo owner might object to why his cargo was jettisoned and not the other
cargo ?
York Antwerp rules and General average has something good for everyone involved with a ship and
carriage of cargo.

11
YA 94 AND SALVAGE REMUNERATION

Article 13 deals with the general criteria for assessing salvage remuneration and Article 14 with
“Special Compensation” for efforts by salvors to prevent damage to the environment. This was the
effect of the Montreal Compromise which led to the present Article 14 being agreed in place of a
general right of salvage in respect of legal liabilities.
It has been proposed that Article 13(1)(b) should be deleted from the Convention, and a new
Article 14 be substituted for the present one. The material part of the replacement clause
provides as follows:
If the salvor has carried out salvage operations in respect of a vessel which by itself or its
bunkers or its cargo threatened damage to the environment he shall in addition to the reward to
which he may be entitled under Article 13, be entitled to an environmental award. The
environmental award shall be fixed with a view to encouraging the prevention and
minimisation of damage to the environment whilst carrying out salvage operations, taking into
account the following criteria, without regard to the order in which they are presented below:
(a) Any reward made under the revised Article 13;
(b) The criteria set out in the revised Article 13.1(b) (c) (d) (e) (f) (g) (h) and (i)
(c) The extent to which the salvor has prevented or minimised damage to the environment and the
resultant benefit conferred.
The revised Article 14 also makes provision for limits to the amount which could be awarded
as an environmental award.
The Article 14 does not state explicitly whether the reward is in respect of pollution
prevention, liability avoidance or both. But in view of the public policy behind the duty
imposed on the salvors by the Convention, it is probable that the award would take into
account both the “environmental value” and the intangibles on which no price can sensibly be put as
well as the benefit to the shipowner of liability avoidance. This would in effect be a new type of
salvage assessment. But it seems completely workable to me and capable of principled assessment
by experienced arbitrators.
 Section VI of Y.A 94
(a) Expenditure incurred by the parties to the adventure in the nature of salvage, whether under
contract or otherwise, shall be allowed in general average provided that the salvage operations
were carried out for the purpose of preserving from peril the prope rty involved in the common
maritime adventure.

12
Discuss the provisions of Nairobi Convention on wreck removal as applicable to India, with regards
to following:
1) Opt out clause
2) Time limits for action by affected state
(b) Differentiate between Hague Visby & Hamburg rules and what are the main features of the
Hamburg rules in the Interest of the Ship Master.

Opt-in for territorial sea and inland waters

While the Wreck Removal Convention primarily applies to wrecks in the 200 nautical mile exclusive
economic zones of state parties, it contains an opt-in option whereby states may also make the
convention applicable to their territorial seas and inland waters. As a result of the submissions
received by the government during the consultation process in 2010, the new consultation process
initiated by the Ministry of Transport includes a proposal to exercise the opt-in option to extend the
convention to Norway's territorial and internal waters, as well as draft legislation to implement the
same. According to the government, this is because wrecks posing a navigational hindrance or
environmental hazard along the Norwegian coast are more likely to be located closer to shore than
in the exclusive economic zone.

Time Limits
A claim for costs incurred as a result of measures taken in accordance with the convention shall
according to art. 13 WRC be brought within 3 years from the date “when the hazard has been
determined in accordance with this convention.” This probably infers to when the Affect ed State has
determined the wreck to constitute a hazard. 32 There is furthermore a general time limit on 6 years
counted from the time of the maritime casualty causing the wreck. The Affected State must act
within these 6 years in order to recover costs. If the maritime casualty consists of a series of events
the 6 year period is counted from the first event in the series. These time limits seem to exclude the
possibility of applying the convention on most of the already existing wrecks. Instead the convention
focuses on future wrecks.
Rules related to the contract of carriage are these pre-defined rules on which shipping has been
relying upon.
Hague rules 1924 was the first convention related to this issue. Hague rules were amended several
times latest being the Rotterdam rules which were developed in 2009.
Even though Rotterdam rules are the latest rules, most of the countries have chosen to stick with
the Hague Visby rules.
That makes the knowledge of Hague Visby rules so important when it comes to the understanding
contract of carriage of goods by sea.
But Hague Visby rules look so complex, especially for the mariners who off course are not lawyers.
This post will aim to simplify the meanings of each article of Hague Visby rules.
Development of rules related to the shipper/Carrier relation
As said first set of rules on this matter were Hague rules 1924. These were called “International
convention for the unification of certain rules and law relating to the bill of lading “. These rules
provided something for the shippers. And it was necessary.
Earlier a shipowner with an old ship would take high insurance for that ship and then willfully sink
the ship. He would then claim high insurance amount. There were hardly any laws to indict the ship
owner and usually ship owners had nothing to pay to the shipper in this case. In fact, the shipowner
would write the clause in bill of lading which read something like this Ship owner will not be liable for
any loss or damage to the cargo even because of the negligence of the shipowner or the ship staff.
Hague rules defined some of the responsibilities of the carrier.
But there were some weaknesses in the Hague rule. To address these weaknesses, Hague rules were
amended slightly and were known as Hague-Visby rules. Hague Visby rules are the most used rules
to this date. United nations felt that even the Hague Visby rules were in favor of the ship owners. As
a result of which, United nations body UNCTAD developed Hamburg rules of 1978. In 2009, UNCTAD
instead came out with more modern rules called Rotterdam rule. These rules, however, are not yet
in force.
In spite of new and modern Hamburg rules and Rotterdam rules, most of the ship operating
countries have stuck to the Hague Visby rules. That makes the knowledge about Hague Visby rules
so important.
Hague Visby Rules
While Hague Visby rules contain a number of articles, first 10 articles are the important one.
Each of these articles has been written very precisely. If you are preparing for the competency
exams, you would need to read Hague Visby rules at least 10 times to get a hang of it.
That is because we are not lawyers and sometimes we are not able to understand what each article
actually means. I will briefly cover each article here but my main emphasis is on the practical
application of the Hague Visby rules.
Article I & Article II
Article I of the Hague Visby rules sets out some of the definitions. It gives the definitions for Carrier,
Contract of carriage, Goods, Ship, and Carriage of goods. Article II is a statement that carrier cannot
shy away from his responsibilities as set out in the articles of the Hague Visby rules.
Article III
Article III lists the responsibilities of the carrier. If you have been sailing on a ship for some years
now, you already know what responsibilities might have been in the article III of the Hague Visby
rules. To list few the responsibilities includes
1. Make the ship seaworthy
The ship should have minimum manning as per Minimum safe manning certificate. The ship should
have all the equipments onboard and in working condition. All the supplies required to safely run the
ship should be onboard.
2. The holds should be clean and fit to receive the cargo
3. Carrier needs to issue bill of lading after loading of the cargo

