DMC Category Rating – Confirmed

Facts
The plaintiff owner, as insured, claimed compensation from the defendant hull underwriter for damages to mv "Cap Triunfo." caused by the grounding of the vessel on 5 September 2001 in the Gulf of Finland on her way to S. (Russia).

In August 2001, the vessel loaded a cargo of bananas in Ecuador. The cargo was originally destined for Italy. When the vessel was on her way, the shipper gave order to discharge the cargo at the port of S. The master accepted the change of destination and informed the owner that he did not have sufficient charts for S. Eight days later he ordered charts for the Øresund (The Sound), which were delivered to the vessel.

After the vessel had passed the Øresund, the master instructed the Second Officer to draw up provisional charts for the Gulf of Finland with the aid of the "Catalogue of Admiralty Charts". For that purpose, the Second Officer took the geographical coordinates of the sea area in question from the British Admiralty Charts and transferred the coastline and islands in a highly enlarged scale on to the back of an old nautical chart, on which he then plotted the course. The "Cap Triunfo" passed the western part of the Gulf of Finland in good weather.

On 5 September 2001 at 1200 hrs the Second Officer took over the watch from the master, who then went down to the mess room. Before leaving the bridge, the master instructed the Second Officer to watch the sonar continuously, to call him to the bridge if the soundings decreased and to reduce speed if necessary.

On 1337 hrs, more than one hour before the stranding, the ship passed a buoyed area of shallow water with only 1m. of water under her keel, without the Second Officer calling the master to the bridge. Just before 1445 hours, the master was informed by the Second Officer that the soundings had decreased. At that time, the vessel’s speed was 18.4 knots. As the master arrived on the bridge, the vessel ran aground. The grounding took place at 1445 hrs. The vessel suffered considerable bottom damage. She was salvaged by a Russian tug, towed to a Russian shipyard and repaired. The repair costs amounted to a total of USD 424,357 and the salvage remuneration to USD 575,000. These amounts were paid by the plaintiff, who then claimed indemnity from the defendant hull underwriter.

Judgment
The Landgericht Hamburg dismissed the plaintiff’s claim because the defendant was not liable pursuant to sections 58.1 and 33.1 ADS (General German Marine Insurance Conditions).*

Pursuant to s.58.1, the defendant was not liable for the damage to the "Cap Triunfo", because it was caused by improper equipment of the vessel.

The proper equipment of the vessel required that up-to-date nautical charts and manuals were available on the bridge. This had not been case on board the "Cap Triunfo". Instead, the Second Officer had drawn up a provisional chart, with only a rough outline of the coast and a few islands, and plotted the course south of the island M. This course had been far off and to the south of the traffic separation zone, which was located north of the island M. It was irrelevant whether it would have been possible to navigate the vessel in this particular area without charts and only with the aid of the IMO manual, 1999 Edition and the GPS (Global Positioning System). The master had let the vessel take a course far outside the traffic separation zone that would inevitably have led into shallow waters. He had not been able to foresee this danger because charts that would have shown the soundings were not available. It was true that the IMO manual indicated the exact location and the course to be taken in the traffic separation zone. It did not, however, provide any information on the risk of the area through which the vessel had been steered by the master. Due to the improper equipment of the vessel, the particular danger of taking that course had not been recognisable. Accordingly, the vessel had been unseaworthy for that particular voyage.

There had been a causative link between the improper equipment of the vessel and the loss. The "Cap Triunfo" - with a draft of 6.80m. - had been steered straight through several areas of shallow water south of the islands of M., A. and S. where the grounding had been inevitable. This would only have been recognisable by means of proper chart material that indicated the soundings. The reference to the sonar did not help because, even at a normal speed, a long stopping distance would have been required before the vessel came to a halt in front of an obstacle. If the seabed rose abruptly, an accident could not have been avoided by means of sonar.

In addition, the defendant was not liable because the master was the plaintiff’s representative in performing the obligations of a prudent insured^** and his behaviour had been grossly negligent.

After the change of the port of discharge, the master should have insisted on the delivery of sufficient chart material. His behaviour had been grossly negligent if not conditionally intentional [reckless], because an experienced master had to know that the plotting of a course through a difficult area without nautical charts involved unforeseeable risks for vessel and crew. This nautical fault was attributable to the plaintiff because the master was to be considered his representative.

The plaintiff could not be excused by the fact that it had been the Second Officer and not the master who had been on the bridge. The crucial cause of the loss had not been that the Second Officer had reacted inappropriately immediately before the grounding but that the vessel had sailed without proper charts. The Second Officer had not acted on his own authority but in accordance with the instructions of the master.

According to legal precedents, a person was the insured’s representative if he took the insured’s place in respect of the insured risk by acting independently on behalf of the insured - on the basis of agency or another relationship - in taking significant decisions in a sphere of business to which the insured risk related.

The Bundesgerichtshof (Federal Court of Justice) had held that in marine hull insurance the master of a vessel was the owner‘s representative. Any other view would lead to unacceptable results. Pursuant to sections 513 and 514 of the German Commercial Code (HGB), the master was responsible for the proper equipment of the vessel and stowage of the cargo. Those matters could naturally not be handled by the owner. Only the master could assess the conditions of the voyage and react appropriately. The master was, in particular, responsible for the seaworthiness of the vessel. If a shipper entrusted valuable cargo to the owner, it was obvious that in most cases it was not the owner himself who assumed responsibility for the goods but that he had to delegate such responsibility to his master. If the master was only considered an employee of the owner who did not represent the owner in caring for the cargo, this would lead to the presumption that the owner did not take proper care of the goods.

This responsibility of the master to take care of the cargo applied likewise to the care of the vessel on which the cargo was being transported. Only the master - and not the far-away owner - was able to decide whether a voyage could safely be commenced under the given circumstances and what measures were to be taken to minimize possible risks. Because the owner could not take these steps himself, he could only comply with his obligations under the insurance policy if he appointed a responsible person as his representative, who could and should make the necessary decisions. Accordingly, the master’s position as the responsible person pursuant to ss.513 and 514 Commercial Code was not a fictitious concept but a necessary prerequisite to fulfilling the insured’s obligations the under the hull policy.

Comment
This decision is in line with a twenty-year-old precedent of the Bundesgerichtshof, in which the court had held that the master was to be considered as the owner’s representative in the context of hull insurance. This jurisprudence has been harshly criticised because it was not acceptable that an owner who had taken all efforts to properly equip, man and maintain his vessel should still lose his insurance cover because the master made a mistake thousands of miles away during the preparation of the voyage. With no insurance cover in cases of negligence of the master, a shipping company could not be responsibly run.

It is not to be expected, however, that this jurisprudence and underwriters’ recent subsequent practice in denying cover in such cases will change within the near future. The only chance to prevent the loss of the insurance cover is currently to try and negotiate insurance conditions that expressly provide that the master is not the owner’s representative. Notably, the above case was settled during the course of the appeal proceedings on terms very favourable to the owner.

This jurisprudence could also have an effect on ship mortgages insofar as they are secured by an assignment of hull insurance claims. That is why banks engaged in ship finance should scrutinise their mortgage clauses in this respect.