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Rule 74 Unlawful trades etc.

The Association shall not cover liabilities, losses, costs or expenses arising out of or consequent upon the Ship carrying contraband, blockade running or being employed in or on an unlawful, unsafe or unduly hazardous trade or voyage.

 

Guidance

The aim and purpose of Rule 74 is to ensure that membership funds are not dissipated by the payment of claims that are considered to be contrary to the aims and purpose of the Association. However, the Rule recognises that shipping is not a risk-free activity and that it may not always be obvious to Members whether a particular activity does or does not contravene laws, or is or is not unduly hazardous. Many of the activities in which Ships are engaged on a day-to-day basis can be considered to have some degree of danger and it would be unrealistic and illogical for a marine liability insurer to withhold cover purely on that basis. For example, there is no one international law that determines what constitutes unlawful trading and that which is considered lawful in one country may be considered unlawful in another. Similarly, some ports or cargoes are known to have potentially hazardous characteristics but can, nevertheless, be used or carried safely if suitable precautions are taken. However, some activities are considered to involve a greater, and unacceptable, degree of risk to the mutual membership. Therefore, it is considered important from the point of view of mutuality that the Association does not provide cover for liabilities, losses, costs and expenses that arise as a result of activities that are considered by the majority of the membership to be unwise or unsafe or unduly hazardous and the purpose and aim of Rule 74 is to exclude cover for such risks and to, thereby, encourage Members to act prudently when trading their Ships. 

(A) …arising out of or consequent upon… (Rule 74)
Cover is excluded under Rule 74 only if there is a causative link between the liabilities, losses, costs or expenses that the Member incurs, and one or more of the specific events to which reference is made in the Rule, e.g. the carrying of contraband or blockade running. 

(B) …contraband… (Rule 74)
Cover is not available for liabilities, losses, costs or expenses that have been caused by the carriage of contraband. 

The term ‘contraband’ is normally associated with war or conflict. It describes cargo that is likely to assist a country that is at war or involved in a conflict, and which may, therefore, be seized by another party to the war or conflict, even if it is carried on a neutral ship. However, the cargo does not have to consist of military hardware or equipment. A cargo of any nature can be considered to be contraband if it is susceptible to seizure by opposing governments or parties, e.g. foodstuffs or medical supplies that are intended to sustain opposing forces. 

(C) …blockade running… (Rule 74)
‘Blockade running’ occurs when an attempt is made, whether successfully or not, to call at ports or places to which access is denied by naval or other military forces, or which are declared to be blockaded by a country or an international organisation such as the United Nations. 

(D) …unlawful…trade or voyage. (Rule 74)
A trade or voyage may be unlawful if it contravenes the laws of one or more countries. The laws of the following countries may be relevant in this regard: the country where the Member is domiciled or carries on business, the country of the Ship’s registration, the country or countries to or from which the vessel will trade, or the country the law of which applies to the contract of carriage. The Association does not treat the legal requirements of any one country as being either conclusive or more important than the law of any other country in this respect. However, the fact that the voyage or trade is considered unlawful by a particular country may be considered by the membership to be particularly relevant when considering whether the particular Member should have allowed the Ship to be engaged in the particular voyage or trade. What is relevant for the purpose of Rule 74 is the objective assessment of the Association acting on behalf of the membership as a whole rather than the subjective knowledge of the particular Member. 

