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AA Talk: Can Law be determined by reference to Practice?

Raymond Wong

“…, the law cannot be decided by what is understood among writers and practitioners in the relevant field … Experience shows that in many areas of practical and professional endeavour generally accepted points of principle and practice, when tested in court, sometimes turn out to be unsustainable.  I accept that it may be right for a court to have regard to practices which have developed and principles which have been adopted by practitioners, but they cannot determine the outcome when the issue is ultimately one of Law.”   

Lord Neuberger in “The Longchamp” [2017]

“THE LONGCHAMP”

Included in Issue No.118 is “An Adjusters’ Note on Substituted Expenses and Ransom Payments” contributed by Richards Hogg Lindley following the Commercial Court judgment on “The Longchamp” case having been reversed by the Court of Appeal, highlighting that the position under English law with regards to Rule F of the York-Antwerp Rules reverted to the position being in line with the views of the majority on the Advisory Committee of the British Association of Average Adjusters.

The Editor, however, did mention in this column that “Readers are reminded that the “Longchamp” case where the Court of Appeal has reversed the 2014 High Court judgment is coming up for trial in the Supreme Court.”

The Supreme Court, on 25th October 2017, allowed the Appeal, thus overruling the decision at the Court of Appeal.

The case has been widely reported but for sake of completeness and easy reference, the Editor would repeat briefly summary of the factual backgrounds and decisions.

 

The casualty

On 29 January 2009 the chemical carrier MV Longchamp (“the vessel”) was transiting the Gulf of Aden on a voyage from Rafnes, Norway, to Go Dau, Vietnam, laden with a cargo of 2,728.732 metric tons of Vinyl Chloride Monomer in bulk (“the cargo”).  The cargo was carried under a bill of lading dated 6 January 2009 which stated on its face that “General Average, if any, shall be settled in accordance with the York-Antwerp Rules 1974”.

At 06.40, seven heavily armed pirates boarded the vessel.  The pirates commanded the master to alter course towards the bay of Eyl, Somalia, where she arrived and dropped anchor at 10.36 on 31 January 2009.  At 14.05 on 30 January 2009 a negotiator for the pirates boarded the vessel and demanded a ransom of US$6m.  The vessel’s owners (“the owners”) had meanwhile formed a crisis management team who had set a target settlement figure of US$1.5m.  On 2 February 2009 an initial offer of US$373,000 was put to the pirates.  Negotiations between the pirates’ negotiators and the owners’ crisis management team continued over the following seven weeks with various offers and counter-offers being made.

Eventually on 22 March 2009, after a negotiation period of 51 days, a ransom was agreed in the amount of US$1.85m.  On 27 March 2009 the ransom sum was delivered by being dropped at sea.  At 07.36 on 28 March 2009 the pirates disembarked and at 08.00 that day the vessel continued her voyage.

It is worth noting that the cargo was subsequently valued at destination at US$787,186 and the value of the ship was assessed at US$3,947,096.  That is to say, the total value of the property at risk amounts to US$4,734,282 which sum is less than the ransom of US$6m initially demanded.

 

The relevant York-Antwerp Rules

Rule of Interpretation

In the adjustment of general average the following lettered and numbered Rules shall apply to the exclusion of any Law and Practice inconsistent therewith.

Except as provided by the numbered Rules, general average shall be adjusted according to the lettered Rules.

Rule A

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.

Rule C

Only such losses, damages or expenses which are the direct consequence of the general average act shall be allowed as general average.

Loss or damage sustained by the ship or cargo through delay, whether on the voyage or subsequently, such as demurrage, and any indirect loss whatsoever, such as loss of market, shall not be admitted as general average.

Rule E

The onus of proof is upon the party claiming in general average to show that the loss or expense claimed is properly allowable as general average.

Rule F

Any extra expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but only up to the amount of the general average expense avoided.

 

Adjustment dated 31 August 2011

The Adjusters allowed in general average the following expenses incurred during the negotiation period, which the cargo disagrees:

Commercial Court decision [2014]

The Court found that:

  • the expenses ii) – v) incurred during the negotiation period were allowable in general average under Rule F as “substituted expenses” (in lieu of US$4.15m saving);
  • the expenses i) and vi) were allowable in general average under Rule A;
  • payment of the original ransom demand of US$6m without negotiation would have been reasonable.

Court of Appeal decision [2016]

The cargo appealed challenging to the judgment on expenses i) – v) and the Court agreed that:

  • payment of the original ransom demand of US$6m without negotiation would have been reasonable;
  • the media response costs, i) are allowable in general average under Rule A;
  • consumption of bunkers is treated as an expense for the purpose of Rule F;

but found that:

  • the negotiation period expenses, ii) – v), did not fall within Rule F holding that negotiating a reduced ransom of US$1.85m (and the saving of US$4.15m) was not “an alternative course of action” to the payment of the original sum demanded – merely a variant (which decision apparently followed the reasoning supported by the leading textbooks and was in line with the conclusion made by the majority of the majority of the Advisory Committee of the British Association of Average Adjusters, reflecting the almost universal practice not to allow these items under Rule F in the circumstances).

Supreme Court decision [2017]

The owners appealed to the Supreme Court submitting that the negotiation period expenses, ii) – v) amounting to US$160,213.95, fell within the expression “expense incurred” by them within Rule F and those expenses were incurred “in place of another expense”, i.e. the saving of US$4.15m resulting from the negotiations.  Since the negotiation period expenses were less than the “general average expense avoided”, they were accordingly allowable in general average under Rule F.

The Supreme Court (by a majority of 4 to 1) reversed the Court of Appeal decision, allowing the negotiation period expenses, ii) – v), in general average under Rule F and finding that:

  • the language of Rule F did not require that the expenses were incurred following an alternative course;
  • it was not necessary to consider whether the initial ransom demand was reasonable under Rule A;

It is worth noting the issues considered by the Supreme Court, which are highlighted as follows:

  1. The Court found that it would not be necessary, and it would be wrong to assume that it would be necessary, to establish that it would have been reasonable to accept the initial ransom demand in order to justify the contention that the negotiation period expenses were allowable under Rule F.  Such assumption would mean that, “if a ship-owner incurs an expense to avoid paying a reasonable sum, he can in principle recover under Rule F, whereas if he incurs expense to avoid paying an unreasonable sum (i.e. a larger sum), he cannot recover.  The more obvious his duty to mitigate, and the greater the likely benefits of such mitigation, the less likely he would be to be able to recover.”
  2. The Court considered that the words in Rule F “another expense which would have been allowable as general average” were a reference to an expense of a nature/type which would have been allowable (rather than its’ quantum) under Rule A, under which a ransom would be allowable in general average.
  3. Lord Neuberger favoured the interpretation of Rule F which “produces an entirely rational outcome: whenever an expense is incurred to avoid a sum of a type which would be allowable, that expense would be allowable, but only to the extent that it does not exceed the sum avoided.” Accordingly, the negotiation period expenses in the amount of US$160,213.95 fell under Rule F as they were incurred to avoid paying US$6m, resulting in a saving of US$4.14m.
  4. The Court found that Rule C only applies to loss consequential on a general average act defined by Rule A. It does not apply to expenses covered by Rule F, which is concerned with sums expended in avoiding expense otherwise allowable as general average.
  5. The Court disagreed to the payment of a reduced ransom being not “an alternative course of action” to paying the original ransom demand but merely a “variant”. The Court found that incurring the negotiation period expenses was an alternative to paying a higher ransom; “the former involved incurring vessel-operating expenses whereas the latter involved paying a ransom”.
  6. The Court saw no reason for restrictively interpreting the word “extra” so as to require an expense to be of a nature which would not normally have been incurred in response to the peril threatening the adventure. The Court was of the opinion that the natural contextual meaning of “extra expense” was “simply an expense which would not otherwise have been incurred (but for the saving of the “other expense”)”.

The following comments made by the Supreme Court in the judgment are well worth noting:

  1. The York-Antwerp Rules are an international agreed sets of rules. In para 29 of the judgment, Lord Neuberger states: “Given that the Rules represent an international arrangement, it is particularly inappropriate to adopt an approach to their interpretation which involved reading in any words or qualification.  As already mentioned, it appears to me that, as a matter of ordinary language, Rule F applies to the negotiation period expenses for the reasons given in para 26 above.  To imply some qualification such as the requirement that those expenses must have been incurred so as to achieve an “alternative course of action” appears to me to be very dangerous.  In the same way as an international convention or treaty, the Rules should be interpreted by a United Kingdom court “unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation” …. “it is the unadorned language of the article to which attention must be directed”.”
  2. Lord Neuberger is not convinced that, as a matter of language, the passages in the leading textbooks support the conclusion that Rule F can only be invoked when the claimant has taken an “alternative course of action”, and he states in para 25 of the judgment: “… the law cannot be decided by what is understood among writers and practitioners in the relevant field … Experience shows that in many areas of practical and professional endeavour generally accepted points of principle and practice, when tested in court, sometimes turn out to be unsustainable.  I accept that it may be right for a court to have regard to practices which have developed and principles which have been adopted by practitioners, but they cannot determine the outcome when the issue is ultimately one of Law.” (The obvious precedents are the The Makis [1929] and The Alpha [1991]).

