Rate this article:  

Table of contents

Rule 65 Cases pertaining to the operation of the Ship

The Association shall cover legal and other costs necessarily incurred in establishing or resisting claims concerning the following:

a contracts of affreightment, charterparties, bills of lading or other contracts of carriage;

b loading, lightering, stowing, trimming or discharge of cargo;

c passengers and passenger monies;

d loss of or damage to the Ship or general average;

e delay of the Ship;

f property damage, personal injury or loss of life;

g repairs or deliveries to the Ship;

h salvage or towage unless the Ship is respectively a salvage vessel or tug;

agents or brokers;

j insurance contracts pertaining to the Ship;

k customs, harbour or other public or quasi-public authorities, but not legal and other costs incurred in connection with or relating to:

i taxes or dues payable in countries where the Ship is registered, or where the Member is resident, or where the Member has a permanent place of business;

ii actual or alleged infringement(s) of legislation or regulations relating to safety, navigation or prevention of pollution.

 

Guidance

A) ...legal and other costs...incurred in establishing or resisting claims... (Rule 65)
Subject to the limit imposed by Rule 70.1 cover is available under a Defence entry for legal and other costs that are incurred by the Member in relation to the various types of disputes that are discussed below.

However, if such costs are recoverable under the P&I cover pursuant to Rule 44, then Defence cover is not available. Similarly, Defence cover is not available if P&I cover for such costs would have been available but for the fact that the Member has entered the ship for P&I risks on special terms that exclude P&I cover for such costs.1For example, if the Member has excluded cargo liability from his P&I cover, Defence cover is not available for the costs that are incurred by him in defending a cargo claim. Furthermore, if the Association declines to cover the costs under a Member’s P&I cover on the basis that they have been incurred without the agreement of the Association, the Member cannot seek alternative cover for such costs under the Defence cover.

However, if the Member has entered the Ship for a P&I risk but cover is not available for the particular claim in respect of which the costs have been incurred because of an exclusion or limitation that is applicable to that claim under the particular P&I Rule, Defence cover may, nevertheless, be available.2For example, if a Member is entered for the risks that are covered by Rule 34, cover is available under the Defence cover for legal and other costs that may be incurred by a Member in order to defend himself against liability for the alleged misdelivery of cargo without production of original bills of lading, even though P&I cover for such liability will not be available due to the exclusion in Rule 34.1.i.

However, cover is available only for those legal and other costs that are necessarily and reasonably incurred in pursuing or resisting claims that have arisen:

a in direct connection with the operation of the Ship, or the acquisition or disposal of the Ship, and

b in respect of the Member’s interest in the Ship, and

c out of events that occur during the period of entry of the Ship for Defence risks in the Association.3

Cover is available for the costs that the Association considers will, if incurred, assist in the ascertainment or protection of the Member’s legal rights except for costs that are excluded pursuant to Rule 67, or costs that the Member must bear because of his agreed deductible, or because of the other obligations that he has in relation to claims, as noted below.

The phrase ‘legal costs’ includes the cost of advisory services that are provided to the Member by external lawyers, barristers, associates, paralegals etc., at any stage of the case, as well as the cost of legal representation before a court or arbitration or any other tribunal. However, it should be noted that the phrase ‘legal costs...necessarily incurred in establishing or resisting claims’ includes legal costs that may be incurred by the Member’s opponent if the Member is obliged to pay such costs pursuant to an arbitration award, or the judgment, decree or order of a court or other tribunal, or pursuant to a settlement agreement that has been approved by the Association. However, the Defence cover does not compensate the Member for any liability or loss that he may incur in relation to the underlying claim in respect of which the costs have been incurred.

Cover is also available for ‘other costs’ that are necessarily and reasonably incurred in order to pursue or resist claims that are made by, or against, the Member, e.g. costs that are incurred when employing the surveyors or experts that may be necessary if the dispute involves issues that have a high degree of technical content.