It is the fact that the voyage or trade is considered to be unlawful in the above sense that is relevant for the purposes of Rule 74. Therefore, if the voyage or trade is in fact lawful in the sense discussed above, but the Member or someone on his behalf, nevertheless, commits an unconnected unlawful act whilst performing the otherwise lawful voyage or trade, cover is not excluded under Rule 74. However, if such act has been committed wilfully by the Member personally, or by someone who is the ‘alter ego’ of the Member, cover may be excluded pursuant to Rule 72.1 

Rule 74 should be read together with Rule 25.2.j2 which provides that the Member will cease to be covered if the Ship, with the consent or knowledge of the Member, is being used for the furtherance of ‘illegal purposes’. There are, however, two important differences between these two Rules:

i Rule 74 merely provides that the Member is not covered for claims “arising out of or consequent upon” the Ship being engaged in an unlawful trade or voyage, whereas Rule 25.2.j provides that the entry of the Member’s Ship in the Association automatically ceases in such circumstances without the need for any notice of cancellation.

ii Rule 74 excludes cover if a trade or voyage is considered by the membership to be a trade or voyage that is unsafe or unduly hazardous and one in which the particular Member should not have allowed the Ship to have been engaged even if the Member cannot be said to have consented to do so with knowledge of its unlawful nature whereas the Ship’s entry in the Association ceases under Rule 25.2.j only if the Ship is being used for the furtherance of illegal purposes with the consent or knowledge of the Member. Since the availability or otherwise of cover under Rule 74 depends on the objective assessment of the Association acting on behalf of the membership as a whole rather than on the subjective knowledge of the particular Member, the burden of proving that the trade or voyage was unlawful, or unsafe or unduly hazardous will normally be on the Association. This will be assessed on a case by case basis, but it is likely that the question of whether a trade or voyage is or was unlawful will be more clear-cut than the question of whether a trade or voyage was unsafe or unduly hazardous. 

(E) …unsafe or unduly hazardous trade or voyage. (Rule 74)
As stated above in the Introduction to the Guidance, many of the activities in which Ships are engaged on a day-to-day basis can be considered to have some degree of danger and it would be unrealistic and illogical for a marine liability insurer to withhold cover purely on that basis. However, some activities are considered by the majority of the membership to involve a greater, and unacceptable, degree of risk that should not be underwritten by a mutual underwriter. Consequently, cover is withheld under Rule 74 only when the particular trade is considered to be unduly unsafe or hazardous. 

Various cases in England and elsewhere have considered what is meant by a ’safe port’ 3 or a dangerous cargo.4 Such dangers are often the subject matter of a dispute that will prompt the Member to look to the Association for cover, particularly Defence cover. However, whilst these cases provide assistance in assessing liability as between carrier and charterer or cargo interests, they are not themselves determinative of whether or not there is cover under Rule 74. Therefore, cover is excluded under Rule 74 only if the trade or voyage is one that the Member either knew, or ought to have known, involved risks that were more than normally hazardous. 

For example, cover is normally unaffected if a Member incurs liability, loss, costs or expense as a result of the Ship having been ordered by a charterer to call at a port or berth which subsequently proves to be unsafe but which a reasonable Member would not have appreciated to be unsafe before the vessel used that port or berth. The term ’unduly hazardous’ must be considered in the light of the facts of the particular case. Virtually all voyages involve a degree of hazard, but such hazard is, provided due care and attention is exercised, manageable and can be reduced to a level that is consistent with acceptable normal trading standards. Hazards that exceed such a standard are likely to be considered to be ’unduly’ high and thus to require an extra degree of care and attention which, if not adopted by the Member, may give rise to unacceptable and excessive risk for which cover is not generally available. 

Examples of what might be regarded as unsafe or unduly hazardous trades or voyages could be trading a non-ice-classed vessel in areas of ice or knowingly carrying a dangerous cargo otherwise than in accordance with the applicable rules and regulations. The prospective safety of the trade or voyage will be judged at the time that the decision was taken to engage in it or to perform it, and in the light of all the information and facts that were either known to the Member at that time, or which should have been known to him at that time.


 

1 See the Guidance to Rule 72.
2 See the Guidance to Rule 25 under (M).
3 For more detailed commentary see Chapter 13 of the Gard Guidance on Maritime Claims and Insurance.
4 For more detailed commentary see Chapter 7 of the Gard Guidance on Maritime Claims and Insurance