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ECDIS assisted ship groundings: why are they happening? – SEA Watch October 2014

October 10, 2014

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Issue 14 - October 2014

Welcome to the October 2014 edition of SEA Watch with more updates and commentary on what’s happening in the world of shipping and marine insurance.

Dear reader ,

First on offer this month is your editor's review of 'ECDIS assisted' ship groundings and the MV "Ovit" grounding.  Our readers will learn that it was not really the equipment that was at fault as root cause analysis by the UK's MAIB takes us back to crew competence once again. So what’s wrong with today's seafarer training?  And what has happened to the core values of professionalism and leadership amongst mariners and ship managers?

Our next article from SEAsia's GM/ Director, Captain Kunal, provides a summary of the topical issues voiced at a recent Salvage and Wreck Removal conference in Singapore. Salvage and Wreck Removal contractors are a bit like undertakers. You don't really want to talk to them until something bad has happened. So here's a chance to take a quick look at current developments in a segment of the maritime industry that we all need very quickly when it all goes very wrong. A link to the conference presentations is provided in the article.

Oliver Rentzow, our Transport Claims specialist, has this month focused on the often thorny issue of the Bill of Lading notation, "Shipped on board in apparent good order and condition".  What does this really mean and what can happen if it is used carelessly when the cargo is in fact damaged? Find out along with the strategies and options available to ocean carriers and NVOC’s to protect themselves from a potential claim.

Next on offer is an interesting article on limitation of liability from Tony Wong, our Master Mariner and lawyer at SEAsia's Hong Kong office. It starts with a quick refresher on limitation, how it works and the international conventions that provide the limitation platform for shipowners, charterers and other associated parties. But how long is the "associated parties" chain? Tony has discovered that, in China, limitation is not available to to shipbuilders/de facto owners when a ship is on sea trials. This is a scenario that is the reverse to the limitation regimes in the UK, Singapore, Malaysia and Hong Kong so look out when on sea trials in China!

Our final slot provides an introduction to a new member of the SEAsia network in Thailand, Crossroads Solutions, who we have known at SEAsia for many years. Crossroads/SEAsia Thailand is headed up by Ora McCall, a law graduate and a lady of considerable experience in the maritime claims and insurance industries. Learn about Ora and her team’s capabilities along with some fascinating stuff about about the vagaries of Thai maritime law.

Finally, by way of a quick update on the SeaProf/BI Norwegian Business School's "Key Elements of Shipping" course scheduled for 27-29 October in Singapore, there are just 6 seats left as we go to press and they will go quickly. So don't delay. Click on the BI website now and register for what is going to be another great course. Alternatively, give Yan – our KES course administrator – a  call on +65  6323 7732 or send Yan an e-mail on info@seaprof.com  She will be pleased to assist you.

Read on and don't forget we would like to hear from you as well. Is there a maritime industry issue out there that’s puzzling or annoying you? Would you like to contribute an article to our now over 15,000 readers? Tell us about it by sending a note to robert@seasia-group.com

Ancient Mariner

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'ECDIS assisted' groundings: why are they happening?

The July edition of SEA Watch, provided a detailed outline of ECDIS (Electronic Chart Display & Information System), how it works, its benefits to the officer of the watch (as a “huge upgrade to electronic aids to navigation") and the potential reduction of collision, grounding and pollution risks. Our article also provided the clear warning that, "… Masters and OOW's must exercise caution in the use of ECDIS equipment and to do this they must fully understand its capabilities and limitations". A recently reported case highlights the reality of this warning.

The UK's maritime investigation watchdog, the MAIB, has released its detailed report on the grounding of the MT "Ovit".  This appears to be the fourth 'ECDIS assisted' grounding which has occurred inside their UK waters jurisdiction.

The findings of the MAIB report and its conclusions are quite shocking in that they clearly demonstrate that the ISM Code, SMS checklists and the audits and surveys (as currently being conducted for flag state, H&M and P&I insurers and charterers) are not going to solve the problem.

The "Ovit", a small product tanker of GT 6,444, was built in 2011. She was registered in Malta, managed by Turkish ship managers and manned by a Turkish crew. All of the ship's certificates were in order, the Master and crew were properly certified and the vessel was classed with an IACS class society.

At the time of the incident, the "Ovit" was en route from Rotterdam to Brindisi, Italy, loaded with a cargo of 9,500 m tons of vegetable oil. Her route took her through the Dover Straits; a confined and busy traffic area with a number of navigational hazards but which is well marked and supported by VTS assistance.

