Clauses of Marine Insurance & Charter Party – Part I

what are codes and conventions
What are Codes and Conventions, Treaty & Protocols
April 2, 2020
marine clauses
Clauses of Marine Insurance and Charter Party – Part II
April 3, 2020
clauses of marine insurance

A stack of law books stands in front of a justice scale that is slightly out of focus. On top of the stack is an open law book.

In this topic we shall discuss various clauses which are incorporated in Charter Parties, Bills of Lading and Marine Insurance. But let us first understand that what do we mean by a Clause?

As you know that a Charter Party, Marine Insurance and Bills of Lading are legal documents and are made up of various clauses. In legal terms, a clause is part of a written legal document (such as a Charter Party in this case) which concentrates on a certain aspect of the subject matter. A legal document can be broken down into various clauses i.e. you can well assume that clauses are the building blocks of any legal document.

By using clauses, the document (such as CP or Marine insurance policy) can be broken down into various sections and it becomes easy for any one to refer to the required clause for clear understanding of the particular area to which a clause refers to. Wherby, a CP requires a Bill of Lading to be issued, then such clauses also are incorporated into the Bills of Lading.

For example, a Charter Party would typically consists of following clauses (there can be more or less) – 

  1. Bunker Clause – which will state in detail the terms and conditions related to Bunkers
  2. Off-Hire Clause – states terms and conditions in which the vessel goes Off-Hire
  3. Performance Clause – stating terms and condition in respect to vessel’s performance
  4. Damage Clause  and many more such clauses. 

So if you notice, each clause is referring to a certain area of interest and therefore it becomes easy for anyone to refer to the required area of interest and in return making the layout of the legal documents (which normally are quite lengthy in nature) less cumbersome.

Lets begin discussing few clauses which we commonly come across and should be familiar with. Many of them are found in CP’s, Marine Insurance Policy and Bills of Lading etc –

  1. Jason Clause
  2. New Jason Clause
  3. Both to Blame Clause
  4. Run Down Clause (or the 3/4th Clause)
  5. Sistership Clause
  6. Paramount Clause
  7. Himalaya Clause
  8. Tender Clause
  9. Management Clause
  10. NAABSA Clause
  11. Sue and Labor Clause
  12. Exception Clause
  13. Cessar Clause
  14. Waiver Clause
  15. Off-Hire Clause
  16. Damage Clause
  17. With-drawl Clause

I will try to explain the above clause in the most simplistic manner. Since, we have lot to discuss I will be writing down this topic into two parts. You can find the link of the second part here.

So without further delay lets begin – 

Jason Clause

  1. Imagine that a vessel encounters damage at sea to herself and/or her cargo and the Master and/or Crew has been determined at fault. In this situation, under the US Law, the Ship Owner cannot claim the contribution to the General Average from the Cargo owners, when it is found that the damage was caused by the fault of the Master and/or Crew.
  2. So, to protect the owners, a clause is inserted in the Bill of Lading which gives Owners the right to claim a part of General Average from the cargo owners
  3. This clause aids in protection of owners against the possibility of US lawsuits
  4. The validity of this clause was tested in the US Courts and it was found that it is valid. 
  5. This clause is recommended to be inserted in all Bills of Lading for the ships trading in US Waters.
  6. Salvage Contribution was not included in this clause

New Jason Clause

It is similar to the Jason Clause which has been explained above. Note that the Jason Clause did not include Salvage Contribution. Jason clause was then revised for inclusion of Salvage Contribution as well. This revised Jason Clause came to be known as New Jason Clause.

Both to Blame Clause 

  1. Both to Blame Collision Clause focuses on liability apportionment between the two vessels who are involved in an unfortunate event of collision.
  2. When Both-to-Blame clause is applied, cargo owner of the vessel has the right to claim his losses arising out from the damage caused by the non-carrying vessel 
  3. The non-carrying vessel has the right to claim his losses from the first vessel (which is equivalent to the apportionment of the blame)
  4. The carrying vessel claims his portion of the losses, from the cargo owner. This means that the Cargo owner indemnifies the cargo carrying vessel for his losses.

