Collision: the ¾ liability clause

COLLISION: THE ¾ LIABILITY CLAUSE

INTRODUCTION

As a matter of substantive law, collisions at sea involve the application of the law of negligence in just the same way as collisions on the road. Collisions are the car crashes of the sea. The existence of the duty of care is rarely a problem and can easily be established under the general “neighbour” principle set out in Donoghue v Stevenson [1932] AC 562. The difficult issues of law arise in the context of establishing: whether that duty has been breached; how liability is to be apportioned when both vessels are, to some extent, at fault; and what losses may be recovered by way of damages. However, the starting point of any inquiry is to establish which human agencies were responsible for the collision and whether their fault can be attributed to the defendant ship-owner. This will involve the application of the principles of vicarious liability (S Baughen, Shipping Law, Routledge – Cavendish, 2004 p279)

3 Marine adventure and maritime perils defined.
(1) Subject to the provisions of this Act, every lawful marine adventure may be the subject of a contract of marine insurance.
(2) In particular there is a marine adventure where—
(c) Any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils.
“Maritime perils” means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas … and any other perils, either of the like kind or which may be designated by the policy.
Thus s 3(2) (c) of MIA envisages third party liability as a marine insurable risk; and as a result the insurance industry has, over the years adopted clauses that offer cover for third party liability. However, these clauses, which usually cover a collision between two vessels, only cover no more than three-quarters of the assured’s liability.
The origin of this can be traced from the Marine Conventions Act 1911, s 1 of which states:

The Marine Conventions Act 1911 Rule as to division of loss 1. (1) Where, by the fault of two or more ships, damage or loss is caused to one or more of those ships, to their cargoes or freight, or to any property on board, the liability to make good the damage or loss shall be in proportion to the degree in which each ship was in fault, except that if, having regard to all the circumstances of the case, it is not possible to establish different degrees of fault, the liability shall be apportioned equally. [Now see s 187 of The Merchant Shipping Act 1995 below]

The Merchant Shipping Act 1995 …. Multiple fault; apportionment, liability and contribution 187 Damage or loss: apportionment of liability. (1) Where, by the fault of two or more ships, damage or loss is caused to one or more of those ships, to their cargoes or freight, or to any property on board, the liability to make good the damage or loss shall be in proportion to the degree in which each ship was in fault. (2) If, in any such case, having regard to all the circumstances, it is not possible to establish different degrees of fault, the liability shall be apportioned equally. (3) This section applies to persons other than the owners of a ship who are responsible for the fault of the ships, as well as to the owners of a ship and where, by virtue of any charter or demise, or for any other reason, the owners are not responsible for the navigation and management of the ship, this section applies to the charterers or other persons for the time being so responsible instead of the owners. (4) Nothing in this section shall operate so as to render any ship liable for any loss or damage to which the fault of the ship has not contributed. (5) Nothing in this section shall affect the liability of any person under a contract of carriage or any contract, or shall be construed as imposing any liability upon any person from which he is exempted by any contract or by any provision of law, or as affecting the right of any person to limit his liability in the manner provided by law. (6) In this section “freight” includes passage money and hire. (7) In this section references to damage or loss caused by the fault of a ship include references to any salvage or other expenses, consequent upon that fault, recoverable at law by way of damages.

ITCH 1/11/95 8. 3/4THS COLLISION LIABILITY 8.1 The Underwriters agree to indemnify the Assured for three-fourths of any sum or sums paid by the Assured to any other person or persons by reason of the Assured becoming legally liable by way of damages for 8.1.1 loss of or damage to any other vessel or property on any other vessel 8.1.2 delay to or loss of use of any such other vessel or property thereon 8.1.3 general average of, salvage of, or salvage under contract of, any such other vessel or property thereon, where such payment by the Assured is in consequence of the vessel hereby insured coming into collision with any other vessel. 8.2 The indemnity provided by this Clause 8 shall be in addition to the indemnity provided by the other terms and conditions of this insurance and shall be subject to the following provisions: 8.2.1 Where the insured vessel is in collision with another vessel and both vessels are to blame then, unless the liability of one or both vessels becomes limited by law, the indemnity under this Clause 8 shall be calculated on the principle of cross-liabilities as if the respective Owners had been compelled to pay to each other such proportion of each other's damages as may have been properly allowed in ascertaining the balance or sum payable by or to the Assured in consequence of the collision. 8.2.2 In no case shall the Underwriters' total liability under Clauses 8.1 and 8.2 exceed their proportionate part of three-fourths of the insured value of the vessel hereby insured in respect of any one collision. 8.3 The Underwriters will also pay three-fourths of the legal costs incurred by the Assured or which the Assured may be compelled to pay in contesting liability or taking proceedings to limit liability, with the prior written consent of the Underwriters. [The ITCH 1/10/83 is in similar terms]

The London Market Joint Committee (Lloyd’s Underwriters Association and IUA) in consultation with ship owning associations, insurers, average adjusters and brokers, developed International Hull Clauses (IHC), a new set of hull clauses. The IHC, which became effective on 1 November 2002, are not a major rewrite of the 1983 and 1995 institute time clauses (ITC), rather the ITC have been updated to reflect market practice and to support the International Safety Management (ISM) code, flag states and classification societies.

