When Ports Demand Security: Navigating Charter Party Clauses After an Incident

 ⚓ "When Ports Demand Security: Navigating Charter Party Clauses After an Incident"

A must-read for shipowners, operators, and charterers

❓ Three Quick Questions for You:

1. Can a port demand financial security from shipowners before providing a full cost breakdown?
2. Should you agree to the port's claimed amount without verifying the actual repair costs?
3. Are you aware of your rights and obligations under the charter party in such cases?

 

🔍 Clause Under the Lens

“We have now requested security to be provided to our Members by the Owners of the M/V TBN and we await a response. We need to clarify the value of the security sought. For this purpose, are you able to advise on an estimate for any repairs to the buoy and repositioning of the buoy? Is the port likely to make any other claims against the vessel arising from this incident please?”

 

📘 Clause Breakdown and Real-World Insights

🧭 What’s Happening Here?

This clause reflects a scenario where a vessel has allegedly caused damage—in this case, to a buoy—and the port (or an associated party) is now seeking security (i.e., financial guarantee) before finalizing claims.

This request is commonly routed through P&I Clubs, acting on behalf of the party seeking redress.

⚖️ Implications of Providing Security

• Security ≠ Admission of Liability: It simply protects the claimant’s right to recover if liability is proven.
• The Amount Must Be Reasonable: An excessive or speculative demand can be challenged.
• Port May Add Ancillary Claims: Survey fees, repositioning costs, or traffic disruptions may be added.

 

⚠️ Common Pitfalls

• Rushing to provide security without vetting the amount.
• Not estimating or challenging repair and repositioning costs.
• Delaying notification to P&I Clubs, increasing exposure.
• Overlooking whether charterers may be drawn in under back-to-back contracts.

 

🛠️ Practical Tips & Examples

✅ Tip #1: Demand Transparency

Ask for detailed cost estimates:

• Repair work
• Repositioning (tug, survey, diver costs)
• Administrative charges

✅ Tip #2: Involve the Right Experts

• Appoint a surveyor to independently assess damage.
• Legal counsel or P&I manager can vet the reasonableness of the security sought.

✅ Tip #3: Review Your Charter Party

• GENCON or NYPE? See if liability is contractually shifted.
• Indemnity clauses often place unexpected burdens on charterers or sub-charterers.

 

📚 Case Law & Commentary

• The Elli & The Frixos [2008]: Highlighted that claimants must not inflate security demands without basis.
• BIMCO’s Security Clause Commentary: Security should be “reasonable, limited to the claim’s value, and time-bound.”

 

✅ Actionable Steps for Maritime Professionals

🔹 Owners:

• Inform your P&I Club immediately.
• Provide only justified and specific security—not blanket guarantees.

🔹 Charterers:

• Clarify liability chain under the charter party.
• Alert your insurers—especially in back-to-back chartering chains.

🔹 Managers/Operators:

• Engage a local agent and marine expert to assess potential counterclaims.
• Document every communication with the port and surveyors for legal protection.

 

🔚 Conclusion: Be Proactive, Not Reactive

A small incident—like a dislodged buoy—can spiral into costly delays and disputes if not handled correctly. Knowing how to respond to a security demand is critical for safeguarding your commercial and legal interests.

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⚠️ Disclaimer:

This post is for educational and informational purposes only. It is not intended to constitute legal advice. Always consult your P&I Club or legal counsel in case of incidents involving claims or security demands.