LECTURE 15

Claims Management
1.0 INTRODUCTION
• Hypothetical Scenario 1
• Emergency Situations
• People
LGC | COMPENDIUM OF MARITIME CLAIMS | 11
• Environment
• Property
• External Advisers
• Lawyers
• Salvors
• Environmental Experts
• Media Consultants
• Local Representation
2.0 RESPONSE PROCEDURE
• People
• Environment
• Property
• Information and Documentation
• Notification of Relevant Parties
• Government Authorities
• Business Partners
• Exercising caution
• People
• Environment
• Property
3.0 POTENTIAL LIABILITY SCENARIOS
• People
• Environment
• Property

4.0 RESUME
• Hypothetical Scenario 2
• Potential Claims
• People, Environment and Property claims
• Bunker
• Charterparty claims
• Special Compensation claim
• Shipowner’s Defenses

5.0 LIMITATION OF LIABILITY
6.0 JURISDICTION
LGC |

 

LECTURE 15

CLAIMS MANAGEMENT

• INTRODUCTION

Most major maritime claims are complex in nature and so is claims management in relation to maritime incidents. The majority of maritime claims or incidents are likely to encompass various aspects, including: immediate concerns related to People, the Environment, and Property (PEP); multiple potential areas of liability, each with commercial, financial, and other repercussions; a variety of legal systems and jurisdictions in competition; various insurance coverage policies; Involvement of local and national authorities, and participation of the media and the general public.

The most intricate cases involve all these elements. Consequently, nearly all shipowners plan and prepare for such occurrences, yet only a few actually encounter them. Despite certain similarities among casualties, no two are identical. Regardless of their scale, shipowners faced with such incidents typically have limited prior experience to guide them.

 

One valuable source of support and assistance for shipowners in such situations is their insurers, particularly their P&I club. Under normal circumstances, P&I coverage is likely to cover most, if not all, of the liabilities that a shipowner may confront. Clubs possess extensive experience in collaborating with shipowners to respond to such cases, irrespective of when or where they occur. It is undeniably in the mutual interest of these parties to work closely together. It can be confidently asserted that most substantial claims are intricate.

This lecture presents a hypothetical case of a significant maritime incident, illustrating how such an event could unfold and addressing the intricate challenges that shipowners may encounter. It delves into the potential sources of guidance and support available to shipowners, outlines strategies for preparing and responding to the issues they may encounter, and offers insights into the longer-term, tactical, and strategic considerations required for resolving claims and disputes. It is important to note that this chapter cannot provide comprehensive solutions for every situation, as each case is unique, and external factors can quickly change priorities. Shipowners may approach a particular scenario in their own distinct way, necessitating a case-by-case approach.

Nonetheless, effective planning and preparation are vital for responding to a maritime casualty. Preparation encompasses practical aspects, such as ensuring adequate communication lines in the crisis room, as well as more strategic elements, like appointing the right personnel to the crisis response team. . Preparation also entails ensuring that the crisis team possesses not only the requisite knowledge but also the ability and experience to translate theory into action.

Training plays a crucial role in developing knowledge, understanding, and the confidence of team members. It is important to acknowledge that emergency response plans should not be overly rigid. While structure is essential, flexibility is also required, as no plan can account for every possible scenario. Real-life maritime casualties often occur outside regular office hours, such as on holidays or when key staff members are unavailable, emphasizing the need for constant preparedness.

One immediate challenge for shipowners is balancing the myriad of competing interests and parties involved or potentially involved in a casualty. Determining priorities and the timing of action, seeking external advice and assistance, notifying relevant parties about the incident, and establishing a clear sequence of steps to address the problem are among the key considerations in this regard. These are just a few of the pertinent issues shipowners must navigate.

