Guide to managing risks and claims in shipping

Shipping is an endeavor fraught with risks. Where there are risks, there will be claims. The shipping professional must know how to prepare for risks and claims. 

One method to manage risks and claims is to insure, and the types of insurance depends on the party taking up the insurance. The cargo owner will take up marine cargo insurance. The ship owner will take up Hull and Machinery Insurance, and Protection and Indemnity Cover. Insurance is a contract of cover with certain attributes which are specific to insurance e.g., duties of utmost good faith and declarations. 

One common mistake in insuring is that the assureds do not read their policies and cover until claims occur. Before claims occur, they can increase their cover by paying additional premiums. After claims occur, they can only argue their interpretation of cover before the courts or in arbitration, that their interpretation is correct and that the insurer’s is wrong. Not a wise way of risk management.

The other mistake is to leave everything to insurance. Insurance is not a panacea. It does not cover all items of claim. Even the titles of some policies are misleading. An all-risks cover does not mean all incidents or items of claim are covered. Additionally, there are duties of assured, which entail the assured to mitigate losses and to pursue claims even though there is insurance cover.

Maritime law closely reflects practices of the industry. Many of the practices of the industry reflect the law e.g., delivery of cargo only against presentation of the original bill of lading.

The sage advice of Lord Mustill, a former UK appeal judge, should be borne in mind: 

“The law and practice of shipping law have always been closely entwined. There can surely be no other branch of commerce where the practical people know, and need to know, so much of the law; and where professionals know, and need to know, so much of the practice.”

In the course of handling the maritime dispute, the courts or the tribunal may be called to interpret certain words. Lawyers are needed when shipping contracts are drafted and to interpret the legal position when claims happen. Parties use Google and Webster’s Dictionary at their peril.

Maritime law and practice of shipping are needed to interpret provisions of the common maritime conventions such as the Hague Rules, Hague-Visby Rules or the York Antwerp Rules. 

It would be important to bear in mind that these rules are incorporated in most bills of lading as well as charterparties and other common forms of contracts used in international shipping. 

The uniformity of interpretation across different jurisdictions is important to maintaining certainty of principle and industry norms.

As stated in Stage Line Ltd v Foscolo Mango & Co Ltd:

“It is important to remember that the Act of 1924 was the outcome of an international conference and that the rules in the schedule have an international currency. As these rules must come under the consideration of the foreign courts it is desirable in the interests of uniformity that their interpretation should not be rigidly controlled by domestic precedents of antecedent date, but rather that the language of the rules should be construed on broad principles of general acceptation.”

In most maritime disputes, the court or arbitrator is presented different narratives by both parties. How would the court or arbitrator decide? The evaluation of evidence is made easier if the narrative is supported by cogent evidence. The party that presents the best evidence will be able to have the most convincing narrative. That will be the best incentive to preserve evidence in dealings, even before disputes arise. 

The practice of documenting negotiations, dealings by email will prove invaluable when disputes arise. The practices should be implemented from the management down. In fact, some maritime conventions call for these to be implemented e.g., the ISM Code.

Maritime arbitration is also the most common dispute resolution choice in resolving maritime disputes, with good reason. Parties of different nationalities may not be comfortable to submitting their disputes to the national courts of the counterparty. One of the consequences of the choice of national courts is that only lawyers of that country can act in litigation of those courts. 

However, the reality is that judgements of national courts are of limited recognition outside its borders. In fact, the enforceability of the arbitral award is singularly the main benefit of arbitration as the awards are recognized internationally by a network of countries under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention.

Photo credit: iStock/ fizkes

The best maritime news and insights delivered to you.

subscribe maritime fairtrade

Here's what you can expect from us:

  • Event offers and discounts
  • News & key insights of the maritime industry
  • Expert analysis and opinions on corruption and more