The English Supreme Court judgment is in contrast with the current practice of most average adjusters to disallow such negotiation period expenses and will no doubt affect the future English general average adjustments of substituted expenses under the York-Antwerp Rules.  It will be interested to see if the market would, like what it had done following “The Makis” case, seek to revert to the long accepted practice.

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AN INTERNATIONAL AVERAGE ADJUSTING CENTRE

Raymond T C Wong[1]

ABSTRACT

One of the business opportunities which has arisen as a result of the Belt and Road Initiative involves marine insurance and claims handling[2].   This has prompted an examination of one of the most valuable support services available to the maritime and insurance community, Average Adjusting, with a view to raising the awareness of Hong Kong being an international average adjusting centre.

 

I – INTRODUCTION

Nothing is 100% certain; nothing is 100% safe.  Marine casualties occur on a daily basis, thus the need for marine insurance which was highlighted by an act of the English Parliament in 1601:

“By means of insurance, if a ship is lost, there will not follow the ruination of any one man; instead, the loss will fall lightly upon many men, and more particularly on wealthy men who stay safely at home, rather than on those who adventure abroad and take risks, whereby all merchants, especially the younger ones, are able to be more adventurous in their trading and take greater risks.”

Marine casualties are often complex affairs and the improper handling of a situation can aggravate cash flow problems and lead to rights and liabilities vis-a-vis insurers and third parties being prejudiced.  Understandably, very few assured are capable or interested in handling complicated insurance related claims arising out of marine casualties.

Professional average adjusters, however, with their detailed knowledge of maritime practice, insurance, and law – supported by rigorous training and professional qualifications, are able to assist with virtually any aspect of a maritime casualty; they appear to be a combination of lawyers and accountants and are not there to make a profit/gain for any parties involved in the maritime adventure or the policies of marine insurance, only to make sure that claims are settled fairly.  It is for their expertise that average adjusters are appointed and/or consulted, almost invariably by shipowners, to advise and assist as necessary after a maritime casualty giving rise to general average, although under English Law at least[3], shipowners are not obliged to employ a professional average adjuster and they may draw up their own average adjustment.

For insurers including re-insurers, the concern is that claims are not aggravated and rights are not prejudiced by improper action after a casualty.  Later they are concerned that they pay no more and no less than the proper claim.  In the long established insurance market of London and those which follow the practice of London (including Hong Kong and Taiwan), it appears that the conventional insurers would be prepared to advise the Assured in the manner along the following lines:

“Marine insurance claims are likely to be complicated; we appreciate that the Assured is likely to be at a disadvantage.  We want you (the Assured) to feel confident that we will pay valid claims.  As a pledge of that confidence, we (the Insurer) will allow you to use an Average Adjuster of your choice and we will pay his bill.”

Hong Kong has been adjusting averages since 1945, and with its highly qualified adjusters having had work experience in major shipping and insurance markets, and a great amount of effort going continuously to the training of adjusting staff as well as claims practitioners (for the benefit of the marine insurance industry), has evidently acquired a considerable reputation internationally.

 

II – ADJUSTING AVERAGES[4]

The Average Adjuster adjusts averages which are losses or claims arising from maritime casualties.  So, the Average Adjusters are assessing and stating marine claims – insurance, general average and liability.

Average adjusting has been around for a very long time, dating back to when the story of general average started some 2,500 or 3,000 years ago.  In those far off times, merchants usually travelled with their cargo on board the ship.  In spite of all safety precautions, disaster could suddenly threaten these little ships.  Following the grounding of a vessel, the only way to refloat her may have been to deliberately throw overboard some cargo.  There must have been many fierce arguments between the merchants as to whose cargo was to be jettisoned, until presumably the shipmaster with common sense made an important decision which was subsequently embodied in the law of the Island of Rhodes about 2,500 years ago:

“If in order to lighten a Ship, merchandise is thrown overboard, that which has been given for all shall be replaced by the contribution of all.”

Assume that Cargo B was chosen to be jettisoned and the vessel refloated to resume her voyage, the contributions to the sacrifice were settled by the parties to the adventure upon safe arrival at destination, probably by the shipmaster adjusting and apportioning the sacrifice over the values of the property saved and/or made good as follows:

It will be seen that everyone whose property was at risk had sustained the same degree of loss i.e. 25%.

From the above brief recital, it is apparent that general average exists independently of insurance (though it can be looked upon as being a form of mutual insurance) and, indeed, had been in existence long before any policies of insurance as we know them today were in use.  Nevertheless, it is now common for the property owners to be insured so that they may recover anything they pay in general average from their insurers.  Consequently, the settlement of general average has, in practice, become a settlement between insurers.  Hence, whilst general average has nothing to do with insurance, insurance has much to do with general average.

The York-Antwerp Rules

The essential fairness of the general average system has been followed by virtually all countries with maritime trade although the laws in each country vary.  Efforts made to attain international uniformity started in the year 1860, resulting, ultimately, in the York-Antwerp Rules,  which are today widely accepted throughout the world.  Almost all contracts of carriage, being either charter parties or bills of lading, provide for general average to be adjusted according to the York-Antwerp Rules (to the exclusion of any law and practice inconsistent therewith).  These rules have been reviewed and revised from time to time, the latest version being York/Antwerp Rules 2016:

  • York Rules 1864
  • York/Antwerp Rules (“YAR”) 1877
  • YAR 1890
  • YAR 1924 (CMI started as custodian)
  • YAR 1950
  • YAR 1974
  • YAR 1974 as amended 1990
  • YAR 1994
  • YAR 2004
  • YAR 2016

It is worth noting that YAR 2004 was unfortunately approved without a consensus between shipowning and other interests, hence receiving negligible support.  Currently, the set of rules commonly incorporated in the contracts remains being the York-Antwerp Rules 1994.

The Professional Average Adjusters

Within the maritime industry, Average Adjusters belong to a unique and small profession.  The first known professional average adjusters practiced in the City of London from about 1800, though there is record that Lord Justice Mansfield, in his celebrated judgment in the case of Lewis v. Rucker in 1761, refers to the fact that:

“I thought a good deal of the points, and endeavoured to get what assistance I could by conversing with some gentlemen of experience in adjustment.”

In his address to the average adjusters in 1935, Mr. Justice Mackinnon said:

“Your profession is a singular one – not merely because the vast majority of your fellow-citizens have not the remotest idea what your duties are; but because, above any other profession that is not actually legal, you are required to have, and in fact possess, a very exact knowledge of a very special branch of the law.”

The pre-requisites of a qualified, professional average adjuster are expertise, experience and independence.  With his established reputation of impartiality and background of knowledge, he offers a non-litigious, non-adversarial method for settling claims by acting as an impartial intermediary between the parties concerned.  In this respect, the conventional average adjuster has a two-fold duty:

  • To the assured and/or the claimants in general average – to see that the claim presented is fully supported by the evidence, and that it is as complete as possible, i.e. that nothing is missed
  • To the insurers and/or the general average contributing interests – not to submit, without making an appropriate note of reservation, any item of claim which cannot be supported either in law or in practice.

It should be noted that an average adjustment is not binding upon the parties concerned and it is open to the respective parties to disagree with the average adjuster’s conclusion as to whether there is a claim in principle and/or to take issue with the average adjuster’s treatment of the figures.  However, it is true to say that the vast majority of claims go through as adjusted, the adjustment being accepted as correct settlement between the parties concerned.  In this connection, a former chairman[5] of Joint Hulls Committee addressing on the hulls claims in the London market said:

“The use of a reputable and highly qualified average adjuster to prepare the claim can significantly speed the agreement of the claim.  An adjustment prepared by a respected firm made up of highly qualified individuals will receive favourable treatment by the claims adjusters.  While the adjustment may well be queried, the underwriter knows that claims which are not covered by the policy have not been submitted and that the claim preparation is thorough and well researched.  This will prevent the unnecessary questioning of the adjustment due to insufficient research of the claim.”

Association of Average Adjusters founded in 1869[6]

“Just as a number of families in primitive society do not form a State, so a number of men, though they perform similar functions, do not make a profession if they remain in isolation.  A profession can only be said to exist when there are bonds between the practitioners, and these bonds can take but on shape – that of formal association”[7]

The first formal association of the individual average adjusters took place in London in 1869 at the prompting of the underwriting members of Lloyd’s and the Liverpool Underwriters Association.  The aims of the Association were as follows:

  • To promote 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.
  • To achieve uniformity of practice among average adjusters by providing a forum for discussion and by establishing rules of practice where necessary.
  • To ensure the independence and impartiality of its members by imposing a strict code of professional conduct.
  • To provide service to the maritime community by establishing procedure by which advice on all aspects of marine claims may be obtained so as to facilitate their settlement.

