FOREWORD

IT gives me great pleasure to introduce the history of the UK P & I Club, of whichI have the honour to be the present chairman.

The directors of the club wanted an objective, readable account by an independenthistorian to commemorate the club’s 125th anniversary. Being an account of thelargest club of its kind in the world, the book is more than a parochial history. Insome ways it is the story of P & I as a whole. The result, I believe, makes acontribution to both maritime and insurance history as well as being, for those inthe shipping world, a fascinating story.

M.A. Kulukundis Chairman 20 February 1995

CHAPTER 1

SELF-STARTERS

Liverpool

‘DO THOU LIKEWISE’ was the theme preached by Samuel Smiles in his hugely successful book Self-help,published in London in 1859. Its short lives of great men extolled the Victorian virtues of industry, thrift andself-improvement, for which the reward was personal prosperity. It was plain that by relying on his own efforts,distrusting state interference, the individual could succeed. The proof that laissez-faire worked was self-evident.For at least another decade British industrialists and traders were to lead the world, confidently. In 1870 forevery £100 of British visible trade per head France earned £35.70, Germany £30.50, and America only £25.60.Britain could afford its policy of free trade while major European countries were still in the process of becom-ing nations and the USA was recovering from its bitter civil war.

Moreover, Britain had a large surplus in invisible earnings, most of which came initially from shipping. In thenineteenth century British ships amounted to between one-third and one-half of world tonnage. After a relativedecline against the American merchant fleet in the first part of the century, supremacy was regained from 1860with the development of iron steamships. Iron ships were cheaper to build than wooden ships, had a greatercargo capacity for the same dimensions, a lower depreciation rate and cost less in insurance and interest. Burningless coal knot for knot, John Elder’s new, two-cylinder steam engine was more efficient than the single cylinderengine that had been the driving force since its invention by James Watt almost a century earlier. Other techni-cal improvements too meant that voyages took less time, were more dependable, involved more cargo, andbrought home higher profits. Until the early 1870s earnings from shipping exceeded the interests and dividendsfrom all British investments abroad.

Prosperity for the shipping industry was not without its problems. A particular one arose with the mass emi-gration from European countries for a better life in the New World following events such as the Irish potato

In the ‘hungry forties’ ship fever ravaged famine-weakened Irish emigrants to North America creating ‘coffinships’ and increasing owners’ liabilities. The cramped conditions below decks, captured here in an 1851

woodcut, enabled diseases to flourish.

famine from 1845 to 1848, in which a million people died. The perils of the sea were a lesser risk than trying tosurvive in a blighted land. In the five years from 1846 a million Irish emigrated, mostly to the USA. Ships crowd-ed with passengers escaping starvation and disease were leaving Liverpool for the transatlantic crossing. Undercommon law, the liability of a shipowner for loss of life and personal injury was unlimited. Further, the FatalAccidents Act of 1846 enabled the legal personal representative of persons who lost their lives to recover com-pensation for damages where such loss of life was caused by the wrongful act, neglect or default of another per-son. On top of this the Harbours, Docks and Piers Clauses Act 1847 gave harbour authorities powers to recoverfor damage done to port works by ships, whether negligence was shown or not. Shipowners could face bank-ruptcy as a result of one serious mishap.

They therefore lobbied for limited liability to be extended both for property damage and to loss of life and per-sonal injury. Both were incorporated in the Merchant Shipping Act 1854, which limited liability to the value ofthe ship and the freight to a maximum of £15 per ton. Many shipowners, remaining potentially liable for largesums, still needed protection. Unable to rely on legislation, out of self-interest they had to do something to helpthemselves.

Self-help, the business ethic prevailing inmid-Victorian England was not new. SamuelSmiles, whose book was to be a best seller for30 years and who became secretary of a mutu-al life office, the National ProvidentInstitution, was preaching a secular sermon tothe converted. Mutual fire insurance compa-nies were formed in London after the GreatFire of 1666 and life companies from the earlyeighteenth century. From that periodshipowners had formed mutual associationsto undertake hull risks on a non-profit basis.The shipowners were dissatisfied with thescope and cost of hull insurance providedeither by the two companies, Royal ExchangeAssurance and London Assurance, that hadbeen granted in 1720 a statutory monopoly onthat class of business, or by individuals oper-ating from London addresses such as Lloyd’sCoffee House. In a co-operative an owner wasboth an insured member and an insurer of allthe others. With the 1824 removal of the two-company monopoly, new entrants to themarine insurance market offered keener ratesand better conditions, undercutting the hullclubs, which declined in importance.

In the mid-nineteenth century new needs had to be met. Owners needed protection against their liabilities forloss of life and personal injury under the Merchant Shipping Act 1854 and also against the risks not covered by

Samuel Smiles (1812-1904), secretary of the NationalProvident Institution, whose book Self-help was enormously

influential.

The Rules, covering both protection and indemnity from 1886, were written in 10 pages. In1994 the Rules occupied 110 pages.

ordinary marine insurance. Because insurance could not legally be effected on a ship or freight beyond the valueof such ship or freight, they needed protection for the amount by which the total of liabilities and damageincurred exceeded the value of an insured ship, i.e. excess collision liability. They needed protection against one-quarter of collision liabilities, which London hull underwriters excluded from their policies containing a ‘run-ning down’ clause. As Lloyd’s statistical committee discovered, the number of collisions at sea rapidly increasedduring and after the introduction of steamers. Unlike sailing ships, which were at the mercy of the winds,steamships steered a narrow course and were vulnerable to collision. Some shipowners were losing sleep worry-ing about possible ruinous claims on cargoes such as tobacco.

The first of the new mutuals, the Shipowners’Mutual Protection Society, which later became theBritannia Club, was established in 1855. Other asso-ciations followed, offering types of cover meetingthe needs of their members, who shared the risksof claims in proportion to the tonnage of theirships. A new division of responsibility wasemerging, with Lloyd’s and the marine insur-ance companies covering ships and their car-goes while mutual protection clubs insuredship owners’ third party liabilities. That the newprotection societies were a version of the formerhull clubs is shown by the continuation of their cal-endar. Many ships insured by the mutual hull clubswere laid up during the winter and the traditionaldate for starting to get them ready for the new sail-ing season was 20 February. This also became thefirst day of the insurance year, beginning at noon.

The year in which the United Kingdom MutualSteam Ship Assurance Association was formed, 1869,was a landmark year in international shipping. The long-awaited Suez Canal was opened, shortening the searoute to India, and on to the Far East. Old African ports yielded to enlarged ones in the Middle East, where ranksof whitewashed coalbunkers rose. What was to become known as the UK P & I Club was formed in comparativeobscurity and for its first two years wrote hull and machinery risks. With the addition of other types of coverprotection in 1871 and indemnity in 1886 - and new management, it was to emerge as the largest club of its kind,in its 125th year covering more than 20 per cent of the world’s ocean-going ships and having members in 65countries.

P & I (protection and indemnity) clubs, most of which were formed in Britain by the end of the nineteenthcentury, have grown with the development of larger and different types of ships, the increased range and scaleof risks and the impact of new legislation around the world. In the process the clubs, created in response to lia-bilities imposed by Acts of Parliament in the UK, have helped to frame and amend legislation worldwide. Tosome extent the development of international maritime law is also the history of P & I clubs.

They began in mid-Victorian Britain, at the peak of its industrial and commercial supremacy. Now, towardsthe end of the twentieth century, some 95 per cent of the world’s merchant fleet is entered in P & I clubs, most

The minute book of 1869

of which are British-based or British in origin. A contemporary Croatian regards the progress as ‘one of Britain’smost successful invisible exports’. This is in marked contrast to the performance of the British economy as awhole. Within two decades of the first clubs being formed Britain began to stagnate into relative economicdecline. In the latter half of the twentieth century its merchant fleet went into absolute decline, the great names,with a few notable exceptions, all but disappearing. It was a shift in international maritime power comparable tothe decline of Venice from the sixteenth century. But the P & I clubs, an innovation combining an understand-ing of shipping and law, two areas in which the nation had a history of success, are a notable exception to thewhole. This mid-Victorian legacy has endured and prospered in the face of growing international competition.

Led by an icebreaker, a convoy sails through the Baltic in midwinter. The club’s insur-ance year begins on 20 February, traditionally the date on which ships in the Baltic

began to be prepared for the new sailing season.

CHAPTER 2

UNDERWAY

London

SHIPOWNERS wanting to protect themselves through mutual insurance could not do it by themselves. Theywere no more insurers than insurers were mariners. Insurance needed an administration to collect premiums(‘calls’ in P & I terminology) and pay approved claims, usually after at least some investigation of the facts andperhaps negotiation of a settlement. Day-to-day attention was needed. With the accumulation of experience,there would be a better assessment of the various risks affecting the mutual. International trade called for a work-ing knowledge of the law in other countries. A separate body independent of all the shipowner members in aclub was also desirable. In theory, there was a clear distinction, the owners who paid the calls, established thepolicy and the managers carried it out. In practice it was not always quite so but that was the understanding. AUK Club minute of March 1873 presages what was to be a shifting relationship: It was further thought desirablethat the Committee should, if possible, take steps to supervise the business of the Association more than it has hitherto done,but no definite course was decided upon as best.

Similarly, there was not an absolute dis-tinction between owners and types ofmanagers. Lord Macaulay, the nineteenthcentury historian, remarked of the Britishnavy in the latter part of the seventeenthcentury that there were gentlemen andseamen, but the gentlemen were not sea-men and the seamen were not gentlemen.Nineteenth century shipowners, oftenowner-masters, were a mixed breed. Somewere professional men in a hard world: aworld of ships under sail and steam; shipswith motley crews, happy and unhappy;greasy docks and harbours; rough dockersand stevedores; freight of many kinds andpassengers of different degrees. To stay inbusiness owners had to keep a weather eyeon tides and shipping rates, the times tobuy and sell ships, and a watch on theirclose competitors. Managers of theirmutual insurance associations were a var-ied group. Some were professional men, often lawyers or insurance Brokers; men who belonged to clubs ofstanding, where they met over substantial lunches and exchanged profitable news. They took on the manage-ment of P & I clubs initially as a sideline, gathering an expertise in the subjects and evolving as specialists. Othermanagers were ship owners who brought their experience of the sea to the administration of a club.

There were two distinct classes of insurance: protection and indemnity. Protection now covers four majorrisks: personal injury to crew, passengers and others; other crew liabilities such as medical, hospital and repa-triation expenses; collision liability not covered under hull and machinery policies; and damage to docks andother objects. Lesser risks include quarantine expenses, removal of wreck, liabilities under towage contracts anddamage to other ships other than through collision. Indemnity cover mainly deals with the shipowner’s liabili-ty to cargo for short delivery, loss or damage.

Beautifully handwritten minutes, 18 September 1873, show boarddecisions, but seldom reveal the debate.

In the latter part of the twentieth century, with the development of very large crude carriers and the conse-quences of widespread oil and chemical pollution, both protection and indemnity cover have had to respond tolarger and larger claims from many affected, and sometimes supposedly affected, parties. Greater risks put astrain on the basic mutual principle of always giving protection without any limit. This reached the point in the1970s when the clubs and their reinsurers could no longer give unlimited liability cover for oil pollution.

There was too a geographical distinction. As an island nation Britain had many ports, serving their regions.Shipping was a series of locally based operations run by families, jealous of their areas. The structure of theindustry was reflected in the organisation of the early P & I clubs, many of which were formed in and servedparticular regions or even ports.

Marine insurance differed in largely being concentrated in the City of London. It belonged to a corner of theCity, offices clustered around the Baltic Exchange and Lloyd’s, where ships were respectively chartered andinsured. The small, personal world was a tight network in which people often met one another, and did deals ona handshake and a slip of paper. Not that there was always that degree of probity. Shipowners who had earnedtheir money in contention with the seas were entitled to be suspicious of those operating within the Square Mile.The City had plenty of opportunists greedy to cash in on emerging markets. Exotic enterprises were often falseeldorados and, as always, the sea offered scope to the unscrupulous. Had shipowners aired their insurance prob-lems, there would doubtless have been several promoters ready to give them extra cover. Whether these specu-lators would still have been there to meet their obligations is another matter. The City of the time had manycharlatans and fraudsters, matched by a ready supply of the gullible. In a mutual association owners had theassurance of knowing that they were masters of their own affairs, with each member enjoying the same degreeof protection. It was an economical arrangement as well. Not having to make a profit, the mutuals offered anexpense ratio lower than in all other forms of insurance.

An early minute, listing those involved in the club’s origins.

Being in touch with the City had the great advantage of links to a wider world. It provided the best of bothworlds. Expertise in maritime law, much of which was based on English case law, was concentrated in London,to the point where if two ships of even the same nationality collided in a remote part of the world the solicitorshandling the case could well be a short distance apart in the City. Through a growing network of telegraph cablesLondon’s position too as the world financial centre was being strengthened. P & I would become part of theorganic growth of London as the insurance capital of the world. The geographical distinction between ownersand managers, not all of whom were based in London, was of fundamental importance to the growth of this newkind of cover in its international dimension.

From its foundation in 1869 the UK Club was based in the City of London, initially at 1 Cushion Court, OldBroad Street.

We do not know exactly who took the initiative in its formation or why, who all the first members were orwhich ships were entered. The first rule book, which set out the terms of insurance, lists the committee as:

ROBERT R. GLOVER, Esq., firm of Glover Brothers, in London;

W LEETHAM, Esq., firm of Bailey & Leetham, in London;

W LAMPLOUGH & Co.., with one vote only;

J.A. DUNKERLEY, Esq., firm of J.A. Dunkerley & Co, in Hull;

W MILBURN, Esq., firm of Watts, Milburn & Co, in Newcastle;

GEO. SWAINSTON, Esq., firm of Geo. Swainston & Co., in Sunderland.

The inclusion of Sunderland, where Swainston was a shipbroker who probably had shares in a number ofships, is interesting in that a hull club was also formed in that port in the same year. Contemporary formationof the two clubs may well have been prompted by a single sizeable incident or a series of incidents. Certainly,colliers were identified as poor risks and not easily insured. Almost half the wrecks recorded in 1866 were col-liers rotten with age and want of repair, badly equipped and often under-manned, and rejected by every mar-itime association in the UK. A port with about a thousand ships of various sizes, Sunderland was probably ascene of rivalry among owners, who would not have been happy about paying towards the claims of their lessworthy competitors. They were as suspicious of one another as they were of remote City gents. A similar situa-tion may well have occurred in Newcastle, where not all owners of collier brigs taking coal to London or trad-ing in Baltic timber during the summer would have wanted to belong to the same club. The North of EnglandClub had been based there since its formation in 1860 and William Milburn, a shipowner from a family of butch-ers that in the 1880s got into the Australian refrigerated meat trade, later becoming Port Line , could have joinedthat.

W. Lamplough & Co., with only one vote, was a firm of insurance brokers that also managed the new club.Any two members could transact the business and two members had to approve the admission of steamers, thesum insured on any one ship not to exceed £3,000. As the capital of the club increased, this sum was raised to£5,000 from February 1871, when cover for protection risks were also offered.

On the first committee ‘country’ representatives, from the three firms in the North-East of England, outnum-bered those from London, where the meetings were held. One of the ‘London’ representatives, WilliamLeetham, is given in the minutes as ‘of Hull’. His firm, Bailey & Leetham, with four iron steamers of between1,000 and 1,200 tons, was the largest represented. Appropriately, he was elected the first chairman. William

Leetham remained chairman until his death, being succeeded in 1875 by Robert Glover. This regional influenceis also evident in the rules. At the 1873 annual meeting ‘it was generally considered that as far as practicable therules should be made identical with those which have been adopted by the North of England’.

The few ships entered were mainly small - Watts, Milburn’s two iron steamers were of the order of 700 tons -and in small fleets. Numbers of ships were set to grow over the next few years but it is fair to say that the clubwas started with only a few members and a low total tonnage, how low we cannot now ascertain. The initial pre-ponderance of members from the North-East of England is certain. Among the early foreign ships to be enteredwere two built in St Petersburg in 1872 and 1874. They may have brought in pit props for the coal mines of theNortheast.

The fledgling club had an uncertain status. Owners were required to give only 30 days’ notice of their inten-tion not to renew membership on 20 February. Even if a claim was outstanding there was no legal bar to with-drawal. In 1873 a member of the first P & I club, the Shipowners’ Mutual, tried to avoid payment of his calls,arguing that the club had no legal standing. In 1875 the Arthur Average Association, a mutual hull club, was toldthat its policies were invalid because the names of the underwriters were not specified in them. On the decisionthe Law Journal commented: ‘it behoves both managers and members to reorganise their societies on an entire-ly new basis.’ The response was to incorporate under the Companies Act, a move followed on 25 February 1876by the UK P & I Club. Limited status did not prevent dissatisfied members from leaving. It was up to the man-agers to satisfy the demand for services, one of which was resisting claims by crews and others for personalinjuries. For various reasons, there was a considerable turn over in the membership, more than half of the earlymembers having ceased to belong by 1882. At the annual meeting that year a new set of rules was unanimouslyagreed, the chairman stressing the advantages that would result from ‘the codification, simplification and

Tramp steamers such as the 700-ton Ban Righ, c.1870, were typical of the first ships entered in the club

unification’ between the principal London P & I clubs. The clubs later worked in concert to relieve ship own-ers of liability for loss of and damage to cargo caused by improper navigation. The differences between the clubseven then were not in their terms and conditions but in their quality of service. In 1885 the committee was ableto report: The Protecting Club has been exceedingly useful to Members, again this year resisting oppressive claims and com-ing to the assistance of owners in saving them from ruinous losses.

It was also bold enough to formulate its expert views for the government. On a proposed new MerchantShipping Bill a letter was drafted to the Board of Trade and the Prime Minister, Mr Gladstone, on ‘the erroneoussupposition that over-insurance has an effect in increasing losses at sea’. The same might not be true of some of

Thomas Robson Miller, 1836-1915, a shipowner and mayor of Morpeth near Newcastle. Hebecame joint manager of the UK Club in 1885. His great-grandfather, William Rischmüller,

emigrated from Hanover to England in the eighteenth century.

its own members. A sub-committee considered ‘the list of steamers insured, with a view to rejecting any it wasthought desirable not to retain’.

The strength of London on the committee was to increase but the influence of the North-East was to persist.In 1885 there were five shipowners from London and members from Hull, West Hartlepool, Newcastle upon-Tyne and Leith in Scotland. This geographical concentration partly explains the 1885 appointment as joint man-ager with C.E. Lamplough, the original manager, of Thomas Miller, who was a shipowner through the firm ofChapman & Miller and for 20 years secretary of the North of England Steamship Club based in Newcastle.Familiar with the cultures of both shipping and insurance, Miller came to London in 1886 with the reputationof being ‘The King of Clubs’. He was reckoned to be a more successful club manager than shipowner. The twobackgrounds were useful to the balance sheet, encouraging membership on the one side and being tough onclaims on the other.

Number One in the Mariner series ofarticles on representative club underwrit-ers (15 October 1889), he was at homewhen dealing with average claims, salvageclaims, and other claims in connection withmarine insurance business, and for manyyears he has been looked upon and consultedas an authority. He is one of those zealous,hopeful and confident men who are seldomdiscouraged, and always invaluable andinfluential in the weak and unpromisingbeginning of things. In his 20 years inNewcastle the capital of the North ofEngland hull club had risen from about£500,000 to over £3,000,000 and, includ-ing the freight and protection clubs, atotal of some £13,000,000. Comparativefigures for the UK Club in 1885 were£1,420,950 capital at risk, in the freightclub £329,300 and in the protecting club690,993 tons. In coming to London,Thomas Miller had accepted a challenge.

The club was delighted at recruiting Thomas Miller as joint manager.This is the circular, 21st October 1885, advising its members of his

appointment.

CHAPTER 3

HARD MEN

Bombay

THE FIRM hand of Thomas Miller was soon evident. Probably through his persuasion, indemnity was addedto the cover of the UK Club when he took up office in 1886. Initial business was modest, an early solitary claimbeing for £2 for cargo damaged between Odessa and Antwerp. For 1887 the managers were able to report: Thebenefits derived by Members in this class are being continually shown, and it acts as a great deterrent in preventing improp-er and frivolous claims for damage to cargo. Only one Call has been made on this year’s entries, amounting to one pennyper ton, which it is thought will suffice for all claims in this class for the entire year. In 1889 a system of advance calls,six a year, was introduced: The advantages of the system are that no ‘Bad Debts’ are made, steamers discharge their lia-bility whilst actually trading and before being lost or sold, payment of claims can be promptly made by the Association andthe risk of having to make further Calls, which is at all times so distasteful to the Members of the Association, is reduced toa minimum. On 14 October 1886, a meeting of 10 clubs including the UK Club was held in London in an attemptto insert a satisfactory negligence clause in contracts of carriage. These were usually bills of lading, which oftenopened with the pious but unsatisfactory phrase: ‘Shipped by the grace of God upon the good ship...’.Underwriters, having insured certain risks on cargo, were not slow to claim against shipowners for losses. Billsof lading became more complex, without resolving fundamental issues.

Further concerted action was taken in 1890, when representatives of P & I clubs attended a meeting on the for-mation of the Shipping Federation, an organisation for ‘protecting the interests of shipowners against the unrea-sonable demands for actions of Trade Unions’. The UK Club was an enthusiastic supporter, providing six mem-bers of its first executive council. Four months later they claimed: ‘It was mainly the Indemnity Clubs thattaught shipowners their strength, and made possible that powerful combination known as the ShippingFederation.’ The Federation’s strikebreaking tactics included the purchase of three vessels and an ocean-goingtug that provided accommodation and transport for its ‘free labour’. Later, concern was expressed about pro-tecting members against liabilities under the Merchant Shipping Act 1894 and the Workmen’s CompensationAct 1897, the provisions of which were extended to seamen and stevedores in 1906, which meant that ownerswere responsible for both the maintenance and repatriation of seamen injured or taken ill abroad.

At a special meeting on 8 July 1892 the directors decided to accept the new ‘tank steamer’Murex provided that it carried refined oil only. The Conch, shown here, was a later addition to

the fleet of M. Samuel (later Shell)

Probably through the influence of Thomas Miller geographical representation on the club committee waswidened. Members from Cardiff and Whitby were elected in 1887, Middlesbrough and South Shields in 1892,Liverpool in 1893. In the Mariner of 15 October 1889 Miller was reported as ‘a marvellous success’ since comingto London from Newcastle in 1886. The usefulness of the ‘protecting’ and ‘indemnity’ clubs ‘has been demon-strated frequently in resisting spurious and improper claims from shippers and receivers of cargoes’. In 1892 herepresented the club at a Genoa meeting of the Association for the Codification of the Law of Nations, whereone of the subjects discussed was the relationship between shipowners and cargo merchants. On more than oneoccasion members of the committee deferred to him ‘to do as he thought proper’ on specific issues between meet-ings. It was not surprising that in 1894 Thomas Miller took over sole management of the club from W.Lamplough & Co. Management control was to remain in his family until 1971.

From 1896 the club ceased to insure hulls because the business had been diminishing. Owners of newer ton-nage felt that in clubs they were being penalised by contributing and perhaps paying additional calls towardsolder ships more subject to loss whereas in the market they could get fixed premium cover. Another separateclub, formed at the same time as the original hull club, one for ‘freight and outfit’, was to continue for anotherquarter of a century. In the early 1920s Frank Ledwith saw the tail-end of that cover, on which the claims weresmaller than on hull and machinery: Freight and disbursements cover was a way of increasing the insured value in theevent of a total loss. Lloyd’s and company underwriters could say that they would only insure a ship on a hull and machin-ery value of say, £10,000. The owner could argue that he had at risk the freight for the voyage and also the wages, bunkersand stores it cost him to earn that freight: ‘At least 1 will get those paid if the ship should be lost.’ Customary figures underthe heading could increase the total value by 25 per cent, of which 15 per cent was for freight and 10 per cent against

The schedule to the original pooling agreement of 1899 is an example of howthe pool works

disbursements. With the underwriter’s still refusing this sort of cover, owners would happily go to a club for it. Through thedepression of 1873-96 British shipping remained supreme. In 1890 its tonnage was over twice as large as theAmerican, ten times that of France, and about eight times the German.

During the 1890s the number of ships entered in the club decreased but they were getting bigger. Ships of4,000 tons and more were being built, leading to greater liabilities, possibly beyond the resources of one club.For example, in 1893 M. Samuel & Co. entered in the protecting and indemnity classes of the club the 3,564-tonMurex, purpose-built in 1892 as the first in what became the Shell fleet and the first bulk oil tanker to meet thenew regulations for passing through the Suez Canal. Clearly, with the demand for lighting, the advent of motorcars and other uses for this convenient fuel, there would be a growing trade, presenting new transport risks wellinto the next century.

Responding to the new scale of risks in 1899 the UK Club joined with five others in their first reinsurancelink, a pooling agreement aimed at stabilising the impact of exceptionally large claims. It was an extension of themutual principle to a group level.

The six clubs agreed in five handwritten pages to share, proportionately to their size, the excess of £10,000 inrespect of any claim. There was no reference to the nature of the claims that could be pooled. Any ship in excessof 3,000 tons - such ships at that date were large and few - was to have its claim on the pool reduced propor-tionately.

Respective club tonnages given in the 1898 schedule to the 1899 agreement appear to be correct, with the UKClub being the largest, accounting for 27.8 per cent of the total. Comparative figures are not available for 1886,the year that Thomas Miller became joint manager, but the surviving evidence points to the club not then beingso strong. Over 12 years, under Miller’s energetic guidance, it seems to have become the largest, a position it wasto retain. Not until the late 1920s though did the club make a qualified claim about its size.

By 1900 steamers of 3,000 - 4,000 tons, among them the 3,077-ton Yarborough,seen here with pitprops as deck cargo, were being entered in the club.

In 1900 over 1 million tons were entered in both the protecting and indemnity classes of the UK Club. In 1904indemnity overtook the tonnage of the protecting class. Indemnity claims were looming so large that the ques-tion of creating a reserve fund was considered: It is notorious that within the last 10 years, owing to the increased sizeof steamers and the construction which the courts from time to time have placed upon clauses usually found in contracts ofcarriage by sea, together with the fact that several countries have passed laws regulating and restricting the liability of shipowners in connection with Sea Carriage contracts, the burdens on shipowners have materially increased. That which in for-mer days used to be regarded as a ‘sea peril’ is now looked upon by our courts as ‘unseaworthiness’.

Owing to the doctrine which is inherent in all sea carriage contracts, viz: that a ship must be seaworthy at each stage ofthe voyage and that if the shipowner fails to comply with such implied warranty all the exceptions inserted in such contractare void, it is easy to perceive that claims will continue to increase. The tendency of late years, therefore, has been that claimsrecoverable from the Indemnity section are increasing and will in our opinion, continue to increase.

For many years past the calls on the Association in respect of Indemnity claims have been extremely moderate, averagingduring the last 20 years something under 2½d * per ton per annum.

During the last six or seven years, however, this sum has increased and in order that the calls may be placed on a moresatisfactory basis it is thought desirable that a Reserve Fund should be created and applied only in cases where a heavy claimis made against the Association.

With this object in view it is recommended that the Indemnity Calls should be paid in advance in the same way as thosein the Protecting Section of the Association are now paid, and that out of the interest which will accrue upon the calls sopaid in advance a proportion of such interest should annually be set aside until it together with interest accrued thereonamounts to say £5,000 or £10,000. At the annual general meeting in 1910 a new rule was agreed with the indem-nity contribution raised to 3d. per ton per annum.

Tonnage grew with the admission in 1910 of fixed premiums on steamers from the Great Lakes in NorthAmerica, which was not to become good business. That same year a bad decision was avoided. A number ofBritish and foreign ship owners considered the possibility of insuring passengers and freight carried in airships,but nothing came of it. As events were to prove, airships involved high-risk technology. They ceded the skies toaeroplanes. The club was better off staying with the kind of ships that it knew. By 1912 the entered tonnage inthe protecting club was 2,577,310 and in the indemnity club 2,438,859. By 1914 these figures had increased to2,910,873 and 2,741,474 respectively.

The club clearly carried some clout. For example, in 1907 the Foreign Office successfully intervened on itsbehalf in obtaining the remission of a fine of £300 imposed upon a member at St Petersburg for alleged shortdelivery of cargo. In 1909 the club was able to take up with the Foreign Office the manner in which British shipswould be treated under the new, stringent regulations on entry to French ports.

Frank Ledwith comments on the contemporary management methods: Working relationships with the other clubswere very close. The clubs were small, the managements were small and they tended to be dominated by individuals.Meetings were between the senior partners, who took all the decisions in a simple way. Their relationships stemmed from thefact that the clubs were sharing their claims and therefore determining what cover they could give. Cover had to move broad-ly on the same basis for each club, although they had separate rules. They have never been precisely the same. Cover wasexpressed slightly differently from one club to another.

*Amounts of money are stated throughout in the currency of the time. United Kingdom currency changed to decimal inFebruary 1971. Exchange rates are contemporaneous.

The club had a tough business attitude, as the unanimous views of the UK Club directors in 1908 made clear:... representing steam tonnage of the value of Twenty Millions Sterling, strongly condemns the Coal Mines (Eight Hours)Bill insofar as it aims at the limitation by Statute of the working hours of Miners, involves a reduction of supplies and aconsequent increase in the price of coal, thus seriously prejudicing the shipping interest (which is already over penalised) andother large industrial undertakings of the country as well as the household consumer. It is therefore resolved to send a copyof the Resolution to His Majesty’s Government.

There was also continued concern about the operation of the Workmen’s Compensation (Amendment) Act1906, which extended employers’ liability to seamen. It was an Act for which the trade union had sponsored nofewer than seven private members’ bills between 1894 and 1905. Attitudes towards individual claims were hard.In 1905 while working in the hold of a steamer at Penzance a labourer was killed when a chain broke and a sackof grain fell on him. A claim of £400 was put forward on behalf of his widow and children. The managers reck-oned that a settlement of about £200 could be effected. In the same year a chief officer’s wife on board a steam-er in Glasgow put a plank from the ship to the shore so that she could reach the quay. She was being helped bya rigger when the plank broke and both fell into the none-too-clean water. The mate immediately had the steam-er arrested, claiming £500 damages. After the accident the chief officer’s wife gave birth to a still-born child. Herclaim for compensation, taken as far as the House of Lords, failed. There was no token gesture.

Walter Runciman, chairman 1909-37. Lord Runciman began his career as adeckhand and founded Moor Line. He was a director of the club for 40 years.

Sometimes the committee acted in ignorance. For example, in 1907 it agreed to the issue of a joint circular withother clubs directing shipowners’ attention to the dangers that might ensue from a build-up of gas on boardships carrying benzene, but did not consider there was any necessity to alter club rules for such cases. Rules wererules and from 1908 the longest serving chairman, Sir Walter (later Lord) Runciman, who had begun life as adeckhand and knew the ropes, personally checked claims before each committee meeting.

Whether the disasters were large or small, the club was not a benevolent society. On 12 April 1912 on hermaiden voyage the British-built Titanic hit an iceberg in the North Atlantic and sank, 1,513 of the 2,224 on boardlosing their lives. The nation was stunned into grief and anger. A Titanic Relief Fund was quickly established.The club’s attitude was minuted at its next meeting: The Shipping Federation’s subscription to this fund was discussedand strong disapproval expressed of the irregular way in which it has been made. The following resolution moved by theChairman was passed unanimously. ‘In the opinion of this Committee when Federation Funds are granted for benevolentpurposes the grant should not be authorised by any Resolution other than one passed by the Executive Council.’ The clubwas well represented on that council.

CHAPTER 4

AT WAR

Rotterdam

WHEN war broke out on 4 August 1914 arrangements had already been made for co-operation between thegovernment and existing war risks associations. The role of P & I clubs was therefore reduced but they were notinactive. As well as magnifying problems, war brought new ones. At its 20 August meeting the committee of theUK P & I Club rejected a proposal to seek council’s opinion on what to do about German and Austrian mem-bers and unanimously agreed: That all enemies’ ships be struck off the books of the Association as from the date of dec-larations of war and meanwhile nothing be paid in respect of such entries.

So rapidly did events move to war after the assassination of Archduke Ferdinand in Sarajevo on 28 June 1914that a few British ships found themselves in the wrong place at the wrong time. Some ships and crews weredetained in German ports while others were trapped in the Baltic and Black Seas For instance, the steamerWolverton was kept in the southern Russian port of N Novorossiysk. In 1915, during the bombardment of theport by Turkish warships, members of the crew were ordered to leave and take refuge in a neighboring town. Abill for the equivalent of about £7 for their board and lodging was presented to the captain, who refused to pay.The British consul applied to the owners for settlement, which the club agreed to meet. On the outbreak of warthe British ship Bylands, loaded with cargo for Hamburg, was ready to sail from the neutral US port of Savannah.Not wanting to trade with the enemy, the ship owners had the cargo discharged and another loaded for theUnited Kingdom. Shippers of the original cargo had the steamer arrested for $20,000. The club backed the own-ers. The case went to the US Supreme Court, which in 1916 found against the steamer, the claim and costsamounting to £2,626, met by the club under its indemnity cover.