HYPOTHETICAL MARITIME CASUALTY

In this hypothetical scenario, we describe the early events surrounding a significant maritime incident:

The vessel in question is a bulk carrier with a gross tonnage of approximately 20,500, constructed in the year 1996. It is currently on a voyage from the Far East to South Africa, carrying a full cargo load of roughly 28,250 metric tons of fertilizer. This ship is owned by a company operating only one vessel, but there are ten other vessels of similar size, age, and value managed by the same entity. All these ships belong to different one-ship companies and share the same country of registration.

The vessel is currently under a time charter agreement with a major trading company, and its crew is composed of officers from South America and Panama ratings. The ship’s fuel inventory consists of 218 metric tons of IFO (Intermediate Fuel Oil) and 150 metric tons of MDO (Marine Diesel Oil) for bunkering purposes. Notably, the IFO is stored in multiple tanks, including one located in a double-bottom tank beneath hold number

The vessel’s voyage proceeds without incident until one late evening when it collides with a reef at full speed, traveling at 13.5 knots. This reef is situated near a tropical island renowned as a popular holiday destination. The weather conditions at the time are adverse, characterized by Force 6 winds, a heavy swell, and poor visibility. Initial reports from the vessel indicate that, while attempting to avoid the reef, it grounded on rocks nearby. As a result, the vessel becomes grounded up to the aft part of hold number 2, and water ingress is observed in the forepeak tank as well as holds 1 and 2. The aft section of the vessel remains afloat, but it is being buffeted against the rocks.

Efforts by the ship’s master to establish contact with the shipowners prove futile. At the time of the incident, it was early morning in the city where the shipowners conduct their business.

All their senior executives are en route back from the capital city after meetings with government officials, making them unreachable via mobile phones. The shipowners only become aware of the incident through the chief officer, approximately six hours after the grounding. The chief officer reports that the vessel’s master sustained injuries when the ship initially grounded, being thrown down a flight of stairs and suffering a head injury. Additionally, one of the crewmembers, an Able-Bodied Seaman (AB), has suffered a severe shoulder injury, possibly a broken rib, as a result of the grounding.

EMERGENCY SITUATIONS

Upon receiving this report in the shipowners’ office, the individual responsible faces crucial and time-sensitive decisions. The most pressing concern revolves around internal communication. Most shipowners have formulated emergency response plans tailored to such occurrences. These plans typically designate a team known as the Emergency Response Team (ERT) composed of individuals possessing legal, technical, operational, commercial, and often media-related expertise. When a well-structured emergency response plan is in place, assembling the ERT promptly becomes feasible, enabling the shipowners to devise and execute their response strategy to the incident.

 

At this stage, the ERT should primarily concentrate on two key areas: first, evaluating the facts and issues necessitating immediate action, and second, the imperative of notifying external parties for assistance and advice in most cases. Serious maritime incidents involve a complex interplay of legal, technical, and commercial matters. One of the significant challenges confronting shipowners and their insurers is how to effectively incorporate this advice into their strategic decision-making. It demands an understanding of how each piece of advice impacts various other relevant issues, some of which may initially appear unrelated, and how a chosen course of action will affect future developments. There is an abundance of information that needs to be collected, shared, deliberated upon, and disseminated to those who require it. It necessitates urgent, coordinated management, decision-making, and action. This must transpire while simultaneously monitoring actions already taken and evaluating those that will be needed in the future.

Let’s illustrate this with a hypothetical scenario. In response to the incident’s severity, shipowners may opt to send a senior executive to the scene. Such a decision underscores the shipowners’ seriousness and their willingness to engage in face-to-face discussions with decision-makers at the incident site. While these intentions are commendable, it is vital to assess the background, experience, and skills of the designated individual and define their role beforehand. Additionally, it’s crucial to evaluate the situation within its broader context. Should this person address technical vessel-related issues, for which a senior superintendent might be better suited? Will they engage in discussions with local or national authorities, a role more suited to a ‘corporate’ figure? Can this person effectively represent the shipowners in media interactions and briefings? Furthermore, one must consider whether sending anyone to the scene may expose them to pressure or threats from local individuals, organizations, politicians, or authorities, who might be deeply upset by the perceived irreparable damage to their environment and employment. Is there a risk that the individual may be detained and held as a ‘hostage’ pending the satisfaction of certain demands? Although shipowners may have identified a relevant person in their emergency response plan, it’s crucial to reassess whether the incident’s circumstances necessitate a reevaluation or even an alteration of the plan.