The current membership categories[8] are as follows:

  • FELLOWS are full members of the Association who have satisfied the rigorous examination requirements of qualification by passing all six modules.
  • SENIOR ASSOCIATES have two passes out of three Fellowship modular exams (excluding the practical exam) one of which must be paper F1. In order to achieve Senior Associate status the examinees will still have to attain the 75% pass mark in the same way as average adjusting examinees who are aiming to become Fellows of the Association.
  • ASSOCIATES have passed Modules 1 & 2 of the Association’s examinations. This qualification is widely recognised in the marine insurance and shipping industries and is a stepping stone to becoming a Fellow.

The Association of Average Adjusters is the association to which all qualified average adjusters in Great Britain belong, but it has become an international organisation, there being fellows and associates coming from a wide range of countries.  On the record, there have been six Chinese qualified fellows, four of them currently being resident in Hong Kong and two in Singapore.

The functions of the average adjuster are principally the following:

  • The adjustment of general average.
  • The adjustment of claims on policies of insurance on any interest directly or indirectly exposed to maritime perils.
  • The preparation of statements of claim against third parties.
  • The division of recoveries from third parties, or of proceeds of sale.
  • The arbitration of disputes arising in relation to the above or associated matters.

To summarize, the Association is a regulatory body, being charged with promoting and ensuring both the skills and objectivity of the average adjusters.  Fellows of the Association are practicing average adjusters who, being expert in the law and practice of general average and marine insurance, and having qualified by examination of the Association, apply their expertise for the benefit of the maritime industry.

It is worth noting that the average adjuster may be appointed by any member of the maritime or marine insurance communities having an interest in the matter concerned and, irrespective of the identity of the party appointing him, he must always act impartially and independently.  He may advise any party seeking his opinion on any matter within the area of his expertise, and assist in the collection of general average, salvage, or other security, and in effecting settlements under average adjustments, or otherwise as required.

Following a Maritime Casualty

The average adjuster is usually consulted and asked to formulate an opinion as to where the various liabilities will fall and who will pay under the bills of lading, charter party, insurance policies, salvage agreement, and any other contract which may be in existence.  Assume that:

A vessel, insured on hull and machinery, etc. subject to ITC – Hulls 1/10/83, with a General Average Absorption Clause, entered with a P&I Club, and laden with cargo in containers shipped under multi-bill of lading providing for general average in accordance with York/Antwerp Rules 1994, is involved in a serious collision sustaining damage to her stem and forward shell plating, with serious leakage in the forepeak and nos.1 and 2 holds.  To avoid any chance of sinking, the master decides to strand the vessel on a generally sandy and sheltered beach.  It is considered necessary to discharge part cargo into barges, fit patches and then pump out and refloat with tug assistance.  Various salvors offer to refloat the vessel on the basis of Lloyd’s Open Form of salvage contract but, in the interest of economy, the necessary barges, stevedores and tugs are engaged on a daily rate basis.  Fire breaks out during refloating operation which is extinguished with fire hoses from the attending tugs with LOF being signed retrospectively.  Vessel is towed to port of refuge for necessary repairs, where cargo is forcibly discharged and subsequently transshipped….

Parties to the adventure, the shipowner in particular, are now faced with various problems.  The questions in the shipowner’s mind usually include:

  1. What needs to be done at this stage (upon hearing of the collision and voluntary grounding)?
  2. Whom do we need to inform/instruct?
  3. Shall we opt for the Lloyd’s Open Form, or shall we engage assistance on a daily hire basis?
  4. What are pros and cons of these different types of services?
  5. Who provides security for any salvage services, and how are the various expenses to be funded?
  6. Do insurances on average disbursements, shipowner’s liability, or any other interests need taking out? And who will pay the premiums?
  7. Do we need to appoint a cargo surveyor in the general interest?
  8. Shall we declare general average taking into account the General Average Absorption Clause in the hull and machinery policy?
  9. What general average security shall we take from cargo?
  10. Do we need an admiralty solicitor?
  11. What about security for the collision and jurisdiction?
  12. What about pollution liability from either vessel?
  13. How should we react to time charterer who asks us not to declare general average?
  14. What is the significance of the fact that the freight is prepaid?
  15. What is the significance of the remarks about the intentional grounding?
  16. Will there be 2 deductibles on the hull & machinery policy claim?
  17. Are the attending tugs engaged on daily hire entitled to claim salvage following their successful efforts made to extinguish the fire?
  18. What will happen, and what should we do?
  19. Will this fire mean an extra policy deductible?
  20. Do we need another set of general average security forms?
  21. Who will provide security to colliding vessel and what will it cost?
  22. Who will provide security to salvors and what will it cost?
  23. Who will provide security to Harbour Authority at port of refuge for possible pollution?
  24. Who will pay the cost of forwarding the cargo to destinations? Can we abandon the voyage and ask the cargo to take delivery where it lies at its own expense?
  25. Will the salvors permit the cargo to be forwarded before its security for salvage has been provided? If not, who is to provide such security?
  26. Do we need to place any insurance on the cargo?
  27. If so, why? On what conditions?  For how much?  And who is the assured?
  28. Suppose the forwarding vessel were to be totally lost on the voyage when carrying the cargo ex our vessel, do we lose any general average contribution they would have paid?
  29. If so, how can this be avoided?
  30. Who will draw up specification for damage repairs and take tenders for the repairs?
  31. Who will know/decide which yards should be asked to tender?
  32. Who will provide money to pay repair yard for their required advance payment?
  33. Who provides the funds for progress repair payments?
  34. Do we have a constructive total loss on H&M policy? [There is a CTL when the cost of recovery and repairing the vessel exceeds the insured value.]

(a) What is the estimated cost of repairing the vessel and what may be included in the computation of that figure?

(b) Can the cost of salvage be included?

(c) Do we have to give credit for any general average contributions received from cargo towards those repairs?

(d) Do we have to credit the scrap value of the vessel?

(e) What is notice of abandonment?

These questions, and many more like them (and those to follow during the salvage and collision proceedings respectively), which may cause a severe headache to the shipowner, are dealt with daily by professional average adjusters as they coordinate the involvement of salvors, superintendents, repairers, underwriters’ surveyors, P&I representatives, lawyers, etc.

The collection of general average security can be a major exercise involving contact being made with several hundred (or more) different cargo interests concerned – receivers, shippers and insurers (also average agents and/or lawyers acting for them), and it is essential to have the full co-operation of the ship’s agents at ports of loading and discharge.  Understandably, the average adjuster is often engaged by the salvors in multi-bill cases to assist in collecting the salvage security.

Once the cargo has been delivered, the average adjuster will then circularize the cargo interests to obtain details of any damage sustained by the cargo which could form a deduction to assess the salved and contributory values and/or a claim in general average. The average adjuster will advise the claimants in general average as to what documents/information are required to substantiate their claims.

In the meantime, when the salvage award is published by arbitrator or agreed between the salvors and the property interests, the average adjuster will likely be engaged by the salvors to assist in collecting the payments due from the parties concerned.  Then, there follows the main part of the average adjuster’s task which is the preparation of the actual general average adjustment.

Concurrently with preparation of the general average adjustment, the average adjuster is processing the particular average claim on the hull and machinery policy.  The first step is to establish whether there is a valid claim under the policy, hence the examination of the terms and conditions of the policy.

Is the cause of damage a peril insured against?  In a case like the one assumed herein, with a collision recorded in the log book on a specific date, the cause is clear.  However, in many other cases (involving machinery damages, in particular), the cause may not be readily apparent at the time of survey and will require considerable investigation by the assured under guidance of average adjuster with assistance of his technical consultant, with a view to ascertaining if a prima facie claim can be established under the policy.

Generally, in recognition of the cash flow difficulties a major loss can cause, underwriters are willing to arrange a payment on account if certified by the average adjuster.  What happens in practice is that the average adjuster will arrange for the cost of repairs (and other major items of expenditure) or in appropriate cases estimates thereof, to be approved by the attending underwriters’ surveyor and he will then prepare a payment on account certificate which sets out the basic facts and figures and recommends a figure which underwriters mat safely settle without prejudice on account of the final claim.  In the certificate, the adjuster also states where the funds are to be paid and in some cases the funds may be channelled through the client’s account with the bank of the adjuster.

The average adjuster will advise the assured what documents and information will be needed to substantiate his claim for the preparation of the adjustment.

The Adjustment

The final adjustment of general and particular average will be a self-contained document with all relevant evidence being immediately available with a view to providing:

(a) Background details that enable the parties concerned to understand the circumstances leading up to the casualty, as well as the casualty itself;

(b) Key details relating to the policy coverage and relevant provisions concerning general average in the contracts of carriage;

(c) A concise summary of the liability position – apportionment of general average and application of general and particular average claims on the hull and machinery policy of insurance.

