IUA MARKET BRIEFING with the Association of Average Adjusters Cargo Claims, GA and Traps for the Unwary"
CARGO CLAIMS TRAPS FOR THE UNWARY Keith Sturges Fellow, Association of Average Adjusters
1.Rejection of cargo Shock for the assured 2.Loss of warranty Blow to the insurers 3.Restricted clauses The unexpected gaps
REJECTION Maize Argentine to Aqaba, Jordan Stowed in 4 holds 2 holds sound 2 holds leaking hatch covers - some surface damage
Patches of moisture. Sporadic mould growth on surface
17,250 mt sold in Malaysia 110 mt skimmed off (= 0.64%) Balance sound INSTITUTE CARGO CLAUSES (A)...all risks of loss or damage to the subject matter insured... Assured s claim US$ 3,800,000
REJECTION RISKS Covers the risk of rejection or condemnation by the government of the country of import. The inclusion of a single grain of foreign seed in a cargo of fertiliser could be sufficient cause to condemn the entire shipment and require it to be re-exported.
REJECTION RISKS Berns and Koppstein v Orion (1959) Peanuts in shells Infestation by bugs in the sacks Authorities refused entry unless fumigated Fumigation costs and depreciation in value
REJECTION RISKS Berns and Koppstein v Orion (1959) The court held there was no loss by insured perils under the all risks conditions. Without the rejection insurance, the act of the government would not have been the basis of any claim against the underwriters. It would not have been a peril insured against.
Security applications e.g. airports and sensitive locations Mobile X-ray equipment
Modest damage only
Options 1. Repair locally, at modest cost - at manufacturers premises in USA. 2. Sell for best possible proceeds
Problems 1. No warranty, even if repaired by manufacturers 2. End users would not accept without warranty
INSTITUTE REPLACEMENT CLAUSE In the event of loss of or damage to any part or parts of an insured machine caused by a peril covered by the Policy the sum recoverable shall not exceed the cost of replacement or repair of such part or parts plus charges for forwarding and refitting, if incurred.. Loss of warranty; purely commercial loss?
What is the thing insured?
Outcome Assured = trader (middle man) The thing insured = x-ray units with warranty Without warranty = unsaleable; no longer a thing of the kind insured No Replacement Clause or similar in the policy
Institute Cargo Clauses (B) - fire or explosion - vessel or craft being stranded grounded sunk or capsized - overturning or derailment of land conveyance - collision or contact of vessel craft or conveyance with any external object other than water - discharge of cargo at a port of distress - earthquake volcanic eruption or lightning - general average sacrifice - jettison or washing overboard - entry of sea lake or river water into vessel craft hold conveyance container or place of storage - total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft. THEFT
Institute Cargo Clauses (B) This insurance covers general average and salvage charges, adjusted or determined according to the contract of carriage and/or the governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below. AB Clauses capture, seizure, arrest, restraint or detainment (piracy excepted)
Institute War Clauses 1.1 war civil war revolution insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power 1.2 capture seizure arrest restraint or detainment, arising from risks covered under 1.1 above, and the consequences thereof or any attempt thereat 2. General Average Clause This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice, incurred to avoid or in connection with the avoidance of loss from a risk covered under these clauses.
