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The Association shall cover costs and expenses incurred by a Member in defending himself or in protecting his interests before a formal enquiry into the loss of or casualty involving the Ship, in cases in which, in the opinion of the Association, a claim upon the Association is likely to arise, but only to the extent that such costs and expenses have been incurred with the agreement of the Association.
Many of the issues that arise under Rule 45 have been considered in the Guidance to Rule 44. Therefore, the following Guidance should be read in conjunction with that Guidance.
(A) ...a formal enquiry into the loss of or casualty of the Ship... (Rule 45)
The authorities in most countries have the legal power to order a formal enquiry into any marine casualty that occurs within their territorial waters or which involves a ship that flies their flag. Such enquiries are usually ordered if the casualty has resulted in serious consequences, e.g. the loss of life, pollution or other environmental damage, and the purpose of the enquiry is normally to establish the cause of the casualty.
The Member is obliged to notify1 the Association promptly of any formal enquiry into a loss or casualty which involves a Ship that is entered in the Association. Whilst the formal enquiry may not necessarily have the power to determine liability issues, or to administer punishment for wrongful acts or omissions, its findings and conclusions may, nevertheless, have a profound impact on subsequent administrative or court proceedings that relate to third party claims, and may, therefore, affect the Member’s exposure to liabilities for which cover is available under the Rules. Therefore, it is in the interests of the Association that the Member should be properly represented at any such formal enquiry, which is why cover is made available for costs and expenses that are reasonably and necessarily incurred in this regard.
(B) ...shall cover costs and expenses incurred... (Rule 45)
The costs and expenses that are normally recoverable are the fees of external lawyers and technical experts that are appointed by the Member and the reasonable travel and hotel expenses that are incurred by such service providers. Cover is also available for costs and expenses that are incurred by the Member for the attendance at the enquiry of any witnesses that are employed by the Member and who are summoned by the administrators of the enquiry to present evidence, or for the attendance of any other person that the Member, in consultation with the Association,2 considers should be present. However, cover is not available for the Member’s internal administrative costs and expenses, such as the wages of those that attend the enquiry, or any extra costs that are incurred by the Member as a result of their absence from normal duties.3
Cover is available only for those costs and expenses that are incurred in order to protect the interests of the Member in relation to issues that affect the Association. Consequently, cover is not available for costs and expenses that are incurred for other reasons, e.g. in order to protect the master or members of the Crew, unless this is considered to be necessary in order to protect the joint interests of the Member and the Association.
(C) …in cases in which, in the opinion of the Association, a claim upon the Association is likely to arise… (Rule 45)
Cover is available only if the loss of the Ship, or a casualty involving the Ship, is likely, in the Association’s opinion, to result in a successful claim being made by the Member against the Association under the terms of entry of the Ship. This will normally be the case, but will not, necessarily, always be so. For example, if a Ship that is in ballast is lost at sea, but all hands are saved, and there is no risk of pollution, nor any indication that any authority will be issuing a lawful order for removal of the wreck, the Association may take the view that a formal enquiry is unlikely to affect its exposure under the Rules. In such a case, cover is not available for costs and expenses that are incurred by the Member in relation to such an enquiry.
(D) …but only to the extent that such costs and expenses have been incurred with the agreement of the Association. (Rule 45)
Cover is not available for costs and expenses that have been incurred by the Member in relation to a formal enquiry without the agreement of the Association. The scope of an enquiry may be very broad and may encompass issues that do not concern the Association. Nevertheless, the Member should be aware of the obligations that he has pursuant to Rule 82 to notify and consult the Association should the Member intend to make a claim against the Association for costs and expenses that may be incurred in relation to the enquiry.4 A failure to do so may give the Association the right to reject a claim or to reduce the compensation that is payable.
1 See the Guidance to Rule 82.1.a.
2 See (D) below and Rule 82.1.c.
3 See Rules 77.a and 82.4.
4 See the Guidance to Rule 82.1.