The "Ovit" was fitted with ECDIS at the time she was built so as to comply with new IMO and flag state requirements for tankers. Installation was certified by Class DNV and all deck officers had received both IMO mandatory generic ECDIS training as well as optional but recommended type specific training. No paper charts were carried on board as the ECDIS unit was backed up with a duplicate system.

The vessel's Passage Plan (PP) was completed by the 3rd Mate who was about to be promoted to 2nd Mate/Navigator. He was qualified for the position but had very limited practical experience. The PP process was accomplished using the ECDIS unit’s Passage Planning feature along with the auto hazard "check route page" function. However, the  final PP was not ultimately checked and approved by the Master or any other officer in accordance with the requirements of the STCW Convention and the vessel's SMS procedures.

The fatal error (amongst others) made by the 3rd Mate was to draw a course line on the chart which passed directly over the Varne Bank, a well known hazard to navigation which is marked by a large light float and several light buoys at its extremities. He did this because he had not selected the correct scale of chart to show sufficient water depth and buoy marker detail and the ECDIS auto select function, designed to overcome such chart miss-selection, had been deliberately switched off.

Worse, when the 3rd Mate later selected the ECDIS auto hazard detection function (check route page) to determine whether there were any navigational hazards on the passage route he had created, he did not understand how to interpret the several hazard warnings that were posted which included the Varne Bank. In fact, it later became clear that none of the officers on board, including the Master, knew how to properly use this auto hazard detection function as they believed that the indications "No Alarms" (left lower corner) meant "No Hazards".

The end result was that the vessel ran aground on the Varne Bank. This occurred in circumstances where the Chief Mate, as the OOW (assisted by a Cadet lookout who had not bothered to report the flashing lights of the Varne Bank buoys sighted dead ahead), did not actually realize that the vessel was aground until he was called by the CNIS Dover Strait radio and radar service.

Luck was on the “Ovit's" side as the grounding occurred on a rising tide and no serious damage had been suffered to her hull. The vessel was later floated off under her own power but was then required to call in at a nearby UK port to check the hull and facilitate an MAIB investigation. So significant delay ensued.

As to the causes, the MAIB report reveals a litany of contributing human errors along with regulatory shortcomings and equipment faults. These included ECDIS alarm failure, the current scope of the governing ECDIS regulations (which appear to allow critical alarms and auto functions to be shut off), the failure of ECDIS manufacturers to devise and agree standard controls, inadequate type specific operator training, the current ineffectiveness of flag state and other inspections to detect ECDIS failures and misuse as well as the shortcomings of the Dover Coast Guard.

Three ship related findings that jump out of the MAIB report pages are  paraphrased as follows:

• The ECDIS training undertaken by the ship’s master and deck officers had not equipped them with the level of knowledge necessary to operate the system effectively, including the preparation of safe and effective Passage Plans.

• The on board management of "Ovit" was dysfunctional and the Master provide insufficient leadership for a safety culture to be developed and instilled on his bridge, based on the ISM Code process.

• As many of the equipment and systemic defects noted had existed for many months prior to the incident, there is a strong case to develop tools for auditors and inspectors to facilitate checking the on board use and performance of ECDIS units.

In summary: inadequate training, poor on board leadership and audits/inspections conducted by individuals who were evidently not provided with the specialist knowledge and tools required to do the job properly.

Can these serious problems be overcome to prevent even more ECDIS assisted groundings with much nastier outcomes? Yes, but it is not going to happen as a consequence of SMS check list ticking by seafarers who are not adequately trained or motivated. Nor is it going to be rectified by cursory ISM audits or shipboard inspections conducted by people who may have never sailed with ECDIS and only have a superficial understanding of how it works.

So the maritime industry and their insurers have a choice. Be pro-active and fix it now in a planned and controlled scenario or do nothing and pay a lot more later when ships go aground (which they will) and then turn into massive pollution and wreck removal liabilities.

Need a hand? Give SEAsia's Captain Kunal a call. Kunal, has navigated with ECDIS and has conducted ECDIS audits and crew training. He knows how both ECDIS and crew performance can be monitored and improved and he can help you to avoid a very expensive 'ECDIS assisted' accident.