Thank you Keith Sturges Fellow, Association of Average Adjusters
CARGO CLAIMS AND GA - TRAPS FOR THE UNWARY 17 March 2016 Keith Sturges of RHL and Mark Meredith of Waltons & Morse LLP
HYUNDAI FORTUNE MARCH 2006
MSC CHITRA AUGUST 2010
HANJIN PENNSYLVANIA NOVEMBER 2002
MARINE CASUALTIES WHEN DISASTER STRIKES! Cargo Underwriters and/or their Assureds may face a number of significant claims including General Average Claims LOF/Common Law Salvage Claims PA Claims Constructive Total Loss Claims Claims in relation to Non-delivery of cargo To name but a few
A marine casualty has arisen The immediate steps for the wary cargo interest SPEED - Speed is of the essence try to determine extent of financial involvement in the casualty CIRCUMSTANCES- Establish the circumstances surrounding the incident, was it a grounding/a collision/a fire EXPERTS - Depending on the nature and complexity of the casualty, experts could be vital to ensuring that your position as Underwriters is not prejudiced SURVEYORS/LAWYERS - Liaise with other parties involved be they surveyors, lawyers or any other experts who may be involved CARGO CONDITION Is cargo a total or partial loss
GA SECURITY SIGN IN HASTE, REPENT IN LEISURE? A casualty occurs and GA is declared If GA is declared by Shipowners, they have a right to GA security (GA Bond and GA Guarantee) prior to releasing their lien over cargo at the port of discharge. GA Security is usually drafted by the GA Adjusters (usually appointed by the Shipowners but can be by cargo) The Receivers/Owners of the cargo ordinarily complete the GA Bond, whereas cargo insurers will complete the GA Guarantee. GA security is then lodged with Adjusters to release the cargo. HOWEVER
Extreme caution has to be exercised when issuing GA security! First, careful review of the available cargo documents must be undertaken Has title and risk been established? Who owned the cargo at the time of the casualty? Are the relevant sales contract to hand to ensure that the chain of ownership and risk can be determined? Once risk and title and ownership has been established, then what
GA SECURITY Frequently, GA securities will include wording such as To pay the proper proportion of any General Average and/or Special Charges which may hereafter be ascertained to be due from the Cargo Do the monies have to be legally and properly due with such a wording?
The MAERSK NEUCHATEL 2014
The MAERSK NEUCHATEL grounded in 2007 off Tema. The Owners validly declared GA. Time Charterers, Maersk, provided a blanket LOU to Owners which included cargo interests proportion of GA. Thereafter, the Adjusters published a GA Adjustment holding Maersk liable for GA owed by all cargo interests under the construction of the LOU Maersk were of the opinion they had to only pay sums properly and legally due from cargo interests and challenged the quantum of the GA claim What happened??
The Shipowners argued before Mr Judge Hamblen that the LOU was a clear undertaking to pay and was, in effect, an ondemand guarantee Maersk s position was that the LOU was only an undertaking to pay what was legally and properly due insofar as GA Adjustments are not binding on the parties to the maritime adventure. The Judge found in favour of the Shipowners. The wording of the LOU was held to mean that the LOU contained a clear undertaking to pay a sum ascertained to be due. There was no requirement this had to be legally due
What do we learn from this??? The unwary cargo insurer and the unwary cargo owner will sign a GA Guarantee and Bond without first considering the implications of doing so. Ensure the wording does not prejudice your position as cargo interests, if in doubt, call someone who may be able to assist
SECURITY FOR CLAIMS
SECURITY FOR CLAIMS As soon as a major casualty occurs, or when a significant PA loss is reported, the wary cargo interest will consider the issue of security as early as possible. Most commonly, security will be provided by the P&I Club with which a Shipowner or Bill of Lading Issuer is entered in the form of a Club Letter of Undertaking It is very important that any LOU is obtained from a reputable P&I Club belonging to the International Group of P&I Clubs. A number of factors have to be taken into account by the wary insurer in discussions relating to security
SECURITY WORDINGS THE POTENTIAL TRAPS The International Group presently in discussions over an agreed format for LOU S similar to ASG Cargo Undertaking Version 9 At present time, each Club has its own LOU version is it possible to standardise? When considering LOU wording cargo interests must consider whether to accept all-inclusive or plus interest and plus costs don t be under-secured! Ensure all the parties are addressed correctly on the LOU and that all and any claims are covered and consider inclusion of Non-liability in GA
SECURITY WORDINGS THE POTENTIAL TRAPS Make sure that the Club has authority to give security on behalf of the correct party this has to be expressed in writing! Think about a demise charter warranties in the LOU wording this will serve to ensure that security is given on behalf of the correct party. In some Continental Forms, such as Rotterdam and South Africa, the duration of the LOU can be time limited don t be time barred for security!
