Chicken Curry

Business and law
Class II
Shane Sankaranarayana
Revised : 25/05/2013
Maritime Business & Law Class II

Authorized by; HOD Navigation
Page 1
Contents
Contract law
03
Bills of lading
08
International rules related to bills of lading
18
Letter of indemnity
21
Hague Visby rules
28
Chartering of ships
36
Deviation
47
Charter party clauses
50
Lay time calculations
58
Liens
68
Salvage
73
Losses (Marine Insurance)
83
Marine insurance
91
Hull & machinery insurance
99
Cargo insurance
105
P & I Clubs
111
Port of refuge
113
Letter of protest
120
Note of protest
123
Wrecks
127
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Contract Law
Introduction to contracts
A contract is an agreement made between two or more parties. This may be a verbal
agreement or may be a documented agreement or may be an agreement made through internet.
Usually, this is a promise made by one party to another party to carry out certain things for the
benefit of both the parties. It could be money for goods or money for services or goods for goods
or goods for services etc. This can be explained with a simple example as below;
Example
When a person (say, Mr. X) is buying a pen from a shop, Mr. X is making a contract with the
seller. The seller is benefited because he can sell his products and Mr. X is benefited because he
gets his pen.
Basically, a contract is an agreement giving rise to obligations which are enforced or
recognised by law. If any one of the parties could not fulfil the promises made after the contract
is made, the party which received damages may be able to claim for his damages through the
law. The law of formation of contracts and the laws of remedies for the breaches are different
from country to country. During this course we will be discussing only about the English Law.
Examples of contracts
Non-maritime contracts
Civil construction contracts

Sale contracts
Travelling contracts
Insurance policies
Job contracts
Maritime contracts
Bills of lading
Charter parties
Salvage
Crew agreements
Marine insurance policies
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The contents of contracts

Mainly, there are two types of terms, i.e. expressed terms and implied terms. Expressed
terms mean, the conditions which are expressly agreed between the parties. It may be agreed
verbally or in writing.
A contract may contain terms which are not expressly stated but which are implied, either
because the parties intended this, or by operation of law, or by custom or usage.
As an example, if you call a building constructor to build a house for you, the conditions
such as date of commencement, date of completion, the plan of the house etc. are agreed
expressly. But, terms such as the type of material to be used, the competency of the workers may
be implied.
Conditions for a valid contract

In the formation of a contract there are three elements to be satisfied, i.e.
Offer
Acceptance
Consideration
If any one of the above elements are not been fulfilled, there is no a contract. Remember,
to create a contract, all three elements must be fulfilled. These elements are generally used
while making contracts through words or documents. To get the whole concept of contract,
one must have a clear idea about the above three elements. Now, we shall discuss about these
elements separately.
1. Offer
During a contract, one party must offer something to a second party. This offer is known
as the offer in the law of contract. The party offering is known as the Offeror and the party
receiving offer is called as the Offeree. This offer could be money for goods, money for
service or service for goods.
Example
Mr. X comes across with a nice pen in a shop window while walking on the pavement. He
decides to buy it. He bargains about the price with the seller and offer is created when Mr. X is
paying money for the pen.
Displays in shops, paper advertisements, televisions commercials and radio
commercials are considered as invitations to treat, but, not offers. These invitations are open
for the general public by the seller inviting them to make contracts.
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In the above example, if the price of the pen is written as 100 US$ at the shop window and Mr. X
offers 90 US$, at this moment, if the seller refuses, there is no contract. The seller can make a
counter offer, the pen for 95 US$. If Mr. X agrees, then, the contract is made. At this moment the
contract is made not for the initial offer but for the counter offer.
An offer may be terminated by following conditions;
Counter offer
Revocation
Death of offeror or offeree
Lapse of time
2. Acceptance
This has the normal meaning of acceptance according to English. Once accepted after an
offer, a binding contract is formed. Following items must be carried out to fulfil this element.
The acceptance must be informed to the offeror.

The terms of acceptance must be same as the terms of the offer.
The agreement must be clearly understandable.
Silence is not considered as an acceptance. The acceptance must be communicated to the

offeror by any means, such as, e-mail, post, fax, verbally etc. If not communicated, there is no a
binding contract. If the terms of the acceptance are different from the terms of the initial offer, it
becomes a counter offer which leads to another new contract. No contract is made until both are
the same. Finally, a reasonable person should be able to understand what the parties have agreed
exactly. If it is not, it may be considered as mistakes or misrepresentations. No valid contracts
are made under such conditions.
3. Consideration
For a consumer contract to be legally binding, as well as offer and acceptance, there must
also be consideration or a price. Consideration means that both parties must do something or
promise to do something which they intend to be legally binding. In contracts for goods or
services, this usually means that one party promises to pay a price and the other party promises
to supply goods or services. Consideration must be something that can be valued in the face
of law. It can be money or goods or services.
How to discharge a contract

Discharging a contract means coming to an end of the contract. After the discharge of the
contract, all the parties are relieved from their obligations. A contract may be discharged in one
of the following ways;
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1.
2.
3.
4.
5.
by performance
by agreement
by frustration
by operation of law
by breach
Discharge by performance
When all the parties have successfully carried out their duties and obligations according
to the contract, it is known as a contract discharged by performance.
Discharge by agreement
The parties themselves can agree to end the contract, form a new contract or vary the
original one. When the parties have agreed to end the contract, the original contract will be
cancelled and if the parties have form a new contract or vary the original one, the original
contract will be superseded by the amended one.
Discharge by frustration
A contract will become frustrated when the contractual obligations cannot be carried
out without the fault of any of the parties involved. Therefore, when a contract is frustrated, none
of the parties involved are responsible for each other. The losses occurred up to the time of
frustration has to be borne by them.
Discharge by breach of contract

Where one of the parties fails to perform their side of the contract the innocent party may
be able to terminate the contract and commence proceedings for damages (or other appropriate
remedy).
The effect of termination is to release both parties from future obligations, but not those
that have already been incurred (e.g. the obligation to pay for goods received or work done); or
that are intended to continue after the contract has come to an end (e.g. restraint of trade clauses
in employment contracts).
Not all breaches entitle the innocent party to terminate the contract. It is only breaches of
conditions (or essential terms) or fundamental breaches (of innominate terms) that allow for
termination. Breaches of warranties (or minor terms) do not allow for termination, however, the
innocent party is entitled to sue for damages.
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Discharge by operation of law

A contract may be discharged independently of the wishes of the parties, i.e., by operation
of law. This includes discharge;
a)
b)
c)
d)
by death (in the case of contracts for Personal service)

by insolvency
by unauthorized alteration of the terms of a written agreement
lapse of time
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Bill of Lading
There are few important weaknesses involved in an international sale of goods. First, the
seller does not know the financial situation of the buyer because both of them are in two different
states. Therefore, the seller has to take a risk in selling goods to an unknown buyer. This can be
avoided by an advance payment to the seller by the buyer. But, in doing so, the buyer has to take
a risk for the quantity and condition of the cargo shipped. This can be completely avoided by
using a letter of credit.
Letter of credit means a letter from a bank guaranteeing that a buyer's payment to a seller
will be received on time and for the correct amount. In the event that the buyer is unable to make
payment on the purchase, the bank will be required to cover the full or remaining amount of the
purchase.
Letters of credit are often used in international transactions to ensure that payment will
be received. Due to the nature of international dealings including factors such as distance,
differing laws in each country and difficulty in knowing each party personally, the use of letters
of credit has become a very important aspect of international trade. The bank also acts on behalf
of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the
bank receives a confirmation that the goods have been shipped.
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Secondly, the buyer is not present at the loading port to inspect the cargo. Even the
potential buyers cannot inspect the cargo for the condition and quantity while in transport.
Therefore, the buyers are also taking a risk during international sale of goods.
Finally, the cross boarder transport via sea is time consuming than other transport modes.
This delay in sea transport is used for the benefit of the commercial world by making it possible
to sell the goods while they are onboard. But, while the cargo is at sea, it cannot be physically
transferred to future buyers.
The above problems can be avoided by use of a bill of lading. Because a bill of lading
represents the true quantity and apparent condition of the cargo and also, having the possession
of a bill of lading is considered as having the ownership of the cargo which it represents. A bill
of lading has three elements;
1) It is a receipt for the goods loaded,
2) It is an evidence of contract of carriage,
3) It is a document of title
Now, we shall consider about the above three elements in detail.
1) Bill of lading as a receipt

This is issued by or on behalf of the carrier when the cargo is loaded onboard, describing
the quantity and the condition of the cargo. Bill of lading does not represent the quality of the
cargo loaded. At the time of loading, the liability of the cargo passes from the shipper to the
carrier. Therefore, the carrier should ensure that the bill of lading correctly represents the
condition and the quantity of the goods loaded. If not, even though the goods were loaded in
damage condition or in a lesser amount, the carrier will be liable for the under carriage or for the
damage amount of cargo. Since the bill of lading is transferable, the ultimate buyers do not have
any idea of the actual quantity and the condition of the cargo and they are totally relaying on the
condition and the quantity of the cargo as described on the bill of lading.
When a claim is brought against a carrier related to less carriage of cargo or cargo damage,
if he can prove that the damage was occurred before the cargo was loaded onboard or the actual
amount of cargo loaded is less than the described amount on the bill of lading, he may avoid the
liability. A bill of lading is a prima facie evidence on the hands of a shipper (Hague/Visby rules,
Article III, regulation 4). i.e., if a claim is brought by the shipper, the carrier can produce the
mates receipts, tally sheets, load port figures etc., to prove his innocence. But, a bill of lading
becomes the conclusive evidence for the quantity and the condition of the cargo, if a claim is
brought by a third party acting in good faith (Hague/Visby rules, Article III, regulation 4). i.e.,
the carrier may not be allowed to use mates receipts, tally sheets, load port figures etc., to defend
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himself. Once the bill of lading is transferred to a third party acting on good faith, the bill of
lading becomes the one and only evidence which represents the quantity and condition of the
cargo. Therefore, a ship Master should be very care full in signing a bill of lading.
According to Article III regulation 3 of Hague and Hague/Visby rules the following shall
be included in a bill of lading;
3. After receiving the goods into his charge the carrier or the master or agent of the carrier
shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things:
(a) The leading marks necessary for identification of the goods as the same are furnished in
writing by the shipper before the loading of such goods starts, provided such marks are
stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or
coverings in which such goods are contained, in such a manner as should ordinarily
remain legible until the end of the voyage.
(b) Either the number of packages or pieces, or the quantity, or weight, as the case may be,
as furnished in writing by the shipper.
(c) The apparent order and condition of the goods.
Provided that no carrier, master or agent of the carrier shall be bound to state or show in the
bill of lading any marks, number, quantity or weight which he has reasonable ground for
suspecting not accurately to represent the goods actually received, or which he has had no
reasonable means of checking..
Practically, a bill of lading is filled by the shipper himself. Depending upon the agreement
between the shipowner/carrier and the shipper/charterer, it will be signed by the master or by the
charterer on behalf of the master or by the charterer himself. When signing a bill of lading,
master should consider about the following;
a) Date of the bill of lading

The date should be the date of completed loading. When multiple cargoes are loaded,
which belong to multiple shippers separate bills of lading will be issued for each set of cargo.
The master must ensure that the respective bill of lading is dated as per the completed
loading dates of the respective cargoes. This should tally with the mates receipt.
b) Number/quantity/weight of the cargo

If the master has reasonable grounds to believe that the figures entered on the bill are
wrong he is not bound to sign the bill of lading. The master has an obligation to check the
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number or quantity or the weight of the cargo loaded to his ship by means of checking
draughts, physical counting and checking against mates receipt. If there is a difference
between the ships figures and shippers figures, a master has following options;
Refuse to sign the bill of lading.

Convince the shipper to include the ships figures on the bill of lading.
Include a clause such as weight/quantity unknown or shippers
weight/quantity or said to be or STC (Said To Contain). If he states
weight/quantity unknown, he is not guaranteeing the figures included on the bill of
lading. The claimant should produce other evidences such as load port figures etc., to
prove his claim. Clauses such as said to be or STC are not clear yet in the face of
law. Therefore, weight/quantity unknown clause may safe guard the shipowner than
the other two clauses. But, it depends upon the jurisdiction where the claim is
brought.
To sign the bill of lading against a letter of indemnity. This is discussed in detail later.
Before clausing a bill of lading a master must check the charterparty agreement. Some
charterparties prohibits clausing of bill of lading as it may affect the re-saleability of the cargo.
Clausing a bill of lading means inserting amendments to it by the master (example changes to
the weight & quantity of the cargo, changes to the apparent order and condition of the cargo). A
bill of lading which is not claused is called as a clean bill of lading. Inclusion of statements such
as weight/quantity unknown, shippers weight/quantity, said to be, STC are not considered as
clausing a bill of lading. i.e. even when the bill of lading is endorsed with such statements in is
considered as a clean bill of lading.
c) Apparent order and condition of the cargo

This is the condition of the cargo which is apparent (visible) to the Master, but, not the
quality. The question of whether the cargo is in apparent good order and condition is affected
by the description of the cargo. (e.g. cargo described as contaminated product can still be
described as being in apparent good order and condition where as cargo described simply as
product could not be so described if the product was visibly damaged). If Master issues a clean
bill for already damaged cargo, the carrier is liable for the damage. Apparent good order and
condition is a very common standard term which is included on a bill of lading if the cargo is in
good condition. If the cargo is not in apparent order and condition, a Master has following
options;
Refuse to sign.
He can describe the true condition of the cargo. That description must be accurate and
proportionate. If it is not, then the carrier will be liable. If any statement other than
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the apparent good order and condition is included on the bill of lading, it is
not a clean bill of lading.
Sign the bills of lading as requested and demand an indemnity if a claim is made.
This will be discussed later.
2) Bills of lading as an evidence of contract of carriage

Bill of lading is an evidence of contract of the carriage of goods by sea between the
shipper and the carrier. The carrier could be the shipowner or the charterer. It depends upon who
has signed the bill of lading and on whose behalf. It is important to verify who is the carrier to
bring a claim by the cargo owner.
A bill of lading signed by the master by himself or by others for the master or on
behalf of the master, usually bind the ship owner as the carrier, because, the master is
owners representative. In the case of a demised chartered ship, master represents the
charterers but not the ship owner.
If the charterers sign the bill of lading by themselves, or if their agents do so, on their
behalf, the charterers are the carriers.
If the bill of lading contains identity of the carrier or Demise clause then, shipowner
is the carrier (in the case of a demise chartered ship, the charterer), unless the other terms
of the bill of lading (including its signature) make it clear that the carrier is intended to
be the charterers.
There are implied as well as expressed terms in bills of lading contracts. Some of these
terms are relevant to the master as well. For example, even if the bill of lading says nothing
about the seaworthiness of the ship there is an implied term that the ship will be seaworthy at the
beginning of the voyage. The seaworthiness will be discussed in detail later.
The terms of the bill of lading are regulated by Hague or Hague/Visby or Hamburg (in
future Rotterdam rules as well) rules, depending upon the contract or the agreement between the
parties. Therefore, even the bill is silent in certain terms, the carrier or the charterer would be
bound by implied terms as mentioned before.
3) Bill of lading as a document of title

In the context of carriage of goods document of title means, it is transferable
(negotiable) and which must therefore, be produced as evidence of title to the goods before
a carrier can be obliged to give delivery of cargo. Once the cargo has been shipped and the bill
of lading signed, it becomes a symbol of that cargo and is brought and sold in the same way as
the cargo itself would have been if it were in the sellers possession. The transfer of the bill of
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lading to the buyer has the effect in law of transferring the right to possession of the cargo at the
end of the carriage and, in so far as possession is proof of ownership, possessing the bill of
lading is proof of the ownership of the goods. The bill of lading in the hands of the receiver has
been linked to the key of the warehouse door, i.e., it enables him to obtain possession of the
goods. The carrier must deliver the goods to the first person presenting a valid bill of lading
properly endorsed in his favour. If the carrier delivers cargo to anyone else, or if he delivers in
the absence of a bill of lading and the cargo falls into wrong hands carrier will be liable. In such
a situation;
The carrier will be liable for the full value of the cargo miss delivered,
Usually has no defence for the carrier,
Usually has no right to limit his liability and
Carrier will lose his P & I cover
All the bills of ladings are not negotiable. To make the bill negotiable, the term to
order must be included in the consignee box. Such a bill also called as an order bill. If the
word To is included in the consignee box, it is not negotiable. Such a bill is called as a
straight bill of lading.
Usually, three original bills are issued by the carrier (some times more bills are issued
by the carrier, in that case those are issued in sets of three and all these spare sets of bills are not
negotiable).
Check the following before signing a bill of lading
Check the date on the bill of lading. Never sign a post-dated or antedated bill, as this
could be a vehicle for fraud.
Check the description of cargo on the bill of lading against the mates receipt.
Check that the port of delivery is one to which you are bound and that it is within the
range of ports permitted by the charter party and crew agreement.
If the presented bill of lading is in foreign language, request a translation in English. If it
is not possible, endorse the bill in English with the quantities taken from the mates
receipt.
Check that the number of original bills presented for signature corresponds with the
number of bills stated to have been issued. If it does not, then amend the bill.
Where carriage is under a charter party, check that the terms of the charter party are
incorporated into the bill of lading.
Check that any freight rate on the bill of lading is not prejudicial to any freight rate in the
charter party, and if dead freight or demurrage are outstanding, that these are endorsed on
the bill.
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Mates receipt
In ancient times this was issued by the chief officer by referring into the tally sheets
made by the tally clerks and also by the physical inspections made by the chief officer. It
includes identification marks, quantities and condition of the cargo loaded. The shipper would
then take the mates receipt to the master to exchange it for the bill of lading. The bill of lading
should incorporate all the conditions, if any, inserted in to the mates receipt. Mates receipt is
the first evidence that the goods are received and statements on the document describe the
quantity of goods, any identifying marks and the apparent condition.
Now a days, the mates receipt is prepared by shore personnel, but not by the chief
officer. It will be presented to the chief officer for his signature. If the actual quantity and the
condition of the cargo are different from the documented figures, chief officer must enter the
correct figures and condition of the cargo.
Types of bills of lading

There are various types of bills of lading developed for various other purposes. These
forms have different advantages and disadvantages when comparing with each other.
a) Straight bill of lading

This is not negotiable, but, need to present to the master to take delivery of cargo. This is
only transferable from the shipper to the named consignee only. This has the following elements;
It is a receipt for the cargo

It is an evidence of contract of carriage
Under English law, it is a document of title, because, it is transferable once and need
to present to the master to take the delivery of cargo. Earlier, this was not considered
as a document of title, but, now it is changed.
This is usually, used with expensive cargoes to avoid miss delivery of cargoes. But, the
disadvantage is that it is not negotiable like the order bill.
b) Seaway bills
This is not negotiable at all and does not require to be presented to the master to take the
delivery of the cargo. This has the following elements;
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This is a receipt for the cargo shipped.

This is an evidence of contract of the carriage
This is not a document of title
The present day ships are much faster than the old days ships. Therefore, the ships arrive
before the arrival of the bill of lading at the discharge port. On the other hand, during in-house
transhipments, the cargo is not required to be sold while at transport. Therefore, seaway bills can
be used to avoid the problems involved with the conventional bills of lading. The problems are
cargo cannot be sold while at sea and also no security on the cargo. This is used widely in the
container transport.
c) Through bills of lading

These are used in unimodal transport mode, but, which contain two or more sea legs in
two or more ships. When it is not possible for the sea carrier to perform the entire sea voyage
itself, it will arrange for the goods to be transhipped at an intermediate port (assuming that the
contract of carriage contains a liberty to tranship the cargo). The speciality in here is, even
though the transport is unimodal, it involves two or more separate sea voyages and also
warehousing at the intermediate ports.
Usually, the carrier will issue a through bill of lading to cover the whole passage and
separate bills of lading to cover the each voyage, at the commencement of each voyage, if the
same carrier is involve in all transhipments. If the voyages after the first one is to be carried out
by a different carrier, the cargo owner can use a freight forwarder to exercise reasonable care in
selecting a competent carrier for the onward voyages.
d) Electronic bills of lading

These are generally functional equivalent, i.e., having the same elements and
characteristics of paper bills of lading. The main purposes of electronic bills of lading are to
reduce costs involve in paper documentation, avoid fraud and to avoid delays involve in
conventional bills of lading. Electronic bills of lading are in use by APL (American President
Line) which is an in-house system (developed and used by APL only). A common system is run
by BOLERO and SeaDocs. These are separate companies and to use them, the carrier must take
the membership of those companies.
Electronic bills of lading are not still common among traders because, the legality of them
are not yet clear, most of the countries do not recognize them legally and also most of the
countrys require paper documentation.
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e) Combined or multimodal transport documents

As the name suggests these are used with multimodal transport, i.e., when engaged in
different transport modes like air, sea and land. This is issued to cover the entire transport (door
to door) and generally issued by freight forwarders. A separate bill of lading is used to cover the
sea passage of the cargo.
f) Received for shipment bill of lading

This is issued when the carrier receives cargo to his custody from a shipper at a warehouse
or dock, but, before loading on to a ship. Even though the carrier is liable for the goods prior
loading to the vessel, master is liable for the cargo only after it passes the ships rails.
g) Shipped bills of lading

Once a cargo is loaded which is under a received for shipment bill of lading, that bill of
lading becomes a shipped bill of lading. Master is liable for the cargo when the shipped bills of
lading are issued.
h) Accomplished bill of lading

Once the cargo is delivered to the prescribed consignee at the port of discharge, that bill of
lading losses its value. Such a bill is called as an accomplished bill of lading.
i) Claused bill of lading

A bill of lading endorsed with remarks regarding number/quantity/weight and apparent
condition is known as a claused bill of lading.
j) Clean bill of lading

This is a bill of lading without any adverse remarks relating to the number/quantity/weight
and condition of the cargo is called as a clean bill of lading.
k) Delivery order
This is usually used in the bulk trade, when seller wants to sell the cargo to more than one
buyer. Only one bill of lading is issued since only one shipment available. The seller will instruct
the shipowner to deliver required amount of tonnes out of the whole bill of lading consignment
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to a named consignee or to the holder of the delivery order. Once the ship owner agrees to carry
out the instructions and signed by the master or his agents, it becomes ships delivery order. So
the master has to deliver the goods covered by the delivery order against presentation of that
document. This will replace the former undertaking given on issue of the bill of lading to deliver
against presentation of bill of lading. Only a ships delivery order can transfer constructive
possession to the holder. Therefore, only ships delivery orders are an acceptable substitute for
bills of lading where part of a bulk cargo is sold under a contract of sale that provides for
payment against documents. COGSA 1992 applies to ships delivery orders.
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International rules related to bills of lading

a) Hague Rules and Hague/Visby rules
In ancient times, ship owners had extensive powers over the shippers and cargo owners.
Shipowners managed to escape their liabilities by using these powers and the principle of
freedom of contract during cargo damages. Therefore, the cargo owners were disappointed and
the reliability of the bills of lading was greatly affected. This was the main reason to develop the
Hague rules in 1924. Most of the maritime nations ratified Hague rules and still this is in force.
These rules apportioned responsibility for the safe delivery of cargo between shipper, carrier and
receiver and denied these parties, particularly the carrier, the ability to contract out minimum
levels of responsibility.
These rules are applicable to contract of carriages through bills of lading, but, if the
parties agree, will be applicable to charterparties as well. The incorporation of the rules to
charterparties is done by a clause in the bill of lading.
These rules do not apply to deck cargoes, if such cargoes are carried on deck after
making a note on the bill of lading to that effect. If such cargoes are carried on deck without
saying on the bill of lading that they are carried on deck or the cargoes are actually carried under
deck, even the bill of lading states that they are carried on deck, these rules will be applied. Live
animals are also not covered by the rules.
The limitation provisions on the Hague rules is only applicable to packages and unit
cargoes. Solid bulk cargoes, liquid bulk cargoes and gas bulk cargoes are not included in the
limitation provisions of the rules because there were no such ships during that time.
Hague rules are still applicable in countries such as USA (US COGSA), Australia etc.,
but, with various local amendments to update the rules to present day standards and technology.
The international traders were under impression that the Hague rules are more ship
owner friendly and therefore, in 1968, amendments to the Hague rules were brought up and these
are known an as Hague/Visby rules. There are few main differences between Hague rules and
Hague/Visby rules such as, the limitations are increased in Hague/Visby rules, bulk cargoes are
included Hague/Visby rules etc.
Seaworthiness
A vessel must have that degree of fitness which an ordinary careful and prudent owner
would require his vessel to have at the commencement of her voyage having regard to all the
probable circumstances of it. Would a prudent owner have required that it (i.e. the defect)
should be made good before sending his vessel to sea, had he known of it? If he would, the ship
was not seaworthy.. (Justice Channell in McFadden v Blue Star Line).
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Seaworthiness is a warrant (promise) given by the ship owner to the shipper and in ordinary
language, seaworthiness means that the vessel is fit to meet and undergo the perils of the sea and
other incidental risks to which she must necessarily be exposed in the course of the voyage. It
could be an implied term (in some charterparties) or an express term (in bills of lading contracts
and some charterparties). Article III, regulation 1 and 2 of Hague/Visby rules states that;
1. The carrier shall be bound before and at the beginning of the voyage to exercise due
diligence to:
(a) Make the ship seaworthy;
(b) Properly man, equip and supply the ship;
(c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which
goods are carried, fit and safe for their reception, carriage and preservation.
2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle,
stow, carry, keep, care for, and discharge the goods carried.
In general terms a vessel must be cargoworthy before the commencement of loading and
seaworthy prior to the commencement of voyage. Cargoworthiness is a category of
seaworthiness. If there are defects in the cargo spaces, heating systems, cooling systems etc., the
master must ensure to make them fit for the reception of cargo before the commencement of
loading. On the other hand, if there are any defects on the ship which may affect the safe
navigation, the master must take steps to rectify the defects before the commencement of the
voyage. The time a vessel required to be seaworthy may change in the case of a charterparty,
which will be discussed latter. The following examples can be given as un-seaworthiness;
An incompetent crew
Crew which is insufficiently instructed
Insufficient number of crew
Out dated charts
Insufficient bunkers for the voyage (but, if it is a custom of the trade to take bunkers on
the way in some other port, it is not considered as unseaworthiness)
Stowage which affects the safety of the vessel
Deficient systems ashore or onboard
Absence of documents required by the law (including local laws)
A ship can be uncargoworthy due to the presence of other cargoes
The seaworthiness depends upon various factors such as nature and age of the ship, the
kind of voyage expected, the nature of cargo etc. i.e., an old ship may not be seaworthy as a new
ship. When making the contract the shipper knows this and he does not expect the condition of a
new ship from an old one. Whatever the case may be, the master shall take due diligence to make
the vessel seaworthy in all respects.
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Carriers exemption of liability during cargo damage