Another important point that article III makes is this…

Shipper needs to give correct information related to the cargo loaded. Article III indemnify the
carrier of all the losses and delays because of such inaccuracies. Now there are two time-frames that
article III (6) talks about.The time frame of 3 days and time frame of one year. Both of these time
frames are inter connected. As per article 3, rule 6 the carrier will be discharged from all liabilities
unless the shipper sues the carrier within one year from the delivery of the cargo.
Now the another time frame defines the term “Delivery of the goods”.
As per article 3, rule 6, the goods will be considered delivered upon removal from the ship unless
notice of loss or damage is given within three days.
Another important point in article III is the point no 8. What does this point states ? Let me make
this understand in easier way.
Suppose we are in a time when there are fewer ships and more cargo to transport. Carrier (in this
case ship owner) has the upper hand as they are not short of cargo for their ships and lot of shippers
are fighting to get space on their ship. I as a ship owner can force the shipper to write a clause in bill
of lading which could be something like this
Carrier will not be liable for any delays, loss or damages whatsoever including because of neglect on
carrier’s part.
With this kind of clause on bill of lading, even if cargo is damaged or lost because of carrier’s fault,
shipper will not be able to claim any money.
Right ?
Actually it is not like that. Article III, point 8 prohibts the use of such clause in the bill of lading.
Article III, para 8 says that any clause that relieves the carrier of his responsibilities as per Hague
rules shall be null and void.
Article IV
While article III gives the responsibilities of the carrier, article IV gives some of the exemptions to
these responsibilities.
In simple words, a carrier will not be responsible for the damage, loss or delays if he had not caused
it intentionally, provided carrier had exercised due diligence.
Due diligence is a broad term and several cases has shown that it is not easy for the carrier to show
that they exercised due diligence.
In most of the cargo claim, shipper would claim damages by trying to prove that carrier did not fulfill
his duties as per article III.
Carrier will claim innocence by trying to prove that the delay, loss or damages were not in his
control. Carrier would claim exemption under article IV.
Claiming exemption under article IV is not easy for the carrier though.
For claiming the exemption as per article IV, carrier would claim that he did whatever possible to
prevent the damage.
Also that the damages occured because of the factors which were not in his direct control. As per
article IV, the burden to prove this is on the carrier and it can be very difficult to prove.
For example, let us assume a situation where damage to the cargo was caused by the fault of ship’s
crew.
The carrier can try to claim exception under article IV(2a). Article IV(2a) gives immunity to the carrier
in case the damages were caused by the fault of ship crew.
But in reality it is not easy for the carrier to claim exception in this case. This is because the court
would examine many factors to analyse if the carrier performed due diligence.
In this example court could analyse if the company’s SMS manuals have the proper guidance and
checklists which ship crew could have followed to prevent this damage.
Another topic that article IV highlights is the compensation for shipper in case of damage or loss of
the cargo. This is covered by the article IV(5).
Let us understand the article IV(5) logically. Let us say that you are the shipper whose cargo has been
damaged on board. I am the ship owner.
Now how much compensation you would claim from me ? Ideally you would claim the price of the
commodity damaged. So who will decide what is the price of the cargo or commodity that is
damaged ?
Also the price varies on the daily basis. So of which date the price will be considered ?
Article IV(5b) answers these questions. Date of actual or probable discharge (in case total loss on
mid voyage) will be the date for which we need to calculate the price of the commodity.
And we need to take the price from the commodity exchange.
Now what if the ship was carrying the cargo of gold. The ship owner’s freight is based upon the
space on ship that he provides to the shipper and not on the value of the cargo.
If the shipper declares the value of the cargo, the ship owner can take extra insurance to safegaurd
himself.
Offcourse the ship owner will ask for more freight in this case to cover his extra expenses.
But if the shipper did not declare the value of the goods, it makes sense to have a limit on how much
the shipper can claim from the carrier for damages or loss of goods.
Article IV (5a) defines this limit. The maximum liability for carrier can be 666.67 SDR per package or 2
SDR per KG of the goods damaged or lost, whichever is greater.
Article V
Now we know that as per article III, carrier cannot include any clause in the bill of lading with which
he can lessen his responsibilities.
Article V is just opposite of this statement.
Article V gives the liberty to the carrier to increase his responsibilities and liabilities. Article V also
gives the right to the carrier to surrender his rights and immunities (for example as per article IV)
provided by the Hague Visby rules.
If the carrier decides to do so, it need to be included in the bill of ladings.
For example if the carrier and charterer agree to increase the maximum liability for carrier from SDR
666.67 per package, article V allow them to do that.
This increase in agreed liability for carrier need to be mentioned in bill of lading for it to have effect.
Article VI
Article VI gives complete freedom to the shipper and carrier to enter into any agreement
irrespective of what is required by other articles of hague visby rules provided
This agreement does not contradict the public policy.
No bill of lading is issued in this case
This article cannot apply to ordinary commercial shipments and there should be reasons to have this
special agreement.
One example of such special agreement can be the cargo carried in coastal voyages.
Article VII
Article VII is a simple statement of fact. It state that hague visby rules defines the carrier’s
responsibilities from the time of loading to the time of discharge.
A shipper and carrier are free to decide the extent of responsibilities and liabilities before loading
and after discharge.
Article VIII
As per Article VIII, if there is any other statutory law related to the limitation of liability of the carrier,
that law will take precedence over these rules.
Article IX
Article IX is again self explainatory. This article states that if these rules contradicts any international
convention or national law, that convention or law will have the priority.
Article X
I believe article X should have been the first article of the Hague visby rules. This article defines the
extent of applicability of the hague visby rules.
This article states to which contracts or bill of ladings the hague visby rules would apply.
As per article X, the application of these rules falls in two categories.
Application by force of statute (Article X, a & b). That is if the bill of lading is issued in the country
which has ratified the hague visby rule, the hague visby rule will apply to that bill of lading. Or if the
load port is in a country which has ratified hague visby rules, these rules will apply to the bill of
lading issued for the cargo loaded.
Application by agreement between two parties. This mean that even if the hague visby rules do not
apply as per Article X (a or b), if the carrier and shipper has mentioned in the bill of lading that hague
visby rules would apply then these rules will apply to the bill of lading.
Lets see an example.
A cargo is loaded from Bangladesh (not ratified Hague visby rules) for discharge in UK (ratiefies
Hague visby rules). The bill of lading is issued in Bangladesh. Will the Hague visby rules apply to the
bill of lading ?
The answer is No.
Now in the same condition if the shipper and carrier agree to have the hague visby rules
incorporated in the bill of lading, the hague visby rules would apply to the bill of lading.
Why is the article X so important ? Let us say a shipper wants to sue the carrier as per hague visby
rules for loss or damage to the cargo. For him to successfully sue the carrier as seek compensation
as per Hague visby, hague visby rules should be applicable to the bill of lading. Now if the hague
visby rules do not apply in his case, he cannot use other articles of the hague visby rules to sue the
carrier.
Conclusion
In spite of many years and more modern rules for carriage of goods in place, hague visby rules still
dominates the shipping industry. This makes the knowledge of Hague visby rules so important for
anyone connected with the carriage of goods. Knowledge of these rules can a give new view point to
the seafarers about what are the responsibilities of the carrier for whom they work.

