Issue 18 - December 1996

International House,
26 Creechurch Lane
London EC3A 5BA,
Telephone: 0171 283-4646
Fax: 0171 283-5614

Reduction in reinsurance costs

Thanks to substantial growth in reserves, the Club has been once more able to reduce the supplementary call. For the third time in four years, the UK Club has reduced its supplementary call for a policy year. The directors decided at their meeting in Bermuda on 21 October to call a 30 per cent supplementary call for the 1995 policy year instead of the originally estimated 40 per cent. This was made possible by substantial growth in the reserves as a result of investment income during the years.

The 1992 and 1993 policy year supplementary calls were reduced because claims levels were lower than anticipated. The Club now anticipates a pattern of rising claims. Accordingly, the board ordered a five per cent general increase in premium ratings for the 1997 policy year, beginning 20 February. However, the good news is that a sharp reduction in reinsurance costs for 1997 means that many Members will pay the same or even less premium than they have for 1996. The reduction in reinsurance costs will benefit owners' premiums significantly in the coming year.

Four New Directors

At the same annual meeting in Bermuda , four new directors were elected to the Board of the UK P&I Club.

They are:

• Rob Walvis, president, Shell International Trading and Shipping Ltd;
• R G Hughes, managing director, P&O Cruises (UK) Ltd;
• Captain Anatoly Bandura, president, Azov Shipping Co; and
• Constantine Caroussis, director, Chios Navigation Ltd.

Captain Bandura has 15 years' sea-going experience with Azov Shipping. He was appointed vice-president in 1985 and president in 1989, and is deputy chairman of the Association of Black Sea Region Shipowners. Captain Bandura was a member of the Ukraine parliament from 1990 to 1994, where he was involved in the transport committee.

Mr Hughes has been with P&O for over 10 years, while Mr Caroussis has spent his entire career with Chios Navigation.

We also welcome Alain Bernard as Chairman of the UK Defence Club. Mr Bernard, who joined the Board in 1985, was elected this year for a three-year period. We are pleased to confirm that his predecessor, Mr Pandy Embiricos continues as a director.

UK to adopt HNS Convention

British government follows IMO lead in adopting convention

It is anticipated that the United Kingdom will be one of the first countries to incorporate the new HNS Convention, already adopted by the IMO, into its legislation.

In the UK, the House of Lords Select Committee, together with representatives of the Marine Department, industry and environmental organisations have now completed their second reading of the Merchant Shipping and Maritime Security Bill which will incorporate the HNS Convention into UK Law. However, it requires the governments of 11 other countries to ratify the Convention before it can enter into force.

It will come as no surprise to ship owners operating tanker tonnage that the HNS Convention has considerable similarities to the Civil Liability Convention (CLC) of 1969. The delegates at IMO have learned from the successful operation of the CLC and its associated Fund Convention in oil pollution cases and have incorporated many of their features in the HNS Convention. In the same way as for oil pollution, compensation is funded on a two-tier system where the first tranche of compensation is paid by the ship owner, and the second is paid by a fund levied by governments on the importers of HNS commodities. Unlike the oil conventions, both the ship owner's contributions and the fund contribution are regulated within the one convention. As with the IOPC Fund, the HNS Fund will not be called on to contribute unless the ship owner's limit under the HNS Convention is exceeded, or the ship owner can rely on one of the limited defences contained in the Convention. In any event the contribution of the ship owner, and the associated Fund is capped at SDR 250 million.

As with the CLC, the HNS Convention channels liability to the registered owner of the ship so that parties bringing claims for compensation for damage resulting from the spill, or the threat of spill of an HNS substance, bring their claims against the owner and not against other potentially responsible parties. The owner may in turn bring claims against third parties who might have contributed to, or been responsible for any incident giving rise to damage caused by an HNS commodity. The scope of the Convention covers claims for damage to property, loss of life and/or injury both on board and outside the ship and the cost of preventative measures taken to avoid damage is also encompassed within the scope of the Convention. The Convention restricts compensation for damage to the environment to the cost of reasonable measures of reinstatement actually undertaken, the same language as for the 1992 Protocol to CLC. Watchers of environmental issues in the marine environment have so far only experience of oil spills where the reinstatement period has proved to be comparatively short. Land-based experience of toxic chemical spills has shown that the reinstatement period can be long term.

