Rate this article:  

Table of contents

Rule 52 Limitations for charterers and Consortium Vessels

The Association’s liability under a P&I entry for any and all claims arising under Charterer’s Entries or in respect of
insurance of charterers under Owner’s Entries or in respect of the Member’s liability for a Consortium Claim arising out of carriage of cargo on a Consortium Vessel shall be limited to such sum or sums and subject to such terms and conditions as are set out in Appendix II.

 

Guidance

The aim of Rule 52 is to incorporate into the Rules the terms and conditions of Appendix II, which sets out the limits of liability that apply to the cover that is available to charterers depending on the terms on which charterers are entered in the Association. However, Rule 52 applies only to mutual entries. Therefore, if a charterer has chosen to be covered on a fixed premium basis under Gard’s Comprehensive Charterers’ Liability Cover, such cover is regulated by the provisions of such Additional Cover rather than Rule 52 and are subject to separate limits of cover.1 

(A) …insurance of charterers under Owner’s Entries… (Rule 52)
The limit of liability that is applicable to a charterer who is a Co-assured2 under an Owner’s Entry3 is either the ‘Limitation Amount’ or, if lesser, USD 350 million per incident or occurrence. The limit of USD 350 million is a combined single limit of USD 350 million that applies to both pollution and non-pollution claims. 

The ‘Limitation Amount’ is the amount to which the registered owner of the Ship could have limited his liability for the particular claim or claims if the owner had sought, and had not been denied, the right to limit such liability. Therefore, the purpose of this provision is to ensure that the Association’s liability to a charterer who is a Co-assured under the Owner’s Entry is no greater than the exposure that the Association has to the shipowner Member. 

For example, if the ‘Limitation Amount’ is USD 50 million, and the third party claim is brought against the charterer, then even if the Co-assured charterer is denied the right to limit his liability to USD 50 million, the Association’s liability to the Co-assured charterer is limited to USD 50 million since this sum is less than USD 350 million. On the other hand, if a very large claim is brought against the Co-assured charterer, then even if the charterer is entitled to limit his liability under the applicable law to a sum that is more than USD 350 million, the Co-assured charterer is not entitled to recover from the Association a sum that is greater than USD 350 million. Consequently, a charterer who is Co-assured under the Owner’s Entry runs the risk (except in the case of oil pollution) that the amount that he is entitled to recover from the Association will be less than the amount that he is obliged to pay to the third party claimant. 

(B) …claims arising under Charterer’s Entries… (Rule 52)
However, if a charterer has effected a separate Charterer’s Entry (i.e. an entry that is separate and independent from the Owner’s Entry), the relevant limit of liability is USD 350 million per incident or occurrence except in the circumstances outlined in (C) below. There is no reason to link this limit to the ’Limitation Amount’ as in the case of a charterer that is insured under an Owner’s Entry because the charterer is a separate Member and not a Co-assured under the Owner’s Entry. The limit applies to all liabilities, losses, costs and expenses that fall within Part II, Chapter 1 of the Rules and no distinction is drawn between oil pollution risks and the other risks that fall within Part II, Chapter 1 of the Rules. 

(C) Subject to the provisions in Section 4 below… (Appendix II 3)
Special rules apply pursuant to section 4 of Appendix II for claims that are made against charterers for oil pollution. The relevant limit applies in each of the following scenarios:

a where a claim for oil pollution is made against a Member in relation to more than one Ship that he has entered in the Association under a Charterer’s Entry, and also against charterers that have entered ships under a charterer’s entry in another association that is a member of the Pooling Agreement, for salvage services that such vessels have rendered to another ship after a casualty;

b where a Ship is insured separately under more than one charterer’s entry in the Association, or alternatively, where it is insured both with the Association and another association that is a party to the Pooling Agreement. This may happen if the ship is chartered, and then sublet to another charterer who again sublets the ship. 

In some countries, e.g. in certain states of the USA, oil pollution claims can be brought against one or more of the various charterers for pollution damage that has been caused by the spill of oil from the chartered vessel. Therefore, in order to ensure that the relevant associations do not have to pay the individual limits that would be applicable to each individual charterer’s entry, section 4.b of Appendix II provides that the maximum collective liability of all the affected associations in such circumstances is USD 350 million per incident or occurrence. The Association’s proportion of such liability is that proportion of USD 350 million that the claims that are made against the Association bears to the total of the claims that are made against the Association and all the other associations. 

(D) …the Member’s liability for a Consortium Claim arising out of carriage of cargo on a Consortium Vessel… (Rule 52)
Special provisions also apply to the Association’s liability for Consortium Claims, which are defined in section 5 of Appendix II as liabilities that arise out of the carriage of cargo on a Consortium Vessel pursuant to a Consortium Agreement. A Consortium Agreement is an agreement pursuant to which two or more operators agree to share or exchange cargo space on each other’s ships. 

A Consortium Vessel is operated in a different manner to the other Ships that are entered in the Association since (although the Vessel may not be owned by the Member) it is employed by the Member to carry cargo for the Member’s own customers under a Consortium Agreement that gives the Member the right to utilise the Vessel’s cargo space (normally only a proportion of the total cargo space) for the Member’s own purposes. For example, combined transport operators A and B may conclude a Consortium Agreement inter se that entitles A to use 20 per cent of the carrying capacity of a vessel that is owned by B for the carriage of A’s cargo and entitles B the reciprocal right to use 20 per cent of the carrying capacity of a vessel that is owned by A for the carriage of B’s cargo. 

