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Rule 50 Damage to Member’s own property

Notwithstanding the terms of Rule 2.4.b:

a if the Ship causes damage to property, other than cargo, belonging wholly or in part to the Member, the Member shall be entitled to recover from the Association under Rules 36 (collision with other ships), 37 (damage to fixed or floating objects) or 39 (loss of or damage to property) or 40 b (liabilities for obstruction) as if the property belonged to a third party; and

b in the event that any cargo lost or damaged on board the Ship shall be the property of the Member, the Member shall be entitled to recover from the Association under Rule 34 (cargo liability) the same amount as would have been recoverable from him if the cargo had belonged to a third party and that third party had concluded a contract of carriage with the Member on terms incorporating the Hague-Visby Rules.

 

Guidance  

Introduction
The purpose of the Association is to insure on a mutual basis liabilities, losses, costs and expenses that are incurred by Members in direct connection with the operation of Ships that are entered in the Association. The P&I cover that is afforded in Part II is principally insurance against third party liabilities that arise in direct connection with the operation of the Ship and in respect of the Member’s interest in the Ship.1 It is not designed to be insurance that covers the loss of, or damage to, the Ship etc., or the primary insurance that covers loss, damage or impairment of value that may be suffered by any other property that is owned by the Member. The Member is expected to arrange other suitable insurances for the protection of his own property and the Association will not cover any liability, loss, cost or expense that is recoverable under such insurances.2 For example, the Member is expected to arrange adequate hull and machinery insurance for his Ship and the Association is not liable for the loss of, or for damage to the Ship,3 and the Association does not cover liability etc., that either is, or would have been, covered by such Hull Policies had the Ship been fully insured on standard terms without deductible.4 Similarly, if the Member is the owner of other valuable property, the Member is likely to need to take out other insurances to protect him against any damage, liability, business interruption etc., that he may incur in relation to such property. 

However, Rule 50 recognises the fact that the Member may not only be the owner, operator or charterer of the Ship, but may also be the owner of cargo carried on board the Ship and/or the owner of other property that is affected by the operation of the Ship. Therefore, cover is available for damage that is caused to property other than cargo, or for loss of, or damage to, cargo that is owned by the Member to the extent that the Member would have been covered by the Association in his capacity as owner, operator or charterer of the Ship had such loss or damage been caused to a third party. 

It should be clearly understood that this form of cover is not intended to be, and should be distinguished from, property insurance. In the case of property insurance, the assured as owner of the property insures his interest in the property, and is entitled to recover from his insurers pursuant to the terms and conditions of that property insurance once he proves that his property has been damaged. However, the form of insurance that is provided by the Association is liability insurance pursuant to which the assured (the Member) is entitled to compensation from the Association as insurer only if he (the Member) proves that he, in his capacity as owner, operator etc., of the Ship, is legally liable to the owner of the property for the loss or for the damage that has been caused to that property by the Ship. However, in circumstances where the Member is also the owner of the property to which the Ship has caused loss or damage, the owner of that property is treated for the purposes of Rule 50 as though he were someone other than the Member, and cover is made available to the Member subject to the restrictions that are imposed by Rule 50 for any liability that he has for the damage or loss that is caused to such property to the same extent as if the property had been owned by a third party. 

Rule 50 distinguishes between situations in which the property that has suffered the loss or damage is property other than cargo that is carried by the Ship and those in which the relevant property is cargo that is carried by the Ship. Rule 50.a is applicable when the property that has been damaged is not cargo that is being carried by the ship whilst Rule 50.b applies when the property that has been lost or damaged is cargo that is carried by the Ship. 

Finally, the provisions of Rule 50 should be read subject to the provisions of Rule 71. Therefore, if the Member is entitled to be compensated under any other insurances in respect of the claims that he would otherwise have against the Association under Rule 50, the provisions of Rule 71 emphasise that the Association is not liable for such claims. Consequently, the Member will need to closely consider the terms of his Hull Policies and any other insurances that he may have taken out to protect his interests in relation to any other property that he owns before submitting a claim against the Association under Rule 50. 

(A) …if the Ship causes damage to property, other than cargo, belonging wholly or in part to the Member… (Rule 50.a)
Rule 50.a makes it clear that the Member ‘shall be entitled to recover from the Association’ in circumstances where an event involving the Ship, and which is of the nature that is described in (B) below, causes damage to property (not being cargo) that is owned by the Member. Therefore, the purpose of Rule 50.a is to put the Member in the same position that he would have been in had the property been owned by a third party and cover is available only if the Member is able to satisfy the Association that if the property had been owned by a third party, the Member would have been liable to the third party for that damage under the applicable law. 

Rule 50.a must be read in connection with Rule 63.1.b which provides that cover is not available for the “loss of or damage to any equipment on board the Ship or to any containers, lashings, stores or fuel thereon, to the extent that that the same are owned or leased by the Member.” Consequently, the ’property’ to which Rule 50.a refers is essentially property that is not carried on the Ship.

