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Rule 21 Set-off

1 Without prejudice to anything elsewhere contained in the Articles of Associationor these Rules, the Association shall be entitled to set off any amount due from a Member to the Association against any amount due from the Association to such Member or its Co-assureds or Affiliates.

2 A Member shall not set off against any amount due from it to the Association the amount of any claim it or its Co-assureds or Affiliates may have against the Association.

Guidance

(A) Without prejudice to anything elsewhere… (Rule 21.1)
The right of set off which is conferred on the Association by this Rule does not affect any other rights which it may have as a result of the non-payment by a Member of sums due to the Association.1 

(B) …the Association shall be entitled to set off… (Rule 21.1)
The Association has the right to set off any amounts due from the Member to the Association in respect of, inter alia, outstanding and/or overdue Advance Calls, Deferred Calls, claim deductibles2 or payments made by the Association to third parties on behalf of the Member3 against any amount due from the Association to the Member (or to any Co-assured or Affiliate4 or any transferee or assignee5 of that Member). The Association’s rights of set-off under Rule 21 are wider than the rights of set-off conferred under Norwegian law, which restricts the insurer’s right to premium due from the assured under contracts of insurance.6 Rule 21.1 applies to ‘any amount due’, whether premium or otherwise, from the Member to the Association and whether or not arising under the entry of a particular Ship.7 

However, the Association’s rights of set-off against a claim brought against it by a third party (i.e. someone other than a Member or Co-assured or Affiliate or transferee or assignee of the Member) that has an interest in the contract of insurance may be more restricted. For example, if a Member is insolvent, a third party may in some circumstances have a direct right of action against the Association8 and, in such a case, the Association’s right to set-off against the third party is limited to sums that are due from the Member in respect of premium that is payable under the contract of insurance pursuant to which the third party’s claim is made. Moreover, such a right of set-off is restricted to premium that is payable within two years prior to the date of set-off. 

(C) A Member shall not set off… (Rule 21.2)
A Member must pay any sum which is due to the Association in full on the due date specified in Rule 20. The Member is not entitled to set off any sum that he claims to be due to him from the Association against any sum that is due from him to the Association. The reason for this is that the Member’s obligation to pay sums to the Association is usually unarguable both as to liability and quantum whereas the basis for, and the quantification of, sums that may be due from the Association to the Member is not so readily ascertainable since much will depend on the facts of the case, the availability of cover and a proper assessment of quantum. Accordingly, were the Member to be entitled to set-off, this would be contrary to the best interests of the membership as a whole, since other Members would then be obliged to fund shortfalls in income caused by the delayed payment or non-payment of premium or other sums due to the Association from the Member.


 

 

1 See (G) of the Guidance to Rule 20.
2 See Rule 76 and Appendix V.
3 See, for example, Rule 88.
4 See Rule 79.1.
5 See Rule 89.
6 The Norwegian Insurance Contract Act of 1989 (Forsikringsavtaleloven 1989), section 8-3, first paragraph. However, parties to a contract of marine insurance have a wide degree of freedom to contract under Norwegian law and any provision which extends one party’s rights of set-off beyond those prescribed by law, such as that contained in Rule 21.1, is valid and enforceable.
7 Ship management companies may enter Ships in the Association on behalf of different principal shipowners or operators as one fleet for insurance purposes. Depending on the terms of the particular ship management contract the premium payable in respect of such Ships may be paid by each shipowner to the ship manager who then pays it to the Association. If the Ships are entered in the name of the ship manager as Member, the Association cannot and does not distinguish between the different owners of the Ships for the purpose of set-off. The Association may set off unpaid premiums due from the owners of any Ship in the fleet entry against payments due from the Association to the owners of any other Ship in the fleet.
8 See the Norwegian Insurance Contract Act of 1989, §7-8 and (A) of the Guidance to Rule 87.