Like the CLC, the HNS Convention contains limited defences notably war, sabotage, damage resulting from the failure of government, or navigational authorities to properly maintain or mark lights or buoys etc., failure of the exporter to provide information about the cargo, or if the damage resulted from the fault of the party suffering the damage. The scope of the Convention is extremely wide both geographic-ally, and in what is defined as an HNS substance. Claims for damage can occur within the exclusive economic zone of a country, and claims in respect of preventative measures taken to avert damage can be made anywhere. The list of hazardous and noxious substances is very widely defined by reference to other publications and conventions such as Marpol and the International Maritime Dangerous Goods Code. HNS substances will include bulk oil cargoes, bulk chemical cargoes, toxic materials carried in package form as covered by the IMDG Code and both LNG and LPG cargoes. It is also clear that coal and IMDG Class 7 radioactive cargoes are excluded.

Shipowners are required to have insurance for claims under the Convention and to obtain a certificate confirming the existence of that insurance. Shipowners entered with the UK P&I Club already have the benefit of sufficient insurance; certification, when required, should be available from the Club in respect of the HNS Convention in the same way as for CLC certificates.

The Convention provides for limitation of liability based on the ship's gross tonnage. The requirements for a claimant to break the ship owner's rights to limit are the same as those contained in both the 1976 Limitation Convention and the 1992 Protocol to the CLC. The limits are calculated using the SDR as the unit of account and the ship's gross tonnage starting with the minimum tonnage for limitation purposes of 2,000 gross tons (see table opposite).

Whilst the HNS Convention was in its discussion stage, the IMO Committee considered linking the HNS Convention limit to the limit under the Limitation Convention. Unfortunately, it was decided that the HNS Convention would stand alone. There is, therefore, the possibility that separate limitation funds may have to be established where an incident, such as a collision for example, involves both the spill of a toxic chemical and collision damage.

As a result of the discussion that took place, the IMO Committee also produced a protocol to the 1976 Limitation Convention which extended limitation to include special compensation claims made under Article 14 of the 1989 Salvage Convention. It also increased the limit of liability in respect of both claims for damage to property, and loss of life. A comparison of the limits of liability under the existing Limitation Convention of 1976, the protocol to the Limitation Convention of 1996, the HNS Convention and the 1992 protocol to the CLC is illustrated both in tabular and graph form.

HNS substances will include bulk oil cargoes, bulk chemical cargoes, toxic materials carried in package form as covered by the IMDG Code and both LNG and LPG cargoes. It is also clear that coal and IMDG Class 7 radioactive cargoes are excluded.

Protocol comparison

The figures for the 1976 limitation and its U92 protocol are the aggregate of both the limits for fatal accident and injury claims and property damage claims. The comparison is using the International Monetary Fund Standard Drawing Right (SDR) as the unit of account.

Ships up to 2,000 gross tons	10 million SDRs
2,000 - 50,000 gross tons	+ 1,500 SDRs per gross ton
50,000 - 100,000 gross tons	+ 360 SDRs per gross ton
> 100,000 gross tons	100 million SDRs

$4 billion limit proposed by UK Club

$4 bn limit agreed upon

Striking a balance between owners' cover requirements and certainty of cover.

A limit of US$4 billion has been proposed by the UK P&I Club's board of directors as an optimum level for claims other than oil pollution.

The figure was put to the board on 21 October by a working group of directors and managers from Thomas Miller.

A circular to Members points out that the group had focused on the extent of cover Realistically required by individual shipowners and the amount the Club could expect to raise with certainty via reinsurance available from the market and overspill calls.

A questionnaire issued to members at the end of 1995 produced responses overwhelmingly in favour of limiting catastrophe liability calls to a Realistically collectable levels.

The group was concerned to balance the exposure of members facing Potentially catastrophic claims as individual insureds, and overspill claims as collective insurers.

