2012

AEGEAN UNIVERSITY
Dr A.J.Corres

MARITIME LAW for the

Shipping Executive
 Table of Contents
A. Ship registration............................................................................................................. 5

B. Ship mortgages.............................................................................................................. 7
B1. Registration of Statutory Mortgages........................................................................ 7
B2. Protection against other mortgagees ................................................................................ 8
B3. Priority rankings.............................................................................................................. 8
B4. Collateral Deed.......................................................................................................... 8

C. Maritime liens and ship arrest ................................................................................. 10

C1. Maritime liens
C2. Ship owner;s lien
C3. Advantage of action in rem............................................................................................ 11
C4. Discharge and distinction of lien.................................................................................... 12
C5. The ship arrest convention (1952)
C6. About ship arrest……………………………………………………………………….……… 18
C7. Reasons for ship arrest………………………………………………………………………..18
C8. Ship arrest procedure…………………………………………………………..……………...18
C9. Prevention of ship arrest………………………………………………………………………19
C10. Release of the arrested ship…………………………………………………………………19
C11. Judicial sale of vessels in the Netherlands.................................................................. 20

D. Bills of lading……………………...………………………………………………………..…22
D1. Short Form of B/L......................................................................................................... 23
D.2 The English Law perspective......................................................................................... 24
D3. Contents of the document.............................................................................................. 24
D.4 Main types of bill of Lading............................................................................................ 26
• Straight bill of lading.................................................................................................... 26
• Order bill of lading ...................................................................................................... 26
• Surrender bill of lading................................................................................................ 26
D5. Other terminology.......................................................................................................... 27
D6. Multi-modal Transport Documents..................................................................................... 27
D7. BoL and fraud................................................................................................................ 28
Liability.............................................................................................................................. 28

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 D8. B/L and electronic data interchange (EDI)..................................................................... 29
Advantages and disadvantages of using electronic documents............................................... 31
The Bolero Rules................................................................................................................ 33

E. Ship collision................................................................................................................. 34
E1. Definition……………………...………………………………………………………………….33
E2. Collision and Non- Contact Incidents................................................................................. 35
E.3 Jurisdiction
E. 4 Security………………………………………….........……….………………………………….36
E. 5 Investigation and evidence…………………………....………………………………………..36
E. 6 Adjustment of claims ( Cross liability, single liability)...…………………………………..….37

F. Marine salvage .............................................................................................................. 40

F1. Definition……..…………………………………………………………………………………39
F2. Types of salvage.......................................................................................................... 41
• Offshore salvage........................................................................................................ 41
• Harbour salvage......................................................................................................... 41
• Cargo and equipment salvage ..................................................................................... 41
• Wreck removal ........................................................................................................... 41
• Afloat salvage ............................................................................................................ 42
• Clearance salvage...................................................................................................... 42
F4. Urgency and cost considerations .............................................................................. 43
F5. Contractual forms of salvage...................................................................................... 43
• Contract salvage ........................................................................................................ 44
• Pure salvage.............................................................................................................. 44
Lloyds Open Form 95 (LOF 95) ........................................................................................... 45
Salvors’ remuneration under LOF 95 ................................................................................... 46
Salvage and the IOPC Fund................................................................................................ 46
P+I Clubs’ Code of Practice................................................................................................. 47
Salvage Contracts - SCOPIC Clause............................................................................... 48
Lloyd’s Open Form............................................................................................................ 49
Salvage in Maritime Law.................................................................................................... 49
Conditions required........................................................................................................... 49
a. Recognized subject matter .......................................................................................... 50
b. Real danger............................................................................................................... 50
d. Voluntary service........................................................................................................ 50

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 Salvage under contract ........................................................................................................ 52
Minimizing environmental damage....................................................................................... 52
Jurisdiction........................................................................................................................... 52

G. Limitationof owners’ liability………………………………………….…………………53

G1. Defining Negligence…………………………………………………………………………53
a. The Reasonable Person .................................................................................................. 55
b. Knowledge, experience, perception
c. Special skills
d. Physical characteristics
e. Mental capacity
f. Children
g. Emergencies
h. Conduct of others
i. Proof of negligence
j. Statute
k. Experts
l. Custom
m. Circumstantial evidence
n. Duty
o. Proximate cause
p. Intervening cause
q. Defences to negligence liability
r. Contributory negligence
s. Comparative negligence
t. Assumption of risk

G2. Convention on Limitation of Liability for Maritime Claims (LLMC)........................ 64

H. Oil pollution………………………………………………………………….……. 66

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A. International legislation
A1. International Convention on Civil Liability for Oil Pollution Damage (CLC)........................ 67
A2.International Convention on the Establishment of an International Fund for Compensation
for Oil Pollution Damage (FUND)............................................................................................. 70
B. US Legislation
Oil Pollution Act of 1990 (OPA)................................................................................................ 75
OPA Overview...................................................................................................................... 76
Title I of OPA........................................................................................................................ 76
NPFC Created to Implement OPA, Title I............................................................................. 77
The Oil Spill Liability Trust Fund (OSLTF) ........................................................................... 77
History of the Fund............................................................................................................... 78
Oil Pollution Act (OPA)......................................................................................................... 78
Uses of the Fund.................................................................................................................. 78
Structure of the Fund ........................................................................................................... 79
The Emergency Fund.......................................................................................................... 79
The Principal Fund............................................................................................................... 80
Sources of the Principal Fund.............................................................................................. 80
Uses of the Principal Fund................................................................................................... 81
Certificates of Financial Responsibility (COFRs)................................................................ 81
COFR Application Overview................................................................................................. 82
COFR Contact Information................................................................................................... 82
Pilot’s skills........................................................................................................................... 85
Navigation............................................................................................................................ 85
Ship-handling....................................................................................................................... 85

I. Ship sale & purchase……...………………………………………………………88

Norwegian Sales Form..…………………………………...………………………..…..……..90
Explanatory notes to SALEFORM 1993………….….…………..……..100

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 A. Ship registration
• Ship registration is the process by which a ship is documented and authorized by
some country; it is usual to say that the ship sails under the flag of the country of
registration (the registration, not the actual cloth flag, is the essential issue).
International law requires that every merchant ship be registered in a country, called
its flag state.
• A ship’s flag state exercises regulatory control over the vessel and is required to
inspect it regularly, certify the ship’s equipment and crew, and issue safety and
pollution prevention documents.
• The organization which actually registers the ship is known as its registry. Registries
may be governmental or private agencies. In some cases, such as the United States’
Alternative Compliance Program, the registry can assign a third party to administer
inspections.
• A registry that is open only to ships of its own nation is known as
a traditional or national registry. Registries that are open to foreign-owned ships are
known as open registries, and some of these are classified as flags of convenience.
• The principle that there be a "genuine link" between a ship’s owners and its flag state
dates back to 1958, when Article 5(1) of the Geneva Convention on the High Seas also
required that "the state must effectively exercise its jurisdiction and control in
administrative, technical and social matters over ships flying its flag."[3] The principle
was repeated in Article 91 of the 1982 treaty called the United Nations Convention on
the Law of the Sea and often referred to as UNCLOS. In 1986, the United Nations
Conference on Trade and Development attempted to solidify the genuine link concept
in the United Nations Convention for Registration of Ships.[4] The Convention for
Registration of Ships would require that a flag state be linked to its ships either by
having an economic stake in the ownership of its ships or by providing mariners to

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 crew the ships.[4] To come into force, the 1986 treaty requires 40 signatories whose
combined tonnage exceeds 25% of the world total.
• To date, only 14 countries have signed the treaty.
• National or closed registries typically require that a ship be owned and constructed by
national interests, and at least partially crewed by its citizens. Open registries do not
have such requirements; some offer on-line registration, sometimes guaranteeing
completion in less than a day.

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 B. Ship mortgages
• In a ship mortgage, a ship owner gives a lender (or mortgagee) an interest in a ship
as security for a loan.

• Similar to other types of mortgage, a ship mortgage legally consists of three parts: the
mortgage loan, the mortgage document (deed) and the rights derived from the
mortgage deed onto money lender.

• Ship mortgages differ from other types of mortgage in three ways. First, some
privileged claims could have a higher ranking over that of mortgagee against the ship.
Second, ships naturally move between jurisdictions. And third, a ship is always at risk
of partial or total damages at sea.

• The use of ship mortgages emerged as a widely accepted practice in shipping

industry in the 19th century as a major source of finance for ship owners.

B1. Registration of Statutory Mortgages

• The registration of a ship mortgage is essential to have legal effects, though failure to
register does not render the mortgage void: under Merchant Shipping Acts, any
unregistered mortgagee cannot enjoy any benefits available.

• Even with the protection clause to the buyer in Norwegian Sales Form 1993 when "the
Sellers warrant that the Vessel, at the time of delivery, is free from all charters,
encumbrances, mortgages and maritime liens or any other debts whatsoever." For

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 buyers, registration of ships with mortgages is particularly important to avoid future
litigation after sales due to claims related to unregistered mortgages.

B2. Protection against other mortgagees

• The most critical benefits of registration for mortgagee is obtaining priority, with priority
ranking solely decided by the date of registration. By giving a "notice to the world", the
registered mortgagee could be protected from all later secured creditors of the
mortgagor, who may seek further finance from other sources using the same ship as
security.

• In UK, regulation 59 of the Merchant Shipping (Registration of Ships) Regulations

1993, mortgagees of a ship or a share in a registered British ship are allowed to give
notice of their intended interests to and recorded by the Registrar. Once later executed
or registered, the registered mortgagees will have priority over the other registered
mortgages which may have been fully registered in the first place.

B3. Priority rankings

Registration confers a mortgagee higher priority over the following scenarios but not limited to:

1. earlier unregistered mortgages, irrespective of knowledge of them;

2. later registered or unregistered mortgages; and
3. additional advances subsequently made under a prior registered mortgage where
under the agreement was that mortgage should cover present and future advances by
the mortgagee.
However, a mortgagee does not have priority over the following scenarios but not limited to:

1. any mortgage registered earlier;

2. any claims in connection with which the vessel had already been arrested at the time
when the mortgage was entered into;
3. any possessory lien of a ship repairer; and
4. maritime liens, whether earlier or later

B4. Collateral Deed

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As a basic statutory form of mortgage, a reference to a collateral deed containing detailed
particulars should be included:

1. like the time for repayment of the principal sums;

2. the interest payable on the capital sum loaned;
3. the method of payment;
4. the party responsible for insuring the ship;
5. any restriction which the mortgage may take place on the manner in which the ship is
to be used; and
6. conditions when default will be considered by the mortgagor, allowing the mortgage to
re-possess and sell the mortgaged security

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 C. Maritime liens and ship arrest
C1. MARITIME LIENS
A maritime lien is a lien on a vessel, given to secure the claim of a creditor who provided
maritime services to the vessel or who suffered an injury from the vessel’s use. Maritime liens
are sometimes referred to as tacit hypothecation. Maritime liens have little in common with
other liens under the laws of most jurisdictions.
The maritime lien has been described as "one of the most striking peculiarities of Admiralty
law".[14] A maritime lien constitutes a security interest upon ships of a nature otherwise
unknown to the common law or equity. It arises purely by operation of law and exists as a claim
upon the property concerned, both secret and invisible, often given priority by statute over other
forms of registered security interest.[15] Although characteristics vary under the laws of different
countries, it can be described as:

1. a privileged claim,
2. upon maritime property,
3. for service to it or damage done by it,
4. accruing from the moment that the claim attaches,
5. travelling with the property unconditionally,
6. enforced by an action in rem.[14]

Claims giving Maritime Lien are the following:

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 Wages of the ship’s master and crew
Salvage operations
General average claims
Claims for the breach of a charter party
Preferred ship mortgages
Claims under maritime contracts for repairs, supplies, towage, pilotage and a wide variety
of other “necessaries”
Claims for maritime torts including personal injury and death, and collision claims
Claims for the damage or loss of cargo
Claim by the carrier of cargo for unpaid freight and demurrage
Pollution claims
Although there is a list recognized by the admiralty jurisdiction,
the definitions and criteria are not the same under the maritime law of differing jurisdictions.
For example, bunker suppliers are not protected by maritime lien under UK law. However the
supplier of bunker goods has the right of lien in the US.

C2. Shipowner’s lien

A shipowner’s Lien is a possessory lien which is the major difference between it and other
maritime liens.
The right to this lien can be applied only on the goods which are delivering by the shipowner
when the shipper is the contractual party. It may entitle the shipowner to retain the cargoes as
security for the payment of a debt. This contractual shipowner’s lien is currently found in all
contracts for carriage of goods by sea nowadays, and may be claimed if the shippers fail to pay
the due on time.
However, some authorities state that there is no difference between shipowner’s lien and
maritime lien.

C3. Advantage of action in rem

Action in rem(property) is an action separated from the action in personam. The action is
against the maritime property such as vessel, cargo or freight, but not against the owner. This
concept is why such an action is said to be against “all the world”.
Claimants take advantage of the action in rem, rather action in personam, because an action in
remis more easy and convenient to institute. It is more difficult, in an action in personam, to
summon the defendant via writ outside the jurisdiction unless the defendant is a resident
of EUor EFTA countries.
The processes to find the rightful shipowner, the defendant, are very complicated and time
consuming due to the complex and inconsistent ship registration in different countries. An
action with respect to a bareboat ship will frequently encounter this problem.
The Admiralty action in remwill concern when the claims and ship are put within the Admiralty
Jurisdiction, an adequate and secure place for the claimants to ask for compensation.

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If the defendant does not provide enough security as compensation, the court may sell
the “res” in order to get the satisfaction for the claim.

C4. Discharge and distinction of lien

Although the maritime lien is attached to the maritime property whoever the shipowner is, it is
possible to discharge or eliminate the lien by several ways. They include payment of the
claims, waiver,laches, foreclosure, and sale or destruction of the res.
The lienholder could give up the right of maritime lien either by expressed or implied intention.
The intention to waive the lien should be shown clearly required by the court and the credit of
the lienholder will be considered.
Laches is a form of estoppel for delay. A person fails to arrest the ship within a reasonable
time may result in cancellation of the original claim. The time of delay will be determined on a
case-by-cause basis. The idea is that the holder must show diligence exercising the lien.
Another method is an execution sale in a rem. This also removes the attachment of the lien.
After auction, the new shipowner will get the vessel with clear title.
This rule could be applied in case of an international judicial sale, such as an action in rem.
Destruction of the res results in the extinction of the lien. In this case, the lien is eliminated
when the whole ship is destroyed. However, partial destruction of the vessel will not extinguish
the lien and the lien will be attached to the remaining part of the vessel.

C5. SHIP ARREST CONVENTION

International Convention Relating to the Arrest of Sea-Going Ships

(Brussels, May 10, 1952)

[Preamble Omitted]

ARTICLE 1

In this Convention the following words shall have the meanings hereby assigned to them:

(1) "Maritime Claim" means a claim arising out of one or more of the following:

(a) damage caused by any ship either in collision or otherwise;

(b) loss of life or personal injury caused by any ship or occurring in connexion with the

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operation of any ship;

(c) salvage;

(d) agreement relating to the use or hire of any ship whether by charterparty or otherwise;

(e) agreement relating to the carriage of goods in any ship whether by charterparty or
otherwise;

(f) loss of or damage to goods including baggage carried in any ship;

(g) general average;

(h) bottomry;

(i) towage;

(J) pilotage;

(k) goods or materials wherever supplied to a ship for her operation or maintenance;

(1) construction, repair or equipment of any ship or dock charges and dues;

(m) wages of Masters, Officers, or crew;

(n) Master’s disbursements, including disbursements made by shippers, charterers or agent on

behalf of a ship or her owner;

(o ) disputes as to the title to or ownership of any ship;

(p) disputes between co-owners of any ship as to the ownership, possession, employment, or
earnings of that ship;

(q) the mortgage or hypothecation of any ship.

(2) "Arrest" means the detention of a ship by judicial process to secure a maritime claim, but
does not include the seizure of a ship in execution or satisfaction of a judgment.

(3) "Person" includes individuals, partnerships and bodies corpo-rate, Governments, their
Departments, and Public Authorities.

(4) "Claimant" means a person who alleges that a maritime claim exists in his favour.

ARTICLE 2

A ship flying the flag of one of the Contracting States may be arrested in the jurisdiction of any
of the Contracting States in respect of any maritime claim, but in respect of no other claim; but

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nothing in this Convention shall be deemed to extend or restrict any right or powers vested in
any governments or their departments, public authorities, or dock or habour authorities under
their existing domestic laws or regulations to arrest, detain or otherwise prevent the sailing of
vessels within their jurisdiction.

ARTICLE 3

(1) Subject to the provisions of para. (4) of this article and of article 10, a claimant may arrest
either the particular ship in respect of which the maritime claim arose, or any other ship which
is owned by the person who was, at the time when the maritime claim arose, the owner of the
particular ship, even though the ship arrested be ready to sail; but no ship, other than the
particular ship in respect of which the claim arose, may be arrested in respect of any of the
maritime claims enumerated in article 1, (o), (p) or (q).

(2) Ships shall be deemed to be in the same ownership when all the shares therein are owned
by the same person or persons.

(3) A ship shall not be arrested, nor shall bail or other security be given more than once in any
one or more of the jurisdictions of any of the Contracting States in respect of the same maritime
claim by the same claimant: and,

• if a ship has been arrested in any of such jurisdictions, or bail or other security has
been given in such jurisdiction either to release the ship or to avoid a threatened
arrest, any subsequent arrest of the ship or of any ship in the same ownership by the
same claimant for the maritime claim shall be set aside, and the ship released by the
Court or other appropriate judicial authority of that State,
• unless the claimant can satisfy the Court or other appropriate judicial authority that
the bail or other security had been finally released before the subsequent arrest or
that there is other good cause for maintaining that arrest.

(4) When in the case of a charter by demise of a ship the charterer and not the registered
owner is liable in respect of a maritime claimrelating to that ship, the claimant may arrest such
ship or any other ship in the ownership of the charterer by demise, subject to the provisions of
this Convention, but no other ship in the ownership of the registered owner shall be liable to
arrest in respect of such maritime claim.

The provisions of this paragraph shall apply to any case in which a person other than the
registered owner of a ship is liable in respect of a maritime claim relating to that ship.

ARTICLE 4

A ship may only be arrested under the authority of a Court or of the appropriate judicial
authority of the contracting State in which the arrest is made.

ARTICLE 5

The Court or other appropriate judicial authority within whose jurisdiction the ship has been
arrested shall permit the release of the ship upon sufficient bail or other security being

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furnished, save in cases in which a ship has been arrested in respect of any of the maritime
claims enumerated in article 1, (o ) and (p).

In such cases the Court or other appropriate judicial authority may permit the person in
possession of the ship to continue trading the ship, upon such person furnishing sufficient bail
or other security, or may otherwise deal with the operation of the ship during the period of the
arrest.

In default of agreement between the parties as to the sufficiency of the bail or other security,
the Court or other appropriate judicial authority shall determine the nature and amount thereof.
The request to release the ship against such security shall not be construed as an
acknowledgment of liability or as a waiver of the benefit of the legal limitations of liability of the
owner of the ship.

ARTICLE 6

All questions whether in any case the claimant is liable in damages for the arrest of a ship or for
the costs of the bail or other security furnished to release or prevent the arrest of a ship, shall
be determined by the law of the Contracting State in whose jurisdiction the arrest was made or
applied for.

The rules of procedure relating to the arrest of a ship, to the application for obtaining the
authority referred to in Article 4, and to all matters of procedure which the arrest may entail,
shall be governed by the law of the Contracting State in which the arrest was made or applied
for.

ARTICLE 7

(1) The Courts of the country in which the arrest was made shall have jurisdiction to determine
the case upon its merits if the domestic law of the country in which the arrest is made gives
jurisdiction to such Courts, or in any of the following cases namely:

(a) if the claimant has his habitual residence or principal place of business in the country in
which the arrest was made;

(b) if the claim arose in the country in which the arrest was made;

(c) if the claim concerns the voyage of the ship during which the arrest was made;

(d) if the claim arose out of a collision or in circumstances covered by article 13 of the
International Convention for the unification of certain rules of law with respect to collisions
between vessels, signed at Brussels on 23rd September 1910;

(e) if the claim is for salvage;

(f) if the claim is upon a mortgage or hypothecation of the ship arrested.

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(2) If the Court within whose jurisdiction the ship was arrested has not jurisdiction to decide
upon the merits, the bail or other security given in accordance with article 5 to procure the
release of the ship shall specifically provide that it is given as security for the satisfaction of any
judgment which may eventually be pronounced by a Court having jurisdiction so to decide; and
the Court or other appropriate judicial authority of the country in which the claimant shall bring
an action before a Court having such jurisdiction.

(3) If the parties have agreed to submit the dispute to the jurisdiction of a particular Court other
than that within whose jurisdiction the arrest was made or to arbitration, the Court or other
appropriate judicial authority within whose jurisdiction the arrest was made may fix the time
within which the claimant shall bring proceedings.

(4) If, in any of the cases mentioned in the two preceding paragraphs, the action or proceeding
is not brought within the time so fixed, the defendant may apply for the release of the ship or of
the bail or other security.

(5) This article shall not apply in cases covered by the provisions of the revised Rhine
Navigation Convention of 17 October 1868.

ARTICLE 8

(1) The provisions of this Convention shall apply to any vessel flying the flag of a Contracting
State in the jurisdiction of any Contracting State.

(2) A ship flying the flag of a non-Contracting State may be arrested in the jurisdiction of any
Contracting State in respect of any of the maritime claims enumerated in article 1 or of any
other claim for which the law of the Contracting State permits arrest.

(3) Nevertheless any Contracting State shall be entitled wholly or partly to exclude from the
benefits of this convention any government of a non-Contracting State or any person who has
not, at the time of the arrest, his habitual residence or principal place of business in one of the
Contracting States.