Article IV, regulation 1 & 2 of Hague/Visby rules provide a long list of exemptions of
carriers liability as follows;
1.
Neither the carrier nor the ship shall be liable for loss or damage arising or resulting
from unseaworthiness unless caused by want of due diligence on the part of the carrier to make
the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, and
to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods
are carried fit and safe for their reception, carriage and preservation in accordance with the
provisions of paragraph 1 of Article III. Whenever loss or damage has resulted from
unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or
other person claiming exemption under this article.
2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting
from:
a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier
in the navigation or in the management of the ship.
b) Fire, unless caused by the actual fault or privity of the carrier.
c) Perils, dangers and accidents of the sea or other navigable waters.
d) Act of God.
e) Act of war.
f) Act of public enemies.
g) Arrest or restraint of princes, rulers or people, or seizure under legal process.
h) Quarantine restrictions.
i) Act or omission of the shipper or owner of the goods, his agent or representative.
j) Strikes or lockouts or stoppage or restraint of labour from whatever cause,
whether partial or general.
k) Riots and civil commotions.
l) Saving or attempting to save life or property at sea.
m) Wastage in bulk of weight or any other loss or damage arising from inherent
defect, quality or vice of the goods.
n) Insufficiency of packing.
o) Insufficiency or inadequacy of marks.
p) Latent defects not discoverable by due diligence.
q) Any other cause arising without the actual fault or privity of the carrier, or
without the fault or neglect of the agents or servants of the carrier, but the burden
of proof shall be on the person claiming the benefit of this exception to show that
neither the actual fault or privity of the carrier nor the fault or neglect of the
agents or servants of the carrier contributed to the loss or damage.
If the carrier has not exercised due diligence in making the vessel seaworthy, he will not
be able to exempt from his liability under Article IV of Hague/Visby rules and also he may lose
the right to limit his liability under Article IV, regulation 5.
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Letter of indemnity
Letter of indemnity is issued in order to persuade one party to comply with a request made
by another party to perform some task which that party is not obliged to perform under the
contract. In the trade of shipping, letters of indemnities are normally requested in the following
situations;
Releasing of clean or ante-dated bills of lading

Delivery of cargo without surrender of original bills of lading
Change of destination/deviation
Switch bills of lading
Commingling
a) LOI Against clean bills of lading

A shipper may offer a letter of indemnity to compensate a carrier should the carrier suffer
loss as a result of issuing a clean bill of lading. Article III, regulation 5 of Hague/Visby rules
says;
5. The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of
shipment of the marks, number, quantity and weight, as furnished by him, and the shipper shall
indemnify the carrier against all loss, damages and expenses arising or resulting from
inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit
his responsibility and liability under the contract of carriage to any person other than the
shipper.
According to above, carrier has authority to indemnify against clean bills of lading, but,
the carrier can not avoid his liability just by receiving a letter of indemnity. If a carrier issues a
clean bill of lading by knowing the cargo is under weight/quantity, the carrier can not avoid his
liability once the bill of lading is transferred to a third party acting on good faith. Therefore, a
clean bill must not be issued if the master has reasonable grounds to believe that the actual
figures and the documented figures are different.
On the other hand, above regulation does not provide an indemnity in relation to the apparent
good order and condition of the goods since the carrier himself has a duty to verify the apparent
good order and condition of the goods and can not rely simply on statements made by other
persons in this regard.
Masters have no authority of their own to issue clean bills of lading against letters of
indemnity. A master who is instructed by shipowners to issue only clean bills of lading should
protect himself by obtaining such instructions in writing.
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b) LOI to deliver cargo without original bills of lading

In order to avoid delays letters of indemnities are offered to carriers to proceed with the
delivery of cargoes without production of the bill of lading. There is no custom obliging a carrier
to accept such a letter of indemnity. Unless there is a term in the contract of carriage obliging
him to accept a letter of indemnity the carrier is not obliged to accept one and can insist on
waiting until the original bill of lading have been produced.
The rules of all the P & I clubs emphasise that the carrier is not covered for claims resulting
from the delivery of cargo without surrender of original bill of lading. While the clubs suggests
standard draft forms of letters of indemnities if the carrier wishes to accept one they emphasise
that the carrier does not reinstate club cover by doing so, i.e., the letter of indemnity is intended
to be instead of the club cover.
P & I guide lines regarding signing bills of lading
If the master in any doubt about any aspect of the bill of lading is to seek the advice of
the Company. Assistance and advice can also be sought from the local P & I
correspondent.
If the Master feels that he has signed a bill of lading under duress or threat of any kind, he
must inform the Company as soon as it is safe to do so. He should also make a detailed
report of the circumstances involved.
Predominantly in the tanker trade, a shipper, loading terminal or charterer may request
the ship to follow Early Departure Procedure (EDP). Amongst other things, EDP usually
involves the Master issuing a signed but otherwise blank bill of lading form.
Alternatively, the bill of lading may be completed except for the quantity or weight.
Clearly this procedure exposes the Company to significant liabilities. Accordingly, if the
Master is requested to follow EDP and/or sign a blank bill of lading he should refuse and
contact the Company immediately.
There would be insufficient time for the ships officers to perform a detailed survey of all
of the cargo from the time of the arrival of the vessel until the cargo is loaded. Hence the
assistance of an independent surveyor is essential if the condition of the cargo at this time
is to be fully and accurately determined. This is done to assist the Master to ensure that
the Mates receipts and bills of lading are appropriately clause and accurately describe
the apparent condition of the cargo at the time he accepts responsibility of the cargo.
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The clausing of the bill should be accurate as far as possible. If the cargo is found to be
wet, then the documents should be claused for example 1% wet before shipment. If rust
is found, the type and extent of the rust should be described using the phrases discussed
earlier. Similarly, if the cargo has mechanical damage, the type and extent should be
included in the clause. Appropriate clauses should indicate the likely cause, for example
marked by handling gear. It is important that these remarks are as accurate as possible.
The affected cargo should be identified & quantified. General terms such as some,
a few and a number of should be avoided.
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INT GROUP A
STANDARD FORM LETTER OF INDEMNITY TO BE GIVEN IN RETURN FOR DELIVERING CARGO WITHOUT
PRODUCTION OF THE ORIGINAL BILL OF LADING
To :
[insert name of Owners]
[insert date]
The Owners of the [insert name of ship]

[insert address]
Dear Sirs
Ship:
[insert name of ship]
Voyage:
[insert load and discharge ports as stated in the bill of lading]
Cargo:
[insert description of cargo]
Bill of lading:
[insert identification numbers, date and place of issue]
The above cargo was shipped on the above ship by [insert name of shipper] and consigned to [insert
name of consignee or party to whose order the bill of lading is made out, as appropriate] for delivery at
the port of [insert name of discharge port stated in the bill of lading] but the bill of lading has not arrived
and we, [insert name of party requesting delivery], hereby request you to deliver the said cargo to "X
[name of the specific party] or to such party as you believe to be or to represent X or to be acting on
behalf of X" at [insert place where delivery is to be made] without production of the original bill of
lading.
In consideration of your complying with our above request, we hereby agree as follows :1. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability,
loss, damage or expense of whatsoever nature which you may sustain by reason of delivering the
cargo in accordance with our request.
2. In the event of any proceedings being commenced against you or any of your servants or agents in
connection with the delivery of the cargo as aforesaid, to provide you or them on demand with
sufficient funds to defend the same.
3. If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in
the same or associated ownership, management or control, should be arrested or detained or
should the arrest or detention thereof be threatened, or should there be any interference in the use
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or trading of the vessel (whether by virtue of a caveat being entered on the ships registry or
otherwise howsoever), to provide on demand such bail or other security as may be required to
prevent such arrest or detention or to secure the release of such ship or property or to remove such
interference and to indemnify you in respect of any liability, loss, damage or expense caused by such
arrest or detention or threatened arrest or detention or such interference, whether or not such
arrest or detention or threatened arrest or detention or such interference may be justified.
4. If the place at which we have asked you to make delivery is a bulk liquid or gas terminal or facility, or
another ship, lighter or barge, then delivery to such terminal, facility, ship, lighter or barge shall be
deemed to be delivery to the party to whom we have requested you to make such delivery.
5. As soon as all original bills of lading for the above cargo shall have come into our possession, to
deliver the same to you, or otherwise to cause all original bills of lading to be delivered to you,
whereupon our liability hereunder shall cease.
6. The liability of each and every person under this indemnity shall be joint and several and shall not be
conditional upon your proceeding first against any person, whether or not such person is party to or
liable under this indemnity.
7. This indemnity shall be governed by and construed in accordance with English law and each and
every person liable under this indemnity shall at your request submit to the jurisdiction of the High
Court of Justice of England.
Yours faithfully
For and on behalf of
[insert name of Requestor]
The Requestor
Signature
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INT GROUP B
STANDARD FORM LETTER OF INDEMNITY TO BE GIVEN IN RETURN FOR
DELIVERING CARGO AT A PORT OTHER THAN THAT STATED IN THE BILL OF
LADING
To :
[insert name of Owners]
[insert date]
The Owners of the [insert name of ship]
[insert address]
Dear Sirs
Ship:
[insert name of ship]
Voyage:
[insert load and discharge ports as stated in the bill of lading]
Cargo:
[insert description of cargo]
Bill of lading:
[insert identification number, date and place of issue]
The above cargo was shipped on the above ship by [insert name of shipper] and consigned to [insert
name of consignee or party to whose order the bill of lading is made out, as appropriate] for delivery at
the port of [insert name of discharge port stated in the bill of lading] but we, [insert name of party
requesting substituted delivery], hereby request you to order the ship to proceed to and deliver the said
cargo at [insert name of substitute port or place of delivery] [X [name of the specific party] or to such
party as you believe to be or to represent X or to be acting on behalf of X] against production of at least
one original bill of lading.
In consideration of your complying with our above request, we hereby agree as follows :1. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability,
loss, damage or expense of whatsoever nature which you may sustain by reason of the ship
proceeding and giving delivery of the cargo against production of at least one original bill of lading in
accordance with our request.
2. In the event of any proceedings being commenced against you or any of your servants or agents in
connection with the ship proceeding and giving delivery of the cargo as aforesaid, to provide you or
them on demand with sufficient funds to defend the same.
3. If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in
the same or associated ownership, management or control, should be arrested or detained or
should the arrest or detention thereof be threatened, or should there be any interference in the use
or trading of the vessel (whether by virtue of a caveat being entered on the ships registry or
otherwise howsoever), to provide on demand such bail or other security as may be required to
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prevent such arrest or detention or to secure the release of such ship or property or to remove such
interference and to indemnify you in respect of any liability, loss, damage or expense caused by such
arrest or detention or threatened arrest or detention or such interference, whether or not such
arrest or detention or threatened arrest or detention or such interference may be justified.
4. The liability of each and every person under this indemnity shall be joint and several and shall not be
conditional upon your proceeding first against any person, whether or not such person is party to or
liable under this indemnity.
5. This indemnity shall be governed by and construed in accordance with English law and each and
every person liable under this indemnity shall at your request submit to the jurisdiction of the High
Court of Justice of England.
Yours faithfully
For and on behalf of
[insert name of Requestor]
The Requestor
Signature
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Hague-Visby Rules
Article I
Definitions
In these Rules the following expressions have the meanings hereby assigned to them
respectively, that is to say,
(a) "carrier" includes the owner or the charterer who enters into a contract of carriage with a
shipper;
(b) "contract of carriage" applies only to contracts of carriage covered by a bill of lading or
any similar document of title, in so far as such document relates to the carriage of goods
by water, including any bill of lading or any similar document as aforesaid issued under
or pursuant to a charter-party from the moment at which such bill of lading or similar
document of title regulates the relations between a carrier and a holder of the same;
(c) "goods" includes goods, wares, merchandise and articles of every kind whatsoever,
except live animals and cargo which by the contract of carriage is stated as being carried
on deck and is so carried;
(d) "ship" means any vessel used for the carriage of goods by water;
(e) "carriage of goods" covers the period from the time when the goods are loaded on to the
time they are discharged from the ship.
Article II
Risks
Subject to the provisions of Article VI, under every contract of carriage of goods by
water the carrier, in relation to the loading, handling, stowage, carriage, custody, care and
discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the
rights and immunities hereinafter set forth.
Article III
Responsibilities and Liabilities
1. The carrier shall be bound, before and at the beginning of the voyage, to exercise due
diligence to
(a) make the ship seaworthy;
(b) properly man, equip and supply the ship;
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(c) make the holds, refrigeration and cool chambers, and all other parts of the ship in which
goods are carried, fit and safe for their reception, carriage and preservation.
2. Subject to the provisions of Article IV, the carrier shall properly and carefully load,
handle, stow, keep, care for and discharge the goods carried.
3. After receiving the goods into his charge, the carrier, or the master or agent of the carrier,
shall, on demand of the shipper, issue to the shipper a bill of lading showing among other
things
(a) the leading marks necessary for identification of the goods as the same are furnished in
writing by the shipper before the loading of such goods starts, provided such marks are
stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or
coverings in which such goods are contained, in such a manner as should ordinarily
remain legible until the end of the voyage;
(b) either the number of packages or pieces, or the quantity, or weight, as the case may be, as
furnished in writing by the shipper;
(c) the apparent order and condition of the goods:
Provided that no carrier, master or agent of the carrier shall be bound to state or show in
the bill of lading any marks, number, quantity, or weight which he has reasonable ground for
suspecting not accurately to represent the goods actually received or which he has had no
reasonable means of checking.
4. Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the
goods as therein described in accordance with paragraphs 3(a), (b) and (c).
However, proof to the contrary shall not be admissible when the bill of lading
has been transferred to a third party acting in good faith.
5. The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of
shipment of the marks, number, quantity and weight, as furnished by him, and the shipper
shall indemnify the carrier against all loss, damages and expenses arising or resulting
from inaccuracies in such particulars. The right of the carrier to such indemnity shall in
no way limit his responsibility and liability under the contract of carriage to any person
other than the shipper.
6. Unless notice of loss or damage and the general nature of such loss or damage be given in
writing to the carrier or his agent at the port of discharge before or at the time of the
removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, or, if the loss or damage be not apparent, within three days, such
removal shall be prima facie evidence of the delivery by the carrier of the goods as
described in the bill of lading.
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The notice in writing need not be given if the state of the goods has at the
time of their receipt been the subject of joint survey or inspection.
Subject to paragraph 6bis the carrier and the ship shall in any event be
discharged from all liability whatsoever in respect of the goods, unless suit is brought
within one year of their delivery or of the date when they should have been delivered.
This period may, however, be extended if the parties so agree after the cause of action has
arisen.
In the case of any actual or apprehended loss or damage the carrier and the
receiver shall give all reasonable facilities to each other for inspecting and tallying the
goods.
6.bis An action for indemnity against a third person may be brought even after the expiration
of the year provided for in the preceding paragraph if brought within the time allowed by
the law of the Court seized of the case. However, the time allowed shall be not less than
three months, commencing from the day when the person bringing such action for
indemnity has settled the claim or has been served with process in the action against
himself.
7. After the goods are loaded the bill of lading to be issued by the carrier, master or agent of
the carrier, to the shipper shall, if the shipper so demands, be a "shipped" bill of lading,
provided that if the shipper shall have previously taken up any document of title to such
goods, he shall surrender the same as against the issue of the "shipped" bill of lading, but
at the option of the carrier such document of title may be noted at the port of shipment by
the carrier, master or agent with the name or names of the ship or ships upon which the
goods have been shipped and the date or dates of shipment, and when so noted the same
shall for the purpose of this Article be deemed to constitute a "shipped" bill of lading.
8. Any clause, covenant or agreement in a contract of carriage relieving the carrier or the
ship from liability for loss or damage to or in connection with goods arising from
negligence, fault or failure in the duties and obligations provided in this Article or
lessening such liability otherwise than as provided in these Rules, shall be null and void
and of no effect.
A benefit of insurance or similar clause shall be deemed to be a clause relieving the
carrier from liability.
Article IV
Rights and Immunities
1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from
unseaworthiness unless caused by want of due diligence on the part of the carrier to make
the ship seaworthy, and to secure that the ship is properly manned, equipped and
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supplied, and to make the holds, refrigerating and cool chambers and all other parts of the
ship in which goods are carried fit and safe for their reception, carriage and preservation
in accordance with the provisions of paragraph 1 of Article III.
Whenever loss or damage has resulted from unseaworthiness, the burden of
proving the exercise of due diligence shall be on the carrier or other person claiming
exemption under this article.
2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting
from
(a) act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship;
(b) fire, unless caused by the actual fault or privity of the carrier;
(d) perils, dangers and accidents of the sea or other navigable waters;
(e) act of God;
(f) act of war;
(g) act of public enemies;
(h) arrest or restraint of princes, rulers or people, or seizure under legal process;
(i) quarantine restrictions;
(j) act or omission of the shipper or owner of the goods, his agents or representative;
(k) strikes or lock-outs or stoppage or restraint of labour from whatever cause whether partial
or general;
(l) riots and civil commotions;
(m) saving or attempting to save life or property at sea;
(n) wastage in bulk or weight or any other loss or damage arising from inherent defect,
quality or vice of the goods;
(o) insufficiency of packing;
(p) insufficiency of inadequacy of marks;
(q) latent defects not discoverable by due diligence;
(r) any other cause arising without the actual fault and privity of the carrier, or without the
fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on
the person claiming the benefit of this exception to show that neither the actual fault or
privity of the carrier nor the fault or neglect of the agents or servants of the carrier
contributed to the loss or damage.
3. The shipper shall not be responsible for loss or damage sustained by the carrier or the
ship arising or resulting from any cause without the act, fault or neglect of the shipper, his
agent or his servants.
4. Any deviation in saving or attempting to save life or property at sea or any reasonable
deviation shall not be deemed to be an infringement or breach of these Rules or of the
contract of carriage, and the carrier shall not be liable for any loss or damage resulting
there from.
5. (a) Unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any
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event be or become liable for any loss or damage to or in connection with the goods in an
amount exceeding 666.67 units of account per package or unit or 2 units of account per
kilogramme of gross weight of the goods lost or damaged, whichever is the higher.
(b) The total amount recoverable shall be calculated by reference to the value of such goods
at the place and time at which the goods are discharged from the ship in accordance with
the contract or should have been so discharged.
(c) Where a container, pallet or similar article of transport is used to consolidate goods, the
number of packages or units enumerated in the bill of lading as packed in such article of
transport shall be deemed the number of packages or units for the purpose of this
paragraph as far as these packages or units are concerned. Except as aforesaid such article
of transport shall be considered the package or unit.
(d) The unit of account mentioned in this Article is the Special Drawing Right as defined by
the International Monetary Fund. The amounts mentioned in sub-paragraph (a) of this
paragraph shall be converted into national currency on the basis of the value of that
currency on the date to be determined by the law of the Court seized of the case. The
value of the national currency, in terms of the Special Drawing Right, of a State which is
a member of the International Monetary Fund, shall be calculated in accordance with the
method of valuation applied by the International Monetary Fund in effect at the date in
question for its operations and transactions. The value of the national currency, in terms
of the Special Drawing Right, of a State which is not a member of the International
Monetary Fund, shall be calculated in a manner determined by the State.
Nevertheless, a State which is not a member of the International Monetary Fund
and whose law does not permit the application of the provisions of the preceding
sentences may, at the time of ratification of the Protocol of 1979 or accession thereto or
at any time thereafter, declare that the limits of liability provided for in this Convention to
be applied in its territory shall be fixed as follows:
(i)
in respect of the amount 666.67 units of account mentioned in sub-paragraph (a) of

paragraph 5 of this article, 10,000 monetary units;
(ii)
in the respect of the amount of 2 units of account mentioned in sub-paragraph (a) of

paragraph 5 of this Article, 30 monetary units.
The monetary unit referred to in the preceding sentence corresponds to 65.5
milligrammes of gold of millesimal fineness 900. The convention of the amounts
specified in that sentence into the national currency shall be made according to the
law of the State concerned. The calculation and the conversion mentioned in the
preceding sentences shall be made in such a manner as to express in the national
currency of that State as far as possible the same real value for the amounts in subparagraph (a) of paragraph 5 of this Article as is expressed there in units of account.
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States shall communicate to the depositary the manner of calculation or the

result of the conversion as the case may be, when depositing an instrument of
ratification of the protocol of 1979 or of accession thereto and whenever there is a
change in either.
(e) Neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability
provided for in this paragraph if it is proved that the damage resulted from an act or
omission of the carrier done with intent to cause damage, or recklessly and with
knowledge that damage would probably result.
(f) The declaration mentioned in sub-paragraph (a) of this paragraph, if embodied in the bill
of lading, shall be prima facie evidence, but shall not be binding or conclusive on the
carrier.
(g) By agreement between the carrier, master or agent of the carrier and the shipper other
maximum amounts than those mentioned in sub-paragraph (a) of this paragraph may be
fixed, provided that no maximum amount so fixed shall be less than the appropriate
maximum mentioned in that sub-paragraph.
(h) Neither the carrier not the ship shall be responsible in any event for loss or damage to, or
in connection with, goods if the nature or value thereof has been knowingly mis-stated by
the shipper in the bill of lading.
6. Goods of an inflammable, explosive or dangerous nature to the shipment whereof the
carrier, master or agent of the carrier has not consented, with knowledge of their nature
and character, may at any time before discharge be landed at any place or destroyed or
rendered innocuous by the carrier without compensation, and the shipper of such goods
shall be liable for all damages and expenses directly or indirectly arising of or resulting
from such shipment.
If any such goods shipped with such knowledge and consent shall become a
danger to the ship or cargo, they may in like manner be landed at any place or destroyed
or rendered innocuous by the carrier without liability on the part of the carrier except to
general average, if any.
Article IVbis
Application of Defences and Limits of Liability
1. The defences and limits of liability provided for in these Rules shall apply in any action
against the carrier in respect of loss or damage to goods covered by a contract of carriage
whether the action be founded in contract or in tort.
2. If such an action is brought against a servant of the carrier (such servant or agent not
being an independent contractor), such servant or agent shall be entitled avail himself of
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the defences and limits of liability which the carrier is entitled to invoke under these
Rules.
3. The aggregate of the amounts recoverable from the carrier, and such servants and agents,
shall in no case exceed the limit provided for in these Rules.
4. Nevertheless, a servant or agent of the carrier shall not be entitled to avail himself of the
provisions of this Article, if it is proved that the damage resulted from an act or omission
of the servant or agent done with intent to cause damage or recklessly and with
knowledge that damage would probably result.
Article V
Surrender of Rights and Immunities and Increase of Responsibilities and Liabilities
A carrier shall be at liberty to surrender in whole or in part all or any of his rights and
immunities or to increase any of his responsibilities and liabilities under the Rules contained in
any of these Articles, provided such surrender or increase shall be embodied in the bill of lading
issued to the shipper.
The provisions of these Rules shall not be applicable to charter-parties, but if bills of
lading are issued in the case of a ship under a charter-party they shall comply with the terms of
these Rules. Nothing in these Rules shall be held to prevent the insertion in a bill of lading of any
lawful provision regarding general average.
Article VI
Special Conditions
Notwithstanding the provisions of the preceding Articles, a carrier, master or agent of
the carrier and a shipper shall in regard to any particular goods be at liberty to enter into any
agreement in any terms as to the responsibility and liability of the carrier for such goods, and as
to the rights and immunities of the carrier in respect of such goods, or his obligation as to
seaworthiness, so far as this stipulation is not contrary to public policy, or the care or diligence of
his servants or agents in regard to the loading, handling, stowage, carriage, custody, care and
discharge of the goods carried by water, provided that the terms agreed shall be embodied in a
receipt which shall be a non-negotiable document and shall be marked as such.
Any agreement so entered into shall have full legal effect.
Provided that this Article shall not apply to ordinary commercial shipments made in
the ordinary course of trade, but only to other shipments where the character or condition of the
property to be carried or the circumstances, terms and conditions under which the carriage is to
be performed are such as reasonably to justify a special agreement.
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Article VII
Limitations on the Application of the Rules
Nothing herein contained shall prevent a carrier or a shipper from entering into any
agreement, stipulation, condition, reservation or exemption as to the responsibility and liability
of the carrier or the ship for the loss or damage to, or in connection with the custody and care and
handling of goods prior to the loading on and subsequent to the discharge from the ship on which
the goods are carried by water.
Article VIII
Limitation of Liability
The provisions of these Rules shall not affect the rights and obligations of the carrier under
any statute for the time being in force relating to the limitation of the liability of owners of
vessels.
Article IX
Liability for Nuclear Damage
These Rules shall not affect the provisions of any international Convention or national law
governing liability for nuclear damage.
Article X
Application
The provisions of these Rules shall apply to every bill of lading relating to the carriage of
goods between ports in two different States if:
(a) the bill of lading is issued in a Contracting State, or
(b) the carriage is from a port in a Contracting State, or
(c) the contract contained in or evidenced by the bill of lading provides that these Rules or
legislation of any State giving effect to them are to govern the contract,
Whatever may be the nationality of the ship, the carrier, the shipper, the
consignee, or any other interested person.
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CHARTERING OF SHIPS
Same like the bill of lading, charters are also employments for a vessel. In the
case of the Torrenia, Justice Hobhouse said that, a bill of lading is a contract of carriage of
goods and a charterparty is a contract for the carriage of goods. i.e., bill of lading itself is a
contract of carriage of goods, but, a charterparty is intended to give rise to bailments (but not
necessarily) between the parties to the charterparty. That contract could be for the whole vessel
or a part of the vessel.
This is an agreement between the ship owner and the charterer under specific
terms and conditions for the use of a ship or her cargo space. There are express terms as well as
implied terms. The breach of certain terms by one party may lead to cease the charter agreement
by the other party. Therefore, the master must have a proper understanding of the charterparty as
well as implied terms, if they are not expressed.
There are various types of charters in use and they have specific advantages
and disadvantages in relation to each other. The ship owners always try to find ways to maximize
his income by using these chartering strategies. If his vessel is time chartered (the shipowner will
be getting a fixed hire during that time) and during that period of time, the market rates rises, it
will be beneficial for the charterer, but, not for the shipowner. In such a period of time a prudent
shipowner may prefer one or more voyage charters rather than a time charter. On the other hand,
during a time charter, if the market rate for that particular vessel drops down, it will be beneficial
for the shipowner to remain in the time charter, but, not to the charterer, because the charter is
already fixed for a fixed amount of rate for a specific duration of time. Now we will consider
about those charterparties one by one.
Demise or bareboat charters