It is important to emphasise that, notwithstanding the availability of Defence cover, the Member still has the obligation to obtain information and to provide assistance at his own cost and for his own account in circumstances where such services should normally be performed by him or by his employees or by other persons that are regularly engaged by him. This obligation includes the obligation to make such employees or other persons available to attend meetings or to appear before a court, arbitration or any other tribunal whenever this may be necessary.4Consequently, cover is not available for the work done, and time spent, by the Member’s own in-house lawyers and other staff even if such involvement is necessary, substantial and productive.5

(B) …contracts of affreightment, charterparties, bills of lading, or other contracts of carriage… (Rule 65.a)
Cover is available for legal and other costs that are incurred by the Member6in connection with disputes that arise under various types of contracts that govern the use of the Ship or the carriage of cargo on the Ship. So long as the contract relates to the Ship that is the subject of the Defence entry, the nature of the contract of carriage is irrelevant. Consequently, Defence cover is available for costs that are incurred for disputes that arise in relation to a charterparty, whether it be a time, voyage, space or slot charter, or under a Bill of Lading, waybill, contract of affreightment or any other kind of similar contract of carriage. It is not necessary for the purposes of Rule 65.a that the contract of carriage that is the subject matter of the dispute should previously have been approved by the Association since, given the wide range of contracts of carriage that are entered into by Members, it would be impractical for the Association to review them all.7

Typical types of claim for which cover is available under this Rule include claims that are made under such contracts of carriage by or against the Member for the cancellation, withdrawal or non-delivery of the Ship, or for hire, off-hire, freight, dead-freight, demurrage or other monies, or that relate to the permissibility or otherwise of carrying particular cargoes or trading to particular ports.

(C) …loading, lightering, stowing, trimming or discharge of cargo… (Rule 65.b)
Cover is available under Rule 65.b for costs that are incurred by the Member in connection with disputes that relate to the handling of cargo, e.g. disputes relating to the accuracy of a stowage plan, or to the Ship’s cargo carrying capacity, or to its suitability to carry certain types or quantity of cargo.

(D) …passengers and passenger monies… (Rule 65.c)
Cover is available under Rule 65.c for costs that are incurred by the Member in connection with disputes that relate to the carriage of passengers,8e.g. disputes relating to the alleged misrepresentation by the Member of the nature or particulars of a cruise, or for discounts, or as a result of the earlier than planned disembarkation of a passenger.

Cover is not available under Rule 65.c for costs that are incurred by the Member in connection with disputes that arise in relation to other persons that are on board the Ship, such as visitors, pilots or agents. However, cover may be available in such circumstances under Rule 65.f.9

Finally, subject to the cover that is available under Rule 65.f (see (G) below), cover is not available for costs that are incurred by the Member in connection with disputes that arise in relation to the Crew whether individually or collectively,10e.g. under their contracts of employment for wage levels, dismissal or discrimination. Such disputes are not covered by any sub-section of Rule 65.

(E) …loss of or damage to the Ship or general average… (Rule 65.d)
In principle, Defence cover is available for legal and other costs that may be incurred by the Member in pursuing or defending claims for loss of, or damage to, the Ship. However, if the Member is the owner of the Ship, he would normally have a right to be indemnified against any such loss or damage by his hull and machinery insurers under his Hull Policies, and such insurers would be entitled pursuant to their subrogation rights to pursue recovery claims against any third parties that are considered to have caused or contributed to the loss or damage. Rule 71.1.a specifies that Defence cover is not available for legal and other costs that are incurred by the Member in order to defend or pursue claims that are covered under the Hull Policies, or would have been so covered had the Ship been fully insured on standard terms.11However, Defence cover is available for costs that are incurred by a Member that wishes to pursue a claim for damage to the Ship if the amount that is being claimed is below the applicable deductible under the Ship’s Hull Policies.

Cover is also available under Rule 65.d for costs that are incurred by the Member in connection with disputes that relate to general average,12e.g. disputes as to whether a particular expense should be allowed in general average, or for the recovery or enforcement of undisputed but unpaid contributions from other parties.