Capt Robert Gordon

robert@seasia-group.com

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Salvage and Wreck Removal: the law, the realities and where it’s going

As we all know, marine accidents do not come with a prior warning. And when they do occur, time becomes the enemy with respect to sourcing and mobilising the skills necessary to prevent an accident from turning into a major casualty. Such is the history of martime salvage; a concept developed over 3,000 years ago to provide a "no cure, no pay" reward for those brave enough to rise to the challenge. Much has now changed but the underlying concept remains intact along with the commitment of the people who are involved in this essential service to the shipping industry.

This article provides a brief account of the 3rd salvage and wreck conference in Singapore recently held in Singapore with presentations being provided by a number of  major salvors including Mammoet, Resolve, Semco, SMIT, Titan and TMC marine. The theme of the conference was "Cooperating to find practical solutions to the challenges of salvage and wreck removal in the Asia Pacific". SEAsia's GM/Director, Capt Kunal, attended along with Clive Beesley, Director, from the C Solutions' Hong Kong office.

The Conference included reviews of recent cases including the salvors' (Nippon Salvage) and the ship-owners' (Aurora Tankers) accounts of the "MARITIME MAISIE" case (described below) as well as the challenges faced during the massive "RENA" wreck removal in New Zealand and the NZ government’s position on the scope of the removal exercise in an environmentally sensitive area.

Other topics included the impact of the increasing frequency of tropical revolving storms in the Philippines and the China Sea as well increasing political meddling (e.g. The Italian government's demand for the "Costa Concordia" to be refloated and scrapped in an Italian yard) that can make a tough job almost impossible and certainly much more expensive The conference also provided a panel discussion on "Salvors' Technological Innovations and Salvage Friendly Ships". Details of the speakers and their presentations can be found on the conference hyperlink as above.

The two day conference session was followed by a one day seminar which was Chaired by Clive Beesley, of C Solutions (SEAsia’s alliance partner) titled, "A Practical Guide to the Law of Salvage and Wreck Removal". The seminar – presented by leading salvage law practioners - included a close look at the structure and operation of Lloyd's Open Form (LOF), the function of Special Compensation Clauses and SCOPIC in relation to oil spill clean-up work, the criteria for assessing a salvage award, the BIMCO Wreck Removal contract terms and their application along with a wreck removal case study and a review of the interaction between marine hull and P&I liability cover.

Some of the topical issues that received a lot of attention during the seminar are discussed below and included the quickly changing landscape of the maritime industry that will continue to throw up some serious challenges for the salvage industry in the years to come.

The ever-increasing size of vessels that are currently in operation or will be delivered in the years to come is one of the biggest challenges of all. While the "bigger is better" concept supports transport and freight economies of scale, bigger vessels also mean bigger risks and control costs if such a vessel grounds, capsizes or is involved in a collision. While there is some comfort to be drawn from the successful wreck removal of the "COSTA CONCORDIA" (which has been lauded as an 'engineering marvel' by most maritime business journals), it must not be forgotten that the total liability costs to P&I reportedly exceeded USD1.4 billion. Question: how many more such 'engineering marvels' can the shipping and insurance industries afford before it starts questioning the sustainability of mega ships within the context of associated mega risks?

Another major concern was that the types of cargoes vessels now carry can be a potentially much bigger issue for salvors than ship size when looking for a port of refuge. The "MARITIME MAISIE", a chemical tanker, was adrift at sea for over 3 months due to the fact the cargo on board (a chemical known as Acrylonitrile) was evidently too toxic for nearby port authorities to be able to offer refuge. This chemical, which was contained in damaged tanks, reacts with water creating both fire and fumes of hydrogen cyanide and oxides of nitrogen. In short if the fire does not kill you, then the hydrogen cyanide fumes most certainly will!

The challenge here was as to identifying a port would agree to offer refuge to the vessel, even after the fire was extinguished? Now think about replacing the "MARITIME MAISIE" in the above scenario with a modern day LNG tanker and we could have a nightmare on the high seas.

In summary, perhaps the question is not so much about whether or not the salvage industry will be able to handle such difficult scenarios. Instead, perhaps it should be as to whether shipowners have an 'exit plan' in place when they design mega ships to carry cargoes which are known to be potentially deadly to humans, ports and the environment?

For salvors, it would seem that there is no such thing as "mission impossible" as has been evidenced over many centuries. Salvage is a business where you have to 'walk the talk' to put bread on the table and invest for the future. However, the maritime industry is changing and what keeps the business of salvage running today will not be good enough tomorrow.  The good news - and we say this with some confidence after attending an enlightening and educational salvage conference and seminar - is that today's salvors are not just aware of the changes; they are also preparing themselves for the challenges ahead.

