TT Talk - The need for refuge
While not often receiving much publicity, the need for ships in distress to find a safe refuge is all too common. Clearly this is an important area of responsibility in the maritime interface.
Ships can encounter operational problems or incur specific incidents. These can be high profile and hit the headlines such as the tanker 'Prestige' in 2002 or 'MSC Flaminia' in 2012.
These situations often require ports requested to provide refuge to take on what can be a significant commercial exposure to assist in dealing with the presenting situation. Indeed the parties seeking assistance may have no prior business relationship with those being asked to help. High profile cases in particular will gain a lot of media exposure - ships in distress are a visual feast for the news media. It can bring with it reputational issues that can affect the parties that have been engaged in this, regardless that they are responding to a problem not their own.
Risks to be considered
If a ship in a distressed condition causes commercial loss to another party it may be difficult to obtain compensation in excess of the damaged value of that ship. That can be a very low sum depending on its condition. Furthermore, the complexity of shipping often results in multiple interests in the ship, including owner, charterers and operator – and it will only be the last who may have stevedoring contracts in place.
International legal developments following the ‘Prestige’ incident have sought to bring a level of clarity and consistency into the process by which a ship may be brought into a port or place of refuge. In other instances, media, environmental or other interest groups, and communities may still produce a situation which results in extreme pressure to become involved.
In the first instance it is usually the port authority that will face a request to provide a place of refuge, rather than a terminal operator. However, depending on the type of ship in difficulty, the configuration of the port and the need for specific operations (eg. discharge of containers) this issue can also embroil a terminal facility.
The risks involved in taking a distressed ship are varied. Potential losses include business interruption, for example if a ship blocks the channel that provides access to the berth or sinks whilst at the berth. Terminal facilities may be asked to handle the discharge of damaged or leaking containers, requiring specialist handling, all of which will additionally involve management and operational staff time. It can mean that a berth is occupied for a prolonged period, jeopardising the operator’s regular trade as a consequence.
Stepping up to the plate
It may be natural to hesitate in response to a distressed ship in these circumstances, or indeed to heed strict commercial advice to resist pressure to get involved. In such circumstances, it is helpful to have a clear understanding of the legal position as to whether you are obliged to follow government order, together with a communication strategy to deal with media pressure.
If a terminal facility does respond, either out of obligation or choice, it is important to ensure that your commercial exposures are protected as much as possible. This is clearly best done as part of the negotiation prior to accepting the ship; once alongside your bargaining ability is much reduced.
It is possible to obtain a letter of indemnity from the ship owner’s P&I Club. This can be for wreck removal, channel blockage losses/costs, pollution clean-up costs and damage to the berth/cargo handling equipment. However, commercial terms, for example additional berth dues, stevedoring, craneage, container storage and additional handling costs etc, need to be negotiated with the ship interests themselves.
Indemnities & Undertakings
The importance of negotiating carefully worded agreements in the heat of the moment is neatly illustrated by the dispute arising from ‘CMA-CGM Verlaine’, which required assistance following a collision. A dispute arose between the stevedores and the ship interests over the charges that were levied for the discharge and handling operations provided by the container terminal. The court was required to interpret the wordings of a Letter of Indemnity (provided by the owner’s P&I Club in respect of potential liabilities that might arise) and a Letter of Undertaking given by the time charterers and ship managers for the provision of stevedoring services. For current purposes, that legal debate is less important than the fact that the court supported the stevedores’ entitlement to a not-insubstantial uplift on the standard stevedoring tariff.
Importantly for stevedores and terminal operators, the standard terms and conditions that were incorporated permitted an unspecified additional percentage to be charged over the standard rates for handling operations in distressed circumstances. The court accepted that it was commercially unrealistic that normal tariffs would be applicable, as well as the fact that the parties had not specifically agreed the rates in advance when the severity of the damage to the ship and its containers, and consequent complexity of the discharge operations, were unknown.
Nevertheless, the court was prepared to imply a term that the charges would be reasonable, albeit that what was reasonable would depend on the circumstances of each case. Thus, the court sought to balance the maritime interest for a port to respond as a place of refuge, while recognising that the risks and uncertainties should be adequately compensated.
“the court sought to balance the maritime interest for a port to respond as a place of refuge, while recognising that the risks and uncertainties should be adequately compensated”
We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.
We look forward to hearing from you.
Risk Management Director, TT Club