As usual, the Managers provided throughout the year website information to Members, and regular reports to the Boards, regarding industry issues involving maritime liability, many of which were the subject of work carried out collaboratively in sub-committees of the International Group (IG).
The Managers continued to be energetic contributors to the affairs of the Group, providing the current Chairman of the IG Managers, the Chairmen of a number of influential IG subcommittees, and participants in many other sub-committees. The UK Club continues to be a strong supporter of the mutual system and places great value on the continuing ability of ship owners through the IG to have a voice at IMO and to influence the development of international maritime law.
Ballast Water Management Convention
The Ballast Water Management Convention was adopted by IMO in 2004 and will enter into force twelve months after ratification by at least 30 states representing at least 35% of global tonnage. Three ratifications in late 2015 brought the total number to 47 states and created considerable speculation at the beginning of 2016 that the tonnage threshold had been reached. However, recalculated figures from IMO published in January 2016 confirmed that the global tonnage represented by ratifying states was 34.56 percent, remaining just below the threshold for entry into force, which therefore remains at least another year away.
The Club has been participating in the work of an IG Working Group to study the requirements of ballast water legislation and to assess the implications of new ballast water regulations for the Club’s cover, having regard to potential liabilities for fines or for environmental damage claims.
As ever, it remains a key benefit of the mutual system that any decision to extend cover to respond to new risks will lie in the hands of the shipowners themselves, participating as Club Directors and voting as Members on any necessary Rule changes.
Maritime Labour Convention
Last year’s review noted that the Board had decided that the Club should provide enhanced financial security which would be required to respond to up to 4 months unpaid wages, to be included in amendments to the MLC expected to take effect by January 2017.
During 2015, the IG’s MLC Working Group considered a number of technical issues relating to provision of cover, provision of financial security in respect of wages, repatriation liability on abandonment, and reinsurance of aggregate exposure. In view of the complexity involved, it was felt that Clubs should provide the required financial security by means of a commonly agreed wording endorsed on Club certificates of entry, rather than by detailed changes to Club Rules.
A separate issue is that of evidencing the financial security to third parties, including ships’ crews. Unlike other international conventions in shipping, where the Flag State issues a certificate to confirm that financial security is in place (evidenced by a ‘blue card’ from a P&I Club), the MLC provides for the confirmation that financial security is in place to be issued by the provider of that security. The Clubs are liaising with each other and with the ILO to finalise the form of the certificate wording. Further advice will be provided to Members later in 2016.
UK Insurance Act 2015
The Board received a report on the UK Insurance Act 2015 which will enter into force in August 2016 during the 2016/17 policy year. The new Act makes significant changes to English insurance contract law enacted in the Marine Insurance Act 1906 (“1906 Act”), and its provisions would potentially apply to the eight Group Clubs whose rules are subject to English law. However, with the primary objective of the changes perceived to be the protection of consumer interests, and Club Members having considerable familiarity with the policy wordings embodied in their Rule Books, the eight Group Clubs concerned decided to contract out of most of the provisions of the new Act, save for those that provide for the insured to make a “fair presentation of the risk” (Sections 3 – 7 of the new Act) in place of the pre-contractual obligation on an insured under the 1906 Act to disclose every material circumstance known to him.
Full details were provided to members in a circular towards the end of the policy year and the necessary Rule changes were voted in by Members at the SGM in January.
Sanctions continued to be a subject of many enquiries from Members during the year, as political efforts to engage Iran in discussion of possible changes to its nuclear programme resulted first in an extension into 2015 of the Iran Joint Plan of Action, and in July 2015 the agreement between Iran and the P5+1 (five permanent members of the UN Security Council, plus Germany) characterised as the Joint Comprehensive Plan of Action (JCPOA).
Under the JCPOA, Iran undertook measures designed to ensure that its nuclear programme would for a period be restricted to peaceful purposes, upon verification of which the P5+1 would lift nuclear related sanctions.
Confirmation from the International Atomic Energy Agency on 16th January 2016 that Iran had altered its nuclear program in accordance with its JCPOA obligations, coupled with the immediate announcement of lifting of EU primary and US secondary sanctions, led to a surge of interest from Members in the prospects of maritime trade with Iran.
However, while the Clubs found themselves newly permitted to insure Iranian related risks, US primary sanctions continued to affect US domiciled companies on the IG’s reinsurance programme, creating a risk of shortfall in recovery that in some circumstances would have fallen back on the shipowner Members of clubs. This was rapidly identified as a risk not confined to Iranian shipowners or those trading to Iran, but one potentially affecting any shipowner who might incur a claim with an Iranian connection through collision, transhipment or other fortuities.
An interim solution has been put in place by the purchase of back-up reinsurance, outside the US, to cover a shortfall on claims up to $1 billion. However, the longer term objective is to secure adequate licencing arrangements, so that the global P&I cover that is essential to maritime trade operates without risk of prejudice by the fortuity of an Iranian nexus to a claim.
Sanctions remain a popular instrument for governments to exert influence by economic pressure and shipowners will continue to face challenges in this area going forward, with new sanctions on Syria and North Korea taking effect as the policy year came to an end.
The board received an update on piracy off West Africa, which continued to present a serious problem to owners trading to the Gulf of Guinea. While piracy off West Africa has focused more on armed robbery and cargo theft (by hijacking and transferring cargo to smaller vessels), there has been an increasing trend in 2015 of using violent attacks to kidnap crew and hold them separately for ransom away from the ship. Arrangements to address the problem by use of armed guards sourced from the Marine Police or the Nigerian Navy have proved to carry their own risks, associated with jurisdictional disputes between the different authorities. Our 2015 Review of the Year noted that piracy in the region was likely to remain an active issue, and it is a matter of regret that the picture a year later shows no discernible improvement.
The Board received reports on positive developments relating to several Oil Spill Response Organisations in the US whose contracts had been amended to conform with IG Guidelines, removing the need for additional insurance. In a less positive development, a report was submitted on efforts of the Managers to assist Members trading to China following closure of the business of one of the largest Chinese Spill Response Organisations (SPRO) following investigation by Chinese Customs Authorities.
The attention of Members and Directors was drawn to an increase in liability limits under this convention. Prompted by a number of high profile bunker pollution incidents, notably the Pacific Adventurer incident in Queensland, Australia in 2009, the limits of liability under the LLMC 1996 Protocol were increased in 2012 by 51%, but only came into force with effect from 8th June 2015.