(4) Nothing in this Convention shall modify or affect the rules of law in force in the respective
Contracting States relating to the arrest of any ship within the jurisdiction of the State of her flag
by a person who has his habitual residence or principal place of business in that State.

(5) When a maritime claim is asserted by a third party other than the original claimant, whether
by subrogation, assignment or other-wise, such third party shall, for the purpose of this
Convention, be deemed to have the same habitual residence or principal place of business as
the original claimant.

ARTICLE 9

Nothing in this Convention shall be construed as creating a right of action, which, apart from
the provisions of this Convention, would not arise under the law applied by the Court which was
seized of the case, nor as creating any maritime liens which do not exist under such law or

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under the Convention on maritime mortgages and liens, if the latter is applicable.

ARTICLE 10

The High Contracting Parties may at the time of signature, deposit or ratification or accession,
reserve:

(a) the right not to apply this Convention to the arrest of a ship for any of the claims
enumerated in paragraphs (o ) and (p) of article 1, but to apply their domestic laws to such
claims;

(b) the right not to apply the first paragraph of article 3 to the arrest of a ship within their
jurisdiction for claims set out in article 1 paragraph (q).

ARTICLE 11

The High Contracting Parties undertake to submit to arbitration any disputes between States
arising out of the interpretation or application of this Convention, but this shall be without
prejudice to the obligations of those High Contracting Parties who have agreed to submit their
disputes to the International Court of Justice.

ARTICLE 12

This Convention shall be open for signature by the States represented at the Ninth Diplomatic
Conference on Maritime Law. The protocol of signature shall be drawn up through the good
offices of the Belgian Ministry of Foreign Affairs.

ARTICLE 13

This Convention shall be ratified and the instruments of ratification shall be deposited with the
Belgian Ministry of Foreign Affairs which shall notify all signatory and acceding States of the
deposit of any such instruments.

ARTICLE 14

(a ) This Convention shall come into force between the two States which first ratify it, six
months after the date of the deposit of the second instrument of ratification.

(b ) This Convention shall come into force in respect of each signatory State which ratifies it
after the deposit of the second instrument of ratification six months after the date of the deposit
of the instrument of ratification of that State.

ARTICLE 15

Any State not represented at the Ninth Diplomatic Conference on Maritime Law may accede to
this Convention.

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The accession of any State shall be notified to the Belgian Ministry of Foreign Affairs which
shall inform through diplomatic channels all signatory and acceding States of such notification.

The Convention shall come into force in respect of the acceding State six months after the date
of the receipt of such notification but not before the Convention has come into force in
accordance with the provisions of Article 14(a).

ARTICLE 16

Any High Contracting Party may three years after coming into force of this Convention in
respect of such High Contracting Party or at any time thereafter request that a conference be
convened in order to consider amendments to the Convention.

Any High Contracting Party proposing to avail itself of this right shall notify the Belgian
Government which shall convene the conference within six months thereafter.

ARTICLE 17

Any High Contracting Party shall have the right to denounce this Convention at any time after
the coming into force thereof in respect of such High Contracting Party. This denunciation shall
take effect one year after the date on which notification thereof has been received by the
Belgian Government which shall inform through diplomatic channels all the other High
Contracting Parties of such notification.

ARTICLE 18

(a ) Any High Contracting Party may at the time of its ratification of or accession to this
Convention or at any time thereafter declare by written notification to the Belgian Ministry of
Foreign Affairs that the Convention shall extend to any of the territories for whose international
relations it is responsible. The Convention shall six months after the date of the receipt of such
notification by the Belgian Ministry of Foreign Affairs extend to the territories named therein, but
not before the date of the coming into force of the Convention in respect of such High
Contracting Party.

(b ) A High Contracting Party which has made a declaration under paragraph (a ) of this Article
extending the Convention to any territory for whose international relations it is responsible may
at any time thereafter declare by notification given to the Belgian Ministry of Foreign Affairs that
the Convention shall cease to extend to such territory and the Convention shall one year after
the receipt of the notification by the Belgian Ministry of Foreign Affairs cease to extend thereto.

(c ) The Belgian Ministry of Foreign Affairs shall inform through diplomatic channels all
signatory and acceding States of any notification received by it under this Article.

DONE in Brussels, on May 10, 1952, in the

C6. About ship arrest

Marine admiralty has this jurisdiction to prevent a ship legally from moving or trading as long as
the resolution of the concerned court action is pending. In this case the ship, which has

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authorized by the pertained commission to be arrested, is usually taken in charge in colligation
with a claim rather than a warrant of arrest for its own sake. Here the ship is detained by
judicial process in order to secure a maritime claim, but the arrest warrant does not imply the
seizure of a ship in execution or gratification of a judgment.

C7. Reasons for Ship Arrest

A number of events or occurrences may trigger the arrest of ships. The concerned authority, by
abiding by the law of ship arrest, may conduct a warrant of arrest on a ship and formal or
informal investigation pertaining to certain crimes, such as:

Collisions
Salvage
Loss of Life
Personal Injury
Loss of Property
Violation of customs, regulations, road norms, health norms or safety regulations
Execution of a decree

C8. The Ship Arrest Procedure

1. Any domestic of foreign ship may be arrested in the jurisdiction of the authority of a
Court or an appropriate judicial authority in respect of any maritime claimonly and
essentially no other claim. In its esteemed a claimant may ask for a ship arrest for a
particular claim.
2. A ship within the same jurisdictions cannot be arrested more than once by the same
claimant.
One may apply for a ship arrest after ensuring that the Claim Form has been issued. The
application and an affidavit that must follow should contain the followings

the nature of the claim or counterclaim

that the claim has not been gratified or fulfilled
the name of the ship if the claim arises of a ship concerned
the nature of the property to be arrested, which must include the name and port of registry
and the ownership of the ship
the amount of security sought, that any relevant notices to the consul have been given

If the authority finds it is right to arrest,

A. the ship becomes a security for the determined compensating costs and
B. an object to be sold to satisfy the claim.
C. However this hardly takes place as the owner manages to satisfy the requirement for
security by offering a letter of undertaking.

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C9. Prevention of Ship Arrest
There are in fact certain measures to prevent arrest of ships, especially when the owner of the
ship is aware of the claim. This is even more important when the ship is used for commercial
trading and the ship arrest might cause it financial loss.

Hence it is essential to foresee potential claim against the ship or the owner himself. In most
cases the owner renders an acknowledgement of service to the claim and offer security
standards to gratify the claim with interest and costs.

However this may not prevent the ship from being arrested, but the Court could order discharge
of the ship arrested.

C10. Release of the Ship Arrested

• A ship can only be released if the arresting party allows it to or
• the court orders for the same.
• If the authority finds out a dispute over the value of the claim, the claimant has to
provide an undertaking to pay on demand all the expenses related to the arrest of
ships.
• A third party may also claim to have a right against the ship, for which they must
enter into a contractual arrangement to prevent any dealing with the ship or its release.
However this may enact the Court to obligate the third party pay the damage costs to
the owner of the ship for the delay caused in its release.

Caution
Implementation of ship arrest can cause severe disruption to a ship and its owners.
Nevertheless the criteria for arrest of ships in a certain jurisdiction must ensure to have
satisfied otherwise a warrant for wrongful arrest unlawfully may ensue and terminate the case
and cost the claimant the severe expenses for the impairment caused. Both the owner of the
ship and the claimant for ship arrest must be aware of this fact.

C11. Judicial sale of vessels in the Netherlands

Judicial sale by public auction

The Netherlands is a suitable jurisdiction to enforce claims against ships. The arrest of vessels
is a broadly used manner to obtain payment or security for a long outstanding claim. It is not
always that vessels are subsequently released. Especially where various parties arrest a
vessel there is always a risk that the vessel will not leave port in the same ownership. With a
certain frequency seagoing vessels are sold before the Dutch Courts through a judicial sale by
public auction. Most of the times, the auctions take place at the request of the bank, but in
theory any creditor may decide to auction a vessel. It is rare that creditors with a claim that is
ranked below a priviledged claim of the bank takes these steps, especially if he fears that the

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 proceeds will not be sufficient to recover a fair amount of the claim. In general the vessels sold
have in common that they have too many debts. The public auction is meant to devide the nett
proceeds of the ship under those entitled thereto. Who comes later, that is after the auction,
comes too late.

One creditor must take the initiative to auction the vessel. At the request of a creditor that is in
possession enforceable legal title against the ship owner the Court will fix a date for the public
auction, at which a ‘Dutch Auction’ will take place. The Conditions of Sale will be made
availabe upon request.

Inspection of the vessel

Vessels at auction are sold on an "as is where is" basis. Subject to the Conditions of Sale, the
vessel may be inspected on application to the attorney of the enforcing creditor.

Dutch Auction

The judicial sale by public auction is conducted in the Dutch language. The auction takes place
in one brief session, consisting of two parts. The session begins with a customary manner of
bidding. Parties interested in the vessel may bid. The highest bid wins, that is to say, initially
wins only a bidding premium as fixed in the conditions of sale (normally half a per cent of the
highest bid). After the first part the real Dutch Auction will start. During the second part a sum
will be fixed that will have to be paid on top of the earlier mentioned highest bid. In order to
come to this sum, the bailiff will call out diminishing amounts to be paid in excess of the price
as already fixed. The person who first accepts the vessel, by calling out "mine", acquires the
vessel. If nobody calls mine, the vessel goes to the person who was the higest bidder during
the first part of the session. The bidding therefore goes up and then down again.

Purchase price

The purchase price consists of the total of:

• the highest bid made during the first bidding part, plus
• the sum at which ‘mine’ has been called during the second part, plus
• the bidding premium (if one is not the highest bidder in the first part), plus
• the Costs of the auction, as fixed by the Court before the auction.
The purchase price of the vessel is normally payable within eight days of the auction. Only
upon payment will the purchaser receive the protocol of adjucation, which is a necessary
document to take possession of the vessel and to register the vessel in a ship register of
choice.

Formalities

The specific formalities of a public auction are described in the terms and conditions of the
judicial sale. One of the formalities will almost always be the deposit of a certain amount of
money before the auction actually takes place. Our attorneys know the formalities and are in a

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postion to advise you on short notice. Over the last few decades potential buyers of seagoing
vessels have instructed the lawyers of Kernkamp Advocaten with regard to the auction of
vessels and to do the bidding on their behalf. Having local knowledge at your disposal can
make all the difference for a successful purchase.

Further information
Please feel free to contact our Transport and International Trade contact person for further
information.

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 D. Bills of lading
D1. Short Form of B/L

• A bill of lading is a document issued by a carrier to a shipper, acknowledging that

specified goods have been received on board as cargo for conveyance to a named
place for delivery to the consignee who is usually identified.

• The term derives from the verb "to lade" which means to load a cargo onto a ship or
other form of transportation.[1] A through bill of lading (aka a "combined bill of lading")

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 involves the use of at least two different modes of transport from road, rail, air, and
sea.

A bill of lading serves three main functions:

it is a receipt, i.e. an acknowledgement that the goods have been loaded (or received for
shipment);
it contains or evidences the terms of the contract of carriage; and
it serves as a prima facie document of title to the goods.
Although the term "bill of lading" is well-known and well-understood, it may become obsolete.
Articles 1:15 & 1:16 of the Rotterdam Rules create the new term "transport document"; but
(even if the Rotterdam Rules ever come into force) it remains to be seen whether shippers,
carriers and "maritime performing parties" (another new Rotterdam Rules coinage) will
abandon the familiar term "bill of lading".
D.2 The English Law perspective

English common law cases such as Leduc v Ward[2] (1888 QBD 475) help to define the role of
the bill of lading. The Bills of Lading Act 1855 was the governing statute, but this was repealed
and replaced by the Carriage of Goods By Sea Act 1992. The earlier Carriage of Goods by Sea
Act 1971 incorporates into English Law the Hague-Visby Rules, which require (where the
Article X invokes the Rules) that, on demand, the carrier must provide the shipper with a bill of
lading that meets the requirements of Article III of the Rules.

D3. Contents of the document

A bill of lading can be used as a traded object. The standard short form bill of lading is
evidence of the contract of carriage of goods and it serves a number of purposes:

It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may
incorporate the full terms of the contract between the consignor and the carrier by
reference (i.e. the short form simply refers to the main contract as an existing document,
whereas the long form of a bill of lading (connaissement intégral) issued by the carrier sets
out all the terms of the contract of carriage;
It is a receipt signed by the carrier confirming whether goods matching the contract
description have been received in good condition (a bill will be described as clean if the
goods have been received on board in apparent good condition and stowed ready for
transport); and
It is also a document of transfer, being freely transferable but not a negotiable
instrument in the legal sense, i.e. it governs all the legal aspects of physical carriage, and,
like a cheque or other negotiable instrument, it may be endorsed affecting ownership of the

24
 goods actually being carried. This matches everyday experience in that the contract a
person might make with a commercial carrier like FedEx for mostly airway parcels, is
separate from any contract for the sale of the goods to be carried; however, it binds the
carrier to its terms, irrespective of whom the actual holder of the B/L, and owner of the
goods, may be at a specific moment.
The BL must contain the following information:

Name of the shipping company;

Flag of nationality;
Shipper’s name;
Order and notify party;
Description of goods;
Gross/net/tare weight; and
Freight rate/measurements and weighment of goods/total freight
• While an air waybill (AWB) must have the name and address of the consignee, a BL
may be consigned to the order of the shipper.

• Where the word order appears in the consignee box, the shipper may endorse it in
blank or to a named transferee. A BL endorsed in blank is transferable by delivery.
Once the goods arrive at the destination they will be released to the bearer or the
endorsee of the original bill of lading.

• The carrier’s duty is to deliver goods to the first person who presents any one of the
original BL. The carrier need not require all originals to be submitted before delivery.

• It is therefore essential that the exporter retains control over the full set of the originals
until payment is effected or a bill of exchange is accepted or some other assurance for
payment has been made to him. In general, the importer’s name is not shown as
consignee.

1. The bill of lading has also provision for incorporating notify party. This is the person
whom the shipping company will notify on arrival of the goods at destination. The BL
also contains other details such as

2. the name of the carrying vessel and its flag of nationality,

3. the marks and numbers on the packages in which the goods are packed,

4. a brief description of the goods, the number of packages, their weight and
measurement, whether freight costs have been paid or whether payment of freight is
due on arrival at the destination.

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 5. The particulars of the container in which goods are stuffed are also mentioned in case
of containerised cargo.

6. The document is dated and signed by the carrier or its agent. The date of the BL is
deemed to be the date of shipment. If the date on which the goods are loaded on
board is different from the date of the bill of lading then the actual date of loading on
board will be evidenced by a notation the BL.

7. In certain cases a carrier may issue a separate on board certificate to the shipper.

D.4 Main types of bill of Lading

• Straight bill of lading

Bill of lading for casks of wine shipped by United States Consul to Lisbon, Portugal, William
Jarvis to President Thomas Jefferson.

In this importer/consignee/agent is named in the bill of lading, it is called straight bill of lading. It
is a document, in which a seller agrees to use a certain transportation to ship a good to a
certain location, where the bill assigned to a certain party. It details to the quality and quantity
of goods..

• Order bill of lading

This bill uses express words to make the bill negotiable, e.g. it states that delivery is to be
made to the further order of the consignee using words such as "delivery to A Ltd. or to order or
assigns". Consequently, it can be indorsed (legal spelling of endorse, maintained in all statute,
including Bills of Exchange Act 1909 (CTH)) by A Ltd. or the right to take delivery can be
transferred by physical delivery of the bill accompanied by adequate evidence of A Ltd.’s
intention to transfer.

• Bearer bill of lading

This bill states that delivery shall be made to whosoever holds the bill. Such bill may be created
explicitly or it is an order bill that fails to nominate the consignee whether in its original form or
through an endorsement in blank. A bearer bill can be negotiated by physical delivery. memo
bill of lading: Needed for documents & revenue purpose. Express bill of lading: Non negotiable
bill of lading consigned directly to third party.Hard copy is not required by shipper.

• Surrender bill of lading

Under a term import documentary credit the bank releases the documents on receipt from the
negotiating bank but the importer does not pay the bank until the maturity of the draft under the
relative credit. This direct liability is called Surrender Bill of Lading (SBL), i.e. when we hand
over the bill of lading we surrender title to the goods and our power of sale over the goods.

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 A clean bill of lading states that the cargo has been loaded on board the ship in
apparent good order and condition. Such a BL will not bear a clause or notation which
expressively declares a defective condition of goods and/or the packaging. Thus, a BL
that reflects the fact that the carrier received the goods in good condition. The opposite
term is a claused, or soiled bill of lading, which reflects that the goods are received
by the carrier in anything but good condition.

D5. Other terminology

A sea or air waybill is a non-negotiable receipt issued by the carrier. It is most common in the
container trade either where the cargo is likely to arrive before the formal documents or where
the shipper does not insist on separate bills for every item of cargo carried (e.g. because this is
one of a series of loads being delivered to the same consignee). Delivery is made to the
consignee who identifies himself. It is customary in transactions where the shipper and
consignee are the same person in law making the rigid production of documents unnecessary.

The UK’s Carriage of Goods by Sea Act 1992 creates a further class of document known as
a ship’s delivery order which contains an undertaking to carry goods by sea but is neither a bill
nor a waybill.

A straight bill of lading by land or sea, or sea/air waybill are not documents that can convey title
to the goods they represent. They do no more than require delivery of the goods to the named
consignee and (subject to the shipper’s ability to redirect the goods) to no other. This differs
from an "order" or "bearer" bill of lading which are possessory title documents and negotiable,
i.e. they can be endorsed and so transfer the right to take delivery to the last endorsee.
Nevertheless, bills of lading are "documents of title", whether negotiable or not, under the terms
of the Uniform Commercial Code. Definitions of "Document of Title" and "Bill of Lading"

D6. Multi-modal Transport Documents

The advent of unitisation in air and sea transportation brought about many innovations in
international transportation of goods. Multi-modal or combined transport is one such innovation.
Cargo today can be moved from an inland freight station in the exporting country to an inland
destination in the importing country. Goods may be picked up and transported using different
modes of transport. E.g. a consignment of garments may be containerised at a factory in
Mysore, customs cleared at ICD Bangalore, moved by rail to Cochin, by sea to Dubai, by air to
Frankfurt and road to Düsseldorf, all under a single transport document.

In such an operation, involving one or more land legs and/or air or sea legs, one carrier makes
itself responsible for the entire transport operation. The contracting carrier is referred to as a
multi-modal or a combined transport operator (MTO). He is liable in contract to the shipper if
the goods are damaged at any stage of the carriage. The multi-modal transportation document
may be issued either in non-negotiable or negotiable form.

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The multi-modal transportation document (MTD), whether negotiable or non-negotiable, is
prima facie evidence of the MTO taking charge of the goods for transportation. MTDs are of
two types, the COMBIDOC evolved by the Baltic International Maritime Council (BIMCO) and
FBL or FIATA MT Bill of Lading evolved by the International Federation of Freight Forwarders’
Associations (FIATA). This document (FBL) has been approved by the International Chamber
of Commerce (ICC) for the purpose of documentary credit. FIATA has evolved specific norms
for the use of FBLs.

Having seen what is covered by sea, air and multimodal transport let us look at other modes
including courier and charter movements. The ICC has a publication called the Uniform
Customs and Practices, UCP 600 (UCP 500 and UCP 400 were the earlier editions) which
among other things deals with various transport documents, including those we have already
looked at. Articles 20 to 24 of the UCP 600 deal with these documents.

D7. BoL and fraud

Because of their nature, Bills of Lading (BoL) present numerous opportunities for fraudsters to
manipulate the commodity trades e.g. false certification of the loading date. But also in relation
to the number of original documents fraud is possible.

• Bills of lading are normally issued in sets of three or six originals.

• Treating each BoL as an original leaves it open to misuse because presentation of part
of a set is enough.

• The carrier delivers the cargo against presentation of the bill of lading and it is not
necessary for the holder of the bill of lading to present the entire set.

• The carrier´s duty is to deliver goods to the first person who presents any one of the
original BoL.

• Delivery of the cargo against one of a set would cause no problems if the endorsee
had the complete set. The endorsee will therefore ensure that he receives the full set
of the BoL with all originals.

• If he receives an incomplete set of documents it can not be excluded that a third party
can deliver the goods. Despite the tendency to fraud and the developments in
communication technology the using of bill of ladings in sets continues. Why this
practice goes on these days is unclear.

Liability
• In the event of misdelivery the carrier will not be liable if he has no notice of other
endorsements.

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 • There is no duty on the carrier to make inquiries of the unendorsed bill of lading holder
whether any assignments have taken place.

The House of Lords already said in 1882: the warehouseman was not liable for misdelivery.
Case: Glyn Mills v. East and West India Dock Co. 1882:

a set of three bills of lading was issued, named Cottam and Co as the consignees. Freight
was to be payable on arrival of the goods at London. Cottam and Co endorsed one bill of
lading as security to Glyn Mills and kept the other two bills in the set. When the goods
arrived in London, they were stored, an Cottam and Co got delivery of the goods from the
warehouse on presentation of the unendorsed bill of lading. Glyn Mills sued the
warehouseman for misdelivery.
“It would be neither reasonable nor equitable nor in accordance with the terms of such a
contract that an assignment of which the shipowner has no notice should prevent a bona fide
delivery under one of the bills of lading, produced to him by the person named on the face of it
as entitled to delivery (in the absence of assignment) from being a discharge to the shipowner.
Assignment being a change of title since the contract, is not to be presumed by the shipowner
in the absence of notice.”

Wheras a carrier delivers cargo without presentation a bill of lading the carries
violates the contract. E.g. the carrier discharged the goods to their agents, who
delivered the goods against an indemnity from the bank. No bill of lading was
presented. The breach is regarded as a fundamental breach. He will lose the
benefit of a general exception clause in the contract of carriage because one of
the key provisions is the promise not to deliver the cargo other than in return for
an original B/L.