Demise charters are generally long time contracts such as 10 years or above. In this case,
the ship owner provides the bare ship to the charter. These are created not so much with a view
to the carriage of goods but more as part of a complicated financing arrangement, often with the
intention that the charter should become the owner of the ship in due course. Thus, a contract for
the purchase of a ship by installments will often incorporate a demise charter into the contract. A
variant of this would be for a financing bank to lend the funds required to buy the ship, the bank
then acquiring the ownership of the ship but demise chartering it to the borrower for the period
of the loan. This would enable the bank to avoid not only the operating costs but also the
liabilities which it would otherwise have to bear in relation to the operation of the ship under
mortgage. Demise charters are also concluded between two associated companies for tax
employment reasons.
There are occasions where the ship owners bareboat charter their ships just because
they are not interested in managing the vessels. In such cases, occasionally, the ship owner may
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reserve the rights to nominate senior officers, if he is not satisfied with the senior officers
provided by the charterers and also sometimes he will be responsible for the hull insurance and
initial delivery survey.
Under a demise charter, all the operating costs of the vessel such as port charges, crew
expenses, bunkering costs, maintenance costs, insurance costs etc., are borne by the charterer.
When considering between the ship owner and the charterer, the bareboat charterer is the carrier.
Since the crew are employees of the charterer and not of the ship owner, the acts, neglect or
omissions of the crew are imputed to the charterer and not to the owner (e.g. pollution, collision).
Voyage charters
A voyage charter-party is a contract to carry a specified, normally full, cargo between
named ports at an agreed freight rate.
The ship owner promises to provide a named vessel at a nominated port, to carry a
specified cargo and to deliver at a nominated port by the charterer. The charterer pays for the
service on the basis of the quantity of cargo carried and delivered. If the charterer fails to load
the agreed amount, then, the charterer is supposed to pay the dead freight for the balance
unloaded cargo. The freight rates may vary depending upon the length of the voyage and the type
of the cargo.
The risk of delay is on the ship owner. The delays in cargo operations are offset to
some extent by using suitable laytime and demurrage clauses in the charter party.
The ship owner is responsible for the appointment of crew, crew costs, costs involve
with bunkers, maintenance, port charges, insurance etc. depending upon the charter party,
sometimes the charterer pays the stevedoring costs and sometimes by the shipowner.
Bills of lading are normally issued under a voyage charter-party and signed by the master
or on his behalf. Such bills of lading may incorporate the terms of the charter-party which, in any
case, takes precedence over the bills of lading as between shipowner and charterer. Generally, in
case of voyage charter parties the bills of lading are issued by the ship owner. In that case, when
bills of lading have been transferred to a third party they constitute the contract between the
shipowner and that party.
Time charterparties
The charterer hires the vessel for a specific time period, but, not for long as a demise
charter. This may be short (for few months) or may be long (for few years) which depends upon
the charterers requirements. The charterers have more powers over the vessel than in a voyage
charter. In exchange for the hire payment the charterer retains the right to decide which cargoes
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are carried may use the vessel for any voyage he wants within the trading area agreed in the
charter-party.
.
The charterer is responsible for the fuel costs, port dues, pilotage charges and all
other expenses involved with carrying his cargoes. At the same time, the crew overtime in
connection with the cargo is usually for the account of the charterer, and separate time sheets
should be kept in that respect. The ship owner is responsible for crew costs, maintenance
costs, insurance costs etc. The shipowner must keep the vessel in thoroughly efficient state,
fully documented and ready to do the charterers bidding. The charterer must pay the fixed hire
whether he use the vessel or not at specified time interval on the charterparty (e.g. weekly,
monthly etc.)
Usually, the time charter-party contains a description of the ship, including its speed and
fuel consumption. If there is any inability to maintain the warranted speed or consumption as a
result of heavy weather or other cause should be substantiated by entries in the log-book.
The master, while managing the ship for commercial ventures is still responsible for the
safe operation of the ship to the owner to see that the charterer does not use the vessel in a way
that may damage or endanger the vessel.
In case of time charter parties, the master is usually required to sign bills of lading as
presented to him by the charterer or the charter-party may give the charterer the right to sign
them on his behalf.
Both demise and time charters contain detailed on-hire/off-hire clauses which are
important to a master. Therefore, he must collect all necessary information for commercial
settlement and the resolution of disputes.
In time chartering, delivery means handing over the vessel to charterers for the purpose of
chartering. Re-delivery means taking over the vessel by owners after the completion of the time
charter. It is a custom to carry out a survey at the time of delivering the vessel to check the
condition of the vessel and also to check the amount of consumables onboard such as bunkers,
lashing material and other materials for which charterers are liable. There will be another survey
at the time of re-delivery to ensure that the vessel is re-delivered in the same condition as it was
delivered except for the wear and tear. If the amount of consumables is lesser than the amount of
consumables at the time of delivery, then the charterers are liable for the losses. At the same
time, if any damage is made to the vessel or to machinery by stevedores, damage reports shall be
made and shall inform the owners and the charterers, so that such losses can be claimed from the
charterer.
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Hybrid Charterparties
These are basically a mixture of certain aspects of time and voyage charters. These are
built up according to ship owners and charterers specific requirements. There are various types
of hybrid charters, such as;
a) Consecutive voyage charters (e.g. five consecutive voyages between port A and port B)
b) Trip charters (e.g. the charterer is supposed to pay hire for the time taken by the ship to
complete a specific voyage, such as round Atlantic voyage)
c) Slot charters or space sharing agreements (e.g. agreements which enable liner
operators to utilise empty space on their ships by allowing other operators to use some of
the space carrying capacity in their vessels in exchange for the right to use an equivalent
amount of space on the ships of such other operators. This is common in the container
trade)
Conditions, warranties and intermediate terms

In cases of disputes, in all circumstances, the innocent party can claim for damages or
losses for the breach, but, that does not mean the innocent party can terminate the contract for
that breach. The innocent party can terminate the contract in certain situations only. For that it is
important to understand the meaning of above terms.
Condition is a very important term that any breach of it will entitle the innocent party to
terminate the contract. Examples of conditions are;
Unjustifiable deviation during voyage

A statement that the vessel is expected ready to load by a certain date
A statement that the ship is fully classed
A statement that no dangerous or unlawful goods will be shipped.
A statement relating to the ships flag during war time.
Intermediate or innominate terms are usually related to the vessels description. In this
case whether to terminate the charter or not depends upon the seriousness of the effect of the
breach. The following situations are not considered powerful enough to terminate a contract.
A term as to the speed and fuel consumption

A term as to capacity
A terms as to seaworthiness
A term as to the type of cargo to be loaded
A term as to the flag (other than in war time)
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Warranties are less important terms in which case the innocent party can claim for
damages but, can not terminate the charter.
In judging whether it is a condition or not, the courts have to verify the intention of
the agreement between the parties. If the parties have expressly used any terms such as
condition or guarantee, due weight will be given to it.
Ship owners duties in a charterparty

a) To provide a seaworthy ship
Most of the charterparties contain a clause to provide a seaworthy vessel. If it is not
expressed, it is considered as an implied term by the law. If it is expressed with a specific date
(to provide a seaworthy vessel at the date of the charter or the date of the delivery into the
charterer or throughout the charterer) the ship should be seaworthy by that specified date. If the
seaworthiness is not expressed by a date and if it is implied, the ship owner should make the
vessel cargoworthy before the commencement of the loading and it should be seaworthy prior to
the commencement of the voyage. If the voyages are to be carried out in stages, the shipowner
must ensure that the vessel is seaworthy at the commencement of each voyage.
b) To comply with charterers legitimate employment instructions
This is not that much applicable to voyage charters since the charterparty itself contain
the required orders and charterer does not have much rights to give further orders to the ship
owner.
In the case of a time charter, the charterer has more freedom to employ the vessel as
per the charterers wish. Therefore, the charterer has rights to give employment instructions to
the ship owner. The ship owner has an obligation to follow charterers employment orders.
The ship owner or the master has a duty to refuse to comply with employment orders
which are illegal or intended to commit a fraud. On the other hand, the master has a right to
refuse or intervene to protect his ship, cargo, crew and the environment (example if the bad
stowage by the charterer make the vessel unseaworthy).
c) To proceed with reasonable dispatch

This commences from the arrival voyage for loading. The master has an obligation to
bring his ship to the agreed loading port at the agreed date. If the vessel does not arrive at the
load port at the agreed time, the charterer may have the right to cancel the charter and/or to claim
damages for any loses caused due to the late arrival of the vessel.
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During the loaded passage, the master and the shipowner have a duty to prosecute the
voyage;
By the usual/customary/agreed route,

With reasonable despatch,
In the same vessel and
Under deck
If the vessel divert from the usual route to avoid danger to the ship, crew or cargo, it is
not considered as a deviation because it was not intentional, but, forced by circumstances. If the
master takes a non-customary route deliberately without any reasonable cause, it is considered as
a deviation.
d) To properly and carefully load, handle, stow, carry, keep, care for, discharge and
deliver the cargo
Usually it is the duty of the master to perform all these functions with due care. He
may be exempted from this liability in the case of a damage caused by Act of God, Queens
enemies and inherent vice of the cargo.
Certain charterparty clauses may transfer these liabilities partially or fully to the
charterer. The following clause only transfers the cost of the relevant operations to the charterer,
but, the shipowner is liable for the risk.
......Charterers are to load, stow and trim the cargo at their expense under the supervision of the
Captain....
Whereas the following clause transfers the cost of the above functions as well as the risk
of liability to the charterer.
......the Charterers shall perform all cargo handling........at their risk and expense
Therefore, depending upon the wording of the clauses in the charterparty, the risk and/or
cost will be transferred to the shipowner or the charterer. The master must be aware of these
clauses.
Charterers duties under a charterparty
a) To provide cargo and pay the remuneration due to the owner
The charterer has a duty to provide the cargo to the chartered vessel. He will be
exempted from this duty only in cases of frustration or agreed exception clauses.
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Frustration means without the fault of either party, a contractual obligation has
become incapable of being performed because the circumstances in which performance is called
for would render it a thing radically different from that what was undertaken by the contract.
This could occur when agreed to carry very special cargo which cannot be replaced by any other
cargo, is not available due to some reason. A crop failure may not amount to frustration because
the charterer can find some other type of cargo instead of the original cargo. Frustration may also
occur due to supervening illegality. Supervening illegality means impossibility of performing
the contract due to change of law (e.g. owners charter the vessel to carry palm oil to Durban.
Later on, Durban prohibits importing palm oil).
Some charterparties may provide clauses exempting their liability to provide cargo
under certain circumstances such as strikes, stoppages of loading places etc. In such cases, the
charterer is exempted from his liability to provide cargo, but, this depends upon how the clause is
construed.
From a ship owners point of view it is important to have a proper and continuous cash
flow for the upkeep of his vessel. Therefore, the charterer must ensure that the freight or the hire
is paid at the agreed times and also by agreed medium (e.g. cheques, cash etc). Depending
upon the contractual clauses, the ship owner may retain the right to terminate the contract, if the
freight or the hire is not paid by the agreed time periods.
b) Amount of cargo to provide

In the voyage charterparties, freight is calculated on the quantity of cargo carried and
delivered; the carrier therefore must ensure that the charterer is under an obligation to provide
sufficient cargo to fill the ship. The charterer also has an interest in the quantity of cargo in that
he does not want to be left with a quantity of cargo on the quay which the ship can not take, nor
does he wish to have to pay dead freight because the ship is not full. These requirements are
catered for by the charterer promising to provide not less than a stated minimum and no more
than a given maximum quantity (min-max quantity). The carrier then has the option of
nominating the quantity of cargo required within the given range. Once the quantity has been
nominated, the charterer must provide this, and the ship must lift it. Therefore, masters are
advised when they exercise this option always to qualify the amount required with the words
approximate or about, thus giving some practical leeway in the figures.
If the charterer provides less than the agreed quantity, he is liable to compensate the carrier
in the form of dead freight. So as to ensure recovery of dead freight, the master, having checked
that the bill of lading incorporates the charterparty, either endorses the bill with the words
deadfreight outstanding, or alternatively, delay issuing the bill until the carrier is satisfied
with his claim against the charterer.
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c) Type of cargo to provide

The carrier is obliged only to carry the cargo contracted for; any attempt by the
charterer to ship a different type of cargo is a breach and can be resisted by the carrier.
Bearing in mind that they are not expected to be experts on every type of cargo, masters should
ensure however that the cargo being shipped is within the contractual provisions. They should
stop loading any cargo that is not so and consult the carrier (shpowners) who may be in the
fortunate position to vary the conditions. But, as mentioned before, if the cargo cannot be
provided due to unavoidable circumstances, such as a crop failure, the charterer is supposed to
provide some other suitable cargo for that type of a vessel.
d) When the cargo to be provided

In the absence of express agreement, the charterer doe not promise to provide and start
loading the cargo, at the moment the ship has arrived and is ready to receive it. The promise is
only that the cargo will be provided and delivered to the ships side at such a time and rate that
the ship can be loaded within a reasonable time; in the majority of circumstances, what it
considered to be reasonable could easily be seen to be the agreed laytime and demurrage time. If
loading is not completed at the end of demurrage, then there is clearly a breach of contract and
the charterer will be liable for damages.
This breach is not considered to be fundamental as long as the charterer does intend to load
the ship, and even if demurrage has expired, he must still be given a reasonable time to do so;
with regard to what is reasonable, remember that the carrier has promised to provide the ship and
load the cargo, and that to take it away either empty or partly loaded would be a fundamental
breach if it can be shown that the charterer did intend to load the cargo. In the event, what
amounts to reasonable time can only be decided in the light of the particular circumstances of
each case.
If the charterer, by word or conduct, has shown that he does not intend to load, or is
unable to do so, there is then a fundamental breach and the carrier may at his option accept the
repudiation of the contract, either sailing the ship to work elsewhere if this is available, or to wait
and claim damages.
If on arrival at the loading port the charterer or his agent show no interest in the
ship, or have no information about the loading, the master should serve Notice of
Readiness if possible, enlisting his owners help if necessary. He should seek information as
to the likely cause of the delay or to the whereabouts of the charterer from the agents, Port
Authorities, Customs and so on. In the absence of information about the charterers
intentions, the master should wait for laytime and demurrage to expire, and when this has
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happened, he should protest breach of contract; all the time, the master should keep in
close consultation with his owners, particularly when deciding the reasonable time.
e) To perform their duties without delay

This is also same as the ship owners duties but in the context of charterer.
f) To give legitimate employment instructions

This is also same as the ship owners duties but from the charterers point of view.
g) No dangerous goods are shipped without prior notice to the master

Certain statutes such as IMDG Code define dangerous goods for the purpose of
that statute, but, there is no definition at common law. A cargo can be considered as dangerous if
it possess a physical threat to any person or to object other than itself (to human life or to the
vessel or to other cargo on the vessel).
The charterer has an obligation to inform the master when he is shipping dangerous
goods. For the cargoes which are included in statutes, providing the code number or the name of
the cargo is sufficient, but, if a cargo is known to be potentially hazardous but has a special
characteristic which makes it more than normally hazardous, the shipper or charterer has a duty
to notify the carrier of this additional hazard.
Carriage of dangerous goods without informing carrier makes the shipper strictly
liable. i.e. it is not necessary to establish negligence on the part of the shipper. If no notice is
given, the shipper or the charterer is liable even if he has no knowledge of the dangerous
nature of the goods or even if he had no means of ascertaining its dangerous nature.
Article IV rule 6 of Hague and Hague/Visby rules states Goods of an
inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or
agent of the carrier has not consented, with knowledge of their nature and character, may at
any time before discharge be landed at any place or destroyed or rendered innocuous by the
carrier without compensation, and the shipper of such goods shall be liable for all damages
and expenses directly or indirectly arising out of or resulting from such shipment.
If any such goods shipped with such knowledge and consent shall become a danger to the ship
or cargo, they may in like manner be landed at any place or destroyed or rendered innocuous
by the carrier without liability on the part of the carrier except to general average, if any.
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When the carrier did not know the dangerous nature of the cargo he can take
above actions even before it becomes dangerous to the vessel, other cargo or to the crew.
In the case of the cargo was shipped with the knowledge of the carrier about its
dangerous nature, then the master can take above actions only when it becomes
dangerous to the vessel, other cargo or to the crew.
h) To nominate safe ports
In the case of Easter City ([1958] 2 Lloyds Rep 127), the judge defined the safe port
as .....a port will not be safe unless, in the relevant period of time, the particular ship can reach
it, use it and return from it without, in the absence of some abnormal occurrences, being exposed
to danger which can not be avoided by good navigation and seamanship.
A port can be unsafe for physical or political or legal reasons or because of deficient
systems or infrastructures. Unless the charter provides that the port is to be safe at all times the
port will not be unsafe if the danger is temporary and avoidable if the vessel waits for a period of
time which is not long enough to frustrate the contract. At the same time the question of safety is
one of fact depending on the particular ship and the particular situation.
This could be an expressed term as well as an implied term under law. In some cases
the charterer may promise safe berths as well. If the charterer has expressly warranted a berth
(without stating safe berth) in a safe port, that implies that the berth also is safe as the port. If
the charterer has expressly promised a safe berth in a port (without stating safe port), that
means he has promised the safety of the berth and its approaches but not the safety of the port as
a whole or of the approaches to the port. If the charterer promise a berth in a port (without stating
either safe port or safe berth), that means he has not promised a safe berth.
If the charter is subject to an express or implied term as to the safety and the charterer
orders the vessel to an unsafe port, then he is in breach of contract even though he may not in
fact be aware of the dangerous nature of the port. The liability of the charterer is strict.
Where the charterers have promised the safety of the port but it is actually unsafe
when the ship arrives the master clearly has the rights to refuse to enter the port and also if
the charterers have not promised the safety of the port the master still has the right to
refuse to enter the port if it is nevertheless unsafe when the ship arrives.
If the master considers that the nominated port is unsafe, he should inform the charterer
specifying the reasons for such a decision and also he should ask to nominate an alternative port.
The carrier can claim for compensation for the breach of contract, if the charterer nominates an
alternative port. If the charterer refuses to nominate an alternative port and maintains that the
original place is safe, then the carrier will have to decide whether this is a fundamental breach
which would entitle him to choose his own place, or whether to take the risk in using the port,
hoping to recover from the charterer, should the ship sustain damage.
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Where it is expressly agreed in the contract that the ship will use a named port, the risk of
this port being safe lies with the ship operator or carrier. If it is not used, the carrier will be in
breach. If it is used and damage results, then the costs will be with the carrier. With this type of
arrangements the carrier usually protects himself by qualifying his promise to use the port with
expression as near thereto as she can safely get and lie always afloat. Masters should take
care when issuing bills of lading which require delivery at a specific port that the above
qualification is incorporated into the bill of lading.
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Deviation
In every contract for the carriage of goods by sea, unless expressly varied or excluded,
there is an implied promise by the carrier that the ship will follow the contracted route without
unjustifiably deviating from that route, and will make the voyage with due despatch (this
promise is strictly followed against the carrier). In principle, the term deviation only includes a
geographical deviation. In assessing whether or not there has been a deviation, the magnitude of
the deviation is irrelevant. A deviation occurs whenever a ship leaves the contract route, or
delays in the prosecution of the voyage for any purpose not connected with the performance of
that voyage or contract. Diverting the vessel for the following reasons are considered as
deviations (if it cannot be justified);
Landing or transferring stowaways,

Landing specialist engineers and
Taking bunkers in excess of that required for the particular voyage
However, the safe navigation of the vessel and acts necessary to preserve the vessel are
within the authority of the master and do not amount to deviations in this sense, even if they
were viewed as deviations they would be justified in law as an integral part of the carriers
promise to care for and deliver the cargo. The route itself is hardly ever specified in the contract
of carriage; in the event of dispute, it is left to arbitrators and courts to determine what was in the
minds of the contracting parties when they agree the terminal ports. In doing this, due regard will
be given to the custom of the trade and any other factor which was reasonable to assume was in
their minds.
Consequences of unjustifiable deviations

Irrespective of the size of the deviation and also whether it create a damage or not, an
unjustifiable deviation is a fundamental breach of contract by the carrier. In such cases, the
charterer has the option of repudiating the contract. If the cargo is lost or damaged, the charterer
may repudiate the contract and the carriers will loss all the rights that he had under the contract
of carriage. The only excuses the carrier has are;
Act of God,
Queens enemies, and
Inherent vice.
The carrier will be able to defend himself, if he can prove that the damage would
have occurred whether or not he had deviated.
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Justifiable deviations
Deviations for the purposes of saving human life or where it is required for the safety of the
vessel itself (to avoid bad weather, seeking a port of refuge) are justifiable. Under Hague or
Hague/Visby rules, deviations to save life and to save property are justifiable provided that these
deviations are reasonable. i.e. the deviations should not be excessive and only required to take
the property to a place of safety.
Most carriers would like to have more freedom than above. Therefore, they include clauses
into the agreement with the shipowners. There are two categories of clauses;
1) Those used in chartering

