Section 2 Standard terms of contracts

10.2.1 General

The real need for insurance protection is against those liability risks which the Member has no technical or legal means of avoiding. Restriction must be exercised as to the extent of cover for liability risks which a Member assumes with open eyes, for commercial reasons, by entering into a contract and which would not have existed had there been no such contract. It follows from the concept of mutuality on which P&I Insurance is based, that only those contractual risks should be shared among the community of Members that are both traditional and common in most kinds of trading. A Member who wants to assume a special or exceptionally wide risk cannot expect his fellow Members of the Club to share that risk. He has to insure it separately and treat the premium charged as an operational expense.

This is the background to this clause which deals with various types of contracts and the extent to which the ensuing liabilities are covered under these Rules.

10.2.2 Contracts for the carriage of goods

This includes all kinds of contracts for the carriage of goods such as long term contracts of carriage, time and voyage charterparties, bills of lading and waybills. The cover under these Rules extends only in so far as the liability imposed upon the Member is equal to that of the Hague or Hague-Visby Rules. The nature and limitations of that liability are described in the comments to Rule 4 Section 1.

Where the Member is unable to negotiate better and less onerous terms, the Club will have to decide if the cover can be extended to embrace the risk according to the third part of the provision. If the risk has to be insured separately, the Club can assist the Member in obtaining quotations for premiums and conditions of cover.

A Member should be especially careful about terms in freight contracts which imply a warranty or guarantee of seaworthiness or which impose other important obligations.

When entering into contracts with shipowners for the carriage of mail, national post offices or authorities may attempt to impose terms which deprive the carrier of the exceptions, limitations and time bar of the Hague and Hague-Visby Rules. Such extended liabilities are excluded from cover under this clause. They can be covered at an additional premium. Mail should preferably be carried under a waybill incorporating the Hague or Hague-Visby Rules.

The Hamburg Rules entered into force in November 1992 after having been ratified by twenty states. Most ratifying states came from countries, none of which was a major maritime nation. The Hamburg Rules have limited application and most contracts will continue to be governed by the Hague and Hague-Visby Rules. The Hamburg Rules establish an entirely new system of rights and liabilities and they generally impose greater liabilities for carriers compared to the Hague and Hague-Visby Rules. To the extent the Hamburg Rules are compulsorily applicable the liabilities thereunder are covered by the P&I Insurance. However, members are recommended to always avoid assuming liabilities in excess of the Hague and Hague-Visby Rules. To the extent a Member voluntarily agrees to incorporate the Hamburg Rules into a contract for the carriage of goods with the consequence that it will entail liabilities for the Member in excess of the Hague and Hague-Visby Rules, then the excess liability will fall outside P&I Insurance.

Attention should be paid not only to material clauses but also to the effect of those clauses which a Member may regard as being of a formal nature. Examples of such clauses are those which decide jurisdiction and applicable law, including arbitration clauses. Acceptance of jurisdictions which do not recognise the Hague or Hague-Visby Rules may render the protective clauses of the freight contract illusory and expose the carrier to a more onerous liability regime. The inclusion of or reference to the Centrocon arbitration clause could reduce the time limit to file claims under a charterparty to three months and eliminate what otherwise would have been a clear recovery claim against the other party under the charterparty. These are examples of terms which could be considered unusually burdensome and could jeopardise the cover under these Rules.

This provision also applies to situations where greater liabilities have been incurred simply because there was no contract of carriage issued at all.

10.2.3 Contracts for through transport of goods

The concept of the carrier’s liability for through transport of goods and the cover under these Rules is commented upon under Rule 4 Section 2.

A Member should not accept through transports on terms where the liability is larger than would have followed from legislation compulsorily applicable to each leg of the through transport. Most through transport or combined transport bills of lading have been drafted in such a way that the carrier’s liability is duly protected.

According to the third part of the provision the Club may agree to provide cover for contracts on less favourable terms than stated under item (b). The Club will decide the conditions for any such extended cover.

Special care is required when accepting tailor-made conditions for more unusual through transport operations such as project shipments.