Concern was expressed about a natural disaster that could have had a much bigger effect on international ship-ping. At the beginning of October 1915 the Panama Canal was closed because of a landslide. Opened just afterwar broke out, on 15 August 1914, the 50-mile canal, originally started in 1879 to link the Atlantic and PacificOceans, saved a voyage of 6,000 miles around South America. It soon became a focal point on international ship-ping lanes. After the landslide it remained closed for six months, reopening in early April 1916 for the passageof 30-foot ships. As always, the club was ready to defend the interests of shipowners. At its first 1917 meeting itpassed the following resolution: This Committee strongly deprecates the action of the Government in endeavoring toincrease the carrying capacity of British tonnage by the raising of the load line, a method which it considers most objection-able not only from the point of view of stability of the ship, but the safety of the officers and crew. It further considers that ifany shipowner is of the opinion that such an alteration would render his ship unsafe, he should not be required to alter theload line. It was also resolved that a copy of this resolution should be forwarded at once to the Chamber of Shipping of theUnited Kingdom in order that representations might be made in the proper quarters on behalf of shipowners. Similarly, theclub resisted claims by government departments for alleged short delivery of cargo and stores shipped on requi-sitioned steamers when the owners had little or no knowledge of how the ships were employed and no means ofexercising any control in their loading, storing and discharging. A port at which the problem was acute was Hull.The frequency of serious cargo claims there necessitated prompt action by the clubs, which appointed local sur-veyors McAnsland and Turner to visit every entered steamer that arrived to discharge cargo. Clubs notified thesurveyors of the name of the steamer, the nature of its cargo and the anticipated date of arrival. The problem wasmore than a wartime one. Confirmation was given in 1963 that the arrangement initiated in 1916 was to be con-tinued.

The club was also against a proposed regulation on providing new compasses on merchant ships, pointing outthat the navigation of a ship depended upon the skill and ingenuity of the navigator coupled with the compasshe was accustomed to use. A not unexpected result of navigating in blackouts or dodging submarines was anincrease in collision cases, on which the club attitude was: The Directors of this Association view with considerable

alarm the constantly increasing number of strandings, collisions and other accidents, the great majority of which occur whensteamers are sailing in convoy and navigating with lights out, in accordance with Admiralty Regulations. These accidentsresult in very heavy damage claims, which invariably fall upon Marine Underwriters, and consequently upon Owners. Theloss of time, also the result of the accident, bears heavily upon Owners.

As was to be expected, during the war the trends in the P & I clubs were a reducing tonnage set against risingcalls and claims. The biggest casualties were the losses in life and property. Altogether some 9 million tons ofBritish shipping, almost half the pre-war fleet, were lost. While world losses were made good, British were not.The nation emerged from the war with a net loss of over 1½ million tons, representing a decline from 41.6 percent to 34.2 per cent of the world total. In peace, the P & I clubs would have to look harder for business beyondtheir own shores.

The British Emperor was the first tanker owned by BP to be entered, in 1916

CHAPTER 5

WEATHERING

Piraeus

POST-WAR, lost tonnage could not be replaced immediately and there was a demand for shipping of all kinds,with congestion at ports. As nations returned to peace and prosperity, there was ‘an alarming increase’ in claimsfor cargo losses through pilferage: The extent of the evil of pilferage may be gauged by the fact that twelve months afterthe Armistice claims were paid by shipowners on a scale commonly twenty times as large as that obtaining before the war.In many instances it was considerably greater. The committee put it down to the general increase in values, whichaugmented the pre-war claims about three-fold; chaotic conditions occasioned by the war, especially interferenceby government departments; congestions resulting from the trade boom; and the general debasement of thestandard of common honesty, which was a legacy of the war. Another legacy, unmentioned, was the loss of expe-rienced seafarers, who in a time of no separation lanes knew their routes. Their loss partly explains the compar-atively high number of immediate post-war collisions.

Personal injury claims were also rising, some of them a try-on: The case of Glenafric is an excellent example of theoutrageous claims at present being made in America by persons who are injured in the service of the ship. A mess-room stew-ard claimed no less than $45,000 in respect of alleged failure to treat an injury he had received. It is somewhat illuminat-ing to remark that this claim was finally settled for $400.00. Sometimes ambulance-chasing lawyers, posing as repre-sentatives of seamen’s welfare organisations, presented cases without authorisation from their ‘clients’. The clubview was unequivocal: The heavy awards given by juries in the Courts of all Countries tend to encourage them. Indeed,it would seem they tend to create a certain amount of carelessness on the part of some men, which carelessness would prob-ably be absent if the pain and incapacity suffered as the result of an accident were not so liberally compensated. The pass-ing in 1927 of the Longshoremen’s and Harbor Workers’ Compensation Act, for which P & I clubs throughlawyers had lobbied the US Congress, led to a more equitable settlement in many cases and fewer undesirablelawsuits.

The committee could be generous occasionally, as when rewarding a catch in the slips on board the BritishLord: When this ship was at sea on the 4th November 1927, a sailor, named Alfred T. Morgan, was sent aloft paint thetopmast stay. Whilst doing so he was seen to fall. One of the ABs [able-bodied seaman] F Preece, rushed forward and justmanaged to catch the man as he was reaching the deck. Both the men were bruised and severely shaken, but no permanentinjury was suffered. There is no doubt that, but for the plucky action of F Preece, Morgan would have sustained fatalinjuries and a heavy death claim would have had to be borne by the Association. It is suggested a presentation be made toPreece. The Committee agreed to the proposed presentation of £20 and a silver watch. In 1930 six South Sea Islanders,the crew of a whaleboat who over two days, while their ship frequently capsized and was refloated, rescued 24seamen from the Norwich City in shark-infested waters, saving the club over £10,000, were rewarded with a totalex gratia payment of £200.

From the minutes of the monthly committee meetings a picture emerges of the directors considering and for-mally passing every claim, however trivial. The committee of senior men, meticulous in their attendance, wentinto serious cases in great detail and the minutes show a full discussion of each. In collision cases even ruddermovements were noted. Especially in personal injury, people’s motives were explored. Directors gave instruc-tions on how serious claims should be handled. Sometimes this extended to instructions on settlement or oncontesting a claim. The managers passed the committee’s instructions on to the members and saw to it that theywere obeyed. On rare occasions the managers were authorised to deal with claims in the best possible way. Theydid not, except in rare instances, act on their own initiative; when they did so, they got the committee to ratifytheir actions at the next meeting. Occasionally, an emergency meeting of the committee was necessary to dealwith a claim that could not wait.

Tight control was necessary because UK Club funds were small, with seldom more than £100,000 in bank

accounts. Interest rates were low so accrued interest would not have been great. Estimates of liabilities on report-ed serious claims also tended to be too low and insufficient amounts were raised on the next call. The year 1919,one of high claims, was closed in deficit on 1 December 1922, making current members liable for some earlierclaims. A deficit occurred again in 1924. There is no evidence that these caused any disquiet among members.

For shipowners the trade boom was brief before the long slump set in. In January 1922 at a committee meet-ing where the future of the freight and outfit club was discussed: It was unanimously agreed that in consequence ofthe small amount of capital entered, the Association should suspend underwriting as from the 20th February 1922 until theposition of shipping in general improves when the question of resuming operations will be further considered. Membershipof the UK P & I Club nevertheless remained stable, the bulk of the members operating tramp steamers, mainlyin what was known as the 6-10 class: burning 6-10 tons of coal a day, doing 6-10 knots and carrying 6,000-10,000tons. When there were too many ships for the available trade and sterling was overvalued, tramps more and morefound cargo competition from liners. Competition from oil was also reducing coal exports. Others were ready toprofit from the difficulties of British tramp operators. Greeks, with lower operating costs, offered more appeal-ing deals.

The Atlanticos, in a watercolor painted by Manuel E. Kulukundis, uncle of Miles Kulukundis, chairman of theclub from 1990 to 1995. The Atlanticos was the first post-war acquisition by Rethymnis & Kulukundis.

Nor did legislation always favour shipowners, who were regarded as having profited handsomely from the war.For example, long-standing differences between cargo underwriters and shipowners on liability were not entire-ly resolved by the internationally agreed Hague Rules, embodied in the UK in the Carriage of Goods by Sea Act1924. The club commented: This Act may be regarded as an honest endeavour on the part of ship owners to meet therequirements of merchants and bankers who, for some years past, have complained of the restrictive clauses usually found inBills of Lading. ... Shipowners will appreciate the benefits to accrue from universal maritime codification as regards car-riage of goods by sea.

The absolute warranty of seaworthiness... has been modified to a conditional warranty which is more in accordance withthe views of modern-day commerce. That conditional warranty still throws upon a shipowner a burden that cannot lightlybe disregarded. He must be able to show that he has exercised due diligence to make the ship seaworthy and also to securethat the ship is properly manned, equipped and supplied, and also to make the holds, refrigerating cool chambers and allother parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation.

It is important to observe the provisions apply exclusively to the period during which the goods are being carried by theship and it is still open to any shipowner to agree with merchants any stipulation, condition or reservation or exemption asto his responsibility and liability in respect of the goods prior to the loading on board the ship, and subsequently to the dis-charge from the ship. By 1930: Legislation adopted by practically all of the leading maritime countries of the world nowprecludes shipowners from contracting out of liability for loss of or damage to cargo resulting from negligence in the care andcustody of it so that shipowners, through their Protecting and Indemnity Associations, have been saddled with a consider-able portion of the risks attaching to cargo which previously was borne by cargo underwriters. Indeed, the liability ofshipowners is being extended so considerably in all directions that one wonders whether the time will some day arrive whenthe Protecting and Indemnity Associations will take upon themselves the whole of the insurance of the cargoes of enteredships. It would put an end to many disputes as between cargo and ship and the saving in law costs alone would be enor-mous. Of course, freights would have to be increased, but the increase should not amount to as much as what has now to bepaid to insure the cargoes. By 1949 cargo underwriters were arguing that the £100 limit per unit or package of cargolost or damaged, provided for in the Carriage of Goods by Sea Act 1924, meant £100 gold. By that date the USofficial price of gold was nearly £300. On the initiatives of the clubs, with Cyril Miller taking a major part, the‘Gold Clause Agreement’ was negotiated with the British Underwriters Associations whereby the limit wasagreed to be the equivalent of £200.

From 1920 to 1933 one thing masters had to be aware of when shipping to US ports was the presence on boardof a large quantity of liquor or other contraband merchandise. This included opium smuggled by Chinese crew.Such were the rewards that there were repeated attempts at smuggling. Under Prohibition, liquor could not beimported and there were civil and criminal penalties as well as those for customs violations. Further, under theImmigration Act 1924, there was a $1,000 fine for each deserter or stowaway landing from a ship. In theArgentine, a jumping-off point for Greeks, Russians and Poles, the fine was also $1,000 and in Australia £100.Organised smuggling rackets were suspected and masters had to be vigilant. Owners were faced with reclaimableexpenses in providing watchmen, not always reliable, and detaining men ashore. From 1940 a standarddeductible of £250 was applied to all such claims.

A new risk, disturbing to the club, was the exposure of crews to Bolshevik pressures when visiting Russia. A1924 minute was headed ‘Communistic Propaganda in Russian Ports’: The Masters of several ships which recentlyloaded at Nicolaieff and neighboring ports notified their owners of a serious attempt to interfere with their crews. Membersof the crew are persuaded to go ashore, where they are entertained with amusements and refreshments. Whilst there, they areapproached by Soviet agitators who do everything in their power to bring the crews over to their views. The result is there

are many desertions and it not infrequently happens that those who return to their ship create strife and unrest amongst theremainder of the personnel. The movement, if it be allowed to continue without interference, may have most serious devel-opments and apparently, from a letter received from His Majesty’s Foreign Office, the Government is not at present in aposition to intervene. Owners who remembered the pre-war strikes that had resulted in higher wages for seafarersprobably feared that crews, lavishly entertained and then indoctrinated, would turn revolutionary. There wasmuch for crews to be discontented about. They were not well looked after and voyages could be an experienceof great hardship. Deaths occurred through exposure and pneumonia, not surprising with open bridges and nowheel house. In warmer climates there was the danger of typhoid, made worse by the lack of inoculation andpoor living and working conditions. Owners might fear a Red menace but in reality it was the moderate NationalUnion of Seamen, not the militant union that succeeded in representing employees. In a slump, with fallingfreight rates and wages, there was little that any union could do to improve conditions. Occasionally they becametoo much to bear: S/S Pengam - Death of Captain Harding 29th December 1927. This vessel was on a voyage fromSwansea to Havre when she ran into terrific weather prevailing in the Channel on Christmas and the following days. TheCaptain (who had been in the owners’ employ for over five years and had recently been laid up as the result of an accident)appears to have been unable to stand the strain, for on the morning of the 29th December he committed suicide. He left awidow and a son aged 17, who is earning 15/- per week. The widow has no other source of income. The Owners considerthe Case a very sad one and ask the Committee of the Association if they can do anything for the dependants. The Committeedecided to make an ex gratia payment of £25 if the owners would contribute a similar amount. The Workmen’sCompensation Act did not stretch to covering a death through such hardships and resultant sicknesses.

In hard times the pooling agreement was under pressure following the Poleric incident. Built in 1900, the shiphad changed hands several times before coming into the Ownership of Bank Line Ltd, a member of the StandardClub. Although she had undergone an extensive overhaul in March 1920, including installation of new boilers,she developed persistent engine trouble. In September she loaded a cargo of jute in Calcutta for delivery atBoston and New York. During heavy January weather she put into the Azores for temporary repairs. After adelay of six weeks, she was due to set sail when three consecutive fires broke out. They destroyed some of thecargo, the rest was damaged in fire-fighting operations and the voyage had to be abandoned. The cargo ownersbrought an action in the Eastern District Court of Virginia on the ground that the ship was unseaworthy, claim-ing damages of more than $3 million, equivalent to some £625,000. According to the club, that court was‘renowned for its sympathy with merchants and its antipathy to ship owners’. The sum claimed was enormousto the pool, which covered all claims over £10,000.

The Poleric damage occurred before the Hague Rules. The bill of lading, containing a long list of exceptions,stated ‘steamer is not liable for fire on board in hulk or craft’. It continued: ‘and all the above exceptions are con-ditional on the ship being seaworthy when she sails on a voyage’. The judge considered that these clauses effec-tively waived the statutory exemption from liability for fire damage. On 28 January 1927 he found the ownersliable: That there was some fundamental and serious fault in the ship seems conclusively proven. Just what this fault wasit does not seem necessary to determine. Yet the court held that the owners should have known and should have takeneffective steps, failing which they could not be said to have exercised due diligence to make the ship seaworthy.An appeal was dismissed and the US Supreme Court upheld the decision against the owners, causing great con-cern in the clubs. It was agreed that the pool would, in principle, follow the lead of the holding club unless thegroup had specifically excluded some particular cover. The important principle of group co-operation was thuspreserved. The total amount of the 1929 settlement and the costs incurred was £278,948. 10s. 6d. the largest inthe history of P & I clubs. The UK Club’s proportion, at £65,085. 18s. 9d., was just over 23 per cent (the samepercentage as in 1994), for which it was necessary to make a special call of 6d. per ton on 1920 members. There

was no doubt that the great majority of claims the club was called upon to meet, both in protection and indem-nity, arose upon voyages to or from the USA and were due to the unusually strict construction placed upon theobligations of a shipowner by the courts in that country.

By the late 1920s it was becoming clear that the original method of funding claims and expenses was unfair.Each shipowner contributed according to the gross tonnage of his ship or fleet irrespective of the type of ship orits voyages. No distinction was made among coasters running shuttle services, refrigerated ships bringing foodfrom the Antipodes, Baltic traders loaded with timber or tankers carrying oil, crude or refined. A fundamentaltechnical change was in process too with the replacement of steamers by specialised motor ships.

Overall, the mutual insurance principle was no longer being adhered to as some owners were subsidising oth-ers exposed to greater risks. To take account of shipping having become more international and more specialised,a change from gross tonnage to contributing ton was introduced. The contributing tonnage was arrived at eitherby adding a surcharge or deducting a rebate according to various factors affecting risk. These included the extentof the cover, the type of ship and its size, the trade, national laws on crew liabilities, and the owner’s claimsrecord. Manual records served only for simple analysis but they were a start in reforming the system. Not allowners took to it, some claiming a special relationship with the club managers, sometimes even harking back tothe previous century’s practice of making a call only when a claim arose. It was fitting that the change was madeby the UK Club, which from 1929, with an entered protecting tonnage of 5,175,214 and indemnity of 4,963,809,reckoned it was ‘about the largest of its kind’. By 1933 it was paying nearly 28 per cent of pool claims, the samepercentage, as it was when the pool agreement was drawn up in 1899.

Following the Wall Street crash of 1929, business fell off sharply, and many ships traded at a loss or were laidup. Tramp owners in particular either cancelled their club membership or, more often, continued P & I coverwith nominal premiums. When calls were overdue, settlement of outstanding claims was withheld. Devaluationof sterling by more than a quarter from $4.86 when the United Kingdom left the gold standard on 21 September1931 made a marginal difference to the shipping industry. In October 1932 the managers of the UK Club can-vassed British shipowners on the possible re-formation of a mutual hull and machinery club, given up in 1896.The difference now was that the underwriting was to be based above all on a five-year record so that the riskcould be rated. The minimum support of £20,000,000 was not forthcoming for a start on 20 February 1933 so thescheme came to nothing.

Club income was reduced during the depression, so claims were carefully scrutinised. In hard times there werealways chancers ready to try and benefit from insurance pay-outs. This occurred, for instance, on stevedoreindemnities in Spain and Portugal. In mid-1933 the committee agreed to discontinue the practice of granting lettersof indemnity to Owners trading to these ports as soon as possible owing to the serious number of claims and general abuseby labourers, provided other Associations agree to do likewise.

In 1935 Public Law No. 391 increased the potential liabilities of shipowners trading in US waters, especiallyfor loss of life and personal injuries. That same year the clubs collectively urged owners to refuse a clause inRussian charters providing for arbitration in Moscow, where ‘it is at all times extremely difficult to obtain prop-er representation or attendance of witnesses without which cases cannot properly be dealt with.’

The club also drew members’ attention to the need for careful navigation where there were specific risks suchas the seasonal destruction of fishing nets in the Rivers Tyne and Wear, where there were about 100 boats oper-ating under the watchful eye of the Tyne and District Fishermen’s Protection Association. Claims in past yearshad ‘amounted in the aggregate to no inconsiderable sum’. Sixty years after the foundation of the club there was

still a strong North-East of England influence on it.

The depression was at its deepest in 1933, marked by rule changes permitting the return of calls at 60 and 90per cent for laid-up ships. The emphasis was on maintaining the size of the club. Entered tonnage was notmarkedly down, at 5,133,492 in the protecting club and 4,814,558 in indemnity, both representing reductions offar less than 1 per cent over the 1929 peak. The depression did not really begin to lift until 1936, when the annu-al report sounded an optimistic note for the first time in the decade: It might well be said of shipping in 1936‘Thanks to famine and war, quite a good year.’ And this would be partly true. The closing months of the year brought aremarkable change in conditions; freights in many trades mounting for one period to almost double the level of twelve monthsearlier. It would be tempting to attribute this transformation to the co-operation of shipowners of the world through the TrampShipping Administrative Committee, but, valuable as that committee’s work has been, they would be the first to acknowl-edge that true revival is largely due to forces outside the industry. Shipping has been clearly shown as the handmaid of thecommodity market. When commodities are in demand, freights rise in sympathy. When the markets falter, at once freightrates respond with a fall.

For some months the demand for tonnage has exceeded the supply by that narrow margin which produces a buoyant freightmarket. What are the causes of this? One factor is the long-deferred restoration of stocks of the principal commodities bycountries which have for years been drawing on their reserves. Concurrently with this are working the forces attributed tofamine and war. Poor wheat crops in Europe and drought in the maize areas of the United States have called for shipmentsover long distances with correspondingly increased employment of tonnage. The invasion of Abyssinia (and to a lesser extentthe civil strife in Spain) not only created a demand for cargoes for war purposes, but withdrew supplies of tonnage fromworld competition in their customary hunting grounds. More than this in their sustained effect has been the re-armamentprogrammes (including the storing of food stuff and other raw materials) by Britain and other countries.

It did not last. The year 1937was one of contrasts: Commodityprices have fluctuated, sometimesvio1ently, and comparatively fewtrades appear to work to a long dis-tance plan for supplying the needs oftheir customers. The variations inshipping freights, which naturallyrise or fall in sympathy with thecommodity markets, are too wellknown to be remarked, but it may bementioned that the rate for grainfrom the River Parana to UK portsvaried between 24/6d and 39/- perton during the twelve months.Freights on coal cargoes from theTyne to Genoa touched 12/9d. in August/September, but stood at 6/6d. towards the close of the year, and dropped again to6/- in January 1938. On the debit side there was the increasing cost of Greek sickness and injury claims. Greekmaritime and workmen’s compensation laws were ‘unduly generous as compared with similar British laws’.Moreover, almost any case of natural illness stood a good chance of coming within the scope of the Act, provid-ed the claimant could establish some connection, however remote, between an illness and conditions of

The Theofano Livanos, built in 1937, was a typical ‘tween deck coal-burningsteamship entered between the wars by the Stavros Livanos Group

employment on board ship. Members hardly needed reminding of ‘the activity and ingenuity of speculativelawyers who find little difficulty in obtaining evidence of the “exceptional and abnormal conditions of work”’.It became necessary to exclude claims relating to diseases of the lungs and heart. Tuberculosis frequentlyoccurred in the ‘unfit lists’ of Greek seamen circulated privately and confidentially so that masters did notengage them and thus incur further liabilities. In Britain, the club contributed to the National Council forCombating Venereal Disease.

In 1939, when Britain was again at war, the UK Club was more international than it had been in 1919. Itsunderlying character was changing. The membership was still predominantly British, about 55 per cent by num-bers of ships, but there was a strong US presence, 12 per cent, and Greek, nearly 10 per cent. One of the direc-tors, Basil Mavroleon, elected in 1938, was Greek-born but sat as a representative of Tower Steamship Company,

At the trials of the Elias G. Kulukundis in 1938 the family gathering includes Basil Mavroleon (front row, thirdfrom the left), the first Greek to be elected a director of the UK Club. Miles Kulukundis’s uncle, Manuel E.

Kulukundis (front row, tenth from the left), is pictured in the group. Others include George E. Kulukundis (backrow, third from the left), Nicholas B. Rethymnis (front row, seventh from the left), John Kulukundis (right of the

group) and A.G. Pappadakis (fourth from the right of the group, facing camera).

registered in London. There were also ships entered from Finland, Norway and Yugoslavia, yet the prevailingattitude, as expressed in the summary cover of the rule book, was:

The Association, in cases of undue interference abroad with Shipowners’ rights, intervenes to advise Members, and whennecessary invokes the aid of His Majesty’s Government through the medium of the Foreign Office. Britain was still theworld’s greatest maritime country but it had declined relatively, operating little more than a quarter of the worldfleet.

During World War II, when the managers moved mostoperations out of London to escape the blitz, war riskassociations and the government again co-operated inreinsurance schemes. At least during the early months,the period of the ‘phoney’ war, the P & I club tried to con-tinue as normally as possible, though payment of out-standing claims was suspended. For example, on 3September, the day war broke out, a lawsuit on a Germanship was pending in the Dutch courts. The case was con-tinued by instructing lawyers via neutral Lisbon. Againin the Netherlands, a Swiss-owned ship was detained bythe occupying forces, who released it on condition that itwas transferred to the Swiss flag, which had never beforebeen used for ocean shipping. As a result the St Cerguebecame the first ship in the newly formed Swiss merchantmarine and its ‘wheat’ cargoes were often equipment ofvalue to the Allied war effort. In many instances the tal-lying of cargoes was reduced to a single point and alsobecame unreliable, ‘the work being done by inexperi-enced and otherwise unsatisfactory tallymen’, so suchclaims, on which the clubs had to adjudicate, could not bedealt with on normal lines. The rationing during andafter the war of essential commodities such as food andclothing created a ‘black market’ demand, often fulfilledon the quayside. In hindsight, it was observed that ‘pil-ferage was not infrequently found attributable to mem-bers of the crew.’

Discussions on tallying of government cargoes were to continue after the war, a major issue being the point atwhich tallies were taken for the purpose of determining the quantity discharged from a ship. At a number ofports, of which Liverpool was the chief, no tally was taken ex-ship of most commodities but the goods were han-dled by master porters or other delivery organisations. The goods were stored on a quay or in a shed and wereonly tallied upon delivery to the consignee, which could take place days, and even weeks, after actual dischargefrom the ship. A number of owners refused to recognise such tallies as determining shortages for which theycould be held responsible. On the other hand, the importing departments found the position intolerable as theywere thereby deprived of any chance of recovering from owners or any other custodian of the goods. Owners feltobliged to accept these tallies as determining their liability, but many insisted that ex-ship or landing tallies

Stavros Livanos from Chios, founder of the StavrosLivanos Group. He was a director of the club from

1959 to 1960.

should be taken. The club fully supported that view. So excessive were the shortages in meat cargoes dischargedat Glasgow in 1950 a double check was introduced, from a ship’s slings to bogie alongside and another checkfrom bogie to van. A system of ‘snap checks’ was instituted at the Port of London, with considerable success.

A similar problem occurred post-war in the export from the UK of dutiable goods such as whisky and tobac-co, where British customs duty was payable on any part of the goods not delivered at the port of destination.Many such claims were enforced against whisky and gin shippers who, in turn, claimed from shipowners. Theclubs felt that the solution of the complex problem lay not with them but with the members’ shipping confer-ence.

During the war new scales of compensation for loss of crews’ personal effects, instruments and tools throughmarine, as distinct from war, perils had to be agreed. Rising claims on loss of life and personal injury were alsoexperienced and in wartime conditions, with ships turning round as fast as possible, lawyers often found it hard-er to obtain mitigating evidence.

The heroic salvage efforts of the crew of the San Demetrio, who were awarded £14,700,were vividly re-created in the 1943 film.

A case that made exciting reading and became the heroic subject of a film was the San Demetrio. This Britishtanker, laden with a full cargo of some 11,200 tons of petrol, caught fire after being shelled in an Atlantic con-voy in November 1940 by an enemy warship. Under orders from the master, the ship was abandoned, the crewleaving in three lifeboats. Two days later, when the ship was still on fire, the occupants of one lifeboat returnedand, with considerable difficulty, boarded her. Although she was in a critical condition, without wireless, steamsteering gear or navigation instruments, and there was a danger of explosion, the crew extinguished the fires andin six days of heavy weather brought her 700 miles to safety in Ireland. Most of her cargo was intact. In theAdmiralty Court, it was held that 15 members of the crew and the representatives of a greaser who died wereentitled to an award in respect of the salvage of their own ship, which otherwise would have become a total loss.Represented by Dawson Miller’s younger brother Cyril, they received a total of £14,700 from the owners, theEagle Oil & Shipping Company, against salved values of £300,000.

As in World War I there was an increase in collisions, especially in convoys, which single ships were supposedto steer clear of. For instance, on I December 1942 the Ioannis P.. Goulandris, in convoy between Norfolk,Virginia, and New York, collided with the Intrepido and sank. Although it appeared that the total loss was causedby the negligent navigation of the Intrepido, under US law the exact apportionment of blame was not a materialconsideration. If both ships were partly responsible for the incident then they were regarded as equally at fault.Eventually, to avoid the heavy costs of collision litigation, the matter was settled on the basis of the Intrepidobeing 57.9 per cent to blame and the Ioannis P. Goulandris 42.1 per cent to blame. Some cases were not settleduntil a few years after the war.

In 1943, as part of the Allied build-up to the invasion of Europe, anAnglo-American knock-for-knockagreement was signed. The agree-ment provided that in any collisioninvolving, on the one hand, anyBritish requisitioned ship and, onthe other, either a Crown ship or anAmerican government ship, or anAmerican requisitioned ship, thequestion of liability should be set-tled on the basis that there was nofault, and the damages should liewhere they fell. It also provided forsimilar settlements in collisionsbetween two or more American req-uisitioned ships, but not betweentwo or more British requisitionedships. Where damage to cargo result-ed from collision, the owners thereofwere to receive 50 per cent of theirdamages from the non-carrying shipor ships.

The Dionyssios Stathatos was in collision with the Gotenhof in the KielCanal in 1938. The case could not be settled until after World War II.

After the war, initial emphasis was on business as usual, getting back to the peace that people had known,renewing contacts and making new ones. In that spirit, after a decent interval, pre-war claims held in suspensein London were paid out to former enemies. A case in point was the collision that had occurred in the Kiel Canalin 1938 between the Dionyssios Stathatos and the Gotenhof. While the Gotenhof was lying at dolphins waiting toproceed, the Dionyssios Stathatos joined her but was caught by the wind and swung round. Her propeller piercedthe Gotenhof’s hull in several places, causing her to sink. Liability was disputed but, not surprisingly, the Germancourts placed all the blame on the Greek ship. The case could not be concluded until after the war. At the endof 1946 £8,000 was paid on account and the balance of the club’s proportion, a little over £1,718, in 1948.

There were other cases. The mutual principle had survived six years of hostilities.

CHAPTER 6

GROWING

Marseilles

SUPERFICIALLY, in the aftermath of World War II the state of the shipping industry was similar to that atthe end of World War I. Tonnage had been lost. Many more merchant seamen had given their lives. There wasa huge demand for shipping to make good the dislocations of a world war and to rebuild economies for peace.Yet shipowners who looked back to the previous peace could have only a cautious optimism. The 1919 boom hadsoon been followed by poorer trading, when there were shrewd bargains to be had in buying ships at fractionsof their post-war peak prices. After 1945 history was not to repeat itself; significant differences were to emerge.Prosperity was to endure for longer than those with inter-war memories had expected, lasting for 12 years and,in particular markets, with minor interruptions, for a total of almost 30 years. Localised wars such as the Korean(1950-3) and the six-day Arab-Israeli War (1967) gave temporary boosts to shipping, raising freight rates, and theshort-lived Suez campaign of 1956, which closed the Canal until April 1957, stimulated technical advances. Thelonger sea route round the Cape of Good Hope meant that, to carry freight economically, larger ships were need-ed. The most noticeable were oil tankers focusing on the Middle East and bulk carriers replacing old trampships. On the major sea routes passenger liners yielded quickly to competition from jet aircraft, which reducedjourney times from days to little more than equivalent hours. In 1958 for the first time more passengers crossedthe Atlantic by air than by sea. Thirteen years previously, when airlines for peacetime purposes were being start-ed by people with wartime flying experience, a number approached the club for cover but the conclusion of astudy was that there were insufficient airlines and an inadequate potential premium to provide the necessaryspread for the club.

Profounder political changes were in process. British overseas possessions were the fruits of sea power in theeighteenth and nineteenth centuries. Now the possessions and the merchant fleet were both in decline. In 1948British-owned tonnage was 22.4 per cent of world tonnage; by 1966 it would be less than 10 per cent. Indianindependence, achieved in 1947, led to protectionism. What had been a major market within the Empire becamea preserve for local ships, to the detriment of several British lines. On the partition of the subcontinent therewere also local difficulties between India and Pakistan that reached down to the religions of crews, necessitatingthe appointment and repatriation of substitutes. The upsurge of nationalism in the 1950s and 1960s resulted inthe creation of independent nations that formed national shipping lines as a badge of statehood and encouragedlocal entrepreneurs. In established countries sentiment, legislation, commerce and subsidies encouraged dis-crimination in favour of the national flag. Post-war, the USA overtook the UK as the world’s leading maritimenation and by the late 1950s nearly all the other major nations had increased their tonnage. A feature in the newworld pattern was the growth in the number of ships registered for financial or political reasons under flags ofconvenience, the main ones being Panama, Liberia and Honduras. The cumulative effect was that Britishshipowners, in hindsight accused of failing to adapt to change, were going out of business and their contribu-tions were no longer available to the club.

To survive and grow, the UK Club had to recognise the changed status and role of the UK in the world andact accordingly. A specific occasion was the September 1949 devaluation of sterling by over 30 per cent, from$4.03 to $2.80, which prompted a circular the following month: We feel an explanation is necessary in connectionwith the attached Call note on which the Sterling amount bas been converted into U.S. Currency at a rate of $4.03.

You will appreciate that in a mutual Association... the ultimate aim is to balance as nearly as possible the Calls drawnwith the claims paid, and no question of profit arises.

For your convenience, it was agreed to accept payment of Calls and settlement of claims in U.S. Currency, and for thepurpose of dealing with such receipts and payments, this Association maintains a Dollar Fund.

The immediate result of the recent large reduction in the exchange rate is that if, on the remaining two instalments of Callsfor the current year, conversion of the Sterling Calls into terms off Dollars were made at the new rate of $2.80, thoseMembers paying Calls in Dollars would be making a considerable saving in their contributions, but on the other hand therewould be no corresponding reduction in the Dollar amount of claims to be paid. This, we think you will agree, is not a sit-uation in which a mutual Association should be placed, as it would ultimately prove necessary to Call on all theAssociation’s Members to make good the loss.

