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1 The Member shall have no right to compensation unless he has given notice to the Association of any event which may give rise to a claim on the Association within six months of his becoming aware of it.
2 The Member’s claim for compensation becomes time-barred three years from the date on which he became aware of his claim and of the circumstances that determine its extent.
3 Where a time-bar has not taken effect earlier, the Member’s claim for compensation becomes time-barred ten years from the occurrence of the event unless litigation or a general average adjustment is in progress, when the claim becomes time-barred one year after the issue of the final judgment or adjustment.
Time limits are relevant for a Member in two different situations. Firstly, a time limit may apply to a claim that is made against the Member by a third party, e.g. for cargo loss or damage. However, different time limits also apply to claims that the Member makes against the Association. Therefore, the time limits that are described in Rule 81, which apply to claims that are made by Members against the Association, should not be confused with the time limits that apply to the claims that are brought against Members by third parties.
(A) The Member shall have no right to compensation unless he has given notice to the Association… (Rule 81.1)
It is in the interests of the membership as a whole to ensure that the Association is able to assess all potential claims against it, and all potential liabilities, in a timely manner. If this is not done, the financial well-being of the Association can be prejudiced, e.g. by the inability to take timely steps to avoid or minimise liability, or by a failure to levy the required level of premiums. Prompt notification also ensures that Policy Years can be closed as soon as possible. Consequently, Members are obliged to notify the Association promptly of any event that may give rise to a claim on the Association. Rules 81 and 82.1.a both emphasise this obligation and these Rules should be read together.
Whilst there are no formal requirements for the giving of notice to the Association for these purposes, it is obviously sensible that such notices should be given in writing in order to avoid any misunderstanding.
Rule 82.1.a requires the Member to give prompt notice to the Association of any event that may give rise to a claim on the Association, and if this is not done, then the Member’s right to compensation may be prejudiced. However, if the Member does not give notice to the Association within six months of becoming aware of such an event, then Rule 81.1 emphasises that he loses his right to receive any compensation from the Association for any claim that arises as a result of the relevant event.
(B) …of any event which may give rise to a claim… (Rule 81.1)
Notice is required not only of an event that has given rise to a claim against the Association, but also of any event that may give rise to a claim on the Association. Therefore, a Member is obliged to give notice to the Association of events that may possibly give rise to a claim, such as a grounding of the Ship or a shifting of the cargo, even if the Member does not think it likely that a claim will materialise.
(C) …within six months of his becoming aware of it… (Rule 81.1)
A period of six months after becoming aware of an event is considered to be a sufficiently long period of time for the Member to ascertain whether the event may give rise to a claim on the Association, and to communicate the relevant information to the Association. The Member is deemed to have become aware of the event for the purposes of Rule 81 when notice of it has been brought to the attention of the Member himself, or to the attention of senior executives in the Member’s organisation, or to the attention of independent contractors to whom the Member has delegated the particular area of responsibility for the operation and management of the Ship. However, the Member will not normally be prejudiced by the late reporting of an event by the Crew, provided that the Member informs the Association as soon as he becomes aware of it.
(D) The Member’s claim for compensation becomes time-barred three years from the date on which he became aware of his claim and of the circumstances that determine its extent. (Rule 81.2)
Even if the Member does comply with his obligations under Rules 81.1 and 82.1.a to give notice to the Association of an event that may give rise to a claim on the Association, Rule 81.2 requires the Member, including a former Member, to present a claim for compensation to the Association within three years of becoming aware that he has such a claim and of the circumstances that determines its extent.
The period of three years commences to run when the Member becomes aware that he has the possibility of a claim against the Association and becomes aware of the facts that determine the likely nature and quantum of the claim. These are cumulative, but not precise, requirements. The Member is deemed to have become aware of the possibility of a claim even before he has full knowledge of every last fact and piece of information, e.g. as soon as he is aware that he will incur liability to a third party and that he may be entitled to receive compensation from the Association for that liability, even if it is not completely clear at that time that cover will be available. However, time will only start to run once the Member has sufficient information to enable him to determine the likely nature and quantum of that claim.
Provided that the Member has given timely notice of the event that may give rise to a claim, it would be unusual for a claim to become time-barred pursuant to the provisions of Rule 81.2 since, in the majority of cases, the Member and the Association will work closely together after the occurrence of the event and it will be clear to the Association well within three years that the Member has a claim against the Association and is pursuing such a claim. Therefore, the Association is likely to have made it clear, in the majority of cases, within the three years, that the Member need not take further steps to protect the time bar. However, in some instances, the Association may not be satisfied within that period that cover is in fact available and, although the Association may continue to assist the Member to resist liability or to avoid or minimise costs,1 it will, nevertheless, reserve its position as to cover. In these rare instances, the Member’s claim will become time-barred unless the Member has commenced arbitration proceedings against the Association pursuant to the provisions of Norwegian law as implemented by Rule 912 within the stated period of three years, or has received a time extension from the Association.