Capt Kunal Pathak

kunal@seasia-group.com

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"Apparent good order and condition": what’s the impact of this term in a B/L?

The above term is normally associated with the obligation to issue a "Clean on Board" bill of lading under a carriage of goods by sea contract. It is a term that is essential to the requirements of any associated CIF sale and purchase agreement that is backed up by a bank provided Letter of Credit (LOC). If the B/L is not "Clean", due to an endorsement as to less than "apparent good order" cargo condition made by the carrier, then the B/L is "Dirty" and the bank will not pay the seller/shipper of the goods. Further, the buyer/consignee may reject the goods because they were not shipped as described in the sales invoice.

A cargo carrier, whether he is an NVOC or a sea-going carrier, is therefore often faced with a serious dilemma. Does he comply with his shipper/customer's request to issue a "Clean" B/L that includes the words "Received/shipped in apparent good order and condition" on its face? Or does he consider the fact that the cargo and/or the packaging may in fact be visibly damaged and then note/endorse this observation on the B/L so as to protect himself against a future damage or loss claim?

This is a problem with which carriers have been faced with since the Bill of Lading was originally invented (several hundred years ago) in the form of a mere bailment receipt which was required to obtain goods at the port of discharge. Regrettably, it is a problem has never been clearly and finally resolved and it remains with us today as a daily and significant headache for carriers who issue B/L's as well as their P&I and transport liability insurers.

The carrier's obligation to issue a B/L that includes a statement as to the "apparent good order and condition of the goods" is set out in Art III rule 3 of the Hague Visby (HV) Rules. The HV Rules will often apply either by incorporation into the B/L contract or, in countries such as Singapore, by force of law. However, in law, the carrier is not required to comply with this requirement unless the shipper specifically asks the carrier to do so. Further, even if asked, the carrier is not obligated to issue and sign a "Clean" B/L if he has reasonable grounds for believing that the goods are not in fact in apparent good order and condition or he has no reasonable means of checking on this e.g. the contents of container were loaded and sealed by the shipper.

So what does "apparent good order and condition" mean anyway? In law, this has been held to refer to what can be seen visually by a ship's Master or a carrier's agent by way of a reasonable outward inspection of the condition of the packaging as well as the cargo itself. No use of any special equipment or specialist skills beyond that of a "reasonably observant Master" is required. Thus, if the cargo is packed inside a container by the shipper, then a B/L statement by an ocean carrier as to condition will normally apply only to the outward appearance of the container and not to the goods inside (i.e. there will not usually be any quayside access to the inside of a sealed container).

However, if the carrier is an NVOC and is actively involved in the stuffing of a container at their depot (e.g. stuffing an LTL container shipment), then the game changes significantly as of course the NVOC will have had direct access to the cargo and its external packaging. They will have also have been involved in the cargo’s handling, stowage and securing inside the container. In these circumstances, if the cargo is lost or damaged during carriage, there is no " well, I couldn’t actually see the cargo or its packaging" defence available.  The result being that if the words "received/shipped in apparent good order and conditio"” are placed on the front of an NVOC’s B/L, they mean precisely what they say and any later attempt at retraction will be very difficult to accomplish.

The impact of the HV Rules obligation to issue a B/L which contains a statement as to the "apparent good order and condition" of cargo received and shipped may be mitigated in three ways. The first method is by way of a practical approach, designed to ensure that personnel who are involved in stuffing and unstuffing containers have been properly trained in this process, in accordance with current guidelines. Further, that these personnel understand that their employer, the NVOC carrier, is responsible for loss or damage while cargo is in their care such that all damage or loss noted should be carefully recorded for later inclusion in the B/L that will be issued in respect to the cargo involved.

The second method is a legal defence that can be applied by simply ensuring that all B/L's contain on their front, qualifying words to the effect that "weight, condition, quality etc. are unknown" or similar words to that effect. Most B/L's now contain such words with the effect being that a B/L which is qualified in this form does not actually provide a clear and unequivocal statement as to the "apparent good order and condition" of the cargo. This has been considered in law to be legitimate unless the shipper should specifically object. However, the industry experience is that shippers do not object because they simply do not understand the meaning and effect of the qualifying words, despite the fact it is arguable they have been denied an effective receipt for their goods.