Initially, details of the casualty will be exclusively communicated to the shipowners by those onboard. However, within approximately twelve hours, and possibly sooner, news of the incident is likely to become more widely known. The location and severity of the casualty will influence the extent and prominence of the news coverage. Numerous other parties will then seek to gather information and assess its implications. Therefore, shipowners, in collaboration with their insurers, should utilize the early opportunity they have before the news becomes public to convene the ERT and evaluate the incident’s ramifications. The acronym ‘PEP’ (People, Environment, and Property) can often serve as a guide for determining which issues should take priority. Nonetheless, the unique facts of the situation will dictate which matters must or must not be addressed immediately.

PEOPLE

Two individuals have sustained injuries. The shoulder injury suffered by AB appears to be severe, while the extent of the injury to the master remains uncertain. However, AB’s injury necessitates medical attention and likely a medical evacuation. Such an evacuation would almost certainly involve local authorities, so they need to be notified of the incident. The master’s injury might also require a medical evacuation, but if this happens, the vessel will be without its master for an unspecified period. Therefore, the crucial decision of whether to evacuate the master may need to be made with incomplete information.

ENVIRONMENT

The vessel has run aground on a reef, potentially causing damage to the reef. Even if the vessel can be refloated, it may further harm the reef. If the reef is a coral reef, this could lead to a substantial claim, especially if the reef is vital for the island’s tourism and leisure activities, which generate significant income. Although assessing the physical damage caused by the grounding early would be beneficial, it may have to wait until the vessel is refloated. While the vessel is firmly aground, there are no reports of damage to the bunker tanks yet. However, the adverse weather conditions put the vessel at risk of more structural damage if it continues to be in contact with the rocks. Consequently, there is a clear potential for damage to one or more bunker tanks and the possibility of leakage.

 

PROPERTY The vessel has sustained significant damage, and although the cargo appears undamaged at present, the exact status is unclear and subject to rapid change.

Therefore, the crew should ideally conduct damage assessment tests by visually inspecting holds and checking for leaks in tanks. It seems highly improbable that the vessel can refloat on its own, so salvage assistance will likely be urgently required. While some shipowners might attempt to secure salvage assistance themselves, in most cases, this would be coordinated with and often handled by the vessel’s Hull and Machinery (H&M) insurers.

EXTERNAL ADVISERS

To fulfill their obligations and ensure compliance with their insurance coverage, particularly P&I and H&M insurance, shipowners must engage multiple external parties. These parties include lawyers, technical experts, salvors, and potentially media advisers. Each service provider must receive comprehensive information and regular updates from the shipowners. They also need to be well-informed about the work conducted by other service providers to facilitate their investigations. Thus, establishing a team of external advisers at an early stage is crucial.

LAWYERS regular updates from the shipowners. They also need to be well-informed about the work conducted by other service providers to facilitate their investigations. Thus, establishing a team of external advisers at an early stage is crucial. Selecting suitable lawyers is of utmost importance for several reasons. While many owners and insurers have preferred law firms, it is essential to choose a firm or individuals within a firm with the requisite expertise and experience. It is important to note that information collected by lawyers and the advice they provide is often protected by legal privilege and cannot be disclosed to other parties. In most cases, lawyers will need to be appointed in at least two different jurisdictions: where the incident occurred and as specified in the relevant contracts for carriage, charterparty, and crew agreements. Lawyers often play a role in gathering evidence and taking statements from crew members, especially with regard to electronic data recording devices on ships. This timely evidence collection helps in managing claims and assessing potential liabilities. Additionally, issues such as limitation of liability principles, applicable laws, and jurisdictions need to be considered and addressed by lawyers.

