Section 5 Obstruction to navigation and wreck liabilities

7.5.1 General

Liabilities covered in the first part of the section arise whilst the ship is still a ship. The remaining part of the section refers to liabilities arising when it has ceased to be a ship and become a wreck.

7.5.2 Obstruction

7.5.2.1 What constitutes an obstruction?

The first part of the section refers to liabilities arising when the entered ship causes an obstruction to navigation. The obstruction must have been caused by a casualty to the entered ship. There is no cover where navigation has been obstructed or impaired by the way a ship has been moored or anchored. An obstruction can be caused by the hull of the ship if she is aground in a narrow strait or river. She can also cause an obstruction by running down a bridge or hitting a lock gate in such a way that it cannot be opened or closed.

Liability arising from oil pollution and a port partially or fully obstructed by oil booms, is covered under Rule 6.

7.5.2.2 Liability for obstructions

The nature of the legal liability for the consequences of an obstruction may vary. Strict liability (see the comments under 4.1.4.4) may follow from the application of port regulations, contractual conditions for the use of berths or other local law applicable to navigation in canals, locks or other waterways. Any such contracts must be approved by the Club in accordance with Rule 10 Section 2 unless they are customary in the trade concerned. In the absence of any such local rules, liability is probably for negligence (in tort) with the burden of proof on the claimant.

Claims for the consequences of an obstruction generally consist of time lost by delayed or trapped ships and of loss of income by the port, tug owners, factories or others who happen to be on the wrong side of the obstruction.

When handling claims of this nature, it has to be determined which of the consequences of an obstruction are legally recoverable. Courts are generally restrictive in allowing compensation for consequential damage. Those who suffered physical damage stand a greater chance of being allowed compensation for economic consequences than, for instance, the Owner of a vessel who missed a cancelling date because the fairway was obstructed.

Claims for obstruction often involve large amounts of money and require close legal evaluation and analysis. They will be handled by the Club’s legal adviser in the jurisdiction concerned.

7.5.3 Wreck

7.5.3.1 When is the ship a wreck?

Most legal systems contain definitions of a ship for the purpose of tax, registry, measuring, etc. The generally accepted definition under English law is that it is a unit capable of navigation. If those characteristics cannot be restored for either technical or economic reasons, the ship is a wreck. When this occurs is a question of fact.

Even if it is fairly easy to determine when a ship has been blown to pieces by an explosion or broken up because of grounding, the exact hour the ship becomes a wreck is sometimes difficult to determine. A ship may not be a wreck even if it has sunk below the surface of the sea.

Regardless of the difficulty, it is important to establish the details in each case as to when the ship became a wreck. The transformation from ship to wreck means a difference in liability and insurance cover as described below.

7.5.3.2 Ownership of the wreck

7.5.3.2.1 Payment of total loss compensation

After a ship has been involved in an accident, what remains, whether a ship or a wreck, belongs to the Owner of the ship. After the accident, the Hull underwriter has some time to consider whether salvage operations should be undertaken, followed by repairs to restore the ship, or whether the ship should be declared a total loss or a Constructive Total Loss (“CTL”). If salvage is considered technically or economically impossible, the Hull underwriter should notify the Owner accordingly and advise him to submit the required documents for calculating compensation.

7.5.3.2.2 Hull underwriter’s option to acquire title to the wreck

When total loss compensation is due, the Hull underwriter can opt to acquire title to the wreck in the hope that a salvage will produce a surplus to reduce the loss. If the Hull underwriter exercises the option to acquire the wreck, the Hull underwriter assumes the ensuing liabilities. This means that the P&I Insurance is no longer concerned as there are no liabilities left in connection with the wreck for the Member to insure.

In most cases though, the Hull underwriter abstains from taking title to the wreck, which then continues to be the liability of the Member and accordingly covered under this Rule.

7.5.3.2.3 Effect on cover of total loss payment

According to Rule 27 (b), the cover under these Rules ceases when the Member is entitled to total loss compensation from the Hull insurance. See the comments under 27.3.

By application of Rule 28 the Club remains liable under these Rules for events which occurred before such cover ceased. The Member is therefore covered for liabilities arising after the cover ceases but which are consequent upon events that occurred before such cover terminated.

The Member may incur liabilities, costs or expenses as a result of the presence or involuntary shifting of the wreck of the entered ship or its cargo or equipment. Other ships may run into the wreck. Ships, lives and cargo may be lost. Pollution may be caused. As long as such a loss is the direct result of the initial event and cannot be labelled as a new event, the Member’s liability remains covered.

The words “involuntary shifting” indicate that there is no cover where the Hull underwriter or the Member interferes with the wreck for their own purpose. By shifting the wreck, its cargo or part of it, liabilities could be created or aggravated for which there is no cover under these Rules. Such actions would constitute a new event arising after the cover had ceased under Rule 28.