The adjustment format of a big average adjusting firm[9], which is commonly adopted with modification by adjusters, breaks the adjustment into several “free-standing” sections, starting from a brief over-view and then moving into progressively greater level of details; like a layer cake – the light icing of key facts is on top and the heavy details are at the bottom.  The layers are made up as follows:

  1. The Front Page – The first page is a summary of everything that is in the adjustment.  The headings will be similar in every case but there can be variations as circumstances require – Vessel, Voyage, Casualty, Insurances, Casualty Summary, Adjustment Summary, Recovery, Additional Information, and Claim Summary.  The purpose is to give a single snapshot of the case – what is usually called an “Executive Summary”.
  2. The Adjustment of Claim – This section is the core document which must be self-contained with a summary of facts together with explanatory notes making the parties concerned to feel confident that all potentially difficult or controversial areas have been drawn to their attention and the adjuster’s treatment explained.  If something is critical to a claim it should be summarized or quoted in full.  It includes a summary of the disbursements including the adjuster’s charges which form part of the claim/loss (which are classified by the adjuster between general and particular average and so forth), followed by the apportionment of general average and the application of the claims to the policy – again this is to make it possible for somebody to get a full picture.
  3. Appendices – These usually consist of:

(a) Reports and correspondence and

(b) Disbursement details where accounts covering the damage repairs and other expenses are shown in abbreviated form with each item allocated either as claimable or being disallowed.

(c) Accounts (for repairs and major expenditure)

(d) Additional appendices, for example including the apportionment of general average over individual cargo interest can be shown as necessary.

(e) Financial balance

A further major exercise will be for the average adjuster to collect debit balances due from cargo interests world-wide and take care of the sums due to the creditors under the adjustment.

Further Adjustment

In the meantime, the average adjuster will draw up a statement of claim against the colliding vessel.  In this connection, it is interested to note that in the case of The Normanstar 1929 the adjuster’s fees for preparing the ship and cargo claims for the purpose of the reference to the Registrar of the Admiralty Court were allowed as part of the costs of the reference, it being held by Mr. Justice Hill that the course adopted had saved legal expenses which would have been allowed as costs.

Following the conclusion of collision settlement, the average adjuster will draw up a further adjustment dealing with:

  1. Claim under the Collision Liability Clause (in terms of the H&M policy and P&I cover) in respect of the damage done to the colliding vessel which the assured is legally liable;
  2. Division of the Recovery and interest thereon from the colliding vessel between various parties concerned;
  3. Apportionment of costs in the collision proceedings.

Again, in the case discussed above, the average adjuster will be engaged in distributing the net recovery funds attaching to the cargo interests who have paid their contributions under the previous adjustment of general average.

Adjustment Fees

Under English law and practice, where the appointment of a professional average adjuster can be justified, the cost of adjustment would either be shared amongst all the interests in general average or paid solely by underwriters in cases of claim for partial loss on the policies of insurance.

As noted earlier, the shipowner is not obliged to employ a professional average adjuster and in general average cases, the appointment is generally justified under one of three headings:

  • At common law, i.e. through customs[10]
  • By implication where the York-Antwerp Rules apply[11]
  • By way of general average security in the form of Lloyd’s Average Bond and/or Average Guarantee[12]

Shipowner are similarly not under any contractual obligation to present their partial loss statements to underwriters by using the services of a professional average adjuster.  However, if they do so, the adjustment charges are customarily settled by underwriters as part of the claim under English practice, by virtual of an implied contractual obligation under the policy.  Apparently, to avoid unnecessary arguments between the assured and insurers (particularly where risks are placed in insurance markets that do not follow the Anglo-Saxon model for marine claims settlement), a specific Adjusters clause is commonly found being incorporated in the policies of insurance, thus making it a contractual liability of underwriters to reimburse the adjustment fees reasonably incurred.

III – INDEPENDENCE AND IMPARTIALITY

The concepts of impartiality and independence referred to the Association of Average Adjusters above are of paramount importance in the profession.

Impartiality is not favouring one more than another, being unbiased.  It is one of the cornerstones of the profession’s survival.  The all-time wise words of a past Chairman[13] of the Association of the Average Adjusters:

“He (the average adjuster) is nothing unless impartial.  If he is to be useful, he must be independent.  Should he prove so, he becomes the means of preventing questions capable of being solved amicably, from rushing precipitately into litigation.”

It is contended that strictly (legally) speaking, an Average Adjuster is the agent of the party who appoints him and therefore the adjuster is partial.  In most general average cases, the shipowner appoints the adjuster but it is submitted that he does so on the basis that he is appointing someone who will, whether he likes it or not, act impartially in accordance with the rules of the Association of Average Adjusters.  Indeed, it is believed that by virtue of his position in a general average case, the average adjuster can incur certain liabilities in tort to other parties to the common maritime adventure.  Hence, the adjuster would on the one hand endeavour to give the best professional advice to the shipowner but on the other hand endeavour to ensure that the interests of the other parties to the adventure are not prejudiced.

To help preserve the average adjuster’s impartiality, the parties concerned must be convinced that impartiality is desirable and the adjuster must have the confidence of the parties concerned, in vast majority of cases, the assured and insurer.

Because the shipowner appoints the adjuster, who would understandably be in favour of appointing an adjuster who is prepared to be biased in his favour, there have been criticisms of adjusters having been driven into the arms of the shipowners, though in the majority of cases they are not justifiable, insofar as they involve Fellows of the Association of Average Adjusters.  Regrettably, it is not surprising to see, however rarely, cargo insurers look to average adjusting practitioners who would be prepared to challenge in adversarial manner every single allowance made in the adjustment of general average, thus disgracing the decent image of average adjusters.

Reputable professional average adjusters, whilst possessing a wide variety of skills and a breadth of expertise concerning all forms of maritime claims, having a general knowledge of law, do not act as paid advocates; also they ought not to be constrained by friendship, prejudice, or fear.

Furthermore, it is a matter of great importance that the average adjusting firm is completely independent and entirely owned and controlled by the working Principals concerned, there being no outsider financial interest and the adjusting firm is not involved in any business which might impair their impartiality.  Unfortunately, in the commercial world, it has become inevitable to see acquisitions of average adjusters by public listing companies, etc. where other subsidiaries within the same group are involved in activities giving rise to conflicts of interests.  This could arguably depreciate the value of average adjusters, although it is anticipated that repectable adjusters who have lost their independence will handle matters professionally when and where a conflict of interests arises.

IV – AVERAGE ADJUSTING IN GREATER CHINA

It appears that the profession was first introduced to the Far East in the mid 1920’s when Mr. William R.M. Stevens of Messrs. William Richards & Son, founded in 1813, arrived in Shanghai, who, as soon as possible, opened his own office there.  After the Second World War, Mr. Stevens set up the first average adjusting firm in Hong Kong in 1945, being subsequently joined by his son, Mr. Nigel Stevens, who was born in China.

William Richards & Son, and another leading firm, Hogg, Lindley & Co. coincidentally opened their respective offices in Hong Kong in 1965.  They, however, merged in 1969 to form a separate partnership, Richards Hogg International to develop on a joint basis their world-wide interests.  In the meantime, Stevens lined up with William Elmslie & Son and changed its name to Stevens, Elmslie & Co. whilst Frank B. Hall, an American insurance broking firm with average adjusting arm opened an office in Hong Kong.

The Department for Average Adjustment under the Legal Affairs Department of the China Council for the Promotion of International Trade was set up in Beijing 1969, to handle general average claims.  Indeed, in mainland China, average adjusters are referred to as “general average adjusters”.  Unlike the traditional London type market, the insurers in mainland China have a different system for dealing with local hull claims – a direct settlement between the insurer and the assured.  Only in very rare occasions are the services of professional average adjusters utilized on policies of insurance claims.

It is believed that the first professional average adjusting firm to enter Taiwan was Stevens, Elmslie & Co., shortly followed by Richards Hogg International in 1975 using Overseas Adjusters & Surveyors Co., Ltd., as the trading name.  Stevens, Elmslie ceased doing business in Taiwan in 1991.

It is worth mentioning the great efforts made by Richards Hogg International in promoting its local staff without reservation and offering training courses on marine claims to the shipping/insurance community world-wide.  Indeed, virtually all the Chinese fellows of the British Association of Average Adjusters received on-the-job training at this firm.  Mr. Raymond Wong (王德超) qualified by examination in 1980, Mr. Christopher Tang (邓炎祥) in 1982, Mr. Edward Lau (刘世安) in 1985, Mr. Benson Chiu (赵国坤) in 1992, Mr. Yibing Xu (徐义斌) in 2008, and Mr. Matthew Cao (曹傑) in 2015.

The fast growth in shipping resulted in few more foreign firms opening offices in Hong Kong during late 1970’s and throughout the 1980’s.  This included Francis & Arnold, Manley Hopkins Son & Cookes, G.W. Cockrill, London Ltd., and R.K. Hastings & Co.  Apparently, all ceased from doing business in the early 1990’s and no longer exist in the region now.  Meanwhile, Richards Hogg International and the Department for Average Adjustment of the China Council for the Promotion of International Trade, Beijing formed a cooperation based in Hong Kong in 1985 leading to the subsequent establishment of a joint venture company, Dari Co., Ltd. in 1993.

 

Following a series of acquisitions/mergers and closures, the former brand names, Richards, Stevens, Hogg, and Lindley together make up Richards Hogg Lindley, trading under Charles Taylor plc from 1998 onward, which, after having merged Dari Co., Ltd. into its operation in 2012, became the only professional average adjusting firm in the Hong Kong SAR.  Having only one average adjusting firm in an international shipping centre is not recommended for the profession but this remained the status quo until 2015 when an independent average adjusting firm, Asia Maritime Adjusting (Hong Kong) was set up in Hong Kong, followed by Asia Maritime Adjusting (Shanghai) in Shanghai where Charles Taylor Adjusting has had a joint venture company since 2001.