During voyage charters, the carrier would like to have freedom to deviate for various
purposes. This is achieved by including a deviation clause in the contract, which will give the
right to call at any port (near to the customary route) for any purpose in performing the voyage.
2) Liner operations
Usually, the carrier will be performing many different contracts in one voyage unlike
in voyage charters. Therefore, in performing one contract he would be breaking all the others.
The liner operators need the maximum possible freedom to deviate and this is achieved by
expressly excluding any implied promise and then by defining the route in terms so wide as to
amount to the ability to change the route as his wish. The Liberty Clause gives the liner
operators the freedom to follow the route he chooses without it being considered a deviation.
But, under any circumstances, the carriers do not have rights to change the port of
destination.
Examples of deviation clauses
GENCON bill of lading deviation clause
The vessel has liberty to call at any port or ports in any order, for any purpose, to sail
without pilots, to tow and/or assist vessels in all situations, and also to deviate for the purpose of
saving life and/or property.
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GENTIME charterparty deviation clause
In the event of the Vessel deviating (which expression includes putting back, or putting
into any port or place other than that to which she is bound under the instructions of the
Charterers) for reasons other than to save life or property the Vessel shall be off-hire from the
commencement of such deviation until the time when the Vessel is again ready to resume her
service from a position not less favourable to the Charterers than that at which the deviation
commenced, provided always that due allowance shall be given for any distance made good
towards the Vessel's destination and any bunkers saved. However, should the Vessel alter course
to avoid bad weather or be driven into port or anchorage by stress of weather, the Vessel shall
remain on hire and all costs thereby incurred shall be for the Charterers' account.
BIMCO charterparty liberty and deviation clause
(a) The Vessel shall have liberty to sail with or without pilots, to tow or go to the assistance
of vessels in distress, to deviate for the purposes of saving life or property, and for any
other reasonable purpose, which term shall include but not be limited to calling at any
port or place for bunkers; taking on board spares, stores or supplies; repairs to the
vessel necessary for the safe continuation of the voyage; crew changes; landing of
stowaways; medical emergencies and ballast water exchange.
(b) If the Charterer requests any deviation for the Charterers purposes and the Owners
consent, such consent to be at the absolute discretion of the Owners, the Charterer shall
indemnify the Owners against any and all claims whatsoever brought by the owners of
the cargo and/or the holders of Bills of Lading against the Owners by reason of such
deviation.
(c) Prior to giving any such consent the Owners may, at their option, require to be satisfied
amongst other things that the Charterer has sufficient and appropriate P&I Club cover
and/or if necessary, other additional insurance cover, in respect of such a requested
deviation,
(d) This Clause shall be incorporated into any sub-charter and any bill of lading issued
pursuant hereto.
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Important clauses in charterparties

a) The cancelling clause
In most charter parties the charterer expressly reserve the absolute right to cancel the
charter should the vessel not have arrived at the agreed date ready to perform the contract.
Modern clauses give the ship owner the right to require the charterer to exercise his option to
cancel within certain time restraints (about 48 hrs) should he be informed that the vessel will not
arrive on time. It follows therefore, that masters must keep their operators fully informed of the
ships prospects for meeting arrival dates, and although the reason for not making the date does
not affect the charterers right to cancel, it could affect the operators liability for damage and
therefore, must be properly recorded.
For commercial reasons the charterers frequently require notice of the ships arrival in
the form of a sequence of ETA. Where this is expressly agreed, it must be strictly complied with,
otherwise the carrier will be in breach and liable for the damages caused.
When a charterer is arranging for a ship to carry his cargo, he will have a date in mind
before which the cargo will not be ready for shipment. Equally, once it is ready, he will not want
to incur excessive storage charges waiting for the ship to arrive. Therefore, the charterer will
specify in the contract a date before which he will not want the ship (and will not pay for if it
does arrive early) and a later date (the cancelling date, as above) by which the ship must arrive to
start the work of the contract. The period of time between these two dates is known as the
lay days, sometimes abbreviated to laycan. The expression laydays should not be
confused with laytime although some books and other works do use the terms interchangeably.
Example :On charterparties this is provided as Dec 20/28 or 20/28 Dec. This means lay days
commence on 20th of December and the cancelling date is 28th of December. Therefore, the
carrier should present the vessel for loading on or after 20th of December and on or before 28th of
December. In some charterparties the lay day commencement date and the cancelling date is
provided separately.
b) Lay time and demurrage clauses

In voyage charters, the freight is calculated considering the amount of cargo to carry,
distance between ports, port dues, time required for loading and discharging etc. At sea, the risk
of delay is with the carrier and at ports the risk of delay mostly with the charterer. The carrier is
prepared to accept the risk of delay only where he has complete control (when at sea). However,
the operation of loading and discharging the ship is the dual function of the carrier and charterer.
The carrier will not be prepared to accept risk of delay in the charterer providing the cargo and
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delivering it alongside over which, of course, the carrier has no control. He offsets this risk by
stipulating in the contract, a period of time in which the charterer has to fulfil his function or
otherwise be in breach. The clause defining this period is known as the lay time clause. The
charterer has to complete the loading and discharging during the lay time period.
However, because delays are commonplace, it is usual in modern charters to agree in
advance the measure of damages for delay. These agreed payments are known as demurrage and
despatch. They usually take the form of a fixed sum for each days delay and pro rata.
To ensure that ships are not kept indefinitely on demurrage, it is usual to limit the given
period (eg, five days on demurrage at 10,000 dollars per day). Thus, the charterer has the
option, providing he pays the agreed rate of demurrage, of delaying the ship beyond laytime
without being in breach of contract. However, if the ship is delayed beyond the agreed
demurrages period, then there will be a breach of contract and damages for detention can be
claimed.
c) Despatch
In the absence of express agreement, where a ship sails from port before the expiry of
laytime, the charterer has no right to any compensation payment. It is however common for
charterers to contract for some form of payment, should they succeed in loading or discharging
the ship in a shorter period than the allocated laytime. Such payment is known as dispatch.
Because there is no guarantee that the ship owner will be able profitably to use this time saved, it
is customary for the rate of dispatch to be half the rate of demurrage.
The agreement may call for dispatch to be paid on laytime saved (where the calculation is
based on laytime allowed, minus laytime used); alternatively, it may require dispatch to be paid
on the basis of all time saved (the calculation is based on the time to use up all the laytime,
including Sundays, holidays and other excepted periods, minus the actual times used). The latter
is clearly going to result in a much greater payment.
d) The cesser clause (this occurs in voyage charters only)

In some commercial situations, having loaded the cargo on board, the shipper may have
no further interest in the cargo or the voyage. In these circumstance, the shipper wishes to be
executed liability for the performance of obligations which arise after loading; to achieve this, he
contracts with the carrier for cessation of liability. Because of this, the carrier contracts for
additional liens on the cargo in order to enforce performance of the contract against the receiver.
Wherever such an arrangement exists, it is vitally important that bills of lading do not go into
circulation which do not incorporate the terms of the charter, or which do not draw attention to
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such things as outstanding dead freight. Without these precautions, the carrier could be left with
no claim against the shipper and no claim against the receiver except for freight. The following is
an example of such a clause;
The charterers liability shall cease as soon as the cargo is shipped, and freight, dead freight,
and demurrage in loading, if any, are paid, the owner having a lien on cargo for freight,
demurrage and average.
e) War risk clause

This clause provides the agreements between the carrier and the charterer in relation
to vessel being sent to war risk areas. The master must have a good idea of the war risk clauses
entered in the charterparty. To get a better idea of the war risk clauses, refer the following war
risk clauses [VOYWAR 2004 (BIMCO war risks clauses)].
If the owner and/or master realizes that the vessel is likely to expose to risks of war,
they may give notice to charterers to nominate any other safe port which lie within the range of
loading/discharging ports and may cancel the contract of carriage if the charterers do not
nominate such a safe port within 48hrs of receipt of the request by the owners.
The owner is not required to continue to load cargo or sign bills of lading or to
continue on any voyage if the vessel is likely to be exposed to war risks. In such cases, owners
can request the charterers to nominate a safe port and if within 48 hrs of the receipt of the
request if the charterers do not nominate a safe port, the owners can discharge the cargo at any
safe port of their choice.
The additional premiums made by the owner for the war risks insurance can be
recovered from the charterer.
f) Ice clause
This clause provides the actions to be taken by a master in the case of the loading
port or discharging port being blocked by ice. Before any action is taken by the master same like
the war risk clause, it must be informed to the charterer. According to BIMCO ice clauses, the
charterers have three options;
I.
II.
III.
Nominate an alternative safe port

Keep the vessel till the port is re-open (laytime will continue to run as in a normal
port).
Cancel the charter.
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g) Clause paramount
There are three laws existing related to the carriage of goods by sea, namely
Hague rules, Hague-Visby rules, Hamburg and Rotterdam rules. Parties to the contract of
carriage must agree which laws are applicable to their contract. This is governed by the clause
paramount. Up to today Hague or Hague-Visby rules are applicable to most of the bills of lading
contracts.
h) Deviation clause
This state precisely for what purposes the vessel may deviate. The master must
also have a good understanding of this clause as well. It may allow a vessel to call at any port or
ports on the way for fuel, supplies or any other reasonable purpose, to tow and to be towed, assist
vessels in distress, to sail with or without pilots etc. The carrier is not at breach of the contract if
any deviations which are mentioned under the clause are done.
i) Bunker clause
Time charterparties usually in-cooperate this clause. It states that the charterer shall
accept and pay for all fuel oil in the vessels bunkers at port of delivery and also, the owners to
pay for all fuel oil in the vessels bunkers at port of redelivery at current price at the respective
ports. It is usual to agree for a minimum and maximum quantity of bunkers on redelivery of
the vessel.
j) Always afloat
This is in-cooperated to charterparties to prevent vessels being sent to berths where
she cannot load cargo without touching the bottom or which cannot be reached at all tidal levels.
k) Off hire clause

This clause provides the agreed situations and circumstances during which a vessel
will be off hired. The hire payments will be stopped by the charterer during the period of off hire.
NYPE 46 time charterparty provides following situations as off hire periods;
Time lost due to,
Deficiency of men or stores

Fire
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Breakdown or damages to hull, machinery or equipment

Grounding
Detention by accidents to ship or cargo
Dry docking for the purpose of examining or painting bottom
Or any other cause preventing the full working of the vessel
Delivery of cargo
In the absence of express agreement, a receiver under a voyage charter does not
promise to nominate a berth or to start taking delivery immediately the ship arrives at a discharge
port. However, he does promise that delivery will be completed within a reasonable time
(laytime). Any failure to do so will make him liable in damages. A failure to take delivery within
a reasonable time is a fundamental breach of the charter which releases the carrier from his
obligation to deliver as per the charter. The carrier will now be free to choose his own berth,
delivering the cargo into the custody of his agent, and through him to exercise a possessory lien
on the cargo for the recovery of freight and other charges.
A master faced with the problem of the receiver not taking delivery should;
a) Make enquiries ashore at Customs, Port Authorities, agents, etc. regarding the name and
whereabouts of the receiver, and try to establish whether there is any intention to take
delivery of the cargo, keeping the operator (owner) advised at all times.
b) Endeavour to serve Notice of Readiness
c) Unless it is clear that the receiver either has no intention of taking delivery, or is unable
to do so, then the ship must await so as to give him a reasonable opportunity to take
delivery.
d) At the end of laytime note protest.
Start of lay time

Laytime will not start to count until the following three conditions are satisfied.
a) The ship must have arrived at the place stipulated in the contract. for this purpose,
charterparties come in two types:1) The berth or dock charter which names a specific berth in the port at which the
vessel must be berthed in order to be an arrived ship. These contracts are not very
common because the costs of port delay will fall entirely on the carrier.
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2) The port charter. This type of contract specifies the port only and problems can arise
in deciding when a ship has arrived in port; the problem can be answered by applying
the following broad principle:The ship must be within the limits of the port and she must be lying at a place
where she is as effectively at the disposal of the charterer.
This will be presumed to be so, if she is at a place where ships with (or for)
that particular cargo usually lie; if she is lying anywhere else, it is up to the carrier to
prove that the ship is effectively at the disposal of the charterer.
If in doubt as to whether his ship has arrived, the master should always
serve Notice of Readiness and keep serving Notices of Readiness with each
change of position on the principle that one of them will be accepted. In the
interests of the owner, it is vital that the master should tender Notice of
Readiness as early as possible.
b) The ship must be ready in all respects to perform what has been promised in the
contract; this means that the ships cargo spaces must be empty, clean and ready to
receive the cargo contracted for. If the cargo is specifically named in the contract, the
ship must be precisely ready to receive that cargo. However, if the charterer has cargo
options which require different stages of preparation, then a general state of readiness is
all that is required. The ships cargo gear must be in efficient working order if the charter
has expressly contracted for its use, or if it is the only means of loading the cargo. If the
cargo can not be loaded without fumigation, or if there is an express agreement to do so,
the ship is not ready until this is done.
c) Notice of Readiness (NOR) must be served in accordance with the terms of the charter.
The usual requirement is for the Notice of Readiness to be in writing and to be served in
office hours. Usually, telex, fax and e mails are accepted. It is not essential for it to be
signed by the master, and it may be served by an agent on masters behalf.
Rejection of Notice of readiness

If the Notice of Readiness is rejected, the master should;
a) Have the charterer acknowledge receipt of the Notice.
b) Protest that the ship is ready and that the Notice is ready. Write to the charterer to this
effect. If suitable protest before a Notary Public.
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c) Obtain from the charterer his precise reasons for rejection of the Notice. Preferably in
writing.
d) Try to satisfy the charterers requirements whilst at the same time maintaining the protest
that your ship is ready; protest to the charterer the liability for any additional expenditure
incurred.
e) Serve another Notice, ensuring that it is endorsed so as not to prejudice the validity of the
first Notice.
INCOTERMS
INCOTERMS are published by International Chamber of Commerce (ICC). The
present version is INCOTERMS 2010 which is valid from 1st of January 2011. This provides a
set of three letter standard terms used in international sale contracts along with their definitions.
When such terms are used in a sale contract, the buyer and the seller knows exactly what is
meant by such terms and no confusions will arise. Most importantly, both know exactly when the
risk is transferred and who is at risk if a loss or damage occur. There are INCOTERMS for all
the modes of transportation. The following terms are used commonly in maritime sale contracts.
a) FAS (Free Alongside Ship)
This means the seller has to deliver the goods at the named port. The freight and
insurance will be paid by the buyer. But, the seller must clear the goods for export. Once
the cargo is delivered alongside the vessel, risk passes to the buyer.
b) FOB (Free On Board)
The seller has to clear the goods for export and deliver the goods on board. The
risk passes to the buyer when the cargo passes the ships rail. Freight and insurance will
be paid by the buyer.
c) CFR (Cost and FReight)
The seller must clear the goods for export and deliver the goods on board. The
risk passes to the buyer when the cargo passes ships rail. The seller is responsible for
paying freight for the carriage of goods to the port of destination. Buyer has to pay for the
insurance.
d) CIF (Cost Insurance Freight)
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The seller must clear the goods for export and deliver the goods on board.
The risk passes to the buyer when the cargo passes ships rail. The seller is to pay freight
and insurance for the carriage of cargo up to the port of destination.
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Laytime Calculations
Definitions
Lay time
This is the time agreed between the ship owner and the charterer to keep the vessel ready
and available for cargo work. No additional payments to be paid to ship owner or charterer for
this period other than the freight.
Weather Working Day (WWD) or Weather working day of 24 hours or Weather working
day of 24 consecutive hours
This means a working day or part of a working day which will not be considered for the
calculation of laytime due to the effects of bad weather. Even if the cargo work was in
progress it will not be used for the calculation of laytime.
Weather Permitting (WP)

Means that time during which weather prevents working shall not count as laytime.
When the condition weather permitting is applied the periods are excluded from the lay time
during which cargo work have not actually been made owing to unfavorable weather.
Excepted or excluded
This means that the specified days or periods do not count as laytime even if loading or
discharging was carried out during such periods.
Unless Used (UU)

This means that if work is carried out during the excepted days, the actual hours of work
count only as laytime.
Per hatch per day

This means that the layime is to be calculated by multiplying the agreed daily rate per
hatch of loading/discharging the cargo by the number of hatches onboard and dividing the
quantity of cargo by the resulting sum.
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Laytime
Quantity of cargo
. (days)
Daily rate x number of hatches
If one hatch can be worked by two gangs at the same time, it will be counted as two hatches.
Per working hatch per day of per workable hatch per day
Means that laytime is to be calculated by diving the quantity of cargo in the hold with
the largest quantity by the result of multiplying the agreed daily rate per working or workable
hatch by the number of hatches serving that hold.
Laytme
largest quantity in one hold

. (days)
Daily rate per hatch x number of hatches
A hatch that is capable of being worked by two gangs simultaneously shall be counted as two
hatches.
Day
Means a continuous period of 24 hours which, unless the context otherwise requires, runs
from midnight to midnight.
Running days or consecutive days

This means days which follow one immediately after the other. Such term is the most
beneficial for shipowners because it permits to include Sundays and holidays into the lay time.
All time saved
Means the time saved to the ship from the completion of loading/discharging to the expiry
of the laytime, including periods excepted from the laytime.
Reversible laytime
This is an option given to the charterers to add together the time allowed for loading and
discharging. Where the option is exercised the effect is the same as a total time being specified to
cover both operations.
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Lay time calculation questions - Business & Law for the Shipmaster by F.N. Hopkins (7th
Edition)
1) A C/P provides for 8,575 tonnes of cargo to be loaded at 1,250 tonnes per weather
working day (S. & H.E). lay time is to commence 24 hrs after written notice has been
given by the master to the charterers agents during office hours on any day (S. & H.E.)
that the vessel is ready to receive cargo, whether in berth or not. Time is not to count
between 1 p.m. Saturday and 7 a.m. Monday, or between 1 p.m. on the last working day
preceding a holiday and 7 a.m. on the first working day after such holiday. Demurrage, if
incurred, is to be paid at 2,500 per day and pro rata, and despatch money at 1,250 per
day and pro rata for all time saved.
Wed the 4th Nov. 1330 hrs

Wed the 4th Nov. 1500 hrs
Tue the 10th Nov. 0900 1130 hrs
Fri the 13th Nov.
Wed the 18th Nov. 1400 1600 hrs
Thu the 19th Nov. 1110 hrs
- NOR tendered
- Loading commenced
- Bad weather
- Public holiday
- Bad weather
- Completed loading & bills signed
2) Suppose, the above question is modified as follows:

i)
ii)
iii)
iv)
Loading rate 1,000 tonnes per working day of 24 consecutive hours (S. & H.E.)
13th November is not a holiday.
Laytime to begin 24 hrs after notice of readiness is given or when loading begins,
which ever is earlier.
Loading completed, etc., at noon on 13th November.
3) A vessel of 3,348 NT is chartered for a full cargo to be loaded and discharged in 14

running days, bunkering time excepted. Laytime to commence when the vessel is in the
berth and ready to load and discharge respectively. Demurrage, if incurred, is to be paid
at 30p per net tonne per day and pro rata, and despatch money at half the demurrage rate
for all time saved.
Thu 27th Aug. 1030 hrs

1200 hrs
1345 hrs
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- vessel arrived at loading port

- at berth & ready to load
- loading commenced

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Mon 31st Aug.

Wed 2nd Sept. 0600 hrs
0830 hrs
1530 hrs
1945 hrs
rd
Thu 3 Sept. 1630 hrs
1800 hrs
th
Sun. 20 Sept. 1115 hrs
Mon. 21st Sept.0500 hrs
0800 hrs
th
Fri. 25 Sept. 1345 hrs
1445 hrs
- Public holiday (no work)

- left loading berth for bunkering
- commenced bunkering
- completed bunkering
- made fast in loading berth & resumed load
- completed loading & bills signed
- sailed from loading port
- arrived at discharging port
- berthed & ready to discharge
- commenced discharging
- completed discharging
- sailed from discharging port
Draw up a statement of the lay days and calculate the amount of demurrage or despatch money
payable. Total laytime (loading and discharging) 14 days.
4) A C/P provides for a vessel to load a full cargo of not less than 11,400 tonnes and not
exceeding 12,600 tonnes at the rate of 1,500 tonnes per day. Sundays and holidays
excepted. Laytime to commence 24 hrs after notice of readiness is handed in, and
charterers stevedores are to be employed at 1.75 per tonne deadweight. Demurrage, if
incurred, is to be paid at 1,600 per day and pro rata, and 6 running days are to be
allowed for demurrage. Dead freight, if any, is to be paid at 16.25 per tonne and the
vessel is to have a lien on the cargo for freight, dead freight and demurrage.
Notice was accepted at 1030 hrs on Tuesday, 5th May, and the charterers
agent agreed with the masters declaration that the vessels deadweight capacity was
12,250 tonnes. Monday, 11th May, was an official holiday. Loading commenced on
Thursday, 7th May, and cargo was received on board as follows:
7th May
8th May
9th May
11th May
12th May
13th May
14th May
15th May
16th May
18th May
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- 1200 tonnes
- 1145 tonnes
- 475 tonnes
- 1050 tonnes
- 1500 tonnes
- 1100 tonnes
- 960 tonnes
- 980 tonnes
- 850 tonnes
- 1075 tonnes
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19th May
20th May
- 875 tonnes
- 750 tonnes
Thereafter no more cargo was forthcoming. Calculate the amounts due to the vessel by
the way of demurrage and dead freight, and state when the vessel is free to sail with the
incomplete cargo.
Past exam questions

5) A vessel arrives on Monday 9th June at Florida ready to load wheat, a survey by
Government Surveyors has passed the vessel in compliance with the rules. The charter
party requires that 10250 tones of wheat are to be loaded at 1000 tones per weather
working day (Sundays and holidays expected).
Notice of Readiness to receive cargo was handed over in writing, to the charters Agent
at 1030 hours on Monday 9th June by the Master. Lay-days are to commence 24 hours
after Notice of Readiness is served. Lay time does not count between 1300 hours on
Saturday and 0700 hours on Monday. Lay time does not count between 1300 hours on
the last day before a public holiday and 0700 hours on the first weather working day
after that holiday.
Loading was commenced at 1230 hours on Wednesday 11th June.
Rain and wind prevented loading on Friday 13th June.
Monday 16th June was a public holiday.
Rain and wind prevented loading on Tuesday 17th June and from 0300 hours to 1800
hours on 18th June.
Loading was completed at 1130 hours on Wednesday 2nd July, and bills of lading were
signed at that time.
Calculate demurrage or despatch money if Charterer pays demurrage at $7000 per day
and receives despatch money at $3500 per day pro-rata.
6) A vessel is to load 9000t of ore at the rate of 1500 tons per day and discharging at the rate
of 1000 tons per day. The vessel arrives at her loading port on Thursday 25th April,
Notice of readiness accepted at 0900 hrs that day. Lay time is to commence 24 hrs after
Notice of Readiness is received. Sunday and holidays excepted.
The vessel commences loading at 1300 hrs 25th April and completes at 1400 hrs on
Wednesday 1st May.
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The vessel arrives at the discharging port on Tuesday 14th May at 1430 hrs when it was
reported to the customs house. Charter-party states time at discharging port to
commence at 08.00 a.m. on the first working day after the ship has been reported at the
customs house
The vessel commences discharging at 1800 hrs 14th May and completes discharging at
noon on 27th May.
Demurrage is to be paid at US$ 400 per day and pro rata for part of a day and dispatch
at US$ 200 per day and pro rata for part of a day.
Calculate the amount of money due to the ship-owner or charterer it the general rule
applies, i.e. each port calculated separately.
7) A charter party specifies a vessel to load 12,000 t of cargo at 750 t per weather working
day excepting Saturdays after 1300, Sundays and public holidays. Lay days to commence
24 hours after Notice of Readiness is accepted during office hours,
Notice of Readiness is tendered at 1000 on Wednesday 3rd April and is accepted at
0900 Thursday 4th April. Friday 12th April and Monday 15th April are public holidays, rain
stops work for 4 hours on Wednesday 10th April.
If dispatch is paid at $325 per day and pro rata and demurrage at $650 per day and
pro rata find the amount payable and state to whom it is payable if cargo was completed at
1400 Friday 19th April.
Question 1
The cargo to be loaded at a rate of 1500 tonnes per weather working day, Sundays and holidays
excepted. Time shall not count between 1 p.m. on Saturday and 7 a.m. on Monday, nor between
1 p.m. on the last working day preceding a legal holiday and 7 a.m. on the first working day
thereafter. Time for loading shall commence to count 24 hours after written notice has been
given by the master or agents on any day (Sundays and holidays excepted) between 9 a.m. and 5
p.m. to the charterers or their agents that the vessel is ready to receive cargo, whether in berth or
not.
Demurrage $840.00 per day and pro-rated for part of a day.