7.5.3.2.4 Effect on cover of a compromised CTL

A Hull underwriter, who has exhausted the salvage possibilities or thinks that salvage is not technically or economically feasible, may agree to a compromised CTL. This means that the Owner accepts a reduced total loss compensation and retains title to the wreck with the understanding that he will try to salvage it himself.

Liabilities, costs or expenses arising as a consequence of salvage attempts performed by the Member are not covered. Firstly, the salvage is a new event in the sense of Rule 28. Secondly, there is a breach of the fundamental condition in Rule 2 that the liability should be a direct consequence of the operation of the entered ship. The Member is at that stage acting as a salvor. Liabilities incurred in relation to salvage are only covered to the extent described in Rule 3 Section 9, Rule 4 Section 7, Rule 6 Section 2 and Rule 7 Sections 4 and 8.

Even for ships especially equipped for salvage, liability for salvage operations is excluded under Rule 11 Section 3 (a). A Member engaged in the salvage of his own ship needs separate insurance for liabilities so incurred.

7.5.3.2.5 Duration of cover

The cover under this section is limited to a period of three years from the day the insurance ceased according to Rule 27.

If the wreck, its cargo or equipment is still considered to constitute a liability at the end of that period, the Club will consider, upon request from the Member, whether and under what conditions cover may be arranged.

7.5.4 Wreck removal

7.5.4.1 General comments on wreck removal

A wreck may constitute a hazard or an inconvenience. It may be a danger to safe navigation or obstruct the proper use of fairways, ports, berths, oil rigs, pipelines, cables etc. It may be a potential source of pollution. It may prevent or damage fishing or be a nuisance to the environment. In short, governmental or private interests may wish that the wreck, its cargo or equipment be removed.

Many countries have enacted legislation according to which the Owner of a ship has an obligation to remove the wreck, its cargo or equipment. When such a mandatory obligation exists, it is covered under this section.

7.5.4.2 Obligation to remove wreck

7.5.4.2.1 The obligation is often strict

An obligation to remove the wreck, its cargo or equipment is often strict (see the comments under 4.1.4.4). This means that the obligation exists even if the entered ship became a wreck through no fault on the part of the Member.

7.5.4.2.2 Wreck removal orders

The obligation to remove the wreck, its cargo or equipment derives from a wreck removal order in the form of a court judgment or a governmental submission. It is important to check that the order is legally founded and the matter is indeed subject to the jurisdiction of the issuing authority. The wreck may in fact be positioned in international waters outside the national jurisdiction. The Member should immediately inform the Club of any such request received, regardless of its form, to remove the wreck of the entered ship.

7.5.4.2.3 Performance of wreck removal

The issuance of a wreck removal order does not mean that the Member can be forced to do the job oneself but the Member must pay the costs of having it done. Having received and examined the validity of the order, it is incumbent upon the Club and the Member to decide whether to carry out the wreck removal or leave it to the authorities concerned.

The Club should be closely involved in any such negotiations. A refusal to comply with a wreck removal order issued by a competent authority may be considered a new event separate from the casualty which rendered the ship a wreck. As the decision will be taken at a management level, the decision may affect the right, otherwise available, of the Member to apply global limitation. See the comments under 2.11 and 11.1.3. The options and the effect of any decision taken have to be analysed and considered carefully.

An argument in favour of the Club arranging the removal of the wreck, is where it can be done more cost efficiently than by a public authority.

In some cases, wreck removal operations are, however, left to the authorities concerned. The costs will then be claimed against the Owner of the wreck. The Club will supervise the actions taken and the money spent.

To comply with any obligations with regard to the wreck, its cargo or equipment, it may not be necessary to raise it. If the wreck constitutes a hazard or obstacle to navigation, it may be sufficient to blow it up to level with the seabed if that can be done without the risk of pollution.

A wreck removal order may concern part of the wreck, its cargo or equipment. It can also be in respect of cargo or equipment lost overboard from a ship which is not itself a wreck. Lost anchors may constitute a hazard in a shallow waterway or in an anchorage area. Containers or other large items of cargo lost overboard may have to be removed.

The Club should be credited for the value of the wreck salvaged or of equipment and parts recovered.

The Club is asked sometimes for a lost anchor to be returned to the member after it has been retrieved. If a member wishes to have the anchor back, it is important that the member notifies the Club since the value of the anchor should be credited to the Club. It is necessary then to value the anchor – the evaluation being based ordinarily on the market-value of the anchor at the time of the evaluation.

7.5.4.2.4 Global limitation

Wreck removal costs are in some jurisdictions subject to global limitation, which puts a limit on the payment to be made on the part of the Member. See the comments under 2.11.

7.5.4.2.5 Security

As the value of the wreck is insufficient as security for removal costs, the request for security may be combined with an arrest of another ship or property in the same or associated ownership within the jurisdiction.

