ISPS failures could increase ports' liability and invalidate insurance, warns TT Club

30 March 2004

The TT Club has delivered a stark warning to port facility operators that miss the July 1 deadline for ISPS Code compliance. Speaking at a recent terminal operators' conference in Singapore Mr Nick Sansom, Principal Officer of the Club in South-East Asia, revealed that failing operators could well be left exposed without insurance protection.

"An operator who is not ISPS compliant runs risks under mandatory law as well as under contractual liability and from third party claims," said Mr Sansom.

As concern grows at how many ports are lagging behind in their preparations and Indonesia announced that only five out of 141 ports will be certified as ISPS compliant within the deadline, the TT Club, which is a significant insurer of ports and terminals as well as their users, is hoping its warning will awaken operators to the very real legal and commercial dangers they face.

"The general risk of terrorism has increased and therefore the traditional defences for port operators against liability based on a third-party's act will not always be available," said Mr Sansom. "The known risk of terrorism increases the duty of the operator to take security precautions. Moreover there is a greater risk of negligence, as the ISPS Code specifically requires a security assessment and security plan to be in place and for the plan to be applied."

Although a port operators' liability is often subject to private contract,in some countries there is a mandatory domestic law. A ship operator is subject to international maritime conventions and will seek a recourse against a port operator that causes the ship operator to incur a liability under the relevant convention. The Club points out that under international maritime conventions and typical domestic mandatory law, a defence against liability may be permitted where loss is caused by an "Act of War", or by "intentional" damage by a third party both of which, it can be argued, are applicable to an act of terrorism. However an operator who has not complied with the details of the ISPS Code could find that it is guilty of contributory negligence, which may well remove this defence.

On the other hand the existence of and full compliance with the ISPS Code gives the port operator a very strong defence against any allegation of negligence should it be unfortunate enough to suffer a terrorist attack.

On the issue of contractual liability, which includes damage to cargo, damage to ship and containers, injury to crew, delays to ships and possible fines at discharge ports, Mr Sansom was equally blunt. "The traditional basis of liability is that the port operator is only liable if found to be negligent and, sometimes there may be an express exclusion of liability for terrorism."

"However, the existence of both a known terrorist threat and the ISPS Code designed to combat such a threat mean that these defences may be invalidated if reasonable security measures have not been taken, e.g. if the operator is not certified under ISPS, has failed to undertake all that is necessary for certification or has not applied the measures outlined in its agreed ISPS security plan."

The TT Club is also warning of the very strong likelihood of third party claims following an act of terrorism. These claims, such as by a visitor to the port or the general public injured by the explosion of a bomb in a container, are governed by so-called tortious law. Generally unlimited liability applies in these cases and financial compensation awards can be very large. Again, failure to comply with ISPS will provide significant proof of negligence, while full compliance will assist in a strong defence against such claims.

"As well as the law, good business practice certainly calls for all ports to be ISPS compliant by the 1st July deadline," Mr Sansom observed. "There can be little doubt that ships and ports that are unable to demonstrate compliance - on a continuing basis - are likely to be at a commercial disadvantage. Vessels that use non-compliant port facilities may incur delays and subsequently be denied access to discharge ports that demand the ISPS Code be upheld."

In contrast, he pointed out, ISPS certification will greatly enhance the safety and security of the port, its people, equipment and customers' property. Whilst the focus is on terrorism it is also an opportunity to enhance security against theft. The commercial appeal of the compliant facility will be boosted and it will attract customers away from non-compliant operations. Therefore ports should see ISPS as giving positive benefit and not simply additional cost. Furthermore if a port operator does not use its best endeavours to comply with the ISPS, he may find that he invalidates his insurance.

About TT Club:

The TT Club is the international transport and logistics industry's leading provider of insurance and related risk management services. Established in 1968, the Club's membership comprises ship operators, ports and terminals, road, rail and airfreight operators, logistics companies and container lessors. As a mutual insurer, the Club exists to provide its policyholders with industry-leading benefits, which include specialist underwriting expertise, a world-wide office network providing claims management services and first class risk management and loss prevention advice.

Photo Note:

A high resolution digital image of Nick Sansom, Principal Officer of the TT Club in South-East Asia, is available for downloading from the ISIS Communications Press Room at

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Staff Author

TT Club