These three Hull Clauses (the 1/10/83, the 1/11/95 and the 1/11/03) are in effective force and are available for use if required. It is, of course, always open to the parties to incorporate the terms of any of the Clauses or to modify them, as they see fit, though, it is always advisable to proceed with caution before departing from the standard phraseology.

The ¾ Liability Clause, sometimes known as the Running Down Clause provides a ship-owner with some cover for third party liability in the event of a collision. The insurer undertakes, in the event of a collision, to indemnify the assured to the extent of ¾ of the loss suffered by the other vessel; the remaining ¼ is borne by assured, but is usually covered by the assured’s Protection and Indemnity Club (P & I).

Some of the terms in these clauses have been the subject of determination by the courts, and will now be examined. Of particular interest here: “Collision”, “in consequence of”, “vessel”, “by way of damages”, “paid by”, and “payment by”

The question of whether “collision” was a marine insurable risk was extensively debated in the SS Xantho, the details of which are set out below

Ship—Bill of Lading—Perils of the Sea—Collision—Negligence.

Foundering caused by collision with another vessel is within the exception “dangers and accidents of the sea” in a bill of lading; and excuses the ship-owner for non-delivery of the goods if it occurs without fault in the carrying ship:—

Held, So, reversing the decision of the Court of Appeal (11 P. D. 170).

The owners of cargo by the steamship Xantho, who were the plaintiffs in the action, by their statement of claim alleged that they had suffered damage by breach of the contract contained in the bills of lading of goods shipped at Cronstadt on board the defendants' vessel Xantho for carriage to Hull, that the bills of lading were indorsed to the plaintiffs to whom the property in the goods passed by such indorsement, and that the goods were not delivered. The statement further alleged alternatively that the plaintiffs had suffered damage from the loss of their goods whilst on board the defendants' vessel by a collision with the steamship Valuta, caused by the negligent navigation of the defendants' servants.

The statement of defence denied the contract and the breach, and also that the bills of lading were indorsed to the plaintiffs, and that the property in the goods thereby passed to them. In answer to the alternative claim it admitted that the Xantho came into collision with the Valuta , but denied that the collision was caused by the negligent navigation of the Xantho , alleging that it was solely caused by the negligent navigation of the Valuta . The defence further alleged that the loss was occasioned by perils which were excepted by the bills of lading.

In opening his case the plaintiffs' counsel stated that the Xantho was lost by reason of a collision which took place between that vessel and the Valuta in a fog, and submitted that whether the collision arose from the negligence of those navigating the Xantho or of those navigating the Valuta, or from the negligence of both combined, the loss of the goods did not fall within the exception contained in the bill of lading, and that the plaintiffs were in either case entitled to recover.

The learned counsel for the defendants admitted that if Woodley v. Michell ³ were good law, he could not resist this view, that even if he proved that no negligence was to be imputed to the Xantho , and that the disaster was solely due to the negligence of the Valuta , as he could not prove that it arose from an inevitable accident, the result must be a decision for the plaintiffs. He considered, therefore, that the only course open to the defendants was to test the law laid down in Woodley v. Michell ⁴ by appeal to this House.

The learned President thereupon gave judgment for the plaintiffs.

Against these decisions the defendants appealed.

The question, what comes within the term “perils of the sea” (and certainly the words “dangers and accidents of the sea” cannot have a narrower interpretation), has been more frequently the subject of decision in the case of marine policies than of bills of lading. I will first notice the decisions pronounced with regard to the former instrument, and then inquire how far a different interpretation is to be applied in the case of the latter [Not relevant here]

…

But it is said that the words “perils of the sea” occurring in a bill of lading, or other contract of carriage, must receive a different interpretation from that which is given to them in a policy of marine insurance; that in the latter case the causa proxima alone is regarded; whilst, in the former, you may go behind the causa proxima, and look at what was the real or efficient cause.

“I may say that a policy of insurance is an absolute contract to indemnify for loss by perils of the sea, and it is only necessary to see whether the loss comes within the terms of the contract, and is caused by perils of the sea; the fact that the loss is partly caused by things not distinctly perils of the sea, does not prevent its coming within the contract. In the case of a bill of lading it is different, because there the contract is to carry with reasonable care, unless prevented by the excepted perils. If the goods are not carried with reasonable care, and are consequently lost by perils of the sea, it becomes necessary to reconcile the two parts of the instrument, and this is done by holding that if the loss through perils of the sea is caused by the previous default of the ship-owner, he is liable for this breach of his covenant.”

Similarly, the ¾ Collition Liability Clause covers loss or damage to a third party vessel even when the loss or damage is caused by a tug towing the insured vessel. The maxim that “tug is servant of the tow” applies, that is to say that the vessel being towed will always be vicariously liable for the loss or damage caused by the tug; vide M’Cowan v Baine and Johnson “The Niobe” [1891] AC 401