The term Consortium Vessel also includes a local feeder vessel that is used to carry cargo to or from the deepsea Consortium Vessel and, therefore, cover is available for Consortium Claims that arise as a result of an event that occurs whilst cargo is being carried on such a feeder vessel to the same extent as cover would have been available if the liability had arisen under the terms of a through or transhipment Bill of Lading.4 

For the purpose of cover under Rule 52, a Consortium Vessel is deemed to be a Ship for which the Member has effected a Charterer’s Entry in the Association. Furthermore, a claim is treated as Consortium Claim for the purposes of Rule 52 and section 5.2 of Appendix II only if the Member can prove that at the time that the cover for Consortium Claims attaches the Member is then employing, pursuant to a Consortium Agreement, a Ship that is entered in the Association. In other words, if, at the time that the cover initially attaches, the Member is not employing under a reciprocal space sharing agreement a Ship that is entered in the Association, cover is not available pursuant to the special provisions in section 5 of Appendix II. 

A claim that is made against a Member as a result of the carriage of cargo by a Consortium Vessel is treated as a Consortium Claim against the P&I entry of the Ship that is entered in the Association on behalf of the Member, even if the claim does not concern that particular Ship. Most Consortium Claims are made as a result of the loss of, damage to, or the delay of cargo that has been carried under a contract of carriage that has been issued by the Member for such cargo. However, cover is available for any claim that arises as a result of the carriage of such cargo so long the Member is legally liable for such claims, e.g. claims for loss of life, or for personal injury or for damage to the property of third parties, but cover is not available for claims for loss of, or damage to, the Consortium Vessel or any equipment that is on board such Vessel, since cover for such claims is excluded pursuant to Rule 63.1.a.5 

The rules that regulate the allocation of Consortium Claims between Owner’s Entries and Charterer’s Entries, and the aggregation of risks under a Consortium Agreement for any participating Member, are set out in detail in paragraphs 5.3 and 5.4 of Appendix II and are not repeated here. 

The cover that is available to a Member for aa Consortium Claims other than for pollution6 is limited to whichever is the lesser of the Limitation Amount7 (if any) and USD 350 each incident or occurrence each Owner's Entry. However, Consortium Claims give rise to difficult aggregation and allocation of liability issues. Therefore, for the reasons that are given in (C) above in relation to Charterer’s Entries, the associations that are parties to the Pooling Agreement have agreed that all Consortium Claims that may be made as a result of the same occurrence or event against one or more of such associations shall be subject to one overall limit of USD 350 million per incident or occurrence. Therefore, for example, if one Consortium Vessel carries cargo on behalf of several of the parties to the Consortium Agreement, each of them will, for the purpose of their respective P&I entries in their respective associations, be treated as though they have effected a separate Charterer’s Entry for the Consortium Vessel. However, if the total aggregate sum of the liabilities of all those parties for all third party claims that arise as a result of the same event exceeds USD 350 million, then the maximum collective liability of all the associations for those claims is USD 350 million. Each association’s proportion of liability for such claims is that proportion of USD 350 million that the claims that are made against that particular association bears to the totality of the claims that are made against all the associations.


 

1 For further details see the Gard website, Products, Charterers and traders.
2 See the Guidance to Rule 78.4.
3 See the definition of ‘Owner’s Entry’ in Rule 1.
4 For further Guidance on this aspect, please see (G) of the Guidance to Rule 34, and (G) and (H) of the Guidance to Rule 57.
5 See the Guidance to Rule 63.1.a.
6 See the Guidance to Rule 53. The cover that is available for pollution is set out in section 2 (b) of Appendix III and is limited to “USD 1 billion each incident or occurrence each Owner’s Entry provided that if the total amount of claims against a Member in respect of oil pollution following any one incident or occurrence exceeds USD 1 billion the Association will not be able to make any payment in respect of the amount by which such claims exceed USD 1 billion.

7 The Limitation Amount is defined in paragraph 1 of Appendix III as “the amount to which the registered owner could have limited its liability in respect of the relevant matter had the registered owner of the Ship sought and not been dnied the right to limit”.

The cover that is available to a Member for Consortium Claims other than for pollution[1] is limited to whichever is the lesser of the Limitation Amount[2] (if any) and USD 350 million each incident or occurrence each Owner’s Entry.



[1] See the Guidance to Rule 53. The cover that is available for pollution is set out in section 2 (b) of Appendix III and is limited to “USD 1 billion each incident or occurrence each Owner’s Entry provided that if the total amount of claims against a Member in respect of oil pollution following any one incident or occurrence exceeds USD 1 billion the Association will not be able to make any payment in respect of the amount by which such claims exceed USD 1 billion”.

[2] The Limitation Amount is defined in paragraph 1 of Appendix III as “the amount to which the registered owner could have limited its liability in respect of the relevant matter had the registered owner of the Ship sought and not been dnied the right to limit”.