 Bearing such distinction in mind ‘property’ means any type of property that is capable of being damaged, e.g. land, buildings, docks, piers, wharves, berths, cranes, port equipment, dolphins, buoys, pipelines, cables or another ship or barge. However, damage to the Ship itself or to the property that is itemised in Rule 63.1 is excluded from cover by virtue of that Rule.5 Furthermore, the cover that is available for liability etc., for the loss of, or for damage to, cargo that is carried on board the Ship and is the property of the Member, is subject to a special provision in Rule 50.b and is discussed further in (C) below. 

Property will be deemed to ‘belong’ to the Member when he has, at the time of the relevant event,6 either the legal title to it, i.e. the ownership of it, or another sufficiently ascertainable legal interest in the property that entitles him to pursue a claim under the appropriate law for damage to it. Accordingly, a Member may be entitled in certain circumstances to recover under this Rule for damage to property that is leased or hired to him, e.g. containers carried on another ship that have been leased to him. Cover may also be available when the Member is a partner in a joint venture that is, collectively, the owner of the property, but not if that joint venture has a distinct legal identity that is separate from its owners. If the Member has only a part interest in the damaged property, he is only entitled to recover an amount that corresponds to his part interest. 

For cover to be available under Rule 50.a the Ship must have ‘caused’ the damage to the Member’s property. Therefore, if the damage has not been caused by the Ship, but by a third party or by some other occurrence, cover is not available under Rule 50.a. Furthermore, if the damage has been caused by a third party, the Member is not entitled to Defence cover in order to pursue a claim against such third party since such claim would have to be made in the Member’s capacity as owner of the property and not in his capacity as operator of the Ship.7 

(B) …the Member shall be entitled to recover from the Association under Rules 36…37… 39…or 40(b)…as if the property belonged to a third party… (Rule 50.a)
The Ship may cause damage to different types of property and in different ways, e.g. as a result of a collision8 between the Ship and another ship, or when the Ship comes into contact with a fixed or floating object,9 or where there is contamination by oil or other substance spilled from the Ship,10 or where the Ship’s anchor causes a subsea cable to drag.11 A ship that is owned or operated by the Member may also be prevented from entering or leaving a port, berth or terminal due to the fact that another Ship (or the wreck thereof) that is (or was) owned or operated by the Member is causing an obstruction. This may occur e.g. in the container liner trade where different ships in the same fleet call regularly at the same ports pursuant to a fixed schedule. 

It is important to note that cover is available under Rule 50.a only to the extent that cover would have been available pursuant to either Rule 36, 37, 39 or 40(b) if the property had belonged to a third party. This provision has several implications:

  • Since no reference is made in Rule 50.a to Rule 38, cover is not available for damage that is caused to the Member’s own property by the discharge or escape of oil or any other substance from the Ship. Such damage may occur when a tanker (the Ship) causes pollution damage at the Member’s own loading or discharge terminal. The rationale for the failure to make reference to Rule 38 in Rule 50.a is the need to protect the Association against the risk of having to make payment to its own Member under a certificate of financial security that is provided by the Association which would entitle third party claimants to bring a direct action against the Association for compensation for pollution damage.
  • The Member may have chosen to insure his liability etc., for collision and/or damage to fixed and floating objects under the Hull Policies in full or in part. If the Member has insured the risk fully under the Hull Policies, cover is not available from the Association for damage to his own property.12 However, if the damages that the Member would have had to pay a third party owner of the property exceed the sum that is recoverable under the Hull Policies solely because they exceed the sums that are insured under such Policies,13 then cover is available to the same extent under Rule 50.a as it would have been available under Rule 36.1.b or Rule 37.1.b. In other words, if the Member’s Ship has caused damage totaling USD 10 million to a terminal, jetty and/or other equipment that is owned by the Member, and the sum insured under the Hull Policies is USD 8 million, cover is available from the Association under Rule 50.a for the excess of USD 2 million.
  • If the Member is insured by the Association only in part for liability etc., arising as a result of collision and/or damage to fixed or floating objects, then the cover that is available from the Association under Rule 50.a is that which is the equivalent of that proportion of the risk that is insured by the Association.
  • Cover is not available under Rule 50.a for any deductible that the Member has agreed to bear under his Hull Policies for liability for collision and/or damage to fixed and floating objects.14 

(C) …cargo lost or damaged on board the Ship… (Rule 50.b)
In the context of Rule 50.b ‘cargo’ means cargo that ‘is the property of the Member.’ Consequently, it does not include any other property that may be on board the Ship, e.g. stores, spares, bunkers, equipment or empty containers that are not being carried under a contract of carriage. For the meaning of the phrase ‘the property of the Member,’ see the Guidance in (A) above. 

Cover is available under Rule 50.b in the event that the Member’s cargo is lost or damaged whilst on board the Ship. However, the term ‘on board’ includes not only cargo that has been loaded into the Ship’s holds or tanks, or onto the deck of the Ship at the time of the event that has caused the loss or damage, but also cargo that is attached at such time to the Ship’s equipment (or tackle) during the course of loading or discharge. On the other hand, cargo which is still on the quay awaiting loading or in a lighter owned by a third party that is alongside the Ship is not considered to be ‘on board’ the Ship for the purpose of this Rule. 