Dispatch money $420.00 per day and pro-rated, for all time saved in loading.
Arrived in port
Ready to load
NOR tendered and accepted
Berthed
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March 5th Tuesday 1600

March 5th 1640
March 5th 1640
March 7th 2300
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Loading commenced
March 7th 2330
Time commenced to count March 6th 1640
Completed loading
March 19th 0930
Completed trimming
March 19th 1150
Loaded according to B/L 8636 tonnes
Rate of loading: 1500 tonnes per weather working day S & H.E.
(Answer: Time on demurrage = 05days 06hrs 59mins, Demurrage = $ 4445)
Question 2
The above question has the following changes.
The charter party states that time commences to count 48 hours after the NOR is tendered
and accepted.
In the port of loading, the dates March 7, 11,and 14 are official holidays.
Arrived in port
March 5th Tuesday 1600
Ready to load
March 5th 1640
Berthed
March 7th 1100
Loading commenced
March 7th 1130
NOR tendered and accepted March 8th 0900
Completed loading
March 9th 0930
Completed trimming
March 9th 1150
Loaded according to B/L 8636 tonnes
Rate of loading: 1500 tonnes per weather working day S & H.E
(Answer : Time on dispatch = 08days 13hr 21mins)
Question 3
Recalculate the question 2, if the charter party states all working time saved instead of all
time saved.
(Answer time on despatch 05days 18hours 11minutes)
Question 4
Laytime to commence at 1300 if notice of readiness given before noon, at 0700 hrs next working
day if given after noon: notice to be given in ordinary office hours. Laytime shall not commence
to count before holds are passed as clean by shippers inspector. Cargo to be loaded at the rate of
5000 metric tons per weather working day of 24 consecutive hours. Time from 1700 hrs Friday
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or the day preceding a holiday to 0800 hrs Monday or next working day not to count unless used
(but only actual time used to count) or unless vessel already on demurrage. Demurrage 4000 US$
per day and pro rata/despatch at half demurrage rate on laytime saved.
Statement of facts
Arrived
0600 hrs Thursday 9 Feb
NOR given
Holds passed by inspector
Loading commenced
0700 hrs Friday 10 Feb
Ship worked from 0700 to noon
Saturday 11 Feb
(Note - ship not worked during any other excepted period)
Rain stopped all work in port
0700 hrs to 1130 hrs Tuesday 14 Feb
Loading completed
1515 hrs Wednesday 15 Feb
Sailed
Cargo loaded 22, 000 mt
Repairs to vessels main auxiliary engine delayed sailing after completion of loading.
Normal port working hours are 0700 1700 Tuesday to Friday
Normal port working hours are 0800 1700 Monday and days after a holiday
(Answer : Total time used = 03d 10h 45m, Time on despatch = 22h 51m, Despatch = 1904.2 $)
Question 5
A vessel is to load at a rate of 2000 t per weather working day and to discharge at a rate of 1500 t
per weather working day. Saturdays, Sundays and holidays excepted in both cases unless work
actually occurs, in which case such time is to count as half for the purpose of computing lay
time. Lay time for both loading & discharging is to commence at 0800 hrs on the 1st working day
after the NOR is accepted. Time worked before the commencement of laytime is not to count for
the purpose of computing laytime. Demurrage to be paid at the rate of 4000 US$ per day & pro
rata. Despatch rate 2000 US$ per day & pro rata.
Statement of facts
NOR accepted (at the port of loading)
Loading commenced
Vessel actually worked
Rain occurred
Loading completed
Revised : 05/07/10, 25/10/13
1530 hrs on 12th Thursday Jan

2300 hrs on 12th Thursday Jan
0800 1600 hrs on 15th Sunday Jan
0000 1600 hrs on 21st Saturday Jan
0330 0930 hrs on 16th Monday Jan
1600 hrs on 21st Saturday Jan

Page 65
6000 t of cargo was loaded

NOR accepted (at the port of discharge)
Discharging commenced
Rain occurred
Public holiday
Discharging completed
1645 hrs on 2nd Friday March

0800 hrs on 3rd Saturday March
0900 1200 hrs on 4th Sunday March
6th Tuesday March
2000 hrs on 5th Monday March
Find the demurrage / despatch payable

a) When loading & discharging is done separately
b) When laytime is reversible
Question 6
Discharge rate 5,000 mt per weather working day of 24 consecutive hours. Sundays & holidays
excepted, unless used, when half time actually used in excepted period to count as laytime. NOR
to be tendered in office hours Monday/Friday 0900/1700 hrs. Time to count from first working
period on first working day following acceptance of notice of readiness to discharge. Time not to
count between midnight Friday (or day preceding a holiday) until commencement of first
working period Monday (or day following a holiday) Despatch on working time saved. 25,000 t
of cargo is discharged.
Statement of facts
0900 hrs 14th Thursday June
1300 hrs 14th Thursday June
0300/1300 and 1500/2230 hrs on 19th Tuesday June
1000 hrs on 22nd Friday June
NOR tendered & accepted

Commenced discharging
Rain
Completed discharging
The working periods for the port are as below;

0800/1200
1300/1700
Monday to Friday
1800/2200
Cargo work was carried out as below
Date
Hours worked
From
14 Thursday
June
15 Friday June
1300
1800
Revised : 05/07/10, 25/10/13
Hours stopped
To
1700
2200
From
1700
2200
0001

To
1800
2400
0800
Page 66
0800
1300
1800
1200
1700
2200
0800
1200
0800
1300
1800
1200
1700
2200
1300
1500
0800
1300
1800
1200
1700
2200
0800
1300
1800
1200
1700
2200
0800
1000
16 Saturday June
17 Sunday June
18 Monday June
19 Tuesday June
20 Wednesday
June
21 Thursday
June
22 Friday June
1300
1700
2200
0001
1200
0001
0001
1200
1700
2200
0001
1500
0001
1200
1700
2200
0001
1200
1700
2200
0001
1300
1800
2400
0800
2400
2400
0800
1300
1800
2400
1300
2400
0800
1300
1800
2400
0800
1300
1800
2400
0800
Calculate the time on despatch/demurrage.

(Answer : Time on despatch = 01d 00h 30m / as per my calculation time on despatch = 21h 30m)
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Liens
A lien means a right enjoyed by one party over some property which belongs to a
second party in respect of a debt or other legal obligation due from that second party. The above
mentioned property which is in dispute is known as collateral. Liens are common and very
powerful weapons in the pursuit of commercial claims. Examples of liens;
1) After rescuing a vessel the salvor has a lien on the rescued vessel.
2) If a buyer decides to buy a land by mortgaging it and if lien is granted over the land, the
mortgagee has a lien on the land.
There are various types of liens under various jurisdictions. The most common liens are;
1. Common law liens these are essentially possessory in nature and allows for the
retention of property as security for unpaid debt. They are, however, less powerful than
maritime liens, as they require physical possession of the res (object). This is allowed by
law and not by contract. Also known as legal liens as well.
2. Equitable liens these are implied by law and are not dependent upon possession, i.e.
the possession of the property is not required to activate a lien. In the case of mortgaging
a land, the mortgagee does not have the possession of the land, but, he has a lien on the
land. They are, however, less powerful than maritime liens, as they may be extinguished
by sale of the property in question to a bona fide purchaser without notice of the lien.
3. Statutory liens these liens are allowed by statutes. That means certain statutes may
allow a person to keep a property which belongs to a second party against any
obligations owe by the second party to the first party.
4. Maritime liens this means a security over a vessel or other maritime property due to
any debt or service rendered to the vessel or any damage done by the vessel. This is the
most powerful lien among liens and discussed below.
Maritime liens
Admiralty law has developed the concept of the maritime lien, which is a lien unique
to ships and shipping. This lien is in fact very much different from other liens, which exists on
land.
There is no statutory definition of a maritime lien, but it has been generally defined in
common law. In essence, it may be considered as a charge that attaches, invisibly, to a ship or
other recognised maritime property, against which a claim may be brought. In this respect, a
maritime lien is enforced through an action in rem against whoever holds the res at that
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particular time, and is not defeated by a transfer of ownership. The concept of maritime lien
may defer from jurisdiction to jurisdiction.
The maritime lien was defined in the case of The Bold Buccleugh as a claim or
privilege upon a thing to be carried into effect by legal process . . . the Admiralty Law enforces it
by a proceeding in rem, and indeed is the only court competent to enforce it (Sir John Jervis).
Furthermore, it travels with the thing into whoevers possession it may come. It is
inchoate from the moment the claim or privilege attaches and, when carries into effect by legal
process by a proceeding in rem, relates back to the period when it first attached: ibid
In the case of Two Ellens, Justice Mellish says that a maritime lien adheres to the
ship from the time that the facts happened which gave the maritime lien, and then continues
binding on the ship until discharged.
In its modern application, a maritime lien is recognised in five distinct instances;

a)
b)
c)
d)
e)
Damage done by a ship

Salvage
Seamans wages
Bottomry and respondenture
Disbursements
The first four of the above list is allowed by common law. Categorization of maritime
liens are now closed at common law. It is now feasible through statutes only. The disbursements
are allowed by the Merchant Shipping Act 1995 and Supreme Court Act 1981. Therefore,
disbursement is a statutory lien.
Damage done by a ship

This includes collision damages between ships, between ships and other objects, damages
caused due to the movement of ships (without touching each other), damages done by ships
crew to other ships etc.
Bottomry bond
A long time ago, the master could not contact the owner that fast as we do today.
Therefore, the master could not take cash from shipowner when he needs cash urgently to
operate the vessel. This is a promissory note, given by a master (sometimes by a shipowner as
well) to a money lender who finances the voyage, using the ship as collateral. The shipowner is
supposed to pay the loan plus an interest if the voyage is successful. The shipowner will be
discharged from his obligations if the vessel is lost during the intended voyage. This was not
used during last few hundred years, but, it is not officially obsolete as well.
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Respondentia bond
Same as the bottomry bond, this is also an old concept. This is a loan taken by keeping the
goods loaded on to a vessel as a security. Remember, the lender does not has the possession of
the cargo. If the goods were lost in the course of the voyage, by any of the perils enumerated in
the contract, the lender shall lose his money; if not, the borrower shall pay him the sum
borrowed, with the interest agreed upon. Same as the bottomry bond, this is also not used within
last few hundred years, but, officially it is not obsolete.
Disbursements
In the case of Orienta, this is defined as, necessary things for the ship, for the purposes
of navigation, which he, as master of the ship, is there to carry out necessary in the sense that
they must be had immediately and when the owner is not there, able to give the order ... the
master is therefore obliged, necessarily, to render himself liable in order to carry out his duty as
master. In simple terms disbursements mean the cash a master need in operating a vessel which
includes money to buy provisions, stores, bunkers, money to pay final wages when signing off
crew, cash advance required by the crew etc.
Discharge of liens
The case of Two Ellens confirms that there are only three ways of discharging a maritime lien;
Satisfaction (by paying the claim)

Doctrine of laches (lapse of time, neglect to assert a claim, neglect of what is supposed to
do etc.)
By law or any other way (sale of ship by the court, when the vessel is lost etc.)
Possessory liens
Possessory lien exists in common law as well as in admiralty law. This depends upon the
physical possession of the res by the claimant. Possessory lien is lost when possession is
surrendered. This is successful against claims in respect of;
construction, repair or equipment of a ship or dock charges or dues,
lien on cargo for freight,
cargo owners contribution on general average.
Order of priority of settlement of maritime claims
There are various parties involved in arresting a vessel which has a lien attached and also
there may be few numbers of claimants as well. Without going into deep, if we consider the
topics discussed so far, the priorities will be as follows;
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Admiralty Marshalls costs and expenses

Arresting partys costs and expenses
Maritime liens
Possessory liens
Mortgages
Statutory action in rem
Actions in personam
After paying all the claimants including above mentioned ones, if there are any remaining
balances left, it will be given to the shipowner. When considering maritime liens alone, there is
no any well established priority payment system, but, generally the priority is as follows;
Salvage claims
Wages claims
Damage claims
Bottomry and respodentia
Disbursement claim
Action in Rem and action in Personam

Action in rem means claiming against a property and action in personam means claiming
against a person. The fore mentioned maritime lien is the foundation of action in rem. Both of
these methods have advantages and disadvantages.
After bringing a claim in personam and if the owner does not appear, nothing can be
done. If the claim brought in rem, if the vessel is operating in the coast of the jurisdiction where
the case is brought, it can be arrested and still the owner does not come forward the vessel can be
sold by the court to cover the claims involved. At the same time, maritime lien travels with the
res, even if the res is sold by the owner. Then the new owner will be liable for the claim. But, if
the value of the res is lesser than the claim, the new buyers are not responsible for more than the
value of the res.
In bringing a claim in rem, the claimant can bring it under maritime lien or statutory lien.
A statutory lien can be raised against the offending vessel as well as a sister ship beneficially
owned by the defendants. The sister ship arrest is allowed by the Supreme Court Act 1981.
At the same time the Supreme Courts Act 1981 provides a list of occasions where an action
in personam or action in rem can be proceeded with.
If the claimant is expecting to proceed in action in personam, the claimant must ensure
the following conditions are fulfilled according to the Supreme Courts Act 1981;
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a) The defendant has his habitual residence or a place of business within England or Wales;
or
b) The cause of action arose within inland waters of England or Wales or within the limits
of a port of England or Wales; or
c) An action arising out of the same incident or series of incidents is proceeding in the court
or has been heard and determined in the court.
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Salvage
One primary problem is that the world itself is much misunderstood about the concept of
salvage. In everyday language it means saving almost anything in any way, where as in maritime
law it has very specific and narrow meaning. Lawyers apply an even narrower meaning to it than
do seafarers.
Salvage can be divided in to two categories. That is contractual salvage and noncontractual salvage. The first distinction to grasp is that when used on its own the word means a
service undertaken without agreement or contractual underpinning between the parties. Strictly
speaking therefore, salvage carried out under contract should not be referred to as salvage but as
services in the nature of salvage.
The following to be taken in to account when deciding whether to take salvage or not;
Safety of personal and the vessel

Weather and the sea condition
Amount of damage to the vessel
Possibility of further damage
Type of cargo carrying
Distance to the shore, shallow waters, navigational dangers
Available man power on board
Threat to the environmental pollution
Availability of shelters and safe emergency anchorages
Proximity to port of refuge and other assistance
Non-contractual salvage
Salvage is defined as a voluntary service which successfully saves, or assists in saving,
maritime property in danger at sea. Any person claiming to be a salvor must establish all the
following points before a Maritime Court in order to establish the right to an award;
1) The salvor must be a volunteer (i.e. there must be no pre-existing legal obligation, either
statutory or contractual, which requires the person offering the service to exert himself in
the business of saving that property). Thus, ships crew, tugs and pilots, who are all under
pre-existing obligations which include helping the ship if in danger, are therefore
precluded from claiming salvage unless at the time the contractual relationship has been
terminated by events, or if what they are required to do is clearly in excess of what they
had contracted to do. Parties performing a towage service under a towage contract also
cannot claim salvage, unless they do something beyond their contractual obligations.
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2) The service must be successful; it is a basic principle in Admiralty law that the fund for a
salvage award depends upon the property saved, and if no part of the property is saved
there is nothing against which a salvage claim can proceed. It does not matter how great
the risks taken or how expensive the operation, without success there is no claim. Being a
proceeding in rem, a salvage award is automatically limited by the value of the property
saved; it is therefore pointless hazarding an expensive vessel or wasting valuable time in
attempting to salvage property of little value (NO CURE NO PAY).
3) Only a maritime property can be the subject of a salvage claim. This expression has a
very narrow meaning in law and relates only to a ship, her equipment and cargo, or the
wreckage of these things: it does not include human life or the personal effects of
passengers or crew. Under the 1949 Aviation Act and the 1968 Hovercraft Act services
rendered saving these craft or their cargo on or over the sea, or tidal waters or the shore,
are considered as salvage services.
Section 313 of MSA 1995 defines ship as every description vessel used in
navigation. Salvage convention 1989 defines vessel as any ship or craft or any
structure capable of navigation and also it defines property as any property not
permanently and intentionally attached to the shoreline and includes freight at risk. It
also further states that this Convention shall not apply to fixed or floating platforms or to
mobile offshore drilling units when such platforms or units are on location engaged in the
exploration, exploitation or production of sea bed mineral resources.
The salvage of life cannot be the subject of a salvage claim but it has long been the
practice to increase a salvors award where both life and property are saved. Where life
only is saved, there is no right to the payment.
4) The property must be in danger at the time the service is rendered. For a valid salvage
claim, it is necessary to prove that the property was saved from a real danger; it need not
be serious and it need not be imminent, but it must be real. The degree of danger does not
affect the validity of a salvage claim, but it is important in assessing the amount of the
award.
5) The salvage service must be rendered at sea. The principles of salvage exist only in
Admiralty law and are restricted in their application to events which happen within the
jurisdiction of the old Admiralty Courts (i.e. on the high seas, and where the tide ebbs
and flows to the first bridge). However, the 1894 Merchant Shipping Act gives a
statutory right to claim salvage for services saving wreck found on or around the shores
of the UK, whether above or below the high water mark.
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The control of the salvage operation

The person in possession and control of the property (salvage master) has the right in law
to decide which of the persons offering should render the salvage service. He has the right to
dispense with the services of salvors and to have additional salvors, if necessary. Any salvor,
who, unjustifiably interferes with this right puts his own salvage award in jeopardy, and if this
interference results in greater damage, he could be sued for the loss. The right of the person in
possession to control the salvage service is qualified by three things:a) Unless he is the owner of that property his action must always be in the best interests of
saving the property.
b) Once engaged, a salvor has the right to a fair opportunity to earn his award. If his services
are dispensed with in favour of another, then he must be compensated as well as the new
salvor.
c) In the case of a loaded tanker which threatens serious pollution, the coastal state concern
has the power to intervene and override the wishes of the master, owner and salvor.
Derelict
The word derelict has a precise definition in law; it is a property which has been
abandoned by those in possession without the hope or intention of ever returning to it. The first
salvor to take possession of a derelict gains the right to control the salving of that property
providing that he has a reasonable prospect of being successful; the burden of proving derelict
rests with the person who claims derelict.
Principles for assessing a salvage award (Article 13 of Salvage Convention 1989)

a) The value of the vessel and the cargo in distress. A salvage award can never exceed the
value of the property saved and in the vast majority of cases it will only be a small
percentage of that value, typically between 5% and 12%.
b) The degree of the danger from which the property has to be saved.
c) The value of the property put at risk by the salvor.
d) Any contractual risks which the salvor may incur.
e) The skill and efforts of the salvors in preventing or minimizing damage to the
environment and to the vessel; the salvor who quickly removes property from danger
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with minimum damage will be more highly rewarded than one who makes several
attempts and who causes damage before eventual success (Salvors who negligently or
carelessly damage property (distressed vessel) may be liable in law to compensate
the owner).
f) The measure of success obtained by the salvor
g) The time used and expenses and losses incurred by the salvors. (i.e. bunkers, wages,
damages, to salvors ship and equipment) and any other sacrifice made in rendering the
service.
h) If life is saved as well as property, the award may be increased.
i) The saving of derelict property generally attracts a higher award on the grounds that the
salvors have not received any assistance from the owners of the salvaged property.
j) The state of readiness and efficiency of the salvors equipment.
k) The availability and use of vessels or other equipment intended for salvage operations.
Salvage under contract

If the vessel is in danger, the master will have to decide whether the service he wants is
towage or salvage. If there is danger, then his decision is likely to be salvage. Because of the
many disputes which arise in salvage cases, and because of the fact that increasing danger on the
one hand may make the outcome more lucrative for the salvor on the other hand, it is to the
advantage of both parties to use some form of salvage agreement. Additionally, due to the
circumstances outline above, salvage agreements have always been subject to the special
jurisdiction of the courts which have the power to re-open salvage agreements and to adjust the
awards.
Lloyds Open Form is recognized and accepted worldwide; it benefits all parties, as follows;
Advantages to the salvor:1) It puts beyond doubt the nature of the service rendered.
2) It prevents the owners of the property from contesting liability on the grounds that it was
not a maritime property or that there was no danger.
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3) It ensures that any disputes arising from the salvage service will go to arbitration rather
than litigation because arbitration is generally considered to be better in that it is quicker,
cheaper and in private.
4) Any award to be paid under the agreement is not decided at the time of the service but is
left to later negotiations or arbitration.
5) The agreement provides for the salvors to proceed against the owner of the property in
addition to proceeding against the property saved; thus, if after a successful service the
property is lost before the salvage claim proceedings are begun, a claim can still be made
against the owners.
6) The agreement avoids the need for the salvor to exercise his maritime lien against the
property because the owners promise to put up bail within 14 days of the property being
put in a place of safety. This in fact is usually regarded as a much better form of
security.
7) Also under the agreement salvors are reimbursed for out of pocket expenditure without
having to wait for the award to be settled.
Advantages to the owner:1) It puts beyond doubt the nature of the service (i.e. it prevents an unsuccessful salvor from
later claiming that the service was rendered on the basis of hire).
2) Disputes, and the size of any award, are resolved by arbitration.
3) The inconvenience and commercial loss associated with a property being arrested are
avoided.
4) It provided for agreement on where the property is to be taken by the salvors (i.e. the
place of safety) and as such, this is a clear measure of whether or not the service was
successful.
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Lloyds Open Form 2011 (LOF 2011)

This is a readymade agreement created by Lloyds Salvage Group and this is the salvage
agreement used worldwide. The former agreement was called as LOF 2000 and it is now
superseded by LOF 2011.
The agreement to render a salvage service on the basis of LOF need not be in writing to
be enforceable; all that is required is clear evidence that the offer to render the service was on the
basis of LOF, and that there was an unqualified acceptance of this offer. It is prudent in the cases
of verbal agreement to have a third party over hear what goes on (i.e. coast radio station or VHF
on another ship). As soon as possible, however, copies of the form should be signed by both
parties and exchanged. If either party should refuse to sign the form after striking a verbal
agreement, principles must be informed and protest made immediately.
It is important that at the time of the offer and acceptance of service there must be an
agreement on where the property is to be taken. This agreement may subsequently be varied as
changing circumstances dictate and any such variation should be logged with particular reference
as to whether it has been agreed between the parties or simply imposed by one upon the other. If
the place of safety has not been agreed or if there is dispute as to whether the service was
successful, arbitrators and courts usually resolve the problem by comparing the danger from
which the property was rescued with any danger at the end of the service. If the property can be
seen to be in a substantially better position, then they will say that the service was successful.
When negotiating place of safety, the master of the ship requiring assistance should try to
get an agreement which will result in the ship being taken to the nearest suitable port having
appropriate facilities to put the ship back into service.
This is base on NO CURE NO PAY concept. That means, if the salvor fail to rescue
the vessel he will not receive any compensation for his expenses incurred while trying to rescue
the vessel.
Main differences between LOF 2000 and LOF 2011

(1) Details of LOF Awards may be published on the Lloyds website;
It was a tradition that the salvage awards and reasons were known only by the
parties involved. Salvage awards and reasons will be published on the Lloyds website to
increase the transparency. But, the access is allowed only to the parties who have
subscribed to above website. It will not be published if any of the parties have any valid
reasons not to publish such information.
(2) Salvors are required to notify Lloyds within 14 days of engagement
In most of the situations in the past LOF have been agreed and successful
operations were carried out. But, the matter was not notified to Lloyds. These situations
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Page 78
cause difficulties in monitoring the actual use of LOF. Therefore, salvors are now
required to report to Lloyds within 14 days of salvage agreements.
(3) Special provisions will apply where the property includes laden containers.
Subject to the express approval of the Arbitrator, any salved cargo with a value below an agreed figure
may be omitted from the salved fund and excused from liability for salvage where the cost of including such cargo in
1
the process is likely to be disproportionate to its liability for salvage .
Subject to the express approval of the Arbitrator, where an agreement is
reached between the Contractors and the owners of salved cargo comprising at least 75%
by value of salved cargo and the same agreement shall be binding on the owners of all
salved cargo who were not represented at the time of the said approval2.
Finally, the LOF 2011 allows salvors to correspond with insurers rather than
with the cargo owners in certain circumstances3.
Points to consider when selecting a salvor
Salvors professionalism
Capability and power of tugs and their equipment
Distance and ETA to the distressed vessel
The type of agreement the salvo need to use (LOF 2011 or some other agreement)
Salvors duties under Salvage convention 1989

(a) To carry out the salvage operations with due care;
(b) In performing the duty specified in subparagraph (a), to exercise due care to prevent or
minimise damage to the environment;
(c) Whenever circumstances reasonably require, to seek assistance from other salvors; and
(d) To accept the intervention of other salvors when reasonably requested to do so by the
owner or master of the vessel or other property in danger; provided however that the
amount of his reward shall not be prejudiced should it be found that such a request was
unreasonable.
1
Lloyds standard salvage and arbitration clause 15

3
2
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Page 79
Owners duties under Salvage Convention 1989

(a) To co-operate fully with him during the course of the salvage operations;
(b) In so doing, to exercise due care to prevent or minimise damage to the environment; and
(c) When the vessel or other property has been brought to a place of safety, to accept
redelivery when reasonably requested by the salvor to do so.
Security to be provided by owners
1. Upon the request of the salvor a person liable for a payment due under this Convention
shall provide satisfactory security for the claim, including interest and costs of the salvor.
2. Without prejudice to paragraph 1, the owner of the salved vessel shall use his best
endeavours to ensure that the owners of the cargo provide satisfactory security for the
claims against them including interest and costs before the cargo is released.
3. The salved vessel and other property shall not, without the consent of the salvor, be
removed from the port or place at which they first arrive after the completion of the
salvage operations until satisfactory security has been put up for the salvor's claim
against the relevant vessel or property.
Is it possible to terminate the salvage contract by the salvor if it is not profitable to them?
LOF 2011 Clause A states, The Contractors identified in Box 1 hereby agree to use their
best endeavours to salve the property specified in Box 2 and to take the property to the place
stated in Box 3 or to such other place as may hereafter be agreed. If no place is inserted in Box 3
and in the absence of any subsequent agreement as to the place where the property is to be taken
the Contractors shall take the property to a place of safety.
Once the contract is signed, it is possible to terminate the contract with the consent of
the master of the distressed vessel and the owner. If the salvors decide to terminate the contract
without the consent of the owners, the salvor is liable for the breach of the contract according to
the law of contract, unless they can justify their decision.
According to LOF, either party can terminate the contract by giving reasonable prior notice to the other party. Because, it
states that when there is no longer any reasonable prospect of a useful result leading to a salvage reward in accordance with
Convention Articles 12 and/or 13 either the owners of the vessel or the Contractors shall be entitled to terminate the services
4
hereunder by giving reasonable prior written notice to the other .
LOF 2011, clause G
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Special Compensation under Salvage Convention 1989 (Article 14)

There may be situations where the salvor has failed to rescue the vessel, but, has
managed to minimize or stop the environmental pollution, and has failed to get a salvage reward
according to Article 13. In such situations he can claim under Article 14, a Special
Compensation to recover his losses. Usually, this is to cover-up his expenses (up to 30% of his
expenses) only. If he is successful in preventing damage to the environment his special
compensation could be increased up to 100% of his expenses. Usually, the reward under article
13 will be paid by the hull and cargo underwriters and the remuneration under Article 14
(Special Compensation) will be paid by the P & I Club.
The total special compensation under this article shall be paid only if and to the extent that
such compensation is greater than any reward recoverable by the salvor under article 135.
Special COmpensation P & I Clause (SCOPIC Clause):

During the salvage operations if the Salvor realizes that the remuneration awarded
under Article 13 is insufficient to cover his expenses and the profit, he can activate the SCOPIC
clause. There after the award will be calculated in a different manner which is beneficial for the
salvor. This is in fact an alternative to the Article 14 of the Salvage Convention.
It is nowadays incorporated into LOF 2011.