(F) …delay of the Ship… (Rule 65.e)
Cover is available under Rule 65.e for costs that are incurred by the Member in connection with claims resulting from the delay of the Ship.13

Therefore, cover is available for costs and expenses that are incurred by the Member in connection with claims for demurrage and despatch. However, cover is also available in other circumstances, and regardless of whether the claim is made by the Member against a third party, e.g. when the Ship has been delayed as a result of the fact that another ship has blocked the entrance to a port or river, or if it is made by a third party that may cause delay to the Ship by arresting it in order enforce his rights against the Member.14

(G) …property damage, personal injury or loss of life… (Rule 65.f)
In most cases, P&I cover will be available for claims that arise in these circumstances pursuant to Rule 44.15 However, Defence cover is available under Rule 65.f in circumstances where cover is not available under the P&I Rules because of an exclusion or limitation that is applicable under such Rules.16

(H) …repairs or other services or deliveries provided to the Ship… (Rule 65.g)
Whilst cover is available for costs and expenses that are incurred by the Member in connection with claims that relate to the repair of the Ship, e.g. claims against a repair yard, the Member is expected to keep the Ship insured for hull and machinery risks during any period of repair, and, pursuant to Rule 71.1.a, Defence cover is not available for disputes that are covered by such Hull Policies.

Cover is also available for costs that are incurred in connection with disputes that relate to deliveries of all kinds to the Ship, e.g. equipment, provisions, spare parts, stores and other items except to the extent that such costs are incurred in relation to claims for damage to the Ship which are, or should have been, covered under the ship’s Hull Policies. For example, Defence cover is available in the case of a dispute that has arisen as to whether bunker fuel that has been delivered to the Ship is within the contractual specifications.

Furthermore, cover is available for costs that are incurred in relation to disputes that arise in relation to services that are provided to the Ship. However, cover is available only if such services are provided in relation to the direct operation of the vessel, such as, for example, costs that are incurred in relation to a bunker survey or the provision of security guards but not for costs and expenses that are incurred in relation to disputes between the Member and a law firm that has negligently drawn up a bunker supply contract or similar commercial agreement since such claims do not arise directly in relation to the operation of the Ship.

Finally, cover is excluded pursuant to Rule 68 for costs and expenses that are incurred for disputes that arise between the Member and service providers that are the agents, representatives or servants of the Association.

(I) …salvage or towage unless the Ship is respectively a salvage vessel or tug… (Rule 65.h)
Defence cover is available under Rule 65.h for costs and expenses that are incurred in relation to disputes that arise in connection with salvage or towage operations that are carried out for the purported benefit of the Ship. However, a distinction is drawn between the cover that is available for disputes that relate to salvage services that are afforded to the Ship and salvage services that are afforded by the Ship. Defence cover is available in principle in both situations but subject to restrictions.

If the Member is the owner of the Ship to which salvage services are being afforded, the remuneration that is payable by him to the salvors or to the party that is towing the Ship is usually recoverable under the Hull Policies of the Ship. If so, the legal and other costs that arise in relation to such disputes are also likely to be recoverable under the Hull Policies. Consequently, Defence cover is not available if the costs are recoverable under the Hull Policies or would have been so recoverable had the Ship been fully insured on standard terms without deductible.17 Therefore, Defence cover is available only if the costs are not recoverable under the Hull Policies, e.g. when there is a dispute as to whether the services that have been rendered to the Ship are truly ‘salvage’ services.

Defence cover is also available when salvage or towage services have been rendered by the entered Ship,18 but only if the Ship is not a specialist salvage vessel or tug.

(J) …agents and brokers… (Rule 65.i)
Cover is available under Rule 65.i for costs that are incurred in connection with disputes that arise with all kinds of agents and brokers, e.g. with chartering, cargo or insurance brokers or with manning agents, provided that the dispute relates to the acquisition, operation or disposal of the Ship. However, cover is not available in relation to a dispute that has arisen between the Member and an agent that is a Joint Member, Co-assured or Affiliate, e.g. a Co-assured manning agent.19

(K) …insurance contracts pertaining to the Ship… (Rule 65.j)
Cover is available under Rule 65.j for costs that are incurred in connection with disputes that arise in relation to contracts of insurance for the entered Ship, e.g. a dispute with hull underwriters as to whether a particular loss is covered by the Hull Policies. However, this Rule must be read in conjunction with Rule 68.1 that excludes cover for disputes that arise between the Member and the Association, e.g. in relation to a dispute concerning the P&I entry of the Member.