SALVORS

Securing salvage assistance is typically a priority when a vessel is in a challenging situation. Shipowners often collaborate with their H&M insurers to identify willing and capable salvors. This identification can be done through direct contact with salvors or via salvage brokers. It’s crucial to act swiftly to meet the requirements set by authorities, as most coastal states regulate response times. Delays in response may lead authorities to take control and bill the shipowners. Once a salvage contract is in place, shipowners and their insurers may appoint their salvage consultant. Even if the SCOPIC Clause is not part of the salvage agreement, shipowners and their insurers usually engage a salvage expert to provide technical advice on the salvors’ plans and work.

ENVIRONMENTAL EXPERTS

In anticipation of potential pollution caused by the ship’s bunkers, shipowners and their P&I club should consider appointing experts. Salvage operations can experience unforeseen delays, including bad weather or customs issues, leading to pollution incidents. Engaging organizations like the International Tanker Owners’ Pollution Federation (ITOPF) can help identify oil spill response resources in case of spills.

MEDIA CONSULTANTS

A significant maritime incident often garners substantial media attention, both locally and internationally. To effectively manage media coverage, shipowners should appoint specialized shipping media consultants, especially if their vessel is involved in environmental damage. It is crucial to coordinate media releases with lawyers and insurers to maintain a consistent approach. Shipowners must be cautious about making unrealistic promises under pressure, as they might conflict

LOCAL REPRESENTATION

Shipowners must establish a local presence in the country where an incident occurs. In most instances, the most effective approach is to engage the local correspondents of the P&I club, who function as the club’s representatives in that specific nation. These local correspondents possess valuable local insights and connections, enabling them to offer any required assistance to individuals acting on behalf of the shipowners, ensuring their smooth travel to the incident site and successful completion of their assigned tasks. This aid is particularly beneficial for any P&I club (or H&M) representative who might need to be physically present on-site. The presence of such a representative on-site frequently offers valuable support to both the local correspondents and any shipowners’ representatives who may also be present, streamlining decision-making and the orderly transfer of detailed information to insurers and all other involved parties. Furthermore, the attendance of such a representative serves as a visible link between the insurers (typically the ultimate payment party) and local authorities, facilitating the negotiation of any financial security requests made by claimants. All of these individuals must collaborate closely to furnish shipowners and their insurers with the essential information and guidance required to make timely and satisfactory decisions in response to the various emerging and ongoing issues.

• RESPONSE PROCEDURE

PEOPLE

Undoubtedly, local authorities must be informed about the incident, and a request should be made to allow the injured Crewmen to be medically evacuated promptly. If the shipowners lack a local agent, the local P&I club correspondent might be able to assist in this regard. However, it’s essential for the shipowners to be aware that they may need to guarantee the cost of the evacuation and/or medical treatment.

Additionally, the need to consider the medical evacuation of the master arises. It is unlikely that his injury can be adequately assessed on board, so seeking a doctor’s opinion before making any decisions is prudent. If the doctor recommends evacuation, this will leave the vessel without a master during a critical period. Therefore, it’s crucial to evaluate whether the chief officer can assume the master’s responsibilities or if it’s necessary (and feasible) to arrange for a replacement master to be flown in.

ENVIRONMENT

At this stage, there may be limited actions that can be taken at the incident scene. However, local authorities might decide to take precautionary anti-pollution be taken at this point.

PROPERTY

Based on current information, it appears that the cargo remains unaffected, and little can be done at this stage to address any damage sustained by the vessel. If the vessel can be refloated later, assessing the extent of damage will be necessary. In the interim, engaging expert salvage assistance is probably the most prudent step to prevent or minimize further property loss or damage. Due to the urgent need for salvage assistance, shipowners may not have the luxury of negotiating favorable salvage terms, but it’s probable that the salvors will only offer assistance under Lloyds Open Form (LOF) terms.