13
Compare the different COGSA regimes
Hague Hague-Visby Hamburg Rotterdam
Rules Rules US COGSA Rules Rules
1924 1968 1936 1978 2009

Bills of Shipment • B/L issued in

Lading • B/L issued s to and a contracting Contracts of carriage where
Scope of issued in a from state any of the following places are
• Carriage to
in a the or from a located in a
contracting contracting United contracting contracting
application state. state States in state state:
• If B/L
• Carriage is foreign provides for • Place of
from a trade. Rules to apply receipt
 Port in a • Port of
contracting loading
• Place of
state delivery
• Contracts • Port of
of carriage discharge
which
incorporate
the Rules

Carrier
Covers the period from the time responsible In addition
when the goods are loaded on the while “in to sea
Geographical ship until charge” of the carriage:
goods at port
of loading,
they are discharged from during the • Stevedoring / terminal
application the ship. carriage, storage services
and at port of • Freight-
discharge i.e. forwarding
normally from services
time goods • Domestic
are taken inland road
over from the and rail
shipper carriage if no
to time competing
delivered to • Inland
the water
consignee. carriage
•
International
inland road }convention
and rail applies
Which Contracts of carriage covered by a “Any contract Contracts of carriage of goods
 B/L or any similar document of title, of carriage by sea against a payment of
or whereby the freight,
carrier
undertakes
when such is issued under or against which may include carriage by
pursuant to a Charterparty from the payment of other modes of transport in
contracts are moment freight to addition to
carry goods
at which such document of title by sea from
regulates the relations between a one port to carraige by
covered? carrier another”. sea.
Need not be a
and a B/L or
holder of document of Includes “transport
the same. title. documents” and “electronic
Excludes transport records”.
charterparties
(unless rules Excludes charterparties
are (unless rules are
incorporated).
incorporated).

“Any person
by whom or in A person who enters into a
Owner or charterer “who enters into whose name contract of carriage with a
Who is the contract of carriage with a shipper”. a shipper.
contract of
carriage has Inclusion of a “Performing
been party” and a “Maritime
carrier? concluded performing party”.
with a
shipper”.
Covers
“actual” and
 “contractual”
carrier.