The problem with the second method is that it can be argued that the qualifying words are not binding on the consignee (not difficult in countries such as e.g. China, Vietnam and Thailand where 'home team rules' often favour the claimant consignee), particularly if the goods have been sold while in transit with a “to order” bill of lading being utilised to transfer title to an innocent 3rd party.

This being the case, the third method is always preferable, which is for the carrier to clearly state/endorse on the front of the B/L (not the back which may be considered as being too obscure) the actual condition of the cargo and its packaging as observed at the time of receipt and loading. The endorsement should be clear as to the amount of the cargo damaged and the precise nature of the damage. This is because a general or imprecise remark (e.g. "packaging insufficient") may be considered as inadequate to overcome a presumption that the goods were otherwise in "apparent good condition" at the time of receipt and shipment.

The problem with the third method is that endorsing or clausing a B/L in this manner will result in the B/L becoming a "Dirty" B/L that will be refused by a bank such that the shipper may then suffer a loss. So what should be done? SEAsia recommends it is at this point that the shipper should be notified and that independent surveyors should be appointed by both parties to ensure the accuracy of the assessment of cargo and packaging damage and agree the endorsement or otherwise to be entered on the B/L.

If shippers will not agree to the endorsement of the B/L, then the carrier has two choices: a) reject the cargo and ask for it to be replaced by the shipper with undamaged cargo or b) consider accepting the shipper's letter of indemnity (LOI) against any claims which may be brought by the cargo consignee.

The danger of accepting an LOI is that although this is quite a common process, it is also potentially dangerous in that such are LOI's are not legally enforceable as they are deemed to be in support of a fraud being perpetrated on the consignee. Further, there is no guarantee that an LOI has any value if the shipper has no assets that can be recovered against. Finally, no P&I or transport liability insurer will approve such an arrangement and will deny cover if the LOI should later prove to be unenforceable or simply worthless.

In summary, it can be seen that the contractual or legal obligation which arises when issuing a B/L to state the "apparent good order and condition" of the cargo is a complex issue. Indeed, some might even say, 'you're damned if you do and damned if you don't'. In such circumstances, carriers must be extremely careful to avoid cargo damage claims and preserve their defences while, at the same time, maintaining a good working relationship with their customers. Not easy and, if you may need some help or advice in dealing with these often difficult issues, the SEAsia team will be pleased to assist.

Oliver Rentzow

oliver@seasia-group.com

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Limitation of Liability: is it applicable to pre-delivery sea trials in China?

Introduction

The concept of Limitation of Liability for the protection of shipowners, charterers, insurers and other closely associated parties is a distinct oddity of maritime law in that it can apply to limit exposure not only in contract but also in tort. As such, it is totally unique to the shipping industry in that it counters the fundamental and arguably universal legal entitlement to full compensation for harm caused to an innocent third party. The question to be considered in this article is whether a ship builder/de facto owner in China is entitled to the benefit of limitation if damage to 3rd parties is suffered during sea trials, before the ship has been handed over to her owners and formally registered.

Background

The historical origin of the Limitation concept is a subject in itself and its on-going viability in a modern world is often questioned. However, the basic premise is that to advance and ensure the essential provision of the transport of goods by sea, shipowners require special protection to prevent them from being exposed to liabilities that could destroy their business and ultimately inhibit world trade.

The law of Limitation was developed into a uniform code under the terms of the 1957 Limitation Convention that applied to claims for damage to property as well as loss of life and personal injury. The '57 Convention (still applicable in a number of countries) provided a tonnage based formula which restricted the maximum amount to be paid out, regardless of the amount of damage and loss suffered by innocent 3rd parties.

The '57 Convention was subsequently updated by way the Limitation of Liability Convention for Maritime Claims  (LLMC) 1976. This provided shipowners with greater certainty as to the availability of limitation as a defence but, as a trade off, increased the limits by as much a 300% to accord with global inflation and perceived higher risks.  Since that time, due to further inflationary pressures as well as industry concerns as to the adequacy of the LLMC 1976 upper limits, a further upgrade has been accomplished by way of the LLMC Protocol 1996 which is scheduled to come into force on 8 June 2015.

Acceptance and Application

Not every martime nation has ratified either the '57 or the '76 Conventions. The details of ratifying states who have agreed by treaty to enact these conventions into their own national law can be found on the CMI (’57 Convention) and IMO ('76 Convention and '96 Protocol) websites. The UK, Singapore and Hong Kong have, for example, ratified the '76 Convention and have enacted its provisions into law together with 54 other contracting states out of a possible 170 IMO member states. Accordingly, the '76 Convention is by no means universal in terms of its acceptance by maritime states.