Confused??

Don’t worry. Lets understand this from an example – 

Ship A carries cargo which is owned by Cargo Owner (lets name him CA)

Ship B is another ship which undergoes collision with Ship A.

Assume that the Ship A and B are involved in a Collision. The matter goes to court and the apportionment of blame is determined to be 60:40 which means that out of the total losses incurred 60% will be borne by Ship A and 40% will be incurred by Ship B.

Ship A (which is carrying cargo) determines the damage to CARGO to be of 50 Rs/- (just for eg)

Ship B determines the loss to her SHIP to be of 100 Rs/-

Now, the Owners for Cargo (CA) loaded on ship A does not have any claims on Ship A as the Ship A is relieved “for loss or damage arising from errors or faults in the navigation or management of the ship” by the terms of Bills of Lading. 

Therefore, who will pay for the losses of CA?

So according to this clause the CA  can claim their losses (50 Rs/-) from the Ship B. Ship B will pay for the losses for CA. In turn, Ship B will include an amount of 60% of 50 Rs I.e 30 Rs plus 60% of 100 Rs/- i.e 60Rs(loss incurred to Ship B). Remember that 60% is the apportionment figure that Ship A has been blamed for.

So, Ship B will raise a claim of Rs30 + Rs60 = 90 Rs/- against Ship A. In other words, Ship A is suppose to pay Ship B Rs 90/-

The Ship A will settle the claim for Ship B but losses incurred to Ship A (in relation to expenses incurred due to Cargo Claim) will be indemnified by the Cargo Owner of Ship A equivalent to an amount of 30 Rs. In simple words, the CA will pay 30 Rs to the Ship A. 

As you can see, the object of the “Both to blame collision clause” is to enable the owners of the carrying ship to recover the amount of the damage indirectly paid to their shippers. 

I have tried explaining the calculation in a very simple manner. In reality, calculations are quite complicated and beyond the scope of this topic. 

The 3/4th Collision Clause (formerly known as Running Down clause)

  1. This clause is is usually included in a Marine Insurance Policy. 
  2. If this clause is incorporated into the Marine Insurance Policy, then in case of the vessel is involved in collision, the insurance company is liable to pay ONLY 3/4th of the claim to the insured (the vessel in this case), out of the total liability arising out of such collision.
  3. The remaining amount of the liability is paid by the vessel’s P&I Club. 
  4. The insurer will only pay the amount relating to – loss or damage to other vessel, delays to the other vessel, general average, damage to property of the other vessel etc.

Sistership Clause

  1. This Clause, when incorporated, means that if two vessels (belonging to the same owners or management) collide with one another, they will be treated just as if they belonged to different owners. 
  2. All the relevant terms and conditions are applicable just as they would have been in the case where the vessel’s belonged to different owners / managers. 
  3. The claim settlement under such situations are generally referred to sole arbitrator.

Paramount Clause

  1. When this clause is incorporated in the CP/Bill of Lading, it means that rules of carriage shall be governed by the terms and conditions of Hague or Hague-Visby Rules
  2. An interesting thing to note here is this clause ensures that even if such Rules doesn’t apply compulsorily, they shall be applied by contract.
  3. Paramount Clause if incorporated so that cargo claims are subjected to an uniform legal regime. 

Himalaya Clause

Time for story-telling. 

SS Himalaya was a British passenger vessel. She was plying between Britain and Australia.

SS Himalaya, on one of her voyage called the port of Trieste (Italy). A women passenger by the name of Mrs Adler, while boarding the vessel through the gangway, fell on the jetty side almost 18 feet below. 

Now, the passenger ticket had certain terms and conditions and one of such terms and condition meant the following – 

“Passengers and their baggage are carried on the sole responsibility of passenger himself. 