Currently, there are one State owned average adjusting department, Department for Average Adjustments in Beijing, with offices or adjusting centres (as they call it) in Shanghai and Tianjin, two genuine adjusting firms in Shanghai, one in Taipei, and two in Hong Kong.  Whilst needless to say, there are well experienced adjusters in all these locations, we only have 4 fully qualified Fellows, 2 Senior Associates and 4 Associates of the British Association of Average Adjusters practising under professional average adjusting firms, all except 2 Associates being based in Hong Kong:

Hong Kong has maintained its leading position in Greater China and, indeed, virtually all the adjusters currently practising in mainland China and Taiwan received training in Hong Kong.  Comparing with Singapore (which appears to have 4 professional average adjusting firms with 3 Fellows, no Senior Associate, 4 Associates and 4 adjusters over 20-year experience), Hong Kong has less firms but more practising adjusters with qualification (by examination) of the British Association of Average Adjusters.

 

V – HONG KONG AS AN INTERNATIONAL AVERAGE ADJUSTING CENTRE

As submitted earlier, Hong Kong has been adjusting averages since 1945, and with its highly qualified adjusters having had work experience in major shipping and insurance markets, and a great amount of effort going continuously to the training of adjusting staff and claims practitioners (for the benefit of the marine insurance industry), has evidently acquired a considerable reputation internationally.

In the foreseeable future, Hong Kong remains the right place for adjustment of general average and hull claims in the Asia-Pacific region.  Obviously the vast market to promote average adjusting business is in mainland China.  It is now up to the average adjusting practitioners to keep moving forward proactively and constructively to convince the market of the usefulness of the profession at affordable prices.  Through co-operations that the current average adjusting firms in Hong Kong have and will have with colleagues and counterparts in mainland China, it will not be in the too distant future to see another Far East adjusting centre, probably in Shanghai.

Adjustment of General Average

It is common to see standard forms of contract of carriage contain clause providing for general average to be adjusted in London where, needless to say, many highly qualified adjusters are based.   However, increasingly there are contracts of carriage which allow Carrier an option to decide where the adjustment should be drawn up.  It is widely accepted that in absence of a specific contractual provision, the adjustment will be stated at the port of destination.  Furthermore, the parties involved may agree to amend the place of adjustment.

Whilst English is the recognized language for shipping, the Chinese language has become popular doing business in China, a vast market; Hong Kong is fluent in both languages.

Hong Kong should not feel shy to seek support of shipowners and charterers directly and/or through shipbrokers, encouraging/persuading them to consider to adopt the following general average wording in bills of lading and charter-parties respectively:

“General Average shall be adjusted in Hong Kong or at place at Carrier’s option, according to the York/Antwerp Rules, 1994, and as to matters not provided for by these rules, in accordance with the law and practice obtaining at the place where the adjustment is drawn up.”

Adjustment of Hull Claims

Any hull claims system should have as its’ main objectives[21] the following:

  • Speed of settlement
  • Economy of settlement
  • Accuracy of settlement
  • A satisfied Insurer (and Re-insurer)
  • A satisfied Assured

The non-adversarial approach of highly qualified average adjusters would help achieve these objectives.  An important issue which the average adjusters need to bear in mind is that Underwriters are always seeking to reduce the overall costs of dealing with their claims, hence the adjustment charges must be “value for money”.

It is becoming norm to have an Adjuster clause incorporated at the request of the assured in the policies of insurances on hull and machinery taken out in Hong Kong and Taiwan, an example being as follows:

“The Assured have the option to appoint

  • Richards Hogg Lindley, or
  • Asia Maritime Adjusting (Hong Kong), or
  • A Fellow of the British Association of Average Adjusters

for preparing claim statement and/or average adjustment etc. The Underwriters shall be responsible for payment of reasonable fee of the average adjusters irrespective of whether a claim ultimately arises under this insurance.”

Insurers in the mainland China who underwrite overseas risks would have experience in using professional average adjusters who must not miss the golden opportunity of demonstrating the value of the Adjuster’s use and duty.

 

VI – CONCLUSION

The profession has changed with the passage of time; yet the unique skill and expertise of highly qualified average adjusters must endure to meet the changes in the requirements of a modern shipping industry and insurance market.  It is simple: the profession must convince the market of its usefulness.

In conclusion, this paper is best defined by the most frequently quoted expression[22] of the position of the average adjuster:

“The use of the adjuster individually is to grease the wheels of commercial machinery, to do work which neither the assured nor the underwriters have either time, training or inclination for, in such a manner as to expedite settlements without resort to the expensive machinery of law: His duty is to act fairly to both parties to the contract of insurance or the contract of carriage, to set down all material facts, withholding nothing of importance, to present the figures of the suggested settlement in such a manner as to be capable of being easily grasped, and above all, in all cases wherever definite law or practice is not clear, to place the matter before the parties interested in such a manner as to facilitate an agreement between them. Adjusters acting in this sense well deserve the name of beneficent parasites.”

It is with earnest hope that those committed professional Average Adjusters currently resident in Hong Kong will take the lead working together with their counterparts in the region, aiming for this worthy goal as rounded off by Mr. E. R. Lindley: “Adjusters acting in this sense well deserve the name of beneficent parasites.”

 

[1] Mr. Raymond Wong is the first Chinese Fellow of the British Association of Average Adjusters, starting his career in average adjusting in 1966; now Principal of Asia Maritime Adjusting (Hong Kong) – www.averageadj.com

[2] It is recognized that claims handling is the “shop window” of insurance

[3] Wavertree Sailing Ship Co. v Love (1897)

[4] Revised extract from the paper on the subject “Adjusting Averages” compiled by Mr. Wong in 2010.

[5] Mr. Mark Brockbank

[6] Information collected from the publications of the Association of Average Adjusters

[7] “The Professions” by Carr-Saunders & Wilson, quoted in the “100 Years of the Association of Average Adjusters 1869-1969”

[8] Website of the Association of Average Adjusters – www.average-adjusters.com

[9] Richards Hogg Lindley

[10] As submitted in para 313 of Lowndes & Rudlof on General Average and York Antwerp Rules – 10th edition

[11] Chandris v Argo Insurance Co., Ltd. (1924); para C.34 of Lowndes & Rudolf on General Average and York-Antwerp Rules – 14th edition

[12] Castle Insurance Co. v Hong Kong Islands Shipping Co. – The “Potoi Chau” (1984)

[13] Mr. Manley Hopkins in his chairman’s address in 1875

[14] Association of Average Adjusters

[15] Richards Hogg Lindley

[16] Asia Maritime Adjusting (Hong Kong)

[17] Department for Average Adjustment

[18] Asia Maritime Adjusting (Shanghai)

[19] Charles Taylor Adjusting

[20] Overseas Adjusters & Surveyors Co., Ltd.

[21] E R Lindley, in his address to AAA in 1904

[22] C J Barstow, former Chairman of AAA in this Lecture on Hull Claims Services in 1996

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兩岸三地航運物流研討會 2017

日 期   :        2017年11月20日

地 點   :        紀利華會演講廳: 香港跑馬地黃泥涌道188號

主 旨   :        研討會已在兩岸三地成功舉辦了九屆,增加了兩岸三地航運學會之間的瞭解、交流和合作,增進了同行業之間的友誼,促進了兩岸三地航運業的可持續發展。經過多年的發展,研討會已在當地政府和業界享有一定的影響力,並得到各方的肯定。今年是第十屆「兩岸三地航運物流研討會」, 移師香港舉行, 定於2017年11月20日在香港紀利華木球會舉行, 由香港海運學會主辦,深圳海運協會和中華航運學會協辦。

是屆大會主題是 “開創兩岸三地合作契機”,其中包括 :

–   大中華地區航運或物流的最新發展方向

–   有關的基建及政府的配合政策

–   船舶管理或供應鏈的管理與革新

–   關於海事保險的發展

–   區內航運業或物流服務業經營者之間的合作,競爭及共同發展策略

–   航運和物流管理上的科技應用

–   航運和物流業從業員的培訓

–   多聯式運輸系統

–   航運和物流高等教育發展

–   郵輪/渡輪兩岸三地發展

–   一帶一路結合新南向政策

語言   :         普通話

費 用   :        港幣 $1,000.00

(包括研討會入場費,午,晚宴,論文集, 紀念品)

報名手續:填妥隨函回條 ,連支票 (抬頭 “海運學會” ) 於11月10日前寄回本會.

 

:

第十屆兩岸三地航運物流研討會

2017年11月20日 紀利華會演講廳

 

——————————————————————————————

   

姓 名 __________________  公 司 _____________________

出席午膳 (1230-1400)       出席晚宴 (1800-  )         〖請在合適格內加“√”〗

地 址 ________________________________________________________

電 郵 ________________________________________________________

聯 絡 電 話 ____________________________________________________

 

填妥回條連同支票寄回香港干諾道中152-155號招商局大廈16字樓1605-7C室或可經電郵info@seatransport.org  預留座位.