China - which is now the world’s 2nd largest economy, inclusive of ship owning and ship building - has not ratified either the '57 or '76 Conventions or the '96 Protocol. Instead, similar to a number of other Asian martime nations such as Korea and Japan, it has simply ‘borrowed’ the text of the '76 Convention and has incorporated much of it into the Chinese Maritime Code 1993 (’93 Code).

An interesting point has arisen in the Chinese courts in relation to the scope of the limitation provisions of their Maritime Code. The issue in question has been as to whether a shipbuilder can limit his liability in relation to the damage caused to 3rd party property as well as 3rd party injury and death, in circumstances where the offending vessel was engaged in sea trials and had has not yet been formally handed over to her intended owners or registered with a flag state.

The latest case decided by the Shanghai Martime Court on the above point concerned the MV "An Min Shan" and was reported in the Gazette of the Supreme People's Court of PRC (No. 10, 2013). The court’s decision in this case  - which was by way of an action by the shipbuilder against its liability insurer for full indemnification - was that when a ship is still under construction and an incident  causing loss to 3rd parties occurs during sea trials, then the protection of Limitation of Liability is not available to the ship and the shipbuilder/de facto owner.

Relevant facts:

On 14 November 2008, the plaintiff Chinese shipbuilder insured  the "An Min Shan"(which was still under construction) with the defendant Chinese property and liability insurer. The insured amount was 280 million Yuan (about USD 45 million). The policy covered the liability for both personal injury, death and any loss or damage to property arising out of a collision or contact with any fixed or floating object when the "An Min Shan" underwent sea trials.

On 9 July 2009, the "An Min Shan" sailed from Yangzhou Jiangdu on sea trials. During this process and while in a narrow channel, the ship suffered a generator blackout and lost control. This resulted in contact and serious damage to a terminal and a dockworker was also drowned.  The vessel then collided with the MV "Hua Hang Ming Rui No. 16" and, as a result, the "Hua Hang Ming Rui No. 16" sank.

The local Maritime Safety Administration concluded its investigation and found the "An Min Shan" to be fully responsible for the accident. The shipbuilder then settled all associated expenses along with the extensive loss and damage claims that included a large sum for loss of profits due to the terminal being out of action for many months.

The shipbuilder's insurer, under the terms of the liability policy, reimbursed the shipbuilder by way of a total payment of 60 million Yuan (about USD 10 million ). This was much less than the actual loss suffered by the shipbuilder in settling the liabilities to which he was exposed and the total sum insured.  The insurer’s position was that he was only responsible for the shipbuilder's legal liabilities and the shipbuilder should have limited his liability. Further, that the shipbuilder should not have settled claims for losses for which he was not liable in any event. The shipbuilder then sued the insurer in the Shanghai Maritime Court, demanding the insurer reimburse the balance of his losses.

The Legal issue:

The focus of the dispute was whether the plaintiff, as the builder of the "An Min Shan" which was a ship under construction, was entitled to limit liability for maritime claims arising from the accident that occurred during the ship's sea trials.

Limitation pre-requisites under the Chinese Martime Code:

The Shanghai Maritime Court (as translated) first considered that:

"In accordance with the provisions concerning Limitation of Liability for Maritime Claims in Chapter XI of the Code, there are two pre-requisite conditions to be met for the limitation of liability for maritime claims to apply:

1) The parties who can enjoy limitation of liability for maritime claims are the owner, charterer and the operator of a ship and the ship itself must fall within the definition of "a ship" as provided in Article 3 of the Code.  "Ship" means sea-going ship and other mobile unit but excludes ships used for domestic trade, or ships or craft used for military or public service purposes, or small ships less than 20 tons gross tonnage; and

2) The claims for loss caused by the accident must fall within the category of  limitable maritime claims."

The Court’s findings:

Firstly, the court held that the "An Min Shan" did not constitute a "ship" as defined by Art 3 of the Code which specifies that a ship must be intact in a complete sense, having gone through ship registration formalities, passing various technical inspections and possessing formal ship's certificates and a ship's name.  A ship under construction is not officially registered and has no official certificate issued by the competent authorities.  Although a ship under construction has certain navigational ability at the sea trial stage, it is still in the phase of testing.  It is uncertain at this time whether she would pass the all the tests required and acquire formal qualification.  Accordingly, a ship under construction does not constitute a 'ship' as stipulated by the Code.