In this respect, it is felt that an overspill call across the International Group of approximately $1.5 billion P being the equivalent of one year's premium for the Group combined P could be collected with some certainty. An increase in the reinsurance cover limit from $1.5 billion to $2.5 billion (which would be feasible in the current market) would then be sufficient to provide a realistic cover limit of $4 billion. The circular makes it clear that the UK Club remains committed to pooling claims with all P&I Clubs in the International Group and sharing the pool's reinsurance and overspill arrangements.

Looking ahead, directors and managers will be discussing the board's objective and rationale with members, shipowners organisations and others in the shipping and insurance industries. To this end, the managers will shortly be issuing a detailed explanation of the board's position and the thinking behind it. During the coming year, the board will review feedback with a view to pursuing its objective of limiting cover to a realistic figures.

London team strengthened

Peregrine Massey, best known in recent years for his work as Chairman of UK Defence Club Managers, Thomas Miller Defence, is now also moving into the P&I Club management scene in the new role of Chief Operating Officer of Thomas Miller P&I. His new duties include taking over responsibility for oil pollution matters from Luke Readman.

Luke is to take up a new senior position with Thomas Miller's Professional Indemnity division. Although this means he will take a break from oil pollution -- a role he has filled with distinction for many years -- his expertise will of course remain available to the UK Club.

Other changes include Hugo Wynn-Williams (Marketing/Underwriting Director) assuming the position of Deputy Chairman to Stephen James, and Mark Carter becomes General Manager responsible for internal management. Mark's promotion will release Herry Lawford (Service Director) to focus full-time on Members service needs.

Meeting in Malaysia

Malaysian expansion

As Malaysia's shipping volumes continue to increase, local shipowners have been discovering the unique benefits of mutual insurance.

With Malaysian-owned shipping set for further expansion, UK P&I Club representatives spent an intensive few days in Kuala Lumpur discussing insurance concerns with owners, charterers, brokers and financiers. Managers from Thomas Miller P&I held a reception for members on 7 October and a seminar on ship finance for bankers the following day.

Malaysian government policy is to increase the number and tonnage of beneficially owned Malaysian ships, especially the bulk fleet. The incentives have included a shipping venture fund, a shipping finance facility, and favourable taxation of income and vessel depreciation. Charles Elmer, Thomas Miller's area manager, said a seminar for Malaysian bankers was timely in the light of government policy

With insurance the second highest cost for most shipowners, it was important to explain the principles behind marine protection and indemnity insurance to Malaysian bankers. We needed to reassure them that P&I insurance through mutual clubs is the best possible way of providing cover for deaths, injuries, pollution, property and cargo damage. Bankers and P&I clubs come together over risk assessment. While government measures will clearly increase interest in ship financing, bankers will still be concerned about prospective losses, given accident records and liability regimes. It was explained to the bankers, members and brokers present, and to others in the shipping community, just how far the Club goes to manage and reduce risk not least through its extensive efforts to promote loss prevention practices.

Seminars lead to increased co-operation

Planning for the worst in Australia

By sharing information, AMSA and the UK Club hope to co-ordinate their contingency planning.

Following discussions at a seminar in Sydney on 19 September, the UK Club has said that it expects to cooperate closely with the Australian Maritime Safety Authority in the event of a major shipping casualty.

Organised by Transport Mutual Services Pty, the general correspondents of the UK Club for Australia, the seminar was attended by representatives of the Club's legal correspondents, AMSA and the Inspector of Marine Accidents.

A key feature of the seminar was the importance of the sharing of information lines and means of communication. AMSA also provided guidance on the immediate questions to be answered by the Club and its general correspondents in the aftermath of a major casualty, including details of the ship's limit of liability under the Civil Liability Convention and the 1976 Limitation Convention.

It was the first time the UK Club had worked with a maritime safety authority to plan cooperation in the event of a major casualty. Further seminars are planned to increase cooperation between the Club and maritime safety authorities worldwide.

Looking for an expansion of representative offices

UK Club seeking new presence in Singapore

At a reception held in Singapore on 3 October, the UK P&I Club announced that it has applied to the Monetary Authority of Singapore for permission to establish a representative office.