In using the rate of conversion prior to 19tb September, 1949, those Members contributing in Dollars will not be payingany more than they paid on the previous quarterly Calls for 1949, and we, the Managers, hope therefore that you will con-sider this request as not unreasonable and that we may look to you for your co-operation. The main effects of devalua-tion on the shipping industry were increases in the price of oil, thus raising operating costs, and a boost toBritish exports in general. A particular problem arose with the carriage of motor cars without any case or crate.More cars were now being carried unboxed than boxed. Minor damage such as scratches or small dents was notconsidered a liability of the shipowner, but unreasonable claims were nevertheless submitted. The most pettywas a bill totalling $92 for damage to 24 cars, one of them allegedly damaged by bird lime, hardly the responsi-bility of the shipowner. There were to be bigger problems in the mass transport of cars as trade grew.

In their report for the year ended 20 February 1952 the directors were optimistic: The economic situation wasmuch affected by rearmament, but this was only partly responsible for a considerable expansion of trade. It might almost besaid that the needs of the world’s expanding population for goods and services broke through many of the barriers to trade,so that new or increased currents of business flowed from continent to continent. For example, primary products from Chinawere shipped to both Eastern and Western Europe on a considerable scale, and very large quantities of cement (nowadaysa basic ingredient of industrial and social progress) were carried from Europe to West Africa, the Middle East and SouthAmerica. ... For much of the year under review the demand for shipping forced freights up to levels, which even shipownerssaid were foolishly high.

To match the growth of business, further correspondents were appointed so that masters and agents wouldhave a lawyer or other expert to consult in the event of trouble. Appointments were made in Saigon, Djakarta,Semarang, Surabaya, Aden, Abo, Tampico, Vera Cruz and Madeira. Territories closer to home merited personalattention, as became apparent to Michael Miller, a great grandson of Thomas Miller, who joined the managersin 1955: It was the club that was recruiting rather than people coming to the club. Undeniably it was a mixture of both butit was John Miller, Sidney Fowler, Michael Summerskill, John Shearer and myself who insisted that we should activelyrecruit and no longer say: ‘London is the insurance capital of the world. If you want to talk about your insurance you cometo London to do it.’ We used to go out and meet them. It was the younger partners who were particularly anxious to makethe new approach. We felt it was only politeness to take the trouble to travel to see these people. It was not a very difficultthing to do with the airlines expanding ever further and further and introducing new types of planes and equipment. Itbecame just like getting on a bus to go to work, a bit more expensive perhaps but the principle was the same. This was great-ly welcomed by the foreign shipowners, who took it entirely in the spirit in which it was offered. The managers also hada collective vested interest in adding tonnage because their income went up in proportion. Members paid onepenny per ton in each club to meet the expenses of the managers and their remuneration.

Willingness to spread the word of P & I had its amusing moments. When a bowler-hatted Englishman com-plete with rolled umbrella visited Germany, local children were fascinated by his foreign headgear and skippedbehind him as though he were the Pied Piper of Hamelin. In the 1950s Germany was the first major nation tocome back into the club, followed by France. The first European director to be elected was French, P. L.Douffiagues of Worms et Cie in 1954, and the second was German, Dr H.K.J. Rosenberg of Hamburg-Amerika

Line, who took his place the following year.

The benefits of P & I were often brought to the notice of owners by news spreading through the shippingworld. Incidents affecting a particular area or competitor were sharp reminders of what could happen and theextent of liabilities. For example, during the late 1940s there were cases of damage to jetties and harbours in theCaribbean and Venezuela because dolphins built to hold the weight of 3,000-ton tankers were being used byships of 10,000-12,000 tons. An explanation of increasingly frequent collisions was the failure of engineers tocarry out orders from the bridge promptly and correctly when a ship was moving in dock or narrow waters. Thiswas attributed to the general shortage of marine engineers, many of them having left the sea for what seemedmore attractive or better-paid posts ashore, putting behind them the ill-feelings arising from the dangers anddiscomforts of a long war. By the mid-1950s there were fewer collisions, navigation having been made safer bythe use of radar, though it was also blamed for ‘radar-assisted’ collisions, The better experience was reflected inthe fall of one-quarter in collision liability claims, which in 1930 accounted for about 25 per cent of protectionclaims and now amounted to less than 8 per cent.

Over 700 people were killed and the port area devastated when the Grandcamp, laden with nitrate and cotton, exploded at Texas City, Texas on 19 April 1947.

Inset: Some who escaped the disaster prayed in a Catholic church wrecked in the explosion.

A case that occurred in Australia in 1951 was to take 10 years to be finally decided, making legal history. Whilethe tanker Wagon Mound was taking on bunker oil in Sydney, some of the fuel spilled into the harbour. Reassuredby the ship agent that there was no danger of the oil on the water catching alight, the manager of a nearby ship-yard had welding work resumed. However, molten metal set the spilled oil alight causing some £200,000 worthof damage to the yard and two ships under repair. The shipyard sued the shipowner in both negligence and nui-sance.

The Supreme Court of New South Wales, bound by in re Polemis, then the leading authority on remoteness ofdamage in negligence, held that the shipowner was liable for all direct consequences of his negligence, whetheror not those consequences were reasonably foreseeable. As the fire was a direct but not foreseeable consequenceof the spillage, the shipowner was liable in negligence. The club appealed against the judgment, finally takingits case to the Privy Council in London, which overruled in re Polemis. The Privy Council held that the sole testof remoteness was whether the damage ought to have been foreseen by a reasonable man, dismissed the actionfor negligence and remitted the action for nuisance to the Supreme Court of New South Wales.

A separate action was brought by the owners of the two fire-damaged ships, who also sued the shipowners innegligence and nuisance. The Supreme Court of New South Wales found that the fire was not a foreseeable resultof the spillage and, applying the decision of the Privy Council on Wagon Mound, dismissed the action for negli-gence. The same court though held that in nuisance all damage that was a direct consequence of the nuisancewas actionable, whether or not it was reasonably foreseeable. The Privy Council decided that there was a singlerule for negligence and nuisance: only damage that was reasonably foreseeable was actionable. In what seemeda bizarre end to the 10-year saga, the Privy Council reversed the finding of the Australian court that the fire wasnot reasonably foreseeable. Thus the owners of the Wagon Mound were liable in negligence for the damage to thetwo ships under repair.

In 1952 the managers reviewed therecords of all members with a view to see-ing that the principle of mutuality wasapplied to all: Obviously this cannot be doneif all pay the same calls year in and year out.The general principle, which has been fol-lowed, is that each member should pay calls,which cover the ordinary run of claims, whichmay be expected on the basis of experience,with a moderate surplus for the Association’sgeneral funds to meet claims of a large or evencatastrophic nature. Such large claims are ofcourse not taken into account when consider-ing what is the usual run of claims For themember in question. In the course of theseadjustments a number of members have beenallowed rebates on the standard rate of call,while others have had to be asked to pay extracalls in order to preserve mutuality.

The basic rate of calls as laid down in the

The Ellin and the Claiborne collided on 28 November 1957 in thelower Mississippi River. One of the navigators failed to abide by thelocal custom of the upbound ship taking the ‘point’ and the down-

ward ship taking the ‘bend’.

Rules is being altered in 1953, but only as regards the division between Protecting and Indemnity Clubs. Protecting claimshave been increasing slightly in recent years, whereas Indemnity claims have shown a definite decrease. As a result of thisit has been decided that instead of the advance calls being three shillings per ton gross per annum in each Club, three shillingsand six pence per ton will be called in the Protecting Club and two shillings and sixpence in the Indemnity Club.

There were two changes in the methods of handling claims. From 1948 it is apparent that a distinction wasdrawn between ‘undisputed claims’ and ‘claims for consideration and report’. ‘Undisputed claims’ were handled,adjusted and paid by the managers, who reported them to the board. They advised members on ‘claims for con-sideration and report’, suggesting either court action or settlement, with the proviso that members could not bereimbursed unless the board passed the claims. This arrangement points to the fact that the managers had ashrewd idea of the weight of individual cases and their likely reception by the board.

In 1955 finer distinctions were drawn, with claims being divided into three categories. First were claims ofwhatever size that could only be paid by the club with the authority of the directors. Second were claims wherethere was no doubt about the club’s liability. If less than £2,000, the managers could pay them without referenceto the board; above £2,000 they had to be passed by the board. At that time compensation to the widow of astevedore killed in a London dock accident usually amounted to £2,000 or less. In the USA it could be seven oreight times as much. The third category was pool claims. Irrespective of the amount, these could be paid pro-vided the board of the club in which the ship was entered had passed them. Later, the managers’ authority togive guarantees was confirmed, even though most of them were well above £2,000. They often had to be givenquickly, enabling an arrested ship to sail and being reported to the board as ‘the advance list’. In short, in a peri-od of expanding business, the managers were given more day-to-day powers and did not have to wait as muchas two months for the next board meeting.

Expansion presented personnel problems, recalled by Michael Miller: We found it difficult to find the right kindof staff, right in the sense of temperament rather than intelligence. Some people just like ships. They have the right attitudein dealing with people overseas and others whose language and culture they are not necessarily accustomed to. But certain-ly at the time, neither at the Bar nor for solicitors was there any training given in Admiralty, maritime or commercial law.Legal training by itself was insufficient. A prime requirement was an ability to get on with different people. Inmany parts of the world shipowning companies were still run by individuals and so personal relationships werecrucial in securing and maintaining their P & I business. For that reason a manager typically had a clutch ofapparently unrelated territories to look after. If the chemistry between him and somebody in a fast-growing mar-itime nation worked then there was no point in reallocating responsibility for the sake of administrative tidinessin the office.

Not that owner always had a relationship with just one club. They sometimes split their fleet between two ormore clubs and saw how each performed. Splitting could be by groups of ships or within the tonnage of an indi-vidual ship. Such were the relationships between clubs that this did not cause a problem on settling claims.These were split by percentage proportions and paid on the principle that one club was usually the leader andthe other agreed to follow. Any alteration to that arrangement had to come after the claim, dealing with thefuture and not with the past.

Halfway through the century, as in 1899, it became apparent to a far-sighted few that new arrangements hadto be made for large liabilities likely in the future. Since 1899 clubs in the London Group had been mutuallyprotected by the pooling agreement. Under this arrangement each club retained the first part of any claim, theexcess of that sum being borne by all the clubs in the group, including that in which the ship was entered, rated

according to the total tonnage entered in each club respectively

To date, although there had been many pool claims, nothing untoward had happened to upset the arrange-ment. The retention agreed in 1899 remained at £10,000 until 20 February 1953, when it was raised to £20,000.The potential threat came from a catastrophe or, worse still, a series of catastrophes. To cover them, a reinsur-ance of the pooling agreement was needed. Not everybody agreed. In the UK Club, the largest club, there was afamily difference of opinion. Sir Peter Miller hands down the story: Dawson Miller did not believe that the clubs asa pool needed reinsurance. Cyril Miller, my father, did believe that the clubs as a whole needed reinsurance. It is perhapstherefore significant that the date of the first placing of the reinsurance contract was during Ascot week and it is also signif-icant that my uncle, Dawson Miller, was a very keen racing man and horse owner and was away at Ascot. It was alwayssaid to me and I believe it is probably correct that father, who was determined that it should be reinsured, whizzed round tothe other group managers and said ‘I think we should do this,’ and they all said ‘Yes, I couldn’t agree more.’ That is whythe first reinsurance contract was placed on 20 June 1951 to next 20 February. The basis of the general excess loss rein-surance contract for the International Group was a policy of £1,500,000 each ship each accident in excess of thegroup’s overall retention of £275,000 each ship each accident. Claims experience in 1950 showed that on onlyone occasion in the history of the clubs would a claim have come anywhere near the retention of the LondonGroup and at no time would that retention ever have been exceeded. The single contract, often talked of as thelargest reinsurance contract in the world, was handled by Thos R. Miller & Son (Insurance), which grew out ofthe Miller partnership and from 1955 became a completely separate legal entity, later to be renamed the MillerInsurance Group. Its current managing director Peter Stone captures the character of the reinsurance contract:From 1951 to 1970 it was placed exclusively in London. A contract dealing mostly with loss of life and damage to proper-ty ashore, it was placed in the marine market in Lloyd’s and in the London companies, with extra capacity being soughtfrom the non-marine market to cover loss of life risks. It is a risk that is peculiarly suited to the way that London has doneits business. It is a transfer of risk. It is very difficult to assess actuarially what is going to happen; therefore there is a highelement of hazard in it. Most of the world’s insurance markets look at a risk of that kind and say we can’t formulate anytrend or pattern and we cannot therefore work out in our own minds what we think the right price is and we don’t want tobecome involved. London, on the other hand, being much more of risk-taking, gambling sort of industry, was prepared toprovide the cover, and therefore there has never been less than 75 per cent of the cover placed in this country.

A colleague, Iain Webb-Wilson, adds: In the cover of an average ship, you have first the hull and machinery insur-ance, then the insurance of the cargo the ship carries and, third, an insurance of the liabilities that it incurs. One and two,hull and machinery and cargo, are coped with by the commercial insurance markets and the third, the liabilities, are han-dled by the clubs. For the hulls and the cargo there are hundreds and thousands of policies written by the insurance marketsall round the world. There is only one commercial policy written to cover the reinsurance of the clubs.

The reinsurance contract is a huge co-operation between the P & I world and the Lloyd’s and London market and indeedelsewhere overseas. It is extremely important to the clubs that they work hand in hand. Lloyd’s could write primary P & Iif it wished to, but it does not have the organisation for claims handing and giving Guarantees. It therefore chooses not tofor very good and sound business reasons, and instead takes the major burden of the catastrophe risk from the clubs by wayof reinsurance. The reinsurance contract really shows the commercial market and the P & I world working in harmony.

That Cyril Miller, who had been for many years a practicing lawyer, was justified in thinking the catastropheelement in P & I insurance would emerge and that there would be great risks on an unlimited policy was shownfive years later. On the night of 25 July 1956 off Nantucket Island the Andrea Doria, flagship of the Italia Line,collided with another passenger liner, the slower, older Swedish American Stockholm. Both ships were equippedwith radar but the Andrea Doria was travelling in dense summer fog while the Stockholm was converging on her

in moonlight. Their combined speed was nearly 40 knots. The sharp, overhanging bow of the 12,644-tonStockholm hit the 29,000-ton Andrea Doria amidships, cutting through the starboard hull plates below the bridge,buckling and tearing metal and thrusting into cabins, crushing their occupants. Although her hull was dividedinto 11 watertight compartments, any two of which according to the designers could be flooded without affect-ing stability, the flooding of one caused a heavy list. Lifeboats on the ‘up’ side were disabled while furniture, fit-tings and baggage fell out of the rent in the ‘down’ side and water poured in through some of the cabin port-holes. Before the Andrea Doria sank the following morning most of the passengers were rescued, but 47 passen-gers and crew lost their lives and five of the crew of the Stockholm.

A major claim, it was settled betweenthe Swedes and the Italians in Londonwith the help of their respective clubs.American lawyers, not invited to partici-pate, threatened to sue for loss of feeincome. The overall cost of the claim tothe London Group was £650,000. Onlythe previous January, before there hadbeen any claim under the reinsurancecontract, the group had discussed thequestion of limiting cover, concludingthat the important principle of unlimitedcover should be maintained. After theAndrea Doria catastrophe the premium onthe general excess loss reinsurance con-tract rose by an unprecedented 28 percent.

The late 1950s was a period of highclaims. A particularly unsatisfactory areawas the American Ocean fixed premiumbusiness, preferred by owners therebecause, unlike mutual terms, it offered acertainty of insurance costs. Although, toprevent ruinous competition, it had beenoperated as a pool by five clubs since 1941 and every effort was made to operate it profitably, the underwritingaccounts were continuously unsatisfactory. From the end of 1957 that business was therefore discontinued andexcluded from the pooling agreement, but the Canadian Ocean and the American and Canadian Lake businesswere retained.

In the four years before the protecting and indemnity clubs were amalgamated on 20 February 1959 their com-bined deficit was £1,257,607, of which 73 per cent was attributable to the protecting club. Supplementary callsin later years were necessary. For instance, in 1962 the managers were authorised to make a supplementary callon members for the 1959 club year of 83.3 per cent of the advance calls. The situation in the 1960s, when freightrates were low, was not going to get any easier.

The Andrea Doria, entered in the Standard Club, sinks after the colli-sion with the Stockholm off Nantucket Island, 25 July 1956. The over-

all cost of the claims was £650,000.

CHAPTER 7

CLAIMING

Genoa

POST-WAR prosperity brought a growth of trade, which involved a concomitant increase in claims for short-age, pilferage and damage to cargo. In 1953 the UK and Standard clubs joined in appointing two officers toinvestigate cargo discrepancies, one in London and the other in Liverpool, which led to the creation in 1954 ofa permanent Dock Security Force. It was much needed. In March 1961 the managers produced a circular: Wewould like to draw to Members’ attention the fact that in 1953 the total amount paid in respect of cargo claims was approx-imately £825,000 which represented little more than 20 per cent of the total amounts paid by the Association. For 1959 itis estimated that including claims not yet settled we would pay £2,250,000 in respect of cargo claims, which will represent37½ per cent of the whole. Owing to the increased burden placed upon shipowners by many recent improved Employers’Liability schemes, it would have been reasonable to anticipate that the cargo proportion would have decreased in the sevenyears 1953 to 1959. Figures indicate that 70 per cent of cargo claims arose in ships trading to and from Northern Europeanports. In an effort to prevent cargo claims Captain E. T.N. Lawrey was retained to advise members. There werespecific problems. In 1962 one of the longest, largest and most complicated cases of cargo damage was conclud-ed. The Ioannis P Goulandris left ports in Bulgaria, Turkey and Greece for the United States in 1940. Her cargoconsisted mostly of tobacco. While she was completing loading in Piraeus the war spread to the Mediterraneanand the Greek government ordered her to sail for America via the Suez Canal and the Cape of Good Hope. Shethen had to put back to Aden with tailshaft trouble, spending 33 days there. Later, she was delayed at Durbanfor 10 days with condenser trouble. Finally, there was spontaneous combustion of the tobacco cargo, and she putinto Bermuda for the fire to be extinguished. She finally arrived at her destination, Norfolk, Virginia, in May1941. The cargo owners, a group of American cigarette manufacturers and their insurers, claimed over $1mil-lion, saying that the ship was unseaworthy when she began her voyage. In an elaborate lawsuit, the club onbehalf of the shipowners collected evidence from 12 countries. With the permission of the Trading with theEnemy Department, arrangements were made through neutral sources to smuggle affidavits and statements outof occupied Bulgaria and occupied Greece to England for despatch to the United States, where a stay of pro-ceedings was granted until after the war. As a result of interest accruing because of the delays, the amountclaimed was almost doubled. The main issue was the condition of the ship’s shafting and stern tube. She hadpassed a special survey at Rotterdam in February 1940, and detailed evidence was given by the owners’ superin-tendent engineer and by a Lloyd’s register surveyor about the steps then taken on the alignment of the shaftingand relining of the stern tube. The ship had traded without any trouble from the shafting and bearings for ninemonths before the voyage. It was suggested on the shipowners’ behalf that grit and sand had entered the sterntube while she was waiting in the Great Bitter Lake for a convoy, the curious feature of the damage to the sterntube lining being that the lignum vitae was more heavily scored and worn in its upper part than in the lowerpart. The judge held that the ship was seaworthy at the start of her voyage. An appeal was taken on certain issuesbut this failed, so that the case was won entirely by the shipowners. Naturally, the legal costs involved wereheavy, about $350,000, and in accordance with the American court rules they were not, except for minor courtcharges, recoverable from the other side. No doubt the real causes of the heating and the fire were the prolon-gation of the voyage through wartime conditions and the fact that the tobacco had to pass twice through the trop-ics.

There was nothing novel about claims for damaged cargo. From the last quarter of the nineteenth centurythere had been complaints about the quality of chilled and frozen meat carried in refrigerated ships. Onions pre-sented another problem. Some onions, although in apparently satisfactory condition when loaded, were in factnot fit for a sea voyage and were bound to arrive at their destination in a damaged condition. The shipowner wasalmost certain to be blamed unless the stowage and ventilation were perfect. Also affected by ventilation wereiron and steel products, which could rust in transit. Shipowners claimed that damage frequently arose from

defective galvanising. When goods were shipped during very cold weather and the voyage was through the trop-ics, humid air condensed on the cold galvanised iron. Salt in the sea atmosphere tended to increase the damage.If damage was due to ordinary sweating then it was not the fault of the ship and there was no liability involved.Liability arose if cans were stored in the vicinity of cargo such as barrels of acetic acid, which could give offfumes causing rust.

Damage by taint affected perishable cargoes such as flour, eggs and other provisions. Items as varied asoranges, apples, oak lumber and fuel oil were blamed. In the 1920s, with the adoption of motor engines and oilfuel ships, there were numerous claims for cargo damaged by oil and oil taint. An obvious remedy was not tostow perishable cargo near goods likely to give off an odour. For instance, it was inadvisable to carry flour in a‘tween deck with oranges in the hold below or in the upper ‘tween deck. Perishable cargo such as cotton seedcake and/or groundnuts should not be loaded on top of wet manganese ore, even if separated by ample dunnage.Another important separation was between castor seeds and edible grain. Castor seeds contain a very poisonouselement. If at any time they were stowed close to edible grain without very efficient separation, the two were like-ly to become mixed and for practical purposes the edible grain became worthless.

In Cuba in the 1930s there was a practice of marking parcels of sugar in stowage by painting a line across thebags as they lay in the hold, thus damaging the foodstuff. In West Africa leakage from barrels of palm oil spoiltother cargo. An ever increasing problem was in the transport of cars. The 1936 annual report commented: Thepractice of shipping motor cars uncrated, and indeed in a completely unprotected condition is becoming a common one.When shipowners are persuaded to accept motor cars shipped in this manner, it must be realised that the shippers have agreat deal of expense, while the risk of damage to the cars is seriously increased. Many claims have been put forward againstshipowners for damage to unprotected motor cars, usually for quite trivial damage, such as dents, scratches, breakage glass,pilferage of radiator caps and other small parts, etc. It is safe to say that practically all these claims would not arise if thecars were properly packed.

There were still problems with specific cargoes in the 1950s and 1960s but the main difference was the vol-umes being carried. In the mid-1950s there was a spate of claims on tainted coffee shipped from various SouthAmerican countries to Germany. While the price of coffee was rising there were relatively few claims, but whenthe coffee market collapsed the number of claims increased. German merchants, who had to appeal to discrimi-nating palates, reckoned that the value of their affected shipments depreciated by 15-20 per cent. Like chilledmeat, unroasted coffee is a sensitive cargo, attracting and retaining other odours. A large case arose through con-tamination by dichlorophenol, a chemical used in weedkillers. It had been carried on the outward journey of theCap Frio from Hamburg and the captain had the hold cleaned in Buenos Aires, satisfying himself that there wasno residual ‘hospital’ smell before proceeding to Santos, Brazil to load some 5,000 bags of coffee. No more thana teaspoonful was enough to contaminate the whole cargo. On behalf of the club an industrial chemist, DrReginald Milton, went to Brazil to study the complete process of growing, testing and transporting coffee. Themain results of the investigations were recommendations that less insecticide be used on the plantations and thatpackaging for dichlorophenol should be in heavy steel drums to be carried below deck, preferably with no othercargo. This method of going back to source and looking at all stages of production and transport were to be fol-lowed for other products. To reduce the general level of cargo claims and help carriers meet only the obligatoryones, an advisory committee of consultants, including a biochemist and the club’s security officer, correspon-dents and surveyors from Amsterdam, Antwerp, Bremen, Hamburg and Rotterdam, was set up to examine gen-eral principles of safe carriage and problems with particular cargoes.

In 1960 club rules were amended to exclude from cover liabilities for nuclear damage caused by nuclear fuels

or radioactive products or waste, other than radioisotopes, carried as cargo in an entered ship. Following tech-nical discussions with the United Kingdom Atomic Energy Authority, the exclusion was modified to allow cer-tain categories of materials with low radioactivity to be covered.

One of the largest groups of cases concernedmaize. David Martin-Clark explains: Theproblem arose early in the 1960s with shipments ofmaize primarily from Argentina but also Brazilinto Western Europe, principally Italy and to alesser extent into Belgium, Holland and Germany.Transport was mainly in Liberty ships from WorldWar II, handy-sized tramps. On destination thesemaize cargoes were turning out with considerablemould damage not only on the surface but also insome cases throughout the cargo. Very heavyclaims were brought by some of the principal grainhouses against the shipping companies involved.The big issue was whether the mould wascaused by the inherent vice of the cargo orwhether it was caused by or exacerbated bythe way in which it had been carried, in par-ticular the way in which it had or had notbeen ventilated during the voyage from South

America to Northern Europe. The club was handling a few hundred cases, the amounts of money totalling £ 1½-2 million. These cases were a major problem and a financial threat to the club.

David Martin-Clark continues: We did a good deal of research on the causes. It was pretty clear we were talking aboutinherent vice of the cargo. Even if the ship’s ventilation had not been good, the most that was likely to produce was a smallamount of surface damage. There was no way in which ventilation or no ventilation blowing gently over the surface of thecargo was going to affect what was going on, say, 10 metres down. That was our basic theme.

We decided we would fight test cases on the issue of inherent vice, where we were helped by a decision in the English courtsin a case involving another club fought on similar issues and won.Of course English precedent was not necessarily going tohelp us in Continental jurisdictions where the bulk of these cases occurred. We bad to become deeply involved in at least theleading cases in Genoa and Naples, Antwerp, Rotterdam and Bremen. In an effort to avoid what might have been justan interchange of expert opinion, the club decided to run through test voyages from the River Plate to WesternEurope, during which it would monitor the build-up of temperature in this cargo. At the same time as it wasfighting the legal battles it was trying to fight the battle of expert opinion. Its findings in Latin America werethat the grain coming into the elevators, at least in that particular season, was probably too wet. It had too higha moisture content to be safely carried without self-heating. The degree of sophistication in the Argentine at thattime was not sufficient to take that moisture out of the crop before it went on hoard the ship. Their drying facil-ities were inadequate to cope with a crop that came in too wet. A similar pattern was also found in Brazil.

It took the club the best part of that decade to see the various cases through the courts. Unfortunately it lostthe leading case in Genoa on technical grounds but then managed to win the leading case in Naples. It won inthe Netherlands, and managed to defeat on technical grounds the leading case in Bremen. At the end of the day

Columns of wet corn in a cargo of maize

the total amounts paid by the club in respect of the cases was something less than 25 per cent of the damagesclaimed. From 20 February 1967 a limit of liability was also applied to war-built ships, £600,000 (or $1,680,000)each accident or series of accidents arising out of one event, or each cargo voyage in a matter of cargo claims.War-built tonnage had deteriorated rapidly.

In 1961 the first report was issued in what was to become a series of Carefully to Carry booklets, a collectionof technical papers on methods of preventing cargo damage. The first included the adequate sep-aration of castor seed from grain and similar foodstuffs; cargoes such as grain and fishmealthat can heat and deteriorate; the stowage of synthetic resin in multi-wall sacks; and mouldformations on chilled beef shipped from Argentina to European ports. Other reports dealtwith ventilation of cargoes, contamination of wood pulp by foreign substances, cannedgoods, insect control, ore concentrates, steel hatch covers, and potatoes. Some of the subjectswere discussed in the shipping and insurance media and attracted international interest, usu-ally favorable; critical comment came from cargo concerns. One specialised, high value cargothat was not the subject of a report was cars. These were now starting to be carried in large num-bers, closely stowed and lashed on artificial decks, early examples of which were prone to collapse.The volume of business now merited permanent arrangements.

The club was able to record in 1963: The steps taken towards reducing cargo claims are bearing fruit. The proportionof cargo damage claims to all claims paid by the club has gone down each year, from 18 per cent of the whole in 1959 to14.7 per cent in 1962. Unfortunately, the same is not true of cargo shortage claims, which have increased from 7 per cent ofall claims in 1959 to 8.4 percent in 1962. In the Carefully to Carry programme the club was accumulating an expert-ise beyond that of individual ship owners, pooling knowledge about their business and providing a service thatwould have been beyond their individual resources. The clubs had a wealth of information that came from theinsurance of ships and the collective experience of shipowners. Exchange of information meant that ownersheard about problems from shipowners who were in other clubs as well. The club became a clearinghouse forproblems that it saw frequently, whereas a shipowner does not expect to have problems and the thought of hisship getting into difficulties does not necessarily occur to him. Managers were guiding their members.

A cause for concern was the rising level of claims for loss of life and personal injury, especially from the USA,where going to law vied with baseball as a national sport. Most of these cases went for trial byjury, which tended to be well disposed towards plaintiffs, not wanting to send them away

empty-handed. Anybody who sued was fairly certain of getting an award and, althoughjudges did give advice on the level of damages, juries were at liberty to ignore it.

The 1953 report of claims paid was acidic: The fact that abuses do exist was strongly indi-cated by a resolution adopted in October 1952 by the Association of the Bar of the city of New

York asking all lawyers in the city to limit the fees they charge in personal injury cases to 35 per centof the amount recovered for clients instead of the now common 50 per cent. This followed a consid-

erable controversy amongst American lawyers which began with adverse comments by an Appeal Courton the growing practice of personal injury lawyers demanding 50 per cent of any recovery. One of the

members of the Bar Association, in the course of the discussion, was reported by the New York HeraldTribune as saying: - ‘This 50 per cent now charged goes to pay fixers, runners and the phony testimony of

Chemical insecticides have made it easier to get rid of pests such as the large grain borer, above, and the mealwormbeetle, left.

doctors. It is indecent, unfair and unprofessiona1. It is not justified and it is high time the profession met the issue.’

Psychologists have now recognized a type of disability they have termed ‘compensation neurosis’. Apparently when a manis convinced that payment of compensation or damages is due to him the mental effect tends to make him feel ill or feel worsethan he actually is. A ship’s Doctor recently wrote: - ‘With the introduction and enormous extension of the laws of compul-sory insurance against accidents all over the world, this illness has spread in such a way that psychologists have felt inducedto dedicate a particular chapter to it. The appearance and course of this illness is strictly connected with the medical-legalside. It is common experience to see how rapidly the morbid signs vanish as soon as the disabled person has received theindemnity. However, even after payment of the indemnity, if recovery is not obtained immediately, the fact cannot be exclud-ed that the same psychological factors continue to act and the subject may also more or less consciously desire a revision ofthe sentence, or an increase of the indemnity already received.’ The UK had to wait another 10 years for attitudes onsuch claims to change. In 1963, after an earlier refusal, the club somewhat reluctantly agreed to follow the leadof other clubs in allowing the extension of their cover to include certain claims by officers’ wives, who took occa-sional voyages with their husbands.

Late on 22 December 1963 fire brokeout in the barber’s shop of the linerLakonia on a Christmas cruise fromSouthampton to Madeira and theCanary Islands. Within 10 minutes ithad spread to the upper deck, whichwas blazing furiously. Off Morocco, theship had to be evacuated. Undertow, itsank. Altogether 908 lives were savedbut 128 passengers and crew died.

John Tilley was one of those whocame into the office that ChristmasDay: Over 600 claims were made forloss of life, personal injury and loss ofeffects. Over500 of them were amicablysettled within 12 months of the acci-dent. Total claims were over £500,000.There was to be a continuing rise in thevolume of personal injury claims.

Cruises, becoming popular, were botha wanted market and unwanted risks.In 1965 the cruise liner Yarmouth Castle, sailing from Miami to Nassau, was gutted by fire and sank within fourhours, the lives of 88 passengers and crew being lost. Although the ship was not entered in the club it produceda landmark legal decision in that, whatever the passenger ticket said, passengers could sue successfully in theUSA because the accident happened within its territorial waters. In 1967 the clubs unanimously agreed thatclaims for the repatriation of passengers when a voyage or cruise was not completed should be excluded fromP & I cover.

Changes were also being made in the club management. In 1959, to spread the risks and for simplicity of

The Eleni K. loaded cargo in Thenavard, South Australia, leaving numberthree hold empty. Soon afterwards cracks appeared in the hull structure

amidships

The front page of the Daily Express, 24 December 1963, recording the fire on the passenger ship Lakonia, inwhich 128 people died.

administration, the protecting and indemnity clubs were merged into a single club. Most members were alreadyin both clubs, only 41 members of the protecting club not being in indemnity and five vice versa. To speed officeprocedures, an electro-mechanical system of record-keeping for each member was introduced, showing premi-ums paid and claims made as well as estimated future calls and claims. When a claim was reported an estimatecould therefore be raised. With experience, the quality of information on individual members improved. In 1961the managers’ authority on paying claims was raised to £5,000. In 1966, following observations by some youngermanagers and a study by management consultants, claims handling was reorganised into syndicates, each dedi-cated to a specific number of owners. Previously the attitude had been that, with the exception of personal injuryclaims, anybody could cope with any P & I claim under the rules. No longer was it possible for anyone personto be up to date with all the individual owners. David Martin-Clark managed the first syndicate: It representedfor the first time a structure that reflected our internal attitudes to the business. We had two choices. We could organise byjunction so that if a claim related to cargo it went to one person, if it was a collision claim it went to a second, if it was apersonal injury it went to a third and so on. I suggested, and those who thought as I did, that it would be better for a num-ber of reasons to have all cases, whatever the type of claim involved, go to the same group of people. This was going to buildmore quickly a better relationship with the shipowners and, in particular, they did not have to introduce themselves and theirship and their fleets and their trading patterns to maybe four or five different people in the office simply according to the typeof casualty they had. They could ring up one or two people who knew them, who knew their fleets, trading patterns and soon, knew the history of their claims. That would immediately mean something to the person in a syndicate.