Rules do not
expressly Goods may
Excluded from Rules if Excluded exclude deck be carried
Deck cargo stated to be carried on from US cargo. on deck if:
Carrier can • Such
undertake carriage is
deck on COGSA – deck carriage required by
face of B/L. unless the if law
agreed with
shipper or in • Carried in containers or
Undeclared deck B/L states accordance vehicles fit for deck carriage
carriage may affect the cargo with and the decks
carrier’s the usage of a
particular
ability to rely on is carried trade in which are specially fitted to carry
defences, although the on deck case such containers or vehicles
carrier B/L should so
state that • Carriage on deck is in
and is so goods are accordance with the contract
may still rely on package carried. carried of carriage,
limitation. customs/usages and
practices of the trade in
on deck. question
Carrier liable
for Note: If goods carried on deck
unauthorised in cases not permitted by
deck carriage above and
if carried on- damage/loss is caused
deck contrary exclusively by such deck
to express carriage, carrier not
agreement, entitled to
 and can be its defences.
deprived from
its
defences and
limitations of If carrier agreed to carry the
liability. goods under-deck and carries
them on
deck which causes
loss/damage, carrier not
entitled to its limitations
of liability.

Rules are silent – No express Carrier

obligation to deliver goods beyond responsible Carrier’s obligation continues
Delivery of the port until until delivery.
goods are
of discharge, however, the carrier delivered to
the goods can contract to do so. the
consignee.

Claimant may
No express choose where Claimant may choose where
Law and provisions. to commence to commence proceedings:
• Domicile
of the
Jurisdiction/ proceedings: carrier
• Place where
defendant has
principal • Place of
Arbitration place receipts
• Place of
of business delivery
• Place where • Port of
contract was initial load
 made or final
discharge
• At any court named in an
• Port of agreed non-exclusive
loading jurisdiction clause
• Port of Parties can also agree
discharge arbitration after a dispute has
• Place arisen.
specified in
arbitration
clause.
Arbitration
agreement
permitted. If
incorporating
charterparty
arbitration
clause, must
be
incorporated
in the B/L.

2 years unless Litigation or arbitration to be

12 judicial or commenced within 2 years
Limitation 12 months 12 months months arbitral from date of
proceedings delivery or when goods should
have been have been delivered. (claims
of action/ Indemnity instituted. by cargo
actions may interests or
Time-bar be brought carrier).
after the
one
year, see Art Indemnity proceedings may
III, 6bis. be commenced after this
 period (at least
90 days from date of
commencement of action
against carrier).

Hague-Visby Rotterdam
Hague Rules Rules US COGSA Hamburg Rules Rules
1924 1968 1936 1978 2009

Same as Hague-
Visby Rules
however the
Carrier must exercise due diligence before and at Carrier, his servants and carrier’s
Carrier’s beginning of voyage to: agents must take obligation to
exercise due
diligence to
make the ship
general • make ship all measures that could seaworthy is
duty seaworthy reasonably be extended to
cover the entire
voyage. It is now
• properly man, equip and supply required to avoid the “to make and
of care the ship event causing loss and keep the ship
• make holds etc. fit and safe for reception,
carriage and preservation of cargo its consequences. seaworthy”.
It also includes
an obligation “to
Carrier must properly and carefully load, handle, deliver” the
stow, carry, keep, care for goods.
and discharge
goods.

Carrier’s • Act, neglect, or default of the master, mariner, No specific list of Additional
 pilot or the servants of the defences. defences to
those listed in
the Hague-Visby
Rules include:
• War hostilities,
carrier in the navigation or in the management of armed conflict,
defences the ship Carrier must prove he, piracy, terrorism
his servants or agents, • Loading,
handling,
stowing, or
unloading of the
• Fire, unless caused by the actual fault or privity goods, unless
of the carrier took all measures that the
could reasonably be carrier or a
performing
party performs
such activity
• Perils, dangers and accidents of the sea or other on behalf of
navigable waters required to avoid the the
occurrence and its shipper or the
• Act of God consignee
consequences. • Reasonable
measures to
save or attempt
to save property
• Act of war at sea
• Reasonable
measures to
avoid or
attempt to avoid
• Act of enemies damage to the
• Arrest or restraint of princes, rulers or people, or
seizure under legal process environment
• Quarantine • Acts of the
 restrictions carrier in
pursuance of
the powers
conferred by
articles
15 and 16 (in
relation to
goods that
• Act or omission of the shipper or owner of the may become
goods, his agent or dangerous and
representative
• Strikes or lockouts, or stoppage or restraint of labour
from whatever cause

• Riots and civil commotions

• Saving life or attempting to save life

• Wastage in bulk or weight or any other loss or
damage arising from inherent
defect, quality or vice of the goods
• Insufficient
packaging
• Insufficiency or inadequacy of marks
• Latent defects not discoverable by
due diligence
• Any other cause arising without the actual fault or
privity of the carrier

Notification Notice of loss or damage must be given in writing to

of the carrier or his agent
before or at the time of delivery, or within 3 days
damage where damage is not
apparent.
Limitation of 100 pounds sterling 2 SDRs per kg or USD500 per
Liability per package or unit 666.67 SDRs per package or
package – customary
whichever freight unit
is higher

Liability Rules are silent.

for delay

Right to limit Carrier will

Loss of right No special provisions. lost if only lose
carrier intends right to limit
to limit to cause liability if
loss or is he intended
liability reckless to
knowing loss cause
would loss/damage
or was
probably result. reckless
knowing
such
loss/damage
would
need to be
sacrificed for
 common safe
“Error of
navigation”
defence and “
other cause”
defence have

been removed

Notice of loss t
be given at the
time of deliver
or if the
In writing to the carrier: loss/damage
is not apparent
then within 7
working days.
• by the working day Such notice is n
following delivery to required
when
loss/damage i
ascertained by
way of a joint
consignee inspection/su
• within 15 days of Failure to prov
delivery where damage notice shall no
is latent affect the righ
 claim
compensation
the allocation
burden of proo
Notice of delay must be No compensati
given within 60 days for delay if no
given after 21
days of delive
of delivery.