If it is operated by the salvor (by giving notice), it contracts out of Article 14. (it can be
operated even if there is no threat of damage to the environment)
The SCOPIC re-numeration is to be calculated by reference to an agreed tariff of rates
that are profitable to salvors.
SCOPIC re-numeration is payable only if it exceeds Article 13 reward.
If the SCOPIC re-numeration is less than the Article 13 reward, the salvage reward will
be reduced by a certain percentage.
Can the salvors activate the SCOPIC clause as soon as they start salvage services?
According to clause 7 of SCOPIC, if the SCOPIC reward falls below the amount of
Article 13 re-award, the award shall be discounted by 25 % of the difference between the Article
13 award and the SCOPIC re-numeration. Therefore, the salvors are not encouraged to operate
the SCOPIC clause without ensuring that the SCOPIC remuneration is higher than the Article 13
reward. Therefore, they will not operate the SCOPIC clause from the very beginning of a salvage
operation.
5
Salvage Convention 1989, Article 14
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Rights of the coastal states (Salvage Convention Article 9)
Nothing in this Convention shall affect the right of the coastal State concerned
to take measures in accordance with generally recognized principles of international
law to protect its coastline or related interests from pollution or the threat of pollution
following upon a maritime casualty or acts relating to such a casualty which may
reasonably be expected to result in major harmful consequences, including the right
of a coastal State to give directions in relation to salvage operations.
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Losses (Marine Insurance)

In marine insurance there are mainly two categories of losses;
1. Total losses
2. Partial losses
1. Total loss can be further subdivided as;

a) Actual total loss
b) A presumed total loss
c) A constructive total loss
Now, we shall see the meaning of each of the above separately.
a) Actual Total Loss (ATL)

The Marine Insurance Act defines ATL as, the subject matter insured is destroyed, or
so damaged as to cease to be the thing of the kind insured, or where the assured is irretrievably
deprived of the subject matter insured. Examples of actual total are;
In the case of the thing is actually destroyed (due to fire, explosion)

Where the assured is irretrievably deprived of his property (vessel sunk in deep water)
In the case where the thing change its character to a such an extent, that it ceases to be the
thing insured (solidified cement powder)
b) Presumed Total Loss (PTL)

After the lapse of a reasonable time period no news of the vessel has been received,
considered as presumed total loss. Usually, this reasonable time period will be noted as
Presumed total loss occurs where the insured vessel is missing and no news of the vessel has
been received for a reasonable time but not to exceed ____ months.
c) Constructive Total Loss (CTL)

The constructive total loss is defined as where the subject matter insured is reasonably
abandoned due to;
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Its actual total loss is unavoidable

The cost of recover or repair would exceed its value
E.g. when a vessel is so damaged due to grounding (if it is an insured peril) and if the cost of
repairing is higher than the value of the ship. When there is a possibility of breaking up after
grounding, a shipowner can claim for a constructive total loss.
In the case of a constructive total loss and once it is declared as CTL, the underwriters
gain the rights over the subject matter once the Notice Of Abandonment (NOA) is accepted by
the underwriters. In declaring CTL, the owner must issue a Notice of Abandonment (NOA) to
underwriters. In that case, the assured will loss all his rights to the insured matter. If it is not
declared as CTL, then it is considered as a partial loss claim and the assured retains the
ownership of the property.
Notice of abandonment (NOA)

When a ship owner fears a constructive total loss due to heavy damages, he has two
options regarding his vessel. First, he can claim a 100% partial loss, repair the vessel and retain
it. The second option is, he can claim for constructive total loss. In that case, he should serve a
NOA to underwriters for this purpose. There is no obligation on the part of the underwriters
to accept a NOA when it is served. If it is not accepted by underwriters, a shipowner has two
options again. Either he can claim 100% partial loss as mentioned before or he can take legal
action against the underwriters, where it will be decided whether there was a constructive total
loss or not.
Usually, the underwriters do not accept a NOA unless they are very sure that they could
gain some profit after paying the loss to the assured. If he accepts the NOA, the ship owners will
loss his rights on the vessel. The underwriter will gain the ownership over the vessel including;
The vessel
Dispose the vessel as he thinks and retain all the earnings even if it is beyond the claim
paid
The right to earn freight which is due at the time of the casualty
A NOA is not required in the case of an actual total loss.
2. Partial losses
A partial loss means any loss to cargo or vessel which is less than a total loss. Partial
losses can be divided into two as;
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a) Particular average
b) General average
Now we will go through both of them separately.
a) Particular average
In insurance, average means damage. The Marine Insurance Act defines a
particular loss as a partial loss, proximately caused by a peril insured against and which is not a
general average loss. In simple terms, a particular loss is a partial loss which is accidental and is
suffered and borne by the injured party himself. Particular losses are very common in maritime
trade.
To claim against a particular average, the claimant should prove to the insurer that
the damage or the loss occurred due to a peril insured against.
In the event of a particular average loss in respect to ship or cargo, protest should be
noted and the damage surveyed on behalf of the ship. If the vessel is damaged, the underwriters
or the nearest Lloyds agent should be informed in order to comply with the requirements of the
Tender Clause. The payment of the claim is modified always by the terms of the policy.
b) General Average
In the business of carriage of goods by sea, there are few parties involved, i.e. the
ship owner and one or more cargo owners etc. Therefore, the carriage of goods by sea is a
common venture conducted at sea for a common goal by the above parties. The common venture
terminates at the port of discharge. General average is a way of insuring the ship, cargo and
freight engaged in a sea voyage, mutually. The general average can be claimed whenever an
extraordinary sacrifice has been made or extraordinary expenses suffered by one party for the
preservation of the other interests in a common adventure. A general average loss is a partial
loss incurred through a deliberate act performed with the intention of preserving all the property
involved in a voyage from a danger which threatens all of them. The costs of the extraordinary
sacrifices and the extraordinary expenses will be proportioned among all the parties, including
the party that made the sacrifices or bore the expenses.
Example
Say a vessel suffers a loss of 20,000 during a general average act. The value of the vessel is
100,000, the value of the cargo is 50,000 and value of unpaid freight is 10,000.
Vessel
= 100,000
Cargo
= 50,000
Unpaid freight = 10,000
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Total
160,000
General Average contributions are as follows;

Shipowner
= 100,000 x 20,000 = 12500

160,000
Cargo owner
= 50, 000 x 20,000 = 6250

160,000
Freight payer
= 10,000 x 20,000 = 1250

160,000
General average was developed and used by ancient traders a long time prior to the
establishment of marine insurance.
In the UK, a general average loss is a common law liability to which the owners of the
property are subjected, whether insured or not. At common law, rights to general average are
regulated by the law of the port of discharge at which the common adventure terminates.
Usually, the bill of lading or the charterparty have express provisions incorporating York
Antwerp Rules in governing general average. These are the rules which specify how to apply
general average in each case. In UK, the rules are enforced only by incorporating expressly into
the contract, but, not automatically enforced by the law, like in certain countries.
There are slight variations between the common law and the York Antwerp rules in
general average contributions. The requirements in the York Antwerp rules are described in this
hand out, unless specified. The York Antwerp Rules states that;
There is a General Average act when, and only when, any extraordinary sacrifice or
expenditure is intentionally and reasonably made or incurred for the common safety
or for the purpose of preserving from peril the property involved in a common maritime
adventure.
The wording of above definition in the Marine Insurance Act 1906 (UK) is slightly
different from above. Now, we will discuss the meaning of the highlighted words to get a better
understanding of the general average.
Extraordinary
To be eligible for general average, the action or the event should be extraordinary (what
was not expected to do by the contract). The actions (what was expected to do by the contract)
which cannot be considered as extraordinary are not counted in the contribution of general
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average. The exact meaning of extraordinary is very specific to each & every case and also
very difficult to define.
Sacrifice
The most common sacrifice is the cargo sacrifice, i.e., jettisoning of cargo to rescue the
vessel and the other cargo. In certain circumstances, part of a ship or ships equipment also can
be sacrificed for the benefit of the common venture. The most important thing here is that the
sacrifice must be intentional (deliberate). Otherwise, it will not be accountable for general
average.
In relation to jettisoning of deck cargoes, York Antwerp Rules states that a general
average arises only when (the deck cargo) carried in accordance with a recognized custom of the
trade or with the agreement of all of the interests in the voyage.
Expenditure
This relates to any financial lost that a ship owner may undergo during a common
venture. This includes;
1) Under common law, payment made to salvors in a contractual salvage can be recoverable
in general average. Non-contractual salvage cost is not recoverable in general average
since there is no intentional act to succeed with the common venture. According to York
Antwerp rules salvage expenses are recoverable in general average whether the salvage
was contractual or non-contractual.
2) The special compensation which comes under salvage act is not recoverable.
3) Costs involved in the port of refuge can be recoverable. These costs include
inward/outward port charges, unloading/warehousing of cargo. The cost involved in
repairing the vessel is not recoverable generally.
Intentional
In the Marine Insurance Act 1906 (UK), instead of intentional, the word voluntary is
used. In the context of general average, the meaning of intentional and voluntary, to be
considered the same. What it means is, it must not be accidental and also it must be for the
purpose of preserving the adventure from a peril affecting it.
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Reasonable
Whatever the actions taken need not in themselves be successful, nor need they be
shown to have contributed towards success, but, there can be no general average unless there is a
completion of the adventure. The actions taken must be similar to the actions that a reasonable
person would take in such a peril.
Common safety
On one hand the danger affecting the adventure must be real, but it need not be
serious or imminent. If the master is mistaken as to the existence of a peril, losses suffered in
consequence of his actions cannot amount general average.
On the other hand, the expenses and sacrifices made must be for the common safety
of the adventure, i.e., cargo and ship both or all the interested parties. As mentioned above, there
may be failures but as a whole, the general average depends upon the ultimate success of the
adventure.
NOTE
A loss that does not satisfy all the conditions mentioned above will amount to
particular average. In such cases, the parties suffered losses cannot recover the loss from general
average and those parties have to suffer the loss individually.
York Antwerp Rules

Even though the general application of the above rules are the same everywhere around
the globe, the specific applications of the principles may vary from country to country. The Law
of the country that terminates the common adventure (final destination of the cargo), is the law
which governs the general average. Therefore, considerable uncertainty may exist as to
individual liabilities. To overcome these uncertainties, since the 19th century, shipping
conferences have produced a set of rules for the adjustment of general average, known as the
York Antwerp rules.
These rules generally favour the carrier and are imposed on all those concerned by
including a general average clause in the contract of carriage. In addition to providing for clear
accountability and favouring the carrier, they also impose on him a certain minimum liability.
Therefore, if the contract is destroyed by breach, the shippers protection under these rules is
lost.
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These rules are not incorporated into national laws of individual counties, but, are
voluntarily and mutually accepted by shippers, shipowners and insurers. Usually, it is
incorporated in to a charterparty or bill of lading by a General Average Clause. If the parties
have not agreed to apply the York-Antwerp Rules, the laws of country of discharge will be
applied as mentioned before.
The rules are divided in to two types; lettered and numbered. The seven lettered rules (A
to G) establish general principles and 22 numbered rules (I to XXII), deal with specific acts.
The York Antwerp Rules 2004 is the latest version of these rules. The most important
changes in the present version are;
a) Excludes salvage from general average unless a party has paid a salvage award for all of
the interests concerned.
b) The wages and maintenance costs of the master, officers and crew which incurred while
in a port of refuge are excluded.
c) The time limit for general average claim is one year.
The Masters obligation of declaring general average

1) General average can not be declared till the end of the venture. The cargo should arrive at
the port where it is to be delivered to the receiver. Rarely, this may be possible in a port
of refuge.
2) The master must declare general average by advising all the parties that there has been a
general average act and that they will be required to make a contribution. If the master
fails to do so, the owners may have to suffer the loss. If he is in doubt whether the act
amounts to a general average, still he should declare general average.
3) The master must note protest and when doing so, reserve the right to extend the protest.
4) Appoint an average adjuster and provide him with the information required to draw up a
rough adjustment.
5) Before discharging starts, ensure that the carriers possessory lien for general average
contributions is exercised (the cargo to be discharged into the custody of the carriers
agents and retained by them until satisfactory arrangements have been made to secure
general average contributions from the respective receivers).
Information required by a general average adjuster

1) All relevant log entries, cargo survey reports, hull surveys, tenders for repairs, etc. To
ensure that there has been a general average act.
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2) Copies of cargo manifests, bills of lading, stowage plans, copies of charterparties (to
establish chartering interests), certificate of registry (to establish ship owner interests)
etc., to identify the contributory interests.
3) When assessing the amount to be made good, known as the general average allowance,
the adjuster will include expenditure with regard to fuel and stores consumed reaching a
port of refuge, remaining there and regaining the contract route, additional crew
expenditure, pilotage, harbour and tug expenditure for which receipts will of course be
required, costs of labour hired to handle the cargo, storage and insurance charges, plus
costs of dame to the ship, loss of cargo, reconditioning, and so on; the fee for carrying out
the adjustment is included in the allowance.
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Marine Insurance
Introduction
Marine business is one of the oldest areas of insurance. The principles were probably
developed and certainly practised by ancient Greek traders and were doubtless used to a greater
or lesser degree by trading people in the centuries that followed. There is no legal obligation in
English law to insure ships, goods or freight, but, all marine insurance contracts agreed in the
UK are governed by the Marine Insurance Act 1906. Section 1 of the Marine Insurance Act
states;
A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the
assured, in a manner and to the extent thereby agreed, against marine losses, that is to say, the
losses incident to marine adventure.
There are three points to be noticed in the above statement;
1) The contract to be found in the placement slip and in the marine insurance policy
2) The purpose is to provide indemnity
3) The insurer promises that losses or damages to the subject matter of insurance is going to
be indemnified if this loss is occasioned from a marine adventure.
The term marine adventure means;
a) Where any ship, goods or movable property is exposed to maritime perils.
b) Where any freight, passage money, profit or security for loans is endangered by the
exposure of insurable property to maritime perils
c) Where some one with an interest in or being responsible for insurable property may
incur liability to third parties by reason of maritime perils
The term maritime perils means, the perils which are specific to the navigation on
seas. Therefore, this excludes events which are not specific to seas (damage to a vessel caused by
the falling of a load due to the fracture of a shackle would not be recoverable because the
fracture could happen any where and itself is not caused by the sea). But, the Marine Insurance
Act provides for the insurance to extend to protecting the assured against losses on inland waters
or any land risk incidental to a sea voyage, also to a ship in the course of being built or to the
launching of a ship6.
Ships and cargoes are valued at the commencement of the risk (i.e. at the time of
effecting the policy), and insurers use these values to determine the measure of indemnity they
will give the assured. The value of the subject-matter insured may be different from its actual
value at the time of loss, depending on how the market has gone since the policy was affected.
6
F.N. Hopkins, Business & Law for the Ship Master, Edition 1998, p. 641
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But whether or not the assured has gained or lost by a fluctuation in value will not affect what
the insurer pays on the claim.
Important definitions
a) Assured
Assured is the person who has taken out the insurance policy and has an interest in
marine adventure. In simple terms assured is the person who has obtained the insurance
cover and sometimes referred to as insured as well.
b) Underwriter
They are the persons or companies provide the insurance coverage to assured. They are
also can be called as the insurers. They may be insurance companies or individual people.
Some insurance companies take the services of underwriting agent but some insurance
companies do not.
c) Broker
Brokers are the agents of the assured and he is the person who negotiates between the
assured and underwriters.
d) Sum insured
This is the portion of the insured value actually covered by the insurance. Deliberated
gross over-valuation is tantamount to fraud. The effect of under-insurance in both
valued and unvalued policies is that the assured is deemed to be his own insurer for
the uninsured difference between the sum assured and the insurable value. Underinsurance is sometimes used to reduce the cost of premiums.
e) Insured value
This is the amount stated in the policy as the calculated value of the subject matter
insured.
Types of marine insurance policies

The document which contains the contract details is called as a policy. This includes
terms, coverage, deductibles, premiums and also can be called as a insurance contract. This is a
legally binding document between the insurer and the assured. There are various types of marine
insurance contracts according to the nature of risks covered and the requirement of the trade.
a) Time policy - the policy commences at a specified time on a specified day and ceases at
another specified time on a specified date. Usually, does not exceed 12 months. Hull and
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machinery insurances are usually time policies. (e.g. from midnight 23rd November
2010 to midnight 23rd November 2011)
b) Voyage policy - the policy commences when the ship is at one specified location and
expires when another prescribed location is reached, within a reasonable time frame
(reasonable despatch). Cargo consignments are usually insured under voyage basis. This
is rare with hull insurance, but, commonly used for cargo insurances. (e.g. Colombo to
Tokyo or warehouse to warehouse)
c) Time and voyage policy - the policy covers an agreed voyage and also an agreed time
spent in arrival port after the voyage. This also called as a mixed policy. (Colombo to
Tokyo and for twenty days after arrival at Tokyo)
d) Valued policy according to section 27 (2) of the Act 1906, "a valued policy is a policy
which specifies the agreed value of the subject-matter insured". According to s 27(3) of
the Act, in the absence of fraud, the value fixed by the policy will be conclusive, as
between the insurer and assured, of the insurable value of the goods or vessel in question.
The insured value of the subject matter is mentioned on a valued policy. This is in-fact
very common. If the subject matter is insured for its full value, the insured value and the
sum insured will be the same.
Example :Insured value
= 100,000 $
Sum insured
= 100,000 $
Claim
= 50,000 $
The assured will receive 50,000 $
If insured value
= 100,000 $
Sum insured
= 50,000 $ (under insured, self insured for 50%)
Claim
= 20,000 $
The assured will receive only 10,000 $ [(50,000 x 20,000 / 100,000)]
e) Unvalued policy / Open policy section 28 of the Act 1906 defines an unvalued policy
as "a policy which does not specify the value of the subject-matter insured, but, subject to
the limit of the sum insured, leaves the insurable value to be subsequently ascertained...".
In simple terms, an unvalued policy will state the sum insured and leave the insurable
value to be ascertained subsequently. Therefore, in the case of an unvalued policy the
value of the insured goods has to be proved by production of invoices, vouchers,
estimates and other evidence.
Example :Shane Sankaranarayana
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Insured value
= not filled
Sum insured
= 100,000 $
Actual value at the time of the loss = 50,000 $
The assured will receive only 50,000 $
If actual value at the time of the loss = 150,000 $
The assured will receive 100,000 $
f) Open cover this means an agreement between an assured and an insurer. Such an
agreement is valid for an agreed time period only. Hereby, the assured is agreeing to
declare the goods when it is to be carried and the insurer is agreeing to accept it. This
covers a number of shipments automatically over an agreed period of time with predetermined rates and conditions. The open cover is not legally enforceable. Because, at
the time of making the open cover the name of the vessel or the actual nature of the
cargoes are not known and also there is no any insurance contract between the insurer
and the assured. Once, such information are known by the assured, he is supposed to
inform the insurer and then only the insurer will issue the policy. Premiums are required
to pay only at the time of shipments. Advantages of open covers are;
Insurance cover for each shipment is not required to be obtained
Insurance can be obtained in advance
Assured knows the premiums in advance and premiums are required to pay only
at the time of shipment
Cover is available all the time (during the agreed time period)
This can be used by regular cargo importers and exporters.
Shipments which falls within the open cover will be covered automatically
At the time of the opening the open cover, only the general information are
required (name of the vessel, the exact nature of the cargo, exact amount of the cargo etc.
are not required at that time as they are not known). A declaration shall be made by the
assured once he has the exact details.
g) Floating policy this describes the insurance in general terms. That means the name of
the vessel and the exact nature of the cargo is not required at the time of taking the
policy. Such information can be provided to the insurer with declarations at the time of
shipment. Floating policies are frequently used by shippers who routinely ship cargo.
Floating policies avoid a shipper having to negotiate a new policy for every shipment.
Unlike an open cover, this is a legally binding contract. The section 29 of Marine
Insurance Act 1906 states that;
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1) A floating policy is a policy which described the insurance in general terms, and
leaves the name of the ship and other particulars to be defined by subsequent
declaration.
2) The subsequent declaration or declarations may be made by endorsement on the
policy, or in other customary manner
3) Unless the policy otherwise provides, the declarations must be made in the order of
dispatch or shipment. They must, in the case of goods, comprise all consignments
within the terms of the policy, and the value of the goods or other property must be
honestly stated, but an omission or erroneous declaration may be rectified even after
loss or arrival, provided the omission or declaration was made in good faith.
4) Unless the policy otherwise provides, where a declaration of value is not made until
after notice of loss or arrival, the policy must be treated as an unvalued policy as
regards the subject matter of that declaration.
A floating policy is issued for a fixed amount known as sum insured. The
sum insured is calculated by considering the expected turnover of the cargoes to be
insured which is estimated by the assured at the time of making the policy. Same like in
the open cover, a maximum amount that can be shipped will be stipulated.
During the each shipment, its value should be declared to the insurer. It will be
deducted from the sum insured. Therefore, unlike an open cover, the time period of a
floating policy depends upon the number, amount, size and the value of the cargoes
shipped.
h) Policy Proof of Interest (PPI) / Wagering policy the Marine Insurance Act 1906
(section 4) states;
(1)
Every contract of marine insurance by way of gaming or wagering is void.
(2)
A contract of marine insurance is deemed to be a gaming or wagering contract

(a) Where the assured has not an insurable interest as defined by this Act, and the
contract is entered into with no expectation of acquiring such an interest; or
Therefore, according to MIA 1906, an insurance contract will be void when the
assured do not has an insurable interest and also when he has no any expectation of
acquiring such an interest. Therefore, increase value of cargoes, tax increases, anticipated
freights cannot be insured as there is no insurable interest. But, these kinds of insurances
are required for the trade. This is achievable with PPI. In these circumstances, the policy
itself is taken as proof of interest (PPI). A PPI policy is binding in honour only and is
void unless the assured has an interest in the subject matter at the time of the loss. In the
event of dispute they are heavily weighted in favour of the underwriter and effectively
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shift the burden of proof onto the assured, because, PPI policies are binding in honour
only.
Meaning of certain terms used in Marine Insurance Act 1906 (UK)

1) Good faith in common with other insurance contracts, marine policies are contracts
based on the principle of utmost good faith and if this is not observed, the contract may
be avoided by the other party. This means that the assured must disclose every material
circumstance which he knows and even which he ought to know in the ordinary course
of his business. Equally, the insurer must disclose anything he knows which may affect
the placing of the risk. Circumstances which come about after the contract has been made
must be disclosed as soon as possible. In simple terms, each party to an insurance policy
has a duty of revealing to the other party all material facts, even though the other party do
not request the information.
Example;
It would be dishonest for a shipowner not to disclose that his 20-year old vessel had just
failed her 5th special survey and had been rejected by a classification society. If the
assured fails to make such disclosure, the insurer may avoid the contract.
2) Warranty in an insurance contract, a warranty is a promise that some particular thing
shall be done or not done, or that some particular condition be fulfilled or whereby the
existence of some particular facts is affirmed or negative. A warranty may be expressed
or it may be implied. Unlike in charterparties, in insurance, a warranty is regarded
in the same degree as a fundamental condition of the contract, it must be exactly
complied with, even if it is not material to a risk. Breach of warranty enables the insurer
to avoid liability under the contract as from the time of the breach, even though a
subsequent loss may not have been resultant on the breach. However, breach of warranty
may be excused in certain circumstances, that is, if the warranty becomes unlawful, for
example, deviation from the insured voyage is a breach which would be excused if it
were done to maintain the seaworthiness of the ship by having damage repaired.
Examples of warranties :a) It is an implied warranty in a voyage policy that the ship is seaworthy at the
commencement of a voyage or a at the commencement of each stage of a voyage if
it contains few stages.
b) It is further implied warranty that the adventure and the manner in which it is
undertaken will both be lawful.
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c) In a time policy there can be no implied warranty of seaworthiness. However, if the

assured knowingly sends a ship to sea when unseaworthy, then the insurer will not be
liable for any resulting loss.
d) To sail on a scheduled date (expressed warranty).
e) Restrictions of sailing in certain areas and during certain time periods (expressed
warranty).
f) To sail with sea marshals on board in certain areas (expressed warranty)
If a shipowner is intending to breach any warranty, should notify his insurer
of his intention, agree to any amended conditions imposed and pay any additional
premium required. This is very common, when a vessel is to trade beyond Institute
Warranty Limits (IWLs), e.g. on a voyage to a port within ice limits.
3) Deviation a ship must not deviate without lawful excuse from the voyage contemplated
in the policy, or where that is not laid down, then from the usual and customary course.
The consequence of unlawful deviation is that the underwriter is relieved of all liability as
from the time of the deviation. It may be noted that in all contracts for the carriage of
goods by sea, it is an implied promise that the ship will not deviate from the contract
voyage. If a loss has occurred, the insurer will be liable only up to the time of the
deviation and there after, the shipowner has to bare the loss himself. The assured is not
liable if the deviation is due to;
Assisting vessels or people in distress