By making most people in the syndicates generalists you may be losing a specialist edge but to breed generalists is betterthan to breed specialists. If you have a major casualty you can send one person instead of a team of six to deal with it. Mostgeneralists would be sufficiently good to know when it is they need to call in specialists, which is actually comparatively rare.Most cases can be handled perfectly adequately by a good generalist. Being a generalist too offers career opportunities rightthrough the firm to the very top, whereas if you were working in a functional department and you became a very good cargohandler, the} limit of your ambition might be to lead the cargo department. The new system made it easier to identifypatterns and for staff in a syndicate to be familiar with their counterparts in members’ offices. Continuity waspreserved by organising four syndicates around existing interests. There was no violent change that could haveupset personal relationships.

Until the mid-1960s the key managers had been mainly lawyers. The few new entrants came on recommenda-tion, through family connections or friends at Inns of Court. Sometimes they were asked if they had privatemeans. Now some fresh law graduates, mainly from Oxford, were being recruited through university appoint-ments boards and trained in-house. The first was Terence Coghlin, who was to become senior partner.

The immediate cultural change was a start in adding the expertise of master mariners. One of the first was RexPalmer: I could read survey reports and read about collision cases in those years immediately after I was first engaged andI could visualise exactly what was happening. It did not affect the legal situation, but I had the mind of a mariner. I couldsee where the mistakes might have come from and why they may have come that way. Given reasonable intelligence, it ispossible for somebody to learn the relatively narrow area of the maritime law that we need to know about more easily thanit would be for any lawyer trying to learn about the sea. The sea is all to do with experience. It is not academic knowledgeand you cannot gain it without actually going to sea for a considerable length of time. You can detect when you are not beingtold the truth in statements. You know some things are not possible. Overall, the club management was still a gentle-manly operation. The club was dominated by Dawson Miller, who regarded it almost as a personal fief. Manywere the stories told of ‘Sir’s’ autocracy, and they grew in the telling. Typical was his reply to the comment thatthere was an alert member of the committee: ‘Thank heaven there’s only one.’ His partners were old boys

meeting over long City lunches, men who understood the unwritten rules of the game and worked accordingly,secure in the knowledge that the managers of other clubs were more colleagues than competitors. Indeed the topmanagement of the Standard and UK clubs was the same. Under the non-competition agreement among theclubs, if one club was offered a ship previously entered in another club, it was bound to quote rates and condi-tions that were no better. In their cosy world club managers could believe that they were changing with thetimes. In one year it was to change more sharply and severely than they could have expected.

CHAPTER 8

1967 - ANNUS HORRIBILIS

Hamilton, Bermuda

THE 1960s was a decade when technical changes in shipping made their impact, one of them literally and withlasting influence. Most visible was the growth in the size of tankers, very large crude carriers (VLCCs) of up to300,000 tons being needed for the annual carrying of a total of 1 billion tons of oil economically, oil transporta-tion accounting for 40 per cent of the world’s fleet. On drawing boards, to become actual by the early 1970s, wereultra-large crude carriers (ULCCs) of some 500,000 deadweight tons.

A parallel development in the striving for economies of scale was the bulk carrier, ton-for-ton cheaper to buildand operate. Ideal for carrying low-priced commodities such as coal, ores and scrap long distances, but in small-er volumes than for oil, it was to eclipse traditional tramps. Stuart Beare, a partner in Richards Butler, a firm ofsolicitors that had been associated with the club since the 1920s, particularly through Russell Stokes and BillWilson, who among the managers became known as the GLA (Greatest Living Authority) for his encyclopaedicand wise counsel, saw the difference: A side-effect was a growth in shipping operators. This involved a flourishing oftime-charterers, who chartered in tonnage and undercut theliner services of the conferences. This particularly affected theGulf, which became a burgeoning market with the hike in oilprices. These charterers were importing everything from allsorts of places. They operated on very small margins and werevery claim-conscious, so that they would make small claimsand fought hard when people claimed money from them whenthey thought it was not due. This introduced another partyinto the P & I clubs. You would have the shipowner, and thetime-charterer, two entries and therefore two clients instead ofone.

Two safer packaging developments, the ro-ro carryingfully loaded vehicles and the container ship with itsstandardised boxes, affected claims. Both meant thatgoods could be boxed by the producer and unpacked bythe recipient. Any intermediate handling was mechani-cal. Ro-ros, introduced in the 1950s on short sea routes,replaced cargo-liners on longer runs. Containersbecame a worldwide mode of transport. There was abonus in that trucks and containers could be refrigerat-ed, and temperature control was better than in largeholds. If it should break down, damage was probablymore limited. The main advantage was that more securepackaging overcame the problem of piece goods such aswhisky being shipped in cartons and ‘accidentally onpurpose’ being dropped on a corner, the contents beingspirited away in the twinkling of an eye. Tallying prob-lems, including the expenses of double-checking, were reduced. For the club enlarged packaging meant a reduc-tion in the number of small claims on damage and shortage and, with fewer dockers, less spent on personalinjury claims. It was not an end, however, to claims on high-value goods. Thieves had to exercise greater cun-ning, as Bill Smith, the club correspondent in Canada, observed: The favourite things to be pilfered in Montreal wereski boots, a valuable commodity. A container load came over once and, knowing they were ski boots, I advised the agents to

Containers reduce damage to cargoes but arenot immune to damage themselves.

tell the stevedores to put this container on the dockside and pile other containers all round it until it was ready for deliveryin two or three days’ time or over the weekend. They did so and when they actually delivered the containers and got to theone in the middle it was empty. Someone must have been there with a forklift truck over the weekend and no one stoppedthem. They moved all the other containers, took out the contents and put all the other containers back. Sometimes an emptycontainer was filled with bricks or some other low-cost make-weight. The possibilities opened up a new field forP & I cover; through transport, in which the operator accepted liability for complete transit on land and sea. Tospan the associated risks, a separate club was formed in 1968, the P & I clubs not extending their own cover forcargo liabilities on land until 1973.

The Torrey Canyon breaks up on Seven Stones Reef, 18 March 1967, in the first major oil pollution disaster

As 1967 opened and the centenary of the club was not far away the indications were that there would be some-thing to celebrate. By any standards, growth since 1869 had been good, over recent years excellent. The clubremained the largest of its kind, with the international dimension firmly established and business still expand-ing. There were, however, major shipping companies yet to be wooed into membership. External events thoughwere to cloud the rosy outlook, making 1967 a gloomy year.

Not one month into the new P & I year, on 18 March the tanker Torrey Canyon struck the Pollard Rock onthe Seven Stones Reef, midway between Land’s End and the Isles of Scilly, spilling her oil. There was nothingnew about oil spillage. In 1923 there was a claim, opposed, that it had damaged Cornish oyster beds. At the timethe committee recognised that ‘the amount at stake in this case is only small but an important principle isinvolved.’ Oil from many ships sunk in World War II had washed up on beaches as flecks of ‘tar’, marking theclothes of those unwary enough to sit on it. There had been other claims on oil spillage. For example, inGermany when a ship lost bunker oil, farmers were compensated for being unable to harvest reeds for thatch-ing.

What was different about the Torrey Canyon was the scale. The ship, one of the new generation of tankers,had been lengthened with the insertion of a new, larger mid-section. She was carrying on a single voyage char-ter nearly 120,000 tons of crude from Kuwait to Milford Haven in South Wales. Being deeply laden, she had tocatch the late evening tide for berthing. To save half an hour and avoid a wait of five days, the Italian master tooka route to the east instead of the west of the Scillies.

When the tanker struck the Pollard Rock thousands of gallons of crude oil, a filthy chocolate-coloured mess,started spilling from ruptured tanks. Detergent was sprayed continuously to disperse the slick but it was like try-ing to hold back the tide with a broom. Within two days beaches were being polluted in Cornwall, putting at riskthe livelihoods of those dependent on the tourist season. Seabirds and fish were dying. The Channel Islands andBrittany were affected. Altogether the cost of cleaning up the pollution was put at £3 million. None of this wouldfall on the club because the Torrey Canyon was not entered with a member of the London Group, but all of theclubs would be affected indirectly.

Just as television brought home the horrors of the Vietnam War, so the small screen vividly portrayed theextent of the Torrey Canyondisaster. For nearly a fortnight it made a running story on television: the heavy swell;the unstoppable spillage; blackened beaches; the efforts of the Dutch salvage engineers; floating fish and thepatient work of cleaning bedraggled birds; the violent explosion in the engine room three days later; the attemptby four tugs to pull her off the rocks, breaking her back; the British government announcing its decision tobomb the ship - ‘We told the owners’; the dropping of 1,000-lb bombs to burn off the estimated 40,000 tons ofoil remaining on board; the tanker in flames, with a pall of thick black smoke rising 2,000 ft in the air; aviationfuel being added to the flames to keep the wreck ablaze; bombardment with napalm and rockets; more spectac-ular explosions before the wreck sank to its grave.

An outcome of the event was the so-called Intervention Convention of 1969, which made it clear that a statefacing a situation such as the spillage from the Torrey Canyon had a perfect right to destroy a foreign ship, evenin international waters, to prevent oil pollution of its coastline. In 1967, over the objections of the owners’ solic-itors, the British government had hesitated to destroy the ship because she was not British and was stranded ininternational waters. The resulting delay perhaps did more harm to the environment than would have been donehad the ship been sunk promptly.

Extensive media coverage of the first major tanker disaster came at a time when concern for the environment

was gathering. Since 1963, when RachelCarson’s The Silent Spring drew attention tothe dangers of chemical pest control, theenvironment lobby had been growing. Nowit was given additional impetus by a disasterat sea. So widespread were the effects of amajor oil spillage that public anger wasaroused: ‘The polluter must pay.’ Aroundthe world more and more people were com-ing to realise that man had to change frombeing a predator on the planet to being itsguardian. The environment lobby was toendure, exerting more pressure to changethe rules of many industrial and commercialoperations.

The immediate debate was between thosewho wanted a new draft Convention to coverall types of pollution and Lord Devlin, thelawyer chairing the working committee drafting for the Comité Maritime International (CMI) who believed thatthe important thing was quickly to provide rules on the liability of tanker owners for oil spillage. The draft ruleswere debated by CMI and taken over by the United Nations organisation Inter-Governmental MaritimeConsultative Organization (IMCO) In 1969 a new International Convention on Civil Liability for Oil PollutionDamage was signed, putting the liability clearly on shipowners for the costs of clean-up and private claims. Theextent of their liability was closely related to the availability of Reinsurance, in practice the maximum amountof reinsurance that could be raised in the world market. That involved Thos R. Miller & Son (Insurance) as bro-kers in finding who beyond London was prepared to provide oil pollution cover.

From 1970 the general excess loss reinsurance contract covered oil pollution under one head of liability andall other claims under a separate head. To spread the risk from the London market, shares in the contract weresought in the USA and the major countries of Europe. A measure of the change in the overall liabilities was thatsince the original pool reinsurance contract was initiated in 1951 the call rate had increased thirty-fold and theoverall retention of the clubs, their amount of responsibility, four-fold. Now included in the contract was thetanker owners’ voluntary agreement concerning liability for oil pollution (TOVALOP), a stop-gap measureoffered by the tanker owners to governments while the International Convention was coming into force. UnderTOVALOP, owners had agreed voluntarily to compensate clean-up costs incurred by governments, provided atleast half the world’s tanker tonnage participated. Oil pollution had moved to the top of shipowners’ and politi-cians’ agendas. Peter Miller, son of Cyril Miller, was in the thick of it: It suddenly became high profile business. TheAmericans particularly considered what they wanted to do and whether they would be parties to the emerging oil pollutionconventions. There were all sorts of hearings and investigations. Deciding to go it alone by way of national legislation, theyhad hearings both in the House of Representatives and in the Senate. The most important influence there was Senator EdMuskie from Maine, who was a contender to be the Democrat candidate for the White House. He saw himself riding intothe White House on a charger with a banner overhead: ‘I have solved the pollution problem.’

The question arose on what was the world capacity for insuring oil pollution at that time, and the P & I clubs were asked

Bedraggled seabirds, smeared with oil, quickly became stockmedia pictures

to make representations to Senator Ed Muskie’s committee. We did it to at least two committees, one in the House ofRepresentatives and Senator Muskie’s in the Senate. The reason why they wanted to hear what the English had to say wasbecause when they asked the American insurers, they all said: ‘Post- Torrey Canyon we won’t insure oil pollution.’ You maysay ‘Why is that?’ and the answer, whether people like it or not, is that the London market now, as then, is the catastropherisk-bearing market par excellence. The others don’t like it. They don’t want to insure catastrophe. They like to lay it off.They are risk-averse. Look at the Japanese companies. They just don’t like big catastrophe insurance. It is the bread andbutter for London. It is what we live on, even if, in the recent past, some Lloyd’s underwriters have made heavy losses bynot charging enough premium and/or not watching accumulations.

So the clubs thought that the right way to tackle this was to send across a club representative and, because we were talk-ing about capacity and the reinsurance of the clubs’ resources, Peter Miller had better go along as well. We had a right oldtime with Senator Muskie because we were saying to him: ‘It is a very difficult time in the insurance market. The world-wide capacity for insuring oil pollution liabilities is $14million.’ Muskie could not believe that we could be so certain. Wesaid that we were certain because we had tried it. We had been all over the world and it was basically what was placeablein the London insurance market, notably Lloyd’s. There was a small market outside, but he thought that we were trying todefend the shipowners’ corner and get as low a limit as possible.

He did not finally believe what we were saying until after the normal hearings when he suddenly lent forward to me andsaid: ‘Mr. Miller would you like to continue these discussions in my room.’ So I and my lawyers and John Shearer from the

Children helped clean oil from beaches

P & I clubs went in to see the senator. He kept saying, ‘I can’t believe. I think you are just hiding it. There must be morecapacity.’ Eventually I lost my temper with him and I said, ‘Look Senator Muskie, I am an insurance broker. If there wasmore capacity, it is in my own interests to sell it to the P & I clubs and they would have to take it’. ‘Oh’, he said. The instanthe saw that my self-interest was the other way he believed what I said, which rather irritated me. That is how we startedhaving to make direct representations in the United States about liability insurance. The outcome of these hearings in termsof legislation was the 1970 Water Quality Improvement Act, with a limit of $14million in 1970/71. In 1972 that wasamended by the Federal Water Pollution Control Act and in 1977 by the Clean Water Act.

The second major external event of 1967 was the Six-Day War, 5-10 June, a swift military success for Israelagainst Egypt, Jordan and Syria. In upsetting the pattern of trade and creating uncertainty, it was a long-termsetback though for the international shipping community. Nobody could have foreseen that the Suez Canal wasto remain closed for the next eight years, as against a few months after the 1956 Suez Crisis. Again the 1967 clo-sure, necessitating longer voyages with the re-routing of ships round the Cape of Good Hope, stimulated thedevelopment of larger tankers, this time ULCCs. Six years later events in the Middle East were once more todemonstrate that long-term shipbuilding decisions could not be based on the shifting sands of international pol-itics.

Meanwhile, re-routing necessitated insurance adjustments, as the managers reported: The British andNorwegian Governments having notified their nationals that no prosecutions will be instituted for overloading of shipswhich may, during the closing of the Suez Canal, pass the Cape of Good Hope (a seasonal winter zone) after loading tosummer marks during the winter period, a number of ships of various flags are loading deeper in this way. Members havebeen advised that (even though the practice will become legal when the Load Line Convention of 1966 becomes operative)there is still a possibility that a third party suffering from a casualty would allege that the ship was overloaded. It was feltthat if this should occur, and the shipowners right to limit liability be attacked, Members should not count on recovery fromthe Association of excess of the limit of liability in the appropriate jurisdiction. An open cover had therefore been arranged,where by ships affected can be covered for liabilities up to £3,000,000 in excess of the limit for a premium of £187 10s. 0d.per transit, or up to £6,000,000 for £375. The sharpest impact on the club, however, was made by the 18 Novemberdevaluation of sterling, the third such move at an 18-year interval. For nearly 18 months the British economyhad been deteriorating, not helped by a National Union of Seamen’s strike in 1966 and dock strikes in 1967 pro-ducing poor sets of trade figures. Confidence in sterling ebbed and currency speculators moved in. There was arun on the pound and the British government had to devalue it by 14.3 per cent, from $2.80 to $2.40.

Although the club had certainly been fully aware of the possibility since mid-1965 there was little it could do.Some dollars were bought forward and advance calls for dollar entries were sent out expressed in dollars. Ondevaluation, at a rough guess it stood to lose £5 million. Against that, savings were minor. For example, therewas a settlement to be made with a French member over an incident in Gabon. The member did not want pay-ment until the end of November, but francs were bought forward, yielding £70,000. In November the advancecall for 1968 was raised from 14 shillings per contributing ton to 16s. 4d., but that was only part of the solution.Because of the devaluation there would be a deficit on the club year 1964-5, necessitating an additional supple-mentary call. Further, members who had paid claims in certain currencies before devaluation ought not to loseby such transactions.

A longer-term, comprehensive solution was needed, as the investment manager John Shearer realised: Shortlyafter devaluation, I announced at a directors’ meeting that they were something like £15 million worse off than they werebefore. After that loss they instructed me to look for somewhere else to do business. I had talks with the Treasury and theBank of England in an attempt to get them to agree that the club should be able to hold what currencies it liked. It was not

Chemical interaction caused an explosion aboard the Moselstein in Antwerp on 18 December 1966

much use, for instance, to take advantage of a German shipowner who was paying marks and then seeing the mark appre-ciate against the pound, and the resulting loss. I understood the then Chancellor of the Exchequer, Roy Jenkins, had saidthat they were not going to make special rules for special situations, but I pointed out that the Scandinavian clubs had con-cessions not only for foreign currency but also in fact for investments. After investigating various places, we decided to rec-ommend as a home base Bermuda. The Bermudan authorities were instructed by the government to give us every facility,which they did and, though we were very short of time, we managed to get everything ready for the first meeting of theBermuda Club on 17 February 1969. The whole process of investigating various tax havens and assuring freedomfrom exchange control regulations took just over a year. Bermuda was the centre with the most to commend it.Having been a Crown colony since 1684, the island was in the sterling area, satisfying a Treasury condition formoving a British business offshore, and it had excellent telecommunications, essential for running an interna-tional operation. A minor inconvenience was the time difference with London. Somebody had to be up at 4 a.m.to deal with the first telephone calls. A long-term statutory agreement was negotiated with the Bermudan gov-ernment and confirmed by local Act of Parliament.

Most members did exercise the option of transferring, the London club ceasing to accept business from 20February 1971. It was a wise move. Sterling was still a crisis currency, falling for instance from over DM11 tothe pound in 1967 to DM2.95 in October 1990, when it joined the European Exchange Rate Mechanism. Thatrate could not be sustained and two years later membership of the ERM was suspended. So rapid was the declineof sterling that the original claim of DM17 million on the 1966 explosion of the Moselstein, at the time the biggestclaim on the reinsurance contract to date, was no longer an advantageous deal when settled for DM7 million in1973. It would have been better to settle at the exchange rate available when the claim was first presented. In themeantime, following the US decision in August 1971 to end global fixed exchange rates; the pound had beenallowed to float on the currency markets from June 1972. UK exchange controls ended in June 1979. By itself,that was not enough to justify a return from Bermuda to London. The club would have been taxed on the sub-stantial interest accruing on its investments.

The move to Bermuda was more than a change of legal domicile. After the upheavals of 1967, the club had anew perspective and a better sense of direction. The move was recognition of the new international character ofthe UK Club. Of the 31 directors, the British were now in a minority. Change of place also meant a managementshift. In the middle of it was Ron Jarrett, secretary to the club: In London the board of directors met every other month.They came into the boardroom at 11 o’clock and left at 12.30 having got through all the business, mostly orchestrated byDawson Miller and later by the partners Sidney Fowler and John Shearer. There was very little social contact within theboard and very little questioning of anything the managers put forward. It was more or less rubber-stamped by the boards.

After we went to Bermuda people had to spend at least a night before the meeting. You had to be there two or three days.So they began to talk among themselves about the context of meetings and the content of the agendas. As a result, many morequestions were asked at the directors’ meetings and the managers were under much closer scrutiny, which meant they had toreact and get their act together, to have more information at their fingertips. What actually happened was that some of thework at the directors’ meetings was subdivided. Somebody would stand up and give an account of the claims; John Shearerwould talk about the finances, John Henderson about underwriting. They, in turn, would put pressure on the people in theirdepartments to produce practically everything they could anticipate the directors asking. There was this increasing interestby the directors in the way the club was being run. In this respect, the composition of the board was significant. Ithad been the policy of the club since its foundation to have a board of directors who were mainly senior men intheir companies. Directors of their own companies and of the club would have a strategic view while insurancemanagers brought welcome technical knowledge in addition.

Having moved from London, its base for 100 years, to Bermuda, the club felt it impolitic to draw attention tothe fact through a great celebration of its centenary. There was a perfunctory look-back in the 1969 annual reportand a dinner at The Savoy Hotel, London. Two years later Dawson Miller, grandson of T. R. Miller, died. A long-standing member remembers him with rose-tinted affection: A dictator in the nicest sense, a man of great experienceand great charm, knew every member personally, as it was a much smaller club. At the meetings Dawson was taking it allin and at a certain point he would get up and say, ‘Gentlemen, we have taken quite a long time in discussing this particu-lar case. It must be clear to you all there is only one solution, and that is this.’ Everyone would say, ‘You are absolutely right.’Never any argument and it worked beautifully because he was experienced, he was fair. We did not get many cases thatneeded throwing out because he would call a chap to lunch and say, ‘Look here Jack, this case is foul. Don’t push it.’ ‘Youthink I should withdraw it?’ ‘Well, it is up to you: Dawson said. ‘That would be marvellous.’ It worked wonderfully.

Celebrity Cruise’s ship Horizon calling at New York

It was the end of the club management as a family business, which had stretched over three generations andalmost 90 years. That heritage was not to change abruptly but it was the end of an era. The management stylewould alter and so would the balance of power between the managers and the directors. The club was clearlyinternational; it had to become more professional.

CHAPTER 9

ENTRIES

Tokyo

FROM the early years, ‘United Kingdom’ in the title of the club became less and less an accurate descriptionof the membership. As the books of entries pre-1926 were destroyed and 1885 is the first year for a complete runof rule books, in which lists of steamers were appended, it is impossible to give an accurate date for the first nonUK steamer to be entered. Certainly by 1876 the Katherina II, built in St Petersburg in 1874, appeared in the listof 418 vessels, along with two new-builds from Rotterdam. Two ships from Nantes, France were in by 1882. By1885 a Greek ship, Embiricos, was trading in the Black Sea, and among the 970 entries for that year there are shipsfrom Antwerp and Malmo. Constantinople, with the Thiresia, appears in the 1887 list of 860 vessels. By this timethe Low Countries, with 12 entries, were the best represented foreign interests in the club.

Early overseas entries were mainly from Northern Europe, coming through geographical proximity and closetrading relationships with Britain. The notable exception was the Greeks from the Eastern Mediterranean.There the influence was cultural and hence deeper, growing in volume after World War I. Greek ships nowaccount for one-quarter of the tonnage entered in the club.

Fotis Lykiardopulo, of a third generation in shipping, sketches the cultural background: The Greeks who wentinto shipping firstly knew something about the sea because we are surrounded by the sea but far more important than that,they were adventurous. Everybody was related. The captain was related to most of the crew. People behaved well becausethey were frightened what the head of the family, the captain, would report back in the village. There was a wonderful senseloyalty and discipline. It was hard work and a hard life. It was not common to all Greeks. They went and worked in shipsand got shares with family help. They got their master’s certificate. When they went abroad and opened a small office orworked in an office abroad, the first thing was to bring their families there. It sprang up with no help whatsoever from theGreek government. That has always applied to Greek shipping. We have no help in terms of finance. We have to do all thisourselves. Our own country is too poor to offer it to us or to support us in any way. So individuality is the key work of get-ting up, taking risks and discomfort and leaving your family, going to sea to work, going ashore. A lot of them deserted ashorebecause they could not get visas to go there, and started up abroad. When they brought some for their families, some becamedishwashers when they arrived, but always it was this desire to improve oneself. Miles Kulukundis sketches his familyexample: We have been shipowners for some 200 years. They were seafarers because the islands did not support them. Theyhad to look to the sea. Fishing was the first step and then trading. Trading in the Mediterranean was an industry for 2,000years or more. My direct grandfather lived on the Island of Kasos and half of his family was born there. He was a ship’smaster and they moved from Kasos to Thira, which was the coaling station and probably the major port of Greece in about1900. Then in 1919 one of my great-uncles had the view that if you were going to be in the mainstream of the shippingindustry he had to come to London, and set up Rethymnis &. Kulukundis as an agency.

Examples could be multiplied into a composite portrait of a Greek shipowner. Be he an owner-master plyingthe Aegean or an expatriate in Monaco or New York overseeing an international tanker fleet, the attitude andpattern of progress are similar. An element in securing that progress is protecting the assets and insuring againstruinous liabilities. Soon after opening in 1921 an office for Rethymnis & Kulukundis in the City of London, thecentre of chartering and insurance, Manuel Kulukundis, uncle of Miles, called on Dawson Miller and offered toput ships in the club. Other firms followed as lower-cost Greek shipping re-established itself in the difficult con-ditions of the early 1920s. Currently, the UK Club covers some 40 per cent of the beneficially owned Greek mer-chant fleet.

The circumstances in which nations entered the club varied. Cultural backgrounds, the political stance ofregimes, pressing practical considerations, the meeting and meshing of personalities all played a part.Introducing the P & I concept was not the application of a formula; the approach had to be individual.

Russian ships, for instance, were freelyentered under the Tsarist regime. They leftfollowing the Bolshevik revolution of 1917.Periodically, especially after the death ofStalin in 1953, rumours surfaced atembassy cocktail parties that the Russianswere thinking of rejoining the club.According to a May 1958 minute: TheManagers also reported that the Russian TradeDelegation had approached the Association onthe possibility of entering a large fleet of SovietVessels in the Club for cover in respect of ¼thcollision, stevedore claims and cargo liabilities.The Committee unanimously agreed that sub-ject to an equitable rate of calls being arrangedsuch entries would be welcomed. Theapproach was probably prompted by thepossibility of a thaw in the Cold War afterKhrushchev became the premier in March1958, but nothing happened. During the1960s the Soviet Union, with ports in thefar north, the Baltic, Black Sea and Far East, continued to be one of the world’s fastest growing shipping nations.On a practical level the Russians were ready to rejoin the club, ending nearly 50 years of isolation from the worldof P & I. The man largely responsible for convincing them that I would be a wise move was MichaelSummerskill, son of a former Labour government minister, Dr Edith Summerskill: The then chairman of theAnglo Soviet Shipping Company, now renamed Morline Ltd, was a man called George Maslov, whom 1 got quite friend-ly with through a Baltic broker. At a Sunday lunch together in the early 1960s he said, ‘One day there will be a Soviet club,but before that Soviet fleets will enter the UK P & I Club. They will all have to have it explained to them and be convincedindividually. Although they could not enter a club without the agreement of Moscow; also they could not enter a club unlessthey were satisfied that it was a reasonable thing to do’. So there was an enormous amount of talking to be done to peoplein Murmansk and then Leningrad and Odessa. I went to Murmansk several times, starting in 1965, on that long train jour-ney of 26 hours from Leningrad. You weren’t allowed to go by air. P & I was a shipping matter and not an ideological mat-ter. 1 noticed that when I said it was non-profit making, even when translated, it made no particular difference to them. Nordid they mind in the least about it being based in England. One very important thing for them was their contact interna-tionally, because there are so many things that the club does which have international ramifications. It was a two-stageprocess. First, approval in principle and in person had to be secured from the Ministry of Merchant Marine.Second, the individual fleets had to be persuaded that it was in their interests to join the approved club.

The first entry, in 1967, was the Murmansk Shipping Company, which had had problems with claims on car-goes such as wet salted hides on its Arctic Line service to Canada. It was followed by other dry cargo-liner oper-ators, the Black Sea, Far Eastern (based in Vladivostok, a naval port then barred to foreign visitors, so the meet-ings were held in Khabarovsk, about 12 hours away on the Trans-Siberian railway) and Baltic ShippingCompanies between 1969 and 1971. As the Soviet Union was a major oil exporter, the really big impetus so faras tankers were concerned came from the TOVALOP agreement. In 1972, to get TOVALOP cover the four

The Arosa, the first double hull VLCC built in Japan for Greekinterests

major tanker fleets - Novorossiysk, Latvian, Georgian and Primorsk Shipping Companies - were entered in theclub by way of a reinsurance of Ingosstrakh, the state insurance organisation. Acting largely on their own ini-tiative, from the mid-1960s a number of Eastern Bloc countries, notably Bulgaria, East Germany, Estonia andRomania came into the club.

The entry of the other great Communist power, China, is a similar, later story, starting in 1973. Chinese shipsat the time were either uninsured or had a limited cover from the People’s Insurance Company of China inBeijing. As a consequence shipping companies were finding that they had not got the insurance necessary tocover their TOVALOP pollution liabilities. They were not able to charter their ships to oil companies, whowould demand insurance against TOVALOP liabilities and so in 1973 the People’s Insurance Company inviteddelegates from the UK Club managers to meet them in Beijing to see whether the entry of certain tankers couldbe negotiated.

Terence Coghlin was one of the delegates: I set out with Sidney Fowler and with William Richards, an averageadjuster who had been to Beijing before. Our train from Hong Kong stopped at the border river. After we had crossed overthe bridge into the People’s Republic, we were given a deliberately chilling reception by the Chinese border guards. Our pass-ports were taken away and we were left to cool our heels for some considerable time, without explanation, in an unfurnishedbarrack like building. Upon our release we at once experienced the contrast between official and private China. We werewarmly greeted by three charming people from the local branch if the People’s Insurance Company (PICC). Over the nextfew days they showed us Guangzhou. We visited schools and factories and stood ankle deep in a collective farm’s paddyfield, helping to harvest rice. Everywhere we went we were lectured about the wicked way of the West in general and theAmericans in particular and assured that Chairman Mao’s thoughts would conquer the world. We sat quietly and held ourlittle red books reverently. On page 233 of the little red book, Quotations from Chairman Mao Tse Tung, there wasample justification for the whole exercise in an extract from Oppose Book Worship (1930): You can’t solve a prob-lem? Well, get down and investigate the present facts and its past history! When you have investigated the problem thor-oughly, you will know how to solve it. Conclusions invariably come after investigation, and not before. Only a blockheadcudgels his brains on his own, or together with a group, to ‘find a solution’ or ‘evolve an idea’ without making any investi-gation. It must be stressed that this cannot possibly lead to any effective solution or any good idea.

Terence Coghlin continues: Thus initiated we were allowed to travel on to Beijing and visit the head offices of boththe PICC and of China Ocean Shipping Company (COSCO). After further days of sightseeing - most notably the GreatWall and the adjacent Ming Tombs - our hosts at last felt it appropriate to mention business and we arranged the entrythrough PICC of several COSCO tankers. The Chinese were also quick to benefit, as Luke Readman records: Inthe first year of their entry, before any of the other branches had entered their ships, the Tianjin Branch had a total loss withthe Ying Shan caught in a typhoon of Japan. That produced a big wreck removal problem. So their record started with quitea substantial bang and it was indeed a pool claim by the time we had paid for the wreck removal and solved the variousother problems such as the cargo. That was certainly the most important claim that affected a Chinese shipowner for manyyears. The news if that would have spread within the Chinese shipping community. Of course it did affect the rate that weneeded for the renewal of that fleet and we started even at that stage the differentiation between the rates payable by differ-ent branch companies of COSCO. Each one from the earliest times has kept its individual record and its individual rate,depending on its own claims record.

Over in Japan the history of P & I is older. In 1908 Professor S. Tasaki of Nagasaki High Commercial Collegereported on the subject after learning about it in London from the managers of the UK Club. Later he becamepresident of Kobe University and, under his guidance, the appropriate law was enacted and a Japanese P & I clubestablished in Kobe in 1950. At first, as part of the post-war reconstruction of Japan, Frank Ledwith and then

he and Sidney Fowler, ‘typically’ English gentlemen withbowler hats and rolled umbrellas, augmented by Sidney witha large white handkerchief which he plucked from his sleevewith a flourish, freely gave advice with no strings attached.The first Japanese entry in the club, reinsurance fromAmerican International Underwriters, was Tokyo Tanker in1956.