The move follows Minister of Trade and Industry Yeo Cheow Tong's assertion that Singapore wished to strengthen its supporting services for shipping. Herry Lawford of Thomas Miller P&I Ltd, told leading shipping figures:

We have been preparing our application for some time. We would then be in a good position to provide our members with personal service in their own time zone.

Pollution from the Carriage of Oil by Sea

New guide takes fresh perspective on pollution

An award-winning doctoral thesis has provided the inspiration for a new guide that re-examines the environmental and legal issues arising from marine oil pollution.

The most comprehensive and up-to-date book yet produced on liability and compensation for marine oil pollution has just been published with support from the UK Club.

Pollution from the Carriage of Oil by Sea, which is subtitled Liability and Compensation, sets out and analyses the legal regimes for oil pollution liability and compensation. It describes the system put in place by international conventions and voluntary agreements, particularly the IOPC Fund compensation policy, and discusses the unilateral approach adopted by the United States.

The author is Dr Wu Chao (below), environmental law adviser for Thomas Miller (Americas) Inc. The work is based on her doctoral thesis completed at the University of Nanterre, Paris. Compiled from over three years' research in Paris, London, Oxford, Newark and Washington, it earned her the 1994 prize of the Monaco-based Institut du Droit Economique de la Mer.

The book draws on the best known tanker incidents, including the Torrey Canyon (1967), the Amoco Cadiz (1978), the Exxon Valdez (1989) and the Braer.

It examines how responsibility is divided between shipowners and oil companies and which claims for pollution damage are admissible according to the conventions. It covers the origins and content of the 1969 Civil Liability and 1971 Fund Conventions and the industry compensation schemes TOVALOP and CRISTAL. A separate chapter deals with the 1992 amendments to the Conventions which are just coming into force. Given that society as a whole profits from the carriage of oil by sea, it is natural that the risk in excess of the profit of the liable party should be borne by society as a whole, on a national or regional basis through taxation. There is a survey of the rules relating to claims by individuals for direct and indirect losses in French, British and American jurisdictions, and the difficult environmental damage compensation issues which arise from variations between jurisdictions.

It also deals with the difficulties of implementing international instruments, most particularly in relation to the United States, which is not a party to the conventions. Dr Wu goes into great depth on the history and impact of the Americans' Oil Pollution Act of 1990, which she feels imposes an excessive burden on ship and cargo owners. Dr Wu feels that despite significant progress in the apportionment of liability in respect of oil pollution, the search for a balance between various interests must continue. At present, the victims of pollution are not fully compensated in catastrophic cases and the liable parties feel the financial burdens are too onerous. She believes that an improvement might well lie in a third level of compensation to complement those stages established by shipowners and oil companies.

Luke Readman, deputy chairman of Thomas Miller P&I Ltd, said that Pollution from the Carriage of Oil by Sea provides a keen historical insight into the development of legislation, both in the international conventions and in the divergent approach adopted in the United States.

Dr Wu does not shirk the difficult questions but brings to them a sense of balance between apparently conflicting interests not commonly found amongst industry commentators on the subject. This book will provide rewarding reading for anyone professing a serious interest in the issues.

Pollution from the Carriage of Oil by Sea, 433pps, hardbound, is published by

Kluwer Law International,
PO Box 85889, 2508 CN The Hague,
The Netherlands.
Tel: +31 (0) 70 308 1560.
Fax: +31 (0) 70 308 1555.

UK Club Members 1996 Survery

Surveying the scene

Following the last survey of Members in 1992, the UK Club has implemented a number of measures to improve standards. This year we asked if they worked...

One of the three cornerstones of the UK Club's global strategy, devised by the Board in 1992 and endorsed in their review earlier this year, is to provide the Members with excellent value for money. This means that the Club must offer first class and constantly improving services, particularly in the core fields of claims management and underwriting.

The first ever survey of Members was carried out in 1992 to gauge the extent to which the Club was delivering good value for money. These survey findings have formed the basis of all the Club's efforts to improve services since then.