INFORMATION AND DOCUMENTATION

Both salvors and the vessel’s classification society may require pertinent technical information to conduct a technical assessment of the vessel’s damaged condition and stability. Shipowners’ lawyers and the P&I club will also need crucial documents, such as contracts of carriage (charterparty, bills of lading, etc.), to make an informed assessment of potential legal liability. The media will be interested in details about the vessel, the quantity and type of bunkers on board, its classification society, flag, and other relevant information for press statements. There is a significant amount of information and documentation that shipowners should either have readily available or start collecting immediately. It’s advisable to designate an individual in the shipowners’ office early on to be responsible for document retention and collection.

NOTIFICATION OF RELEVANT PARTIES

Most shipowners will prioritize notifying their insurers, as they are likely to provide valuable assistance in managing this complex situation. However, it’s crucial to remember that various governmental and other entities will also need to be promptly notified, and failing to do so may impede shipowners’ response plans and potentially result in sanctions.

GOVERNMENTAL AUTHORITIES

Many countries where a maritime incident occurs have strict regulations specifying the parties or bodies that must be notified promptly, the required information format, and the notification timeframe. Additionally, the flag state will likely conduct its own investigation and will expect comprehensive and prompt notification. Shipowners should be cautious, especially in cases involving potential pollution, as most coastal states possess extensive powers under international conventions or national legislation and will not hesitate to use them if they perceive inadequate response from shipowners. Local authorities will demand continuous updates on the vessel’s condition and salvage progress. Cooperation among private

BUSINESS PARTNERS

Parties with a commercial relationship with the shipowners will also want to be informed and kept updated. For instance, time charterers will be concerned about off-hire duration, voyage charterers will seek information regarding cargo delivery, and the vessel’s next charterer may have a significant interest if the current charter is concluding around the incident time. Major oil companies may wish to issue their own statements and influence decision-making.

EXERCISING CAUTION

The duty to notify often involves reporting the incident’s cause. In some cases, the immediate cause may be evident, but the underlying causes may necessitate further investigation. In other situations, the immediate cause might not be clear, making early speculation unwise as it can lead to incorrect assumptions and decisions. Shipowners should be aware that other parties will protect their own interests, which may differ from the shipowners’, and may potentially bring claims in the future. Shipowners should ensure that their interests (and those of their insurers) are adequately safeguarded. Information shared with any or all of these parties should be consistent.

 

• POTENTIAL LIABILITY SCENARIOS

Shipowners and their advisors should make an initial evaluation of potential liabilities that may emerge at the early stages. Using the PEP acronym, the following liability scenarios appear probable: PEOPLE An injured crew member might file claims for loss of income and any temporary or permanent disabilities they might incur.

Shipowners are likely responsible for medical expenses and repatriation costs. Depending on the severity of the injury, the ship’s master may also file a similar claim, while other crew members may seek compensation for personal belongings lost and employment income disruption.

Most such claims are usually based on contractual terms specified in the relevant employment contract, which often includes provisions from a collective bargaining agreement (CBA) negotiated between the shipowners’ association and the crew members’ union. Concurrently, claims for negligence under tort law may arise unless the employment contract explicitly prohibits crew members from pursuing such claims. The shipowners’ liability will typically be strict under the employment contract (i.e., they will be liable without regard to fault), whereas their tort liability will hinge on whether the accident can be attributed to their negligence or that of their employees.

 

If the vessel is not refloated and becomes a total loss, the shipowners may also incur additional expenses for repatriating the entire crew. Even if the vessel is successfully refloated, replacing certain crew members, especially those who endured stress or worked longer hours due to the casualty and salvage operation, may be necessary.