In the mid-I960s the Japanese club ran into difficultiesover indemnity cover, essentially cargo liability risks, andwithdrew from that class of business. The UK Club wasasked to fill the gap. It already had a correspondent estab-lished in Japan. Naga Kotsuru of Dodwell & Co. Draws thestrands together: When in the late 1950s there was heavy con-gestion at Japanese ports, Dodwell Tramp Agencies assisted theshipowners in collecting demurrage from local charterers. This wasvery much appreciated by the owners, mostly Greek, and theirLondon solicitors, Richards Butler. The solicitors recommended tothe UK Club that Dodwell & Co. should become its correspondent.

Kim Saishoji, then general manager of Dodwell Tramp Agencies, was trained by the UK Club in London for three months,and after his return to Tokyo in 1957 he set up a small P & I office, within the Tramp Agencies department staffed by him-self. Shortly afterwards he recruited a college graduate, Moto Sugiura, to join them. Moto Sugiura continues the story:Kim and Sidney Fowler concentrated their efforts to make sure NYK management fully understood P & I insurance andthe advantages of their entering in the UK Club. Final confirmation to cover indemnity risks with the club was notified toSidney, who had been staying in Tokyo from earlyDecember 1965, on his third visit to Japan, on 27December. As this was the first entry materialised by himin Japan he remained here until NYK obtained approvalfrom the Ministry of Finance, which is required under thelaw concerning foreign insurers, sacrificing his happyChristmas holidays with his family and returned homeafter 1966 began. Soon after NYK entered the club, in1968 Mr Y. Ariyoshi, who held an honorary Britishknighthood for services to Anglo-Japanese shipping,became a director of the club. A number of otherJapanese shipping companies followed, among themMitsui OSK Lines, many of them placing theirindemnity risks with the UK Club, leaving their pro-tection cover with the Japanese club, which subse-quently re-entered the market for indemnity.

A by-product of entry to the Japanese market wasthe opening of Korea. Peter Tallis, the underwriterspecialising in Japan, first visited Seoul in 1968 withNaga Kotsuru, who enlisted the help of Hyopsung

Motohiro Sugiura, general manager ofInchcape P & I (formerly Dodwell), the club’s

correspondents in Japan

Mr Y. Ariyoshi, the first UK Club director from Japan from1969 to 1979, president of Nippon Yusen Kaisha from

1965 to 1971, and chairman from 1971 to 1978

Shipping Corporation, Dodwell’s sub-agents in Korea. Senior shipowners spoke Japanese, which helped theP & I concept to spread quickly. There were also no such restrictions concerning foreign insurers as those underJapanese law.

T.E. Wang, president of Hyopsung Shipping, looks back on a growth market: The rapid double-digit growth ofthe Korean economy and trade since the 1970s has encouraged Korean shipping companies to expand rapidly their .flag ton-nage. The Korean fleet grew from some 800,000 grt in 1970 to 4 million grt in 1980. The annual average growth rate of17 per cent was accomplished by importing second-hand ships and by building new ships. Although the growth rate after1980 decreased because of the damage caused by the world shipping depression, the Korea fleet increased to approximately9 million tons including bare boat chartered ships at the end of 1994. Every Korean owner appreciates he can no longeroperate his fleet without the proper services rendered by P & I clubs.

Meanwhile, Luke Readman was having to deal with Japanese restrictions: lt was apparent in the late 1970s thatthe club might at some stage need to have a licence from the Japanese government to insure Japanese flag ships whether forindemnity risks or protecting risks. An approach was made to the Ministry of Finance on a fairly informal basis, stating theclub’s position and asking to discuss an application for a licence as a foreign insurer in Japan. That discussion was held upby the Ministry of Finance for approximately 12 years. They said they would need to consider it and study it very careful-ly, and almost nothing happened. Eventually in the late 1980s two things came together. One was the great liberalizationof Japanese financial markets, including insurance and the possibility that a foreign insurer’s licence would now be moreeasily obtainable. The second thing was the growth and strength of the Japan P & I Club and its desire to become a directmember of the pool rather than relying on reinsurance, which had traditionally been given to it by the Britannia Club andthe UK Club. Those two threads came together and in the late 1980s the UK Club applied formally for a licence to do busi-ness as a foreign insurer in Japan, that isto insure Japanese flag ships for protectionand indemnity risks in Japan. It was aninteresting and difficult task to completeall the necessary formalities for theMinistry of Finance because the foreigninsurers’ laws written in 1950 had notchanged. All the regulations issued underthat law were all naturally geared to com-mercial insurance companies, and in thenumerous questionnaires and applicationdocuments that we had to fill out many ofthe questions were just not applicable to amutual club. We had to get ourselves in aposition where we could answer ‘Yes’ toall the relevant questions on the form, eventhough we believed that they were eithernot important questions or positively inap-plicable questions. That resulted in theclub having its only branch office any-where in the world, namely Tokyo, andthe appointment of Mr Hojo as the club’sJapanese representative. Finally, we were

The UK Club Japan Branch opened in 1989. The Japanrepresentative, Mr M. Hojo, and his staff are the only employees of

the UK Club anywhere in the world

The Hanjin Osaka, built in 1992, can carry 4,024 TEU containers

successful, the licence being granted at a formal ceremony in May 1989. The UK Club’s Japan branch started doingbusiness a month later.

In Sweden there was also the problem of competing with a well-established local club, described by RexPalmer: Historically, Scandinavian shipowners much preferred to place all their marine insurances through one company.They did not like to have to go to a hull underwriter in one direction and quite another direction for P & I. So the Swedishclub in particular was very difficult to compete with because it had both facilities. We therefore came to an arrangement witha big Swedish insurance company with strong lines in hull and cargo business, Hansa, and through them in 1954 set up acompany called Indemnitas.

Actively to do business in Sweden as a foreign insurer required a licence, and we could obtain that licence with the helpof Hansa. As a domestic insurer, they could guarantee to the Swedish authorities the required level of solvency of the club.It cost no money to obtain the licence under that arrangement. Indemnitas became the fronting office for the UK Club inSweden. Swedish shipowners could go to Indemnitas to place their P & I with the UK Club. If they were interested in hullinsurance also they could be channelled to Hansa and vice versa.

The other Scandinavian country in which the club has had an enduring involvement is Finland, where thedirectly entered tonnage, some of it pre-dating World War I, was supplemented from 1951 with reinsurance con-tracts. Business in Denmark and Norway, where there was an exceptional brief boom during the 1960s throughthe individual efforts of John Shearer, has not been significant. The two local clubs, Gard and Skuld, are wellestablished there.

A nation that might have been expected to develop a P & I business of its own was France, which had cen-tralised interests in Africa, Asia and the Middle East. Although the need was there, perhaps one of the main rea-sons it could not be fulfilled was the French form of mutual, which could only exist and act according to a setof strict regulations. It lacked the pragmatic Anglo-Saxon approach. As early as 1882 the Grande CompagnieReinsurances proposed entering a large fleet of steamers with the UK Club but the proposal seems to havefoundered on the impossibility of obtaining a London bankers’ guarantee for the payment of calls.

Not until 1926 was the first French fleet, that of grain shippers Louis Dreyfus, entered. This was followedby the wartime entry, in late 1943, of some Free French ships. The major influx took place from 1952, primari-ly as a result of a decision by the Cour de Cassation on the Lamoricière, which opened up the possibility of unlim-ited liability on shipowners, cover for which was not available from French insurance companies. A more recentappeal of the club is oil pollution cover, the Brittany coast being particularly vulnerable, as was demonstrated in1978 when the Amoco Cadiz (entered in the London Club) lost her steering and was driven on to rocks, broke upand spilled 230,000 tons of crude oil on to the region’s beaches and rich fishing grounds. That led to the forma-tion of a clean-up group, Mission de la Mer, which helped Morocco in 1990 when its coast was threatened fromthe damaged Iranian tanker Khark 5.

Beneath national and cultural differences, shipowners’ experiences and priorities, successful P & I comedown to the chemistry of individuals developing a bond. During World War I, in the battle of the Dogger Bank,John Essberger commanded a German cruiser and Dawson Miller a British destroyer, on which an experimen-tal six-inch gun was mounted. The Germans got a nasty surprise when their cruiser was fired on with a six-inchshell, while the British, out-gunned and out-ranged, thought discretion the better part of valour and retreated.The Germans, thinking this manoeuvre was to lure them into a trap, did likewise. Nobody was injured in theskirmish. After the war, when the two men met and realised they had faced one another at sea, Essberger toldDawson how unsporting a six-inch gun was on a destroyer and entered his own ships. The relationship so forged

between the two men lasted for the rest of their lives. Sport was also a great bond. In Croatia, before WorldWar II, Dawson Miller discovered a mutual interest in horse racing with the Ivanovic family from Dubrovnik,which led to a fleet entry. Members from many countries enjoyed his Derby Day parties. Such events helped tostrengthen a network of friends, reinforced by a group of correspondents, whose communications kept people intouch.

CHAPTER 10

CORRESPONDENTS

Hong Kong

IN SHIPPING anything can happen anywhere at any time. In the event of an incident, major or minor, the club needs rapid representation on the spot. Yet the club term for that person, ‘correspondent’, suggests almost a passive observer of events, somebody reporting rather than doing. There is usually much to be done, without panic. Information has to be gathered, authorities dealt with, others informed. A summary of the many things that had to be done in 1989 when there was an oil spillage off Newport, Rhode Island, on 23 June is given by Boston lawyer, Thomas H. Walsh , Jr: We were on board the World Prodigy within hours after the grounding. During the days immediately following the casualty, we conducted an extensive on-scene investigation; participated in the co-ordination of clean-up and salvage operations; began gathering the technical and other data required to determine the impact, if any, of the oil spill on natural resources; maintained direct contact with the Coast Guard on-scene commander and other federal and state officials initiated negotiations with representatives of the State of Rhode Island in respect to the establishment of a procedure for the processing of claims; arranged for separate representation of the Master and other officers in connection with federal and state criminal proceedings; represented the vessel owner in negotiations with the Attorney General for the State of Rhode Island and in investigatory hearings conducted jointly by the United States Coast Guard and the National Transportation Society Board; and provided daily advice and guidance to the club and the vessel owner with respect to the status of the matter.

In the months following the grounding of the World Prodigy Bingham, Dana & Gould represented the ship-owner in negotiations with representatives of the United States Department of Justice and the State of Rhode Island in connection with criminal charges arising out of the casualty. The correspondents also represented the shipowner in the related civil limitation proceedings in the United States District Court for the District of Rhode Island. In that action, more than 500 claimants, including the United States of America, the State of Rhode Island, cargo interests, businesses, commercial fishermen, non-prof-it organisations, and private individuals, sought to recover damages for clean-up expenses, harm to natural resources, loss of cargo, damage to real and personal property, lost earnings, and other alleged injuries.

An oil spillage is not a typical incident, but it is something for which a correspondent has to be pre-pared. It is just one thing that may happen and on which he, occasionally she, must act. The role has been likened to that of a consul, but more complex. Whereas a consul is usually dealing with his own countrymen, a P & I correspondent may well be dealing with another national who does not speak his language at a time when many other involved parties are clamouring for attention. Shipping incidents are often public affairs. While whatever immediate action is being taken the correspondent, in the interests of the member

The World Prodigy shortly after grounding in Newport, Rhode Island, on 23 June 1989. More than 500 separate

claims were made as a result of an oil spill

directly concerned and of the club in general, has to have an eye on likely consequences of the incident. The case of his suddenly acquired client cannot be prejudiced in any future legal proceedings. That is why many correspondents are lawyers or people experienced in legal aspects of maritime affairs.

The first was both. Jacques Langlois, having served from the age of 13 on ships belonging to Thomas Miller, realised that shipowners needed advice when problems arose, especially abroad. Accordingly, after coming ashore at the age of 21 he read law. His practical oppor-tunity came in 1870-1 with the Franco-Prussian War, which caused congestion in the port of Antwerp and the Western Scheldt and doubtless created problems for British shipowners, uninvolved in the conflict but in urgent need of local help. From 1871 the UK Club had extended its cover by offering its members insurance for protection risks. Thomas Miller, at that time having no formal connection with the club, recommended that it use the services of Langlois, who was appointed on a verbal agreement and established himself in 1871 as an international law agent in Antwerp, a centre regain-ing its commercial prosperity since the Belgians had redeemed from the Dutch in 1863 the right to levy tolls on shipping.

The two men had a rapport. Both were established exiles. Miller’s Hanoverian grandfather had emigrated to the North-East of England in the early 1790s, angli-cising his name from Rischmüller. By the third genera-tion, Thomas Miller came into ship owning through his father, a master mariner, and was establishing himself in local society. Jacques Langlois was of Huguenot stock, with a family background of religious persecution and expulsion from France and a strong Protestant work ethic, a determination to succeed. Industrious by tem-perament and sharing an international outlook, the two men maintained their friendship. After Thomas Miller became sole manager of the UK Club in 1894, he went on a number of journeys with Langlois to appoint cor-respondents, for example to the Far East, sometimes accompanied by managers of other clubs, John Holman of the West of England and Arthur Bilbrough of the London Club, in whose ships they probably travelled.

In the period through the 1890s to the outbreak of World War I, Langlois helped Thomas Miller create a net-work of correspondents. After the recruitment of Langlois, there is little evidence of further activity. About 1875 Tagliavia & Company may have started to represent the club in Sicily. Claas W. Brons, a Hamburg coal broker, who applied for the position in Germany, was appointed in 1891. Another lasting outcome of the Langlois-Miller friendship was an interest in achieving international standards in maritime law. Langlois was a founder member of the Comité Maritime International, formed in Brussels in 1897; Millers as managers of the UK Club were early and enduring supporters. In 1900, when a trade war broke out among the principal ports of North-West

Jacques Langlois, the club’s first correspondent, was an international law agent in Antwerp. He and Thomas Miller travelled widely, sometimes with other club man-

agers, to appoint new correspondents.

Europe, a conference was held in Cologne to seek a modus vivendi. Langlois acted for the Antwerp interests with the support of the British clubs that covered owners who had made investments there. The result was a success for Antwerp.

By 1921 there was a network of 94 correspondents, stretching to the Antipodes with what was to become the firm of Finlaysons in Adelaide, South Australia. Like his grandfather, Dawson Miller expanded the network by travelling to meet suitable candidates. His world trip during the 1920s helped to more than double the number of correspondents to 211 before the outbreak of World War II. New correspondents had to be clear about their status, as noted in a club circular: During recent years there has been a tendency in some countries to tax Companies trading within their territory including Companies which merely have an Agent therein. We think we have in the past made it quite clear that we do not appoint ‘Agents’ in the ordinary sense of the word and we have endeavoured to make this clear at the head of our printed list which states the names mentioned therein are those of ‘Experts and Lawyers sometimes engaged to assist in settling claims in which the Association is concerned’. It has been noticed that some of the firms mentioned include on their letter paper the name of the Association amongst the Companies for whom they act ‘as agents’. This is incorrect and we shall be glad of any if our friends who have such a statement on their letter paper will discontinue the practice as soon as possible; otherwise a difficult situation may arise in the connection above mentioned.

Appointments were usually by recommendation. In the small world of potential candidates, soundings were

taken of qualities such as ability, integrity and reliability. P & I being very much a specialised occupation, work was passed from one generation to another. Aldo Mordiglia cites his instance: I was in the Italian army during World War II and I had no idea what 1 would do afterwards. My knowledge of English offered me the opportunity of becoming a liaison officer with the Allied Army and this helped me in becoming a partner of an English lawyer, David

Massimo, Aldo and Michele Mordiglia of Studio Legal Mordiglia in Genoa. The firm was founded by Aldo Mordiglia shortly after World War II

Neill, who had been the Genoa correspondent of the UK clubs for many years before the war. After the war many Italian shipowners who had lost their fleets during the war were allowed to purchase Liberty ships which carried a lot of cargoes to Italian ports. One of the clauses of the sale contract was that these ships were to be cov-ered with a P & I club. For this reason Mr Neill when I met him had quite a number of cases, claims and so on from the P & I clubs. Aged 80, he was unable to cope with them, so he asked my assist-ance. After a short time we founded the firm Neill & Mordiglia and this explains the NEMO code for our telex. My first job was to clear this backlog of cases, probably 80-90 per cent of them.

In some ports a correspondent was Hobson’s choice. Michael Miller mentions an occasion: A Balkan correspond-ent in the 1930s, taken to task for his peculations, argued that the club was better off with his comparatively minor peculations than it would have been with anyone of the other thieves in the port. Such fixers, operating in a twilight zone between warring powers, were useful in the early part of World War II, for example in smuggling documents essential for the later resolution of cases.

Broadly speaking, there were two types of correspondent: legal, who could get involved in litigation; and commercial, who felt themselves closer to the waterfront. Bill Smith in Canada enlarges on the distinction: I was tough on claims. I

would not pay more than I thought I was liable for, but the lawyers never did that. They would round it off to the nearest $500 or something and pay it. They would never investigate a small cargo claim. You had a feel for it, which lawyers would not get in their office.

It was a job for which the best training was experience. Jens Fisker-Andersen was a young lawyer in the offices of the Danish correspondent: In the 1950s I received a telephone call from Frank Ledwith, who requested us as cor-respondent to stop discharge of a ship in Aarhus as the freight had not been paid. I investigated the matter and discovered that the bill of lading was claused ‘Freight Prepaid’, so I called him back saying it would be impossible to stop discharge. There was a short pause at the other end of the line and then Mr Ledwith said, ‘we just do it:

I instructed the agents to stop the discharge. Twenty minutes later I had the general manager of one of the largest compa-nies in Aarhus on the ’phone: ‘Who did I think I was daring to stop the discharge of their cargo?’

I assured him that the discharge would be resumed as soon as the charterers had paid the freight. Young as I was, I was quite proud of myself when I suggested to them that they take greater care in future in choosing contractual partners who fulfilled their obligations. The conversation came to a sudden close.

Four hours later, Mr Ledwith was on the phone. I thought I could see the smile on his face as he said to me, ‘You may start discharge again. The freight has been paid.’

Some correspondents spent typically three months in the managers’ offices in London, meeting partners, going round the departments and seeing how functions were performed. Heinz Kühl came in 1956: In three months

Heiko Brons, managing director of Claas W Brons, H Hamburg, has been a club correspondent since

1954

you started to learn P & I. You could not possibly learn it all in that time. The most valuable part of this training was the personal contact. When a problem presented itself there was an individual to go to who, if need be, would make introductions elsewhere within the network. As well as learning, Dr Hrvoje Kačić from Croatia was able to make a contribution. It so happened that when he was in London on three months’ training in 1965 a case that had occurred in 1961 was under consideration. It concerned the collision of a Bulgarian and a Greek ship in the Black Sea; a Russian salvage company became involved, which raised a point in salvage law. By chance,

Dr Kačić had researched that very point of the case for a paper being presented by a senior Yugoslavia official so James Wright, the partner under whom he was learning, was glad he had insisted that his pupil remain to learn whenever somebody visited seeking advice.

Later, as the correspondents’ group expanded, more formal links were established. Senior correspondents met to compare notes. Learning/training was a two-way process. Individual managers, who often combined a general responsibility with specialist knowledge, visited correspondents. There was thus a constant interchange of information.

Training courses were run in London and informally in correspondents’ offices, as Francis Frost remembers: One of the things lots of us learned from travelling to different parts of the world in the late 1970s was to respect, but also to have to analyse very carefully, the teamwork of the correspondents. We would have people coming on correspondents’ courses, just as for a good while we ran owners’ seminars. They would learn quite a bit, but the crucial thing was that usually the bulk of the work at routine level was dealt with by people of relatively limited education, and of course this belonged to

Heinz Kühl sailed with Norddeutscher Lloyd before setting up Pandi Services J & K Brons

Aleco Kairis (left) and Terence Coghlin (right) with Dr Hrvoje Kačić, a distinguished lawyer who represented Croatian owners

on the club’s board from 1980 to 1994

the team of the correspondent. It was a difficult dilemma when we arrived because we tended to find the senior staff under-standably did not want us to have too much contact with the junior staff. Yet they had often not told the junior staff than a modicum of the sort of things that we regarded as essential technical knowledge. I remember occasions in the Middle East when I ended up usually quite late in the evening holding discussion groups with very good clerks and trying to help them to understand the mumbo-jumbo of the accretion of maritime law and practice, which we had all come to regard as sacred but for them really made very difficult sense - things like the Hague Rules and all the archaic language in that. We did a lot of work to help the junior people in correspondents’ offices to have some idea of where to look and how to string together the analyses of a problem, not just act as a post box. I found a terrific yearning on their part to have this qualitative role as well as merely the quantitative role.

There could not be too much training because corre-spondents had to be prepared for anything. In the eyes of Ronald Grant, based in Lima, Peru, a correspondent is: Somebody who knows about ships, their local inward and outward cargoes, and the shipping business in general, and is readily available at all times - Saturdays, Sundays and holidays included - at all the ports he is assigned to cover. He must know those ports thoroughly, including their geographi-cal and nautical problems, be familiar with their installations and facilities, know their particular working and operational problems and - perhaps above all be in contact with all ship agents, whatever specialists are available in the area - such diverse people as divers, doctors, dentists and lawyers, and with all the authorities of every kind - port officials, customs, immigration, health and others. He may have to act, in the course of handling a problem, as a kind of tourist guide, moneychanger, financier, interpreter, translator - in fact, make himself available in what ever capacity may be required.

Neill Aitkin emphasises the importance of a good working relationship with the local authorities: We had some major ship losses in Singapore, with large VLCCs

exploding, sinking in the port and in the main channels around the port. We had to develop and lean heavily on our rela-tionship with the port authority. We were mutually supportive at the time because there was a very steep learning curve for both of us to go through. With the enlightened attitude of the authority and their willingness to allow us to participate in decision-making on pollution control and the wreck removal, this work was efficiently handled. We had people who came out as and when necessary. The willingness of the Port of Singapore Authority to obtain expertise from wherever it was available added considerably to the rapidity of the development into what is now the world’s busiest port. It also allowed them to deal with emergencies in a very sensible and commercially practical way.

There was another specifically local problem on which Neill Aitkin co-operated with the local authorities, piracy: It was a huge problem and the Singapore Straits was the worst area. We have been involved extensively in com-bating both the organised gangs of deep-sea pirates and also maritime muggings, where people looking for board ships ready cash and valuables. As a result of discussions with the Singapore Shipowners’ Association and action taken by the Shipowners’ Association to involve regional government, piracy went from hundreds of incidents to virtually nothing in a matter of months.

Neill Aitkin set up Spica Services in Singapore in 1985 as a dedicated P & I correspondent. Spica’s activi-

ties cover the ASEAN area, with offices in Singapore, Malaysia, Thailand, Indonesia and Vietnam

On occasions correspondents have to get closer to villains. Alan McLean gives a French example: In the 1960s, at the start of the Marseilles narcotics heyday, I found myself helping the French police and customs. Some 150 kilos of morphine base had been discovered in the engine room of the Turkish ship Akdeniz. The ship was exposed to a huge fine. Michael Summerskill from the club managers decided that a reward should be offered to try and identify the smugglers of the contraband, which was intended for the Marseilles heroin laboratories. Since the reward intended for Turkish crew members could hardly be advertised in the press or offered by the police, it was my job to go round the ship and talk to them. There were well over a hundred of them on the passenger ship. The culprits were identified, caught and condemned in Turkey. Like a newspaper reporter, a correspondent covers the waterfront, but he is likely to get more deeply involved in an individual story. Dwight Le Blanc from New Orleans mentions one: We had a bosun 65-67 years of age in South America with maybe a third of his body burned. We made a settlement with him and convinced him the most important thing was that, if he could not go back to work, he should invest his money in some form of annuity, at that time a fairly new concept. He accepted a certain amount in cash and the larger amount in an annuity. He came back to us to make sure that the monthly payments he was guaranteed for the rest of his life would be given to him as opposed to his children, who were taking advantage of their father to an extent that was unheard of in most countries. We rearranged all the payments to another bank so that he was in complete control. If we had paid him a lump sum of money he would have had nothing.

David Martowski, who acts as a general correspondent in the USA, gives an overview on settlements: We have either acquired knowledge or have access to information about how much a foreign seaman is due under the laws of his country. This helps us in striking a settlement reasonably above that amount, taking into consideration concepts of fair play under US law. We want to make a fair settlement because, if a seaman feels he has been unfairly treated, in the US he has the right to come back within three years and try to overturn the settlement. That does a disservice both to the owner concerned and to the club. Our policy is to be favourable and fair, and clearly so.

In making the actual settlement we are careful to comply with all the procedural and substantive formalities. Care is taken to use the proper release form and content. In reply to key questions the seaman is asked to write out his answers to signify his complete understanding. His native language is taken fully into account, with complete and adequate translations provided of all written documents used in the settlement. An interpreter is present for the oral transaction. In the appropriate instances, an official transcript is made of the settlement ceremony. Where it is important to demonstrate the seaman was under no coercion, the settlement proceedings may be videotaped. There must be no doubt about the validity of a settlement so that its release can be upheld in the courts.

Lawyers can offer expert testimony on technicalities too. George Daniolos in Athens remembers the case of the Michael Maris, which struck a reef in the Adriatic at night in 1932 and sank: Between the actual and the insured value there was a big difference. Lloyd’s underwriter’s refused to pay. Proceedings were instituted against them in London, with the support of the club. One point seemed unfavourable to the owners. The ship after the stranding remained afloat for several hours in calm waters and finally sank in a position quite different, almost opposite, to that where she ought to have been drifted by the current, as the current was shown in all the Admiralty charts and English pilot books. 1 left for London, via Venice, on board an Italian passenger ship. When we were in the area where the Michael Maris sank, 1 went up to the bridge and had a chat with the master to see if he knew anything about the sea current there. He gave me a luxuriously bound book Mare Nostrum to look at it. To my great and of course very pleasant surprise, the current in the place where the ship sank was shown in that book exactly as it should be in order to drift the ship there. On my arrival in London 1 found the book there. To my surprise the solicitors did not seem to be impressed very much: ‘to contest in court the accuracy of the Admiralty charts is not an easy matter.’ I insisted, but I was completely disappointed when the King’s Counsel, Sir Robert Aske, said that he would not adduce that book to the court, except if a suitable opportunity were given. My old friend Teddy Jones of the club advised me: ‘Go there and have your book with you.’ He was right. Sir Robert Aske, cross-examining a Yugoslavian fisherman witness for the underwriters, induced him to say that in his personal experience the current was not

as described in the Admiralty chart but irregular. The judge asked if there was anything else in support of the witness’s view. The opportunity was given, the book was presented and the case was won with full costs.

Although the USA is a large area with diverse inland waterways, different ocean conditions, and the far from uniform practices of state courts, because of the high value of claims it has to be regarded as one country in

terms of club representation. Indeed, in 1978 one high exposure American jurisdiction accounted for approxi-mately one-third of all claims and judgments paid by the club. In 1979 the club therefore decided to establish Transport Mutual Services Inc. in New York as its exclusive US general correspondent in succession to the law firm Lamorte, Burns & Co., which had represented several British clubs since 1937. Immediately, 4,000 active cases were transferred to TMS, organised into cargo, personal injury, collision and defence departments, and staffed by some former executives from Lamorte, Burns.

In 1985 TMS (San Francisco) was established with responsibility for overseeing the club’s interests on the West Coast and Hawaii, and in 1988 TMS (Miami) was set up primarily to service members operating Caribbean cruises and trading to Florida. As well as handling claims, TMS supervises US lawyers, as does a syndicate

Pictured in the late 1950s, from left to right, George Daniolos, Stratis Andreadis, Teddy Jones and John Kulukundis

manager in the UK, monitors litigation throughout the USA in relation to particular problems, and ‘fire fights’ on large casualties. It works with legal correspondents in Anchorage and Juneau (Alaska), Baltimore, Boston, Buffalo, Charleston, Chicago, Cleveland, Detroit, Duluth (Minnesota), Green Bay and Milwaukee (Wisconsin), Honolulu, Jacksonville (Florida), Lake Charles and New Orleans (Louisiana), Long Beach (San Diego) and Los Angeles, Mobile, Newport News and Norfolk (Virginia), Philadelphia, Portland (Maine and Oregon), Savannah, Seattle, Tampa, Toledo, Wilmington, and in Texas, Beaumont, Brownsville, Corpus Christi, Galveston and Houston. Some of these sites are inland terminals, where container claims occur on through transport. Altogether, TMS handles some 3,500 cases a year.

The major change that has affected correspondents’ lives is the development of communications. When the club was founded international communications were by sea and cable, the telegraphic address being ‘Mutuality, London. Alexander Graham Bell had not yet invented the telephone and the aeroplane was also a dream. Visits and messages could be slower than the urgency of business demanded, but life was leisurely. Izzet Hatem saw the changes in Istanbul: We were receiving in the mail huge envelopes with a covering letter giving details about the mat-ter. There were documents attached to it asking for our opinion or to take action on their behalf. We were reading d, going through documents, examining our books or our records and issuing a report, which was going back the same way. From time to time we were using the telegraphic codes, a system where you had abbreviations with letters corresponding to whole sentences. This was a huge job and having a cable that would normally be for two pages would cost an immense amount of money and then a secretary or a lawyer would work on that to convert it into a cable. There were urgencies also from time to time but there were very difficult telephone communications because we had to go through the operator and we had to wait for hours before we could obtain the connection. With London two hours was not too bad but there were other countries where there was difference of time, with the States for instance or the Far East. In fact, dealing with shipping matters was a very difficult thing because of this lack of communication, but on the other hand our work was much easier because we were not under such a time pressure to issue a report to give an opinion. I applied for a telex at the end of the 1960s. I was I believe the first lawyer in Turkey who got a telex and when 1 applied to the Turkish Post Office for a telex, they said: ‘You are a lawyer, why do you need a telex?’ For them lawyers were dealing with divorce cases or inheritance or trials, criminals matter. They did not realize that sometimes we needed a bank letter of guarantee within a few hours or one day to secure the release of an arrested ship or, on the contrary, to have counter-security in order to enable ourselves to arrest a ship. We could telephone London quite easily without much delay. Telephone is all right but still you prefer to have something in writing because you are taking initiatives as a lawyer. The fax made a very big difference positively. But on the other hand, when we receive as lawyers three covering pages explaining a case, with 30 pages of documents attached to the fax, such as bills of loading charterparties, exchange of telexes and faxes and invoices, the kind of documents that you need to understand a claim, and at the end of the three-page fax they say ‘Your opinion by return will be much appreciated’, the work has become much more pressurised. Heinz Kühl, who has a similar pattern in Bremen to relate, puts it more bluntly: ‘Fax is the killer. Computer messages are still quicker.’

Dwight LeBlanc wonders whether we might not have reached the point of over-communication: Thirty years ago you used to immediately send out a very big report in a telex form in which you would give some of the more important particulars of what happened and how it occurred. Now with computerisation, satellite communication, faxes, if you don’t send out reports it is almost as though you are not doing your job. You spend the entire day working in ascertaining facts and making sure that the proper light is put on the case as far as the facts are concerned. It is hard for anyone to understand that you are busy on a 12-hour day and that you cannot take a few minutes away from what you are doing to send a fax and even to send documents so that they will know exactly what is going on.

Communications are now ahead of one’s ability to keep up with them unless you put more people on a case than are needed. You are in a sort of quandary because you have everybody worried about the cost, particularly in the United States,

of legal fees. Yet you have this anomaly that you have these tremendous communications and if you don’t communicate you are not doing your job. Sometimes I almost feel it is to the detriment of the actual ability to develop the case for the client. It is almost as though you have got the other person at the end of the fax line looking over your shoulder in the office. Sometimes you wonder whether or not keeping individuals advised is as important as getting the witnesses ready. There is a very fine line and you have to make sure that you are meeting both requirements.

Efficient communications mean that one is not alone in a complex world. The right help is available some-where at the end of a line. If one of the 450 club correspondents around the world does not know, he knows someone who does, a point stressed by Neill Aitkin in the increasingly sophisticated market of South-East Asia: Above all you have got the backing of the club, all the governments, the salvors, the consultants. Everyone is aware that you have the strength and the expertise of the club behind you as soon as you start operating. If there is anything that needs to be done, we can get at the information, we can get at the technology we can get at the equipment if it is required. It is the club’s huge network of contacts, of correspondents, of people with whom they work, of industry committees. The amount of expertise, the amount of knowledge that is available to you through the club is the greatest single asset that we have, next to my staff.

For club members, correspondents and communications add up to service, wherever the port is. Each port has its own character; the common characteristic is service. That is the distinguishing feature of P & I clubs, one from another and from the commercial insurance market.