The directors ordered a second Member Survey to be carried out in June/July this year to find out whether the many service improvements which had been put in place since 1992 had been successful in raising the Club's standards of service. As with the first survey, a questionnaire was sent to all Members by an independent research agency, Research International, who reported the results to the Board at their meeting in Bermuda on 21 October.

The Board were pleased to learn that Members' satisfaction with the service received from the Club had increased noticeably. 84 per cent of the membership expressed themselves satisfied with the service provided, as against 77 per cent in 1992. Furthermore 18 per cent said that they were very satisfied, as against the figure of ten per cent in 1992 (see Fig. 1).

This increase, against a background of rising service expectations world-wide, is very gratifying, and shows that the Members have noted and appreciated the service improvements put in place since 1992. Some of these improvements were detailed in the July issue of UK Club News.

The survey showed that there is now far greater all-round satisfaction with the Club's claims handling (see Fig. 2) and underwriting services (see Fig. 3). The Club also scored a very high level of satisfaction on its communications, both by mail and telephone.

The Club's publications and communications strategy also attracted high satisfaction levels both in themselves and as compared to other clubs (see Fig. 4).

Indeed 62 per cent of the membership felt that communications had improved markedly since 1992.

The real value of the survey is not of course to allow the Club to congratulate itself, but as a springboard for further improvements. In particular, it will help us identify those areas where satisfaction levels were not as high as might have been expected. It is anticipated that the Board will order another survey to be carried out in 2000 or 2001, and will set a challengingly high target for the overall satisfaction level for the managers to meet.

Those areas on which the Club will be concentrating over the next four/five years include:

Claims handling:

• Fighting hard on the Members' behalf, success in negotiating settlements, and professional competence of correspondents.

• More personal contact in Member's own country and more workshops/ seminars, continued work on telephone response and in particular the return of calls.

• Anticipating industry developments and advising Members, as well as helping them with safety and environmental issues.

The ISM Template

ISM compliance:

time is running out but help is on the way

From 1st July 1998, operators of tankers, bulk carriers, passenger ships and cargo high-speed craft of at least 500gt must comply with the ISM Code. It is generally acknowledged that for many owners the design and implementation of a new Safety Management System (SMS) will take 18 months or more to accomplish. Some owners have completed their preparatory work, but many have not yet begun, and for medium or smaller sized companies, particularly those operating with less formal procedures than in a large corporation, this may be an unfamiliar challenge. Recent industry estimates were that as of November U96 only 3 per cent of the world fleet had obtained certification. Members will recall that the UK Club sent out complimentary copies of the ICS/ISF Guidelines on the Application of the ISM Code first in July 1994, and again in August 1996 following publication of a new edition. In order to provide further practical help to shipowners worried by the approaching deadline, the UK Club has obtained a model SMS which can be used as a starting point for the documentation of the shipowner's own SMS, and thereafter adapted to his own requirements.

The system, called ISM Template, is based on a real SMS, which has already been implemented by a vessel operator and certified as being in conformity with the Code. ISM Template will provide a kick start for the development of the owner's SMS, not an instant route to the finished product. It will still be necessary for Members to review and adapt their existing activities in the light of the Code, with professional consultancy help if necessary. But ISM Template provides an example of full SMS documentation, with which the owner can compare his existing activities. It also provides a convenient vehicle for the owner to record, update and distribute the SMS, by editing the model to delete what is not required, and by adapting the remainder to the owner's particular operational needs and safety concerns. ISM Template is prepared in Word for Windows 6.0 software and will be mailed in diskette form to UK Club Members in late January. Even Members who don't have to comply until July 2002 will find in ISM Template a useful illustration of what compliance involves, and more importantly a comprehensive checklist of policies and procedures relevant to safety.

Commercial Management for Shipmasters

Nautical Institute and UK Club launch new Shipmasters' guide

The third in the series of guides designed to promote commercial awareness amongst managers, Commercial Management for Shipmasters has been acclaimed as the most comprehensive publication of its kind.

The new publication, launched recently by the Nautical Institute and supported by the UK P&I Club, aims to help to improve the commercial performance of merchant shipping by increasing the shipmaster's.