The request for security is subject to Rule 12 and accordingly it is within the Club’s discretion whether or not to provide security. Before taking a decision, the Club may wish to investigate the circumstances surrounding the casualty to see that it is not subject to any exclusion of cover. The extent and possible application of global limitation as compared to the extent of the requested security, also has to be determined.

7.5.4.2.6 Contracts must be approved by the Club

The terms of any contract to remove or otherwise deal with a wreck, its cargo or equipment should be submitted in advance to the Club for approval in accordance with Rule 10 Section 2 in order to avoid contractual liabilities beyond the cover of these Rules. Normally, such contracts are entered into in close cooperation with the Club and often this involves an Invitation to Tender (“ITT”) to suitable international contractors for evaluation of the best overall solution. Frequently, the contracts will be based on recognised BIMCO standard contracts such as Wreckhire, Wreckstage or Wreckfixed in their latest versions.

A Member may sell the wreck “as is, where is”. The sales contract should be approved by the Club according to the same Rule to ensure that all liabilities with regard to the wreck are transferred to the buyer.

Permission to dive on a wreck to salve equipment or souvenirs should be in writing and contain appropriate conditions. The Club can assist Members to draft suitable terms.

7.5.4.2.7 Recovery of wreck removal costs in collisions

The cost of removing the wreck of a ship that has sunk after a collision can be made part of the collision claim. It is recoverable in proportion to the collision liability, subject to any right of the colliding ship(s) to limit the liability.

An order to remove the wreck can also be issued against the Owner of a colliding ship which was not to blame. The full removal costs will then be claimed against the responsible ship and be recoverable within the amount of her applicable limitation.

Wreck removal costs which form part of a collision liability are covered under Rule 7 Section 2.

7.5.4.2.8 Weapons of war used for wreck removal

According to Rule 11 Section 5 (c) the Member is covered where weapons of war have been used to eliminate liabilities, costs or expenses which would otherwise fall within these Rules in respect of the wreck of the entered ship. The wreck, its cargo or equipment may be in such a position or the hazards of such a nature that they can only be eliminated by use of torpedoes, bombs or shells. Such action must be either by way of governmental order or with the Club’s prior approval, in order to be covered.

7.5.5 Obligation to mark the wreck

The Owner has an obligation to mark the wreck, its cargo or equipment and to notify the proper authorities where the ship, wreck or its cargo constitutes or may constitute a hazard to navigation. In many countries it is the duty of the authorities once they have been notified, to mark the wreck, its cargo or equipment with buoys or lights and to issue the necessary navigational warnings. In other countries, the Owner has a legal obligation to take those steps himself. If the Owner fails, he may become liable for any adverse consequences/damages caused.

As any such failure may have been made on a management level, it may also affect the Owner’s right to limit liability and may jeopardise the cover under these Rules by application of Rule 11 Section 1.

The Member should co-operate closely with the Club. Assistance and legal advice will be rendered.

7.5.6 Wreck Removal Convention

In 2015 the Nairobi International Convention on the Removal of Wrecks, 2007 entered into force in signatory States.

The purpose of the convention is to establish sound uniform rules and a legal basis for the prompt and effective removal of shipwrecks, that may be hazardous to navigation or to the environment, located in the exclusive economic zone (EEZ), and also to the territorial seas of those signatory states that have opted for the Convention to apply there.

The Convention provides for strict liability, compensation and a compulsory insurance regime. It makes the registered Owner of a ship liable for locating, marking and removing a wreck deemed to be a hazard in a State’s EEZ or territorial waters (in the state’s option). It also covers any prevention, mitigation or elimination of hazards created by any object lost at sea from a ship (e.g. lost containers).

The Convention defines “wreck”, following upon a maritime casualty, as:

(a) a sunken or stranded ship; or

(b) any part of a sunken or stranded ship, including any object that is or has been on board such a ship; or

(c) any object that is lost at sea from a ship and that is stranded, sunken or adrift at sea; or

(d) a ship that is about, or may reasonably be expected, to sink or to strand, where effective measures to assist the ship or any property in danger are not already being taken.

Articles in the Convention cover:

• reporting and locating ships and wrecks,
• criteria for determining the hazard posed by wrecks,
• measures to facilitate the removal of wrecks, including rights and obligations to remove hazardous ships and wrecks – which sets out when the shipowner is responsible for removing the wreck and when a State may intervene,
• liability of the Owner for the costs of locating, marking and removing ships and wrecks,
• settlement of disputes.

Owners of ships of 300 GT and over, registered in a State party or entering or leaving a port in the territory of a State party, will need insurance cover arrangements which meet the requirements of the Convention and a certificate from a State party attesting that such insurance is in force. Such certificate must be carried on board at all times.

The Club will issue the required Wreck Removal Convention “Blue Cards”, to enable Members to obtain Certificates from States parties.