CHAPTER 11

BENEFITS

Rio de Janeiro

ULTIMATELY any sane shipowner will have to join a P & I club because otherwise with any major claim their ships could be arrested and they are going to be totally out of business. With one major claim an owner could go bankrupt if he did not have the support of the P & I club. The speaker is S.Venkiteswaran, a leading advocate and the club cor-respondent in Bombay. Uttered in 1994, his statement could have been made at any time in the club’s history. Not being seriously damaged financially is the main reason for joining a P & I club. The club is a guarantor, its name and financial strength often carrying greater weight than that of even the largest shipowner. A guarantee will avoid the arrest of a ship or secure its release, enabling it to carry on earning revenue. An owner is not alone. Wherever in the world his ships are trading, he has behind him the strengths of the club.

Lance Hebert, area manager for South America, testifies to the importance of continuity and stability: Our financial position is considered by South Americans to be very secure. Therefore in countries where inflation can be 2,000 per cent a year and things go upside down, what they want is stability. They want a good old solid English block of stabil-ity. That is the first advantage they had with the UK Club. It is someone they have known who has been around 40 years and has always been secure and stable in the stormy sea that they have had with inflation and Government changes and corruption and all these other problems. Then they have had close personal contact with people from the UK Club over all those years and there has been some consistency. It has been a good old conservative British institution. John Spruyt, a con-sultant, gives a further reason: We were in the frontier of the chemical tanker business and had a fleet that was becoming increasingly risky. So we were bringing a new risk into a low-risk club. We needed a club that would work every year, not one that just gets you through an immediate difficulty. You need general advice as things get more complex.

There are tangible benefits. Individually, an owner has the security of knowing that his claims, significant to him but routine to the club, will be reimbursed quickly. Janusz Fedorowicz, claims adviser to Petrobras, the Brazilian oil company which for damage done by a ship to its large tanker berth at San Sebastian had been paid $9.5 million before the rebuilding was complete, observes: The big cases that stand out are a real test, but it’s the run of the mill finally that either wears down or helps you to build up a relationship. A major collision or pollution case fortunately does not occur that often, whereas the smaller claims are quite a frequent event. They can be a pain in the neck if they do not work out well. In reality, those are the testing ones.

George Makris, representing Greek owners through the Tridentine Maritime Agency in New York, emphasises personal links: Many times and instances where we would have difficulty doing things I just picked up the phone and called the right person in the club. It is done immediately, whether it is a guarantee or bond, whether it is backing, legal sup-port, or what have you. There was a problem once in America, where I had a ship that sustained some severe heavy weather damage. Hatches were broken open and we came in with damaged cargo. She had survived a storm when two new ships sank next to her. This poor old Liberty ship, which was built in World War II, the captain brought through even though he had lost all his power. The receivers wanted $125,000 bond to let the ship go out, a lot of money then. The club representa-tives in New York were very adamant about it. They would not give us security. I picked up the phone and called Michael Miller, who was Dawson Miller’s nephew, and told him the story. He called New York and said: ‘Look, Mr Makris needs a $125,000 bond. You give it to him, no questions asked. What he says is true. It was heavy weather and / am sure it will be resolved.’ To make a long story short, we resolved the issue for $7,000.

Neill Aitkin in Singapore speaks of the mixture of claims handling and advisory skills that characterises a P & I correspondent: You are basically there to provide first aid and comfort before the claim happens. We can minimise claims by getting there quickly. We can stop claims altogether or control the damage by getting there promptly, giving the master the right kind if advice, the support and help that he needs and providing the right kind of detailed information to the club and the owners because that is basically what people need. They need information, they need it promptly and they need it accurately and that is not always available from other sources. You like to think that it is but unfortunately it is not.

Advice and help are available not only in emergencies: We find shipowners increas-ingly coming to us with matters not directly club-related and seeking our advice. It may be commercial advice in respect of charterpar-ties or other contracts which they may have involving the region. It may be operational advice in respect of ports or operating prac-tices in the region. It could well be practical advice in respect of a ship which may be in the port and has a problem which is not P & I related. Because they have dealt with us before, because they know we have wide experience of the region, we are able to contribute, although we do not take the place of agents. Agents have their own specialised knowledge and abilities, but we have a rather different range of knowl-edge and ability which we find with increasing frequency the owners are availing themselves of because they realise that you have that par-ticular ability in that particular region. If you don’t have it, you know a man who does. With regional owners you do find people coming to us frequently and saying, ‘What do you know about South America?’ You say, ‘Not a lot, but tell me your problem and I will get you an answer.’ So we are able to generate information that assists they’re chartering or commercial or claims department to reach the right decision by providing the correct information. This is usually done promptly and without any cost to the owners. It is not a service we would charge for, so they are very lucky.

Neill Aitkin puts the urgency into context: Most major industries nowadays are working on a just-in-time system. That means shipping has become a very important factor in production or distribution schedules. Therefore anything which interferes with that is going to become very costly. So the responsibility on all four parties - owners, their clubs, agents and correspondents - to see that goods flow and finance changes hands without undue hindrance is increasing. Systems are being evolved to ensure that the four of them see themselves as an extension of the manufacturer on the one hand and of the receiver on the other, to ensure that the members’ service is not in anyway disadvantaged by unnecessary delays. As far as normal shipping is concerned, there are increasing financial pressures on owners because of depressed freight rates in most parts of the industry. It is equally important therefore to see that, from the point of view of anything which might cause delay to owners, whether it be through detention delays, fines or whatever, those are dealt with not after they have happened but before they happen, that systems are set up beforehand with the port authorities or whoever is in control, or who might be responsible for detention or fining of a ship to make sure that these delays do not occur. In a more complex world with greater liabilities ready access to the right expertise is vital. An outstanding Pacific example is the experience gained by Sir John Williams and salvage master Jock Anderson on the removal of the Wahine wreck in Wellington harbour being applied on Seawise University, the former Queen Elizabeth, in Hong Kong harbour. Francis Frost outlines their approach: They immediately had a series of fundamentals as to how this wreck should be dealt with. There was a wide range of people who wanted to be in on the job. There was a great deal of scrap, very high quality metals. We called for a range of tenders from salvors. Jock Anderson immediately became sceptical because he realised that the ship’s basic integrity was very questionable. Bulkheads had gone. The metal had been terribly badly twisted and damaged. She also had 11,500

George Makris (left) with Fotis Lykiardopulo in the background, John Hatgis of N J Goulandris (centre) and Capt. Nic Malpas at the club’s

125th anniversary dinner on 27 January 1995

tons of mud in her. She had sunk 68 feet into the mud, so we also engaged civil engineering consultants Binnie & Partners on the wreck removal. They persuaded us to have a Decca survey on the whole of the area adjacent to the ship in Hong Kong harbour to a depth 1120 feet below sea level. We are glad we did that because we found there was a very disparate substrata pattern in the seabed. The Decca survey showed that amidships the ship was actually resting across a tongue of hard alluvium. Had one salvor been allowed to get the contract and raise the ship with artificial flotation and then had done anything wrong at all, we might have ended up with a skyscraper - the ship was over 1,000 feet long - because the ship would have revolved round the alluvium like a see-saw. Binnies had found by their separate investigations that the strength and resistance of the mud were not sufficient to counter the plunging weight of the ship. The ship was in a very unstable position and duly one day she lurched upright by about 20 degrees. We could not let them use explosives because of the proximity of power station inlet pipes. Eventually we got the solution. We should allow the contractors to cut the vessel down and give them a liberty to float off certain substantial parts, like the main boilers. That method may not have hit the headlines but at least it did not damage anything. None of the books on wreck removal and salvage or on the great liners has anything about the history of her end. The owners, the salvors and ourselves are the only people who know about it. Altogether the wreck removal took five years and cost $10 million, more than the value of the ship under conversion, the majority of which was recovered from the war risks underwriters since the loss was caused by malicious damage.

Away from the hustle and bustle of ports the club carries on quiet activities almost unnoticed. One of them is education. It provides speakers around the world for seminars, not always dealing with the subject of P & I. It conducts courses for owners and correspondents, some being held in their own offices. In this way it shares its experience internationally, keeping people up to date. Professor Anatoliy Lugovtsov, a former vice-president of the Baltic and International Maritime Council (BIMCO), offers a Russian view: The staff in shipping companies change from time to time, so new people come into the department which handles problems of commercial claims and gen-eral average, so it is vital from time to time to have the seminars and people for training. Also some new tendency in the world of shipping happens every year and these seminars allow the club members to be always abreast of what is happening. There is a lot of very useful information for the benefit of the companies and getting together to discuss problems. This has become particularly important since the break-up of the Soviet Union and the formation of the Commonwealth of Independent States. Terence Coghlin details developments: Shipowners from the former Soviet Union today share important common problems, variants of the question of how a company which has been under a state umbrella goes private. There are huge financial issues. In the old days if you lost a ship you rang up Moscow and they supplied a new one. Now you are on your own and trying to borrow money from the Germans. Senior executives of these shipping lines need opportunities to study and to discuss such problems together. One of the things we have been doing is to provide them with such opportunities through special conferences. We bring a group of their top people together for several days, often in London, and introduce them to experts from other City service organisations - brokers, bankers, and economists. The P &I content of these seminars is quite low, perhaps just half a day. The rest of the time we talk about ship finance, new maritime legislation and so on - trying to give them what they need in terms of the challenges and opportunities that are so urgent for them today. This illustrates nicely how the club can be and is more to its members than just a provider of liability insurance. Formed in 1991 was Jurinflot International, a joint venture of the UK and West of England Clubs, Sovfracht and Anglo-Soviet Shipping to provide correspondent services to shipowners. Based in Moscow under the direction of Stanislav Pokrovsky and having as its chairman Bob Crawford, a former chairman of the UK Club, it procures services from surveyors, lawyers and experts at the various ports of the former Soviet Union.

Anywhere in the world to companies of whatever size, the services of a club surveyor are helpful in maintain-ing high standards. John Spruyt was a consultant to a family company with 10 ships: It was very helpful to me when Richard Pilley inspected a number of our ships. He produced a form with a number of ticks, except when it came to updating the charts. There he issued a warning that I found very useful. There are quite a lot of people within a shipping

organisation who don’t take that sort of thing as an affront but see it as good ammunition in the process of change. When you are trying to create a climate of cultural change aboard ship you need this extra reinforcement of an audit organisation. Ship vetting programmes if they are indicting a member for sloppiness of one sort or another, are acceptable to the member-ship as a whole.

There are other collective benefits. Through membership of various bodies the club is able to make its views known, often influencing the drafting of national legislation and international conventions. The British Maritime Law Association (BMLA), for example, has standing committees covering arbitration, carriage of goods, danger-ous goods, general average, liens, mortgages and arrest, limitation, marine insurance, personal injury, pollution, and salvage. Following its national discussions, the BMLA makes recommendations to the Comité Maritime International, on which the club is also represented. A continuing subject of discussion is the York/ Antwerp Rules on general average. Involving many nations with their differing attitudes, international conventions are inevitably slow to be agreed and subject to constant amendment. International bodies to which the club belongs include the Baltic and International Maritime Council (BIMCO) and the International Chamber of Shipping.

On club services, a broker comments: It intervenes and helps with day-to-day business. Club people are always at the end of a telephone and can always give advice or suggest who to talk to. The UK Club is involved at government level and can act as a very efficient lobby. They give oral advice and their voice is heard. As chairman of the club from 1983 to 1990 Bob Crawford was aware of the increasing political pressures: The International Group is now active not only in helping to produce international conventions looking ahead but also in the consultation process of national legislation that will affect the international shipping community. In America the Oil Pollution Act (OPA 90) is a very good example. Despite the club’s representations, OPA 90 was still passed. That was a suit and you had to put all the pockets on it. For example, the International Group made further strong representations with the US Coast Guard on the rules and regulations that were to be introduced to give effect to OPA 90.

New external pressures have affected owners, putting the clubs in an advisory role, as John Tilley notes: The media pressures have all come about in the last 10 years. These days the managing director will be required to give an inter-view immediately. He may never have had any training for this. That sort of pressure, right at the very top of the company, never used to happen. Twenty or thirty years ago I used to put myself between the press and the shipowners. If the media wanted any information I would give it to them. We used to protect owners as part of our job. Now disaster planning is vital. We have to impress on managing directors that they are expected to act as spokesmen for their companies. A vivid example of that occurred in August 1994 when the ferry Sally Star had an engine room fire while crossing the English Channel. The scenario for such an incident had been written a year before under club guidance and the safety procedures well rehearsed since. When fire actually broke out everything happened almost exactly as envisaged. Local lifeboats evacuated drivers accompanying their trucks and non-essential crew. There were no injuries or loss of life. The fire was quickly brought under control and, interviewed on early morning news programme, the managing director of Sally Line was able to give calm, factual answers to reporters’ questions. What came across clearly to viewers and listeners was that the whole situation was firmly under control. The reputation of Sally Line as a safe ferry operator was enhanced by the incident.

Similarly, prompt action in the event of an oil spillage or helping to prevent a spillage limits damage to the environment, tones down media coverage and blunts some of the sting of the environment lobby. Such benefits are difficult to quantify in money terms, but for members they do represent value for money.

The Seawise University - formerly Cunard’s Queen Elizabeth - was completing conversion to a floating univer-sity for the Chinese shipowners C Y Tung when she caught fire in Hong Kong harbour on 9 January 1972. Her

removal, which took six years, was the most expensive claim paid by the UK Club

Out of bad good can come. In the Bosporus in 1960 there was a triple collision of two tankers, the World Harmony and Petar Zoranic, and the steamship Tarsus. Dr Hrvoje Kačić, who later became a director of the club, recalls: It was a bad day. All three ships were destroyed by fire, with the total loss of 52 lives, about half of them Yugoslav. Many of the survivors were badly burned. Frank Ledwith, who handled the case in London, suggested an initial settlement of £50,000 to meet the immediate consequences of the loss of lives. This was considerably above the compensation expected in Yugoslavia at the time. The eventual settlement was used not only for meeting loss of life and personal injury claims but also, in part, to establish bursaries for Yugoslav students. These lasted until the early 1990s.

Not everything involves money. Having dealt with the problem of ships under arrest for 18 months or more in Saudi Arabia, where local law had been incapable of releasing them, Francis Frost became involved across the region: It became clear in 1981 that the Gulf Co-operation Council, comprising six countries - Kuwait, Bahrain, Qatar, the Emirates, Oman and Saudi Arabia - needed a cohesive maritime law. We offered our services in devising an interna-tional system. We developed the whole of the code for all these six countries in four months, in English and Arabic. This enabled every minister involved to determine exactly which parts of their own prior codes we had reckoned were valid and which were not. You were looking at Italian, German, French, British, some American legal relics and a lot of Egyptian material. We gave credence wherever due and managed to get a system which, as far as we could make it, did not conflict with the shariah. Unfortunately, politics eventually prevented the code being formally enacted as such, but it has had a major affect in maritime practice in the region. However, I was very interested to hear from an Iraqi friend of mine that, when he was in Oman recently and he had cause to look up the Omani solution to a particular shipping insurance riddle, he was shown a volume, well used. He said: ‘I don’t know who did this but they knew what they were doing.’ That was actually our volume. Such acceptance is of value to any shipowner operating in the Middle East. On a wider scale he never knows when he may need to call on any of the contacts and services of the club.

CHAPTER 12

UNDERWRITING

Sydney

ON 10 APRIL 1968 the New Zealand inter-island ferry Wahine was entering Wellington harbour in a severestorm, with winds gusting up to 120 miles per hour, when she struck a reef. Clear of the rocks but badly holed,without any engine power, taking in water, the Wahine turned over and sank, a wreck to be removed. Ian Mackaywas the club correspondent facing all the problems on the spot: The exercise from start to finish was carried out inthe inevitable and full glare of public and news media interest. This was not surprising in a country the size of New Zealand.Fifty-one lives had been lost, the wreck was lying highly visible, on the western side of the channel into the port ofWellington, the capital city and questions were being asked everywhere as to how one of the regular as clockwork ferries (youcould set your watch by them) came to sink and who was to blame. The immediate problems included a full-scale formalinvestigation. Hull underwriters duly abandoned the wreck and the task of its removal, as required by the WellingtonHarbour Board, was added to the list of the club’s responsibilities.

The Australian salvage company United Salvage of Melbourne was contracted to carry out the removal and Sir JohnWilliams and Captain Jock Anderson moved into position. The ship, lying almost on its starboard side, was a passenger ro-ro and the plan was first to empty the hull of all vehicles, not an easy job because nearly 70 of them had fallen into a heapon the lower side, remove as much of the interior equipment and fittings as possible and cut away the superstructure. Thiswas all fairly traditional and routine. The next step, however, was almost unique for a wreck of this size because it wasintended to pump polyurethane foam into strategic parts of the hull to bring it upright, then float it out to sea and sink it ina deep hole off the coast. Murphy Pacific Marine Salvage of San Diego were engaged to manufacture the foam and theirchemists set up a factory on a barge, which they fitted with the necessary equipment and chemicals. Disaster struck, though,because 13 months after the sinking the hull split into two connected pieces in a fierce southerly gale and the plan had to beabandoned. The only alternative was to cut it up into large pieces and take them ashore on the one heavy lift crane avail-able, the Hikitea, where they in turn were cut up and carted to Auckland by arrangement with one of the local steel com-panies. It was a long and tedious process. The ship went down on 10 April 1968 and the release and discharge from fur-ther liability to the Wellington Harbour Board was not executed until 26 June 1974.

While the wreck was being dealt with there was also a large list of claims in respect of loss of life or personal injury whichhad been lodged by claimants or their solicitors, whether by letter or by writ. These presented a formidable task, which alsodragged on for several years. The overall cost of the Wahine disaster was $2.88 million, the biggest claim under thereinsurance contract to date and the largest until 1974.

Such claims had been anticipated in the 1964 report: With the high and ever increasing cost of labour and materi-als, claims involving six figures in sterling are by no means unusual and with high limitation values such disasters as befellthe Lakonia serve to emphasis that today more than ever before there is a need for effective protecting and identity insurancewith its wide cover and resilience to absorb catastrophic losses. A short while ago there was an accident involving an unin-sured shipowner who is now confronted with a liability in excess of $2 million which, were he insured, would have beenabsorbed by his protecting and identify underwriters. Yet in the next paragraph the directors acted contrary to mem-bers’ expectations: To keep abreast with the need today of alleviating in some measure the burden upon Members of thecost of P & I insurance, the Directors have decided, with effect in 1964, to reduce the advance Call from 7s. 6d, to 6s. percontributing ton, and to call it up in two as opposed to three instalments as heretofore. It is hoped that this will afford somemeasure of assistance to members during the sustained period of depressed markets, although unfortunately this initial reduc-tion does not mean that the overall cost of P & I insurance have been reduced. The back or supplementary Call will to theextent of the reduction, be increased when the Association’s liabilities for the policy year in question are known (September1967), but on the other hand the members will have the use of money which otherwise would have been paid to the Club. Itis hoped to give effect to this new scheme for a few years at least and the position will be reviewed in light of experience.

In the event the late 1960s was a period of bad claims experience, not just in the occasional very large claim

but in several moderate to large-sizedclaims, which made the greater impact.Supplementary calls were higher thanforecast, as Charles Goldie, who joinedthe managers from the Bar in 1967,found: When I came on to the scene inItaly in the late 1960s, I had to explainenormous supplementary calls theUK P & I Club was charging in the 1967to 1969 years. As usual we were ahead ofthe game. Others followed suit later on, butI had the unhappy task of trying to explainthese increases to Italian shipowners, manyof whom promptly left us and joined the Standard Club orthe Steamship Mutual, and so duly got hit by the next wavefrom those two when we got over it ourselves. The increasesthen were due to an upsurge in claims.

Similar experiences were reported from around theworld. Pool claims, for example, had become more fre-quent and the retention of the holding club was raisedin 1967 to £30,000 for sterling entries and $100,000 fordollar entries. An increase to £50,000 ($120,000) wasimmediately mooted and implemented the followingyear, by which time the UK Club was contributing noless than 41 per cent of the pool sum. What neitherdirectors nor managers of the club had faced thoughwas that rates were both too low for the levels of claimsand were not closely enough related to the risks pre-sented by individual fleets. Underwriting, which hadbeen a reactive process, needed a fundamental reap-praisal. It came about almost by chance, through JohnHenderson, who had been an underwriter but for mostof his working life a broker and golfer: It so happenedthat one other major fleets for which my firm were brokers was a very large American dry cargo fleet, the P & I for whichwas placed in America. We had for some years been trying to get the P & I to be placed in London, where a percentage ofthe fleet, hulls and war risks were placed. When one renewal was due, I worked out a presentation for the club on two sheetsof paper. The first one was the past record for the fleet and the second calculations showing the rate I thought would beappropriate. I brought this into one of the underwriting departments, saying I would leave the presentation with them andcome and see them the next day to see what they thought of it. When I called they agreed they would be prepared to take thefleet on those terms and would I have a word with Sidney Fowler before I left. So I had a word with Sidney, who said:‘we’ve had a look at your presentation and we think it’s a rather good way of rating fleets. Would you come and do themall?’ John Henderson accepted the offer, joining on 1 August 1970. He had two problems to deal with. Againstthe present level of claims the call rate was too low. On his recommendation the mean rate per ton was raised by

The inter-island ferry Wahine sank in a storm at theentrance to Wellington harbour on 10 April 1968

Passengers are rescued from the Wahine

50 per cent, from $4 to $6. The other problem was longer term, establishing an underwriting system that reflect-ed the current and future-shipping scene, which now included liquid natural gas carriers, tankers, bulk carriers,dry bulk, and general cargo container ships. Ships trading regularly to the USA were more exposed to heavyclaims because of the American legal system. In the early days of the clubs underwriting was based upon shipsthat were very similar to one another, simple steamships. Exposure to risks varied little from one ship to anoth-er. When specialist ships and different trades came along the risk was not purely in proportion to tonnage. Theprinciple of contributing tonnage was introduced in the late 1920s. It was some improvement, an attempt to tryand get equity between members, but it was not applied in a very scientific way. The notion of rating by record,floated in the depression of the 1930s, foundered along with the idea of a new club for hull and machinery. Theresult was an outdated, rather haphazard system. Members were now becoming more and more concerned thatit lacked a means of rectifying the account of an owner who had a history of persistent credit or debit balancesin his claims record.

P & I was now a much more significant item in shipowners’ budgets, sometimes more than the cost of insur-ing hulls. It merited more attention, a point noted in the introduction to Mutuality, a booklet produced by themanagers in mid-1972 to set out the structure, services and principles of the club: Members have shown an increas-ing interest in the administration of the Association and especially in underwriting. This interest has been stimulated by ris-ing insurance costs which have been the inevitable result of inflation; the increased level of claim settlements resulting fromthe high values of cargo and other property; high wage levels and the cost of services and more onerous legislation; all thesehave played their part in increasing the cost of insurance. Sometimes inflation on claims was known as ‘judicial infla-tion’ because courts contributed to it.

On claims, there were a few facts that may have been surprising: Experience has shown that only some five per centof claims attaching to a particular policy year are settled during that year, and only ten to twelve per cent in the year nextfollowing. Thirty or more percent may be settled in the third year after the close of the particular policy year, there after indiminishing percentages until seven, perhaps eight years after the close, all claims are disposed of. One of the difficulties inmaking an accurate forecast of outstanding claims is that the prescriptive period during which claims may be made variessubstantially the world over and it not infrequently occurs that the first notice of a claim is given to a member and theAssociation some three or four years after the close of the policy year in question. Indeed, in some countries claimants haveup to thirty years in which to give notice of certain classes of claim.

The system of calls was also outlined in the booklet: In common with the current policy of the Directors it has beenthe stated preference of many of the members that they should pay as much as possible of their total P & I costs in the formof the advance calls which are made in two instalments in the course of the policy year, leaving as small a proportion as ispossible to be paid by way of supplementary calls after the policy year is over. It is because of this policy that over the lasttwo years, the advance calls have been substantially increased to the point where the balance remaining to be paid by sup-plementary calls is now a comparatively modest amount in relation to the advance call. This policy enables the members’interest to be safeguarded in two ways. First of all, the Association can be protected to some appreciable degree against theeffect of future currency fluctuation in a way that was not possible in 1967, and secondly, there is a substantially greaterinvestment income from the Association’s funds which is available to reduce the supplementary calls.

Nevertheless, members wanted to know as clearly as possible what their call commitments would be. JohnHenderson had a simple sporting approach to a new system: A golf handicap committee uses a player’s past experi-ence in the form of his card scores for his previous rounds as a guide to the standard they would expect him to play to in thefuture. This is a very sound principle to apply to P & I underwriting. You use the past record not to see whether you shouldbe giving back premium to an owner who might have a very good record or charging an extra premium for a bad record to

recover the losses the club has paid. You are using the good or bad record to adjust to what experience would teach you wouldbe necessary for the coming year. That is quite a different principle. You are using the past as a guide to the future.

He made a presentation to the directors at a meeting in Bermuda on 15 October 1973, outlining what was anacceptable loss ratio for the club overall and how individual fleet deviations from it should be handled. After along debate they unanimously approved the principles, which were then set out in an explanatory circular to allmembers. The emphasis was on mutuality, as extracts from the circular illustrate: It is necessary that the premiumcosts should be shared among the members as fairly as possible in the light of each Member’s potential risk as defined by hisexposure and coverage. ... In order to average out the peaks and troughs of a Member’s claims the level of his premiums tothe Association from one year to the next should be subject only to reasonable fluctuation in the light of the spread and scopeof the cover provided. ...

Each year should basically stand on its own and pay for itself. Therefore at each annual renewal the Managers attemptto adjust the premium rating for each Member so that it is commensurate with the best estimate possible of the risk to theAssociation created by that member for the coming year. ...

Any changes in the nature of trade of the ships concerned are taken into account, as are any changes, which may havetaken place over the years in the cover that the member enjoys as well as any adjustments up or down which may have beenmade to his premium rating on previous renewals. The Managers also seek any other factors, which may help them to makea reasonable and fair assessment such as, for example, the development of an improving or worsening trend over the yearsor the disturbance of an otherwise good loss ratio by a single heavy claim.

It is borne in mind that while the type and area of trade of particular ships may lead to a reasonably foreseeable level ingeneral claims, incidents giving rise to more severe claims with a serious impact on the record of the individual member areto some extent a matter of good or bad fortune. ...

Naturally the larger the fleet and the larger the number of risks covered the greater will be reliance that can be placed onthe Member’s own claims record - and in the majority of cases this will be the most valuable individual factor in the assess-ment of risk. ...

P & I claims have a ‘long tail’ in that it is often several years before they can finally be settled, and until final settlementaccurate estimating is often very difficult. Additionally, there are occasions when a Member becomes aware of a potentialclaim only long after the event from which it flows, during which period there may be no estimate at all in his record.

Consequently, at the time of any particular renewal it is most unlikely that the figures for the then current year will be suf-ficiently developed to give any useful guide to the overall pattern. ... Changes in rating, whether upwards or downwards,tend to lag about three years behind changes in claims trends. This in turn means that from time to time Members’ recordsmay show as they develop periods during which their loss ratios are higher or lower than the target percentage. ...

The ‘waves’ of an individual Member’s pattern of claims over the years, as improving and deteriorating trends emerge,will be mirrored in retrospect by the ‘waves’ of his premium rating with a time lag1 about three years. ...

The application of these principles over the last few years has produced a substantial advantage to the members of theAssociation in that it has become possible in accordance with the third requirement set out above to forecast with reasonableconfidence the level of supplementary calls that will be required and, indeed, on some years to make supplementary calls ata level below that originally forecast.

Implementing this apparently simple principle involved a lot of detailed work, with a folder for each fleet, thestatistical information being gathered by Peter Woodruffe. The renewal folder contained the claims record for

the back years, which was a record of premiumspaid in and the claims that had been paid out, aswell as estimated future claims. It also contained arecommendation from the underwriting depart-ment, worked out by John Henderson, with therecommendation for renewal showing whether itshould be up or down on previous terms. Anotherpartner, Peter Tallis, familiar with the Japanesemembers, handled their renewals on the samebasis. The actual renewal negotiations were han-dled by an executive from the claims syndicateservicing the vessel. Executives could renew onthe terms recommended, but if they wished tochange those terms they had to come back to theunderwriting department with the argument forchange and approval or otherwise. For example,you might have a recommendation for renewal onone set of terms and an owner might wish to havea higher deductible or he might be about to gointo a different trade. Either of those reasonscould be sufficient to cause a change in the rating.It involved a lot of detailed work because therewere hundreds upon hundreds of these folders,compiled by a team.

John Henderson had the satisfaction of seeing his system work in practice: Although there were objections frommajor fleet owners initially because they were having to pay a bit more, they soon came to realise that the mutual principlehad been preserved. You were not doing our owners any service at all if you renewed a fleet with an estimated supplemen-tary of 15 percent and in the end the supplementary worked out at 50 or 70 per cent. It was an expensive business when anowner’s freight had already been earned and he could not go back three years and get the freight increased to cover the costof the additional insurance.

Except for one year we were always either on the nail or 5 or 10 percent under. I aimed to try and finish up with about 5per cent less than we had given as an estimate. One year we did not get it right. The sort of thing that could affect the fig-ures quite substantially would be, for instance, fluctuation of rates of exchange, the going rates of interest obtainable on thepremiums in hand, inflation. In fact, we applied an inflation rise automatically to the expiring rate before we then appliedthe up or down adjustment or renewal.

The computer made a lot of difference on renewals, particularly if an owner was asking for a change ofdeductibles. It was then comparatively simple to go back through the record and adjust what it would have beenon the new deductibles as compared to what it was on the old. Previously it all had to be done by hand.Computers were also invaluable in calculating what the supplementary calls or the total call income would needto be. This was based to a large degree not only on claims that had already been incurred and reported, incurredand paid or just estimated, but also on claims incurred but not reported and the development of the back years.The underwriting team used to go back over a 20-year record of the club as a whole. From that they could obtain

The club has invested heavily in computer technology

a figure of the claims that were late developers, claims that had been incurred but not reported in the earlieryears. Those were adjusted for both inflation and fluctuation in the club’s entered tonnage, giving an idea of howmuch should be added to the latest year to take account of the development over the previous years. Thus themembers had the best possible picture of outstanding claims. It was an accounting feature on which the chair-man, Bernard Blakely, was keen. In a financially unstable world he and his successors wanted members to beclear exactly where club finances stood. The fewer surprises the better.

Stephen James, who succeeded John Henderson as senior underwriter on his retirement in 1983, looks backon the latter’s achievement nearly 25 years later: We were forever calling in supplementary calls in excess of the origi-nal estimated amount, which meant unbudgeted expenditure for the shipowners. That is not what they wanted from theirinsurance. You basically insure to control your own expenditure, so that you lay off the risk of your financial results for theyear being wiped out by a large claim. Essentially the rating was and to this day is based on the loss record and, on the basisof that loss record, that risk is what each underwriter perceives the shipowner poses for the club. Each shipowner thereforehas a rate that is individual to him, based on the underwriter’s perception of that risk.

Gerd Trulsen (left), director 1983 to 1993, with Stephen James at the club’s 125thanniversary dinner on 27 January 1995

John Henderson brought some order and discipline into that area, but his main job was to ensure that we got the rightamount of money in from everybody so that our financial planning for the overall finances of the club was on a sounderbasis. The background to it was that P & I insurance was not very expensive in the old days and the cost of P & I was ris-ing. The club was being run by people with a legal background and we needed professional input on underwriting.

The members took to this pretty well. There was certainly recognition that order was required, but it did need some harddecisions. John’s first renewal when he arrived put a 50 per cent general increase on all the rates and you can imagine thattook a bit of selling. Indeed, it took a bit of selling internally - John selling it to some of his fellow managers, quite apartfrom then selling it to the board of directors of the club, who were shipowners’ representatives, and then selling it to the mem-bers who were actually going to have to pay the bill. We lost little or no tonnage as a result of this and we immediately gaveourselves a market lead in this area, which was then followed by most of the other clubs. In particular, the Greek commu-nity, which has always been a solid supporter of the UK Club, stayed loyal to the club even though they would of coursehaggle as much as anybody. It was something of a revolution bringing in John Henderson. Terence Coghlin adds: Hisarrival was a great moment for the club. Underwriting principles had not previously been thrashed out between the boardon the one hand and the managers on the other. His system proved to be a way in which movements of rate in response torecord could be calculated to produce fairness in the longer term between one member and another. It is still in place todayin spite of a very recent review of the whole concept. John Henderson secured the club’s future by putting its underwritingon an intellectually sustainable and equitable basis.

CHAPTER 13

SELF-ADJUSTMENT

Cape Town

WHILE John Henderson was making his presentation in Bermuda, events that were to make internationalwaves were taking place in the Middle East. In the Arab-Israeli War of October 1973 Israeli troops had crossedthe Suez Canal and were advancing on Cairo, and in the other direction on the Syrian capital Damascus. UnderUnited Nations auspices a cease-fire was established on 24 October but Israel had expanded beyond the 1967ceasefire lines. In protest, the Arab oil-producing states, which exported two-thirds of the oil then consumed byWestern Europe, cut production and quadrupled the price. Difficulties were compounded by the financial worldbeing, according to the managers, ‘in virtual chaos as a result of the decisions of various countries to float theircurrencies against the dollar or each other. ... there had been considerable fluctuations in currencies from day today resulting in vast amounts of monies being made and lost on the exchange markets.’