If cargo that is owned by the Member is lost or damaged at a time when the cargo is not on board the Ship, cover is not available under Rule 50.b. For example, if a ship calls at a port to load a bulk cargo that is owned by the Member from a barge that is also owned by the Member and is damaged alongside the Ship as a result of the unseaworthiness of the Ship, cover is available for the liability of the Member for the damage to the barge under Rule 50.a, because the Member would have been liable to a third party for such loss had the barge been owned by a third party, and such liability would have been covered under Rule 36. However, it does not follow that cover is necessarily available for the damage to the cargo that was being carried by the barge at the time of the incident since Rule 50.a applies only if there is damage to property other than cargo whilst Rule 50.b does not provide cover for claims that are made for damage to cargo that is not on board the Ship at the time of the incident. However, depending on the particular circumstances, the Association might take the view that the barge constituted part of the Ship’s loading tackle or equipment which would then enable cover to be made available under Rule 50.b

(D) …the Member shall be entitled to recover from the Association under Rule 34 (cargo liability)…the same amount as would have been recoverable from him if…a contract of carriage…incorporating the Hague-Visby Rules… (Rule 50.b)

This provision of Rule 50.b has the effect of putting the Member, whose own cargo is lost or damaged on board the Ship, in the same position that he would have been in if he had incurred liability as a carrier to a third party owner of the cargo under a contract of carriage that incorporated the provisions of the Hague-Visby Rules. Therefore, this provision should be viewed in conjunction with proviso iii to Rule 34.1.15 

However, unlike proviso iii to Rule 34.1, Rule 50.b does not make express reference to the fact that the carrier’s liability may be greater than that which applies under the Hague-Visby Rules if the contract of carriage is subject to other terms that are of ’mandatory application’, e.g. under the Hamburg Rules. Nevertheless, if the Hamburg Rules or other similar legislation were to apply compulsorily, then any provisions of the Hague-Visby Rules that gave the carrier greater protection than that which is allowed under the Hamburg Rules or such other legislation would be rendered null and void by the Hamburg Rules or such other legislation notwithstanding the fact that the contact of carriage had incorporated the Hague-Visby Rules.16 

Therefore, cover is available under Rule 50.b if the Member, as carrier, incurs liability under the Hamburg Rules or other similar legislation when compulsorily applicable notwithstanding the fact that he would have had a defence to the claim for cargo loss or damage if the cargo had been owned by a third party and carried under a contract that gave effect to the Hague-Visby Rules. Similarly, cover is available in such circumstances under Rule 50.b up to the higher limits of liability that apply under the Hamburg Rules or other similar legislation. It may be useful to consider the effect of Rule 50.b from the perspective of a Member that regularly carries its own cargoes on board its own ships, e.g. a major oil company that is the owner, operator or charterer of ships, and which uses these ships to carry its own oil cargoes between its own loading terminals, which are fed by pipelines leading from its own crude oil production fields to its own discharge terminals, which then feed the oil through pipelines to its own refineries. The oil company may have no intention to sell or trade its own crude oil in these circumstances, and simply uses its ships to transport raw material from the production plant to the refinery plant. Therefore, the oil company may not see that there is any need for the shipper and/or receiver, both of whom are companies that are wholly owned by the oil company, to enter into a contract of carriage with the oil company, as carrier, on the terms of the Hague-Visby Rules, but finds it more natural that the cargo should be carried on terms that compensate the shipper and/or receiver in full for any cargo loss or damage that may occur during such transportation. Consequently, should the oil company’s cargo be damaged whilst on board its ship, the oil company would be fully liable to the shipper or receiver under the contract of carriage without having the benefit of any defences. 

However, it would be contrary to the interests of the membership as a whole to compensate the oil company (the Member) for any loss that it has incurred for the loss of, or damage to, its own cargo that exceeds the liability that would have been incurred had the cargo been carried subject to the Hague-Visby Rules. To do so would have the effect of converting P&I insurance into cargo insurance. Therefore, Rule 50.b is designed to maintain the nature and purpose of the cover that is provided by the Association to the membership including the individual Member that chooses to carry his own cargo on his own Ships.


 

1 See the Guidance to Rules 2.4.a and b.
2 See the Guidance to Rule 71.1.b.
3 See the Guidance to Rule 63.1.
4 See the Guidance to Rule 71.1.a.
5 See the Guidance to Rule 63.1.
6 For commentary on when an event is deemed to have occurred see the Guidance to Rule 80.
7 See the Guidance to Rules 2.4 and 65.
8 See the Guidance to Rule 36.
9 See the Guidance to Rule 37.
10 See the Guidance to Rule 38.
11 See the Guidance to Rule 39.
12 See the Guidance to Rule 71.a.
13 See the Guidance to Rules 36.1.b, 37.1.b and 71.1.a.
14 See the Guidance to Rules 36.i, 37.i and 71.1
15 See the Guidance to Rule 34.1.iii.
16 See (M) to the Guidance to Rule 34