D8. B/L and electronic data interchange (EDI)

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The use of electronic communication in international commercial transactions has received
considerable attention in recent years. The term ELECTRONIC DATA INTERCHANGE is
commonly used to designate systems of computer to computer exchange of information in
predetermined formats.

The advantages are as follows.:

saving time by speeding up processes of documents transfer and transaction completion;

the ease doing business over long distances;
the reduction of costs.
A well known EDI system is e.g. SWIFT the Interbank Financial Telecommunications, the
transmission of bank to bank financial transaction messages.

Suitable amendments have made in trade terms to accommodate the use of electronic bills of
lading:

Contracts conclude electronically are now recognized in many jurisdiction;

Formal requirements for a contractual document such as a signature have been made
possible as a result of legislation modeled on the UNICTRAL Model Law on Electronic
Signatures;
The CMI Rules on electronic Bills of lading and the BOLERO Rules have made use of
electronic bills of lading a reality.

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Advantages and disadvantages of using electronic documents
Electronic bills of lading are reducing:

problems created by late arrival of documents at the port of discharge;

fraud, because bills of lading will no longer be sent in sets of 3 or 6 originals.
But the using of open networks such as Internet enhance fraud because of computer misuse.
The successful implementation of paperless documents is only possible if:

it is nearly impossible for hackers or fraudsters to gain access;

e.g. using digital cryptology;
Organisations like OECDor EUare continuously considering policy issues with a view
to arriving at a solution that makes electronic commerce more secure.
deterrence based on law;
this legislation, like the Computer Misuse Act 1990 in the UK, carries criminal sanction
in the event of computer misuse; but is not clear, if there is any success in decreasing
computer misuse;
the Council of Europe with the intention of harmonizing the law on computer misuse
has draftet the International Convention on Cybercrime which hopefully will have wide
impact.
there is a greater co-operation between countries to exchange information about cross
border data flow;
this depends on the countries willingness to participate.
the laws allow computer based documents for the case of evidence;
e.g. the UNCITRAL Model Law on electronic Commerce, on which many jurisdictions
have based their legislation allows computer generated evidence in Art. 9.
The CMI Rules on electronic BoL
Short Overview
The model rules for Electronic Bills of Lading were adopted by the Comité Maritime
International (CMI) in 1990.The main feature of the CMI Rules is the creation of an electronic
BoL by the carrier who also acts as an unofficial registry of negotiations.

CMI Rules for electronic bills of lading:

Art. 1 Scope of Application

Art. 2 Definitions
Art. 3 Rules of procedure
Art. 4 Form and content of the receipt message
Art. 5 Terms and conditions of the Contract of Carriage

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 Art. 6 Applicable Law
Art. 7 Right of Control and Transfer
Art. 8 The Private Key
Art. 9 Delivery
Art. 10 Option to receive a paper document
Art. 11 Electronic data is equivalent to writing
The CMI Rules for electronic BoL, like INCOTERMS, need to be incorporated into the contract.
After the parties agree that the Rules apply the shipper delivers the goods to the carrier who
then transmits a receipt message to the shippers electronic address. This message must
contain:

the name of the shipper,

the description of the goods,
the date and place of receipt and
the private key to be used in subsequent transmission.
The private key is the device that makes issuance, endorsement negotiation and registration of
the electronic bill of lading possible; it secures the electronic transmission.

Art. 2 f CMI: “Private key means any technically appropriate form such as a combination of
numbers and/or letters which parties may agree for securing the authenticity and integrity
(realness) of a transmission.”

The party who possesses a valid private key is the holder and is the only party entitled to claim
delivery of the goods, name the consignee, transfer ownership and so on. The shipper must
send a confirmation to the carrier immediately after receiving the receipt message. The shipper
does not become holder until this confirmation is send. The receipt message is the equivalent
to a traditional bill of lading. In other words, the receipt function of the electronic bill is to be no
different from a paper bill of lading. Once the shipper confirms the receipt message, he
becomes the holder. The carrier acts as an central registry and cancels the previous private
key and issues a new one to the new holder. The rules place excessive responsibility on the
carrier. If the holder has been careless with the private key as a result of which an entity other
than the holder gives instructions to the carrier on which the carrier acts then it seems the loss
will fall on the holder since the carrier shall be under no liability for misdelivery if it can be
proved that it exercised care to ascertain that the party who claimed to be the consignee was in
fact that party. The holder has the option at any time prior to delivery of the goods to demand
from the carrier a paper based bill of lading. The issue of a paper bill of lading will cancel the
private key and terminate the EDI procedures under the CMI Rules but does not affect the
rights, obligations or liability of the parties; The success of the CMI Rules will depend on

32
whether merchants are ready to give up their control over the bill of lading and entrust the
carrier with information to effect a transfer.

The Bolero Rules

Bolero stands for ‘Bill of Lading Electronic Registry Organization’ and was commercially
launched on September 27th 1999. Bolero International Ltd. is a joint venture between SWIFT
(Society for Worldwide Interbank Financial Transactions) and the TT Club (Through Transport
Mutual Insurance Association Ltd.).

It is a project of the EU to study feasibility of electronic bill of lading.

It is a closed network and can only be used by subscribers.
The subscribers are subject to the BOLERO Rule Book which is the legal framework.
Transfer is effected by a combination of notification, confirmation and authentication
through digital signature.

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 E. Ship collision

E1. Definition

Ship collision is the structural impact between two ships or one ship and a floating or still
object such as an iceberg[1]. Ship collisions are of particular importance in marine accidents.
Some reasons for the latter are:

The loss of human life.

The environmental impact of oil spills, especially where large tanker ships are involved.
Financial consequences to local communities close to the accident.
The financial consequences to shipowners, due to ship loss or penalties.
Damage to coastal or off-shore infrastructure, for example collision with bridges.
As sea lanes are getting more congested and ship speeds higher, there is a good possibility
that a ship may experience an important accident during her lifetime. Higher speeds may cause
larger operational loads, like slamming, or excessively severe loads, for example during a

34
collision. Denser sea routes increase the probability of an accident – in particular a collision –
involving ships or ships and shore or offshore structures.

E2. Collision and Non- Contact Incidents

Collision is one of the few areas where third party liabilities may be covered by the hull policy.

Traditionally, the English hull policy covered 3/4ths of the collision risks and the P&I Clubs the
remaining 1/4th. The usual Lloyd’s hull policy does so under the ’Running Down Clause’ (RDC).
Nowadays the Club may exclude collision risks altogether or cover up to 100% of the risk,
depending upon the mix of hull and P & I cover for the risk adopted by the ship owner.

Collision cover under the hull policy will normally only encompass a ship owners liability for
damage to the opponent vessel and her cargo caused by physical contact between the two
vessels. It is usually limited to the insured value of the insured vessel. P&I cover encompasses
such liabilities in excess of the hull cover limit, together with a wide range of other risks flowing
from the collision incident including damage to cargo carried on the entered vessel, personal
injury, pollution and wreck removal.

Therefore the Club will almost certainly be involved in the resolution of any serious collision
claim and will generally take the lead role in dealing with it whilst liaising closely with the
Member and their hull insurers. See Class I Rule 25v.

E3. Jurisdiction

• The claims for damages suffered by the owners of vessels involved in a collision, if not
settled amicably, will need to be resolved through litigation.
• The jurisdiction in which such disputes are dealt with can have an important bearing on
the outcome because different jurisdictions apply different laws to the resolution of
such claims.
• Most collisions occur in ports, harbours, anchorages or coastal waters where there is
an obvious local jurisdiction but collisions that occur on the high seas require a choice
of jurisdiction which can be influenced by the parties to the dispute.

Decisions in respect of jurisdiction taken in the early stages of a case can have an
enormous impact on the overall outcome. This is particularly true in serious cases
where limitation of liability of one or both of the vessels may be an issue. Laws on the
application of rights to limitation vary from country to country. If the Member is
considered to be the less blameworthy of the two parties, and is likely to make a net
recovery on the balance of claims, the better jurisdiction is one which minimises the
Members liability and maximises his recovery without the constraints of
limitation. Conversely, where the Member is thought to be the more blameworthy, a
jurisdiction which offers the best prospects of defence and the lowest limits of liability is
preferable.

35
 However choice of jurisdiction is not simply a matter of picking a forum which suits the
Member, irrespective of its connection with the incident. The chances are that, if a
particular forum suits the Members interests, it will not suit the interests of the other
vessel and voluntary agreement is unlikely. There must be some means of enforcing
the jurisdiction of choice by service of proceedings on the concerned vessel or a sister
vessel or the owning company, if any of them are in the chosen jurisdiction and there
must be sufficient connection with that jurisdiction to sustain proceedings
there. Moreover, the question of which side establishes jurisdiction first may be a
factor. Quick decisions on choice of jurisdiction may be necessary.

If neither party is able to enforce the jurisdiction of their choice it may be necessary to
agree a compromise. For many years England has commonly been accepted as a
neutral forum for deciding questions of collision liability. Because of the vast
experience of the English Admiralty Court and the system of judicial precedent,
litigants can reach an informed view about how the Courts are likely to view liability in a
particular set of circumstances. English jurisdiction is therefore regularly agreed for
collisions which occur all over the world between vessels of various nationalities.

It is extremely important that the Club is consulted at the earliest possible stage if a
collision occurs so that the issue of jurisdiction can be resolved as soon a possible.

E4. Security

Early consultation is also vital in order that decisions can be taken concerning the security that
may be required for the Members own claim or the need to provide security on behalf of the
Member to ensure that one of his vessels is not detained. In some cases, the opponent vessel
may be the only significant asset against which a claim can be made and it may therefore be
necessary to obtain financial security in case that vessel is subsequently sold or otherwise lost.
In the event that such security cannot be obtained immediately in a suitable jurisdiction, it may
be necessary to give consideration to lien insurance as a temporary measure. [See the section
of this guide on Guarantees.]

E5. Investigation and Evidence

To make often complex decisions about issues such as jurisdiction, it is important to collect
certain basic information rapidly in order that a view can be taken on the likely apportionment of
liability and the amount of each vessels claim.

The following surveys will therefore normally be arranged by the Club when it has been notified
of the incident:

• a survey of the entered ship in order to determine the extent of the damage sustained
and repairs required. This survey is usually arranged for and on behalf of the owners
and their hull underwriters and will be for their account. It is customary to invite the
owners of the other vessel to attend and conduct a joint survey in order to avoid later
disputes about the extent of the damage;

36
 • a without prejudice survey of the damage to the other ship. Again, this is normally
conducted jointly with the opponents surveyor. It is usually arranged on behalf of the
owners and their collision liability underwriters and the costs will be apportioned
between the Club and the hull underwriters in the same proportion as their respective
cover for collision liabilities;
• in most cases, the Members Classification Society will also appoint a surveyor to
inspect the vessel;
• in serious collision cases, and particularly in the event that the circumstances of the
case are likely to be in dispute, a speed and angle of blow survey will be arranged.
This will assess, from the extent and configuration of the physical damage to both
ships, their relative speeds and the angle between them at the time of the collision.
Such evidence, being based on fact, can frequently be used to resolve any
inconsistencies between the various reports on the circumstances of the case. The
cost of this report is usually apportioned between the hull underwriters and the Club
since it concerns both the prosecution of the Members claim and the defence of the
opponent vessels claim.

The Club will normally send their correspondent/surveyor (and possibly a lawyer in the more
serious cases) to investigate the casualty but there is much that the ships crew can do to
facilitate this process.

Brief notes to form the basis of factual reports should be prepared by the Master, duty officers,
helmsman and any other material witnesses as soon as possible after the incident and before
memories begin to fade. However, it should be borne in mind that written evidence may be
disclosable to the other side in the event of litigation.[See the section of this guide
on Documentary Evidence.]

The following additional documentary evidence should be retained on board the vessel in order
to facilitate the handling of the claim:

E6. Adjustment of Claims

Once liability has been apportioned and the amount of each vessels recoverable damages
agreed, the case is normally settled by a single net payment from one vessel owner to the
other. However, the amounts to be reimbursed by Club and hull underwriters are
calculated differently. Under the Club Rules and the terms of most hull policies the claims on
the insurers are calculated on the basis of a cross-liability adjustment, unless the liability of one
or other vessel is limited by law, when a single liability adjustment is applied.

The following examples illustrate this approach:

Cross Liability Adjustment

Assume that both vessels in an example collision are insured for 3/4th collision liability with
their hull underwriters and for 1/4th with their P&I Clubs. In the example vessel A is 75% to
blame for the collision and vessel B is 25% to blame. Vessel A suffers damage costing

37
$100,000 and vessel B damage costing $200,000. The payments by each underwriter are
illustrated below.

• the original working chart being used at the time of the collision (from which nothing
should be erased);
• deck and engine room movement books;
• rough and fair deck and engine-room log books;
• any navigational equipment logs;
• course recorder print-out;
• telegraph and engine data logger print-outs;
• echo sounder print-out;
• any radar or other plots made of the movement of the other vessel prior to collision;
• vessel turning circle and stopping distance data sheet;
• copies of vessels GA plan, stability data, and tonnage, loadline and safety certificates.

The following information will be required by the Club and any lawyers instructed for the
Member:

• the exact time of the collision;

• the vessels position at the time of the incident;
• the vessels heading at the time of the collision;
• an estimate of the angle of blow of the collision;
• details of the first sighting of the colliding vessel and the last position fix of the
Member’s vessel prior to the sighting;
• details of the Member’s vessels course and speed at the time of the sighting;
• estimates of the colliding vessels course and speed at the time of the sighting;
• details of any alterations of course and/or speed on either vessel thereafter, prior to the
collision;
• details of the radars in use, the mode of operation, and ranges set prior to the collision;
• details of any lights, shapes displayed/ sound signals made prior to the collision;
• details of the weather and tidal conditions;
• details of those on the bridge/in the engine-room prior to/at the time of the collision;
• details of the accuracy of the bridge and engine-room clocks and any recording
devices;
• details of any independent witnesses; e.g. any pilot on board either vessel, any third
party vessel in the vicinity;
• details of movements of either vessel following the collision;
• details of any communication between the vessels before and after the collision.

In most maritime jurisdictions, the question of responsibility for collisions is determined with
reference to the International Regulations for the Prevention of Collisions at Sea, which codify
how vessels should conduct themselves in order to avoid collisions. The apportionment of
liability between the vessels is normally based on the causative importance of any breaches of
these regulations.

Vessel A Vessel B
Percent to blame 75% 25%
Own damage $100,000 $200,000
Liability to other vessel $150,000(75%x$200,000) $25,000(25%x$100,000)
Net settlement $125,000 paid to B

38
U/Ws pay $112,500(3/4x$150,000 $18,750(3/4x $25,000)
P&I pays $37,500(1/4x $150.000) 6,250(1/4x $25,000)

Thus each collision liability underwriter reimburses its share of each vessels gross liability to
the other vessel.

Single Liability Adjustment

If given the same example, Vessel A is entitled to limit liability in respect of Vessel Bs claim to
$100,000 payment by the underwriters and the Clubs of each vessel will be adjusted on a
single liability basis. This means that the net liability of one ship to the other is first calculated,
in this example that of Vessel A to Vessel B, and then the limitation amount is applied to that
net figure. The other vessel having been unable to recover its full claim because of the effect of
limitation is treated as having no liability to pay its share of collision damage.

Vessel As hull underwriters will reimburse $75,000 [ 3/4ths of the limitation amount] and her
Club will pay reimburse $25,000 [ 3/4ths of the limitation amount] Since Vessel B is treated as
having no liability, Bs collision liability insurers [Hull and Club] will pay nothing.

39
 F. Marine salvage

F1. Definition

Marine salvage is the process of rescuing a ship, its cargo, or other property from peril.
Salvage encompasses rescue towing, refloating a sunken or grounded vessel, or patching or
repairing a ship. Today the protection of the environment from cargoes such as oil or other
contaminants is often considered a high priority.

"Salvors" are seamen and engineers who carry out salvage to vessels that are not owned by
themselves, and who are not members of the vessel’s original crew. When salvaging large
ships, they may use cranes, floating dry docks and divers to lift and repair ships for short
journeys to safety towed by a tugboat. The aim of the salvage may be to repair the vessel at
a harbour or dry dock, or to clear a channel for navigation. Another reason for salvage may be
to prevent pollution or damage to the marine environment. Alternatively the vessel or valuable
parts of the vessel or its cargo may be recovered for its resale value, or for scrap.

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F2. Types of salvage

• Offshore salvage
The refloating of ships stranded or sunk in exposed waters is called offshore salvage. In this
type of salvage, vessels are exposed to waves, currents and weather and are the most
vulnerable and difficult to work on. They also tend to deteriorate more rapidly than such vessels
in protected harbors. Offshore salvage may provide only a short window of opportunity for the
salvage team due to unusually high tide or inclement weather for instance. The work window
may not come around again for as long as weeks or months and in the interim, the vessel will
continue to deteriorate. As a result, it is often imperative to work quickly. Typically, offshore
salvage is conducted from pre-outfitted salvage tugs and other tugboats. In addition,
portable diving facilities may be transported by helicopter or small boat to the work area. From
a tactical point of view, working in unprotected waters is less hospitable for floating cranes,
construction tenders, dredges and equipment barges. Plus, it is often difficult to depend upon a
stable workforce (welders, carpenters, etc.) as all personnel must be present on site for the
duration

• Harbour salvage
The term harbour salvage refers to the salvage of vessels stranded or sunk in sheltered waters.
Such vessels are not normally subject to the same deterioration caused by marine and weather
conditions as offshore salvage vessels are. In addition, unless the vessel to be salvaged is
obstructing navigation, then there is no need to work as swiftly as in offshore salvage. Also,
harbour pre-salvage survey and planning stages tend to be less time consuming and
environmentally dependent. It is also easier to gain access to local labour resources and heavy
equipment such as floating cranes and barges.

• Cargo and equipment salvage

Saving the cargo and equipment aboard a vessel may be of higher priority than saving the
vessel itself. The cargo may pose an environmental hazard or may include expensive materials
such as machinery or precious metals. In this form of salvage, the main focus is on the rapid
removal of goods and may include deliberate dissection, disassembly or destruction of the hull.

• Wreck removal
Wreck removal focuses on the removal of hazardous or unsightly wrecks that have little or no
salvage value. Because the objectives here are not to save the vessel, the wrecks are usually
refloated or removed by the cheapest and most practical method possible. In many
cases, hazardous materials must be removed prior to disposing of the wreck. The most
common techniques used in wreck removal are cutting the hull into easily handled sections or
refloating the vessel and scuttling it in deeper waters.

41
 • Afloat salvage
The salvage of a vessel that is damaged but still afloat is called afloat salvage. This type of
salvage is mostly unobtrusive and involves primarily damage control work such as hull welding,
stabilization (rebalancing ballast tanks and shifting cargo) and structural bracing. In some
cases, the vessel can remain underway with little disruption to its original purpose and crew.

• Clearance salvage
Clearance salvage is the coordinated removal or salvage of numerous vessels in a harbor or
waterway. It typically follows a catastrophic event such as a tsunami, hurricane or an act of
war (i.e. Pearl Harbor). There may be multiple vessel obstructions with varying degrees of
damage due to collision, fire or explosions.[1]

F3. Tools used in marine salvage

Floatation airbag

Diving helmet

Underwater cutting equipment

42
 Hydraulic salvage pump

Air compressor

Hydraulic winch

F4. Urgency and cost considerations

Salvage projects may vary with respect to urgency and cost considerations. When the vessel to
be returned to service is commercial, the salvage operation is typically driven by its commercial
value and impact on navigational waterways. Military vessels on the other hand are often
salvaged at any cost – even to exceed their operational value because of national prestige and
anti “abandonment” policies. Another consideration may be loss of revenue and service or the
cost of the space it occupies.

F5. Contractual forms of salvage

There are three types of salvage:

43
 • Contract salvage
In contract salvage the owner of the property and salvor enter into a salvage contract prior to
the commencement of salvage operations and the amount that the salvor is paid is determined
by the contract. This can be a fixed amount, based on a "time and materials" basis, or any
other terms that both parties agree to. The contract may also state that payment is only due if
the salvage operation is successful (a.k.a. "No Cure, No Pay"),[2] or that payment is due even if
the operation is not successful.

• Pure salvage
In pure salvage (also called "merit salvage"), there is no contract between the owner of the
goods and the salvor. The relationship is one which is implied by law. The salvor of property
under pure salvage must:

A. Bring his claim for salvage in a court which has jurisdiction, and

B. The court will award salvage based upon the "merit" of the service and the value of the
salvaged property.

Pure salvage claims are divided into "high-order" and "low-order" salvage.

In high-order salvage, the salvor exposes himself and his crew to the risk of injury and loss or
damage to his equipment in order to salvage the property that is in peril. Examples of high-
order salvage are boarding a sinking ship in heavy weather, boarding a ship which is on fire,
raising a ship, plane, or other sunken property, or towing a ship which is in the surf away from
the shore.

Low-order salvage occurs where the salvor is exposed to little or no personal risk. Examples of
low-order salvage include towing another vessel in calm seas, supplying a vessel with fuel, or
pulling a vessel off a sand bar. Salvors performing high order salvage receive substantially
greater salvage award than those performing low order salvage.

In order for a claim to be awarded three requirements must be met:

• The property must be in peril,

• the services must be rendered voluntarily (no duty to act), and finally

• the salvage must be successful in whole or in part.

There are several factors that would be considered by a court in establishing the amount of the
salvor’s award. Some of these include the difficulty of the operation, the risk involved to the
salvor, the value of the property saved, the degree of danger to which the property was
exposed, and the potential environmental impacts.

44
 It would be a rare case in which the salvage award would be greater than 50
percent of the value of the property salvaged. More commonly, salvage
awards amount to 10 percent to 25 percent of the value of the property.

