DECEMBER 15, 1998

CIRCULAR NO. 23/98

TO MEMBERS OF THE ASSOCIATION

Dear Member:

YEAR 2000 CHARTERPARTY CLAUSES

Reference is made to the several Circulars issued earlier in the year concerning millennium compliance, and in particular Circular No. 13/98 which enclosed a copy of the International Group's SHIP2000 toolkit on the subject. This appears to have been well received by the shipping community at large.

It is not just January 1st, 2000 which poses problems in terms of millennium compliance - some of the relevant dates (notably September 9, 1999) are less than a year away. In the circumstances, there is increasingly the issue as to whether charterparties and other maritime contracts should incorporate clauses dealing specifically with the millennium problem.

Most charterparties incorporate the Hague or Hague-Visby Rules, or similar terms. Broadly, these require carriers to exercise due diligence in respect of seaworthiness, manning, equipment and cargo worthiness. These general obligations are obviously capable of embracing millennium compliance as well as other factors which are relevant to seaworthiness and so on. The Hague and Hague-Visby Rules are widely accepted and well understood by those engaged in the international carriage of goods and are also the basis upon which liability in respect of cargo is covered by the Club. Cover may thus be placed at risk if a Member contractually assumes broader responsibilities than those imposed under the Hague or Hague-Visby Rules.

For these reasons, Members who contract under charterparties, bills of lading or other agreements to carry cargo should avoid giving specific undertakings in regard to millennium compliance, or agreeing in any other way to accept more onerous obligations, or fewer rights, than those contained in the Hague or Hague-Visby Rules. Accordingly carriers should avoid any clause concerning millennium compliance in contracts of carriage. However, if a Member is compelled to agree such a clause, relevant rights and obligations should not be materially affected provided that no warranty is given concerning millennium compliance, and rights under the Hague or Hague-Visby Rules are expressly preserved. The following clause, based upon a wording circulated by BIMCO to its members, satisfies these criteria, and will not therefore place Club cover at risk:

"Year 2000 conformity" shall mean that neither performance nor functionality of computer systems, electronic and electro-mechanical or similar equipment will be affected by dates prior to or during the Year 2000.
Without prejudice to their other rights, obligations and defences under this charterparty including, where applicable, those of the Hague or Hague-Visby Rules, the owners and the charterers shall exercise due diligence in ensuring Year 2000 conformity insofar as this has a bearing on the performance of this charterparty."

This clause is acceptable because it preserves Hague and Hague-Visby Rule defences, defining the carrier's responsibility in terms of "due diligence" rather than of strict liability.

The Managers will be pleased to give Members further advice in cases of doubt concerning the wording of such clauses.

Yours faithfully,

Joseph E.M. Hughes, Chairman & CEO
Shipowners Claims Bureau, Inc., Managers for
THE AMERICAN CLUB

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