If it is caused in taking medical assistance to onboard staff
If it is allowed by any terms in the policy
If it is caused because of complying with an express or implied warranty
If it is caused due to situations occurred beyond the control of the master or
employer
If it has occurred in safe guarding the vessel or cargo
If it is caused due to barratry of the master or crew (when the barratry is an
insured peril)
Examples of deviations :a) Deviation from the agreed course or customary course without a lawful reason.
b) Not following the agreed discharging port rotation
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Following are not insured according to the Marine Insurance Act;

a) The insurer is not liable for any loss caused by the wilful misconduct of an assured, but
Insurer will be liable for any loss caused by a peril which is insured, even though the loss
would not have occurred without the misconduct or negligence of master or crew.
b) The delays caused by perils,
c) Ordinary wear/tear,
d) Ordinary leakages/breakages,
e) Loss caused due to inherent vice or nature
Once the insurer pays the losses caused to the assured, the assured can not reclaim the lost
again from the party who is liable for the damage. The insurer takes over the authority of
claiming back from the party liable. This is known as subrogation.
Procedure of taking marine insurance

The procedure is to approach a broker and to describe to him precisely what is
required. The broker then writes out the risk on a slip and takes this to underwriters specialising
in the type of risk. They, in return, will sign slip, accepting the whole or part of the risk until it is
fully taken up. The completed slip is then taken to the Central Issuing Office, which will issue
the policy. Since the abolition of Stamp Duty on policies, the slip itself is regarded as equivalent
to the contract and an underwriter accepts liability from the time he signs it. The assured is
directly liable to the broker for payment of the premium and any charges (from which the broker
makes his living) but the underwriter is directly liable to the assured for payment of claims.
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Types of marine insurance

Marine insurance can be divided into three main areas as mentioned below;
Hull and machinery insurance

Cargo insurance
Marine liability insurance (P & I clubs, CLC, Bunker, HNS etc.)
Now, we shall consider about each of above separately.
Hull Insurance (H&M Hull & Machinery insurance)

Hull insurance also sometimes called as Hull & Machinery insurance as well. It omits
any reference to goods or merchandise and covers only the structure of the ship. Even though
this insurance mainly covers the ship itself, in certain cases depending upon the conditions it may
cover the liability insurance (liability towards other ships in collisions) as well. This insurance
covers a variety of risks from small yachts to fishing fleets to roll-on and roll-off ferries to super
tankers. Usually, these claims include;
Damage to the ship, engines and equipment

Groundings
Total loss of the ship
Explosions and fires
Salvage of the ship after grounding and possible contribution in general average
Depending upon the conditions it may cover liability towards other ships in collisions
(refer the Running Down Clause - RDC)
Depending upon the conditions it may also cover liability towards the owners of fixed
objects after striking such objects (refer the Fixed & Floating Object clause - FFO)
Institute hull & cargo clauses

The London insurance market represents Lloyds insurers as well as individual insurance
companies represented by the International Underwriting Association of London (IUA). The
IUA was formed in 1998 by merging London International Insurance and Reinsurance Market
Association and the Institute of London Underwriters (ILU). This can be illustrated as below to
understand easily;
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London Market
(International & UK insurers based in London)
IUA
Lloyds insurers
London
International
Insurance &
Reinsurance
Market
Association
ILU
The Lloyds and the ILU jointly developed standardized clauses for the hull and cargo
insurances. These are commonly known as institute clauses. Examples of institute clauses are;
Institute Time Clauses Hulls

Institute Voyage Clauses
Institute Cargo Clauses (A)
Institute Cargo Clauses (B)
Institute Cargo Clauses (C)
Institute Time Clauses were initially developed in 1983 and amended in 1995 and in
2002. The latest, 2002 Institute Time Clauses Hulls are now called as International Hull
Clauses (IHC).
Clauses used in hull insurance

1) The vessel is covered subject to the provisions of this insurance at all times and has
leave to sail or navigate with or without pilots, to go on trial trips and to assist and tow
vessels, or craft in distress, but it is warranted that the Vessel shall not be towed, except
as is customary or to the first safe port or place when in need of assistance, or undertake
towage or salvage services under a contract previously arranged by the Assured and/or
owners and/or Managers and/or Charterers7.
Institute Time Clauses Hulls, 01/10/1983, Clause 1
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2) Insurance cover is not effective if the vessel loads or discharges into another vessel at
sea, other than a harbour or inshore craft, unless previous notice has been given to the
underwriters and any additional premium paid.
3) Similar previous notice and any additional premium must be paid to maintain insurance
cover if the vessel sails from a port to be broken up or to be sold for breaking up.
Otherwise, any claim for loss of or damage to the vessel occurring subsequent to sailing
shall be limited to the market value of the vessel as scrap at the time when the loss or
damage is sustained.
4) If a vessel is not at her destination at the expiry of the insurance, then providing
previous notice has been given to the underwriters, the insurance will continue to her port
of destination at a pro rata premium (called as continuation clause).
5) The insurance of the vessel will be held covered for any breach of warranty as to
cargo, trade, locality, towage, salvage or date of sailing, providing immediate notice
is given to underwriters and any additional premium paid (this is called as breach of
warranty clause).
6) The insurance will terminate automatically if;
a) the classification society is changed or if classification is cancelled or withdrawn,
b) there is any change in ownership,
c) change of flag,
d) change of management or bare boat charter
If these events take place at sea, insurance will continue until next arrival
port. This is called as Termination clause. If the change, suspension or withdrawal
of her Class has resulted due to a loss or damage by an insured peril, such automatic
termination shall only operate should the vessel sail from her next port without the
prior approval of the Classification Society.
7) The perils insured against are loss or damage to the subject matter caused by;
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
Perils of the seas, rivers lakes or other navigable waters

Fire, explosion
Violent theft by persons outside the vessel.
Jettison.
Piracy.
Breakdown or accident of nuclear installations.
Contact with air craft, land conveyances, docks or harbour equipment, etc.
Earthquake, volcanic eruption or lightning.
Accidents in loading, discharging or shifting cargo of fuel.
Bursting boilers, breakage of shafts or any latent defect in hull or machinery.
Negligence of master, officers, crew or pilots.
Negligence of repairers or charterers provided such repairers or charterers are not an
assured hereunder barratry of master or crew (provided such loss or damage has not
resulted from want of due diligence by the assured, owners or managers).
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8) Under the Intervention convention, government authorities may take actions to prevent
or reduce pollution hazard or threat thereof, the insurance covers any loss or damage to
the vessel so caused where the pollution hazard is a direct result of damage to the vessel
for which the insurers are liable.
9) Third party liability insurance is not normally compulsory in the maritime sector but
carriers need to protect themselves against third party claims. This protection is provided
in clause 8 of the Institute hull clauses but the underwriters limit their liability to
three-quarters of the claim. Carriers obtain cover for the remaining amount
through P & I clubs (this is called as running down clause or RDC).
10) Should the insured vessel be the subject of a claim from another vessel wholly or
partly under the same ownership or management, the matter will be referred to a sole
arbitrator, agreed by the underwriters and the assured, who deal with the matter as
though the vessels were not jointly owned or managed (this is known as sistership
clause).
11) In the event of a claim, underwriters must be given notice prior to survey so that they
may appoint a surveyor if desired. Furthermore, the underwriters retain the right to
decide or veto the place of repair and to insist that the repair work be put out to tender.
This is an attempt to reduce costs and the underwriters will reimburse the owners for
expense arising from exercising these rights. If the owners fail to comply, a deduction
of 15% is made from the claim (this is called as tender clause).
12) The insurance covers vessels proportion of salvage, salvage charges and/or general
average. Adjustment of general average is to be made according to York-Antwerp Rules
where the contract of carriage so provides, otherwise in accordance with the law
obtaining at the place where the adventure ends. Claims in these respects however will
only be allowed where the loss has been incurred by an insured peril (this is called as
general average clause). No claim under this Clause shall in any case be allowed
where the loss was not incurred to avoid or in connection with the avoidance of a
peril insured against.
13) Deductible This is provided in the insurance contract to avoid the assured claiming
against agreed small claims. If the claim is less than the deductible mentioned on the
contract, the assured has to bear the loss by himself. If the claim is higher than the agreed
deductible, then the assured has to bear the deductible and the rest will be paid by the
insurer. Basically, a deductible will reduce the insurance premium and this will avoid
large number of small claims by the assured. At the same time when the assured is
required to bear a proportion of all the claims he will take precautions not to incur losses.
Example
Deductible
= 100,000 $
Claim
= 50,000 $
Then the assured has to bear the total loss.
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If, deductible
Claim
Assured has to pay
Insurer has to pay
= 100,000 $
= 150,000 $
= 100,000 $
= 50,000 $
14) Deductible franchise In this provision, if the claim is less than the deductible
franchise, the total lost has to be borne by the assured. If the claim is higher than the
deductible franchise, then the insurer has to pay in full. This also known as franchise as
well.
Example :Deductible franchise = 100,000 $
Claim
= 50,000 $
Then the assured has to bear the total loss.
If, deductible franchise
Claim
Insurer to pay
= 100,000 $
= 150,000 $
= 150,000 $
15) The underwriters are naturally concerned to prevent or reduce losses for which they may
be liable. They therefore impose a duty on the assured to take reasonable measures
to prevent or reduce loss and will reimburse the assured for expenses incurred
thereby, up to the limit of the sum assured and also subjected to deductibles. (this is
known as sue and labour clause).
16) It should be remembered that all claims where there is under insurance will be reduce
by the proportion that the sum assured bears to the sound value of the property. For
example, say, where a vessel of value 2,000,000 is insured for 1,000,000, the
underwriters will pay only 50% of any claim.
17) The underwriters will not make any deductions in cases of damage where new
materials or equipment are used to replace old (this is known as new for old clause).
18) The underwriters will not allow any claim for surface preparation or coating a
vessels bottom except for surface preparation and coating new bottom plates ashore
and the areas adjacent to where these are fitted.
19) Constructive total loss occurs when the cost of saving and repairing a vessel is greater
than its insured value. In ascertaining whether a vessel is a constructive total loss, the
insured value shall be taken as the repaired value, not the damaged or break-up value of
the vessel or wreck (this is called as valuation clause).
20) Once it was a practice amongst ship owners to obtain cheap insurance by using the
following device:Shane Sankaranarayana
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A policy for partial loss would be taken out using a very low figure for the
insurable value; another policy would then be taken out for a figure representing the
difference between that sum and the value of the ship on the total loss of disbursements.
Because both policies were for limited conditions, the premiums in each case would be
very low. The owner thus obtained full cover at much reduced cost. Underwriters now
prevent this abuse by only permitting policies on disbursements or other insurable
monies below 25% of the insured value of the hull.
21) A pro rata net monthly return of premium will be made if the insurance is cancelled by
agreement. A percentage of the premium will be returned for whole thirty day periods
during which the vessel is laid up (this is called as laying up and cancellation clause or
returns clause).
22) The insurance specifically excludes liability for loss, damage or expense caused by war,
civil war, rebellion, revolution, insurrection, civil strikes or hostile acts, capture seizure,
restraint, detainment or the consequences thereof and derelict weapons. Also strikes,
lockedout workmen, labour disturbances, riots and civil commotions or by terrorists or
persons acting from political motives. Same like for cargo clauses, it should be
remembered that merely deleting these clauses will not provide cover for the above
circumstances. If this cover is required, specific War and/or Strike clauses must be
inserted in the policy.
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Cargo Insurance
Cargo insurance normally indemnifies the policyholder against loss of goods or
merchandise whilst being transported from one place to another. Cargo insurance usually
attaches from the time goods leave the warehouse or place of storage, continues during the
ordinary course of transit and terminates on delivery to the final destination.
There are three sets of cargo clauses used with same conditions but covering
different levels of risks. Set A provides a full cover for all risks, excluding certain risks. All
risks includes;
a)
b)
c)
d)
e)
f)
g)
Particular average loss

General average sacrifice
Actual total loss
Constructive total loss
Expenses incurred preventing or minimising loss
General average and salvage contributions
Collision liability under the both-to-blame collision clause (so that the liability to make
good loss or damage shall be in proportion to the degree in which each vessel was at
fault. If the degree of fault can not be determined, equal apportionment will apply. The
cargo owner in either vessel can only recover from the colliding vessel that proportion of
its loss as the proportion of blame attaching to the vessel, which however is usually
protected against liability for negligent navigation by further provisions in the contract of
carriage).
Usually, the set A excludes the following risks which caused damage or expenses due to;
1)
2)
3)
4)
5)
6)
7)
Wilful misconduct of the assured.

Ordinary leakage, loss of weight or wear and tear of the subject matter.
Insufficient packaging or preparation of the subject matter.
Inherent vice of the subject matter.
Delay, even though it may arise from an insurable risk.
Radio-active weapons.
Unseaworthiness or unfitness of the vessel, though the insurer may waive this point if it
was unknown to the assured.
8) War, civil war, revolution, civil strife or hostile acts.
9) Capture, seizure, arrest restraint or detainment and the consequences thereof.
10) Derelict weapons of war.
11) Strikes or persons take part in riots or civil commotions.
12) Resulting from strikes.
13) Terrorists or those acting from political motives
The deletion of above 8, 10 and 12 does not mean that cover for war risks and strike
risks are covered. If such covers are provided, specific clauses covering these points must be
included.
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The set B covers loss or damage to the subject matter reasonably attributable to
the following;
1.
2.
3.
4.
fire or explosion
vessel or craft being stranded grounded sunk or capsized
overturning or derailment of land conveyance
collision or contact of vessel craft or conveyance with any external object other than
water
5. discharge of cargo at a port of distress
6. earthquake volcanic eruption or lightning,
7. general average sacrifice
8. jettison or washing overboard
9. entry of sea lake or river water into vessel craft hold conveyance container or place of
storage,
10. total loss of any package lost overboard or dropped whilst loading on to, or unloading
from, vessel or craft.
The set C covers loss or damage to the subject matter reasonably attributable to
the following;
1.
2.
3.
4.
5.
6.
7.
8.
fire or explosion
vessel or craft being stranded grounded sunk or capsized
overturning or derailment of land conveyance
collision or contact of vessel craft or conveyance with any external object other than
water
discharge of cargo at a port of distress,
loss of or damage to the subject-matter insured caused by
general average sacrifice
jettison.
The following points are important to notice and also common to all sets of cargo clauses
mentioned above;
a) The matter is covered from the warehouse up to the consignees warehouse at the port
of destination (known as duration clause).
b) If the contract of carriage is terminated at a place other than the named destination,
then the insurance will also terminate unless prompt notice is given to the underwriters
and any additional premium paid (known as termination of adventure clause).
c) If the assured changes the destination once insurance cover is effective, the goods will
be held covered providing prompt notice is given to the underwriters and any
additional premium paid (known as change of voyage clause.
d) In order to recover a claim under the insurance, the assured must have an insurable
interest in the subject matter at the time of the loss.
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e) Where as the result of the operation of an insurable risk the transit is terminated at a place
other than the named destination, the underwriters will reimburse the assured for
reasonably incurred unloading, storing and forwarding charges to that destination.
f) In order for a claim for constructive total lost to succeed, the subject matter must be
reasonably abandoned to the underwriters, either because actual total loss appears to
be unavoidable or because the cost of recovering, re-conditioning and forwarding to its
destination would exceed its value on arrival.
g) If the assured takes out increased value insurance on the cargo, the underwriters
liability will be in the proportion of the sum assured to the total amount insured.
h) It is the duty of the assured and their servants to take all reasonable measures to avert or
minimise loss to the subject matter and the underwriters will reimburse the assured
for any expense so incurred in addition to being liable for any subsequent loss. In the
event of heavy expense averting or minimising loss, this could result in the underwriters
being liable for up to the sum assured on both counts.
i) It is the practise when the property is abandoned to the underwriters as constructive total
loss for the underwriters to reject the abandonment in the first instance until the situation
is clarified. Action at this time by the assured to minimise loss is to be taken as a waiver
of abandonment, neither is similar action by the underwriter to be taken as acceptance of
it; this action will not prejudice the rights of either party (known as waiver clause.
j) It is a condition of the insurance that the assured will act with reasonable despatch in all
matters within their control.
k) The insurance is subject to English law and practice.
Following is a list of major factors on which govern the amount of premiums in cargo
insurance;
1)
2)
3)
4)
5)
Vessel (age, classification, flag)

Voyage (distance, climatic conditions, port facilities)
Nature of Cargo, packaging and stowage
Shipper's management quality and past claims experience
Conditions of Insurance
Regarding the structural condition and fitness of the vessel the underwriter will rely on the
latest assessment given in the register of an approved classification society; under open covers,
as the vessel's identity is not known in advance, a classification clause is included requiring all
vessels used to meet the highest class standards given by any one of the specified societies.
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P & I Clubs (liability insurance)

Unlike the situation with regard to motor insurance, there is no compulsory requirement
to insure ships, cargo or freight. Some ship owners prefer not to insure, thereby saving the cost of
premiums and shouldering any losses themselves. Others consider it prudent to insure. There are
some areas however where insurance cover is a Statutory requirements. Particularly amongst
these is shipowners liability for personal injury or death onboard and civil liability for oil
pollution damage. Now is so happens that in these areas the degree of financial liability is both
difficult to estimate and also likely to be very high. Therefore, commercial insurers that we have
so far considered either will not accept these risks or will quote impossibly high premiums. Ship
owners therefore, have to look elsewhere for cover when it cannot be obtain commercially. The
problem is tackled by ship owners with a common interest joining together in associations or
clubs and jointly shouldering the financial liability in these cases. These are known as P & I
(Protection & Indemnity) clubs.
The word Protection means, the P & I clubs is supposed to provide assistance to the
ship masters and also to the ship owners whenever they need assistance during incidents.
Therefore, masters should ensure to take advises and instructions during any incidents where
third party claims may arise. Taking such advises will help the shipowner to reduce his liabilities
to other parties.
The word Indemnity means the indemnity type insurance will be provided by P & I
clubs, i.e., the assured must first have been legally liable to pay and have paid the loss before the
P & I club is liable. These are in fact, mutual clubs funded by the members, i.e. shipowners,
managers or charterers. The word mutual means that the members of the club are its owners
and the results will be shared between themselves.
In practice, the managers of a particular club assess the premiums depending upon the
expected claims for the coming year and the running costs of the club. The figure so obtained is
known as the call and each owner has to pay the call depending upon his tonnage and the
insurance overages required. Thus, a fund is created from which losses are paid out as they come
in. Should the fund become exhausted before the year end, a further call (supplementary call) is
made to top up. Any surplus is either returned to the owners or carried forward. These clubs do
not make profits.
The policy year traditionally runs from 12.00 noon on 20th February (this date relates to
the annual resumption of Baltic navigation). This will protect shipowner (and in some cases time
charterer) against third party liabilities. Normally, these liabilities include;
a) Death and personal injury to seamen, passengers and third parties such as stevedores,
pilots and visitors
b) Medical expenses, repatriation costs of sick or injured crew
c) Loss of crew members personal effects in cases of fire or shipwreck. These personal
effects shall be reasonable materials to be carried on board (refrigerators, bicycles,
computers, TVs, gold watches etc. Will not be covered)
d) Liabilities in respect of stowaways or persons saved at sea
e) Liabilities arising from collisions (sometimes this is covered under H & M insurance)
f) Liabilities arising from striking with fixed objects (sometimes this is also covered under
H & M insurance)
g) Liabilities arising from groundings
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h) Liabilities arising from pollution

i) Liabilities arising from wreck removal (when the wreck is blocking the free navigation of
other vessels)
j) Liabilities arising from towage
k) Liabilities arising from loss or damage to cargo
l) Fines
m) Life salvage
n) Special compensation payable to salvors
o) Quarantine expenses
p) Unrecoverable general average
q) Enquiry expenses
r) Sue and labour and legal costs
The restrictions and limits of the covers offered depend upon each P & I club and
also they may change such limits and restrictions annually.
& I clubs differ from insurance companies in the way they get directly involved in
helping shipowners to manage the risks, advising on contracts, providing legal assistance in
claims and organizing reports and conferences to increase their awareness. Their history has
enabled & I clubs to be strong, both technically and financially, as well as flexible to changing
market conditions.
Apart from this standard cover, most of the clubs offer additional specialised covers if
the shipowner requires them. These include;
FDD (Freight, Demurrage and Defence) covers. This covers the costs involved in legal
disputes including costs for legal advices, court charges, lawyers charges etc.)
Covers for strikes by the crew or strikes by port workers
War risk insurance, which is an alternative to the institute war clauses
Marine Insurance Act 1906 applies to English P & I clubs. MIA 1906 states that the
club will not be liable for any loss, damage, liabilities or costs or expenses caused by the wilful
misconduct of the vessel owner or its managers. Therefore, fines imposed by local authorities
may not be covered by P & I insurance. Some P & I clubs provide covers for fines in limited
cases such as;
Accidental pollution
In cases where immigration laws are breached
Inaccuracies in cargo documentation
Fines which are paid by the members can be recoverable in above cases, but, not the
fines imposed on the master or crew, unless paid by the member and if the P & I club think
reasonable to do so.
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Marine Insurance
Port of refuge
Port of refuge means a place or a port that a vessel may proceed if it is dangerous to
continue on the passage due to a peril that threatens the common safety. Sometimes this is
called as a place of refuge as well. IMO resolution A 949(23) defines place of refuge as a
place where a ship in need of assistance can take action to enable it to stabilize its condition
and reduce the hazards to navigation, and to protect human life and the environment.
Examples of cases where a vessel may proceed to a port of refuge are;
Sever machinery failure such as rudder loss

Serious cargo fires
Serious ship fires
Structural failures
Cargo shifts which effects the stability of the vessel dangerously
Damages caused by collision, grounding or weather which effects safety of the vessel
seriously
Bunker shortages provided the vessel had sufficient reserves before sailing
Even though historically coastal states allowed vessels to proceed to their territorial waters
when in serious situations as mentioned before, its not the same at present. The most common
cases are Erika and Prestige. During both these cases, the coastal states did not allow these
vessels to enter into their territories. This may happen specially if there is a sever pollution threat
and also if the crew can be rescued without taking the vessel into their territorial waters. On the
other hand, the Intervention Convention allows the coastal states to allocate separate areas for
such ships if there is a pollution risk. From a masters point, there is no any other option other
than following instructions given by the coastal states if they refuse entry into their waters.
Deviation
Deviating for a port of refuge is a justifiable, provided that the master can proof that taking
the vessel to the port of refuge was the last option to safe guard the life, cargo, vessel and the
environment. All the contractual rights will be intact and such a deviation does not lead to a
breach of contract under charterparties or bills of lading contracts. If it is a justifiable deviation,
it can be considered as a General Average Act and the costs of the deviation plus costs involved
arriving, in staying and leaving the port of refuge can be claimed. If it is unjustifiable, the ship
owner would be liable for all the costs of any accident to ship or cargo occurred during the
deviation. At the same time, the innocent party may repudiate the contract.
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Proceeding to a shelter to avoid bad weather is not an extraordinary according to

York Antwerp Rules. It is considered as an ordinary practise. Therefore, such temporary
shelters are not considered as ports of refuge.
Procedure when heading to a port of refuge
Inform the owners, charterers etc. of the decision with reasons