10.2.4 Crew agreements and contracts of service and employment

Crew members are normally employed on the basis of either a collective agreement or an individual employment contract. Collective agreements, often negotiated and entered into by trade unions and shipowners’ associations or management companies, are as a rule detailed and deal with most aspects of the employment. An individual employment contract is normally less detailed and often refers to or incorporates a specific collective agreement. Otherwise, regulations in accordance with the law of the flag state of the vessel will supplement the individual employment contract.

Examples of commonly used collective agreements are the Philippine Overseas Employment Administration Standard Employment Contract (“POEA”) and the International Transport Workers’ Federation(“ITF”) Agreement.

A number of liabilities and obligations commonly stipulated in crew contracts are not accepted by the Club. Below are some examples:

Some collective agreements provide that the shipowner shall pay dentists’ fees for routine check-ups. Similar provisions exist with regard to routine health checks. Such costs are regarded to be operational and are not recoverable under these Rules.

Occasionally, a collective agreement may incorporate a provision to the effect that the employer is obliged to pay medical treatment or similar costs for members of the crew member’s family, whether they are on board or at home. Such costs will not be reimbursed.

In return for certain contractual benefits it may be reasonable to include a clause in the crew contract by which the crew member and his relatives give up their rights to claim damages as well as the compensation payable under the contract. The law governing the contract may prohibit such a provision, but the contract should be worded in such a way that any amount to which the crew member is entitled under the contract will be off set from any claim in damages of the crew member or his dependants.

Members are recommended not to take out personal life insurance or accident insurance in favour of the crew member. The existence of such life insurance may not reduce any claim the crew member may have in damages. The contract should make it clear that the crew member is entitled to contractual benefits and not to insurance benefits.

In certain crew contracts the employer undertakes to provide benefits to a crew member during vacation or similar periods. Under Rule 3 Section 1 (a) a Member is only covered for liabilities arising while the crew member is on board, or proceeding to or from the entered ship, unless otherwise agreed. Any such contractual undertaking should be covered by the Member by a separate accident insurance.

10.2.5 Contracts for carriage of passengers

Passenger tickets should be submitted to the Club on a regular basis in order to have them reviewed so that they contain applicable and acceptable limitations of and exclusions from liability in respect of passengers, their cars, luggage and other belongings.

There are several other documents that may affect a Member’s liabilities for passengers. See comments under 3.5.3.1, 3.5.3.2 and 3.5.7.1-2. Such contracts should be submitted to the Club for approval.

10.2.6 Other contracts

10.2.6.1 General comments on other contracts

In the operation of his ship a Member has to enter into numerous contracts for a wide variety of services. In general, a Member should not assume liabilities under a contract for which the Member would not otherwise be liable or in respect of which the Member would otherwise be entitled to exclude or limit liability under applicable law. As a result, liabilities, costs and expenses that would not have arisen but for a term in a contract or indemnity entered into by the Member are generally excluded from P&I Insurance.

The following are some examples of contracts which may require submission to and be approved by the Club.

10.2.6.2 Barges, cranes, sheer legs and other similar equipment

Contracts for the hire of barges, pontoon cranes, sheer legs and similar equipment often contain terms that transfer liabilities to the hirer far beyond his cover under these Rules. Such contracts may make the hirer liable, unconditionally and without limitation, for damage caused to or by the crane from the time it leaves its station until it returns safely. There are contracts where the hirer is asked to undertake the responsibility for the crane being hit by lightning or run into by an airplane during the time of hire. If so, additional insurance cover should be arranged before signing.

10.2.6.3 Ports, piers, jetties and similar facilities

Contracts for the use of ports, piers, jetties, oil loading/discharging buoys or booms may impose liabilities upon the user which may require extra insurance. Members need to use best endeavours to ensure that the conditions do not;

• impose on the Member liability for loss or damage resulting from acts or omissions for which he would not otherwise be liable e.g. negligence of third parties for whom he is not legally responsible, or
• contain any waiver or exclusion of rights to limit or exclude liability or to rely on defences available under applicable law, nor
• contain a “knock-for-knock” agreement which does not contain any waiver of rights of limitation otherwise available under applicable law.