One result was a slump in world shipping. This happened at a time when large orders had been placed for allkinds of new ships, orders that could not always be cancelled. World tonnage far exceeded demand. Ships, nowmore expensive to operate, were laid up and freight rates plummeted. There was a smaller market for oil andhence tankers, made worse by the reopening of the Suez Canal in 1975, which reduced the need for VLCCs.Higher energy prices, a major cause of inflation, inevitably affected manufacturing, transport and trade. The sit-uation was exacerbated by a further oil price shock in January 1979.

By way of compensation, albeit minor, there were emerging new markets for P & I. The search for othersources of energy encouraged the development of oil sources outside the Middle East, notably in the North Sea,leading to a demand for oil rigs, both for exploration and production. After some debate on the nature of theseplatforms - most were deemed to be sufficiently ‘ship-shape’ - the first ‘jack-up’ oil rig to be entered in the clubwas the Dundee Kingsnorth in 1975, the year that oil production began on the United Kingdom continental shelf.Liabilities on drilling rigs excluded loss of hole, pollution from the rig’s sampling tanks and lines, and wreckremoval other than that arising from drilling operations. There was a separate rig reinsurance pool.

Another encouraging development was the cruise market. Scheduled passenger liner traffic had been killed byjet aircraft and a new market was opening up for leisure travel. This was initially concentrated in the USA, main-ly among retired people going down the east coast to the Caribbean and the west coast to Mexico. Further des-tinations were explored and a European business developed on a smaller scale. Although the age of typical pas-sengers increased the potential risks for operators, it became a growth market. From leisurely cruises developedanother market, in adventure cruises to remote locations such as the North Pole and largely unknown islands.These cruises posed new risks, especially health risks, for operators. They often needed specific insurance pack-ages against a variety of complex liabilities, as for example on fly-cruise holidays.

In the office John Tilley saw rising personal injury claims: Disasters in the 1960s triggered change. They made peo-ple think what compensation should be about. The managers were constantly under pressure when dealing with claims bypassengers, who brought them in the jurisdictions that suited them best. Traditionally the ticket you purchased when you wentinto a travel agent’s would say ‘We are liable for nothing’ in the first place but, secondly, ‘if we are, our liability is governedby the laws of the Cayman Islands, Liberia and Panama or wherever.’ Consumer associations were saying ‘This is anabsolute nonsense. The compensation under flags of convenience is appallingly low.’ The courts have become more and moresympathetic to victims and now brush aside the legal jargon on the ticket.

To speed the handling of an increasing number of small claims, some authority was delegated to correspon-dents. Each correspondent had his own limit per claim, the more experienced the correspondent the higher thelimit. There was some relief in the USA, outlined by Phil Nichols: The 1972 amendments to the US Longshoremen’sand Harbor Workers’ Compensation Act took away the longshoremen’s rights to claim unseaworthiness of the ship. In the

The Dundee Kingsnorth, the first ‘jack-up’ oil rig to be entered in the club, in 1975

very early days seamen used to discharge cargo and work the ship’s gear. When longshoremen took over that work they wereprotected under the Workers’ Compensation Act, but could still claim compensation from the ship if the ship was unsea-worthy. The 1972 amendments changed that. Instead of claiming unseaworthiness there was now a doctrine of negligence.That was very important to us because the big money still went out to the USA, in settlement of injury and death claims.The amendments became the catalyst for co-operation between the clubs on personal injury claims. We arranged meetingsin London to discuss what was happening in America and we asked American lawyers to come and talk to us about pend-ing claims and we set up a net. We decided to monitor all the longshoremen’s claims and make sure that if the courts weregoing to set a negligence standard we could try and control it to some degree. With the International Group, the net wasspread fairly wide. We discussed claims in depth and tried to take decisions on which cases should go to trial, which onesshould be settled, so we could actually try to have some influence on the law that might be created. It appears everythingthat happens in the personal injury field in the United States in due course triggers everybody else. Partly due to the amend-ments we don’t see nearly the number of longshoremen’s claims that we used to, but you can still be faced with claims youdon’t think you really should be having to pay.

The club was having to meet claims in an unstable financial environment. Moving the club to Bermuda hadcut the tie to weakening sterling, but it was having to manage its funds among floating, sometimes turbulent,currencies. Members experienced sharp peaks and troughs. For instance, by 1974 the club had disposable

The 43,000 grt tanker Tosa Maru caught fire in a collision and was abandoned in the mainfairway of St John’s Island, Singapore in 1975. The wreck was cut down to a depth of 120

feet below sea level.

surpluses. In that year the policy year 1969 was closed and $2 million together with any further surplus thatmight accrue was transferred to reserve. For the policy year 1970, 12½ per cent of the total net call, amountingto some $8.5 million, was returned to members and at least $1 million transferred to reserve. There was concern,however, about the worsening trend of inflation, which had been running at the moderately steady level of 10per cent and had recently showed appreciable growth. Hence the claims contingency reserve, then standing at$15 million, would be ‘of the greatest possible value to members’. It proved to be so in the closing of the 1974policy year in 1977, when there was a deficit of $30.26 million, met by a transfer from the contingency reserve.The club’s 50 per cent interest in the unprofitable American and Canadian Lake Pool business was also termi-nated. With the fluctuations of exchange rates, constant attention had to be paid to the investment of funds,which might be required to bring a year into balance.

In Bermuda the club had the freedom to invest in a variety of currencies and build a portfolio that would nothave been possible in London, where the investment vehicles were limited to cash and government stocks. Ininternational markets, investment policy could correspond more closely to insurance activities; reserves couldbe expanded to meet higher levels of claims payments. Security of funds had to be combined with better returns.Although it was not the prime consideration in moving the jurisdiction to Bermuda, the absence of taxation oninvestment income greatly accelerated the rate of increase in reserves.

Changing the jurisdiction also allowed the club to report its insurance activities in US dollars, which hadreplaced sterling as the world’s reserve currency and was often used by members in their day-to-day shippingtransactions. Sterling held in excess of known sterling liabilities was reduced and a diversified investment pro-gramme pursued. One of the early moves was into Swiss francs, gaining both interest on loans to governmentand commercial borrowers and a steady appreciation against the dollar. Money was also lent internationally

through the emerging Eurodollar bondmarket. To compensate for the periodiceffects of inflation upon the value of thebond portfolio, the board extended itsdiversification programme into pre-cious metals. Most of the holdings ingold and silver were sold in 1979 at ahealthy profit.

In that year too the system of man-agers’ remuneration was changed.Until 1969 it was reckoned in pence pergrt; since the move to Bermuda in centsper grt. From 1979 the basis becamedecoupled from tonnage size with theintroduction of a significant retainerelement in the fee.

There was another external concern.A consequence of the slump in worldshipping was more competition in thebusiness of P & I. The business hadalways been conducted under a

The Independenta was in collision with the Evriali and exploded in theBosporus on 15 November 1979. The wreck removal and pollution

claims took 12 years to settle

gentlemen’s agreement, an understanding that for the good of the mutual movement as a whole there was con-sultation among clubs and no undercutting. Competition remained as it had been, not on rates but on service.The possibility of better value for the same money, with the promise of more personal attention in a smaller club,could be an inducement to an owner to move his ships or split his entry.

In fact, members remained loyal. Through their businesses, they were well aware of the external pressures onthe industry. The uncertainties they had to face pointed to the need for strengthening the club. With the typesand scale of liabilities growing, mutual support was more than ever necessary. This was evident in the closerinterest taken by the directors in the affairs of the club since the move to Bermuda. More was at stake.

Correspondingly, the managers were adjustingto the changed situation. No longer havingDawson Miller as the dominant senior partner,they were moving towards a more collective styleof management. Partly, this was a reflection of thetimes. Ships were bigger, more specialised, facinggreater liabilities. In a more complex, volatileworld no one person could keep up with every-thing. Yet more was expected of the managers.Getting the underwriting on a sounder basis wasonly one essential.

In the 1880s, when the club was going througha difficult period and losing members, the solu-tion was to appoint a strong man, Thomas Miller.He was the leader who put the club on a firmerfooting, bringing financial stability and strengthand improving service to members. His familysuccessors carried on the tradition.

Over time, the basic needs of members had notchanged. In a more uncertain world, demand forclub strength, stability and service had becomegreater, and the management had to respondaccordingly. On their part they had to becomemore consciously professional in all departments,providing a higher level of service, not just onclaims, and ensuring members got value for thelarger calls they were having to pay. The process was no sudden revolution, rather an evolution, an increasingchallenge and response over two decades, from the early 1970s to the 1990s.

1976 the managers formed a P & I management team. Rex Palmer enlarges on the need: The business was get-ting very big. So we got together a number of dedicated partners and senior executives on the management aspects of run-ning the club. It was internal self-searching. Until then all the partners had been trying to keep an eye on everything thatwas going on in the firm. We were concerned that, with 15 partners all trying to keep an eye on everything, something wouldslip through the net because some of us thought the other partner was looking after it. It was a question of concentrating in

The Uncle John, the world’s first multi-hulled dive supportship, was entered in 1977

a set of dedicated people the conduct of business, making sure that it was being properly run and in safe hands. It meantsupervising all the work of the executives, all the claims handling, coordinating it with underwriting, making sure the agen-da notes were properly prepared for the directors, and that the conduct at the directors’ meetings was of the highest possiblestandards. Members of the team also represented the club managers in the Internationa1 Group of clubs. We all knew whatwe were going to do and say, and why we were going to say it. Self-help meant self-confidence. The club would needit because the mutual principle was coming under greater pressure.

CHAPTER 14

PRESSURES

Hamburg

THE WORLDWIDE slump in shipping, continuing in the 1980s, intensified pressures within the industry.The pressures were variously felt, with comparatively low trade volumes in oil, food and raw materials being out-stripped by the growth in trade of smaller, lighter manufactured goods as multinational corporations segment-ed production to achieve the lowest feasible costs. More fleets were ‘flagged out’ or registered offshore. Crewcosts were cut by reducing numbers and employing cheaper and perhaps less qualified nationals from the ThirdWorld. Although when it came to decisions the master of a ship need no longer be on his own at sea, being indirect satellite communication with his head office, a further decline in overall standards seemed inevitable. Itwas more than an abstract argument about quality. Economies in some areas could have financial consequenceselsewhere.

In the 20 years to 1979 the annual total losses of ships as a percentage of those in worldwide service doubled,from 0.28 to 0.56 per cent. Analysis of the figures was open to debate. Obviously, the age, trade and treatment ofa ship were factors in its likelihood of loss. Even so, some flags suffered total losses markedly worse than theexpected. In practice, it seemed that the clubs, their ‘good’ members or their reinsurers were left to pick up thetab. They would not be content to continue. Financial drain put a strain on the mutual principle.

Externally, attitudes to old ways were changing. The International Group had operated under what was called‘the gentlemen’s agreement’. Unwritten, it was based on the principle that, with a pooling of risks, it was unac-ceptable to have one club undercutting rates and taking business from other clubs knowing that they would beexpected to share the cost in the event of the one club making a large claim. In a mutual system you had to havean equitable relationship between clubs.

An alternative view was that the agreement, unwritten and therefore undefined, could be anti-competitive. Ifinsurance rates were agreed by what was in effect a cartel, then freight rates had to be higher, making consumerspay more for essential commodities. On the face of it, the agreement could be seen as ‘in restraint of trade’, inbreach of Article 85 of the Treaty of Rome. As such, the European Economic Community (EEC) had a duty toscrutinise it.

The clubs therefore had to commit it to writing. It had to be explained at length, starting with the backgroundand development of P & I, because the clubs were largely unknown. Principles and practice both had to be cov-ered. The document submitted to the EEC pointed out that the mutual principle was highly beneficial in termsof the cost of insurance to owners through, first, the pooling agreement and, second, the collective purchase ofreinsurance. The first is zero cost insurance in that there is no brokerage, no profit, no reinsurance, no premi-um until a claim has been paid. In 1994 terms the pool is sharing on an entered tonnage basis of risks between$4 million and $ 30 million, the first $4 million being the responsibility of the club concerned. For risks above$30 million to over $1 billion per claim through the collective purchase of reinsurance with Lloyd’s and otherparticipants, some 95 per cent of the world’s merchant shipowners are covered on a single slip. That business isattractive to underwriters and gives the group the lowest possible rates. The cumulative effect is that costs by theclubs to their members are kept low, with consequently low freight rates. Conversely, a break-up of the groupwould be to the disadvantage of consumers.

In 1985, the European Commission gave approval for 10 years to the so-called International Group Agreement.The agreement, which fell within the non-competitive provisions of the Treaty of Rome, was given formalexemption. Constraints were thus permitted on the ability of a club to acquire business by undercutting the ratebeing given by another club to its members. The restraints are not absolute and cannot bind a successfully com-peting club for more than one year. In explaining its decision the Commission expressly recognised the

importance of the pooling system in keeping shipowners’ liability costs to a minimum and the damage that couldbe done to it by unrestrained undercutting of each other’s rates: This pool is operated jointly by all the clubs whichshare the risk of any claim made against any member of any club which is in excess of the limit retained by each club. Thusany heavy claim that is made against a club is borne not only by the members of that club, but proportionately as to the excessby the members of all clubs within the pool. The pool itself also reinsures on the world market liabilities in excess of the limitretained by the pool. ... Quotation of discriminatoryrates would destroy the trust between clubs, which is animportant factor in the operation of the pool arrange-ments. Indeed, it is hard to see how the acceptance ofthe pooling system by the clubs could possibly continuein the absence of a high degree of mutual trust betweenthe clubs. Further, the agreement supports ‘fourobjectives crucial to the operation of the mutualP & I system, namely: continuity of membership;preserving the principle of mutuality, stability ofpremiums’, as well as the ‘continuation of the poolarrangements’

The American authorities agreed to abide bythe EEC decision. In practice, it seems to haveworked well. Indiscriminate shaving of rates toacquire tonnage has not become a problem. Since1985 the stability of the mutual framework hasbeen preserved while shipowners have been ableto exercise their option of moving all or part oftheir fleets from one club to another. Once againthe importance of club service to its members hasbeen emphasised. The net effect on the UK Club has been broadly neutral. Total entered tonnage has remainedstable, losses of a few percent at each annual renewal being offset by gains of similar amounts.

Within three years of the International Group Agreement being approved by the EEC the importance of ade-quate insurance cover against major disasters was repeatedly confirmed. The years from 1988 to 1991 were a peri-od of high claims. There were successive major catastrophes around the world: the Piper Alpha oil rig fire, onwhich the compensation settlements were ‘mid Atlantic’, between UK and US levels; the Exxon Valdez oil spill;hurricanes; the San Francisco earthquake. Individual disasters were compounded by mounting claims for pol-lution and environmental damage, causing losses at Lloyd’s, and withdrawal of disenchanted capacity from theinsurance market, which led to much higher rates overall. Reinsurance became more expensive.

An incidental effect of this was an enlargement in 1990 of the UK Club, for long the largest. The smallest clubin the International Group, based in Sunderland, was finding the cost of reinsurance prohibitive. The alterna-tives were to close down or merge with another club. Stephen James was one of the managers who handled thenegotiations: The directors of the Sunderland approached us. They perceived that since the Sunderland Club was largelyGreek, the UK Club, which has a very substantial Greek entry, might be a more sympathetic or an easier home for them.From our side, there was no particular attraction in the Sunderland arrangement per se. We were not looking to make moneyout of it. The idea that most of the Sunderland entries would join the UK Club was very nice and we welcomed them, but

Driven ashore on Cape Cuvier, Australia, by strong windsand a heavy swell, the Korean Star broke her back on 22

May 1988

the thing that really persuaded us to look at this seriously was that, if we said no and if other clubs had said no, theSunderland would have had to buy reinsurance from the market. That might have been difficult to achieve. The commer-cial market does not really have a feel for P & I business. The Sunderland had a number of outstanding commitments inthe form of guarantees to claimants, which is standard when a ship is under arrest. All of this may have created outside someloss of confidence in the P & I system. To maintain confidence in the system we gave the Sunderland a reinsurance to close.The greatest asset we got out of it was the Sunderland office, which ran off the old Sunderland claims and is now a fully-fledged Miller syndicate. There were certainly cost attractions in having an office in Sunderland rather than in the City ofLondon. It was also a return to one of the roots of the club, the North-East of England, 121 years after its foun-dation.

At this time the club again experienced its own pattern of high claims, especially on cargo and personal injury.They could not be ascribed to changes in the size or profile of the entered tonnage, which had not changed sig-nificantly. The size and frequency of large claims was increasing. Some had repercussions in maritime law. Whentwo fully laden VLCCs collided in a rainstorm off the coast of Tobago in 1979, the salvors were unable to recov-er anything despite the expenditure of huge amounts of time and money on a ‘no cure no pay’ contract. NewYork lawyer Nicholas Healy points out a lasting consequence of this: Since no property was saved, the salvors werenot entitled to a recovery of any salvage award. This of course was very upsetting not only to the salvors who tried to savethe ship, but also to other professional salvors, and a movement was started to do something about it. This resulted in thedrafting of a new salvage convention by the Comité Maritime International at its Montreal Conference in 1981. TerenceCoghlin of the UK Club took the lead for the British delegation in urging a provision recognizing salvors’ efforts in savingthe environment even in cases where no property is saved. The draft convention that came out of the Montreal CMIConference was later adopted, with some changes, at a diplomatic conference, and is now the 1989 Salvage Convention. Itis not yet in force, but I hope it will be in force before too long. What also came out of this was the Lloyd’s Open FormSalvage Agreement of 1990, which recognises the right of a salvor that saves the environment to some award for his efforts,even if no property is saved. It was the actualincidents that made the headlines though.The Jupiter, a passenger ship full of childrencollided with the Adige off Greece and sankbut there were only three deaths, two pas-sengers and one crewman. In 1991 theOceanos sank off South Africa, with all thepassengers being rescued.

Some claims harked back. A category ofemerging importance was occupational dis-eases. Potentially the most costly wasasbestosis caused by inhaling particles ofasbestos. Claims were filed against shipown-ers around the developed world, especially inthe USA, where it created a new cause for thelitigious and more profit for lawyers. Most ofthe seafaring claimants were engine roompersonnel, who argued that lagging hadworn or been dislodged by vibration.Dockworkers contended that they were

Nick Healy of Healy & Baillie (right) with John Hatgis (left) of N JGoulandris at the 125th anniversary dinner on 27 January 1995

regularly exposed to ‘snowstorm’ conditions during cargo operations. Benzene, used in tank cleaning, wasalleged to be the cause of leukaemia. Deafness through repeated excessive noise could be inflicted over a periodof years. Less easy to prove but still a subject of claims was psychological damage, perhaps caused through abuild-up of stress through having ‘been there’. Terms such as ‘syndrome’ and ‘trauma’ as in ‘post-traumaticstress’ came into vogue. Claims spanning a seaman’s entire career, as much as 40 years, had to be considered.Ignorance of toxic properties was no defence and courts showed sympathy towards victims, or unfortunategroups of victims, pursuing their entitlements to compensation from companies.

In property and personal claims there had been a general move towards stricter standards of liability under theinternational conventions: the Civil Liability Convention (1969), where the standard is strict liability; theAthens Convention (1974), under which the shipowner had to disprove negligence; the Hamburg Rules (1978)on cargo; and the Hazardous and Noxious Substances Convention, expected to be adopted in early 1996.Although each of the conventions provided for a limit of liability, there was less political will to implement theseprovisions, particularly where the amount of limitation was felt to be inadequate. There were specific problemsin countries with rampant inflation, which could rapidly erode the value of any award. Through media champi-ons of the consumer, passengers became aware of their rights to compensation, for instance under EuropeanCommunity directives on the liabilities of tour operators who did not fulfil their advertised holiday programme.Insurance obligations to crews were complicated by the more widespread use of crew managers or crewingagents, who arranged requisite manning under contract.

Contemporary with the problem of occupational diseases were the growing numbers of stowaways. Most ofthem were seeking a better standard of living, perhaps carrying drugs to finance it; some were fleeing authori-tarian regimes. Once discovered aboard ship, they are usually the unwanted responsibility of the shipowner, whohas to care for and feed them until they can be repatriated. As the international convention on stowaways, drawnup in 1957, has not been signed or ratified by the major maritime nations, the handling of the problem has large-ly been left to local correspondents.

A UK Club correspondent describes a typical case: The incident involved 19 stowaways on a ro-ro from Africa try-ing to make their way into Europe. Their number brought the captain into a new area of regulations on things like adequacyof lifeboats and he could not sail. Given the number of stowaways, there was only one possibility, keeping them in our owncountry, letting the ship sail, and trying to repatriate the stowaways by air. They had to have guards accompanying them.We had to arrange for travel documents, calculate with the immigration and escorting authorities all the costs. Repatriatingthe stowaways in small groups with escorts would have cost some $300,000 so we decided to make one flight, for which wehired a plane. From the time the matter was reported to the moment the hired plane left the country was 12 days. The orig-inal estimate costed the operation at $180,000. Hiring an aircraft brought the cost down to just over $100,000, which wasfurther reduced by the appearance of more stowaways being dealt with by other clubs. In fact, the club found itself going intothe airline business, selling tickets to repatriate other stowaways, thereby bringing the costs down below $100,000. In 1981,because of the number of boat people fleeing Vietnam, the club rules made it clear that cover on expenses in dis-charging obligations towards stowaways and refugees was limited to an owner’s legal liability or to the extent towhich the expenses had been incurred with the approval of the managers.

Currently, stowaways cost the club some $2 million a year.

As shipowners’ liabilities grew in extent and financial exposure, the clubs found themselves moving into riskmanagement. It was not their role to be policemen, trying to tell owners how they should run their operations,but it was in the interests of everybody that the terms on which ships were insured should be not only even but

conforming to a certain standard. Miles Kulukundis puts it into context: There is increasing pressure to keep upquality, less reliance solely on underwriting to even out difference in operating standards, and a greater emphasis on a clubof quality shipowners, even if it means saying to more people ‘You can’t come in’ and even if it means having fewer ships.That could put a strain on the relationship between the clubs and some of their members because the clubs werehaving to strike a balance between being fully supportive of all their members and also having to tell some ofthem from time to time that their operations were below par and that specific things had to be improved. Thatwas not always easy when there was too much tonnage afloat and owners were sometimes not earning enough tomaintain their ships properly. Care and tact were needed in telling members, especially when they were in trou-ble, that to some extent they had brought it upon themselves and that, unless they took the appropriate action,they could find themselves without cover. Maintaining quality was essential to preserving the mutual principle,as Fotis Lykiardopulo stresses: Mutuality is what makes a club different to hull and machinery insurance. You cannothave mutuality unless there are mutual standards across the membership. That does not mean to say that it is worked outmathematically, but there has to be a minimum standard below which you will not accept ships. Upwards you can go as faras you like. The sky is the limit.

Emphasis was therefore put on raising standards, in which Rex Palmer had a considerable interest: Up until1978 all the clubs and hull underwriters simply made it a requirement of their cover that an owner should be entered in andcontinued to be entered in a classification society. To be removed from a classification society was an extreme measure. Morefrequently, cover was suspended or an owner was declared out of time in meeting recommendations. Our board could seecases where ships were still entered in a classification society but should not have been, because they were in breach of cer-tain classification society rules. Our own rules and those of hull underwriters did not bite because ships were still entered.So we started revising our classification rules to state that not only did a ship have to be in a classification society but it mustalso be up to date with all the society’s recommendations. If not, then its cover could be prejudiced. Furthermore, if there wasan accident or an incident causing damage, a shipowner should report it to the society. If he did not do so, then cover couldbe prejudiced. The clubs were helping the classification societies to get their act together. That was an on-going process.

By the mid-1980s, rightly or wrongly, there was a huge loss of confidence in the classification societies. The system wasnot working as well as it should and a lot of substandard ships were trading around the world. Our board asked their man-agers to build up relationships with the most senior people in the major classification societies to help them improve their ownperformance. We could benefit by having a hot line to them in the event of claims. We keep a close liaison going with theInternational Association of Classification Societies. All the clubs feed in information so that societies can keep their housein order.

Bob Crawford helped strengthen the clubs’ position: As I was also on the board of Lloyd’s Register, I got represen-tatives of the P & I clubs on the general committee of Lloyd’s Register. Also at the Friday meetings of the rota committee ofthe subcommittee on classification, where individual cases are put up for review, there is a manager representative from aP & I club. You have this much closer relationship between the clubs and Lloyd’s Register Classification Society. Duringhis chairmanship the club took further action: There were so many substandard ships floating around we felt that we shouldstart controlling the ships that were in fact in our own club, so we set up the vetting committee. We employed our own inde-pendent survey staff to go and look at ships. Captain Richard Pilley coordinated the ships’ visit programme: A typical visittakes three hours, during which an inspector has a detailed checklist against which he examines the physical structure of theship, the quality of its crew and commercia1 operations. Details soon reveal the level of routine maintenance and how safeworking practices are. Above all, we are interested in what management controls have been put in place by the owner andwhat the standard of management is. What is the owner’s role? Is there a company policy on standards?

At the end of a visit an inspector gives his assessment to the master and asks him to sign it. Copies are sent to owners. If

Top left: These corroded steps are right by an operating winch. Top right: The gangway is partly off the quayBelow left: Not safe at the top if it is nearly broken at the bottom. Below right: This pipe should be watertight.

the report is unsatisfactory, the club may order a condition survey by independent inspectors, the result of which would be amandatory list of repairs and other actions to be completed by the owner within a specified period. If he fails to do so, hiscover effectively stops. He is at the mercy of the board of directors, his fellow shipowners, for any claim arising thereafter.Unless they take a positive decision to waive a breach of the rules, a claim will not be paid even if it is unrelated to the iden-tified deficiencies. Membership of the club may also not be renewed or refused. In the last three years this has hap-pened with more than 20 fleets, totalling over 1 million grt. On the positive side good practice was encouragedby the preparation and distribution of guidelines on such matters as loss prevention.

Repair of physical defects is easier than solving personnel problems. Dwight LeBlanc, a New Orleans Lawyer,foresees the problem: All shipowners have problems with the lack of competency of crews. You used to have people whodevoted their entire lives to shipping, were extremely dedicated to their livelihood and took a great deal of pride in what theywere doing. Twenty-five years ago you would have gone on a ship with a crew of one nationality and one language, where-as today you can hear as many as four languages being spoken within the crew of a ship. Normally that does not present aproblem because usually various terms, particularly in the English language, are universally known but I believe it to be aproblem that the clubs will face in the future years if people try to continue to cut costs by getting under-developed countriesto crew vessels at a very reduced cost.

Peter Boyle, a ship inspector with the UK Club and a former president of the Nautical Institute, speaks fromrepeated experience: The interpretation of International Maritime Organization standards by flag administrations isremarkably diverse. The lack of power by IMO undoubtedly leads to flag states underperforming. Inspectors are, I believe,sometimes seen as a cheap form of marine superintendent. During my inspections, lists of defects are recorded by me or bythe officer accompanying me. Sometimes masters ask me to put in my report certain observations because ‘I have been telling

Happy in their work, but where are their safety helmets?

my owners that for the past 18 months and they will do nothing about it.’ The morale of sea-going staff is often low. Vigilantthough they may be, inspectors cannot be aware of every possible carelessness, misunderstanding or plain stu-pidity in operations. Low standards result in higher costs sooner or later, affecting the clubs directly and indi-rectly.

Juan Kelly, former marine co-coordinator of Royal Dutch Shell and now president of the InternationalChamber of Shipping, comments: It doesn’t matter whether it is 80 per cent or 90 per cent. The fact is that most claimsare due to human error, and full recognition of that - which was not always there in the past - is propelling our industry inanother direction. Traditionally, any assessment of how good an owner was, had mainly to do with the physical state of hisships. Now vastly increased attention is being devoted to the soft side, the human side, the operational procedures, qualifi-cations, the ability of the crew even to converse with one another in these days of sometimes multi-lingual crews. This sortof thing.

What is the definition of a good member? I believe that at board level it is an owner who, firstly, himself runs a good oper-ation, not just in the sense of meeting IMO and other regulations, but going beyond that where appropriate. Recognising theIMO regulations, derived as they are from consensus, are in some respects less than optimum, he sets his own, higher, stan-dards, which allow him to be confident that his is a good operation, the human element included.

Secondly, a good member has to support actively the concept of eliminating the substandard operator as well as the sub-standard ship. It means even the good shipowner accepting all sorts of things that traditionally he has been reluctant to do,especially a strong port state control. Nowadays it is widely accepted that such control is the only effective practical meansavailable to us to get rid of the sub standard operator. So a port state control system in good shape worldwide would clear-ly be a help to the industry.

In the past the owners tended to say that they were not their brothers’ keeper and what others did was none of their busi-ness. There is now a much greater readiness to point the finger and banish those who do not measure up to acceptable stan-dards. Why would good owners do that? Well, to think in these terms is not to be wildly altruistic. Simple self-interestdemands that owners get rid of the minority bad who are making life difficult for the majority good.

When berthing, quayside cranes can be damagedbeyond economic repair by minor contact. Theproblem is exacerbated by the flared bows of

modern ships

An oil jetty destroyed by a ship. Temporary handlingfacilities had to be provided. The claim included

replacement and loss of use

Societal attitudes are changing all the time and, if we are not alert to this, our industry will always be behind the game.Even where we are responsive to change, there will be a real risk that the moment we achieve our standards, we will findthat society has already moved the goal posts again.

Losses of another kind had grown to a point where they merited special attention. Slick operators with forgedbills of lading and letters of credit were performing disappearing acts on whole ships and cargoes with the objectof securing claims for millions at a stroke. By comparison, the theft of meat from British ports, for which theDock Security Force had been set up, was petty. To combat large-scale international fraud, the club establishedin 1975 Security and Investigation Services (SIS) headed by Peter Gannon, former chief constable of the Port ofLondon Police, and staffed by ex-officers of the Criminal Investigation Department with marine investigationexperience. Peter Gannon was personally responsible for catching in New York the perpetrator of the complexChinese grain fraud Kaare Gilboe. SIS had opened an office in New York with ex-FBI staff. The title of theorganisation was shortened in 1989 to Signum [Latin = a military standard] Services.

Grain was also the subject of a series of cases concerning imports into the USSR in the mid-1980s, mainly fromthe USA. Claims by cargo insurers against shipowners for alleged shortages amounted to over $25 million. Legalactions were started in France, Italy and the USA. With the co-operation of Ingosstrakh and Jurinflot in Russia,grain shippers and port authorities, a large-scale international investigation was carried out to mount a defence.What the investigation revealed was that, in general, the shortages were only on paper. The main trial, held inMarseilles, was won by the shipowners, the verdict being confirmed on appeal. The last 20 cases were won inItaly in early 1994.

On a wider scale closer management control and better cohesion in administration were helped by develop-ments in information technology: facsimile, appropriately a Japanese machine, was introduced in 1984 to dealwith the case of a Japanese chartered ship held in Oran, Algeria, for 192 days over the alleged illegal import ofpersonal stereos that the stevedores claimed had been sold to them by the crew; the greater use of computers forthe storage and retrieval of data; electronic mail for computer-to-computer communications - a network thatquickly embraced key correspondents and with fax almost replaced post; short code dialling for rapid telephoneconnections. These developments both eased and contributed to the greater pressures, quickening the pace ofcommunications and improving the service to members.

In the closing years of the 1980s the pressures on the club were getting greater. To handle them, professional-ism was needed more than ever. Since the need was identified in the early 1970s successive actions had beentaken, but the time had come for a comprehensive look at the organisation and where it wanted to go. In theearly 1990s, when the leading industrial nations were in an economic recession, the challenges and responseswere to be brought into sharper focus.

CHAPTER 15

STRATEGY

New York

IN THE EARLY 1990s the trend of claims brought a number of interrelated issues to the surface. The issues were not new. Some, such as mutuality, were explicit in the original concept of the club; all, in particular the limit of cover, had been drawn to the attention of members and managers by a sharp upturn in the graph of claims over the last quarter century. For 20 years or so, after allowing for inflation, the real annual growth rate in claims had been between 1 and 2 per cent. From 1987 to 1991 it was 12 per cent. While it was improbable that it would continue to rise at that steep rate, there was no guarantee that it would settle back to its former, gentler pattern.

Whatever the scenario, everybody concerned with P & I wanted a better fix on the future. They were involved in a business with assets approaching $1 billion, soon likely to exceed it, yet there could be catastrophe claims of $2 or $3 billion for single incidents. It was a time for taking a fundamental look at the club, learning from recent experience and formulating a strategy that encompassed the nature of the club, the wishes of its members, where it was going by itself and in concert with other clubs. Balances had to be struck. For instance, size was desirable for financial strength and stability, but it also meant the largest exposure within the pool, where quality control of fleets entered might not be up to the standard of the UK Club. Becoming too big could make the club appear dominant, possibly falling foul of international monopoly restrictions. Size too could be pursued at the expense of quality. What were the priorities?

