TT Talk - Ships that go bump in the night (or any other time!)

Our colleagues Marcus John and Iain Sharples in Sydney write about the problems of enforcing claims on those (hopefully rare) occasions when ships cause damage to terminal property during berthing/unberthing, loading and discharge operations. Emergency response to any personal injuries or pollution clean up will be of immediate concern but the subsequent financial cost to the terminal can also be substantial.

Financial losses can include temporary and permanent repairs to, or replacement of, equipment, clean up costs, business interruption and increased costs of working (for example the hiring of additional equipment or personnel in order to maintain productivity). These can be multi-million dollar losses and it is very important that the terminal protects its recovery rights against the ship.

When one party causes damage it is usually possible to issue legal proceedings and, if the claim is successful, have the judgement enforced. The difficulty with claiming on a ship is that the "defendant" is constantly on the move and may change ownership. Indeed the ship may be owned by a "one-ship company" so when it is sold there are no assets to pay a claim. This means that a successful judgment against a ship may not be enforceable and it becomes worthless. The terminal is left bearing the losses incurred with no recourse against the party that caused the damage.

Although the terminal is usually insured against damage to equipment and the consequential

losses arising, it is in its interests to protect the insurer's position. Indeed it is usually a policy requirement to do so, and of course, whatever insurers can recover will usually have a favourable impact on the loss record. There is also the terminal's own deductible and, possibly, any uninsured losses to consider. A ship that is at fault for damage to the terminal's equipment should be immediately held responsible for the losses arising.

Regardless of the circumstances of the incident and the amount of damage apparent at the time it is worthwhile taking steps to protect the terminal's position. The best method is to obtain financial security from the ship owner by bank guarantee or a letter of undertaking (LOU) from the ship's protection and indemnity (P&I) club. Security can be obtained for any sum in most jurisdictions - there is no minimum amount.

It is often possible to arrest a ship that has caused damage to property or people, but the rules differ from one jurisdiction to another. This prevents it leaving the berth or port, so the shipowner will therefore almost always be anxious to avoid it. On the other hand, getting an arrest warrant is sometimes difficult and can have unwanted legal consequences if it is not done correctly. That is where the P&I club's LOU (or the first-class bank guarantee) comes in, as the claimant can accept it in return for an agreement not to arrest the ship.

The amount of security given cannot generally be increased after the letter is issued so the terminal will not get any more security than the amount stated in the LOU. Therefore the security agreed should be adequate to cover the highest claim amount reasonably contemplated, including interest and costs as well as the actual damage.

When a settlement is agreed or judgment in court is obtained, possibly several years down the track, the terminal can obtain the funds on demand directly from the party that issued the LOU, irrespective of whether or not the shipowner is still in business. Without the LOU it would not be possible to claim direct upon the shipowner's P&I club.

When an incident occurs that causes damage to terminal equipment the Club recommends the following steps taken:

Tell your local TT Club contact about the incident immediately as they will be able to assist.

Hold the ship responsible for the damage by a letter delivered to the master, with a request for confirmation the ship will indemnify the terminal for the losses arising;

Estimates of the likely losses will normally be required. Appointed surveyors may provide independent evidence of the extent of the losses. Lawyers may also be appointed to take statements if the cause of damage is potentially contentious.

You should note that when an incident occurs action must be taken as soon as possible to obtain security and that will almost always be before the ship leaves the port. Once the ship has sailed it may be too late!

When security has been put in place the TT Club contact can assist you in pursuing your recovery claim against the ship, provided the potential loss is likely to be above your deductible (assistance on below deductible claims handling can also be arranged).

Staff Author

TT Club