(E) …the Member’s claim for compensation becomes time-barred ten years from the occurrence of the event… (Rule 81.3)
It is important in any business, and particularly so in the context of mutual insurance, that an insurer is able to treat its accounts for a particular Policy Year as final at a particular point in time since Members need to be certain that they will not be called upon to contribute more funds after that point in time. Consequently, it is important to be able to specify that no further claims will be accepted by the Association from individual Members after that point in time. However, that requirement is complicated by the fact that some claims that are made against a Member in some jurisdictions3 may not become manifest for many years. Accordingly, it is necessary to establish a ‘long-stop’ time limit which, on the one hand, gives Members protection against the risk that delayed claims are made against them but which, on the other hand, protects the interests of the membership as a whole.4
Rule 81.3 is such a ‘long-stop’ time limit. It applies to compensation claims that are made by the Member against the Association a very long time, i.e. ten years or more after the occurrence of the event that gave rise to the claim, and has the result that the Member or former Member against whom claims are made is obliged to bear the risk of such claims himself as cover for such claims is not available from the Association.
The ten year time limit to which reference is made in Rule 81.3 is interrupted, and the Member is thereby protected against the time bar, only when the Association admits liability under the contract of insurance or the Member commences arbitration proceedings pursuant to Norwegian law as implemented by Rule 91.5 However, if a claim against the Member is still in the process of litigation at the expiry of the ten year period, or if a general average adjustment process is still in progress at that time, the claim will not become time-barred until one year after the issuance of an adjustment6 or a final award or judgment in the relevant litigation.
The ten year time limit in Rule 81.3 operates in conjunction with, and not instead of, the three year time limit in Rule 81.2. The time bar under Rule 81.2 applies when the Member does not proceed to make a claim within three years of becoming aware of the circumstances of an event, and of the fact that such circumstances give rise to a claim against the Association. However, in certain circumstances, the Member may not become aware of these factors until after three years has expired, in which case, Rule 81.3 provides that the claim becomes time barred ten years after the occurrence of the event. Therefore, the ten year time limit applies even if the Member or former Member does not become aware of the event and of his right to make a claim on the Association in respect thereof until shortly before the ten years has elapsed, or even if he is still unaware of them on the expiry of the ten years.
In some circumstances, the ten year time limit may have the effect of abbreviating the three-year period to which reference is made in Rule 81.2. For example, if the Member becomes aware of the extent of his claim against the Association eight years after the occurrence of the relevant event, the claim will be time-barred after two more years pursuant to Rule 81.3 and not after three more years pursuant to Rule 81.2.
(F) …unless litigation or a general average adjustment is in progress when the claim becomes time-barred one year after the issue of the final judgment or adjustment. (Rule 81.3)
If a claim against the Member is still in the process of litigation at the expiry of the ten year period, or if a general average adjustment process is still in progress at that time, the claim will not become time-barred until one year after the issuance of an adjustment or a final judgment in the litigation in question.
For the purposes of Rule 81.3 the words ‘in progress’ are used in the widest possible sense. It will therefore be sufficient if legal proceedings have been commenced, e.g. by service of a writ or the appointment of an arbitrator, or if an average adjuster has been appointed, even if there has been very little subsequent progress due to procedural or other delays.
For example, if an average adjuster has been appointed before the expiry of the ten year period, and the adjustment is published two years later, the claim against the Association will become time-barred one year after the adjustment has been issued, i.e. thirteen years after the event. However, if at the expiry of the ten year period, the parties are still negotiating general average liabilities but no adjuster has yet been appointed, the claim against the Association will be time-barred on the expiry of the ten years.
1 The Association does not, by so doing, acknowledge that there is cover. See the Guidance to Rule 82.3.
2 See the Guidance to Rule 91.
3 The Association’s experience is that the claims that are most likely to generate time bar problems under this Rule are those relating to customs fines and dues in certain jurisdictions, such as Egypt, Syria and Yemen. However, similar problems may arise in relation to asbestosis claims particularly in the USA.
4 Albeit that Policy Years are normally closed after three years with the result that no further Supplementary Calls can be levied on the Members that were entered in that Year, a claim that is made as a result of an event that occurred during that Policy Year, but which is not in fact put forward until after that Policy Year has been closed, will have to be funded from reserves and/or by levying a Supplementary Call on the Members that are entered in any Policy Years that remain open at the time that the claim is put forward. See the Guidance to Rule 16.
5 See the Guidance to Rule 91.
6 See (F) below.