To answer this and other relevant questions, all of which would have consequences, a high-level working group of directors and managers was established to investigate, with the help of external research bodies, and make recommendations. Terence Coghlin stresses the importance of the group: The backbone was the chairman and two deputy chairmen. The aim of the group was to identify a long-term vision of the club and the strategies to achieve it. Whatever the recommendations, they had to have the approval of the full board. Nothing like this had ever happened before. The group’s work would set the character and direction of the club into the next century, and ensure that a shared goal existed for the board and the managers. Peter Donnellan, responsible for loss prevention, was a member of the group: we started by looking at the relationship between the claims patterns and the economics of shipping, subsequently developing an economic model to gain early warning changes. We analysed major claims to see what degree of volatility we should plan for. We also carried out a fundamental analysis of the economics of the club, in particular the spread of risks, its size, fairness and underwriting integrity, the pooling and reinsurance arrangements, with a view to quantifying the benefits and the difficulties of size. We looked at the economics in terms of efficiency and economy of scale, which led us on to the desirability of service that required economy of scale to deliver.

During this period we were faced with instability in Lloyd’s, upon which the club depends for its reinsurances. Hence the importance of becoming less dependent on any one organisation. Because the club is a mutual we had to look very carefully at what mutuality meant. It translated in practical terms into underwriting fairness and mutual confidence. Shipowners want to look at their follow members and say, ‘Yes, I am happy to share in that pool.’ Part of the review was a member survey, particularly on the service aspects of the club. First an independent research organisation identified through a small sample of members the key issues. In the second stage, a detailed questionnaire was used to measure the degree of importance the membership as a whole, a total of over 800 organisations, attached to the issues. Over 40 per cent of the members responded, the majority being satisfied with overall performance and valuing the size and financial stability of the club. Questions such as ‘Do you think the managers know about ship owning today and are in touch with what is happening in the market?’ were an insight into attitudes and a useful feedback. Among points needing attention were a fresh explanation of underwriting principles as applied to individual ratings, that senior managers should visit members more often, and correspondingly that younger executives were perhaps advising members too early in their careers. Above all, members wanted a higher level

of service, the cost of which was relatively low compared to the overall operation of the claims cost. One of the services will be a periodic member survey to gauge current opinion.

Following the board’s broad endorsement of the analysis, specific issues such as security and limit of cover, quality of membership, financial planning in general, level of reserves and communications with members were examined. Altogether, the review took 18 months, the long-term strategy being confirmed at a board meeting in Bermuda in October 1992.

It had three main elements. In terms of financial strength, the greater the tonnage entered the wider was the spread of risk and the more secure and certain was cover. The greater the funds available the higher the reten-tions the club could support and the less reliant it was on the pool and the reinsurance market, thus reducing exposure to poor quality members in other clubs. Also the more predictable were the levels of supplemen-tary calls. Financial strength was likened to the size of a rock in stormy seas. In practical terms this meant

accumulating larger reserves through the preservation of capital against inflation and currency fluctuations as well as maximising income.

Of primary importance to members was value for money. Under this head, they prin-cipally wanted fairness in underwriting and excellence in service, especially in claims handling. The bigger the club the greater its influence with external bodies and the more services it could deliver to members economically worldwide.

The quality of membership was of the essence, a fair and equal sharing of risks, and the basis of a genuine mutual. That demanded the maintenance of high stand-ards in members’ ships, which meant devel-oping the ship visit programme, checking on standards and advising on safety procedures. If fleets were excluded, in order not to com-promise the economic benefits of size, then high quality members should be recruited in lieu. Peter Donnellan looks back on the achievement: What we set for the future was the concept of a much more active and business-like board running an important business, with a significant impact upon its members’ finances and having a very open relationship with its members. The strategy was not seen as an end in itself but setting in place a continuous process of change and renewal. It led to a sea change in the way the club has gone about its business in many ways.

It would be wrong to regard the strategic review as resulting in tablets of stone handed down by the board to the membership, making life different for everybody thereafter. Changes had been taking place since the move to Bermuda, partly through the move itself but more so in response to international events. What the review did was clarify issues, examine the consequences and set guidelines for the future.

Consider the relationship of the board and the managers. Whereas Dawson Miller ran the board the situation is now completely reversed. The board takes the decisions proper to a board and the managers implement them. Terence Coghlin makes a comparison: The managerial role is analogous to the role played by senior civil servants in the British government system. Decisions on major issues are taken by the ministers, in our case, the club’s board of directors. The role of the senior civil servant is to advise on these major issues, to help his minister make a good decision, and there-after to implement the decision the minister has made. On minor matters the civil servant does not trouble the minister, but himself gets on with the daily routine. There is a distinction between points of principle in which directors should be deeply immersed and, on the other hand, the detailed day-to-day operation, where there is no point in the board employing managers yet trying to do all that themselves. The board are evolved, as has the role of the board’s chairman, which is now much more important. In his fixed term of office, now normally five years, he does more than preside over the quarterly board meetings.

Bernard Blakely (left), chairman from April 1972 to October 1983, and Bob Crawford, chairman from October 1983 to October 1990, pictured at the club’s 125th anniversary dinner on 27 January 1995

In between, with the two deputy chairmen, he is often consulted on major issues, as it were in a standing committee. He may well have to take time out very receptive and we do our best to advise them wisely on major issues. It will give our own opinion, but we do not expect that it will necessarily carry the day. Nor are we offended if it does not. Juan Kelly, a director of the club until 1990, sees the subtlety in the relationship: Millers are always very skilful in the way they present their knowledge and expertise. They handle the board extremely well. Their way of attributing their own good ideas to board inspiration is in itself a lesson in diplomacy.

That change from Dawson’s day cannot be dated to a particular event or ascribed to a certain chairman. It has from his own business to represent the club at an inter-

national function. This may be anything from presenting the club case in Washington hearings to an important social occasion. For continuity, he needs the support of and a good working relationship with both deputy chair-men, one of who will probably succeed him and has to be prepared to give the same commitment to the club.

Similarly, the board as a whole has moved from being hereditary and honorary to being much more active, a group of senior people bringing a business dimension to the strategy of the club. They are responsible for set-ting the financial targets that determine the strength of the club. Collectively, they represent a balance of the membership in terms of geography, size and type of fleet, trades and experience. Individually they represent the interests of the club as a whole. Stephen James forcefully expresses its current character: The modern club is no longer a niche. It is a proactive important player in operational terms as well. We are a much more commercially aware organisation. We recognize that members are in business to make money, not to enjoy legal arguments. We are increasingly sensitive to the commercial needs of shipowners; so we monitor freight rates, watch the economics of shipping. Our funds now exceed $1 billion. Our investment programme has become more professional. Our services have moved well outside the narrower quasi-legal emphasis of the past and to substantial operational advice on loss prevention and on the importance of good practice and quality. The managers and the board together are making a successful modern business. We see ourselves as a business adding value to our members’ operations.

That means help and contacts at new levels in shipowners’ organisations. Peter Donnellan: What our members want is practical advice they can easily absorb in their own language. It is all very well having a Carefully to Carry article written by an expert, but if you can’t understand it, it’s no use. What we now see the club producing is material like our Loss Prevention News, written in tabloid style. We are disseminating information not only at the academic level but also at the pragmatic working level of ships. We want our messages to go well beyond the insurance managers. We are talking directly to masters and marine superintendents and operators. We now have UK Club inspectors turning up on the gangways for ships to go over them and report on them. So people who have never encountered P & I are meeting people who are labelled UK Club, operational, nothing to do with insurance.

Juan Kelly (right), director of the club from October 1984 to May 1990 and president of the International Chamber of Shipping,

with Rex Palmer

The directors of the club at their meeting in Zurich in July 1994. From left to right: 1 T. Yamaguchi, Tokyo Marine Co Ltd; 2 D. J. Szostak, Energy Transportation Corp; 3 M. Yataghene, SNTM Hyproc; 4 S. G. Pokrovsky, Jurinflot International; 5 E. Koslinski Petroleo Brasileiro SA; 6 C. Boquin, SA Louis Dreyfus & Cie; 7 H. Kačić, Atlanska; 8 W. J. Luff, BP Shipping Ltd; 9 K. W. Song, Korea line Corporation; 10 E. S. D. Ratteray; 11 N. G. Palmgren, deputy chairman, Effjohn Oy AB 12 R. G. Hughes, P&O Cruises (UK) Ltd; 13 M. A. Kulukundis, chairman, London & Overseas Freighters Ltd; 14 The Hon C. V. Woolridge; 15 P. de Demandoix-Dedons, Cie Nationale de Navigation; 16 A. G. Kairis, deputy chairman, N J Goulandris Ltd; 17 l. Anderson, Papachristidis USA Inc; 18 D. A. Manthos, Admanthos Shipping Agency; 19 l. V. Sokolov, Baltic Shipping Co; 20 I. A. McGrath, Shell International Marine; 21 D. C. Wolcott, Chevron Shipping Co.; 22 A. Metze, Hapag-LIoyd AG; 23 Lua Cheng Eng, Neptune Orient Lines Ltd; 24 H. Winter, Hamburg-Sudamerikanische DG; 25 N. W. G. Baptist Seatrans Shipping Services Ltd; 26 K. G. Kleberg, Walleniusrederierna AB; 27 F. Vallat, Van Ommeren Tankers; 28 M. Fukuda, Mitsui OSK lines Ltd; 29 E. André, Suisse-Atlantique.

Contact at operational levels is important for another reason. A facet of the increased competition among clubs is the trend for more owners to place their cover via brokers. Many owners follow the practice to get an overview of the clubs’ respective merits. Significantly, brokers account for about 90 per cent of new entries in a club. The intervention of brokers has changed the traditional relation-ship between club managers and members. This has been weakened by medium to large owners placing their ships in more than one club to stimulate competition.

New approaches called for new attitudes, which means retraining on the management side. Terence Coghlin prefers to regard it as education: In the 1990s you have a choice. You sack your entire staff every five years and take on new people, or you continually re-equip your staff with the new attitudes, skills and knowledge they need to remain effective. I want the managers’ officers looking like a university, in which people are constantly being re-educated. What we are trying to do is to refine and refresh our core com-petences, from addressing a board of directors to knowing about the Hamburg Rules. As people learn best in different ways, education has to be available in a variety of media. For example, videos have been introduced as aids to management training. They are made on specific topics such as the US Oil Pollution Act 1990 or the work of classification societies. Videos convey information in a way that is not otherwise easily possible. They supplement formal lectures, given at lunchtime or in the evening. They are also available as tapes and transcripts. The purpose is to give staff the opportunity to learn in the way best suited to each individual. Because more is demanded of them they have to have a working knowledge of many aspects of the business, not just their particular corner. Previous training has been very much on the job, learning by working with senior people, who passed on their experience. Now the aim is to decant to the whole firm the knowledge that is within the heads of some of the senior people, world experts in certain areas. This initiative will be extended to correspondents and, later, to shipowners. The long-term strategy was itself the subject of a video, made for everybody concerned with the club. In the words of Miles Kulukundis, ‘today the professionalism is less instinctive, experience-based behaviour, more technocrat education.’

For continuous learning to be of value there must be ready access to up-to-date information. In a worldwide operation masses of information are being exchanged, much of it specialist, commercially confidential or sub judice. Winnowing out what business information is of general interest or specialist value is a considerable prob-lem. A start has been made, the intention being that the management of business information should be related to the development of the educational programme. Both are aspects of communication in an intellectual sense, where the sheer volumes of information being produced in all quarters have thrown up problems of access and selection.

Advances in telecommunications are more readily taken advantage of and yield benefits, as Herry Lawford

Terence Coghlin speaking at the club’s 125th anniversary dinner on 27 January 1995

testifies: Modern communications have given us the opportunity to get in on the around floor of events, before they become history and we are dealing with a claim. We are able to influence and control and manage claims as they are happening, much more than we ever were. Time has been taken out of the equation. The opportunity for immediate action in handling a claim is that much greater. As well as enabling a rapid response, modern telecommunications can help make it indi-vidual. For Terence Coghlin there is no conflict between the size of a club and a customized, personal service: Our future success in managing the UK Club will depend largely on our ability to tailor carefully what the club offers to the individual needs of each member. We have to make each member feel that the club is exactly right for him, giving him pre-cisely what he wants in the right way at the right time and in the right tone of voice. At the same time we must not prejudice the central integrity of the club. The core must remain constant but the periphery be adjusted to individual requirements.

CHAPTER 16

AUDIT AT 125

Stockholm

WHEN THE UK Club was founded its members had much in common. They were all Englishmen, mainly from one part of England, the North-East coast. They operated British-built ships, tramp steamers differing by only a few hundred tons, mostly with British crews, engaged in similar trades, principally across the North Sea and the English Channel. In these narrow circumstances they either met one anoth-er or soon heard relevant news. If there was not an absolute trust among members, there was a high degree of common understanding, essential for a mutual association to succeed. They could not have foreseen the scale and extent of change in the shipping world. Near the end of the twentieth century British-registered merchant shipping represents less than 1 per cent of world tonnage. Insofar as there is a typical ship in the club, it is likely to have been built in the Far East for a specialised international trade, to be owned by a corporation, at least nominally, operated under an open register, with a master from the developed world and most of the crew from the Third World. There is a diversity of ships within the club: carriers for barges, bulk cargoes and cars, container-ships, cruise-liners, ice-breakers, oil rigs, oil tankers, reefers, ro-ro ferries, training ships.

Over 125 years the UK P & I Club has survived technical, political and economic changes. It has outlived the age of steam, the decline of Britain as a maritime power, and the rise of new nation states determined to demonstrate their inde-pendence; accommodated new types of ships and risks unforeseen by its founders; and adapted to changing patterns and types of trade. Shipping is a cyclical market, dependent on levels of world trade and the fortunes of particular industries. It calls for capital investment against future fluctuations of demand. Consumption of oil and hence the need for tankers is an obvious example. Less obvious are freight rates fluctuating with political changes and the relationship between interest rates and the elderly taking cruises.

On a long view, as the graphs show, the UK P & I Club has been a success story, becoming a sizeable business a century after the formation of the club. Organically, it has grown into a multinational organisation, without incurring any of the opprobrium that many dominant multinationals have.

Belem, the oldest ship in the club is now used as a train-ing ship in France. Originally the yacht of the Duke of

Westminster, it was built in 1889

Has it grown at the expense of the mutual principle? ‘One for all and all for each’ is a fine sentiment. Putting it into practice is not easy. Individuals assert themselves. Ideals are corrupt-ed or trimmed to circumstances. The history of collective enterprises is largely one of a betrayal of principles and failure over time. Although enter-prises may survive, they are usually a shadow of their intentions, far removed from their found-ers.

To survive for over a century is no mean achieve-ment in commercial terms; to survive with one’s principles intact is unusual. Miles Kulukundis believes the UK Club has succeeded in doing both: The principle of mutuality has been preserved because of the Henderson activity. When anomalies are created, they are corrected, and the efforts of the

The Falstaff is a 1985 built car carrier of 52,000 grt owned by Walleniusrederierna AB

The Italian cruise ship Costa Romantica can carry 1,600 passengers

association to analyse claims and get to the bottom of the reasons behind them have led to greater understanding of what makes a record, what causes it, and better underwriting. The International Group have covered all the liability risks for some 95 per cent of the world fleet and we have been able to pool together the interests of a major oil company like Shell, and an individual Chilean shipowner with one ship, and somehow to share those on an equitable basis where both of these entities felt satisfied. It is a remarkable structure. A few older members look back to a golden age when calls were low, the paternalism of Dawson Miller worked, and the club was smaller and more personal. Like most golden ages, it is a myth. There were inequities. The system that had served for a century could not endure. The club had to change or recognise that, in a world of far greater risks and liabilities, the mutual concept could fall by the wayside through inappropriate growth.

In the UK Club mutuality continues in many ways. There are just over 800 fleets entered. A multinational board meeting quar-terly at various locations around the world represents their interests. In 1994 the board was drawn from 65 nationalities. Directors are appointed not to represent their company, country or region but the interests of the club as a whole. If members have a point to raise, there are ample avenues for doing so. Ultimate decisions rest with the board, elected from the membership each October, about one-third of the directors retiring by rotation each year.

In a business world where the ethic of self-help has often given way to pleas for state aid, the culture of the club has endured. A blend of legal and maritime cultures, it has been strengthened. The board, as always, is com-posed of shipowners. For almost a century the managers were mainly lawyers or people with commercial experience in maritime affairs, calling on the expertise of local correspondents and specialist con-sultants as necessary. The recruitment of seafarers has added a dimension to managerial expertise and surveyors ensure the quality of ships entered in the club, another aspect of mutuality. At all levels the business is controlled by people who have a fundamental understanding of it.

‘P & I is a personal business’ is an oft-repeated remark. That is still true in a world that has become a global village. Though people may be only seconds away via telecommunications and by air at most a day, face-to-face meetings are as important as ever, a point stressed by service director Herry Lawford: You don’t really hear about the problems shipowners might have unless you go and see them. If you don’t see them, then they don’t feel that they can easily communicate with you if they have got things coming up. That is essential. It is one of the most important parts of our business, more so than with most other forms of insurance.

Unlike many businesses, P & I has not fallen into the hands of accountants, who in the nineteenth century were down in the counting-house keeping score and have since risen to board rooms, where they determine policy. Being not for profit, P & I is not primarily a number-driven business. The policy has been one of securing

Stephen James, standing, with, left to right, Douglas Wolcott, Aleco Kairis (deputy chairman), Nils Palmgren (deputy chairman), Miles Kulukundis (chairman) and Rex Palmer at a meeting of the

directors in Zurich, July 1994

The dinner at Guildhall on 27 January 1995 celebrated the UK Club’s 125th anniversary in fitting style

steady rather than spectacular investment returns. Since 1983 investment performance has been reviewed annually by The W.M. Company of Edinburgh. Against a benchmark portfolio reflecting the club’s exposure to claims, the review has shown actual investments stead-ily outperforming, on average by 2 per cent a year: fur-ther evidence of financial stability and strength.

As part of the long-term strategy a higher range of financial targets, notably in reserves, has been set to ensure that the club is adequately funded both against larger claims and possible reductions in reinsurance cover. To that end, in January 1993 the board author-ised the managers to invest in equities up to 20 per cent of what had essentially been a fixed income portfolio. On current reserves this amounts to a maximum of about $200 million. The funds are administered by investment manager Lord Cowley and his team from the Isle of Man: Over time equities generate higher invest-ment returns than bonds and reduce the overall volatility of the portfolio. In themselves, equities are more volatile than bonds so we invest only monies that we confidently expect to remain at the disposal of the club for many years. As always, the protection of capital for the future payment of claims is the basis of our investment policy.

As at the foundation, members are committed for only a year at a time and need give only 30 days’ notice of whether or not membership will be renewed on 20 February. The club has a longer-term commitment. Not all claims, especially major ones sub judice, are set-tled in the year within which they occur. There has too been an increase in ‘longtail’ claims on industrial dis-eases recently recognised and affecting many people.

All in all, the club, which has not always avoided annual deficits, has met its liabilities by an appropriate level of calls - even in the depths of the inter-war depression it had credit balances; by estimating - not always closely - the extent of its likely commitments; by resorting when necessary to supplementary calls in later years; in recent years, when inflation was high, by imposing interest rates on calls paid late; by maintaining contin-gency and catastrophe reserves, from which new members automatically benefit; by maintaining a reasonable reserve on deposit; through excess cover at Lloyd’s, pooling and reinsurance agreements; and through having sizeable investments to call upon, especially since relocation to Bermuda. Over time the combination of financial resources met and even exceeded liabilities.

The pattern of claims year by year is unpredictable. One thing certain is that over the life of the club ship-

Lord Donaldson (right), seen with Miles Kulukundis was principal speaker at the club’s 125th anniversary dinner in Guildhall, in the City of London on 27 January 1995

owners’ liabilities have increased and will not diminish. When ships were small and life was cheap a hard line could be taken on settlements. In the nineteenth century a grieving widow’s £5 claim for funeral expenses could be brushed aside as outside club rules. Today, society has a visible hand in framing the rules and more people are ready to assert their rights. The club complained retrospectively about a contribution to Titanic relief but when it came to another disaster, the 1987 Capsize of the Herald of Free Enterprise with the loss of 193 lives, a more generous view accorded with the mood of the times. Although concerned only as a reinsure through the pool, the club and others in the International Group recommended the British government raise the limit of liability from £33,000 to £80,000 per passenger. Although £80,000 is not a fortune to a bereaved family, allowing for inflation and multiplied by the number of passengers at risk it represents an advance on the £5,000 average payment in the 1963 Lakonia disaster and a significant insurance cost. By the late 1980s personal injury claims were the largest type by volume.

A major oil spillage is something to be feared, damag-ing the environment as well as a company’s reputation and balance sheet. Yet the cause can be as basic as a drunken captain. The major cause of all claims, large and small, is still simple human error. An analysis of the club’s major - over $100,000 - claims over the six years 1987 to 1992 showed that 1.4 per cent of claims accounted for 71.8 per cent of costs. Areas highlighted in the analysis were pilot error causing property damage and misunderstandings resulting from language barri-ers or lack of clearly defined responsibilities. Middle-aged ships, those between 10 and 14 years old, experi-enced the highest incidence of human error, and those between 14 and 22 years old were most prone to structural failure. Collisions can happen to any ship irrespective of age, type or location. A high-risk type of ship is the bulk carrier, accounting for 21 per cent of major claims and 18 per cent of their total value.

The interest in preventing accidents is a new international focus. Earlier the focus was legal. The club is an active member of the British Maritime Law Association, affiliated to the Comité Maritime International, whose regular meetings have influenced developments since its formation in 1897. In the 1920s the club made its views forcefully known on subjects important to it such as the Hague Rules and the subsequent UK legislation, the Carriage of Goods by Sea Act 1924. Subsequently it was concerned in framing amendments to the Hague Rules and the drafting of the 1974 York/Antwerp Rules. More recently the clubs have been involved in an advisory

An environmental survey valued the northern spot-ted owl, an endangered species, at $90 million per

breeding pair

role, providing evidence for the drafting of inter-national conventions, particularly on oil pollution, the large scale of which became the starting point of international intervention. Within the last decade, club activity on the revision of the harsh doctrine of ‘no cure-no pay’ under the 1910 Salvage Convention has been notable. The clubs have a wealth of techni-cal and statistical information available on what is practicable, but the facts often have to take second place to political considerations. Indeed, club influ-ence on developments in international maritime law has declined with the rise of new nations and the much stronger presence of the United Nations body the International Maritime Organisation.

The law by itself is only part of the P & I business, in the eyes of Charles Goldie: I have always taken the view that it will depend case by case on what jurisdic-tion you are in. In many of the jurisdictions around the world, in whatever I look at as a legal jungle where even

the old uniformity of law that used to apply when the countries of Europe held greater sway and applied the international conventions, you find that the law is just one element in a case but by no means the most important. It will give you at least officially the basic framework, but the law will be adapted to suit local requirements. The shipowner is an easy target, an easy victim. Just as important as the legal framework will be the political clout of the receiver, the owner of the goods, the degree of integrity of surveyors, of the courts, of lawyers, the political pressures locally. All these things are as involved as the law. In so many countries now the law will produce the result that is considered desirable to meet what is perceived to be the requirements of the case.

As the twentieth century draws to a close, the world is both a more competitive place and a more hazardous one. The potential for disasters on a grand scale has enormously increased. Speaking at a dinner at Guildhall in the City of London held to commemorate the club’s 125th anniversary, Miles Kulukundis foreshadowed the end of the unlimited cover provided by the clubs for all risks except pollution. ‘Unlimited cover for claims is unacceptable to both large and small owners in the club, who feel that the liability climate has become too risky to support the pooling of catastrophic claims without limit.’

But while Victorian values no longer hold sway, certainly over a large part of the globe, a return to them in Britain is ridiculed as inappropriate. Yet P & I has not only endured, it has spread. Other nations have formed P & I clubs and the idea has been adopted beyond shipping, by various other groups having a common inter-est. There are not many other mid-Victorian concepts of which that can be said. The fundamental reason for its growth is the lesson of another Victorian aspect of progress, the survival of the fittest. Darwin’s Origin of Species, published in 1859, advanced the hypothesis of evolution and emphasised the competitive importance of adapt-ing to environment. The UK Club has adapted and will certainly need to continue to do that to make its way successfully to its sesquicentenary in 2019.

Claims executive Ursula Hanford, seen here with a Russian icebreaker at the North Pole, can get to the top of the world

Appendix I: Chairmen

1869-75 William Leetham

1875-86 Robert Glover

1887-93 George Pyman

1894-8 George Jackson

1898-1908 William Milburn Jr

1909-37 Sir/Lord Walter Runciman

1937-57 Maurice Houlder Houlder

1957-72 William Donald

1972-83 John Houlder

1983- Fotis Lykiardopulo

From 1969 Bermuda Club chairmen were:

1969-72 Reginald Dodds

1972-83 Bernard Blakely

1983-90 Robert Crawford

1990- Miles Kulukundis

Bailey & Leetham

Glover Brothers

George Pyman & Co.

Jackson Brothers and Cory

W. Milburn & Co.

Moor Line

Houlder Brothers

Commonwealth and Dominion Line

Houlder Line

Lykiardopulo & Co. Ltd

Marches

Shell

Silver Line

London & Overseas Freighters

Appendix II: Fleet ListThe date on which some fleets first entered the UK Club

Year Fleet Country

1883 Port Line Ltd UK 1889 Hain Steamship Co. Ltd UK

1893 Shell International Petroleum Co. Ltd (Formerly M Samuel & Co.) UK

1896 Strick Line Ltd UK

1916 BP Shipping Ltd UK

1922 Rethymnis & Kulukundis Ltd Greece

Prior 1926 John T Essberger GmbH & Co. Germany Prior 1926 Finska Angfartygs Aktiebolaget Finland

Prior 1926 Goulandris Brothers Ltd Greece

Prior 1926 Houlder Line Ltd UK

Prior 1926 Mac Andrews Co. Ltd UK Prior 1926 Neptun Juridica Co. Ltd Finland

Prior 1926 Reardon Smith Line Ltd UK

Prior 1926 Silver Line Ltd UK

Prior 1926 Union Steamship Co. of New Zealand Ltd NZ Prior 1926 Stathatos & Co. Ltd Greece

1926 Admanthos Shipping Agency Inc USA

1926 Lykiardopulo & Co. Ltd Greece

1926 S A Louis Dreyfus & Cie France 1928 Bugsier-Reederei und Bergungs GmbH Germany

1946 Costa Crociere SpA Italy

1946 Cia Chilena De Navegacion Interoceanica SA Chile

1949 London & Overseas Freighters Ltd UK 1949 Ceres Hellenic Shipping Enterprises SA Greece

1951 Hamburg- Sudamerikanische DG Eggert & Amsinck Germany

1951 Hapag-Lloyd AG Germany

1952 Petroleo Brasileiro SA (Petrobras) Brazil

Year Fleet Country

1954 Cie Nationale de Navigation/Worms Group France

1955 Tokyo Tanker Co. Ltd Japan

1955 Olympic Shipping & Greek Management SA Greece 1955 Suisse-Atlantique Societe de Navigation Maritime SA Switzerland

1956 Atlantska Plovidba Croatia

1956 N J Goulandris Ltd Greece

1956 Sun Enterprises Ltd Greece 1962 Walleniusrederierna AB Sweden

1963 Van Ommeren Shipping BV Netherlands

1965 Fratelli D’Arnico Armatori SpA Italy

1965 Ignazio Messina & C. SpA Italy

1965 Nippon Yusen Kaisha (NYK) Japan 1965 SNTM Hyproc Algeria

1966 Cia. De Navigatie Maritima Navrom SA Romania

1967 Chevron Corporation USA

1967 Mitsui OSK Lines Ltd Japan 1968 Sea-Land Service Inc USA

1969 Baltic Shipping Company Russia

1969 Korea Line Corporation South Korea

1970 Lykes Bros. Steamship Co. Inc USA 1971 Neptune Orient Lines Ltd Singapore

1971 P&O Bulk Shipping Division UK

1971 P&O General Cargo Division UK

1971 Far Eastern Shi ping Company Russia 1973 Tokyo Marine Co. Ltd Japan

1975 Houlder Offshore Engineering UK

1975 Petroleos De Venezuela SA Venezuela

1977 Energy Transportation Corp. USA 1978 Papachristidis Ltd Greece

1980 Kuwait Oil Tanker Co. (SAK) Kuwait

1986 P&O Cruises Ltd UK

Appendix III:

Sources and AcknowledgementsSources

The importance of P & I as a class of insurance is not reflected in written material. Its history has been con-fined mainly to brief anniversary mentions by clubs or specialist papers, the historical element of which is large-ly derived from the same few sources. For the historian the subject is therefore virtually virgin territory.Unfortunately, some of this is inaccessible because the records no longer exist or are incomplete. Researchingthis P & I history has been like exploring the world with an eighteenth century map. The main outlines are clearbut the exact nature of some interiors is unknown. I have confined myself to the known world, verifying inter-view statements as far as possible and preferring to leave questions unanswered rather than hazard unhistoricalguesses at what might have been.

Apart from annual reports, circulars, minute books, rule books with lists of ships entered in the club, and afew surviving letters, useful published sources were:

Antony Brown, British Marine Mutual 1876-1976 (London, 1976).Terence Coghlin, ‘Shipowners’ Liabilities Fifty Years On’, Journal of Maritime Law and Commerce, vol. 22, no. 3,July-October 1991.David Corner, Market Position of Mutual Insurance, Lloyd’s of London Press Seminar (London, 1991).Charles Goldie, ‘La protection de l’opérateur vis-à-vis des risques, vue sous l’aspect juridique et financier’, papergiven at ATMA 94, April 1994, Paris.Charles Hocking, Dictionary of Disasters at Sea During the Age of Steam (London, 1969).Norman Hooke, Modern Shipping Disasters 1963-1987 (London,1989).Ronald Hope, A New History of British Shipping (London, 1990). Stephen Howarth, Sea Shell (London, 1992).Takatada Imaizurni, ‘The Origin of the Indemnity Clubs in the UK’, Study of Non-Life Insurance, vol. 46, no. 2(Tokyo, 1984).Frank Ledwith, ‘The Place of P. and I. Clubs in the Insurance Market’ (adapted from an address to the MarineDiscussion Group of the Insurance Institute of London, 1954).Frank Ledwith, Ships That Go Bump in the Night (London, 1974).Frank Ledwith, Ships Afloat in the City (London, 1977). Lloyd’s Weekly Casualty Reports.Lord Mustill, Ships Are Different - Or Are They? (London, 1992). Peter Padfield, An Agony of Collisions (London, 1966).Report of Advanced Study Group no. 109 of the Insurance Institute of London, The History and Development ofProtecting and Indemnity Clubs (London, 1957).David Steel, Ships Are Different: The Case for Limitation of Liability (Cambridge, 1994).Richard Webbe, Market Position of Mutual Insurance, Lloyd’s of London Press Seminar (London, 1994).

AcknowledgementsThis book was researched and written in a year, a tight timescale in which to do justice to 125 years. Such a

deadline could not have been met without the help and facilities provided by Thomas Miller & Co. In particular,my thanks are due to Herry Lawford, manager of the project; Bruce Cakebread, who was in charge of the admin-istration and pointed me in several helpful, time-saving directions; Patricia Arkell for organising appointments,files and illustrations; and Jean Winter who transcribed interviews and did the final word processing. JohnJillings and Michael Miller were very helpful in delving into minute books and, from their experience, readingbetween the lines and providing background notes; Roxelyn Apps hunted down answers to queries; Bob Killickin Sunderland guided me on sources in the North-East of England; Gordon Drake and John Joslin provided sta-tistical and fleet information; Donald Woodeson of Moore Stephens extracted financial data for graphs. Manypeople gave readily of their time for interviews and others provided historical material and photographs. ColinHarris, former manager of the Standard Club, and John Riley, manager of the Britannia Club, gave me anotherperspective on P & I.

Stephanie Zarach of the publishers began by interviewing lawyers and, when I had a setback in health, madesure the project was not interrupted. She quickly assessed its status, identified what had to be done and set aboutorganising missing material, which included carrying out further interviews in Europe herself.

Organisations that helped included Bishopsgate Reference Library; Brookes, Bell & Co.; Fairplay, in particularthe deputy editor, John Guy; Gard (UK) Limited; Guildhall Library; Igrox Chemicals; Jarrett Kirman &Willems; Lloyd’s Register of Shipping; London Offshore Consultants; The North of England Protecting andIndemnity Association Limited; Rob Marine Shipping Consultants Limited; Charles Taylor & Co. Ltd; TheTimes; Tyne & Wear Archives Service.

All in all, this book has been a large mutual effort but in no way the work of a committee. I trust that, like theclub of which it is a narrative, it has its own character.

Peter Young

After reading history and archaeology at Gonville and CaiusCollege, Cambridge, Peter Young worked in the computer andcommunications industries. Since 1976 he has been anindependent historian. His work in the transport industry includesaviation and Disasters: Focusing on Management Responsibility, astudy for the Herald Families Association.