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ACQ 2016-1

Real Case 2: Club Unwilling to Put Up Security

Real Life Situation: We arranged the Charterer’s liability insurance coverage of Charterers. The vessel was loading at Vancouver when loading was stopped on account of bad stowage, additional expense of stowing and labour standby was incurred by the shippers and stevedores who arrested the vessel to recover these expenses.

The Problem: The Shipowners was entered with a Group P&I Club who refused to provide security in view they argued this was not a P&I Club matter, as there was no cargo damage, and the Club would not provide security in respect of additional cost of stowage. The shipowner turned to Charterers stating that they should provide the security, but the Charterers Club also rejected to provide security for the same reason.

Action Taken: We suggested and sent message to the Shipowner stating that the vessel was arrested in rem, and it was the Shipowners’ responsibility to release his vessel from arrest. Also that all time lost arising from the Shipowners not putting up security timely would count as off hire., and a deduction from hire would be made. At the same time, we submitted our arguments to the P&I Club of the Charters that should Charterers be liable the Club is under an obligation to put up security. We argued that from the Charterer’s point of view, this matter is in the nature of a cargo liability, as the shipper's action against the vessel arises under a contract of carriage to properly load, stow and handle the goods. We examined the rules of the P&I Club, and submitted that the additional cost of re-stowing falls under section 4 of the rules, which provides coverage for liability and cost in relation to cargo carried in the entered ship. In addition Paragraph A of the rules states there is cover for liability for loss, damage “or other responsibility” arising out of the breach by members in his obligation to stow the goods. We also argued that although it was not usual, it was not a precondition the cargo must be physically damaged for there to be a cargo liability claim. We also investigated the legal interpretation of the words “cargo liability’ and found a legal case which provides that these words include expenses, and are not limited to pure physical loss or damage to cargo.

We had stated to the Club that if the members were to provide security, the Club should assist. We believed the P&I Club were in agreement with our legal analysis of the interpretation of the P&I rules, as they had not countered our arguments. Accordingly we had managed to protect and preserve the member’s rights against their P&I Club, in an area of law which was not clear.