 

 

 

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AATalk: Triple Collision

Triple Collision: Claim under the Collision Liability Clause

Old law cases

The report on a case recently handed down by the Hong Kong Admiralty Court concerning two collisions involving three ships, has prompted the Editor to refer to the notes he made on a couple of interesting triple collision cases he studied whilst preparing for the examination of the British Association of Average Adjusters in late 1970’s.  They are:

 

France (William) Fenwick v. Merchants’ Marine Insurance 1915

Whilst proceeding up the Seine, in an attempt to pass the “Rouen”, the “Cornwood collided with the “Rouen” which then struck and seriously damaged the “Galatee” which was coming down the river at the time.  The Owners of the “Cornwood” having been held liable for the damage to both the “Rouen” and the “Galatee”, submitted claim against the Underwriters on the Policy under the Running Down Clause (now commonly known as the Collision Liability Clause).  The Underwriters contended that the collision of the “Rouen” with the “Galatee” was not such a “consequence” of the collision between the “Cornwood” and the “Rouen” as to make them liable in terms of the policy.

 

The Court found for the plaintiffs, the Owners of the “Cornwood”, the judge saying: “I think it sufficient to find that the forces put into operation by the negligent navigation of the “Cornwood” did in fact, not only cause a collision between herself and the “Rouen” but afterwards sent the “Rouen” into the “Galatee”.  Of course there must be a collision and in my judgment the collision between the “Rouen” and the “Galatee” was such a consequence of the collision between the “Cornwood” and the “Rouen” as makes the Underwriters liabile.”

 

The case went to appeal which was dismissed, the Court holding that the collision between the “Rouen” and the “Galatee” was brought about by the collision between the “Cornwood” and the “Rouen”.

Abadesa & Miraflores (Collision Liability) 1967

It was reported that the tanker “George Livanos” was following the tanker “Miraflores”, both being inward bound in the River Scheldt.  The other tanker “Abadesa” was outward bound.  The “Miraflores” reduced speed to avoid a small coaster.  As a result the “George Livanos” closed to about half a mile astern.  The “Miraflores” increased speed but a cross- current forced her towards mid-channel across the “Abadesa”.  Putting her engine full astern and letting her starboard anchor go, she sounded 2 of 4 short blasts of a local signal meaning: “Keep out of my way, I cannot manoeuvre.”.  The “Abadesa” put her engine full astern and let go her port anchor, but the 2 vessels collided.  The “George Livanos” grounded while manoeuvring to avoid the “Miraflores”.

It was submitted that “The liability of each vessel involved must be assessed by comparison of her fault with the fault of each of the other vessels involved individually, separately, and in no way conjunctively.”  The apportionment of fault was as follows.

Collision:

“Abadesa”             2/3rds to blame

“Miraflores”        1/3rd to blame

Grounding:

“Abadesa”                               40% to blame

“Miraflores”                          20% to blame

“George Livanos”               20% to blame

It was reported that the Underwriters on the “Abadesa” agreed to pay 3/4ths of the liability of the “Abadesa” to the “George Livanos”, thereby accepting that such damage was a consequence of the collision on the facts presented.

 

Collision Liability Clause (previously known as the Running Down Clause)

The 3/4ths Collision Liability Clause under the Institute Time Clauses – Hulls 1/10/83 commonly incorporated in the policies of insurances on ship provides that:

8.1 The Underwriters agree to indemnify the Assured for three-fourths of any sum or sums paid by the Assured to any other person or persons by reasons of the Assured becoming legally liable by way of damages for

8.1.1 loss of or damage to any other vessel or property on any other vessel

8.1.2 delay to or loss of use of any such other vessel or property thereon

8.1.3 general average of, salvage of, or salvage under contract of, any such other vessel or property thereon, where such payment by the Assured is in consequence of the Vessel hereby insured coming into collision with any other vessel.

8.2 The indemnity provided by this Clause 8 shall be in addition to the indemnity provided by the other terms and conditions of this insurance and shall be subject to the following provisions:

8.2.1 Where the insured Vessel is in collision with another vessel and both vessels are to blame then, unless the liability of one or both vessels becomes limited by law, the indemnity under this Clause 8 shall be calculated on the principle of cross-liabilities as if the respective Owners had been compelled to pay to each other such proportion of each other’s damages as may have been properly allowed in ascertaining the balance or sum payable by or to the Assured in consequence of the collision.

8.2.2 In no case shall the Underwriters’ total liability under Clauses 8.1 and 8.2 exceed their proportionate part of three-fourths of the insured value of the Vessel hereby insured in respect of any one collision.

8.3 The Underwriters will also pay three-fourths of the legal costs incurred by the Assured or which the Assured may be compelled to pay in contesting liability or taking proceedings to limit liability, with the prior written consent of the Underwriters.

Exclusions

8.4 Provided always that this Clause 8 shall in no case extend to any sum which the Assured shall pay for or in respect of

8.4.1 removal or disposal of obstructions, wrecks, cargoes or any other thing whatsoever

8.4.2 any real or personal property or thing whatsoever except other vessels or property on other vessels

8.4.3 the cargo or other property on, or the engagements of, the insured Vessel

8.4.4 loss of life, personal injury or illness

8.4.5 pollution or contamination of any real or personal property or thing whatsoever (except other vessels with which the insured Vessel is in collision or property on such other vessels).

In practice, the remaining 1/4th of any sum or sums paid by the Assured within the terms of the clause is invariably covered by the vessel’s entry in a Protection and Indemnity Association (commonly called P&I Club).  Furthermore, the exclusions under the Clause 8.4 are liabilities customarily covered by the P&I Club.

It is however worth noting the construction of the following wording:

  • indemnify … paid” – Underwriters are only liable when the Assured has paid.
  • legally liable by way of damages” – Liability must arise by way of tort and not by way of contract or statute, i.e. breach of duty (other than under contract) leading to liability for damages.
  • in consequence … coming into collision … another vessel” – There must be actual contact with another vessel.
  • indemnity … in addition” – Claims arising under the clause are in addition to anything else recoverable even though the total amount payable exceeds the insured value.
  • Where … both vessels are to blame … unless the liability … limited by law … indemnity … shall be calculated on the principle of cross liabilities” – The principle of cross liabilities is the method used for calculating the claim on the policy of insurance, there being however an important limitation, namely, when the liability of one or both vessels is limited by law.

For Example

(By modifying a question suggested by Mr. D. John Wilson, a most distinguished average adjuster.)

Vessel “A” was (a) insured on Hull & Machinery, etc. for $1,000,000 so valued, subject to the Institute Time Clauses – Hulls 1/10/83 with Deductible $30,000 and (b) entered on full conditions with an P&I Club.  She was entering port when she collided in dense fog with the outward bound vessel “B”.  Both vessels sustained damages.  Vessel “A” veered off “B” and struck and sank the barge “X” and the buoy moored thereto, and finally grounded causing damage to a submarine cable.

 

The liability for the collision and resulting damages was eventually determined on the basis of vessel “A” being 75% to blame and vessel “B” 25%, the damages amounting to a total of $1,200,000 being agreed as follows:


YORK-ANTWERP RULES 2016

Readers may have by now noted that the words underlined below under Rule 17 of the York-Antwerp Rules 1994 were omitted from the published text of the York-Antwerp Rules 2016 adopted in New York in May 2016.

 

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INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Eighth (12th) SESSION

INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Eighth (11th) SESSION ON THURSDAY 26TH OCTOBER 2017

This is the second series of workshops with a theme of “Interdisciplinary Maritime Practice” (IMP), which is jointly organized by The Hong Kong Logistics Management Staff Association (HKLMSA), C.Y. Tung International Centre for Maritime Studies, PolyU (ICMS) and the Hong Kong Seamen Union (HKSU). It employs the same methodology and format like the IMP Workshop Series I of 2014, which was conceived to cover the entire lifespan of a ship, from the decision to purchase to its final loss or scrapping, and to provide a platform for eminent professionals from the Hong Kong Maritime Industry to share their expertise and valuable experience with fellow professionals, young entrants in particular, in the shipping fraternity of the Greater China Region, in interactive sessions of Q&A discussions.

 

The Twelfth and Last Session of the IMP Workshop Series II is on Ship Management and Operations which will be a brief summary of the essence of the previous eleven sessions as below:

1) Offshore Wind Energy & IMP Methodology & its Applications

2) Financing of Shipping & Related Projects

3) Project Management

4) Ship Types, Machineries & Equipment

5) Value of Maritime Professional Services

6) Shipbuilding and Sale & Purchase

7) Marine Insurance (Hull & Machinery, Protection & Indemnity)

8) Casualty Management Part I – P&I and Average Adjusting

9) Casualty Management Part II – Salvage and Average Adjusting

10) Ship Chartering and Administration

11) Casualty Management Part III – Surveys, GA, CTL, & Claims Handling

An introduction will be presented on the scope and responsibilities of Ship Management & Operations. Case studies will be used to illustrate how the expertise and experience presented during the past sessions by the moderators and participants are applied in an interdisciplinary manner for the topic in practice.

