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The Association shall not cover any liabilities, losses, costs or expenses arising or incurred in circumstances where there has been wilful misconduct on the part of the Member, such misconduct being an act intentionally done, or a deliberate omission by the Member, with knowledge that the performance or omission will probably result in injury, or an act done or omitted in such a way as to allow an inference of a reckless disregard of the probable consequences.
Rule 72 excludes cover where there has been ‘wilful misconduct’ on the part of the Member, and such exclusion is additional to the exclusions and limitations, both general and specific, that are contained elsewhere in the Rules. The Association also has the right to terminate the insurance of any or all of the Ships that have been entered by a Member without notice where a casualty or other event has been brought about by the Member’s wilful misconduct.1
(A) …arising or incurred in circumstances where there has been wilful misconduct… (Rule 72)
An important distinction needs to be drawn between negligence and wilful misconduct on the part of the Member. Cover is generally available where liability, loss, cost or expense is caused by negligence of the Member, his servants or agents. However, the Association does not insure the Member against liabilities, losses etc., that arise as a result of wilful, i.e. intentional or reckless, misconduct on the part of the Member, since the membership as a whole should not suffer as a result of such serious wrongdoing.
Rule 72 defines what is considered to be ‘wilful misconduct’ for the purposes of the Rules and the question of whether or not the Member has been guilty of ‘wilful misconduct’ for these purposes is determined by the provisions of Rule 72 as construed under Norwegian law, which is the law that governs the legal relationship between the Association and the Member.2 Therefore, the fact that the Member might not be considered to be guilty of wilful misconduct under some other system of law, or in the light of the standards that are adopted in the Member’s native country, or in the country where the incident has occurred, is not relevant.
(B) …such misconduct being an act intentionally done, or a deliberate omission with knowledge that the performance or omission will probably result in injury, or an act done or omitted in such a way as to allow an inference of a reckless disregard of the probable consequences. (Rule 72)
For the purposes of Rule 72 the term ‘wilful misconduct’ includes not only intentional acts but also deliberate omissions. Even if the Member did not intend to cause damage or loss, cover is not available if it can be demonstrated that the Member must, nevertheless, have appreciated that injury would probably result from his acts or omissions, or that he acted in such a way that it is reasonable to infer that the Member did not care about the probable consequences of his acts or omissions.
The wording of Rule 72 is similar to, albeit not identical with, the wording of the more modern international conventions that govern the limitation of liability in the field of transportation. For example, under the 1976 Limitation Convention, the right to limit liability may be lost if it is proved that the loss resulted from a ‘personal act or omission committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result’. Therefore, the conduct that can cause the Member to lose his right to limit may also amount to wilful misconduct that could deprive him of his P&I cover even though the right to limit may be adjudged by a law other than Norwegian law and by a court or tribunal other than in Norway.
However, in some circumstances, the Member may be unable to prove his right to limit his liability under the applicable law but may still be entitled to P&I cover because there has been no ‘wilful misconduct’ on his part. For example, in order to limit his liability under the law of the United States, a shipowner must prove that there has been no ‘privity or knowledge’ on his part, and similarly, under the 1957 Limitation Convention, he must prove that there has been no ‘actual fault or privity’ on his part. In both cases, the right to limit liability may be lost if there has been negligence with knowledge but such conduct is not as serious as the wilful or reprehensible conduct that would be necessary to deny the Member cover under Rule 72. Each and every case will be assessed on its own merits.
(C) …on the part of the Member… (Rule 72)
The intention of the Rule is to penalise the Member only if it can be shown that he has been personally guilty of wilful misconduct. If the Member is an individual, there must be personal wilful misconduct on his part. However, where the Member is not a human being, but a company or some other body corporate, it is necessary to determine which individuals are deemed to be ‘the Member’ for the purposes of the Rule, i.e. to ascertain who is the ‘alter ego’ of the Member, or the person whose ‘action is the very action of the company itself.’3 In normal circumstances, the directors of a company will satisfy this test, but, depending on the particular facts, other senior managers may do so as well.
Wilful misconduct on the part of the Crew or some other agent or representative of the Member is not likely to justify the exclusion of cover under Rule 72. However, wilful misconduct on the part of senior employees or independent contractors to whom the Member has delegated important functions relating to the management and operation of the Ship, may be deemed to be wilful misconduct on the part of the Member on the basis that, if the Member chooses to delegate such functions to such persons, he must accept the consequences of that person’s wilful misconduct. Therefore, wilful misconduct on the part of technical, commercial and Crew managers that are appointed by the Member to perform important functions with regard to the Ship may cause the Member to lose his right to cover.
Since a Member is defined in Rule 1 as including a Joint Member or Co-assured or Affiliate, the wilful misconduct of any one of them is deemed to be the wilful misconduct of the Member for the purposes of Rule 72.4
1 See the Guidance to Rule 24.2.a.
2 See the Guidance to Rule 90.
3 This is the oft repeated phrase used by the English court in the case of Lennard’s Carrying Co v Asiatic Petroleum (1915) AC 705.
4 See the Guidance to Rule 79.4.