In relation to the “best endeavours” requirement, what will constitute such endeavours will depend upon the facts of each case though clearly this will involve at a minimum some proactive engagement on behalf of the Member in seeking to negotiate the terms of the contract where these offend the general principles outlined above.

For LNG Terminal Conditions of Use (CoU), specific requirements must be met for the indemnities to be within the scope of P&I Insurance cover. Members are encouraged, therefore, to send a copy of the CoU to the Club for review prior to entering into the CoU with the terminal.

10.2.6.4 Stevedore services

Stevedore contracts often contain conditions which exclude or unreasonably reduce any liability for damage to cargo, the ship and its equipment or death or injury to members of the crew, caused by negligence on the part of the stevedore company. Such contracts may also increase the Member’s liability for death of or injury to longshoremen or other stevedore personnel beyond the legal standard under applicable law. The effects for the Member of any such contractual exclusions from or extensions of liability may not be covered under these Rules. See the comments under 3.7.2.2.3 and 4.1.7.2.

10.2.6.5 Pilot services

Contracts for pilot services may contain far reaching exclusions from or limitations of liability for loss or damage caused by the pilot’s negligence, for instance in the case of a stranding or collision. Such contracts may affect cover under both the Hull and P&I policies. As regards the cover for liabilities in respect of death of or injury to a pilot, see the comments under 3.7.5.

10.2.6.6 Helicopter services

Helicopter services are sometimes used to transfer pilots, crew members, spare parts and supplies to or from ships. The performance at sea of such services involves additional risks for both people and property.

The Member’s liability risks involved are covered under these Rules where based on the Common Law. Liabilities based on contract are covered, provided that the contract with the helicopter operator does not include any indemnity or waiver provisions in favour of the operator.

As regards the technical performance of the helicopter operation and safety precautions to be observed, Members are advised to comply with the regulations contained in the Guide to Helicopter/Ship Operations issued by the International Chamber of Shipping (“ICS”). All ships should be supplied with the latest edition of the ICS Guide and equipped to comply with its requirements.

10.2.6.7 Towage services

As mentioned in comments under 7.8.3.1, towage should be undertaken on the basis of the U.K., Netherlands or Scandinavian standard towage conditions, or on the TOWCON and TOWHIRE contracts, or on the current Lloyd’s standard form of salvage agreement. If towage is proposed on amended terms or on terms other than those mentioned, the Club’s approval should be obtained.

10.2.6.8 Salvage services

Salvage should be carried out, where appropriate, on the basis of the latest version of Lloyd’s Standard Form of Salvage Agreement. See the comments under 7.4.1.2.

10.2.6.9 Wreck removal

Wreck removal can be undertaken either under a salvage contract or under a contract specially drafted to cover wreck removal services. Any such contract proposed should be submitted to the Club at the negotiating stage in order to avoid terms which may not be covered under these Rules.

10.2.7 Contracts on unusually burdensome terms

The last part of the provision applies generally as well as to all the foregoing items.

The Club may refuse to compensate a Member for the consequences of a contract or agreement on unusually burdensome terms entered into by, or on behalf of, the Member without the Club’s prior approval.

Terms may be considered to be unusually burdensome either because they voluntarily assume wide liabilities or lack the usual protective clauses or liability exceptions. Examples of such situations appear throughout the comments in these Rules and Exceptions.

The meaning of “unusually burdensome” should be viewed in relation to the normal and customary standard terms for the services offered or received as well as the possibilities for the Member to avoid entering into such onerous contracts or to contract on better terms.

10.2.8 Separate cover of contractual risks

A contract which is found to be unduly burdensome constitutes a serious uninsured risk for the Member.

According to the third part of the provision, the Club may agree, on application, to provide cover for contracts which contain less favourable terms than prescribed for the carriage of goods under item (a) and for through transport of goods under item (b). For such extended cover, the Club may charge an additional premium or impose special conditions.

Additional cover may be required for types of contract other than those mentioned under items (a) and (b). The Club can assist Members in solving any such problems that arise in such a way that the Member’s liability exposure is either eliminated or, at least, minimised.