Claims and loss prevention stories from the TT Club

Limiting landlord liability


On Sunday 6 February 1994 the 'Swan Reefer' collided with a berth
and portainer crane in the Port of Fremantle, Western Australia resulting
in substantial damage to the crane. The vessel was on a voyage from Singapore
to Fremantle and at the time was piloted by a Fremantle Port Authority pilot
without the aid of any tugs.


According to the pilot's report the ship was handling well and responding
to orders as it entered the port. The speed of the vessel was reduced in
stages as the vessel approached the berth. Problems began, however, when
the vessel's engines stalled on the final approach to berth and the master
ordered the port and starboard anchors to 'let go'. The vessel's port shoulder
connected with the fendering system of the berth causing the vessel to sheer
to starboard and strike the wharf-side leg of the portainer crane.


It was later alleged that the damage caused to the wharf approximated
AUD35,000 and that the crane was a constructive total loss with a replacement
value of approximately AUD13,000,000. The operator of the marine terminal
is a tenant of the port under a property lease agreement.


The claimant, the underwriters for the portainer crane, alleged that
the shipping line was negligent due to the ship's collision with the crane.
When the shipping line responded that it was able to limit its liability
under the limitation convention to approximately AUD 2,000,000, the claimant
further argued that for the purposes of the limitations convention, the
ship had been grossly negligent and therefore was unable to rely upon the
limit. However, the shipping line maintained that the accident was inevitable
and was the result of a sudden and unexpected failure. 


The TT Club became involved when the claimant also accused its Member,
The Fremantle Port Authority, of negligence. The allegation against the
port was that the harbour master was negligent in his decision to allow
the vessel to berth without a tug. This allegation was based upon certain
evidence that showed the 'Swan Reefer' had a history of mechanical
breakdown and that the harbour master was aware of that history. The claimant
argued that in the circumstances, and in particular considering the harbour
master's knowledge of the vessel, his decision to allow the vessel to berth
without tugs was negligent, and the port was liable for his actions.


The Club's general correspondent, Transport Mutual Services, appointed
appropriate lawyers and generally argued the defence case on a number of
grounds. Firstly, although the harbour master did have some prior knowledge
of the vessel's history, the Port had received certain assurances from the
shipping line that any problems had been rectified. It was only after these
assurances as well as sea trials that the vessel was granted dispensation
from tugs. Furthermore it was established that the particular mechanical
problem which caused the loss of power was not a problem that had occurred
previously and was therefore not foreseeable.


Secondly it was argued that the harbour master - who is the senior pilot
and is required to hold a current pilots certificate - in choosing the suitability
of the ship's navigation was exercising his power as senior pilot and was
thus protected by a statutory immunity that disallows prosecution against
pilots. Thus it follows that the port was not vicariously liable for the
actions of the harbour master because he is appointed by the Crown and therefore
attracts separate Crown immunity.


The Club, on behalf of the port, also argued the quantum of the claim
by procuring expert opinion, which considered that the crane ought to have
been repaired rather than labelled a constructive total loss. 


Under Australian Law, the port would have been liable for the full value
of the claim (less the contribution by the shipping line) if the court had
found the harbour master's actions constituted negligence, no matter to
what degree. 


After nearly four years of negotiations, manoeuvrings and various strategies
a commercial settlement was reached. The port contribution (which was indemnified
by the TT Club) was a small proportion of the original claim and was considered
a good result by all involved. 


From a loss prevention perspective two important lessons were learnt
from this incident.


Firstly, when ports offer clients towage and pilotage services, those
services should only be offered on contractual terms, which require the
vessel to indemnify the port for the consequences of any incident. To ensure
tramp vessels, as well as liner vessels, are subject to contractual terms
and conditions, it is suggested that 'standard conditions of service' be
incorporated into relationships with all port users. 


Secondly, a port should ensure that all the property tenancy agreements
it has with its tenants (in this case the marine terminal operator) include
appropriate release and indemnity clauses which indemnify the landlord for
any claim or suit that arises from the tenants' use of the premises.

(TAP991006)


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