 

ENVIRONMENT

It is evident that the reef has already sustained damage, and claims may be filed against the shipowners by local holiday companies, hotel proprietors, recreational activity providers, fishermen, and local authorities for losses in business and amenities. Salvage operations and refloating attempts may exacerbate the damage, potentially leading to claims against the shipowners, even if the salvors caused the further damage. In such cases, obtaining indemnification from the salvors may prove challenging unless their negligence is evident. While salvors are expected to execute their work professionally, courts and arbitration panels acknowledge the inherent difficulties and risks and do not readily attribute damage during salvage operations to salvors’ negligence.

If the vessel cannot be salvaged, its cargo and bunkers may be lost at sea. In such situations, there is a need to assess whether the cargo qualifies as a pollutant and if it can be effectively cleaned up. Regardless, the shipowners should anticipate claims for environmental contamination damage to private and public property.

PROPERTY

The ship has already incurred some physical damage, and if salvage operations fail, it could become a total loss. In case of successful salvage, shipowners will have a liability to the salvors as per the salvage award, and they would seek to recover this amount and the ship’s repair costs from the vessel’s H&M insurers. In the event of a total loss, shipowners would aim to claim the insured value of the ship from their H&M insurers. Additionally, if the ship cannot be salvaged, local authorities may mandate the removal of the wreck at the shipowners’ expense, which is typically handled by the ship’s P&I insurers.

In case of cargo damage or bunker loss, shipowners are likely to face claims from cargo owners and time charterers (as bunker owners) in due course. Shipowners may also want to declare General Average, allowing for the apportionment of future salvage award costs based on the property values at risk upon redelivery by the salvors. However, shipowners must be prepared for cargo owners and time charterers potentially refusing to contribute if they believe the incident resulted from the shipowners’ breach of the charterparty or the contract of carriage, such as claims of insufficient diligence in ensuring the vessel’s seaworthiness.

Lastly, it is probable that the charterers will seek to place the vessel off hire, making it important for shipowners to promptly involve their Defense insurers to confirm the charterers’ entitlement to do so and safeguard legal cost coverage for any ensuing disputes.

 

• RESUME

In the aftermath of the incident, shipowners, insurers, and their advisors will closely examine the various aspects mentioned here within the initial days. It is important to note that this list is not exhaustive. In nearly every significant incident, unique issues specific to that situation will emerge, ones that have not been previously addressed in any emergency response plan. Some of these issues may demand immediate attention, while others can be deferred, but all necessitate careful evaluation and discussion with the shipowners’ insurers and advisors. The primary challenge for shipowners is determining how to appropriately prioritize the relevant issues at the right time.

HYPOTHETICAL SCENARIO 2

Still following the hypothetical scenario drawn above, after about three days after the casualty occurred, the following situation unfolds:

A contract has been established under LOF terms, including the SCOPIC Clause (which hasn’t been invoked yet), with professional salvors. These salvors have informed that one of their salvage tugs is approximately three days away from the casualty, and a salvage master, along with other essential personnel, has been dispatched to the scene.

After consulting with a medical specialist in head injuries, the shipowners have reached an agreement with the captain to remain on board until a replacement master can relieve him. The replacement master was dispatched the following day but faced delays obtaining a visa upon arrival, leading to an overnight detention by immigration officials, despite assistance from the local club correspondent. His visa was eventually issued locally on the following day, and he was able to relieve the existing master late on day 2. A debriefing meeting took place between the two masters on board, and the original master was taken ashore for a medical examination early on day 3. He was diagnosed with severe concussion and kept in the hospital overnight for observation. The hospital expressed its intent to conduct further tests but lacked the facilities to address serious head injuries.