The essence of Speed Let us consider the following
MV UNFORTUNATE departs China destined for the UK. During the voyage she suffers a shift of cargo causing considerable cargo damage Cargo interests are aware that the UNFORTUNATE is due to arrive at the port of discharge imminently. The day she is due to arrive, cargo interests contact the P&I Club to request attendance on board to undertake survey prior to discharging operations taking place. Attendance is declined. Cargo interests appoint lawyers who are able to secure access for cargo survey. The P&I Club agrees to joint survey. Survey takes place and cargo damage is indeed considerable, some 750,000.00 You contact the P&I Club for security. She is entered with a Club, not belonging to the International Group. However, the Club advise they are willing to issue security. You take this on trust. The UNFORTUNATE then departs the port of discharge. Thereafter, the P&I Club do not respond to emails relating to security. The Owners only have the UNFORTUNATE as an asset. You are then forced to try and arrest in a potentially difficult jurisdiction.
What do we learn from this? The wary insurer cargo interest must ensure that adequate security must be obtained prior to the vessel departing. Alternatively, cargo interests should consider arresting the vessel with a view to obtaining a bank guarantee. Once the vessel is gone, it is very, very difficult to exert any pressure on the Owners or the Club to provide security in such circumstances. Obtaining adequate security at an early stage can often act as a catalyst for expedient settlement of the claim.
TITLE TO SUE Title to Sue is a fundamental aspect of ensuring recovery rights in contract or tort. Too many claims with strong merit, backed by adequate security, fail due to Title to Sue issues. It is crucial for the insurer to be wary when it comes to claiming in the name of the correct party. Therefore, it is crucial that any action is brought in the name of the correct party. The Carriage of Goods by Sea Act (1992) governs the rights of parties to claim in English Law. Under COGSA, in contract law, it is the lawful holder of the Bill of Lading (being the party to possessory title to the cargo) who can claim for damages. In tort, the legal owner of the cargo at the time of the incident has rights to claim. This can be difficult to evidence. It is likely that there may well be a number of sales contracts in place governing the sale on a particular voyage. If it cannot be determined when damage took place, it could be impossible to determine who owned the cargo at the time of loss. The wary cargo interest will, when issuing proceedings, ensure that all possible parties are named in the action as well as the insurers themselves.
TIME LIMITS AND TIME EXTENSIONS Time limits and time extensions can be a minefield It is important to carefully look at the documents in order to determine the applicable time limits. A Master Bill of Lading may well provide for a one year time limit whereas a House Bill of Lading may provide for 9 months. Obtain a time extension from the issuer of the House Bill of Lading well in advance of the 9 month time limit as well as obtaining a time extension from the issuer of the Master Bill of Lading. Ordinarily, under the Hague Visby Rules which apply to the majority of ocean going contracts of carriage, the applicable time limit will be one year from the date that delivery of cargo was delivered or, in circumstances where it is a total loss, should have been delivered.
TIME LIMITS AND TIME EXTENSIONS If a Carrier or a P&I Club grant an extension, the wary cargo interest will pay close attention to the terms of the extension and further will ensure that the extension covers all Bills of Lading Always check to ensure that the party giving the time extension has authority to do so and names the party in the time extension There have been circumstances where P&I Clubs have used wordings which do not grant a valid extension or some Bills of Lading have been left out of the time extension. In the case of the latter, time will not have been deemed to be extended by a Court. Further, you must consider the jurisdiction in which he finds himself. If a Chinese carrier grants a time extension in relation to claims subject to Chinese law and jurisdiction do not accept it. Time extensions are not valid in China under the Maritime Code and the extension is not worth the paper it is written on. You have to file suit!
One final factor the wary cargo interest will consider Is pursuit of the recovery financially viable and what can be achieved by it? Will the costs exceed the benefit? This has to be considered at the earliest stage possible there is little point throwing good money after bad!
ANY QUESTIONS?
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