3 SDRs per kg
875 SDRs pack
2.5 SDRs per kg or 835 or shipping un
SDRs package or whichever
shipping unit – whichever
is the higher. is the higher.

Liability for
economic loss
2.5 times freight payable to delay is lim
on goods delayed, to an amount
equivalent to 2
times the freig
subject to upper limit of payable on the
total freight on all goods delayed
The total amo
payable not to
goods or amount of exceed the lim
limitation if goods have of liability und
been lost or destroyed. the rules.

Right to limit lost if The carrier can

 damage caused by limit if the
claimant prove
that the loss
resulting
from the brea
of the carrier’s
intention, with knowledge obligation was
that damage attributable to
“personal act o
omission… don
could occur or with the intent
recklessness. Also when cause such loss
recklessly and
with knowled
that such loss
goods are carried on deck would probab
contrary to result”.
express agreement to
carry under-deck. Damage/loss d
to delay includ

probably
result.

Detailed word
on how the
Shipper must show cargo was delivered to the carrier Carrier must prove that burden of proo
Burden of in good order and reasonable steps to operates.
The carrier is lia
for loss, damag
delay if the
condition but received at destination in damaged avoid loss were taken claimant prove
Proof condition. A clean B/L is unless damage is that
 such loss, dama
delay or event
(which was
prima-facie evidence of this. Under English law the causative or
claimant must establish caused by fire. contributed
by) took place
during the
carrier’s
breach of a seaworthiness obligation or failure to responsibility
properly and carefully carry the goods.
the goods. Once this is established, the burden of proof The carrier is
shifts to the carrier liable if the
claimant prove
that loss, dam
to show either due diligence or the application of one or delay
of the defences. was caused or
attributed by a
unseaworthin
of the ship,
b) improper
crewing,
equipping or
supplying of th
ship,
c) if the holds
other parts of
ship (including
containers) we
not fit and saf
for carriage,
reception and
preservation o
the goods.
The carrier is
 relieved from
liability if it can
prove that the
cause or
one of the cau
is not attributa
to its fault or t
fault of its
subcontractor
agents or
employees.
Alternative to
proving absen
of fault, the
carrier must p
that the dama
was caused by
one
of the excepti
in the list of
defences.

14
What is ‘LOF’ and give details of two clauses which have been added to LOF 2000 & LOF 2011.
(a)
LOF is the most widely used “no cure-no pay” salvage contract. In return for salvage services, the
salver receives a proportion of the “salved value” (the value of the ship, its bunkers, cargo and
freight at risk). Traditionally, reward depends upon success and the recovery of property.
In the past, if there was no recovery, there was no payment, whatever the expense of the
operation. This has changed in recent years, to reflect the public interest in prevention of
damage to the environment. The salver can now contract in such a way that he is shielded from loss
when responding to high risk or low value casualties. LOF provides a regime for
determining the amount of remuneration to be awarded to salvers for their services in saving
property at sea and minimising or preventing damage to the environment. The Salvage Arbitration
Branch is responsible for the administration of Lloyd's Standard Form of Salvage Agreement, or LOF
as it is more commonly referred to.

NO CURE – NO PAY
The first modern text of the Lloyd’s Form of Salvage Agreement (universally known as Lloyd’s Open
Form, or LOF) was adopted in 1892. By 1908 the text had been standardised. Since then LOF has
undergone 11 revisions; the current edition is LOF 2011, introduced in January 2011. The LOF
contract continues to evolve, to meet changing circumstances and new concerns. Most recently the
priority is now given to protection of the marine environment.

LOF 2000: Introduction of SCOPIC Clause.

LOF 2011: The latest version incorporating SCOPIC 2005 & 2007.

Practical experience of the use of SCOPIC highlighted some areas where clarification was required
and led to the introduction of new SCOPIC clauses, known as SCOPIC 2000, SCOPIC 2007 and more
recently SCOPIC 2011. New versions of Lloyds Open Form also came into force in 2000, known as
LOF 2000, and more recently LOF 2011 in 2011.

The main provisions of SCOPIC are as follows:

1. In a salvage incident, the contracting salver undertakes the salvage on a ‘no cure – no pay’
basis. But, under LOF 90, LOF 95, LOF 2000 or LOF 2011, the salver has the option of invoking
the special provisions of the SCOPIC clause at any time, regardless of the circumstances.
2. The salver does not have to prove an environmental threat and there is no geographical
restriction. Once the notice of invoking the SCOPIC clause has been given, an assessment of
the SCOPIC remuneration will start. The salver cannot make any claims under article 14 once
SCOPIC has been invoked.
3. Remuneration rates payable under the SCOPIC clause are based on a standard tariff for time
equipment and materials used, plus a standard bonus of 25%. The P&I clubs have reached
agreement with the ISU on the tariff rates for tugs, personnel and other equipment.
4. Salvage services then continue to be assessed in accordance with article 13, even if the
contractor invokes the SCOPIC clause. If there is no potential article 13 award, for example in
an unsuccessful salvage operation, the SCOPIC remuneration is to be paid by the ship-owner.
However, if the contractor invokes the SCOPIC clause and then the article 13 award is
 greater than the SCOPIC remuneration, the article 13 award will be discounted by 25% of the
difference between it and the amount of the SCOPIC remuneration that would have been.
This is to discourage salvers from invoking SCOPIC unnecessarily.
5. A further requirement is that when the SCOPIC clause is invoked, the ship-owner must
provide security in an amount of US$3 million within two working days. The P&I clubs expect
to provide security for SCOPIC, but provision is not automatic. If the shipowner does not
provide the security within the two working days required, the contractor can withdraw
from the provisions of the SCOPIC clause and revert to its rights under article 14. The
amount of security may be adjusted by agreement or arbitration at a later stage.
6. The rights of the ship-owner are looked after during the salvage operations by a casualty
representative (SCR). The advantages of the SCOPIC clause to ship-owners and P&I clubs is
that there should be little need for arbitration on special compensation awards and they
have more knowledge and, perhaps, control of the salvage operation. O It is no longer
necessary to prove an environmental threat and the geographical restriction has been
removed. This may be an advantage to salvers and a disadvantage to ship-owners. The
provision of security to the salvers is also more certain.

2000 and LOF 2011 enable the parties to specify whether SCOPIC forms part of the
agreement.

The LOF Solution - SCOPIC (Special Compensation P&I Club Clause)

In the light of the problems encountered, a sub-committee formed from representatives of the
International P&I Group and the International Salvage Union (ISU) began to meet in the autumn of
1997 with a view to developing in LOF cases a scheme to replace the method of assessing special
compensation under Article 14 and resolve other problems then being encountered. The principle
behind the SCOPIC clause was born at those preliminary meetings and later developed by the two
sub-committees together with two other sub-committees. One appointed by the London property
underwriters and another by the International Chamber of Shipping (ICS).
In August 1999, some 18 months after the idea was first suggested, and after lengthy discussion and
consultation, the wording of the clause was finalised. Final agreement required give and take on the
part of all sides and represented a balance of everyone's interest. While SCOPIC is lengthy, this was
necessary for it was designed to resolve just about every problem that then existed, or coul d be
envisaged, and avoid the extensive litigation that had been generated by Article 14. There proved to
be a number of minor errors and omissions in the original SCOPIC clause resulting in a revision
(SCOPIC 2000) in August 2000 to coincide with the publication of LOF 2000. The second revision
(SCOPIC 2005), which made some fine adjustments, came into effect on 1 August 2005. The third
revision (SCOPIC 2007), which inter alia, and for the first time, amended all the rates in Schedule A,
came into effect on 1 July 2007. The fourth version (SCOPIC 2011), which again amended the rates,
came into force on the first of January 2011.

P& I club
The thirteen P&I Clubs which comprise the International Group (the “Group”) between them provide
marine liability cover (protection and indemnity) for approximately 90% of the world's ocean-going
tonnage.

Through the unique Group structure, the member Clubs, whilst individually competitive, share between
them their large loss exposures, and also share their respective knowledge and expertise on matters
relating to shipowners liabilities and the insurance and reinsurance of such liabilities.

Each Group Club is an independent, not-for-profit mutual insurance association, providing cover for
its shipowner and charterer members against third party liabilities arising out of the use and
operation of ships. Each Club is owned by its shipowner and charterer members, and its operations
and activities are overseen by a board of directors, or committee, elected from the membership . The
day-to-day operations of the Clubs are handled by professional managers, either "in -house" or
external, who are appointed by and report to their Club board/committee.
The Clubs cover a wide range of liabilities, including loss of life and personal in jury to crew,
passengers and others on board, cargo loss and damage, pollution by oil and other hazardous
substances, wreck removal, collision and damage to property. The Clubs also provide a wide range of
services to their members including claims handling, advice on legal issues and loss prevention, and
they regularly play a leading role in coordinating the response to, and management of, maritime
casualties.

Group organisation

The Group is organised as an unincorporated association of the 13 member Clubs, and is chaired by
a senior Club manager representative, elected on a three year rotation, from one of the Group Club
managers. The current Group Chairman, Paul Jennings, Chief Executive Officer of the North of
England, was elected in November 2018.
The internal administration and the external engagement and representation of the Group is co -
ordinated by the Group secretariat, based in the City of London and headed by the Group Chief
Executive Officer.
The day-to-day work of the Group is carried out through a large number of subcommittees and
working groups which address a broad range of legal, regulatory, technical and insurance issues
impacting on shipowners, operators and charterers.

Group functions

The Group has three "core" functions, firstly the operation of the claims sharing ("pooling")
arrangements and the collective reinsurance of these arrangements, secondly it operates as a forum
for collecting and exchanging views between the Clubs and their shipowner members on matters
relating to shipowners’ liabilities, and insurance of such liabilities, and thirdly it provides a collective
industry voice for the purposes of engaging with external stakeholders including intergovernmental
maritime organisations, national governments, marine authorities around the world and the
shipping and marine insurance/reinsurance industries.

CLAIMS POOLING AND REINSURANCE

The primary function of the Group is the co-ordination and operation of the Clubs’ claims pooling
arrangements. Liabilities which exceed the individual Club retention which is currently set at US$10
million are shared between all 13 Clubs in accordance with the terms of the Pooling Agreement.
Much of the Group's day to day work involves defining and refining the scope of cover for pool
claims, and the rules and guidelines under which claims are shared between the Clubs.
This claim-sharing agreement is underpinned by a very extensive, annually renewed, commercial
market and captive reinsurance programme which is visualised in the Reinsurance section of this
website.