Due to persistent adverse weather conditions, the salvage tug’s arrival has been delayed. Despite minimal tidal fluctuations in the grounding area and efforts to “ballast down” the vessel, the ship has experienced significant stress on the reef. Consequently, a transverse crack has formed in the deck just forward of hold no. 3. Further contact with the rocks caused this crack to extend, and by the time the salvage tug arrived, the vessel was connected by only a small amount of remaining steelwork. The salvors invoked SCOPIC immediately and requested security for the two parts. customary USD 3 million specified in the SCOPIC Clause. Up to this point, no bunkers had spilled, but the salvors indicated that it was only a matter of time before the double bottom tank beneath hold no.1 would be breached. They also advised that the vessel could not be refloated in one piece and was on the verge of breaking into

Local authorities were informed of the situation by this point and issued an order for the prompt removal of pollutants from the vessel and the removal of the vessel itself. While the salvors were preparing their plan for pollutant removal for approval by the authorities, the vessel split in two, resulting in fuel oil loss from the bottom tank beneath hold no.1. The fore part of the vessel remains grounded, while the salvors managed to secure a line to the aft part, but it began sinking before they could tow it to deeper waters.

With the vessel’s breakup, the crew abandoned ship. They were safely rescued without injuries and detained ashore, including the replacement master and other senior officers, with their passports confiscated pending an official inquiry and potential legal charges.

The incident has garnered significant attention locally and is featured in shipping media worldwide. Moreover, some passengers aboard a cruise ship visiting the island at the time captured photographs and video footage of the incident, which has been shared on the internet.

A severe incident has evolved into a major casualty. Given the intense media interest, shipowners will likely require support from an organization experienced in handling media inquiries in such situations. Nevertheless, it remains crucial for shipowners to continue to address the specific actions required for each of these issues, alongside their insurers and advisors by using the established PEP as a guide.

 

POTENTIAL CLAIMS

While shipowners must initially focus on addressing the practical challenges arising from a maritime incident, it is certain that, despite these efforts, shipowners will need to address significant claims from various involved parties. PEOPLE, ENVIRONMENTAL AND

 

PROPERTY CLAIMS

Most of the pertinent people’s claims have been detailed in the Chapter on People Claims. It is equally important to note that the shipowners may face environmental claims from Travel agencies, hotel proprietors, recreational activity providers, fishermen, etc., for business losses, as well as National and local governments for cleanup expenses and loss of amenities. Moreover, criminal penalties could be imposed on both land-based and ship-based personnel. Similarly, the shipowners may face property claims which are consequential to the cargo onboard the ship.

 

Drawing from the fictional scenario above, it is evident that at least some of the cargo, particularly the cargo in the aft section of the vessel, will be considered a total loss. The cargo owners are likely to file claims against the shipowners for the value of the lost cargo. If attempts to salvage the cargo in the fore part of the ship are successful, the cargo owners may also need to contribute to the amount awarded to salvors under the salvage contract. However, if these attempts fail, the cargo in the fore part may also be considered a total loss, and the cargo owners are likely to file BUNKERS claims against the shipowners, either for payments made to salvors or for the full value of the lost cargo.

BUNKERS

Ascertaining the location of any onboard bunkers is a pressing matter for shipowners. The aft section of the vessel is likely to contain a substantial quantity of bunkers that may leak over time. The time charterers, who own the bunkers, will probably claim the value of their lost property from the shipowners

CHARTERPARTY CLAIMS

Given the vessel’s split and the likelihood of it being considered a total loss or out of service for a significant period, it is probable that the time charterers will persist in deeming the vessel off-hire, and may additionally seek compensation for lost profits during any part of the charter period when they are deprived of vessel use. It is foreseeable that both cargo interests and charterers will eventually request guarantees for their claims. Although such requests are not expected at this initial stage, shipowners should be mindful of this when they contemplate broader tactical and strategic matters, including the potential restriction of liability and the significance of legal and jurisdictional considerations.

SPECIAL COMPENSATION CLAIM

Moreover, where the ship is considered a total loss, that means the concept of ‘no cure, no pay’ relating to salvage awards when salvors perform their operation will not be applicable. However, the only remedy for the salvors will be to seek Special Compensation payments under the SCOPIC Clause for their successful efforts in preventing or minimizing pollution.

SHIPOWNERS’ DEFENSES

The shipowners may not be successful in its defense against potential personal injury and other claims that could arise from the crew members’ employment contracts. Similarly, they are unlikely to have grounds for defense against any salvage or Special Compensation awards that may be granted to salvors according to the LOF and SCOPIC agreements.