The Moderator for this 12h Session will be Mr. Wong Cho Hor of Five Oceans Maritime, with other members of the Panel of Moderators and Advisors in attendance.

All members, non-members and guests are cordially invited to attend the Twelfth Workshop.

Twelfth Workshop:

Time/Date :         7:00 pm – 9:45 pm on Thursday 26th October 2017
Venue :                  HK Polytechnic University Room Y301
Language :           English (Questions in Cantonese and/or Putonghua are welcomed, though)
Charge :                 Members – HK$50.00  Non-members – HK$100.00

 

Parties who are interested can contact Miss Catherine Chow at Tel: 2771-6180 or info@hklmsa.org.hk for details, or by using this link for registration.

*Sandwiches will be served during the break at about 8.30pm to participants, and iced drinks subject to availability and arrangement. Hence it would be appreciated if confirmation for attendance can be made as far as possible to facilitate the catering.
 

The Panel of Moderators is:

Raymond TC Wong          Chairman of IST and Honorary Advisor of HKLMSA

Prof. Chin-Shan Lu           Director of ICMS

Manson Cheung                Executive Member of both ICSHK and HKLMSA

Cho Hor Wong                   Executive Member of HKLMSA

Dr. Tze Leung Yip              Deputy Director of ICMS

 

Supporting Organizations

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INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Eighth (11th) SESSION

INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Eighth (11th) SESSION ON WEDNESDAY 20TH SEPTEMBER 2017

This is the second series of workshops with a theme of “Interdisciplinary Maritime Practice” (IMP), which is jointly organized by The Hong Kong Logistics Management Staff Association (HKLMSA), C.Y. Tung International Centre for Maritime Studies, PolyU (ICMS) and the Hong Kong Seamen Union (HKSU). It employs the same methodology and format like the IMP Workshop Series I of 2014, which was conceived to cover the entire lifespan of a ship, from the decision to purchase to its final loss or scrapping, and to provide a platform for eminent professionals from the Hong Kong Maritime Industry to share their expertise and valuable experience with fellow professionals, young entrants in particular, in the shipping fraternity of the Greater China Region, in interactive sessions of Q&A discussions.

 

The Eleventh Session of the IMP Workshop Series II is on Casualty Management Part III focusing on the various actions and claims aspects arising from the casualty (collision followed by fire and grounding):

  • Surveys
  • General Average where the voyage is abandoned
  • Constructive Total Loss of the vessel
  • Additional Insurances following a maritime casualty
  • Examination of Average Adjustment by Underwriters Claims Adjuster

Moderators for this 11h Session will be Mr. Raymond Wong of Asia Maritime Adjusters, Mr. Wallace Yeung of Gard (HK) Ltd., and Capt. Richard Gains of Brookes Bell Hong Kong Ltd.

Mr. Wong will preside over the case study as Average Adjuster jointly with Mr. Yeung as Underwriters Claims Adjuster, highlighting differences in cover and treatment of certain areas between the ITC-Hulls and the Nordic Plan. Capt. Gains will speak on surveying aspect of casualty management.

All members, non-members and guests are cordially invited to attend the Eleventh Workshop.

Eleventh Workshop:
Time/Date :        7:00 pm – 9:45 pm on Thursday 17th August 2017
Venue :                 HK Polytechnic University Room Y301
Language :           English (Questions in Cantonese and/or Putonghua are welcomed, though)
Charge :                 Members – HK$50.00  Non-members – HK$100.00

 

Parties who are interested can contact Miss Catherine Chow at Tel: 2771-6180 or info@hklmsa.org.hk for details, or by using this link for registration.

*Sandwiches will be served during the break at about 8.30pm to participants, and iced drinks subject to availability and arrangement. Hence it would be appreciated if confirmation for attendance can be made as far as possible to facilitate the catering.
 

The Panel of Moderators is:

Raymond TC Wong          Chairman of IST and Honorary Advisor of HKLMSA

Prof. Chin-Shan Lu           Director of ICMS

Manson Cheung                Executive Member of both ICSHK and HKLMSA

Cho Hor Wong                   Executive Member of HKLMSA

Dr. Tze Leung Yip              Deputy Director of ICMS

 

Supporting Organizations

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INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Eighth (10th) SESSION

INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Eighth (10th) SESSION ON THURSDAY 17th August 2017

This is the second series of workshops with a theme of “Interdisciplinary Maritime Practice” (IMP), which is jointly organized by The Hong Kong Logistics Management Staff Association (HKLMSA), C.Y. Tung International Centre for Maritime Studies, PolyU (ICMS) and the Hong Kong Seamen Union (HKSU). It employs the same methodology and format like the IMP Workshop Series I of 2014, which was conceived to cover the entire lifespan of a ship, from the decision to purchase to its final loss or scrapping, and to provide a platform for eminent professionals from the Hong Kong Maritime Industry to share their expertise and valuable experience with fellow professionals, young entrants in particular, in the shipping fraternity of the Greater China Region, in interactive sessions of Q&A discussions.

 

The Tenth Session of the IMP Workshop Series II is on Ship Chartering & Operations focusing on the common issues in main clauses or terms in Charterparties and post fixture operation and administration, using case studies. There will be an brief introduction to the topic.
Moderators for this 10th Session will be Mr. Manson Cheung of ABC Shipping (HK) Ltd. and Mr. Jagmeet Makkar of Pastiche Holdings Ltd. and Skills Plus Pte Ltd.
All members, non-members and guests are cordially invited to attend the Tenth Workshop.
Tenth Workshop:
Time/Date :        7:00 pm – 9:45 pm on Thursday 17th August 2017
Venue :                 HK Polytechnic University Room Y305
Language :           English (Questions in Cantonese and/or Putonghua are welcomed, though)
Charge :                 Members – HK$50.00  Non-members – HK$100.00

 

Parties who are interested can contact Miss Catherine Chow at Tel: 2771-6180 or info@hklmsa.org.hk for details, or by using this link.

*Sandwiches will be served during the break at about 8.30pm to participants, and iced drinks subject to availability and arrangement. Hence it would be appreciated if confirmation for attendance can be made as far as possible to facilitate the catering.
 

The Panel of Moderators is:

Raymond TC Wong          Chairman of IST and Honorary Advisor of HKLMSA

Prof. Chin-Shan Lu           Director of ICMS

Manson Cheung                Executive Member of both ICSHK and HKLMSA

Cho Hor Wong                   Executive Member of HKLMSA

Dr. Tze Leung Yip              Deputy Director of ICMS

 

Supporting Organizations

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CAUSE AND TIMING OF DAMAGES – Which Policies Pay?

 

CAUSE AND TIMING OF DAMAGES

Which Policies Pay?

IFSPA 2017

The Institute of Seatransport participated in the IFSPA 2017 (International Forum on Shipping, Ports and Airports), conducting an Industrial Session at PolyU on Wednesday afternoon, 24th May 2017 when the day started with yellow rain at 0615, followed by red at 0930 and black at 1130 before returning to yellow at 1230.  It was most encouraging to see the majority of those enrolled turn up on time.

 

The session began at 1330 and finished at 1800 with (a) the Editor presenting a 2.5-hour workshop on practical aspects of marine hull insurance claims with emphasis on General Average, Particular Average and Constructive Total Loss, and (b) Mr. C H Wong, a well-known logistics & projects consultant and director of Five Oceans Marine Ltd., presenting on the role of Hong Kong as an international maritime centre under BRI.  A couple of interesting issues on the hull insurance claims were discussed, which the Editor would like to share with readers.

Casualty

One of the case studies involved a container carrier on liner service trading between Far East/American ports which lost steering control on 1st December 2012, necessitating towage to a port of refuge where underwater inspection revealed that the vessel’s rudderstock had a fracture which appeared to be beyond repair.  All laden containers were discharged (to enable repairs to be effected in dry-dock) and forwarded to destinations by a sister-ship.

 

Insurance Conditions

The vessel was insured on hull and machinery, etc., for 12 months commencing from 1st April 2012, subject to Institute Time Clauses – Hulls 1/10/83 [referred to “ITC” here] and Institute Additional Perils Clauses – Hulls 1/10/83 [referred to “IAPC” here].  The insurance is subject to English law and practice and the relevant insurance conditions applicable to claim for the damage to the rudderstock are:

  • Clause 6.2 of the ITC which provides that “This insurance covers loss of or damage to the subject-matter insured caused by …. 6.2.2 …. any latent defect in the machinery or hull…”
  • IAPC which extends the insurance to cover

1.1 the cost of repairing or replacing ….

1.1.2 any defective part which has caused loss or damage to the Vessel covered by Clause 6.2.2 of the Institute Time Clauses – Hulls 1/10/83

1.2 loss of or damage to the Vessel caused by any accident or by negligence, incompetence or error of judgment of any person whatsoever

Both ITC Clause 6.2 and the IAPC are subject to due diligence proviso: “Provided such loss or damage has not resulted from want of due diligence by the Assured Owners or Managers.”

