JUNE 16, 1999

CIRCULAR NO. 8/99

TO MEMBERS OF THE ASSOCIATION

Dear Member:

THE MILLENNIUM BUG - RECENT DEVELOPMENTS

Reference is made to recent Circulars on the above subject and in particular to Circular No. 6/99 of April 26, 1999, advising Members of the outcome of the U.S. Coast Guard sponsored meeting held in London on March 3 and 4, 1999. The meeting was also sponsored by the United Kingdom Maritime and Coastguard Agency and representatives from a wide spectrum of marine industry organizations attended, including a team from the International Group. The meeting's initial aim was to share information amongst the various organizations in order to establish common ground and, if possible, agree on means of combating the Year 2000 problem.

However, following two days of intensive debate, the meeting adopted two documents, a Year 2000 Code of Good Practice and Key Elements of Year 2000 Contingency Plans for Ships, Ports and Terminals. Both documents have been circulated by IMO under circular No: 2121 to member governments and affiliated bodies. The first mentioned document was attached as Appendix 1 to Circular No. 6/99. Members should be able to obtain copies of these documents from national shipping organisations or, alternatively, they may be downloaded from the IMO website at www.imo.org/imo/y2k/y2kkgps2.htm in the Year 2000 section.

Code of Good Practice Contingency Planning

As Members will be aware, the Code sets out certain precautions which ship operators, port authorities and terminal operators should adopt in order to minimize the risks associated with Y2K equipment failure or system malfunctions. The underlying principles of the Code are simplicity and a common standard, which will avoid unnecessary duplication in questionnaires and approaches to contingency planning. However, the Code will only be effective if it is implemented by as many sides of the industry as possible. Key Elements of Year 2000 Contingency Plans for Ships, Ports and Terminals is a short guide aimed at assisting those in the maritime transportation industry to understand the elements of Year 2000 contingency planning which may supplement/complement existing emergency response plans.

However, observing the precautions set out in the Code may mean that ship operators could face claims for deviation and delay and terminal operators and port authorities for delay. Thus in order to promote the principles set out in the Code, while at the same time wishing to protect ship operators, port authorities and terminal operators from the potential consequences of implementing its recommendations, the International Chamber of Shipping, in co-operation with other industry bodies, including the International Group, has produced the Year 2000 Safety Protocol. The draft Protocol, together with a memorandum explaining the reasoning behind it are appended hereto.

It must be stressed that the function of the Protocol is not to provide a defence in respect of accidents or delays caused by Year 2000 equipment failures or system malfunctions. Rather, it seeks to protect the ship operator only from the direct consequences of following the recommendations set out in the relevant paragraphs of the Code of Good Practice.

Acceptance of the Protocol by ship operators, charterers and port operators, as well as representative bodies within the industry will mean that they endorse the concept of the Code of Good Practice and, in particular, the practices recommended therein. By subscribing to the Protocol individual commercial organizations will acknowledge that no claim should be made in respect of any loss or liability caused by implementing such practices. Members are encouraged to register as a party to the Protocol.

Standard Incorporation Clause (Year 2000 Safety Protocol)

Where parties wish to give contractual effect to adherence to the Code of Good Practice in bills of lading or charter parties, a specific clause, incorporating the terms of the Protocol, will need to be added to such contracts. Such a clause has been drafted by BIMCO with the support and advice of other industry organizations involved with the Protocol project. It reads as follows:-

It is agreed that the Year 2000 Safety Protocol (dated June 14, 1999) together with the Code of Good Practice contained in IMO Circular Letter No. 2121 dated March 5, 1999, shall be incorporated into this contract and that any practices implemented in accordance therewith shall not be considered a breach of this contract nor form the basis of any claim in tort and shall be deemed taken in good faith and in the exercise of due diligence.

Practical Guidelines for Year 2000 Contingency Planning

The International Group in association with other representative bodies, including the International Chamber of Shipping and Joint Hull Committee has supported the publication of Practical Guidelines for Year 2000 Contingency Planning. The purpose of the Guidelines, which come with a CD-Rom containing the full text, is to offer practical assistance to ship operators and others in the industry who are preparing their contingency plans. A copy is enclosed herein.

Finally, Members are reminded that in accordance with Club Rules where any claim arises directly or indirectly from millennium non-compliance, members will be expected to demonstrate to the satisfaction of the Board that they have taken such steps as an uninsured person acting reasonably in similar circumstances would have taken to avoid such a claim. Where an individual member has not so acted, recovery in respect of any claim will be subject to the Board's sole discretion - see Rule 1, Section 21 of the Club's current Rules.

Yours faithfully,

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

Enclosures

VAPS IGA\CIRCULR8.99