Inform the administration and the classification society.
Inform the insurance agent if the ship itself is damage.
Inform the P & I club if cargo is damage.
Record ships position, bunker ROB and all the events. These records to be given to the
average adjuster and owners.
British ships should inform MAIB in cases of accidents. Sri Lankan ships anywhere in
the world and foreign vessels in the Sri Lankan coast shall inform the DGMS.
Obtain pratique, customs clearance. Owners to appoint an agent at the port of refuge.
As soon as possible contact agents, pass ETA and comply with local regulations.
Request him to arrange pilots, tugs, immigration, surveyors etc. if cargo is damage or if it
is required to discharge cargo to make the repairs, arrange cargo surveyors as well. In
such cases inform the cargo owners accordingly, so that they may appoint their own
surveyors as well.
Inform the port authority about the full condition of the vessel.
Note protest and reserve the rights to extend it. This to be done within 24 hrs and
according to local regulations.
If the vessel to be towed arrange security for salvors.
Repairs to be continued under the observation of surveyors. Once the repairs are
completed, surveyors should inspect again.
If surveyors are not available, two independent masters or engineers can inspect the
repairs and can issue a Certificate of Seaworthiness. This is not used now a days,
because, surveyors can be contacted over the phone, internet, telex and fax etc.
If the repairs take longer time, cargo may be discharged and transhipped.
Before the delivery of the cargo, ensure to take security from cargo owners for their
contribution under general average.
Pay all costs, e.g. port, survey, repairs and take receipts for them. These are to be handed
over to the general average adjuster.
Following abstract is from IMO Resolution A.949(23) GUIDELINES ON PLACES OF

REFUGE FOR SHIPS IN NEED OF ASSISTANCE. Refer the resolution for further details.
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GUIDELINES FOR ACTION REQUIRED OF MASTERS AND/OR SALVORS OF

SHIPS IN NEED OF A PLACE OF REFUGE
Appraisal of the situation

2.1 The master should, where necessary with the assistance of the company and/or the salvor,
identify the reasons for his/her ships need of assistance. (Refer to paragraph 1 of Appendix 2.)
Identification of hazards and assessment of associated risks

2.2 Having made the appraisal referred to in paragraph 2.1 above, the master, where necessary
with the assistance of the company and/or the salvor, should estimate the consequences of the
potential casualty, in the following hypothetical situations, taking into account both the casualty
assessment factors in their possession and also the cargo and bunkers on board:
if the ship remains in the same position;

if the ship continues on its voyage;
if the ship reaches a place of refuge; or
if the ship is taken out to sea.
Identification of the required actions

2.3 The master and/or the salvor should identify the assistance they require from the coastal
State in order to overcome the inherent danger of the situation. (Refer to paragraph 3 of
Appendix 2.)
Contacting the authority of the coastal State
2.4 The master and/or the salvor should make contact with the coastal State in order to transmit
the particulars referred to in paragraphs 2.1 to 2.3 above. They must in any case transmit to the
coastal State the particulars required under the international conventions in force. Such contact
should be made through the coastal States Maritime Assistance Service (MAS), as referred to in
resolution A.950(23).
Establishment of responsibilities and communications with all parties involved

2.5 The master and/or the salvor should notify the MAS of the actions that are intended to be
taken and within what period of time.
2.6 The MAS should notify the master and/or the salvor of the facilities that it can make
available with a view to assistance or admittance of the ship to a place of refuge, if required.
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Page 115
Response actions
2.7 Subject, where necessary, to the coastal States prior consent, the shipmaster and the shipping
company concerned should take any necessary response actions, such as signing a salvage or
towage agreement or the provision of any other service for the purpose of dealing with the ships
situation.
2.8 The master, the company and, where applicable, the salvor of the ship should comply with
the practical requirements resulting from the coastal States decision-making process referred to
in paragraphs 3.12 to 3.14.
Reporting procedures
2.9 The reporting procedures should be in accordance with the procedures laid down in the
safety management system of the ship concerned under the ISM Code or resolution A.852(20) on
Guidelines for a structure of an integrated system of contingency planning for shipboard
emergencies, as appropriate.
Additional information
The following note is not relevant to marine insurance, but such incidents may cause the
vessel to take to a port of refuge. In which cases the master is required to report such incidents to
MAIB. Different flag states may have different regulations regarding incident reporting.
Following is an abstract from MGN 289 (Accident Reporting and Investigation).
Reporting
8. Accidents (see definition at Annex B) must be reported by the quickest means available and
should contain the information noted in Annex C section 3(1).
9. When an accident occurs, the Master or senior surviving officer must send a report to the
Chief Inspector as soon as is practicable following the accident.
10. When an accident occurs, the owner must send a report to the Chief Inspector as soon as is
practicable following the accident unless the owner has ascertained that the report has already
been made by the Master or senior surviving officer.
11. Persons named in (9 and 10) above must, so far as is reasonably practicable, ensure that the
circumstances of every accident are examined. A single report giving the findings of such an
examination, stating any measures taken or proposed to prevent a recurrence, must be provided
to the Chief Inspector as soon as is practicable, irrespective of any investigation that may be
conducted by the MAIB.
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Page 116
12. Persons named in (9 and 10) above must also, so far as is reasonably practicable, ensure that
the circumstances of every serious injury (see definition at Annex B) are examined. A single
report giving the findings of such an examination, stating any measures taken or proposed to
prevent a recurrence, must be provided to the Chief Inspector within 14 days of the injury
occurring.
13. In addition, the following persons must report any accident of which they are aware to the
Chief Inspector, by the quickest means available: the MCA if the accident was in United
Kingdom waters; Harbour Authorities; and Inland Waterway Authorities within the United
Kingdom.
Investigations
25. An accident or serious injury may be investigated by the MAIB if it involves a United
Kingdom ship anywhere in the world, or (with few exceptions), any other ship in UK waters, or
if the Branch agrees to a request to undertake an investigation on behalf of another flag state.
Hazardous incidents may also be investigated.
26. In some cases, the vessels own investigation will be sufficient, but the MAIB may seek
further details if necessary.
Do not need to be reported to the MAIB, unless the accident involves;
i.
ii.
iii.
iv.
v.
vi.
explosion
fire
death
major injury
capsize of a power-driven craft or boat, or
pollution causing significant harm to the environment
4. Accidents involving shore-based workers while a ship is in port or in a shipyard within the
United Kingdom should be reported by the person's employer to the Health and Safety
Executive. No report to the MAIB is required.
Accidents and major & serious injuries

Accident means any occurrence on board a ship or involving a ship whereby;
a) there is loss of life or major injury to any person on board, or any person is lost or falls
overboard;
b) a ship;
causes any loss of life, major injury or material damage;
is lost or presumed to be lost;
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Page 117
is abandoned;
is materially damaged by fire, explosion, weather or other cause;
grounds
is in collision
is disabled or
causes significant harm to the environment
c) any of the following occur;

a collapse or bursting of any pressure vessel, pipeline or valve;
a collapse or failure of any lifting equipment, access equipment, hatch cover,
staging or boatswains chair or any associated load-bearing parts;
a collapse of cargo, unintended movement of cargo or ballast sufficient to cause a
list, or loss or cargo overboard;
a snagging of fishing gear which results in the vessel heeling to a dangerous
angle;
a contact by a person with loose asbestos fibre except when full protective
clothing is worn; or
an escape of any harmful substance or agent, if the occurrence, taking into
account its circumstances, might have been liable to cause serious injury or to
cause liable to cause serous injury or to cause damage to the health of any person.
Major injury means;

a)
b)
c)
d)
e)
f)
any fracture, other than to a finger, thumb or toe;

any loss of a limb or part of a limb;
dislocation of the shoulder, hip, knee or spine;
loss sight, whether temporary or permanent;
penetrating injury to the eye; or
any other injury;
leading to hypothermia or to unconsciousness, or
requiring resuscitation, or
requiring admittance to a hospital or other medical facility as an inpatient for
more than 24 hrs
Serious injury
Means any injury, other than a major injury, to a person employed or carried in a ship
which occurs on board or during access which results in incapacity for more than three
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Page 118
consecutive days excluding the day of the accident or as a result of which the person
concerned is put ashore and the ship sails without that person, unless the incapacity is known or
advised to be of three consecutive days or less, excluding the day of the accident.
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Page 119
Letter of protest (LOP)

This is also called as protest as well. LOP is made to inform the dissatisfaction of any
matter over which the receiver (addressee) has the control. The main intention of issuing a LOP is to
held the receiver responsible and liable if any loss or damage is incurred by the sender. If the sender
suffered any loss due to the protested matter, he or his owner can use the LOP to claim the loss. It
is very common to issue LOP by masters in various matters to show his dissatisfaction. At the same
time, masters also may receive LOP from other parties to show their disagreement when the master
has control over the protested matter. Letter Of Protests can be issued to any person whether there
is a contractual relationship or not between the sender and the receiver.
Examples of issuing LOP when there is a contractual relationship between the parties;
When there are differences in cargo figures between the show and the ship
When the loading/discharging rate is too slow or fast
When there are differences between barge and ship figures during bunkering (this can be
issued by the chief engineer as well)
When cargo damage has occurred or likely to occur due to rough handling by stevedores
When the fendering at the berth is not sufficient
When the line handling people are not following ships officers advices
Examples of issuing LOP when there are no any contractual relationships between the parties;
When vessels at the berth causes or likely to cause any damage

When passing vessels causes any damage due to propeller wash or due to interaction
Some companies have standard formats of LOP. Master shall use the company standard
form when it is provided. If not he has to write it by himself. When issuing a LOP;
The LOP must be addressed to the person in-charge of the operation concerned.
The original and one copy should be sent to the addressee. He should be asked to sign the
copy and send it back to the issuer.
The signed copy (by the addressee) shall be kept in the ships file and one copy of that shall
be sent to the ships owner.
Make a log book entry
Inform the appropriate parties (owners, charterers etc.)
Examples of letters of protests8
Malcolm Maclachlan, The ship masters business companion, 4th Edition 2004
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Page 120
Letters of protests for difference of cargo figures between shore and the ship
Where the ships cargo quantity measurements show less cargo loaded than the quantity
stated by the shipper, the master should generally enter the ships figures on the face of
the bill of lading.
Some shipowners require their masters to endorse a bill of lading which does not provide
space for the ships figures in the following terms: Vessels measurements are stated
below and this Bill of Lading only acknowledges the shipment of the weight or quantity
given in the vessels measurements on completion of loading.
Where the shipper refuses to accept such an endorsement the master should write a Letter
of Protest to the shipper, pointing out the discrepancy in the figures and stating that the
bill of lading will be signed under protest. A copy of the Letter of Protest should be
stapled to each negotiable copy of the bill of lading (i.e. each bill of lading in the set of
originals).
If the ships measurements show more cargo loaded than advised by the shipper, the
shippers figures should be entered on the bill of lading. No Letter of Protest will be
necessary.
Letters of protests for slow discharging
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Letter of protests for general purposes
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Page 122
Note of Protest
A note of protest is simply a declaration by the master of circumstances beyond his
control which may give, or may have given, rise to loss or damage. Such declaration must be made
before a notary public, magistrate, a consular officer, or other authority. Usually, statements under
oath will be taken from the master and other members of the crew and these statements will have to
be supported by appropriate log book entries. At the time of noting protest the master should
reserve the right to extend it.
Protests are admissible in evidence before legal tribunals and, in many cases, are essential
to the establishment of a claim. In countries like UK, rights are not affected by the fact of a protest
not having been noted but, protests may be utmost importance in other countries.
In any of the circumstances enumerated below it is advisable for the master to note protest.
1. Whenever during the voyage the ship has encountered conditions of wind and sea which
may result in damage to cargo.
2. When from any cause the ship is damaged, or there is reason to fear that damage may be
sustained.
3. When through stress of weather it has not been practicable to adopt normal precautions
in the matter of ventilation of perishable cargo.
4. When cargo is shipped in such condition that it is likely to suffer deterioration during the
voyage. In this case, however, the protest will not be effective unless the bills of lading
were endorsed to show the condition of the cargo at the time of shipment.
5. When any serious breach of C/P terms is committed by the charterer or his agent, such as
refusal to load, unduly delaying loading, loading improper cargo, refusal to pay
demurrage, refusal to accept B's/L in the form signed by the master, etc.
6. When consignees fail to discharge cargo or take delivery thereof, and pay freight in
accordance with C/P or B/L terms.
7. In all cases of general average.
Protest should be noted as soon as possible, certainly within 24 hours of arrival in port and
in the case of cargo protests before breaking bulk.
(a) In many countries, particularly on the Continent protests are received in evidence as a
matter of course.
(b) In the United Kingdom, however, they are not accepted as evidence in favour of the
party making the protest unless both parties consent. The chief use of a protest in the
United Kingdom is to support a claim by a cargo owner against his underwriters.
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Page 123
On the Continent the position is different; there the noting of a protest is a condition
precedent to certain legal remedies. For example, consignees cannot make a claim for cargo
damage unless they protest within 24 hours of taking delivery of the goods and follow this up by a
court summons within one month. The master, if he delivers the cargo and accepts the freight, will
be barred from claiming the cargo's contribution in general average unless he notes protest within
24 hours and notifies the consignee that he has done so. It is not essential that a protest should be
made on a special form but it is advisable and usual in practice9.
Remember not to miss understand the LOP and the NOP. LOP is a document issued to
show the dissatisfaction of the issuer regarding a matter. It may be before a damage occur (if there is
likely to cause a damage) or after the damage. It is to indicate that the issuer has informed the
controlling party so that a claim may be brought against the controlling party if, damage is caused.
NOP is a statement of fact (not containing any opinions and it must be a summary of facts) issued
when the loss is caused beyond the control of the master to safe guard himself against the claims
brought by third parties. NOP is to be made before a notary public.
Procedure of noting protest

Take the official log book, deck or engine log books as appropriate and all other relevant
information surrounding the event being protested. Go to any authority that is registered to take
sworn oaths (Notary Public, solicitor or Consular of the flag state). Take one or more witnesses
from the crew who has knowledge of the facts. Make a sworn statement in the presence of the
previously mentioned officials who will enter the protest in the Register of Protests. Obtain at least 3
certified copies of the protest and send two to ship owner and keep one as ships records. Pay fee
and get the receipt. All these are to be done by the master.
Personal Appearance Required

The master of a vessel who elects to make a marine note of protest is required to make the
protest in person before a consular officer unless the owner, agent, or the operators have furnished
the consular officer with a written statement authorizing the making of the protest by an officer
other than the master. Under no circumstances where the owner, agent, operators, or master have
elected to file a note of protest should a consular officer waive a personal appearance by the master
without the specific authorization of the shipowner, operators, or agent.
If the protest is some thing to do with a damage, remember to reserve the right to extend it
at a time and place convenient.
th
F.N. Hopkins, Business & law for the ship master, 7 edition (1998), P. 288
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Page 124
Sometimes according to the custom of the port you may have to note protest again at the
next port.
Reserve the right to extend (Extended protest)

In some situations, it is not clear whether damage has occurred or not at the time of
original protesting. Sometimes, it may not be clear the extent of the damage as well. It will be
necessary to extend the protest in such situations. Some situations may require to note protest at one
port, and extend it at another port.
When relevant facts are available this should be done within a reasonable time limit.
Different jurisdictions may have different time limits. This consists of a statement of all the material
circumstances leading up to the event and based on log book extracts supported by other available
documents, such as weather charts, giving official information on the matter at issue. It should
contain all relevant facts and also it should not be contradictory to the original protest.
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Page 125
LETTER OF PROTEST
Port
: .....................................................
Country : ...................................................
Be it known on this ........................ day of ..................., at ........................ before me
...........................................a Notary Public ......................................., duly commissioned and sworn,
personally appeared ................................, Mater of the ................................. called the .......................
of ........................... of the burden of .......................... tons or thereabouts, official number
.............................. Port of registry ............................. and declared that on or about the ....................
day of .............................. last past he sailed in and with said vessel as Master thereof from
....................... bound for ...................................... having on board said vessel a cargo of
........................ and arrived at .................................. on .............................. and having during the said
voyage
and thus he hereby notes a protest reserving the right to extend same in event of any damage or
claim to the vessel, and further he declares that due to circumstances beyond his control he was
unable to lodge protest earlier.
IN WITNESS WHEREOF:
.......................................
...............................
Notary Public
Master
Original
: Master
Copy
: Company
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Page 126
Wrecks
Definitions
Wreck
Wreck is a vessel or cargo or part thereof which is abandoned without the hope of recovery. This
includes jetsam, flotsam, lagan and derelict found in or on the shores of the sea or any tidal
water. Misplaced or abandoned buoys are not considered as wrecks. Examples of wreck
materials are;
Sextants
Cargo materials
Personal belongings
Ships
aircrafts
Jetsam
This means cargo thrown (jettisoned) overboard in time of peril for the purpose of lightening a
vessel and remains afloat.
Flotsam
This means cargo lost overboard or parts of wreckage which remain afloat due to a shipwreck.
Lagan
This means cargo jettisoned or wreckage lying on the bottom of the sea for the purpose of
recovering it latter.
Derelict
A vessel or cargo remaining afloat but completely abandoned without the hope of recovering it
later.
Powers of the receiver of wrecks
Where a Sri Lankan or foreign vessel is wrecked, stranded or in distress at any place on or near
the coasts of Sri Lanka or in any tidal water within Sri Lanka waters, the receiver of wrecks,
upon being made acquainted with the circumstances,
(a) Take command of all persons present at the place;
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Page 127
(b) Assign such duties and give such directions to each person present as he thinks fit for the
preservation of the vessel and of the lives of the persons belonging to the vessel, and of
the cargo and apparel of the vessel.
(c) Any person who, without reasonable excuse, wilfully disobeys the direction of the
receiver shall be guilty of an offence and on conviction thereof shall be liable to a fine
not exceeding one thousand rupees;
(d) But the receiver shall not interfere between the master and the crew of the ship in
reference to the management thereof, unless he is requested to do so by the master.
A receiver of wrecks may, with view to the preservation of shipwrecked persons, or at a
vessel, her cargo or, apparel
(a) require such persons as he thinks necessary to assist him;
(b) require the master or other person having the charge of any vessel near at hand to give
such aid with his men or vessel as is in his power;
(c) demand the use of any vehicle or draught animal that may be near at hand.
(d) May trespass (either with or without vehicles or draught animals) over any adjoining
lands, without being subject to interruption by the owner or occupier thereof, unless there
is some public road equally convenient
Where a receiver of wrecks is not present, the following officers or persons in succession,
each in the absence of the others, and in the order in which they are named, may do anything by
this Part authorized to be done by such receiver, namely
(a) any chief officer of customs;
(b) any Master Attendant;
(c) any Government Agent;
(d) any Magistrate;
(e) any Superintendent or Assistant Superintendent of Police;
(f) any divisional Assistant Government Agent;
(g) any officer of the armed forces of Sri Lanka.
A receiver of wrecks may at any time sell any wreck in his custody, if in his opinion;
(a) it is under the value of two hundred rupees;
(b) it is so much damaged or of so perishable nature that it cannot with advantage be kept; or
(c) it is not of sufficient value to pay for warehousing.
The proceeds of any sale made shall, after defraying the expenses thereof, be held by the
receiver for the same purposes, and subject to the same claims, rights and liabilities as if the
wreck had remained unsold.
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Page 128
Reports to be made
Where any Sri Lankan or foreign ship is or has been in distress on the coasts of Sri
Lanka, a receiver shall, as soon as conveniently may be, examine on oath (which he is hereby
empowered to administer) any person belonging to the ship, or any other person who is able to
give any account thereof or of the cargo or stores thereof, as to the following matters:
(a) the name and description of the ship;
(b) the name of the master and of the owners;
(c) the names of the owners of the cargo;
(d) the ports, from and to which the ship was bound ;
(e) the occasion of the distress of the ship;
(f) the services rendered ; and
(g) such other matters or circumstances relating to the ship or to the cargo on board the ship
as the person holding the examination thinks necessary.
The person holding the examination as mentioned above in relation to any ship shall
make a record thereof in writing, and shall send one copy to the Minister and another to the
Director; and the Director shall if he shall think fit cause a copy of such record to be placed in a
conspicuous place in the office of the Shipping Officer for the area in which such ship was in
distress.
Where a receiver of wrecks takes possession of any wreck, he shall within forty-eight hours
(a) cause to be posted at the nearest police station, and otherwise publish in such manner as
he may deem fit, a description of the wreck and of any marks by which it is
distinguished; and
(b) if in his opinion the value of the wreck exceeds two hundred rupees, send a copy of such
description to the Director.
Actions to take by a person found a wreck

Where any person finds or takes possession of any wreck within Sri Lanka, or of any
wreck found or taken possession of outside Sri Lanka and brought within Sri Lanka, he shall
(a) if he is the owner thereof, give notice to the receiver of the district in which such wreck
may be stating that he has found or taken possession of such wreck and describing the
marks by which the wreck may be recognized ; or
(b) if he is not the owner thereof, as soon as possible deliver the wreck to the receiver of such
district.
Any person who fails, without reasonable cause, to comply as mentioned above relating to
any wreck shall be guilty of an offence and on conviction thereof shall be liable to a fine not
exceeding two thousand rupees, and in addition shall, if he is not the owner thereof,
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Page 129
(a) forfeit any claim to salvage in respect thereof;

(b) be liable to pay to the owner of the wreck, if it is claimed, or if it is unclaimed to the
person entitled thereto, double the value of wreck, to be recovered in the same way as a
fine of like amount under this Act.
(According to English law a report shall be made within 28 days to the wreck receiver)
Salvage award
The person who takes the possession of a wreck but not the owner of the wreck is likely to
be entitled to a salvage award which does not exceed the value of the salved property. The wreck
receiver can arrange for independent valuations to help owners and finders agree on a fair
salvage award.
Claims with regard to a wreck

(1) The owner of any wreck in the possession of a receiver upon establishing his claim
thereto to the satisfaction of the receiver within one year from the time when the wreck
came into the possession of the receiver shall, on paying the salvage, fees and other
expenses due, be entitled to have the wreck or the proceeds thereof delivered up to him.
(2) Where any wreck or other article belonging to or forming part of a foreign ship which has
been wrecked on or near the coasts of Sri Lanka, or belonging to and forming part of the
cargo thereof, is found on or near those coasts or is brought into any port in Sri Lanka,
the Consular officer of the country to which the ship or, in the case of cargo, to which the
owners of the cargo may have belonged, shall, in the absence of the owner and of the
master or other agent of the owner, he deemed to be the agent of the owner, so far as
relates to the custody and disposal of the wreck or such article.
Unclaimed wrecks
The State is entitled to all unclaimed wreck within any part of Sri Lanka or found or
taken possession of outside Sri Lanka and brought within Sri Lanka, except in any place where
the State has granted to any person the right to any such wreck. Where no owner establishes a
claim to any wreck which
(a) has been found in Sri Lanka or found or taken possession of outside Sri Lanka and
brought into Sri Lanka; and
(b) has been in the possession of a receiver of wrecks for one year, the receiver shall sell
such wreck and shall pay to the Government the proceeds of the sale, after deducting
there from the expense of sale and any other expenses incurred by, and the fees payable
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Page 130
to him, in respect thereof and paying there out to the salvors such amount of salvage as
the Minister in each case or by any general rule may determine.
Removal of wrecks
Where any vessel is sunk, stranded or abandoned in any harbour or tidal water under the
control of a harbour or conservancy authority, or in any approach thereto in such manner as in
the opinion of the authority to be or likely to be an obstruction or danger to navigation, or to life
boats engaged in life boat service, in that harbour or water or in any approach thereto, that
authority may
(a) take possession of, and raise, remove or destroy the whole or any part of the vessel;
(b) light or buoy any vessel or part of such vessel until the raising, removal or destruction
thereof;
(c) sell in such manner as that authority thinks fit any vessel or part so raised or removed,
and also any other property recovered in the exercise of the powers of that authority
under this section, and out of the proceeds of the sale reimburse itself for the expenses
incurred by that authority in relation thereto under this section; and that authority shall
hold the surplus, if any, of the proceeds in trust for the persons entitled thereto:
Provided, however, that such surplus shall be paid into the Consolidated Fund, unless
such person establishes a claim thereto within three years of such sale.
Taking a wreck to foreign port

A person commits an offence if he takes into any foreign port and sells
(a) any vessel stranded, derelict or otherwise in distress found on or near the coast
(b) any part of the cargo or equipment of, or anything belonging to, such a vessel; or
(c) any wreck found within those waters.
Interfering with wrecked vessel or wreck

(1) Subject to subsection (2) below, a person commits an offence if, without the permission
of the master, he boards or attempts to board any vessel which is wrecked, stranded or in
distress.
(2) No offence is committed under subsection (1) above if the person is the receiver or a
person lawfully acting as the receiver or if he acts by command of the receiver or a
person so acting
(3) A person commits an offence if
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Page 131
(a) he impedes or hinders or attempts to impede or hinder the saving of

(i) any vessel stranded or in danger of being stranded, or otherwise in distress, on
or near any coast or tidal water; or
(ii) any part of the cargo or equipment of any such vessel; or
(iii) any wreck;
(b) he conceals any wreck;
(c) he defaces or obliterates any mark on a vessel; or
(d) he wrongfully carries away or removes
(i) any part of any vessel stranded or in danger of being stranded, or otherwise in
distress, on or near any coast or tidal water;
(ii) any part of the cargo or equipment of any such vessel; or
(iii) any wreck.
(4) The master of a vessel may forcibly repel any person committing or attempting to commit
an offence under subsection (1) above.
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Page 132

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