Private boat owners, to protect themselves from salvage laws in the event of a rescue, would
be wise to clarify with their rescuer if the operation is to be considered salvage, or simply
assistance towing. If this is not done, the boat owner may be shocked to discover that the
rescuer may be eligible for a substantial salvage award, and a lien may be placed on the vessel
if it is not paid.

Lloyds Open Form95 (LOF 95)

The 1989 International Salvage Convention entered into force on 14th July 1996. The main
effect of this Convention is to move beyond the simple "no cure no pay" principle and make
provision for an enhanced salvage award to reward action taken in attempting to prevent or
minimise damage to the environment.

The Convention thus allows the salvor to be awarded special compensation - the so-called
"Article 14" award - in the event that the salved fund is insufficient to properly reward the salvor,
following a casualty involving the risk of damage to the environment.

These particular provisions were already incorporated in LOF 90 pending the introduction of the
Convention. The provisions of LOF 90 were highlighted in Vol. 13 of "Sea Venture" on page 58.
Following the coming into force of the Convention, these provisions now apply even in the
absence of contractual agreement between the parties in all actions brought in those countries
which are signatories to this Convention.

The Convention is currently in force in:-

Australia Marshall Islands

Canada Mexico

China Nigeria

Denmark Norway

Egypt Oman

Georgia Saudi Arabia

Greece Sweden

India Switzerland

45
Iran United Arab
Emirates

Ireland United Kingdom

Italy U.S.A

Jordan

Whilst LOF 90 incorporated the main provisions of the Salvage Convention, it did not apply the
whole Convention, because there are some parts which are not appropriate for contractual
agreement. For example, the Salvage Convention provides the master with wider authority to
contract on behalf of cargo interests than existed before the Convention became part of English
law. In theory at least, the master’s authority to contract on behalf of cargo interests is more
limited under LOF 90. In order to avoid these and other potential conflicts between LOF 90 and
the Salvage Convention (now incorporated into English law under the Merchant Shipping
(Salvage and Pollution) Act 1994), LOF has been further amended to incorporate all provisions
of the Convention. A copy of the latest revision - LOF 95 - is enclosed with this edition of "Sea
Venture".

A number of other minor amendments to the earlier version have been included in LOF 95,
such as a 2 year time limit for demanding security for special compensation, the right to recover
the costs of providing such security, if unreasonably demanded and a provision for interest to
be charged on the costs of a Lloyd’s arbitration.

Salvors’ remuneration under LOF 95

Under Article 14 of the Lloyd’s form (and now the 1989 Salvage Convention), special
compensation is defined as the salvor’s "out-of-pocket" expenses reasonably incurred in the
salvage operation and a fair rate for equipment and personnel actually and reasonably used in
the salvage operation, taking into consideration the criteria set out in Article 13, [paragraph
1(h), (i) and (j)] i.e. promptness, availability and state of readiness.

The definition of "fair rate", as referred to in this article has long been the subject of dispute,
salvors arguing that it should include an element of profit, and shipowners that it should not.
This argument has recently been resolved by the House of Lords in their 6th February 1997
decision in the case of the "Nagasaki Spirit".

They decided that a fair rate means "a rate of expense, which is to be comprehensive of
indirect or overhead expenses and takes into account the additional cost of having resources
instantly available", but not any element of profit. It was held that any incentive to the salvor
should be taken into account in the "uplift" provided for in Article 14.2., and not in the "fair rate"
separately determined under Article 14.3. However, it still remains to be seen how, in practice,
a "fair rate" for salvor’s equipment and personnel will be calculated.

Salvage and the IOPC Fund

46
Discussions have taken place recently to decide the extent to which amounts paid for services
under LOF should be allowed against the International Oil Pollution Compensation Fund - the
"Fund" - given that most salvage operations have a dual purpose of (i) salving property and (ii)
protection of the environment.

The agreement between property and liability insurers is that all Article 13 costs should be
covered by property insurers, and all Article 14 costs by liability insurers.

Special compensation under Article 14 was specifically designed to encourage salvors to take
action to prevent or minimise damage to the environment. The International Group and other
bodies representing shipowners thus suggested that, regardless of circumstances, all Article 13
costs should be excluded from the Fund, and all Article 14 costs allowed to the extent that such
costs exceeded the vessel’s CLC limits. This suggestion would have involved a change in the
Fund Committee’s approach to such matters.

Historically, the Fund has applied the "primary purpose" test in order to determine whether
salvage operations fall within the definition of "preventive measures" and thus qualify for
recovery from the Fund. Under this test, if the "primary purpose" is to prevent pollution damage,
then costs in excess of the vessel’s CLC limit are recoverable from the Fund. In cases where
the activities have a "dual purpose" - i.e., both preventing pollution, and salving ship and cargo,
then the so-called "dual purpose" test is employed. Thus, if it is not possible to establish the
"primary purpose" of the salvors’ activities, or if the salvage operations could have been
undertaken more cheaply without any attempt to prevent pollution, then the costs are
apportioned (according to the facts) between salvage on the one hand, and pollution prevention
on the other, only the latter being recoverable from the Fund.

In February 1997, the Fund Committee decided to maintain its historical approach, and not to
adopt the alternative proposals put forward. Thus, each case will continue to be examined on
its merits, and the "primary purpose" or "dual purpose" tests, as outlined above, will still be
employed. It remains the case, therefore, that Article 14 expenses in excess of the vessel’s
CLC limit may not be fully recoverable from the Fund, unless the "primary purpose" of the
operation has been to prevent pollution damage.

P+I Clubs’ Code of Practice

The following Code of Practice has been agreed between the International Group of P&I Clubs
and the International Salvage Union following the entry into force of the 1989 Salvage
Convention:-

"In the spirit of co-operation, the following Code of Practice is agreed between the ISU and the
International Group of P&I Clubs in relation to future salvage services to which Article 14 of the
1989 Salvage Convention may be applicable.

A. The salvor will advise the relevant P&I Club at the commencement of the salvage
services, or as soon thereafter as is practical, if they consider that there is a possibility
of a Special Compensation claim arising.
B. The P&I Club may appoint an observer to attend the salvage and the salvors agree to
keep him and/or the P&I Club fully informed of the salvage activities and their plans.
However, any decision on the conduct of the salvage services remains with the
salvors.

47
 C. The P&I Club, when reasonably requested by the salvor, will immediately advise the
salvor whether the particular Member is covered, subject to the Rules of the P&I Club,
for any liability which he may have for Special Compensation.
D. The P&I Clubs confirm that whilst a Club Letter will generally be provided, it is not
automatic. The P&I Clubs will reply to any request by the salvors regarding security as
quickly as reasonably possible.
E. The salvors will accept security for Special Compensation by way of a P&I Club letter
of undertaking in the attached form and they will not insist on the provision of security
to Lloyd’s as required under LOF 95.

This is a Code of Practice which the ISU and the International Group of P&I Clubs will
recommend to their Members and it is not intended that it should have any legal effect."

Salvage Contracts - SCOPIC Clause

Article 14 of the 1989 Salvage Convention (’Article 14’) provided that salvors (’Contractors’)
could receive Special Compensation (ie their expenses and a fair rate for tugs and equipment
used in salvage operations) in certain circumstances where the salved fund was insufficient to
allow them to recover adequate remuneration under Article 13 of the Salvage Convention 1989
(’Article 13’).

The SCOPIC clause ( (Special Compensation P & I Club) endorsed this concept but
introduced a tariff to calculate the Contractor’s Special Compensation together with an uplift
fixed at 25%.

Traditional Article 13 Awards will be discounted by 25% of the amount by which any Article 13
Award exceeds the SCOPIC remuneration.

Special Casualty Representatives (SCR) and Representatives for hull and cargo were
introduced and marine property underwriters’ access to information about the services was
improved.

SCOPIC was warmly welcomed by the maritime community but experience gained through its
use identified a number of matters which needed clarification to confirm the original intent
behind SCOPIC and a number of gaps which needed to be filled in the wording of SCOPIC,
particularly in Appendix A (Tariff Rates). To this end the SCOPIC drafting sub-committee
produced an amended version of SCOPIC ("SCOPIC 2000") which came into effect on 1
September 2000.

The SCOPIC Clause is meant to be an alternative option for the contracting parties to agree to
replace the salvage convention article 14 when signing a Lloyd’s open form salvage contract

As a shipowner’s liability for special compensation is customarily insured in the P&I market
these developments may not be thought by property underwriters to have any immediate
relevance. However, London property underwriters were involved in the SCOPIC negotiations
and there are aspects of SCOPIC which will concern all property underwriters if the shipowners
and the contractor involved agree to add a SCOPIC clause to their LOF contract.

48
Once a SCOPIC clause is agreed between a contractor and a shipowner the latter is entitled to
appoint a Shipowners’ Casualty Representative (SCR) to attend the salvage operation who
must be a member of the SCR Panel.

This will comprise a number of surveyors selected by a SCR committee consisting of 12

persons representing ISU, the Clubs, IUMI and the International Chamber of Shipping.

Lloyd’s Open Form

A Lloyd’s Open Form, formally Lloyd’s Standard Form of Salvage Agreement, but more
commonly referred to as LOF, is a standard legal document for a proposed marine
salvage operation. The two-page contract is published by Lloyd’s of London. It is called "open"
because it is literally open, with no amount of money being stipulated for the salvage job: the
sum to be paid is determined later in London by a professional arbitrator. At the top of page
one, beneath the title "Salvage Agreement" is a statement of the contract’s fundamental
premise. "NO CURE – NO PAY". The form originated in the late 19th century and is the most
common such form of international salvage agreement.[1]

The arbitrator, who is invariably a Queen’s Counsel practising at the Admiralty Bar, follows
the English law of civil salvage, in determining the salvage award. The value of the ship, its
cargo and freight at risk are taken into account when the arbitrator decides what the award
should be, together with the extent of the dangers and the difficulty in effecting the salvage.

Salvage in Maritime Law

The right to be rewarded for salvage at sea under common law is based both on equitable
principles and public policy and is not contractual in origin. Historically, salvage is a right in law,
when a person, acting as a volunteer (that is, without any pre-existing contractual or other legal
duty so to act) preserves or contributes so to preserving at sea any vessel, cargo, freight or
other recognized subject of salvage from danger. This is the typical case of salvage, and is
distinct fromPrize law, which is the rescuing of property from the enemy at a time of war for
which a reward is made by the Court of Admiralty sitting as a Prize Court.
The law seeks to do what is fair to both of the property owners and the salvors. The right to
salvage may not necessarily arise out of an actual contract but is a legal liability arising out of
the fact that property has been saved. The property owner who had benefit of the salvor’s
efforts must make remuneration, regardless of whether he had formed a contract or not. The
assumption here is that when faced with the loss of his vessel and cargo, a reasonable prudent
owner would have accepted salvage terms offered, even if time did not permit such
negotiations.
Conditions required

Although salvage laws vary from one country to another, generally there are conditions that
must be met to allow a claim of salvage. The article under salvage must be fit into certain

49
recognized categories. The vessel must be in peril, which is defined broadly. The person
rendering aid (the "salvor") must be acting voluntarily, and under no pre-existing contract.
Finally, the salvor must be successful in his efforts, though payment for partial success can be
granted in certain circumstances.
a. Recognized subject matter
Traditionally, salvage only recognizes a ship or craft ("vessel"), cargo on board, freight payable,
and bunkers carried on board as the subject of property in danger. The concept of property has
been expanded by the 1989 Salvage Convention.
The Convention recognizes saving life as an independent subject of salvage but the protection
of the environment is the subject of salvage. Oil pollution can cause damage to the
environment. If the salvor had prevented oil pollution from happening, he indeed performed a
valuable service to the community as mentioned by (1997) 1 Lloyd’s Rep 323 (HL), pp 326–28.
Therefore, the salvor will be rewarded with special compensation; i.e., liability salvage instead
of property salvage.
b. Real danger
Danger needs to be real but not necessarily immediate or absolute.[2] The subject of salvage
must be in real danger, which means the property is exposed to damage or destruction.
The burden of proof lies on the salvor which means the salvor needs to prove real danger
existed when the performance of service commenced. This is up to the court or arbitrator’s
decision to determine whether the property was truly in danger. As every situation differs, both
subjective and objective tests will be conducted. Common considerations are:

a. Would a reasonable Master of the vessel in distress have answered yes or no to the
offer of assistance?
b. Was there a real apprehension of danger even though that danger may not have been
absolute or immediate?
c. Was the danger fanciful or so remote as only to be a distant possibility?
It is incumbent upon the court to assess the existence and level of danger, both present and
future. The case of the Troilus (1951 1 Lloyd’s Rep. 467, HL) illustrated the concept of future
danger that the court must take into account when determining the existence of danger. In this
particular case, the cargo owners contended that the ship was in perfect safety when she
reached Aden and therefore it constituted ocean towage but not salvage when towing from
Aden to UK. The court held that even though the ship and cargo was in physical safety, the
services rendered still amounted to salvage service on the grounds that the master of a
damaged ship must do his best to preserve the ship and cargo and bring them to their
destination as cheaply and efficiently as possible. The salvage award was reasonable as long
as the master acts reasonably for the combined benefit of ship and cargo.
In the modern world, the dispute normally is not about whether there is just the existence of
danger, but also the degree of danger, as it determines the extent of the award.
d. Voluntary service
Voluntary means that the services are not rendered under a pre-existing contract agreement or
under official duty, or purely for the self-preservation interests of the salvor. Because of this,
there is no limitation to the class of persons that can be considered as volunteers.

50
A pre-existing agreement refers to any agreement entered into before the time of the existence
of danger. It includes ship’s master and crew who have pre-existing employment
agreement with ship-owners. They have the duty to preserve the ship and cargo and therefore
they cannot convert themselves into salvors in the event of trouble.
Notwithstanding, exceptions still exist in this area. Salvage can still be rendered if the pilot or
crews of the ship in peril rendered service outside or beyond the scope of their duties under the
contract. The case of the Sandefjord (1953 2 Lloyd’s Rep. 557) held that the pilot brought his
personal knowledge of the local conditions and his seafaring skills to bear when faced with a
grounding. Moreover, the pilot relieved the ship owner of paying a vast salvage award for tug
assistance. Under these conditions, the pilot was entitled to a salvage award.
Crewmen cannot claim themselves as individual salvors unless their employment contract has
been actually or constructively terminated before the salvage service commenced. The
termination of contract could be brought by:

a. authorized abandonment of the ship under the Master’s authority; or

b. the Master’s discharge of the crew concerned; or
c. the capture of the vessel in hostile encounter.
Authorized abandonment refers to a condition wherein, at the time the Master decided to
abandon ship, there was no hope or intention of returning to the stricken ship. There can be no
suggestion that a mere temporary abandonment would dissolve the crew’s contract of
employment. The case of the Albionic (1941 70 L1.L.Rep.257) ruled that there was no express
order given by the Master to abandon the ship, and therefore the crew’s contracts of service
were not terminated at the time when they performed the salvage service. The San
Demetrio (1941 69 L1.L.Rep.5) case demonstrated a good example of an authorized
abandonment of ship under the Master’s authority. If the ship was properly abandoned under
the orders from the master, the vessel’s own crews who saved the vessel or cargo on board
were entitled to claim salvage.
In the case of the Master’s discharge of crew concerned, the Warrior Lush (476) case ruled that
if the crew is properly discharged by the master, their employment contract is validly
terminated. Therefore, any crew who returned to and saved the vessel were truly salvors.
Additionally, hostile capture of the crew effectively causes the dissolution of the sailors’
employment contract, as the general and expected duties for the seamen no longer exist.
The Two Friends(1799 1 Ch Rob 271) provided support for this argument.]Success
The requirement for the service to be successful can be summed up from the common
expression no cure; no pay. However, success need not be total. Partial success, provided that
there is some measure of preservation to the owners, is sufficient. The Tojo Maru (1972 AC
242 HL) examined certain characteristics of salvage contracts and concluded that the primary
consideration is that the person rendering the salvage service is not entitled to any
remuneration unless he saves the property in whole or in part.
If the ship’s peril following the service is as grave as before, no award will be given. Likewise, if
the salvage services which rescue a vessel from one danger eventually make the situation
worse, no salvage award is typically granted. The Melanie v The San Onofre (1925 AC 246)
held that the services which rescued a vessel from one danger, but eventually left her in a
position of even greater danger, did not contribute to ultimate success and therefore do not
amount to salvage.

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 Salvage under contract

As mentioned previously, salvage may not necessary arise out from actual contract, however,
there are vessels standing by, crewed by professional salvors under a salvage agreement
in Lloyd’s Open Form(LOF).
Contracts are usually entered into on the LOF (1980, 1990, 1995 and now 2000 LOF). Under
these contracts, rewards are based on no cure; no pay principal, which means salvor receives
no reward if no property is saved. However, special compensation will be paid as a reward for
making effort to prevent or minimize damage to the environment even with no property was
saved under the convention.
Minimizing environmental damage

While the general principle of salvage law has been no cure; no pay, special consideration had
to be given as more vessels were propelled by internal combustion engines, with the related
environmental hazards that were possible if one were to sink. The concept of the safety net in
LOF1980 took steps to protect the environment from oil pollution. Following this concept of
the safety net, the Salvage Convention of 1989 introduced the concept of special
compensation to encourage salvors to preserve and minimize damage to the environment from
fuel and oil spills. However, the concept was very different from the "special compensation"
under the existing convention.
Under Article 14(1) the salvor is entitled to special compensation if he has carried out salvage
operation on a vessel which by itself or its cargo threatens damage to the environment. It must
come with the failure to earn a reward under Article 13 which is "at least equivalent to the
special compensation assessable in accordance with the Article". This special compensation is
obtainable from the owner of the vessel, and is equivalent to the salvor’s expenses.
The salvor does not necessarily have to achieve success in preventing and minimizing damage
to the environment in obtaining special compensation.
If success is achieved, special compensation will be payable in greater amount under Article
14 (2) as follows:
If the salvage operation actually prevents or minimizes damage to the environment, the salvor
will be able to claim enhanced special compensation with the provision of Article 14(2). The
amount of the salvage award may be increased up to a maximum of 30 percent of the
expenses incurred by the salvor. The possibility exists that an arbitrator may increase the
special compensation to 100 percent of the expenses incurred, if warranted by circumstances.
However, negligence on the part of the salvor will deprive his right of the whole or part of any
special compensation under Article 14 (5). In order to claim special compensation, it must be
shown that the vessel itself or the cargo threatened damage to the environment. This goes
further than the environmental safety net provisions in LOF 1980 which were limited to tankers
laden with oil.
Articles 13 and 14 are both incorporated in the LOFs 1990 and 1995 by reference and LOF
2000 is made subject to the English Law.

Jurisdiction

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Under the LOF contracts, the parties submit to the jurisdiction of a Lloyd’s arbitrator to
determine the amount of award. But salvage is also a remedy that arises independently of a
contract.
A salvage claim, outside the LOF arbitration agreement, can be brought in the Admiralty Court
and is defined under CPR r 61.1 (2) (f) to mean:

i. for or in the nature of salvage;

ii. for special compensation under Article 14;
iii. for the appointment of salvage; and
iv. arising out of or connected with any contract for salvage services.
The claim is enforceable in personamand in rem. The ship or the sister ship can be held in lien
to enforce the claim. A property salvage attracts a maritime lien against all property saved;
however, the liability salvage (special compensation under Article 14) does not.
Time bar to claim the salvage
Article 23 of the 1989 Convention provides for a two-year limit to commence judicial or
arbitration proceedings arising froma salvage claim. The limitation commences on the date on
which the salvage operations are terminated. During the two-year period, an extension of time
can be agreed by parties. An action for indemnity by a person liable may be instituted after the
expiration of the limitation period with the assumption that it is brought within the time allowed
by the states in which the proceedings are brought.
However, if the ship is not saved and the loss was due to the salvor’s negligence, the time limit
to bring action towards the salvor will be based on the tort of negligence.

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 G. LIMITATION OF OWNERS’
LIABILITY

G1. DEFININGNEGLIGENCE

Definition: Conduct that falls below the standards of behaviour established by law for the
protection of others against unreasonable risk of harm. A person has acted negligently if he or
she has departed from the conduct expected of a reasonably prudent person acting under
similar circumstances.

In order to establish negligence as a Cause of Action under the law of TORTS, a plaintiff must
prove that

1. the defendant had a duty to the plaintiff,

2. the defendant breached that duty by failing to conform to the required standard of
conduct,
3. the defendant’s negligent conduct was the cause of the harm to the plaintiff, and
4. the plaintiff was, in fact, harmed or damaged.

The concept of negligence developed under English Law. Although English Common Law had
long imposed liability for the wrongful acts of others, negligence did not emerge as an
independent cause of action until the eighteenth century.

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 Another important concept emerged at that time: legal liability for a failure to act. Originally
liability for failing to act was imposed on those who undertook to perform some service and
breached a promise to exercise care or skill in performing that service. Gradually the law began
to imply a promise to exercise care or skill in the performance of certain services. This promise
to exercise care, whether express or implied, formed the origins of the modern concept of
"duty." For example, innkeepers were said to have a duty to protect the safety and security of
their guests.

The concept of negligence passed from Great Britain to the United States as each state
(except Louisiana) adopted the common law of Great Britain (Louisiana adopted the Civil Law
of France). Although there have been important developments in negligence law, the basic
concepts have remained the same since the eighteenth century. Today negligence is by far the
widest-ranging tort, encompassing virtually all unintentional, wrongful conduct that injures
others.

One of the most important concepts in negligence law is the "reasonable person," which
provides the standard by which a person’s conduct is judged.

a. The Reasonable Person

A person has acted negligently if she has departed from the conduct expected of a reasonably
prudent person acting under similar circumstances. The hypothetical reasonable person
provides an objective by which the conduct of others is judged.