Particular Average

Particular Average is a partial loss of the subject-matter insured caused by peril insured against, which is not a general average loss (as defined by section 64(1) of the Marine Insurance Act, 1906).

The effect of the wording, “This insurance covers loss of or damage to the subject-matter insured caused by” is that the Policy which will respond for a claim for Particular Average will be the Policy current at the time when the loss occurred or the damage was sustained.  The incorporation of the IAPC in addition to the ITC allows exception for latent defect cover (IAPC Clause 1.1.2), let alone that the extension (in particular, “any accident” cover) affords the less weighty burden of proof.

It is worth noting that whilst IAPC Clause 1.1.2 only uses the words “defective part”, the link to ITC Clause 6.2.2 must mean that the word “latently” is implied.  Furthermore, a “latent defect in the machinery or hull” is not only confined to a flaw in material but can include wrongly assembled parts provided that they satisfy the usual test of latency – “defect which could not be discovered by a person of competent skill and using ordinary care” , definition given by Carver approved in the “Dimitrios N. Rallias” (1922).

Taking into the familiar “Nukila” test (1997), it is suggested that, for processing Particular Average claim, the following questions should be borne in mind:

  • What is the cause of damage under the policy?
  • When did the damage occur – which policy pays?
  • How many accidents and deductibles are involved?
  • What can be claimed – the reasonable cost of repairs?

We are considering the first two questions herein.

Onus of proof

Burden of proof is on the Assured to show on a balance of probability that the loss was caused in the way alleged.  The degree of proof required is to show a balance in favour of an accidental loss by peril(s) insured against.  If, as in the “Popi M” (1985) case where an old vessel sailing in calm seas with fair weather developed a fracture allowing seawater to enter and sank, the occurrence of the event, collision with a submarine, as alleged, is extremely improbable, on basis of common sense, the true cause being in doubt, the Assured has failed to prove.

In practice, most accidents are straight forward having known causes, and the claim for loss or damage would then be based on that known cause, e.g. fire, collision, contact, grounding, etc.  However, machinery damages often require technical investigations on both cause and timing, necessitating, on occasions, metallurgical and/or other special tests.

Cause of damage to the rudderstock

There is suggestion that fatigue failure of a rudderstock is not an event that can be expected in the normal operation of the vessel, hence the rudderstock damage would not be a result of normal wear and tear and the damage being “accidental” in nature would fall within the wide cover by IAPC.   However, in practice, Underwriters would expect that the words “any accident” (which probably cover event without apparent cause) are likely to be used only when the cause of loss or damage is obscure or unexplained.  Furthermore, whilst one can insist that the Assured have proved prima facie that the damage was caused by a peril insured against, he would probably be expected to demonstrate that the whole damage occurred during the currency of the policy in force, since it is not uncommon that the fatigue fracture would be of a progressive nature, i.e. damage occurs and develops, without becoming apparent, over a period of time that spans more than one policy.

It is also believed that for other good reasons, e.g. loss prevention, it would be advisable for a prudent Ship-owners to be aware of the cause of damage.

Results of the investigations

  • The nature of the crack suggested that it had developed over a period of time until the rudderstock was finally unable to resist the forces put on it.
  • The vessel was last previously in dry-dock during July 2010 when the rudder and underwater parts were surveyed;
  • The attending Surveyors agree that:
    • the damage arose from loss of a retainer ring (forming a latent defect in machinery) allowing displacement of the lower pintle bush, causing cyclic stress to be set up which led to fracturing of the rudderstock due to fatigue;
    • the rudderstock retaining rings were either not fitted at all or were incorrectly fitted by the Repairers in July 2010 (constituting negligence of Repairers);
    • the initiation of the fracture probably occurred some 3 to 6 months after the loss of the retaining rings which would probably have occurred in July 2010 or sometime thereafter;
    • the rudderstock would have been condemned well before April 2012;
    • there was an equal chance of the rudderstock becoming condemnable prior to and after April 2011.

Which policies pay?

During the material time covered in this case study, there was a policy change on 1st April and accordingly the claims arising therein would involve 3 policies, namely: (a) 2010/11 Policy (1st April 2010/31st March 2011), (b) 2011/12 Policy (1st April 2011/31st March 2012) and (c) 2012/13 Policy (1st April 2012/31st March 2013).

There was negligence of repairers in July 2010 (2010/11 Policy) resulting in a latent defect causing damage to the rudderstock culminating in a breakdown in December 2012 (2012/13 Policy).  On the agreed fact that, if the true facts had been known, the rudderstock was already damaged beyond repairs, would have been condemnable, and was worth only scrap before 1st April 2012, i.e. prior to the inception of the 2012/13 Policy, no claim in respect of the cost of replacement of the rudderstock can lie against this policy year, since the rudderstock was incapable of being damaged any further.  The damage to the rudderstock would be treated as progressive over the 2010/11 and 2011/2012 policy periods, being reasonably split 50/50 in the circumstances (as agreed by the Surveyors).

General Average

The ITC Clause 11.4 provides that “No claim under this Clause 11 shall in any case be allowed where the loss was not incurred to avoid or in connection with the avoidance of a peril insured against.”  It is the peril which is operating or which will operate which determines the matter.  Hence, the claim for general average falling on the vessel arising from the loss of steering control on 1st December 2012 would fall on the 2012/13 Policy insuring the vessel when the peril was operative.

Deductible

All claims, General Average and Particular Average, arising out of the same accident are subject to one Deductible in terms of ITC Clause 12.  The Deductible is divided between the three policies over the respective claims attaching thereto.

Summary

2010/11 Policy pays 50% of the reasonable cost of replacing the rudderstock less 50% of its scrap value (if any) and proportion of Deductible;

2011/12 Policy pays 50% of the reasonable cost of replacing the rudderstock less 50% of its scrap value (if any) and proportion of Deductible;

2012/13 Policy pays the general average claim falling on the vessel less proportion of Deductible.

Conclusion

It is advisable to pay proper attention to (a) the plain sense of the policy wording, which may all require a different approach to the same set of facts and (b) the facts of each case.  “In practice, average adjusters are required to produce equitable and practical solutions based on the facts of individual claims and the theoretical difficulties endemic in the topic are generally settled by agreement with underwriters.” (Mr. Donald O’May)

LAW CASE

Readers are reminded that the “Longchamp” case where the Court of Appeal has reversed the 2014 High Court judgment is coming up for trial in the Supreme Court.

 (Editor: Raymond T C Wong Average Adjuster)

 

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INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Ninth (9th) SESSION

INTERDISCIPLINARY MARITIME PRACTICE WORKSHOP SERIES II Ninth (9th) SESSION ON THURSDAY 20th July 2017

This is the second series of workshops with a theme of “Interdisciplinary Maritime Practice” (IMP), which is jointly organized by The Hong Kong Logistics Management Staff Association (HKLMSA), C.Y. Tung International Centre for Maritime Studies, PolyU (ICMS) and the Hong Kong Seamen Union (HKSU). It employs the same methodology and format like the IMP Workshop Series I of 2014, which was conceived to cover the entire lifespan of a ship, from the decision to purchase to its final loss or scrapping, and to provide a platform for eminent professionals from the Hong Kong Maritime Industry to share their expertise and valuable experience with fellow professionals, young entrants in particular, in the shipping fraternity of the Greater China Region, in interactive sessions of Q&A discussions.

The Ninth Session of the IMP Workshop Series II is on Casualty Management Part II with focus on Salvage which will be followed by interactive discussions on various claims aspects arising from the casualty (collision followed by fire and grounding) on the Property Insurances.

Guest moderators for this 9th Session will be Mr. Ken Lim from T&T Salvage Pte, Singapore, and Mr. Wallace Yeung from Gard (HK).

Mr. Raymond Wong will preside over the case study as Average Adjuster jointly with Mr. Wallace Yeung as Underwriters Claims Adjuster, highlighting differences in cover and treatment of certain areas between the ITC-Hulls and the Nordic Plan.

All members, non-members and guests are cordially invited to attend the Ninth Workshop.

Ninth Workshop:

Time/Date :       7:00 pm – 9:45 pm on Thursday 20th July 2017

Venue :                HK Polytechnic University Room PQ303

Language :         English (Questions in Cantonese and/or Putonghua are welcomed, though)

Charge :               Members – HK$50.00  Non-members – HK$100.00

Parties who are interested can contact Miss Catherine Chow at Tel: 2771-6180 or info@hklmsa.org.hk for details, or by using this link for registration. 

*Please note that sandwiches will be served during the break at about 8.30pm to participants. Hence it would be appreciated if confirmation for attendance can be made as far as possible to facilitate the catering.

 

The Panel of Moderators is:

Raymond TC Wong          Chairman of IST and Honorary Advisor of HKLMSA

Prof. Chin-Shan Lu          Director of ICMS

Manson Cheung                Executive Member of both ICSHK and HKLMSA

 Cho Hor Wong                   Executive Member of HKLMSA

 Dr. Tze Leung Yip             Deputy Director of ICMS

 

Supporting Organizations