However, while the shipowners may not have a clear-cut defense when it comes to pollution and cleanup claims stemming from bunker spillage, or cargo spillage if the cargo is deemed hazardous and noxious, in the jurisdiction of the incident, the shipowners may have room for negotiating the extent of such claims. In contrast, shipowners may be able to assert defenses against claims for cargo or bunker loss. Cargo claims will likely be filed under the terms of a carriage contract, such as a bill of lading, and claims related to bunker loss and the loss of vessel use will probably be pursued under the terms of a time charter party. These contracts are likely Rules. Article III Rule 2 (a) of these rules states that: subject, either mandatorily or by agreement, to the provisions of the Hague-Visby “Neither the Carrier nor the ship shall be responsible for loss or damage arising from:

1. a) The act, neglect, or default of the master, mariner, pilot, or the Carrier’s servants in the navigation or management of the ship.”

• THE LIMITATION OF LIABILITY

In cases where shipowners cannot completely exclude their liability, they may still have the option to restrict their liability, potentially leading to a significant reduction in the compensation they are obligated to provide. It’s important to note that their liability insurers are only obliged to cover amounts that can be limited according to their rights.

The ability to limit liability is contingent on international conventions or national laws. While most countries are parties to international conventions, not all of them enforce these conventions. Therefore, it’s essential to investigate which conventions are in effect in specific countries and, if a particular convention is not enforced, whether the right to limit liability is granted by that country’s national law.

For the specific scenario mentioned, the CLC and Fund Conventions are not relevant because the ship does not carry oil as cargo. However, if the cargo is considered hazardous or noxious, shipowners might be able to limit their liability for pollution related to the cargo, provided the HNS Convention is in force and enforceable in the relevant country. Additionally, the Bunker Convention regulates spillage of bunkers, allowing shipowners to limit their liability according to the applicable Limitation Conventions or Protocol, depending on the country.

 

Nevertheless, shipowners cannot limit their liability for certain expenses, such as traditional ‘no cure no pay’ salvage awards or Special Compensation for pollution prevention services. Similarly, if the ship cannot be salvaged and becomes a wreck, shipowners may not be able to restrict their liability for wreck removal costs, as some countries exclude this right under the Limitation Conventions.

Hence, shipowners could substantially reduce their liability for various claims under these conventions, unless they are found guilty of specific conduct. The 1976 Limitation Convention and the 1996 Protocol presume that shipowners are entitled to limit liability unless the claimant can prove that the loss resulted from a senior officer’s personal act or omission, committed with intent or recklessness. Under the 1957 Limitation Convention, shipowners can limit their liability only if they can prove that the incident occurred without the ‘actual fault or privity’ of a senior officer, making it more challenging to establish their right to limit liability.

• JURISDICTION

Claims may be brought in contract, tort, international conventions, or national laws, making it challenging to assume a uniform jurisdiction. Pollution damage claims may rely on international conventions or local jurisdictions. Therefore, jurisdiction is a crucial factor in determining whether the shipowner will be able to exclude or limit their liability or not.

Shipowners may face claims in multiple jurisdictions, and it’s essential to determine the governing law, potential defenses, and the possibility of limitation in each jurisdiction. If the initially chosen jurisdiction isn’t favorable, shipowners may need to explore options to resolve claims in a more suitable jurisdiction.

In conclusion, managing a casualty like this presents a significant challenge to shipowners. Considerable financial stakes and their reputation are on the line. Hence, a strategic approach is crucial. Shipowners must plan, prepare, and establish internal and external teams capable of effective collaboration. They should also be aware of available sources of assistance and support, including insurance coverage. In complex casualties, prompt coordination among involved parties is vital. While addressing immediate issues is important, it’s equally essential to maintain a strategic perspective and make decisions that consider the broader implications.

 

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