In law, the reasonable person is not an average person or a typical person but a composite of
the community’s judgment as to how the typical community member should behave in
situations that might pose a threat of harm to the public.

Even though the majority of people in the community may behave in a certain way, that does
not establish the standard of conduct of the reasonable person. For example, a majority of
people in a community may jay-walk, but jaywalking might still fall below the community’s
standards of safe conduct.

The concept of the reasonable person distinguishes negligence from intentional torts
such as Assault and Battery.

To prove an intentional tort, the plaintiff seeks to establish that the defendant deliberately acted
to injure the plaintiff.

In a negligence suit, however, the plaintiff seeks to establish that the failure of the defendant to
act as a reasonable person caused the plaintiff’s injury.

An intoxicated driver who accidentally injures a pedestrian may not have intended to cause the
pedestrian’s injury. But because a reasonable person would not drive while intoxicated
because it creates an unreasonable risk of harm to pedestrians and other drivers, an
intoxicated driver may be held liable to an injured plaintiff for negligence despite his lack of
intent to injure the plaintiff.

The law considers a variety of factors in determining whether a person has acted as the
hypothetical reasonable person would have acted in a similar situation.

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These factors include the

• knowledge,
• experience, and perception of the person,
• the activity the person is engaging in,
• the physical characteristics of the person, and
• the circumstances surrounding the person’s actions.

b. Knowledge, Experience, and Perception

The law takes into account a person’s knowledge, experience, and perceptions in determining
whether the individual has acted as a reasonable person would have acted in the same
circumstances. Conduct must be judged in light of a person’s actual knowledge and
observations, because the reasonable person always takes this into account. Thus, if a driver
sees another car approaching at night without lights, the driver must act reasonably to avoid an
accident, even though the driver would not have been negligent in failing to see the other car.

In addition to actual knowledge, the law also considers most people to have the same
knowledge, experience, and ability to perceive as the hypothetical reasonable person. In the
absence of unusual circumstances, a person must see what is clearly visible and hear what is
clearly audible. Therefore, a driver of a car hit by a train at an unobstructed railroad crossing
cannot claim that she was not negligent because she did not see or hear the train, because a
reasonable person would have seen or heard the train.

Also, a person cannot deny personal knowledge of basic facts commonly known in the
community. The reasonable person knows that ice is slippery, that live wires are dangerous,
that alcohol impairs driving ability, and that children might run into the street when they are
playing. To act as a reasonable person, an individual must even take into account her lack of
knowledge of some situations, such as when walking down a dark, unfamiliar corridor.

Finally, a person who undertakes a particular activity is ordinarily considered to have the
knowledge common to others who engage in that activity. A motorist must know the rules of the
road and a product manufacturer must know the characteristics and dangers of its product, at
least to the extent they are generally known in the industry.

c.Special Skills

If a person engages in an activity requiring special skills, education, training, or experience,

such as piloting an airplane, the standard by which his conduct is measured is the conduct of a
reasonably skilled, competent, and experienced person who is a qualified member of the group
authorized to engage in that activity. In other words, the hypothetical reasonable person is a
skilled, competent, and experienced person who engages in the same activity. Often persons
practicing these special skills must be licensed, such as physicians, lawyers, architects,
barbers, pilots, and drivers. Anyone who performs these special skills, whether qualified or not,
is held to the standards of conduct of those properly qualified to do so, because the public
relies on the special expertise of those who engage in such activities. Thus, an unlicensed
driver who takes his friends for a joyride is held to the standard of conduct of an experienced,
licensed driver.

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The law does not make a special allowance for beginners with regard to special skills. The
learner, beginner, or trainee in a special skill is held to the standard of conduct of persons who
are reasonably skilled and experienced in the activity. Sometimes the beginner is held to a
standard he cannot meet. For example, a first-time driver clearly does not possess the
experience and skill of an experienced driver. Although it may seem unfair to hold the beginner
to the standards of the more experienced person, this standard protects the general public from
the risk of a beginner’s lack of competence, because the community is usually defenseless to
guard against such risks.

d. Physical Characteristics

The law takes a person’s physical characteristics into account in determining whether that
person’s conduct is negligent. Whether a person’s conduct is reasonable, and therefore not
negligent, is measured against a reasonably prudent person with the same physical
characteristics. There are two reasons for taking physical characteristics into account. A
physically impaired individual cannot be expected to conform to a standard of conduct that
would be physically impossible for her to meet. On the other hand, a physically challenged
person must act reasonably in light of her handicap, and she may be negligent in taking a risk
that is unreasonable in light of her known physical limitations. Thus, it would be negligent for a
blind person to drive an automobile.

e. Mental Capacity

Although a person’s physical characteristics are taken into account in determining negligence,
the person’s mental capacity is generally ignored and does not excuse the person from acting
according to the reasonable person standard. The fact that an individual is lacking in
intelligence, judgment, memory, or emotional stability does not excuse the person’s failure to
act as a reasonably prudent person would have acted under the same circumstances. For
example, a person who causes a forest fire by failing to extinguish his campfire cannot claim
that he was not negligent because he lacked the intelligence, judgment, or experience to
appreciate the risk of an untended campfire.

Similarly, evidence of voluntary intoxication will not excuse conduct that is otherwise negligent.
Although intoxication affects a person’s judgment, voluntary intoxication will not excuse
negligent conduct, because it is the person’s conduct, not his or her mental condition, that
determines negligence. In some cases a person’s intoxication is relevant to determining
whether his conduct is negligent, however, because undertaking certain activities, such as
driving, while intoxicated poses a danger to others.

f. Children

Children may be negligent, but they are not held to the same standard of conduct as adults. A
child’s conduct is measured against the conduct expected of a child of similar age, intelligence,
and experience. Unlike the standard for adults, the standard of reasonable conduct for children
takes into account subjective factors such as intelligence and experience. In this sense the
standard is less strict than for adults, because children normally do not engage in the high-risk
activities of adults and adults dealing with children are expected to anticipate their "childish"
behavior.

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In many states children are presumed incapable of negligence below a certain age, usually
seven years. In some states children between the ages of seven and fourteen years are
presumed to be incapable of negligence, although this presumption can be rebutted. Once a
person reaches the age of majority, usually eighteen years, she is held to adult standards of
conduct.

One major exception to the rules of negligence exists with regard to children. If a child is
engaging in what is considered an "adult activity," such as driving an automobile or flying an
airplane, the child will be held to an adult standard of care. The higher standard of care
imposed for these types of activities is justified by the special skills required to engage in them
and the danger they pose to the public.

g. Emergencies

The law recognizes that even a reasonable person can make errors in judgment in emergency
situations. Therefore, a person’s conduct in an emergency is evaluated in light of whether it
was a reasonable response under the circumstances, even though, in hindsight, another
course of action might have avoided the injury.

In some circumstances failure to anticipate an emergency may constitute negligence.

The reasonable person anticipates, and takes precautions against, foreseeable
emergencies. For example, the owner of a theater must consider the possibility of a fire, and
the owner of a swimming pool must consider the possibility of a swimmer drowning. Failure to
guard against such emergencies can constitute negligence.

Also, a person can be negligent in causing an emergency, even if he acts reasonably during
the emergency. A theater owner whose negligence causes a fire, for instance, would be liable
for the injuries to the patrons, even if he saved lives during the fire.

h. Conduct of Others

Finally, the reasonable person takes into account the conduct of others and regulates his own
conduct accordingly. A reasonable person must even foresee the unlawful or negligent conduct
of others if the situation warrants. Thus, a person may be found negligent for leaving a car
unlocked with the keys in the ignition because of the foreseeable risk of theft, or for failing to
slow down in the vicinity of a school yard where children might negligently run into the street.

i. Proof of Negligence

In a negligence suit, the plaintiff has the burden of proving that the defendant did not act as a
reasonable person would have acted under the circumstances.

The court will instruct the jury as to the standard of conduct required of the defendant. For
example, a defendant sued for negligent driving is judged according to how a reasonable
person would have driven in the same circumstances. A plaintiff has a variety of means of
proving that a defendant did not act as the hypothetical reasonable person would have acted.
The plaintiff can show that the defendant

• violated a statute designed to protect against the type of injury that occurred to the
plaintiff. Also, a plaintiff might introduce

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 • expert witnesses,
• evidence of a customary practice, or
• Circumstantial Evidence.

J. Statutes

Federal and state statutes, municipal ordinances, and administrative regulations govern all
kinds of conduct and frequently impose standards of conduct to be observed. For example, the
law prohibits driving through a red traffic light at an intersection. A plaintiff injured by a
defendant who ignored a red light can introduce the defendant’s violation of the statute as
evidence that the defendant acted negligently. However, a plaintiff’s evidence that the
defendant violated a statute does not always establish that the defendant acted unreasonably.
The statute that was violated must have been intended to protect against the particular hazard
or type of harm that caused injury to the plaintiff.

Sometimes physical circumstances beyond a person’s control can excuse the violation of a
statute, such as when the headlights of a vehicle suddenly fail, or when a driver swerves into
oncoming traffic to avoid a child who darted into the street. To excuse the violation, the
defendant must establish that, in failing to comply with the statute, she acted as a reasonable
person would have acted.

In many jurisdictions the violation of a statute, regulation, or ordinance enacted to protect

against the harm that resulted to the plaintiff is considered negligence per se. Unless the
defendant presents evidence excusing the violation of the statute, the defendant’s negligence
is conclusively established. In some jurisdictions a defendant’s violation of a statute is merely
evidence that the defendant acted negligently.

K. Experts

Often a plaintiff will need an expert witness to establish that the defendant did not adhere to the
conduct expected of a reasonably prudent person in the defendant’s circumstances. A juror
may be unable to determine from his own experience, for example, if the medicine prescribed
by a physician was reasonably appropriate for a patient’s illness. Experts may provide the jury
with information beyond the common knowledge of jurors, such as scientific theories, data,
tests, and experiments. Also, in cases involving professionals such as physicians, experts
establish the standard of care expected of the professional. In the above example, the patient
might have a physician offer Expert Testimony regarding the medication that a reasonably
prudent physician would have prescribed for the patient’s illness.

L. Custom

Evidence of the usual and customary conduct or practice of others under similar circumstances
can be admitted to establish the proper standard of reasonable conduct. Like the evidence
provided by expert witnesses, evidence of custom and habit is usually used in cases where the
nature of the alleged negligence is beyond the common knowledge of the jurors. Often such
evidence is presented in cases alleging negligence in some business activity. For example, a
plaintiff suing the manufacturer of a punch press that injured her might present evidence that all
other manufacturers of punch presses incorporate a certain safety device that would have
prevented the injury.

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A plaintiff’s evidence of conformity or nonconformity with a customary practice does not
establish whether the defendant was negligent; the jury decides whether a reasonably prudent
person would have done more or less than is customary.

M. Circumstantial Evidence

Sometimes a plaintiff has no direct evidence of how the defendant acted and must attempt to
prove his case through circumstantial evidence. Of course, any fact in a lawsuit may be proved
by circumstantial evidence. Skid marks can establish the speed a car was traveling prior to a
collision, a person’s appearance can circumstantially prove his or her age, etc. Sometimes a
plaintiff in a negligence lawsuit must prove his entire case by circumstantial evidence. Suppose
a plaintiff’s shoulder is severely injured during an operation to remove his tonsils. The plaintiff,
who was unconscious during the operation, sues the doctor in charge of the operation for
negligence, even though he has no idea how the injury actually occurred. The doctor refuses to
say how the injury occurred, so the plaintiff will have to prove his case by circumstantial
evidence.

In cases such as this, the doctrine of Res Ipsa Loquitur (the thing speaks for itself) is invoked.
Res ipsa loquitor allows a plaintiff to prove negligence on the theory that his injury could not
have occurred in the absence of the defendant’s negligence. The plaintiff must establish that
the injury was caused by an instrumentality or condition that was under the defendant’s
exclusive management or control and that the plaintiff’s injury would not have occurred if the
defendant had acted with reasonable care. Thus, in the above example, the plaintiff can use
res ipsa loquitor to prove that the doctor negligently injured his shoulder.

N. Duty

A defendant is not liable in negligence, even if she did not act with reasonable care, if
she did not owe a duty to the plaintiff. In general, a person is under a duty to all persons at
all times to exercise reasonable care for their physical safety and the safety of their property.
This general standard of duty may lead to seemingly unjust results. For example, if a property
owner leaves a deep hole in her backyard with no warnings or barriers around the hole, she
should be liable if her guest falls into the hole. But what if a trespasser enters the backyard at
night and falls into the hole? Although the property owner was negligent in failing to guard
against someone falling into the hole, it would be unfair to require the property owner to
compensate the trespasser for his injury. Therefore, the law states that a property owner does
not have a duty to protect a trespasser from harm.

The law uses the concept of duty to limit the situations where a defendant is liable for a
plaintiff’s injury. Whether a defendant has a duty to protect the plaintiff from harm is a question
decided by the court, not the jury. Over time, courts have developed numerous rules creating
and limiting a person’s duty to others, and sometimes duties are established or limited by
statute. Whether the defendant owes the plaintiff a duty depends upon the relationship between
the defendant and the plaintiff.

A preexisting relationship can create an affirmative duty to exercise reasonable care to protect
another person from harm. For example, an inn has an affirmative duty to protect its guests, a
school has a duty to its pupils, a store has a duty to its customers, and a lifeguard has a duty to
swimmers.

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One always has a duty to refrain from taking actions that endanger the safety of others, but
usually one does not have a duty to render aid or prevent harm to a person from an
independent cause. A common example of this limitation on duty is the lack of a duty to go to
the aid of a person in peril. An expert swimmer with a boat and a rope has no duty to attempt to
rescue a person who is drowning (although a hired lifeguard would). A physician who witnesses
an automobile accident has no duty to offer emergency medical assistance to the accident
victims.

Sometimes a person can voluntarily assume a duty where it would not otherwise exist. If the
doctor who encounters an automobile accident decides to render aid to the victims, she is
under a duty to exercise reasonable care in rendering that aid. As a result, doctors who have
stopped along the highway to render medical assistance to accident victims have been sued for
negligence. Many states have adopted "good samaritan" statutes to relieve individuals who
render emergency assistance from negligence liability.

Even if a plaintiff establishes that the defendant had a duty to protect the plaintiff from

harm and breached that duty by failing to use reasonable care, the plaintiff must still prove that
the defendant’s negligence was the proximate cause of her injury.

O. Proximate Cause

Perhaps no issue in negligence law has caused more confusion than the issue of proximate
cause.

The concept of proximate cause limits a defendant’s liability for his negligence to
consequences reasonably related to the negligent conduct. Although it might seem
obvious whether a defendant’s negligence has caused injury to the plaintiff, issues of causation
are often very difficult. Suppose, for example, that a defendant negligently causes an
automobile accident, injuring another driver. The colliding cars also knock down a utility pole,
resulting in a power outage. Clearly the defendant’s negligence has in fact caused both the
accident and power outage. Most people would agree that the negligent defendant should be
liable for the other driver’s injuries, but should he also be liable to an employee who, due to the
failure of her electric alarm clock, arrives late for work and is fired? This question raises the
issue of proximate cause.

Actually, the termproximate cause is somewhat misleading because as a legal concept it has
little to do with proximity (in time or space) or causation. Rather, proximate cause is related to
fairness and justice, in the sense that at some point it becomes unfair to hold a defendant
responsible for the results of his negligence. For example, Mrs. O’Leary’s negligent placement
of her lantern may have started the Great Chicago Fire, but it would be unjust to hold her
responsible for all the damage done by the fire.

In determining whether a defendant’s negligence is the proximate cause of a plaintiff’s injury,

most courts focus on the foreseeability of the harmthat resulted from the defendant’s
negligence. For example, if a driver negligently drives his automobile, it is foreseeable that he
might cause an accident with another vehicle, hit a pedestrian, or crash into a storefront. Thus,
the driver would be liable for those damages. But suppose the negligent driver collides with a
truck carrying dynamite, causing an explosion that injures a person two blocks away. Assuming
that the driver had no idea that the truck was carrying dynamite, it is not foreseeable that his

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negligent driving could injure a person two blocks away. Therefore the driver would not be
liable for that person’s injury under this approach. When applying this approach, courts
frequently instruct juries to consider whether the harm or injury was the "natural or probable"
consequence of the defendant’s negligence.

A minority of courts hold the view that the defendant’s negligence is the proximate cause of the
plaintiff’s injury if the injury is the "direct result" of the negligence. Usually a plaintiff’s injury is
considered to be the direct result of the defendant’s negligence if it follows an unbroken, natural
sequence from the defendant’s act and no intervening, external force acts to cause the injury.

P. Intervening Cause

Sometimes a plaintiff’s injury results from more than one cause. For instance, suppose a
defendant negligently injures a pedestrian in an automobile accident. An emergency room
doctor negligently treats the plaintiff, aggravating her injury. The doctor’s negligence is an
"intervening cause" of the plaintiff’s injury. A cause of injury is an Intervening Cause only if it
occurs sub-sequent to the defendant’s negligent conduct.

Just because an intervening cause exists, however, does not mean that the defendant’s
negligent conduct is not the proximate cause of the plaintiff’s injury. The defendant remains
liable if he should have foreseen the intervening cause and taken it into account in his conduct.
If a defendant negligently spills a large quantity of gasoline and doesn’t clean it up, he will not
be relieved of liability for a resulting fire merely because another person causes the gasoline to
ignite, because it is foreseeable that the gasoline might be accidentally ignited. Also, it is
foreseeable that a sudden gust of wind might cause the fire to spread quickly.

Even if an intervening cause is foreseeable, however, in some situations the defendant will still
be excused from liability. If the intervening cause is the intentional or criminal conduct of a third
person, the defendant is not liable for this person’s negligent conduct. In the example where
the defendant spilled gasoline and did not clean it up, he is not responsible for the resulting fire
if someone intentionally ignites the gas. Also, sometimes a third person will discover the danger
that the defendant created by his negligence under circumstances where the third person has
some duty to act. If the third person fails to act, the defendant is not liable. In the gasoline
example, suppose the defendant, a customer at a gas station, negligently spills a large quantity
of gas near the pumps. The owner of the gas station sees the spilled gasoline but does
nothing. The owner of the gas station, not the defendant, would be liable if another customer
accidentally ignites the gasoline.

Sometimes, however, a completely unforeseeable event or result occurs after a defendant’s

negligence, resulting in harm to the plaintiff. An abnormal, unpredictable, or highly improbable
event that occurs after the defendant’s negligence is known as a "superseding cause" and
relieves the defendant of liability. For example, suppose a defendant negligently blocks a road
causing the plaintiff to make a detour in her automobile. While on the detour, an airplane hits
the plaintiff’s car, killing the plaintiff. The airplane was completely unforeseeable to the
defendant, and thus he cannot be held liable for the plaintiff’s death. The airplane was a
superseding cause of the plaintiff’s death.

Even great jurists have had difficulty articulating exactly what constitutes proximate cause.
Although the law provides tests such as "foreseeability" and "natural, direct consequences,"
ultimately the issue of proximate cause is decided by people’s sense of right and wrong. In the

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example where the defendant spills gasoline and does not clean it up, most people would
agree that the defendant should be liable if a careless smoker accidentally ignites the gasoline,
even if they could not articulate that the smoker was a foreseeable, intervening cause of the
fire.

Q. Defenses to Negligence Liability

Even if a plaintiff has established that the defendant owed a duty to the plaintiff, breached that
duty, and proximately caused the defendant’s injury, the defendant can still raise defenses that
reduce or eliminate his liability. These defenses include contributory negligence, comparative
negligence, and Assumption of Risk.

R. Contributory Negligence

Frequently, more than one person has acted negligently to create an injury. Under the
common-law rule of contributory negligence, a plaintiff whose own negligence was a
contributing cause of her injury was barred from recovering from a negligent defendant. For
example, a driver negligently enters an intersection in the path of an oncoming car, resulting in
a collision. The other driver was driving at an excessive speed and might have avoided the
collision if she had been driving more slowly. Thus, both drivers’ negligence contributed to the
accident. Under the doctrine of contributory negligence, neither driver would be able to recover
from the other, due to her own negligence in causing the accident.

The doctrine of contributory negligence seeks to keep a plaintiff from recovering from the
defendant where the plaintiff is also at fault. However, this doctrine often leads to unfair results.
For example, even if a defendant’s negligence is the overwhelming cause of the plaintiff’s
injury, even slight negligence on the part of the plaintiff completely bars his recovery. Also, the
negligence of many defendants such as corporations, manufacturers, and landowners creates
no corresponding risk of injury to themselves. In such cases the doctrine of contributory
negligence, which can completely eliminate the liability for their negligence, reduces their
incentive to act safely. As a result, courts and statutes have considerably weakened the
doctrine of contributory negligence.

S. Comparative Negligence

Most states, either by court decision or statute, have now adopted some form of comparative
negligence in place of pure, contributory negligence. Under comparative negligence, or
comparative fault as it is sometimes known, a plaintiff’s negligence is not a complete bar to her
recovery. Instead the plaintiff’s damages are reduced by whatever percentage her own fault
contributed to the injury. This requires the jury to determine, by percentage, the fault of the
plaintiff and defendant in causing the plaintiff’s injury. For example, suppose a plaintiff is injured
in an automobile accident and sustains $100,000 in damages. The jury determines that the
plaintiff was 25 percent responsible for the accident and that the defendant was 75 percent
responsible. The plaintiff will then be allowed to recover 75 percent of her damages, or
$75,000.

Most states have adopted the "50 percent rule" of comparative negligence. Under this rule the
plaintiff cannot recover any damages if her negligence was as great as, or greater than, the
negligence of the defendant. This rule partially retains the doctrine of contributory negligence,
reflecting the view that a plaintiff who is largely responsible for her own injury is unworthy of

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 compensation. A minority of states have adopted "pure comparative fault." Under that rule even
a plaintiff who is 80 percent at fault in causing her injury may still recover 20 percent of
damages, reflecting the defendant’s percentage of fault.