FORUM FOR SHARING INFORMATION

By bringing together the knowledge and expertise of the 13 member Clubs, the Group provides a
unique and invaluable forum for sharing information on a very broad range of matters of concern to
Clubs and their members. The extensive experience which resides within the individual Club
managements in the underwriting, legal, claims management and loss prevention fields, brought
together within the numerous Group subcommittees and working groups, provides an unparalleled
source of knowledge and expertise which can be brought to bear in exploring and developing
practical solutions for shipowners’ insurance needs and requirements, and this resource will become
increasingly important in the challenging and evolving times ahead for the shipping industry.

REPRESENTATION

With the Group Clubs representing around 90% of the world's oceangoing tonnage, and covering
virtually every type of vessel, the Group provides a very effective single voice for the Clubs and their
members to engage with governments, legislators and maritime regulators on matters relating to
shipowners’ liabilities to ensure the availability of adequate and sustainable insurance for such
liabilities, and to help to drive and shape effective and balanced policies and regulations governing
such liabilities.

Marine Losses with Examples

Marine losses can be divided into two main parts containing several subparts;
A. Total loss;

1. Actual total loss

2. Contractive total loss
B. Partial loss;

1. Particular average losses

2. General average losses
3. Particular charges
4. Salvage charges

These classifications are described in details below;

Total loss
There is an actual total loss where the subject matter insured is destroyed or so damaged as to cease
to be a thing of the kind insured or where the assured is irretrievably deprived thereof.
Losses are deemed to be total or complete when the subject- matter is fully destroyed or lost or
ceases to be a thing of its kind.
It should be distinguished from a partial loss where only part of the property insured is lost or
destroyed.
In case of total loss, the insured stands to lose to the extent of the value of the property provided
the policy amount was to that limit.
Actual total loss
The actual total loss is a material and physical loss of the subject-matter insured.
Where the subject- matter insured is destroyed or so damaged as to cease to be a thing of the kind
insured, or where the insured is irretrievably deprived thereof, there is an actual total loss.
When a vessel is foundered or when merchandise is so damaged as to be valueless or when the ship
is missing it will be an actual total loss.

The actual total loss occurs in the following cases:

1. The subject-matter is destroyed, e.g., a ship is entirely destroyed by fire.

2. The subject-matter is so damaged as to cease to be a thing of the kind insured. Here, the subject-
matter is not totally destroyed but damaged to such an extent as the result of the mishap; it is no
longer of the same species as originally insured. The examples of such losses are —foodstuff badly
damaged by sea water became unfit for human consumption, hides became valueless as hides
due to the admission of water. These damaged foodstuffs or hides may be used as manure. Since
the characters of the subject-matters are changed and have lost their shapes, they are all actual
total loss.
3. The insured is irretrievably deprived of the ownership of goods even they are in physical
existence as in the case of capture by the enemy, stealth by a thief or fraudulent disposal by the
captain or crew.
4. The subject-matter is lost. For example, where a ship is missing for a very long time and no news
of her is received after the lapse of a reasonable time. An actual total loss is presumed unless
there is some other proof to show against it.

In case of actual total loss, notice of abandonment of property need not be given. In such total
losses, the insurer is entitled to all rights and remedies in respect of damaged properties. In no case,
amount over the insured value or insurable value is recoverable in a total loss form the insurers.
If the property is under-insured, the insured can recover only up to the amount of insurance. If it is
over insured he is not over-benefited but only the actual loss will be indemnified.
Where the subject-matter had ceased to be of the kind insured, the assured will be given the full
amount of total loss provided there was insurance up to that amount, and the insurer will subrogate
all rights and remedies in respect of the property.
Any amount realized by the sale of the material will go to the insurer.
Constructive total loss
Where the subject-matter is not actually lost in the above manner but is reasonably abandoned
when its actual total joss is unavoidable or when it cannot be preserved from total loss without
involving expenditure which would exceed the value of the subject-matter.
For example,
The cost of repair and replacement was estimated to be $50,000, whereas the ship was estimated to
be $40,000, the ship may be abandoned and will be taken as a constructive total loss.
But if the value of the ship was more than $50,000 it would not be a constructive total loss. Here it is
assumed that retention of the subject-matter would involve financial loss to the insured.
The constructive total loss will be where;

1. The subject-matter insured is reasonably abandoned on account of its actual total loss appearing
to be unavoidable;
2. The subject-matter could not be preserved from actual total loss without an expenditure which
would exceed its repaired and recovered value.

The insured is not compelled to abandon his interest, where the goods are abandoned, the insurer
will have to pay the full insured value.
Where awe is a constructive total loss, the assured may either treat the loss as a partial loss or
abandon the subject-matter insured to the insurer and treat the loss as if it was an actual total loss.
Difference between actual and constructive total loss
The actual total loss is related with the physical impossibility and the constructive total loss is related
with the commercial impossibility.
For example,
If the hides are so damaged that it is impossible to prevent the hides from the destruction and it may
become a mass of putrefied matter, die case is of an actual total loss.
But if it was possible to restore the hides to their original condition, though die cost of so doing
would exceed their value at the destination, the damaged hides can be claimed as constructive total
loss because the completion of the adventure has become commercially impossible.
Salvage loss
Where actual total loss occurred, and die subject-matter is so damaged as to cease to be a thing of
the kind insured or when they have been sold before reaching the destination, there is a
constructive total loss. The usual form of settlement is that the net sale proceeds will be paid to the
assured.
The net sale proceeds are calculated by deducting expenses of the sale from the amount realized by
die sale.
The insured will recover from the insurer the total loss less the net amount of sale. This amount
received from the insurer is called a ‘salvage loss’.
Partial loss
Any loss other than a total loss is a partial loss. The partial loss is there where only part of the
property insured is lost or destroyed or damaged partial losses, in contradiction from total losses,
include;

1. Particular average losses, i.e., damage, or total loss of a part,

2. General average losses (general average) le., the sacrifice expenditure, etc., done for the
common safety of subject-matter insured,
3. Particular or special charges, i.e., expenses incurred in special circumstances, and
4. Salvage charges.