And that the company shall not be responsible for any liability arising out of such damage or injury whatsoever of any passenger or any other person.”

As Mrs. Adler could not sue the carrier (because of the terms and conditions on her ticket), but she sued the Master and the Bosun of the vessel for rigging gangway inappropriately. The case was based purely on the fact that Mrs. Adler stated negligence on behalf of the Master and Bosun. 

The court, in her decision, found that although the ticket stated clearly that “carrier is not liable for…..” but this benefit was not passed to the Master and/or carrier’s servant (bosun in this case). 

As a result, Mrs Adler successfully sued the Master. 

However, this led to inclusion of clause into Bills of Lading and came to be popularly known as ‘Himalaya Clause’. 

According to this clause, the employee (Master and Bosun in the above case), are acting on behalf of the the employer (the carrier) and any claim against the employee is in accordance with the clause, is brought against the carrier and not her servants. 

Simply speaking, this clause results in the fact that the claims (related to passenger and cargo) are brought against the Carrier and NOT her servants. 

Tender Clause 

Tender Clause are usually included in Marine Insurance and are related to the Underwriters (H&M). These form a part of the Hull Insurance Policy

Whenever, a vessel undergoes an accident and results in damage, the underwriters need to have certain control over the cost of repairs (as money will be going from their pocket!). The Tender Clauses gives the Underwriters that control. 

In an event of an accident resulting in damage, underwriters are to be informed and surveyor is appointed. It is vital for the Master to submit his report in relation to the accident and damaged incurred. Failure to do so may result in deduction of 15% of the cost of repairs claim. 

Once the damaged is assessed and surveyor’s report detailing the repairs to be made submitted, the underwriters will call for tenders to be submitted from the repairing companies or yards. 

Shortlisting of the tenders, is based on the underwriters choice and helps him to have certain control over the cost of repairs.

Management Clause

Management Clause (When included in a Charter Party) will give Charters the Right so as to decide whether to change the Management of the Ship. In other words, it will give rights to the Charter with respect change of Management onboard. 

NAABSA Clause 

It is one of the most crucial clause with which the Master shall be well versed. Under the Voyage Charter, it is the responsibility of the Charter to provide a Safe Berth/Safe Port to the vessel. Also, if the Master, because of his judgement finds the berth to be unsafe he has the right too deny berthing. 

NAABSA stands for Not Always Afloat But Safely Aground. This means that at some ports around the world, it might be a custom that a vessel cannot be loaded without touching the bottom (this mainly arises due very large range of tides in certain ports). Beira in Mozambique is one such port where the vessel touches bottom during low tide. If this clause is incorporated into the Charter Party, if any damage is sustained by the vessel during such situations the Charter is responsible for such damages. In other words, NAABSA  requires charterers to indemnify owners for any loss, damage, costs or expenses, etc that may result from the ship lying aground.

One of the most important questions which is asked frequently is the Masters duty in such situations. 

Following points shall be noted in this regard – 

  1. Master should familiarize himself with relevant sections of the Charter Party (company guidance shall be taken if required) outlining the responsibilities between the Charter and Carrier. 
  2. Ensure that Navigational Charts are up to date showing corrected sounding 
  3. Local tide tables and information and notifications shall be procured from the Agent
  4. Obtain detailed information about the port and particularly the berth. Information such as permitted drafts when alongside, UKC expected, Nature of Seabed, Obstructions nearby, bollard strength, tug availability in emergency, tidal streams and strength etc
  5. Enquire whether there have been incidences before on the same berth/port 
  6. One way to safeguard the vessel, is to carry out an underwater inspection (if possible) by hiring local companies who carry out diving operations 
  7. Use Hand lead lines to physically measure the depth all round ship (six point sounding)
  8. Emergency preparedness and detailed Risk assessment shall be done

Further Clauses will be continued in part two. Click here for part II.

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Wish you fair seas and a Bonn Voyage!

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