(L) …customs, harbour or other public or quasi-public authorities, but not legal and other costs incurred in connection with or relating to:

i taxes or dues payable in countries where the Ship is registered, or where 
the Member is resident, or where the Member has a permanent place of 
business; or
ii actual or alleged infringement(s) of legislation or regulations relating to 
safety, navigation or prevention of pollution. (Rule 65.k)

Rule 65.k is primarily intended to make Defence cover available for costs that are incurred in connection with disputes that arise as a result of the visit of the Ship to a port.

The operation of ships may expose shipowners and/or charterers to legal disputes with public or quasi-public authorities and it is generally recognised that it is in the best interests of the membership that Defence cover should be made available for legal and other costs that are incurred in connection with such disputes. Typical examples are disputes that arise between Members and customs authorities in relation to the quantity of cargo or consumables that is being carried on board, or between Members and harbour authorities concerning the amount that is properly payable for port dues or pilotage. However, Defence cover is specifically excluded under Rule 65.k.i in the case of disputes that relate to taxes or dues that are payable in the country where the Ship is registered or where the Member is resident or has a permanent place of business. Therefore, Defence cover is not available for disputes that involve tonnage taxes or for disputes that relate to a Member’s liability for the tax that is payable as result of the operation of the Ship.

Furthermore, it is considered to be an imperative requirement that the Members of a mutual association that agree to share a wide variety of risks and liabilities should operate their ships in compliance with the relevant safety and pollution prevention laws. Such laws and regulations are, for the most part, codified in international conventions that are intended to safeguard innocent parties against exposure to preventable risks that can arise as a result of the operation of ships, and which, consequently, deserve the strong support of all branches of the maritime industry. Therefore, it is not considered to be in the best interests of the membership as a whole that Defence cover should be made available for legal and other costs that are incurred by a Member as a result of becoming the subject of enquiries, investigations or legal proceedings that are instigated by public authorities that are seeking to assess whether, and to what extent, any infringements of such legislation or regulations have taken place. Therefore, Rule 65 k.ii specifies that cover is not available in such circumstances whether the breaches are proven or merely alleged by the relevant authorities. For example, cover is not available in the event of actual or alleged violations of MARPOL regulations and similar legislation.

The Association may also decline cover in the circumstances that are outlined in Rule 67 or if the relevant violations are deemed to have resulted from wilful misconduct on the part of the Member.20


1 See the Guidance to Rule 71.2.
2 See (G) below.
3 See the Guidance to Rule 2.4.
2 See (G) below. 3 See the Guidance to Rule 2.4.
4 See Rule 82.4.
5 See the Guidance to Rule 77.a.
6 The Member can be either a shipowner or a charterer.
7 By way of contrast, see the Guidance to Rule 55 in relation to P&I Cover.
8 See the Guidance to Rule 28.
9 See (G) below.
10 Cover is not available for costs which are incurred in connection with disputes that relate to collective bargaining agreements, e.g. ITF disputes.
11 See the Guidance to Rule 71.1.a.
12 See the Guidance to Rule 41.
13 See the Guidance to Rules 63.1.h and 63.2.
14 Cover is available under Rule 65.e for delays caused by arrests that are instigated by private parties, whereas cover is available under Rule 65.k for claims that are caused by the (unlawful) detention of the Ship by customs, harbour or other public or quasi-public authorities.
15 See the Guidance to Rules 27-30 and 39. 16 See (A) above.
17 See the Guidance to Rule 71.1.a.
18 See the Guidance to Rules 33, 42 and 43
19 See the Guidance to Rule 68.2
20 See the Guidance to Rule 72.