Particular average loss

The particular average loss is ‘a partial loss’ of the subject-matter insured caused by a peril insured
and is not a general average loss.
The general average loss or expense is voluntarily done for the common safety of all the parties
insured.
But, the particular average loss is fortuitous or accidental. It cannot be partially shifted to others but
will be borne by die persons directly affected. The particular average loss must fulfill the following
conditions:

1. The particular average loss is a partial loss or damage to any particular interest caused to (hat
interest only by a peril insured against.
2. The loss should be accidental and not intentional.
3. The loss should be of the particular subject-matter only.
4. It should be the loss of a part of die subject-matter or damage thereto or both. The distinguishing
feature in this matter is that where the properties insured are all of the same description, kind
and quality and they are valued as a whole in the policy, the total loss of a part of this whole is a
particular loss, but where the properties insured are not all of the same description, kind and
quality and they are separately valued in the policy, the loss of an apportionable part of the
interest is a total loss.

In case of total loss of a part of recoverable either as a total loss or as a particular average loss, the
basis of the settlement will be on the total loss of the whole lot or the insurer will be liable to pay in
proportion according to the insured or insurable value of the whole interest.
The particular average on cargo
The particular average loss may be either the damage or depreciation of a particular interest or a
total loss of its part.
If the property is insured under one value for the whole and is all the same kind, quality or
description, a total loss of part will be recovered as a particular average loss.
In the case where goods are delivered in a damaged condition or where the value is depreciated, the
resulting particular average loss will be adjusted upon the basis of comparison between the gross
sound value and damaged value.
The process of valuation is as follows:

1. The gross sound value of the goods damaged is found out. This is the value for which the goods
would have been sold if the goods had reached the port of destination in sound condition.
2. After calculating the above value, the gross damaged value of the goods damaged or depreciated
is found out on the basis of market price at that time.
3. Deduct the gross damaged value from the gross sound value. The difference is the measure of
the actual damage or depreciation.
4. The ratio of the damage or depreciation is calculated by dividing the amount of damage or
depreciation by the gross sound value.
5. Apply the above ratio to the value (insured or insurable value as the case may be) of the
damaged or depreciated goods which will give the amount of particular average loss.
6. Of the amount thus arrived at, the insurer is liable for that proportion which his sum insured
bears to the value (insured or insurable).

General average Loss

General average is a loss caused by or directly consequential on a general average act which includes
a general average expenditure as well as general average sacrifices.
The general average loss will be there where the loss is caused by an extraordinary sacrifice or
expenditure voluntarily and reasonably made or incurred in time of peril for the purpose of
preserving the property imperiled in common adventure.
The following elements are involved in general average.
The loss must be extraordinary in nature. The sacrifice or expenditure must not be related to the
performance of routine work.
A state of affairs may compel the master to do something beyond his ordinary duty for the
preservation of the subject-matter.

1. The whole adventure must be imperiled. The peril should be something more than the ordinary
perils of the sea. It should be imminent and real.
2. The general; average act must be voluntary and intentional accidental loss or damage is
excluded.
3. The toss, expenses or sacrifice must be incurred or made reasonably and prudently. The master
of the ship is the proper person to decide the reasonableness of a particular circumstance.
4. The sacrifice, loss or expenditure should be made for the preservation of the whole adventure. It
should be made for the common safety.
5. If the sacrifice proved abortive, it will be allowed as the total loss. Therefore, to call it the general
average, it must be successful at least in part.
6. In absence of contrary provision, the insurer is not liable for any general average loss or
contribution where the loss was not incurred for the purpose of avoiding, or in connection with
the avoidance of a peril insured against.
7. The loss must be a direct result of a general average act. Indirect losses such as demurrage and
market losses are not allowed as general average.
8. The general average must not be due to some default on the part of the person whose interest
has been sacrificed.

The adjustment of general average losses is entrusted to an average adjuster.

Particular charges
Where the policy contains a “sue and labor” clause, the engagement thereby entered into is deemed
to be supplementary to the contract of insurance and the assured may recover from the insurer any
expenses properly incurred pursuant to the clause.
The clause requires the insurers to pay any expenses properly incurred by the assured or his agents
in preventing or minimizing loss or damage to the subject-matter by an insured peril. The essential
features of the clause are as below:
The expenses must be incurred for the benefit of the subject matter insured. The expenses incurred
for the common benefit will be a part of the general average.
The expenses must be reasonable and be incurred by “the assured, his factors, his servants or
assigns” and this provision effectively excludes salvage charges.
They are recoverable only when incurred to avert or minimize a loss from a peril covered by the
policy.
As per NYPE agreement 1996, cargo claims are to be settled between owner and charterer, in
accordance