T. Assumption of Risk

Under the assumption of risk defense, a defendant can avoid liability for his negligence by
establishing that the plaintiff voluntarily consented to encounter a known danger created by the
defendant’s negligence. Assumption of risk may be express or implied. Under express
assumption of risk, persons agree in advance that one person consents to assume the risk of
the other’s negligence. For example, a skier who purchases a lift ticket at a ski resort usually
expressly agrees to assume the risk of any injury that might occur while skiing. Thus, even if
the ski resort negligently fails to mark a hazard on a trail resulting in an injury to a skier, the ski
resort may invoke the assumption of risk defense in the skier’s subsequent lawsuit.

Assumption of risk may also be implied from a plaintiff’s conduct. For example, the defendant
gives the plaintiff, a painter, a scaffold with a badly frayed rope. The plaintiff, fully aware of the
rope’s condition, proceeds to use the scaffold and is injured. The defendant can raise the
implied assumption of risk defense. This defense is similar to the contributory negligence
defense; in the above example, the defendant might also argue that the plaintiff was
contributorily negligent for using the scaffold when he knew the rope was frayed.

The implied assumption of risk defense has caused a great deal of confusion in the courts
because of its similarity to contributory negligence, and with the rise of comparative fault, the
defense has diminished in importance and is viable today only in a minority of jurisdictions.

•
G2. Convention on Limitation of Liability for Maritime Claims (LLMC)
Adoption: 19 November 1976; Entry into force: 1 December 1986; Protocol of 1996:
Adoption: 3 May 1996; Entry into force: 13 May 2004

The Convention replaced the International Convention Relating to the Limitation of the
Liability of Owners of Seagoing Ships, which was signed in Brussels in 1957, and came into
force in 1968.

Under the 1976 Convention, the limit of liability for claims covered is raised considerably, in
some cases up to 250-300 per cent. Limits are specified for two types of claims - claims for
loss of life or personal injury, and property claims (such as damage to other ships, property
or harbour works).

64
The limits under the 1976 Convention were set at 333,000 SDR for personal claims for ships
not exceeding 500 tons plus an additional amount based on tonnage.

For other claims, the limit of liability was fixed under the 1976 Convention at 167,000 SDR
plus additional amounts based on tonnage on ships exceeding 500 tons. (At one half those
for life claims.)

The Convention provides for a virtually unbreakable system of limiting liability. It declares
that a person will not be able to limit liability except if "it is proved that the loss resulted from
his personal act or omission, committed with the intent to cause such a loss, or recklessly
and with knowledge that such loss would probably result".

Protocol of 1996

Adoption: 3 May 1996

Entry into force: 13 May 2004

Under the Protocol the amount of compensation payable in the event of an incident being
substantially increased and also introduces a "tacit acceptance" procedure for updating
these amounts.

The limit of liability for claims for loss of life or personal injury on ships not exceeding
2,000 gross tonnage is 2 million SDR.

For larger ships, the following additional amounts are used in calculating the limitation
amount:

• For each ton from 2,001 to 30,000 tons, 800 SDR

• For each ton from 30,001 to 70,000 tons, 600 SDR
• For each ton in excess of 70,000, 400 SDR (US$634).

The limit of liability for property claims for ships not exceeding 2,000 gross tonnage is 1
million SDR.

For larger ships, the following additional amounts are used in calculating the limitation

65
amount:

For each ton from 2,001 to 30,000 tons, 400 SDR

• For each ton from 30,001 to 70,000 tons, 300 SDR

• For each ton in excess of 70,000, 200 SDR

Special Drawing Rights

The daily conversion rates for Special Drawing Rights (SDRs) can be found on the
International Monetary Fund IMF website: http://www.imf.org/)

66
 H. OIL POLLUTION

A.International Legislation

A1. International Convention on Civil Liability for Oil Pollution

Damage (CLC)
Adoption: 29 November 1969; Entry into force: 19 June 1975; Being replaced by 1992
Protocol: Adoption: 27 November 1992; Entry into force: 30 May 1996

The Civil Liability Convention was adopted to ensure that adequate compensation is available
to persons who suffer oil pollution damage resulting from maritime casualties involving oil-
carrying ships.

The Convention places the liability for such damage on the owner of the ship from which the
polluting oil escaped or was discharged.

67
Subject to a number of specific exceptions, this liability is strict;

it is the duty of the owner to prove in each case that any of the exceptions should in fact
operate.

However, except where the owner has been guilty of actual fault, they may limit liability in
respect of any one incident.

The Convention requires ships covered by it to maintain insurance or other financial security in
sums equivalent to the owner’s total liability for one incident.

The Convention applies to all seagoing vessels actually carrying oil in bulk as cargo, but only
ships carrying more than 2,000 tons of oil are required to maintain insurance in respect of oil
pollution damage.

This does not apply to warships or other vessels owned or operated by a State and used for
the time being for Government non-commercial service.

The Convention, however, applies in respect of the liability and jurisdiction provisions, to ships
owned by a State and used for commercial purposes. The only exception as regards such
ships is that they are not required to carry insurance. Instead they must carry a certificate
issued by the appropriate authority of the State of their registry stating that the ship’s liability
under the Convention is covered.

The Convention covers pollution damage resulting from spills of persistent oils suffered in the
territory (including the territorial sea) of a State Party to the Convention. It is applicable to ships
which actually carry oil in bulk as cargo, i.e. generally laden tankers.

Spills from tankers in ballast or bunker spills from ships other than other than tankers are not
covered, nor is it possible to recover costs when preventive measures are so successful that no
actual spill occurs.

The shipowner cannot limit liability if the incident occurred as a result of the owner’s personal
fault.

The Protocol of 1976, which entered into force in 1981, provided for teh aplicable unit of
account used under the covnention to be based on the Special Drawing Rights (SDR) as used
by the International Monetary Fund (IMF), replacing the the "Poincaré franc", based on the
"official" value of gold, as the applicable unit of account.

68
The Protocol of 1984 set increased limits of liability but was superseded by the 1992 Protocol.

The Protocol of 1992 changed the entry into force requirements by reducing from six to four the
number of large tanker-owning countries that were needed for entry into force.

The compensation limits were set as follows:

• For a ship not exceeding 5,000 gross tonnage, liability is limited to 3 million SDR
• For a ship 5,000 to 140,000 gross tonnage: liability is limited to 3 million SDR plus
420 SDR for each additional unit of tonnage
• For a ship over 140,000 gross tonnage: liability is limited to 59.7 million SDR.

The 1992 protocol also widened the scope of the Convention to cover pollution damage caused
in the exclusive economic zone (EEZ) or equivalent area of a State Party.

The Protocol covers pollution damage as before but environmental damage compensation is
limited to costs incurred for reasonable measures to reinstate the contaminated environment. It
also allows expenses incurred for preventive measures to be recovered even when no spill of
oil occurs, provided there was grave and imminent threat of pollution damage.

The Protocol also extended the Convention to cover spills from sea-going vessels constructed
or adapted to carry oil in bulk as cargo so that it applies apply to both laden and unladen
tankers, including spills of bunker oil from such ships.

Under the 1992 Protocol, a shipowner cannot limit liability if it is proved that the pollution
damage resulted from the shipowner’s personal act or omission, committed with the intent to
cause such damage, or recklessly and with knowledge that such damage would probably
result.

From 16 May 1998, Parties to the 1992 Protocol ceased to be Parties to the 1969 CLC due to a
mechanism for compulsory denunciation of the "old" regime established in the 1992 Protocol.
However, there are a number of States which are Party to the 1969 CLC and have not yet
ratified the 1992 regime - which is intended to eventually replace the 1969 CLC.

The 1992 Protocol allows for States Party to the 1992 Protocol to issue certificates to ships
registered in States which are not Party to the 1992 Protocol, so that a shipowner can obtain
certificates to both the 1969 and 1992 CLC, even when the ship is registered in a country which
has not yet ratified the 1992 Protocol. This is important because a ship which has only a 1969
CLC may find it difficult to trade to a country which has ratified the 1992 Protocol, since it
establishes higher limits of liability.

69
The 2000 Amendments to CLC(69)
Adoption: 18 October 2000
Entry into force: 1 November 2003

The amendments raised the compensation limits by 50 percent compared to the limits set in
the 1992 Protocol, as follows:

• For a ship not exceeding 5,000 gross tonnage, liability is limited to 4.51 million SDR
(US$5.78 million)
• For a ship 5,000 to 140,000 gross tonnage: liability is limited to 4.51 million SDR plus
631 SDR for each additional gross tonne over 5,000
• For a ship over 140,000 gross tonnage: liability is limited to 89.77 million SDR

Special Drawing Rights

The daily conversion rates for Special Drawing Rights (SDRs) can be found on the International
Monetary Fund website at http://www.imf.org/

A2.International Convention on the Establishment of an

International Fund for Compensation for Oil Pollution Damage
(FUND)
Adoption: 18 December 1971; Entry into force: 16 October 1978; superseded by 1992
Protocol: Adoption: 27 November 1992; Entry into force: 30 May 1996

Although the 1969 Civil Liability Convention provided a useful mechanism for ensuring the payment of compensation
pollution damage, it did not deal satisfactorily with all the legal, financial and other questions raised during the Confe
adopting the CLC Convention.

The 1969 Brussels Conference considered a compromise proposal to establish an international fund, to be subscribe
the cargo interests, which would be available for the dual purpose of, on the one hand, relieving the shipowner of the
burden by the requirements of the new convention and, on the other hand, providing additional compensation to the
of pollution damage in cases where compensation under the 1969 Civil Liability Convention was either inadequate o
unobtainable.

The Conference recommended that IMO should prepare such a scheme and the International Convention on the
Establishment of an International Fund for Compensation for Oil Pollution Damage was adopted at a Conference hel
Brussels in 1971. It is supplementary to the Civil Liability Convention.

70
The purposes of the Fund Convention are:

To provide compensation for pollution damage to the extent that the protection afforded by the 1969 Civil Liability
Convention is inadequate.

To give relief to shipowners in respect of the additional financial burden imposed on them by the 1969 Civil Liability
Convention, such relief being subject to conditions designed to ensure compliance with safety at sea and other
conventions.

To give effect to the related purposes set out in the Convention.

Under the first of its purposes, the Fund is under an obligation to pay compensation to States and persons who suffe
pollution damage, if such persons are unable to obtain compensation from the owner of the ship from which the oil e
or if the compensation due from such owner is not sufficient to cover the damage suffered.

Under the Fund Convention, victims of oil pollution damage may be compensated beyond the level of the shipowner
liability. However, the Fund’s obligations are limited. Where, however, there is no shipowner liable or the shipowner
is unable to meet their liability, the Fund will be required to pay the whole amount of compensation due. Under certa
circumstances, the Fund’s maximum liability may increase.

With the exception of a few cases, the Fund is obliged to pay compensation to the victims of oil pollution damage wh
unable to obtain adequate or any compensation from the shipowner or his guarantor under the CLC Convention.

The Fund’s obligation to pay compensation is confined to pollution damage suffered in the territories including the ter
sea of Contracting States. The Fund is also obliged to pay compensation in respect of measures taken by a Contrac
State outside its territory.

The Fund can also provide assistance to Contracting States which are threatened or affected by pollution and wish t
measures against it. This may take the form of personnel, material, credit facilities or other aid.

In connection with its second main function, the Fund is obliged to indemnify the shipowner or his insurer for a portio
shipowner’s liability under the Liability Convention.

71
The Fund is not obliged to indemnify the owner if damage is caused by his wilful misconduct or if the accident was c
even partially, because the ship did not comply with certain international conventions.

The Convention contains provisions on the procedure for claims, rights and obligations, and jurisdiction.

Contributions to the Fund should be made by all persons who receive oil by sea in Contracting States.

Protocols to teh 1971 covnention were adopted in 1976 and 1984, but were superseded by the 1992 Protocol.

The 1971 convnetion ceased to be in force from 24 May 2002.

The Protocol of 1992 to FUND (71)

Adoption: 27 November 1992

Entry into force: 30 May 1996

As was the case with the 1992 Protocol to the CLC Convention, the main purpose of the Protocol was to modify the
into force requirements and increase compensation amounts. The scope of coverage was extended in line with the 1
CLC Protocol.

The 1992 Protocol established a separate, 1992 International Oil Pollution Compensation (IOPC) Fund, known as th
Fund, which is managed in London by a Secretariat.

Under the 1992 Protocol, the maximum amount of compensation payable from the Fund for a single incident, includi
limit established under the 1992 CLC Protocol, is 135 million SDR.

However, if three States contributing to the Fund receive more than 600 million tonnes of oil per annum, the maximu
amount is raised to 200 million SDR.

72
The 2000 Amendments

Adoption: 18 October 2000

Entry into force: 1 November 2003

The amendments raise the maximum amount of compensation payable from the IOPC Fund for a single incident, inc
the limit established under the 2000 CLC amendments, to 203 million SDR .

However, if three States contributing to the Fund receive more than 600 million tonnes of oil per annum, the maximu
amount is raised to 300,740,000 SDR.

The 2003 Protocol (supplementary fund)

Adoption: 16 May 2003

Entry into force: 3 March 2005

The 2003 Protocol establishing an International Oil Pollution Compensation Supplementary Fund was adopted by a
diplomatic conference held at IMO Headquarters in London.

The aim of the established Fund is to supplement the compensation available under the 1992 Civil Liability and Fund
Conventions with an additional, third tier of compensation. The Protocol is optional and participation is open to all Sta
Parties to the 1992 Fund Convention.

The total amount of compensation payable for any one incident will be limited to a combined total of 750 million Spec
Drawing Rights (SDR) including the amount of compensation paid under the existing CLC/Fund Convention.

The supplementary fund will apply to damage in the territory, including the territorial sea, of a Contracting State and
exclusive economic zone of a Contracting State.

73
Annual contributions to the Fund will be made in respect of each Contracting State by any person who, in any calend
year, has received total quantities of oil exceeding 150,000 tons. However, for the purposes of the Protocol, there is
minimum aggregate receipt of 1,000,000 tons of contributing oil in each Contracting State.

The Assembly of the Supplementary Fund will assess the level of contributions based on estimates of expenditure
(including administrative costs and payments to be made under the Fund as a result of claims) and income (including
surplus funds from previous years, annual contributions and any other income).

Amendments to the compensation limits established under the Protocol can be adopted by a tacit acceptance proce
so that an amendment adopted in the Legal Committee of IMO by a two-thirds majority of Contracting States presen
voting, can enter into force 24 months after its adoption.

The IOPC Funds and IMO

Although the Funds were established under Conventions adopted under the auspices of IMO, they are completely
independent legal entities.

Unlike IMO, the IOPC Funds are not United Nations (UN) agencies and are not part of the UN system. They are
intergovernmental organisations outside the UN, but follow procedures which are similar to those of the UN.

Only States can become Members of the IOPC Funds.

To become a member of the Fund, a State must accede to the 1992 Civil Liability Convention and to the 1992 Fund
Convention by depositing a formal instrument of accession with the Secretary-General of IMO. These Conventions s
be incorporated into the national law of the State concerned.

74
 B. US Marine Pollution Legislation

About NPFC
Contact NPFC
FAQs
Glossary
Site Map
What’s New
Home > About_NPFC> Oil Pollution Act of 1990 (OPA)

Oil Pollution Act of 1990 (OPA)

OPA Overview | Title I of OPA | NPFC Created to Implement Title I of
OPA
More Information

Oil Spill Liability

Trust Fund

OPA FAQs

NPFC Laws &

Regs

Exxon Valdez
Spill(EPA)

Related
Documents

OSLTF Funding
for Oil

75
 Spills (300 KB
On March 24, 1989, the Exxon Valdez spilled over PDF)
11 million gallons of Alaskan crude into the water
of Prince William Sound. There were many Mission
lessons learned the aftermath of theValdez oil Overview(830
spill. Two of the most obvious were: KB PDF)

• The United States lacked adequate Report on the

resources, particularly Federal funds, to Implementation
respond to spills, and of the Oil
• The scope of damages compensable Pollution Act of
under federal law to those impacted by a 1990 (350 KB
spill was fairly narrow. PDF)

Although the environmental damage and massive 33 U.S.C. 2701-

cleanup efforts were the most visible effects of this 2761 (OPA)
casualty, one of the most important outcomes was
the enactment of the Oil Pollution Act of 1990 (OPA), which addressed
both these deficiencies.

{back to top}

OPA Overview

The Oil Pollution Act of 1990 (33 U.S.C. 2701-2761) amended the Clean
Water Act and addressed the wide range of problems associated with
preventing, responding to, and paying for oil pollution incidents in
navigable waters of the United States. It created a comprehensive
prevention, response, liability, and compensation regime to deal with
vessel- and facility-caused oil pollution to U.S. navigable waters. OPA
greatly increased federal oversight of maritime oil transportation, while
providing greater environmental safeguards by:

• Setting new requirements for vessel construction and crew

licensing and manning,
• Mandating contingency planning,
• Enhancing federal response capability,
• Broadening enforcement authority,
• Increasing penalties,
• Creating new research and development programs,
• Increasing potential liabilities, and
• Significantly broadening financial responsibility requirements.

{back to top}

Title I of OPA

Title I of OPA established new and higher liability limits for oil spills, with

76
 commensurate changes to financial responsibility requirements. It
substantially broadened the scope of damages, including natural
resource damages (NRDs), for which polluters are liable. It also
authorized the Oil Spill Liability Trust Fund (OSLTF) up to $1 billion to pay
for expeditious oilremoval and uncompensated damages. (The Energy
Policy Act of 2005 later raised the limit of the Fund to $2.7 billion; and the
Delaware River Protection Act of 2006, title VI of the Coast Guard and
Maritime Transportation Act of 2006, increased the limits of liability.)

{back to top}

NPFC Created to Implement OPA, Title I

OSLTF administration was delegated to the U.S. Coast Guard by

Executive Order; and on February 20, 1991, the National Pollution Funds
Center (NPFC) was commissioned to:

• Implement certain provisions of OPA, Title I;

• Administer the OSLTF;
• Ensure funding for federal response; and
• Recover costs from liable parties.

About NPFC
Contact NPFC
FAQs
Glossary
Site Map
What’s New
Home > About_NPFC > The Oil Spill Liability Trust Fund
(OSLTF)

The Oil Spill Liability Trust Fund (OSLTF)

History | Oil Pollution Act | Fund Uses | Fund Structure | Emergency Fund |
Principal Fund

Funds NPFC
Administers

Oil Pollution Act &

Oil Spill Liability

77
 Trust Fund

History of the Fund CERCLA &

Superfund
In August 1990, when President George H. W. Bush
signed the Oil Pollution Act (OPA) into law and National Response
authorized use of the Oil Spill Liability Trust Fund Framework &
(OSLTF), the Fund was already four years old.
Disaster Funding
Congress created the Fund in 1986, but did not pass
legislation to authorize the use of the money or the
collection of revenue necessary for its maintenance. It More Information
was only after the Exxon Valdez grounding and the
passage of OPA that authorization was granted. OPA FAQs

{back to top} NPFC Laws & Regs

Oil Pollution Act (OPA) Related Documents

In addition to authorizing use of the OSLTF, OPA OSLTF Funding for

consolidated the liability and compensation Oil Spills (300 KB
requirement of certain prior federal oil pollution laws PDF)
and their supporting funds, including the:
Mission Overview
• Federal Water Pollution Control Act (FWPCA), (830 KB PDF)
• Deepwater Port Act,
• Trans-Alaska Pipeline System (TAPS) Report on the
Authorization Act, and Implementation of
• Outer Continental Shelf Lands Act. the Oil Pollution Act
of 1990 (350 KB
{back to top} PDF)

Uses of the Fund 26 U.S.C. 9509

(OSLTF)
With the consolidation of these funds and the
collection of a tax on the petroleum industry, the Fund 33 U.S.C. 2701-
increased to $1 billion. Fund uses were delineated by 2761 (OPA)
OPA to include:
Energy Policy Act of
• Removal costs incurred by the Coast Guard
2005 (1.5 MB PDF)
and EPA
• State access for removal activities;
• Payments to federal, state, and Indian tribe trustees to conduct
natural resource damage assessments and restorations;
• Payment of claims for uncompensated removal costs and damages;
• Research and development; and
• Other specific appropriations.

The Energy Policy Act of 2005 increased the maximum size of the Fund to
$2.7 billion.

78
{back to top}

Structure of the Fund

The OSLTF has two

major components.

1. The Emergency
Fund is available
for Federal On-
Scene
Coordinators
(FOSCs) to
respond to
discharges and
for federal
trustees to initiate
natural resource
damage
assessments.
The Emergency
Fund is a
recurring $50
million available
to the President
annually.
2. The remaining
Principal Fund
balance is used
to pay claims and
to fund
appropriations by
Congress to
Federal agencies
to administer the
provisions of
OPA and support
research and
development.

{back to top}

The Emergency Fund

To ensure rapid, effective response to oil spills, the President has the
authority to make available--without Congressional appropriation--up to $50
million each year to fund removal activities and initiate NRDAs. Funds not
used in a fiscal year are available until expended. To the extent that $50

79
million is inadequate, the Maritime Transportation Security Act of 2002
granted authority to advance up to $100 million from the Principal Fund to
fund removal activities. (This provision has not been utilized to date.)

A core mission of the NPFC is to administer the disbursement and ensure

proper use of the Emergency Fund, 24 hours a day, every day, so that the
FOSCcan immediately respond to a discharge or monitor prompt and
effective cleanup activities by the responsible party (RP). the Emergency
Fund can be used by FOSCs to cover expenses associated with mitigating
the threat of an oil spill, as well as the costs of oil spill containment,
countermeasures, cleanup, and disposal activities. While the use of the
OSLTF is most closely associated with discharges from ships, it has
increasingly been used for discharges at industrial or onshore oil storage
and production facilities.