Secondly, even if a ship under construction is deemed to be a ship as provided by Article 3 of the Code, then according to the Code's further provisions, the claims for the loss caused in the course of a sea trial by a ship under construction cannot be categorized as maritime claims for which liability can be limited under Article 207 of the Code. This is because that part of the Code is intended to cover the  commercial operation of the vessel ( so as to protect the shipping industry and to minimize the risks to ship operators) and not during her period of construction.

In summary, the court's findings were that the "An Min Shan" was still under construction with no official ship's certificates or ship-operation qualifications. Thus when the accident occurred, she was not a 'ship' within the definition of the Code. Further, the sea trial operations were not the activities relating to the commercial operation of the ship but were simply activities related to  "ship construction". This being the case, the party responsible (the shipbuilder plaintiff) had no entitlement to take advantage of the provisions of Chapter XI of the Code so as to limit their liability. Nor did their insurer.

Financial impact of the court’s decision:

The "An Min Shan's" Gross Tonnage was 30,000 GT. If Limitation of Liability had been available, the upper limits for the claims payable would have been 46,904,027 Yuan (USD 7,640,250.00) for property claims and 97,373,755 Yuan  (USD 15,861,000.00) for personal injury and death claims. The shipbuilder incurred a total liability of 297,033,828 Yuan (USD 48,371,087 USD) for property losses and 580,000 Yuan (USD 94,462.00) for the death of a dock worker.  The shipbuilder claimed 237,033,828 Yuan (USD 38,607,268.00) from his insurers as an indemnity, plus interest and costs.  The Court, after disallowing some items of claim, awarded 219,900,000 Yuan (about 35,817,536.00 USD) with interest to the Plaintiff shipbuilder.

Analysis: was the Chinese court’s decision correct?

The question must be asked as to whether a similar decision would have been reached on the same facts in England, Singapore or Hong Kong? Our research indicates it would not. The LLMC '76, as enacted into the law of these common law jurisdictions (and others), includes clarifying text that makes it very clear that the entitlement to limit liability extends to a vessel during the construction period. It therefore follows that the benefit of limitation in these jurisdictions applies to mitigate the damage, injury and death consequences of accidents that may occur during sea trials. The end result being to constrain the amount to which a liability insurer would ultimately be exposed.

So is China out of step with the LLMC '76 in its current interpretation of the scope of the right to limitation as evidently provided by the Chinese Maritime Code and the Chinese courts? Arguably and by reference to common law jurisdictions, yes, except for the oddity of the position taken in the USA which is that the American courts will not permit limitation in relation to a sea trials incident because the martime law does only applies to ships which are in fact complete and fully operable for their intended purpose. Or can any of our readers advise on similar interpretations in relation to the governing law of limitation of liability in their own country?

The decision made by the Chinese court was based on its own interpretation of the text of the LLMC '76 as 'borrowed' and incorporated into the Chinese Martime Code. As to whether such an outcome can be predicted again in respect of a similar case, it must be remembered that China is a civil law country with a legal process based on German civil law. Accordingly, the common law concept of legal precedent as followed in England, Singapore and Hong Kong and which bind subsequent legal decisions does not apply. So would another case in China on similar facts be decided in the same way? Our understanding is that the "An Min Shan" decision, which appears to conform with other previous decisions in the Chinese courts on this point, would have influence but could not be guaranteed.

Conclusions:

The Chinese court was of course entitled to make its decision based on its own interpretation of its own country's legislation. However, the fact that it appears to have been out of step with other countries which have formally ratified the LLMC '76 and have enacted this Convention into their national law is arguably not helpful to the goal of global application of international uniformity in the creation of martime law. As for the fact that China seems to have followed the American position that a vessel under construction is not a ship, it must be noted that the USA has not been an ardent supporter of the IMO Conventions and the legal uniformity process, except for technical and safety conventions such as SOLAS. Accordingly, the USA has never ratified a limitation convention of any kind and its own limitation process might be described as archaic and ineffective.

SEAsia's caution to a Chinese shipbuilder is to be extremely careful as to the scope of shipbuilder's insurance cover provided during the entire ship construction and sea trials process. This would include ensuring that the shipbuilder’s insurer acknowledges (preferably in the policy terms) the restrictions on the application of limitation of liability that have been imposed by the Chinese Maritime Code and its most recent interpretation by the Shanghai Martime Court in relation to vessels under construction.  If something then does go wrong during sea trials, then there should hopefully be no barriers to prompt re-imbursement to the ship builder on amicable terms for the full amount of the losses incurred.

