Non-compliant ISPS ports face losing insurance cover

April, 02 2004

Terminal operators who miss July 1 code deadline run mandatory law and contract liability risks, writes James Brewer.
PORTS and terminals face hugely expensive spin-off insurance dangers if they fail to comply with the International Ship and Port Facility Security Code. The industry is already beginning to grasp those operators that miss the July 1 deadline for code compliance could forfait cover, but the depth of the problem is only now becoming plain. How crucial the loss of protection could be was driven home at a terminal operators' conference in Singapore by Nick Sansom, principal officer of the Through Transport Club in southeast Asia. "An operator who is not ISPS compliant runs risks under mandatory law as well as under contractual liability and from third party claims", said Mr Sansom. Following and act of terrorism there was a very strong likelihood of third party claims. These claims, for instance from a visitor to the port or a member of the public injured by the explosion of a bomb in a container, were governed by so-called tortuous law. Generally unlimited liability applied in these cases, and financial compensation awards could be very large, said the TT Club expert. Failure to meet ISPS demands would provide significant proof of negligence, while full compliance would assist in a strong defence. As concern grows over the number of ports lagging behind in their preparations, the club, which is a significant insurer of ports and terminals as well as their users, is campaigning to alert operators to the legal and commercial dangers. "The general risk of terrorism has increased, and therefore the traditional defences for port operators against liability based on a third party's act will not always be available", said Mr Sansom. "The known risk of terrorism increases the duty of the operator to take security precautions. Moreover there is a greater risk of negligence, as the ISPS Code specifically requires a security assessment and security plan to be in place and for the plan to be applied." Although a port operator's liability is often subject to private contract, in some countries there is a mandatory domestic law. A ship operator is subject to international maritime conventions and will seek a recourse against a port operator that causes the ship operator to incur a liability under the relevant convention. The club says that under international maritime conventions and typical domestic mandatory law, a defence against liability may be permitted where loss is caused by an "act of war", or by "intentional" damage by a third party, both of which, it can be argued, are applicable to an act of terrorism. An operator ignoring the details of the code could find that it is guilty of contributory negligence, which might well remove this defence. On the issue of contractual liability, which includes damage to cargo, damage to ship and containers, injury to crew, delays to ship and possible fines at discharge ports, Mr Sansom said: "The traditional basis of liability is that the port operator is only liable if found to be negligent and, sometimes there may be an express exclusion of liability for terrorism". Mr Sansom added that vessel that used non-compliant facilities might incur delays and subsequently be denied access to discharge ports that demanded the code be upheld.