{back to top}

The Principal Fund

Sources of the Principal Fund

The Principal Fund of the OSLTF has several recurring and nonrecurring
sources of revenue.

• Barrel Tax. The largest source of revenue has been a 5-cent-per-

barrel tax, collected from the oil industry on petroleum produced in
or imported to the United States. The tax was suspended in July
1993 because the Fund reached its statutory limit. It was reinstated
in July 1994, when the balance declined below $1 billion, but
expired at the end of 1994 because of the sunset provision in the
law. The 2005 Energy Policy Act again reinstated the tax (effective
April 2006).
• Transfers. A second major source of revenue has been transfers
from other existing pollution funds listed above. Total transfers into
the Fund since 1990 have exceeded $550 million. No additional
funds remain to be transferred to the OSLTF.
• Interest. A recurring source of OSLTF revenue is the interest on
the Fund principal from U.S. Treasury investments. As a result of
historically low interest rates, interest income declined in 2003 and
2004, but has rebounded in recent years as Treasury rates have
risen with the economic recovery. The Department of the Treasury
serves as the OSLTF’s investment manager.
• Cost Recoveries. Another source is cost recoveries from
responsible parties (RPs); those responsible for oil incidents are
liable for costs and damages. NPFC bills RPs to recover costs
expended by the Fund. As these monies are recovered, they are
deposited into the Fund.
• Penalties. In addition to paying for clean-up costs, RPs may incur
fines and civil penalties under OPA, the Federal Water Pollution
Control Act, the Deepwater Port Act, and the Trans-Alaska Pipeline

80
 Authorization Act. Penalty deposits into the OSLTF are generally
between $4 million and $7 million per year.

Uses of the Principal Fund

The Principal Fund has two types of expenses.

• Claims. Any person or organization that has incurred removal costs

or suffered damages due to an oil spill may submit a claim. Read
More....
• Appropriations. Several Federal organizations receive annual
appropriations from the OSLTF to cover certain administrative,
operational, personnel, enforcement, and research and
development costs. Organizations currently receiving appropriations
from the Fund are:
o Coast Guard
o Environmental Protection Agency
o Bureau of Ocean Energy Management Regulation and
Enforcement (Department of the Interior)
o Pipeline and Hazardous Material Safety Adminstration
Research and Special Programs Administration
(Department of Transportation)
o Department of the Treasury
o Prince William Sound Oil Spill Recovery Institute (OSRI),
and
o Denali Commission.

About NPFC
Contact NPFC
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What’s New
Home > Certificates of Financial Responsibility (COFRs)

Certificates of Financial Responsibility (COFRs)

Site Overview | Contact Information

Limits of Liability

Limits of Liability

81
The National Pollution Funds Center is tasked with
administering the vessel financial responsibility
portions of theOil Pollution Act of 1990 (OPA) and Federal
the Comprehensive Environmental Response, Register Notice
Compensation and Liability Act (CERCLA). (July 01, 2009)

COFR Application Overview E-Tools

The COFR Application contains information on the E-COFR(Look

vessels that have been issued COFRs. The data up a COFR or
contained therein is updated daily (M-F) as apply online )
vessels are added or deleted from the list. The site
also permits users to apply for, renew, change, COFR Forms
and pay for COFR applications via the Web
through the E-COFR application. More
Information
By clicking on the link below, you may:
About Vessel
1. Search for vessel COFR information Certification
2. Submit and pay for a new COFR, a COFR
renewal, a COFR change or update,
and/or a COFR replacement
3. Download COFR application Form CG-5585
4. Contact marine insurance examiners via e-mail, and
5. Download COFR regulations.

Enter COFR Application

{back to top}

COFR Contact Information

Monday through Friday: 7:00 a.m. to

Business Hours 4:00 p.m.
Saturday & Sunday: Closed
Address Fax Phone
National Pollution Funds
Center
ATTN: Vessel Certification
4200 Wilson Blvd., Suite 202-493-6781 202-493-6780
1000
Arlington, VA 20598-7100
USA
COFR Contacts

82
 I.PILOTAGE

A pilot is a mariner who guides ships through dangerous or congested waters, such
as harbours or river mouths. With the exception of the Panama Canal, the pilot is only an
advisor, as the captain remains in legal, overriding command of the vessel.

In English Law Article 742 of the Merchant Shipping Act 1894 defines a pilot as "any person not
belonging to a ship who has the conduct thereof". In other words someone, other than a
member of the crew, who has control over the speed, direction and movement of the ship.

Pilotage is one of the oldest, least-known professions yet it is one of the most important in
maritime safety. The economic and environmental risk from today’s large ships makes the role
of the pilot essential.

The work functions of the pilot go back to Ancient Greece and Roman times, when locally
experienced harbour captains, mainly local fishermen, were employed by incoming ships’
captains to bring their trading vessels into port safely. Eventually, in light of the need to regulate
the act of pilotage and to ensure pilots had adequate insurance, the harbours themselves
licensed pilots. The California Board of Pilot Commissioners was the first government agency
created by that state’s legislature in 1850.

83
Prior to the establishment of harbour boards to regulate, pilots known as "hobblers" would
compete with one another. The first to reach in incoming ship would guide it to the docks; and
receive payment.[1]

Although licensed by the harbour to operate within their jurisdiction, pilots were generally self-
employed, meaning that they had to have quick transport to get from the port to the incoming
ships. As pilots were often still dual-employed, they used their own fishing boats to reach the
incoming vessels. But fishing boats were heavy working boats, and filled with fishing
equipment, hence a new type of boat was required.

In the United Kingdom pilotage is regulated by the Pilotage Act. The Act gives powers to
Competent Harbour Authorities to make pilotage compulsory within their pilotage district, to
grant pilotage exemption certificates and to authorise pilots within their district; the Act also
allows the Secretary of State to authorise other bodies to grant deep sea pilotage certificates in
respect of such part of the sea falling outside the harbour of any competent harbour authority.

Duties of a pilot

Boarding is tricky, as both vessels are moving and cannot afford to slow down. Their size and
mass makes large ships very difficult to maneuver; the stopping distance of a supertanker is typically
measured in miles (kilometres) and even a slight error in judgment can cause millions of dollars in
damage. For this reason, many years of experience in an operating area are required to qualify as a
pilot. For example, the California Board of Pilot Commissioners requires that pilot trainees must have a
master’s license, two years command experience on tugs or deep draft vessels, and pass a written
exam and simulator exercise, followed by a period of up to three years training gaining experience with
all types of vessel and docking facilities. Following licensing, pilots are required to engage in extensive
continuing educational programs.

By far the most challenging part of any ship’s voyage is the passage through the narrow
waterways that lead to port and the final docking of the ship. The pilot brings to the ship
expertise in handling large vessels in confined waterways and expert local knowledge of the
port. In addition to bringing local maritime expertise on board, the pilot also relieves
the captain from the economic pressures that can compromise safety. Instead of being part of
the ship’s crew, pilots are employed locally and therefore act on behalf of the public rather than
of the ship owners. However, masters of ships that call at only a few ports, such as a ferry, are
issued a ’pilot exemption certificate’. Ships with an exempt shipmaster or mate do not need to
carry a pilot.

84
Signal flag H- Pilot on Board

Normally the pilot joins an incoming ship at sea via helicopter or pilot boat and climbs a pilot
ladder sometimes up 40 feet (~12 metres) to the deck of the largest container and tanker ships.
With outgoing vessels, a pilot boat returns the pilot to land after the ship has successfully
negotiated coastal waters.

Pilots specifically use pilotage techniques relying on nearby visual reference points and local
knowledge of tides, swells, currents, depths and shoals that might not be readily identifiable
on nautical charts without first hand experience in the waters in question.

Beyond the experience and training of regular ship’s captains, pilots also receive special,
ongoing training to stay on top of their profession. Pilots are required by law in most major sea
ports of the world for large ships.

Pilot’s skills

Seamanship is the art of operating a ship or boat.

It involves a knowledge of a variety of topics and development of specialized skills

including: navigation and international maritime law; weather, meteorology and
forecasting; watch standing; ship-handling and small boat handling; operation of deck
equipment, anchors and cables; rope work and line handling; communications; sailing; engines;
execution of evolutions such as towing; cargo handling equipment, dangerous cargoes and
cargo storage; dealing with emergencies; survival at sea and search and rescue; fire fighting.

The degree of knowledge needed within these areas is dependent upon the nature of the work
and the type of vessel employed by a mariner. However, the practice of good seamanship
should be the goal of all.

Navigation

More than just finding a vessel’s present location, safe navigation includes predicting future
location, route planning and collision avoidance. Nautical navigation in western nations, like air
navigation, is based on the nautical mile.

Ship-handling

A fundamental skill of professional seamanship is being able to maneuver a vessel with

accuracy and precision. Unlike vehicles on land, a ship afloat is subject to the movements of

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the air around it and the water in which it floats. Another complicating factor is the mass of a
ship that has to be accounted for when stopping and starting.

Ship-handling is about arriving and departing a berth or buoy, maneuvering in confined

channels and harbours and in proximity to other ships, whilst at all times navigating safely. Two
other types of operations, berthing alongside another ship and replenishment at sea, are
occasionally included. A key ability for a ship-handler is an innate understanding of how the
wind, tide and swell, the passage of other vessels, as well as the shape of the seabed, will
affect a vessel’s movement, which, together with an understanding of a specific vessels
performance, should allow that vessel a safe passage.

Fundamental to low speed maneuvering is an understanding of the configuration and

handedness of the propeller(s). An effect known as propeller walk will kick the stern of the
vessel to port or starboard depending on the configuration and the type of propeller when large
variations on propeller rotation speed or changes of propeller rotation direction take place. (In
single screw vessels where the rotation of the propeller is reversed on an astern bell, a
standard was established that the propeller would turn clockwise when viewed from astern.

This would mean that the propeller would turn counterclockwise when going astern and the
stern would walk to port. This aided in docking operations, where "port side to" was the
preferred situation and the vessel would be brought to the dock with a small bow-in angle and
backing would flatten the angle, slow or stop the vessel and walk it alongside.

An exception to this was the U.S. Sealift class tankers which used a controllable pitch
propeller, where the pitch and not the direction of rotation was reversed to go astern. These
propellers rotated counterclockwise at all times and so the "walk" was "normal".) In addition to
being fully conversant with the principles of seamanship and ship-handling a good pilot will
have developed his or her sense of ’situational awareness’ to a point well beyond that of a
member of a ship’s crew, his reactions will appear to be instinctive, positive and at all times
safe.

Most commercial vessels in excess of size limits determined by local authorities are handled in
confined areas by a Marine (or maritime) pilot. Marine pilots are seafarers with extensive
seafaring experience and are usually qualified Master mariners who have been trained as
expert ship-handlers. These pilots are conversant with all types of vessel and propulsion
systems, as well as handling ships of all sizes in all weather and tidal conditions. They are also
experts in the geographical areas they work. In most countries the pilot takes over the ’conduct’
of the navigation from the ship master.
This means that the master & crewshould adhere to the pilot’s orders in respect of the safe
navigation of the vessel when in a compulsory pilotage area. The master may with good
cause resume ’conduct’ of the vessel’s navigation. However this should never be done lightly.

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In situations where the Pilot is an "advisor" even though he has the con, the Pilot or his
"Association" have no responsibility or liability in the case of an accident. The Master, upon
realizing there is a dangerous situation developing, must take such action as to avoid an
accident or at least to minimize the damage from one that can’t be avoided.

In some countries and areas (e.g. Scandinavia and the U.S.A.) the Pilot’s role is an advisor.
However, in practice, they are likely to have the conduct of the vessel, especially on larger
ships using tug boats to assist.

The general Rule of Thumb is that a Pilot assumes command of a vessel and is not classed as
"an advisor" in the Panama Canal, crossing the sill of a drydock, or in any port in Russia (or,
perhaps, all the old Soviet States). This distinction is important because when a Pilot is in
command, the Master cannot take any action, but is limited to advising the Pilot on any
circumstance that creates what he considers a dangerous situation.

The captain, or master, of a large ship has total command in the high seas. However, when a ship
enters or leaves a port, or enters a river or channel, the captain turns over navigation to a local pilot.
Because of safety and commercial concerns, state and federal maritime law governs the licensing and
regulation of pilots.

A docking pilot directs the tugboats that pull a ship from the pier. Once the ship has cleared the
pier and is under way in the harbor, the docking pilot leaves the ship and turns navigation over
to a harbor pilot. Every ship that enters and leaves a port must have a harbor pilot aboard.
Once the ship reaches open water, a small boat picks up the harbor pilot and returns the pilot
to port. The captain then resumes full command of the ship.

The harbor pilot must have a thorough knowledge of every channel, sandbar, and other
obstacle that could run the ship aground, strike another ship, or cause an accident that would
endanger the ship, its crew, its cargo, and any passengers on board. The pilot must also be an
experienced sailor who knows how to maneuver a ship through crowded harbors.

Either the state or federal government licenses pilots to ensure that vessels will be prop-erly
operated in state and U.S. waters. Federal law requires that federally registered pilots navigate
ships on the Great Lakes, and state law regulates the need for pilots in bays, inlets, rivers,
harbors, and ports. Where the waters are the boundary between two states, the owner of the
ship can hire a pilot who has been licensed by either state to navigate the vessel to and from
port.

State and federal laws impose qualifications for a pilot’s license. A pilot must have the highest
degree of skill as a sailor and may be tested on that knowledge. The individual may be required
to submit written references from persons for whom he or she has served as an apprentice. In
addition, the applicant must obtain a reference from a licensed pilot. The pilot may also be
required to post a bond.

Once licensed, the pilot must act in a professional manner. A license can be revoked or
suspended for adequate cause, such as when the pilot has operated the ship while intoxicated.

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The pilot has the right to appeal to a court an administrative body’s decision to deny licensure
or to impose discipline.

The legal rights and responsibilities of the harbor pilot’s action in navigating vessels are well
settled. The pilot has primary control of the navigation of the vessel, and the crew must obey
any pilot order. The pilot is empowered to issue steering directions and to set the course and
speed of the ship and the time, place, and manner of anchoring it. The captain is in command
of the ship except for navigation purposes. The captain can properly assume command over
the ship when the pilot is obviously incompetent or intoxicated.

The pilot must possess and exercise the ordinary skill and care of one who is an expert in a
profession. A pilot can be held personally liable to the owners of the vessel and to other injured
parties for damages resulting fromNegligence that causes a collision.

The pilot will be responsible for damages if his or her handling of the ship was unreasonable,
according to persons of nautical experience and good seamanship, at the time of the accident.
The negligence of a pilot in the performance of duty is a maritime TORT within the jurisdiction of
a court of ADMIRALTY, which deals only with maritime actions.

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 J. SHIP SALE & PURCHASE

THE NORWEGIAN SALES FORM

Often in a ship transaction, the issue will arise concerning the protocol and terms of an offer. In
larger ships the phase that is used is "Will the offer be on NSF." The reference is to the
Norwegian Shipbrokers’ Association’s Memorandum of Agreement for sale and purchase of
ships, adopted by the Baltic and International Maritime Council (BIMCO) in 1956.

The NSF (Norwegian Sales Form) attempts to address all pertinent issues in a large ship

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transaction. I have placed a copy of the NSF in our computer under code #9006 for your view. I
also have an offer form based on United States Law which is less complex and designed for
general transactions. There is no firm rule that any particular form be used. Rather the form
must be tailored to meet the needs of the parties. Never just "fill in the blanks" on any form.
Read and understand the terms of the offer because it will become the basis of either a
successful transaction or the beginning of a legal nightmare.

An offer to purchase must state all of the terms necessary. This will include a description of the
vessel sufficient to identify it by name or document number. Also, the offer may be based upon
conditions, i.e., inspection and survey or "as is, where is." The phrase "as is, where is" means
that no inspection is necessary and the purchaser takes the vessel with no warranty from the
owner and without dry docking or survey. A seller may sell "as is, where is" subject to "buyer’s
inspection". This means that the buyer offers no warranty or assurance of the condition of the
vessel and the buyer must make whatever inspection he deems necessary. This is not an
uncommon way for the bill of sale and agreement to be drawn.

Ordinarily, the agreement will provide for place and time of delivery, inspections, dry docking,
spare parts and the like. The NSF is very thorough as to these points. The agreement must
also provide for the amount offered.

Under the NSF, the deposit is made only if the offer is acceptable to the seller. The seller must
sign and return the offer agreement. In many of our contracts, we specify that fax signatures
are to be deemed as originals. This allows the parties to execute and respond to offers quickly
and moves the process along without the delay of mail or express deliveries. Under the
Norwegian Sales Form, the deposit is ordinarily held in a joint account by the buyer and seller.
In reality buyers and sellers are seldom in the same location. We prefer the appointment of an
escrow agent to hold the deposit subject to the terms of the agreement and then provide for the
disbursement of funds. In the United States it is common for the deposit to be held by the
broker for the buyer in a segregated trust account and for the broker to certify the deposit to the
seller. We require, when this is done, that the broker provide to the seller the name and
location of the bank, bank account number and verbal confirmation from the bank that the
funds are on deposit. When my law firm holds the deposit, we place it in a segregated trust
account subject to the terms of the agreement.

The terms of the sale (NSF) provide that the ship will be "in class and free of
recommendations." This means that the ship meets all the requirements of the classification
society that has classed the ship. This may be American Bureau of Shipping (ABS), Lloyd’s
Registry of Shipping; Det Norske Veritas (Veritas) or any of the other classification societies. If
the vessel is not in class, the offer will be made subject to survey satisfactory to the buyer. The
buyer then selects and pays his own surveyor to inspect the vessel. Based upon that report,
the buyer may either complete the sale or change, or withdraw his offer. I have never seen a
surveyor who did not save the buyer at least the cost of the survey. In most cases, if the
surveyor discovers a defect in the worthiness of the vessel, the owner can be convinced to
correct the defect at his expense prior to the sale, or to deduct the cost of the repair from the
selling price.

The mechanics of the transfer of the selling price to the seller may be accomplished by simple
certified check or electronic funds transfer (EFT). The EFT is the quickest and most effective. It
guarantees very prompt completion of the transaction. Letters of Credit (LC’s) are used in
international transaction in the way that an escrow office is used in real estate transactions.

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 Funds are transferred to a local bank by the foreign purchaser, based upon certain conditions.
Those conditions may be inspection and approval or any other variety of terms. The bank must
certify the LC to the owner and fully disclose all terms. Once the terms have been met, the
bank transfers the actual cash into the seller’s designated account. It is my practice in the
United States for the LC to be paid prior to the vessel leaving U.S. waters. In other jurisdictions
where there may be export problems, the LC may be contingent upon the vessel obtaining
proper export license or to actually reaching international waters or a foreign port.

The most important thing to remember in formulating an offer is to be precise, clear and to fully
understand the terms of your offer.

THE FOLLOWING IS THE NORWEGIAN SALES FORM 1993

• MEMORANDUM OF AGREEMENT
Dated:

hereinafter called the Sellers, have agreed to sell, and

hereinafter called the Buyers, have agreed to buy

Name:
Classification Society/Class:
Built: By:
Flag Place of Registry;
Call Sign: Grt/Nrt
Register Number:

hereinafter called the Vessel, on the following terms and conditions:

Definitions

"Banking days" are days on which banks are open both in the country of the currency stipulated
for the Purchase Price in Clause 1 and in the place of closing stipulated in Clause 8."In writing
or "written" means a letter handed over from the Sellers to the
Buyers or vice versa, a registered letter, telex, telefax or other modern form
of written communication.

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"Classification Society" or "Class" mean the Society referred to in Line 4.

1. Purchase Price

2. Deposit

As a security for the correct fulfilment of this contract, the Buyers shall pay a deposit of 10% -
ten per cent - of the Purchase Money within banking days from the date of this agreement. This
deposit shall be deposited with

and held by them in a joint account for the Sellers and the Buyers, to be released in
accordance with joint written instructions of the Sellers and the Buyers. Interest, if any, to be
credited the Buyers. Any fee charged for holding said deposit shall be borne equally by the
Sellers and the Buyers.

3. Payment

The said Purchase Money shall be paid free of bank charges to

on delivery of the vessel, but not later than three banking days after the Vessel is in every
respect physically ready for delivery in accordance with the terms and conditions of this
Agreement and Notice of Readiness has been given in accordance with Clause 5.
Comment

4. Inspections

a)* The Buyers have inspected and accepted the Vessel’s classification records. The Buyers
have also inspected the Vessel at / in on and have accepted the Vessel following this
inspection and the sale is outright and definite, subject only to the terms and conditions of this
Agreement.

b) The Buyers shall have the right to inspect the Vessel’s classification records and declare
whether same are accepted or not within

The Sellers shall provide for inspection of the vessel at / in

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The Buyers shall undertake the inspection without undue delay to the vessel. Should the
Buyers cause such delay they shall compensate the Sellers for the losses thereby incurred.
The Buyers shall inspect the Vessel without opening up and without cost to the Sellers. During
the inspection, the Vessel’s deck and engine log books shall be made available for examination
by the Buyer’s. If the vessel is accepted after such inspection, the sale shall become outright
and definite, subject only to the terms and conditions of this Agreement, provided the Sellers
receive written notice from the Buyers within 72 hours after completion of such inspection.
Should notice of acceptance of the Vessel’s classification records and of the Vessel not be
received by the Sellers as aforesaid, the deposit together with interest earned shall be released
immediately to the Buyers, whereafter this contract shall be null and void.

* 4a) and 4B) are alternatives; delete whichever is not applicable. In the absence of deletions,
alternative 4a) to apply.