Capt Tony Wong Chai Yu

tonywong@seasia-group.com

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SEAsia's Network Partner in Thailand – SEAsia Thailand/Crossroads Solutions

SEA Watch is pleased to introduce a new member of the SEAsia network, Crossroads Solutions whom we have known for many years and now have the opportunity to work with as an integral part of the SEAsia regional network partnership.

The Crossroads/SEAsia network team is headed up by Orawan (Ora) McCall. Ora is both a law graduate and specialist in maritime claims. Ora kicked off her working career with an international firm of adjustors and recovery agents in Singapore. Leveraging on her Thai language and cultural skills, along with Malay and English, she then moved on to head up the insurance department of a major shipping company in both Singapore and Bangkok.

Crossroads Solution (CRS) was formed in 2008 with the aim of providing efficient and cost effective claims handling and legal services to shipowners, charterers, freight forwarders and others in the shipping industry. The concept was to provide an outsourced claims handling facility and this has proved to be very successful as it frees up shipping clients from the necessity to employ and train their own claims personnel.

The Crossroads' head office is located in Bangkok with a satellite operation in Singapore that liaises closely with the SEAsia and C Solutions alliance teams. The combined service capabilities of these aligned teams include legal advice on contract terms as well as contract drafting for ship Sale & Purchase, Ship Management, Ship Building, Connecting Carrier Agreements, Charter parties etc.

The other very important aspect of Crossroads/SEAsia work is in handling and defending claims from third parties, liaising with brokers, H&M underwriters, P&I Clubs or transport insurers as the case may be. Proportionate costs as well as quick turn around and resolution are always paramount.

With respect to casualty management, co-ordination between brokers, insurers, surveyors, adjusters, salvors, owners, charterers, local authorities is always considered as a priority to ensure a positive outcome. Crossroads and C Solutions (SEAsia's alliance partner), have already worked together in dealing with a number of such incidents with positive results and a high level of customer satisfaction.

By way of a country update, Thailand's shipping industry is still quite small and the government has not yet ratified many of the CMI and IMO maritime conventions. Despite this, the content of many of these conventions have been utilized as the basis for the creation of Thai national law. The result has been to provide a significant degree of  Thai national law conformance with the international maritime legal regime. However, potential problems can lie with the words which have been used in the national law version which may not match the original convention which was used as a template.

As an example, the Thai Carriage of Goods by Sea Act BE 2534 was based on the Hague Visby Rules 1968. However, Thailand has never formally ratified either the Hague Rules or the Visby Protocol such that Thai COGSA does not use the same text or paragraph numbering. Further, there are significant differences in the Thai COGSA text. For example, Thai COGSA provides a definition of "Goods" as including both live animals and deck cargo (which are thereby covered by Thai COGSA), whereas the HV Rules specifically exclude these categories such that a carrier may exclude liability. Another example is that Thai COGSA applies to regulate any Bill of Lading, even if another law and jurisdiction is stipulated in the B/L, if one of the parties to the contract (including the consignee) is a Thai national.

Another problem that remains is that much of Thai maritime law and its associated regulations are currently only available in the Thai language. Crossroads' ambition is to assist with the translation process with its initial focus being on the Civil Liability and Damages Arising from Collision of Vessels Act B.E. 2548.

The final issue to be aware of is that Thai law is based on the civil law system such that it is codified. Accordingly, the Thai courts are not bound by legal precedent as the common law courts of England, Malaysia and Singapore are. This being the case, certainty is somewhat compromised as the decisions of the Thai Supreme Court may only be utilised as a guideline to the outcomes of decisions in similar future cases.

In summary, it can be seen that Thai COGSA can be a minefield for those not familiar with its customised (some might say 'nationally biased') terms. In terms of other martime law concepts, there is – as another example - no law providing for limitation of liability in a collision or other martime tort liability situation. Thus, in any matter that involves an element of Thai jurisdiction and maritime law, caution and 'local knowledge' are essential to the provision of an effective defence.

In conclusion, despite the current political upheaval in Thailand, it seems likely that the political process will soon be rectified with a view to providing on-going political stability and economic growth. Perhaps the successful Singapore model of 'limited democracy' might be the appropriate process? Meantime, cool heads and capable hands are needed when dealing with maritime matters in Thailand. Ora and her SEAsia Thailand/Crossroads Solutions crew are standing by to help you.

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