5. Notices, time and place of delivery

a) The Sellers shall keep the buyers well informed of the Vessel’s itinerary and shall provide
the Buyers with , and days of estimated time of arrival at the intended place of dry-docking /
underwater inspection / delivery. When the vessel is at the place of delivery and in every
respect physically ready for delivery in accordance with this agreement, the Sellers shall give
the Buyers a written Notice of Readiness for delivery.

b) The vessel shall be delivered and taken over safely afloat at a safe and accessible berth or
anchorage at /in in the Sellers option.

Expected time of delivery:

Date of cancelling (see Clauses 5c), 6b), (III) and 14):

c) If the Sellers anticipate that, notwithstanding the exercise of due diligence by them, the
vessel will not be ready for delivery by the cancelling date they may notify the Buyers in writing
stating the date when that the vessel will be readyfor delivery and propose a new cancelling
date. Upon receipt of such notification the Buyers shall have the option of either cancelling his
agreement in accordance with clause 14 within 7 running days of receipt of the notice or of
accepting the new date as the new cancelling date. If the Buyers have not declared their option
within 7 running days of receipt of the Sellers notification or if the Buyers accept the new date,
the date proposed in the Sellers’ notification shall be deemed to be the new cancelling date and
shall be substituted for the cancelling date stipulated in line 61.

If this agreement is maintained with the new cancelling date all other terms and conditions
hereof including those contained in clause 5a) and 5c) shall remain unaltered and in full force
and effect. Cancellation or failure to cancel shall be entirely without prejudice to any claim for
damages the Buyers may have under clause 14 for the vessel not being ready by the original
cancelling date.

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d) Should the vessel become an actual, constructive or compromised total loss before delivery
the deposit together with interest earned shall released immediately to the Buyers whereafter
this agreement shall be null andvoid.

6. Drydocking/Divers inspection

a)** The Sellers shall place the vessel in dry dock at the port of delivery for inspection by the
Classification Society of the Vessel’s underwater parts below the deepest load line, the extent
of the inspection being in accordance with the Classification Society’s rules.If the rudder,
propeller, or bottom or other underwater parts below the deepest load line are found broken,
damaged, or defective, so as to affect the Vessel’s class, such defects shall be made good at
the Seller’s expense to the satisfaction of the Classification Society without condition /
recommendation.

b)** (i)The Vessel is to be delivered without dry docking. However the Buyers shall have the
right at their expense to arrange for an underwater inspection by a diver approved by the
Classification Society prior to delivery of the Vessel. The Sellers shall at their cost make the
Vessel available for such inspection. The extent of the inspection and the conditions under
which it is performed shall be to the satisfaction of the Classification Society. If the conditions at
the port of delivery are unsuitable for such inspection, the Seller’s shall make the Vessel
available at a suitable alternative place near to the delivery port.

(ii) If the rudder, propeller, bottom, other underwater parts below the deepest load Line are
found broken, damaged or defective so as to affect the Vessel’s class, then unless repairs can
be carried out to the satisfaction of the Classification Society, the Seller’s shall arrange for the
Vessel to be drydocked at their expense for inspection by the Classification Society of the
Vessel’s underwater parts below the deepest load line, the extent of the inspection being in
accordance with the Classification Society’s rules. If the rudder, propeller, bottom or other
underwater parts below the deepest load line are found damaged or defective so as to affect
the vessel’s class such defects shall be made good by the Sellers at their expense to the
satisfaction of the Classification Society without condition/recommendation*. In such event the
Seller’s are to pay for the cost of the underwater inspection and the Classification Society’s
attendance.

(iii) If the Vessel is to be drydocked pursuant to Clause 6B) (ii) and no suitable drydocking
facilities are available at the port of delivery, the Sellers shall take the Vessel to a port where
suitable drydocking facilities are available, whether within or outside the delivery range as per
Clause 5b) which shall, for the purpose of this clause, become the new port of delivery. In such
event the cancelling date provided or in Clause 5 b shall be extended by the additionaltime
required for the drydocking and extra steaming, but limited to a maximum of 14 running days.

c) If the Vessel is drydocked pursuant to Clause 6 a) or 6 b) above

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(i) the Classification Society may require survey of the tailshaft system, the extent of the survey
being to the satisfaction of the Classification surveyor. If such survey is not required by the
Classification Society, the Buyers shall have the right to require the tailshaft to be drawn and
surveyed by the Classification Society, the extent of the survey being in accordance with the
Classification Society rules for tailshaft survey and consistent with the current stage of the
Vessel’s survey cycle. The Buyers shall declare whether they require the tailshaft to be drawn
and surveyed not later than by the completion of the inspection by the Classification Society.
The drawing and refitting of the tail shaft shall be arranged by the Sellers. Should any parts of
the tailshaft system be condemned or found defective so as to affect the Vessel’s class, those
parts shall be renewed or made good at the Seller’s expense to the satisfaction of the
Classification Society without condition / recommendation.

(ii) the expense relating to the survey of the tailshaft system shall be borne by the Buyers
unless the Classification Society requires such survey to be carried out, in which case the
Sellers shall pay these expenses. The Sellers shall also pay the expenses if the Buyers require
the survey and parts of the system are condemned or found defective or broken so as to affect
the Vessel’s class*.

(iii) the expense in connection with putting the Vessel in and taking her out of drydock,
including the drydock dues and the Classification Society’s fees shall be paid by the Sellers if
the Classification Society issues any condition/ recommendation* as a result of the survey or if
it requires survey of the tailshaft system. In all other cases the Buyers shall pay the aforesaid
expenses, dues and fees.

(iv) the Buyer’s representative shall have the right to be present in the drydock, but without
interfering with the work or decisions of the Classification Surveyor.

(v) the Buyers shall have the right to have the underwater parts of the Vessel cleaned and
painted at their risk and expense without interfering with the Sellers’ or the Classification
surveyors work, if any, and without affecting the Vessel’s timely delivery, If, however, the Buyer’
work in drydock is still in progress when the Sellers have completed the work which the Sellers
are required to do, the additional docking time needed to complete the Buyers’ work shall be for
the Buyers’ risk and expense. In the event that theBuyers’work requires such additional time,
the Sellers may upon completion of the seller’s work tender Notice of Readiness for delivery in
accordance with Clause 3, whether the Vessel is in drydock or not and irrespective of Clause 5
b). Notes, if any, in the surveyor’s report which are accepted by the Classification Society
without condition / recommendation are not to be taken into account.6 a) and 6 b) are
alternatives; delete whichever is not applicable. In the absence of deletions, alternative 6 a) to
apply.

7. Spares/bunkers etc

The Sellers shall deliver the Vessel to the Buyers with everything belonging to her on board
and on shore. All spare parts and spare equipment including spare tail end shaft(s) and or

95
spare propeller(s) if any, belonging to the Vessel at the time of inspection, used or unused,
whether or board or not shall become the Buyers property, but spares on order to be excluded.
Forwarding charges, if any, shall be for the Buyers account. The Sellers are not required to
replace spare parts including spare tail end shafts(s) and spares propeller(s) which are taken
out of store and used as replacement prior to delivery, but the replaced items shall be the
property of the Buyers. The radio installation and navigational equipment shall be included in
the sale without extra payment, if the same is the property of the Sellers. Unused stores and
provisions shall be included in the sale and be taken over by the Buyer’s without extra
payment. The Sellers have the right to take ashore crockery, plate, cutlery, linen, and other
articles bearing the Sellers flag or name, provided they replace same with similar unmarked
items. Library forms etc, exclusively for use in the Sellers’ Vessel(s), shall be excluded from the
sale without compensation. Captain’s, Officers’ and Crew’s personal belongings including the
slop chest are to be excluded from the sale, as well as the following additional items (including
items on hire):

The Buyers shall take over remaining bunkers, unused lubricating oils in storage tanks and
sealed drums and pay the current net market price (excluding barging expenses) at the port
and date of delivery of the Vessel.Payment under this clause shall be made at the same time
and place and in the same currency as the Purchase Price.

8. Documentation

The place of closing:

In exchange for payment of the Purchase Money the Sellers shall furnish the Buyers with
delivery documents, namely:

a) Legal Bill of Sale in a form recordable in (the country in which the Buyers are to register the
Vessel), warranting that the Vessel is free from all encumbrances, mortgages and maritime
liens or any other debts whatsoever, duly notarially attested and legalised by the consul of such
country or other competent authority.

b) Current Certificate of Ownership issued by the competent authorities of the flag state of the
Vessel.

c) Confirmation of Class issued within 72 hours prior to delivery.

d) Current Certificate issued by the competent authorities stating that the Vessel is free from
registered encumbrances.

e) Certificate of Deletion of the Vessel from the Vessel’s registry or other official evidence of
deletion appropriate to the Vessel’s registry at the time of delivery, or, in the event that the

96
registry does not as a matter of practice issue such documentation immediately, a written
undertaking by the Sellers to effect deletion from the Vessel’s registry forthwith and furnish a
Certificate or other official evidence of deletion to the Buyers promptly and latest within 4 (four)
weeks after the Purchase Price has been paid and the Vessel has been delivered.

f) Any such additional documents as may reasonably be required by the competent authorities
or the purpose of registering the Vessel, provided the Buyers notify the Sellers of any such
documents as soon as possible after the date of this Agreement.

At the time of delivery the Buyers and the Sellers shall sign and deliver to each other a Protocol
of Delivery and Acceptance confirming the date and time of delivery of the Vessel from the
Sellers to the Buyers.

At the time of delivery the Sellers shall hand to the Buyers the classification certificate(s) well
as all plans etc which are on board the Vessel. Other certificates which are on board the Vessel
shall also be handed over to the Buyers unless the Sellers are required to retain same, in which
case the Buyers to have the right to take copies. Other technical documentation which may be
in the Sellers possession shall promptly be forwarded to the Buyers at their expense, if they so
request. The Sellers may keep the log books, but the Buyers have the right to take copies of
same.

9. Encumbrances

The Sellers warrant that the Vessel, at the time of delivery, is free from all charters,
encumbrances, mortgages and maritime liens or any other debts whatsoever. The Sellers
hereby undertake to indemnify the Buyers against all consequences of claims made against the
Vessel which have been incurred prior to the time of delivery.

10. Taxes

Any taxes, fees and expenses connected with the purchase and registration under the Buyer’s
flag shall be for the Buyer’s account, whereas similar charges connected with the closing of the
Sellers register shall be for the Sellers’ account.

11. Condition on delivery

The Vessel with everything belonging to her shall be at the Sellers risk and expenses until she
is delivered to the Buyers, but subject to the conditions of this contract, she shall be delivered
and taken over as she is at the time of inspection, fair wear and tear excepted.However, the

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Vessel shall be delivered with her class maintained without condition/recommendation*, free of
average damage affecting the Vessel’s class, and with her classification certificates and
national certificates, as well as all other certificates the Vessel had at the time of inspection,
valid and unextended with condition / recommendation* by Class or the relevant authorities at
the time of delivery. “Inspection" in this clause 11, shall mean the Buyer’s inspection according
to Clause 4a) or 4b), if applicable, or the Buyer’s inspection prior to signing of this Agreement.
If the Vessel is taken over without inspection, the date of this Agreement shall be the relevant
date.

* Notes, if any, in the surveyor’s report which are accepted by the Classification Society without
condition/recommendation are not to be taken into account.

12. Name /markings

Upon delivery the Buyers undertake to change the name of the Vessel and alter funnel
markings.

13. Buyers’ default

Should the deposit not be in accordance with Clause 2, the Sellers have the right to cancel this
contract, and they shall be entitled to claim compensation for their losses and for all expenses
incurred together with interest.Should the Purchase Money not be paid in accordance with
Clause 3, the Sellers have the right to cancel this Agreement, in which case the amount
deposited together with interest earned shall be released to the Sellers. If the deposit does not
cover their loss, they shall be entitled to claim further compensation for their losses and for all
expenses together with interest.

14. Sellers’ default

Should the Sellers fail to give Notice of Readiness in accordance with Clause 5 a) or fail to be
ready to validly complete a legal transfer by the date stipulated in line 61 the Buyers shall have
the option of cancelling this Agreement provided always that the Sellers shall be granted a
maximum of 3 banking days after Notice of Readiness has been given to make arrangements
for the documentation set out in Clause 8. If after Notice of Readiness has been given but
before the Buyers have taken delivery, the Vessel ceases to be physically ready for delivery
and is not made physically ready again in every respect by the date stipulated in line 61 and
new Notice of Readiness given, the Buyers shall retain their option to cancel. In the event that
the Buyers elect
to cancel this Agreement the deposit together with interest earned shall be released top them
immediately.Should the Sellers fail to give Notice of readiness by the date stipulated in line 61
or fail to be ready to validly complete a ;legal; transfer as aforesaid

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they shall make due compensation to the Buyers for their loss and for all expenses together
with interest if their failure is due to proven negligence and whether or not the Buyers cancel
this Agreement.

15. Buyer’s representatives

After this agreement has been signed by both parties and the deposit has been lodged, the
Buyers have a right to place two representatives on board the Vessel at their sole risk and
expense upon arrival at on or about These representatives are on board for the purpose of
familiarisation and in the capacity of observers only, and they shall not interfere in any respect
with the operation of the Vessel. The Buyers’ representatives shall sign the Sellers’ letter of
indemnity prior to their embarkation.

16. Arbitration

a)* This Agreement shall be governed by and construed according with English law and any
dispute arising out of this Agreement shall be referred to arbitration in London in accordance
with the Arbitration acts 1950 and 1979 or any statutory modification or re-enactment thereof
for the time being in force, one arbitrator being appointed by each party. On the receipt by one
party of the nomination in writing of the other party’s arbitrator, hat party shall appoint their
arbitrator within fourteen days, failing which the decision of he single arbitrator appointed shall
apply. If two arbitrators properly appointed shall not agree they shall appoint an umpire whose
decision shall be final.

b)* This Agreement shall be governed by and construed in accordance with Title 9 of the
United States of America Code and Law of the State of New York and should any dispute arise
out of this Agreement, the matter in dispute shall be referred to three persons at New York, one
to be appointed by each of other the parties hereto, and nthe third by the two so chosen; their
decision or that of any two of them shall be final, and for the purpose of enforcing any award,
this Agreement may be made a rule of the Court. The proceedings shall be conducted in
accordance with the rules of the Society or Maritime Arbitrators, Inc. New York.

c)* Any dispute arising out of this Agreement shall be referred to arbitration at, subject to the
procedures applicable there.The laws of shall govern this Agreement.

* 16 a), 16 b) and 16 c) are alternatives; delete whichever is not applicable. In the absence of
deletions, alternative 16 a) to apply

Signed by......................................... Signed

by..........................................
for and on behalf of the Sellers for and on behalf of the Buyers

Signature.......................................

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Signature........................................

Witness........................................
Witness..........................................
Occupation...................................
Occupation...................................
Address.......................................
Address...................................

Explanatory notes to SALEFORM 1993

The notes which follow are intended to highlight and clarify the more significant changes
introduced in Saleform 1993.

The preamble now states that the Sellers and Buyers have agreed to sell and buy respectively.

A Definitions clause has now been introduced as part of the preamble.

Clause 3 - Payment
The amendments in every respect physically ready for delivery and Notice of Readiness has
been given in accordance with Clause 5 are directed at making it clear beyond doubt that the
Sellers are not entitled to give notice of delivery before the Vessel is in every respect physically
ready for delivery. These amendments were prompted by the English High Court judgment in
the “Aktion” which has been a source of some controversy in the market.

Clause 4 - Inspections
The Committee has chosen to provide for two alternatives, either a) outright sale after the
Vessel and her class records have been inspected and accepted, or b) an inspection clause
similar to that in Saleform 1987 except that “afloat” has been deleted to take account of
possible inspection of the Vessel in drydock.
Clause 5 - Notices, time and place of delivery
a) First a specific provision has been introduced for notices of the estimated time of arrival at
the intended, place of dry-docking/underwater inspection/delivery. Secondly the new wording
placing emphasis on contractual readiness has been carried over from Clause 3, again with the
“Aktion” in mind.
b) The express requirement of safety of the place of delivery is new.
c) The prescribed mechanism by which Sellers can request extension of the cancelling date is
new although provisions of this type can be found in the cancelling clauses of certain voyage
charter parties. It is certainly not the intention of this provision to enable Sellers to seek to

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extend time for illegitimate reasons. The underlying requirement of due diligence and the
express right conferred on the Buyers to claim damages should guard against this.
d) The MoA now refers also to compromised total loss.

Clause 6 - a) Drydocking b) Divers inspection c) Drydocking provisions

6 a) and b) are alternatives. One is to be deleted from the outset.
It was previously very common for a “diver clause” to be incorporated as an additional clause in
the MoA. Clause 6 would then be deleted although the “diver clause” would expressly relate
back to the drydocking provisions contained in Clause 6! Insofar as those provisions had by
now formally been deleted the Committee was advised that this gave rise to a legal
conundrum. Furthermore by bringing a “diver clause” into the main body of the MoA the
Committee felt that it would be easier to spell out as clearly as possible the division of
expenses in respect of both drydocking and diving operations and accompanying surveys.

As to the content of the clauses, having discussed the matter in some depth with BV, DNV and
Lloyds, the Committee has decided to introduce several alterations. When the Vessel has been
put in drydock the extent of the inspection by the classification surveyor is intended to follow
the normal procedures of the classification society. The classification societies have different
inspection procedures, however, thus whereas both Lloyds and DNV manuals prescribe
inspection from the deepest load line, BV provide for the whole of the outer shell to be
inspected. The Committee thought it logical to adjust the description of the area to be inspected
to below the deepest instead of “Summer Load Line”.

The classification societies regard bottom inspection and tailshaft system inspection/survey as
two independent and separate surveys. It is the intention that the bottom inspection will be
performed in accordance with class rules. However, if the tailshaft system is required to be
surveyed by the classification surveyor, it is he who will decide upon the extent of that survey.
He may, for example, require the simplex box and sealing rings to be checked in the case of oil
leakage and not necessarily ask for the tail end shaft to be drawn. His findings are to take into
account the current stage of the Vessel’s survey cycle.

In Clause 6 b) provision has been inserted to cover the situation as to time where, after an
underwater inspection, class subsequently requires the Vessel to be put in drydock and no
suitable drydocking facilities are available at the port of delivery. In such event the cancelling
date may be extended by a maximum of 14 running days. Place of delivery after drydocking is
intended to be within the range in Clause 5 b). The Committee felt that it was desirable to
prescribe a maximum period for extension of the cancelling date.

This should be kept well in mind when negotiating the date of cancelling.

Some classification societies now use the term “condition” whereas BV, for example, still use
“recommendation” hence the reference to “condition/recommendation” in this Clause and
Clause 11.

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New provisions which have been included in Clause 6 c)(v) are the Buyers’ right to have the
Vessel’s underwater parts cleaned and painted, and Sellers’ right to tender Notice of
Readiness while the Vessel is in drydock in the event that the Buyers’ work has not been
completed by the time the Sellers have completed their work.

Clause 7 - Spares/bunkers etc.

Stores and provisions are now to be included in the sale without any extra payment in
accordance with normal practice.
There is also now a provision for extra payment of unused lubricating oils in storage tanks and
sealed drums.

Clause 8 - Documentation
The provision for place of closing to be inserted is entirely new.
The documents listed as a) - e) reflect a minimum basic level of Sellers’ obligations. With
reference to item f) the Buyers may request additional documents required by the competent
authorities for registration purposes but the request is subject to the provisos of
reasonableness and time.

Clause 11 - Condition on delivery

One of the reasons for the need to revise Saleform 1987 was the market’s concern in relation
to the changed provision contained in the second paragraph of Clause 11. The intention behind
the change in 1983/87 was to make redundant the “home made” additional “clause 16”, i.e.- the
provision setting out the exceptions from the basic “as is” principle. Unfortunately, the revised
wording of Clause 11 gave rise to new and unforeseen problems, and the fact that the majority
of contracts contained additional clauses maintaining the “free of average damage” concept,
only added to the confusion.
While some uncertainties may now have been resolved (see for example the “Niobe” in the
Court of Appeal) the Committee having considered in particular the comments from the hearing
round has recommended that the new form incorporates the commonly used phrase free of
average damage affecting the Vessel’s class coupled with the obligation to deliver the vessel
with her class maintained without condition/recommendation. Finally, there is now an express
provision dealing with certificates.

Clause 13 - Buyer’s default

In the event of a default it is normal that any claim will include interest. It was plainly no longer
appropriate to provide for a specific rate of interest however and the reference to 12% has
therefore been deleted.

Clause 14 - Seller’s default

Saleform 1987 required the Sellers to actually complete delivery by the cancelling date. The
Committee felt that it would be preferable for the Buyers’ option of cancellation to arise only if
no valid Notice of Readiness were given by the Sellers or if they failed to be ready to validly
complete a legal transfer by the cancelling date.
It was recognised, however, that this could end in an undesired result if the Vessel sustained
damage after the giving of a valid Notice of Readiness and prior to delivery. The Committee
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has therefore introduced a provision whereby the Buyers will still have the right to cancel in
such a case if the damage is not rectified by the cancelling date.

So far as the Sellers’ “paperwork” is concerned, provided that a valid Notice of Readiness has
been given by the cancelling date, the Sellers have up to three banking days after they have
tendered Notice of Readiness to arrange for proper documentation failing which the Buyers are
entitled to cancel.

As in Saleform 1987 the Buyers retain their right to claim damages for any delays by the
Sellers provided that the delay is due to the proven negligence of the Sellers.

Clause 15 - Buyers’ representatives

The Committee has adopted the frequently used extra clause covering Buyer’s right to place
their representatives onboard the Vessel after the MoA has been signed and the deposit
lodged.

Clause 16 - Arbitration
There are now three alternatives:
a) arbitration London,
b) arbitration New York, and,
c) arbitration elsewhere as agreed.

Copyright in SALEFORM is held by Norwegian Shipbroker’s Association.

.

(Printed in BIMCO Bulletin No. 2, 1994)

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