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 with lasting influence. Most visible was the growth in the size of tankers, very large crude carriers (VLCCs) of up to 300,000 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, were ultra-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 build and 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 of solicitors that had been associated with the club since the 1920s, particularly through Russell Stokes and Bill Wilson, who among the managers became known as the GLA (Greatest Living Authority) for his encyclopaedic and wise counsel, saw the difference: A side-effect was a growth in shipping operators. This involved a flourishing of time-charterers, who chartered in tonnage and undercut the liner services of the conferences. This particularly affected the Gulf, which became a burgeoning market with the hike in oil prices. These charterers were importing everything from all sorts of places. They operated on very small margins and were very claim-conscious, so that they would make small claims and fought hard when people claimed money from them when they thought it was not due. This introduced another party into the P & I clubs. You would have the shipowner, and the time-charterer, two entries and therefore two clients instead of one. Two safer packaging developments, the ro-ro carrying fully loaded vehicles and the container ship with its standardised boxes, affected claims. Both meant that goods could be boxed by the producer and unpacked by the recipient. Any intermediate handling was mechani- cal. Ro-ros, introduced in the 1950s on short sea routes, replaced cargo-liners on longer runs. Containers became a worldwide mode of transport. There was a bonus in that trucks and containers could be refrigerat- ed, and temperature control was better than in large holds. If it should break down, damage was probably more limited. The main advantage was that more secure packaging overcame the problem of piece goods such as Containers reduce damage to cargoes but are whisky being shipped in cartons and ‘accidentally on not immune to damage themselves. purpose’ being dropped on a corner, the contents being spirited 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 personal injury 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 were ski boots, a valuable commodity. A container load came over once and, knowing they were ski boots, I advised the agents to tell the stevedores to put this container on the dockside and pile other containers all round it until it was ready for delivery in two or three days’ time or over the weekend. They did so and when they actually delivered the containers and got to the one in the middle it was empty. Someone must have been there with a forklift truck over the weekend and no one stopped them. They moved all the other containers, took out the contents and put all the other containers back. Sometimes an empty container was filled with bricks or some other low-cost make-weight. The possibilities opened up a new field for P & I cover; through transport, in which the operator accepted liability for complete transit on land and sea. To span the associated risks, a separate club was formed in 1968, the P & I clubs not extending their own cover for cargo 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 club remained 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 though were 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 on the Seven Stones Reef, midway between Land’s End and the Isles of Scilly, spilling her oil. There was nothing new about oil spillage. In 1923 there was a claim, opposed, that it had damaged Cornish oyster beds. At the time the committee recognised that ‘the amount at stake in this case is only small but an important principle is involved.’ Oil from many ships sunk in World War II had washed up on beaches as flecks of ‘tar’, marking the clothes of those unwary enough to sit on it. There had been other claims on oil spillage. For example, in Germany 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 to catch the late evening tide for berthing. To save half an hour and avoid a wait of five days, the Italian master took a 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 risk the livelihoods of those dependent on the tourist season. Seabirds and fish were dying. The Channel Islands and Brittany were affected. Altogether the cost of cleaning up the pollution was put at £3 million. None of this would fall on the club because the Torrey Canyon was not entered with a member of the London Group, but all of the clubs would be affected indirectly. Just as television brought home the horrors of the Vietnam War, so the small screen vividly portrayed the extent of the Torrey Canyon disaster. 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 the patient work of cleaning bedraggled birds; the violent explosion in the engine room three days later; the attempt by four tugs to pull her off the rocks, breaking her back; the British government announcing its decision to bomb the ship - ‘We told the owners’; the dropping of 1,000-lb bombs to burn off the estimated 40,000 tons of oil remaining on board; the tanker in flames, with a pall of thick black smoke rising 2,000 ft in the air; aviation fuel 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 state facing a situation such as the spillage from the Torrey Canyon had a perfect right to destroy a foreign ship, even in 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 in international waters. The resulting delay perhaps did more harm to the environment than would have been done had 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 Rachel Carson’s The Silent Spring drew attention to the dangers of chemical pest control, the environment lobby had been growing. Now it was given additional impetus by a disaster at sea. So widespread were the effects of a major oil spillage that public anger was aroused: ‘The polluter must pay.’ Around the world more and more people were com- ing to realise that man had to change from being a predator on the planet to being its guardian. The environment lobby was to endure, exerting more pressure to change the rules of many industrial and commercial operations.

The immediate debate was between those Bedraggled seabirds, smeared with oil, quickly became stock who wanted a new draft Convention to cover media pictures all types of pollution and Lord Devlin, the lawyer chairing the working committee drafting for the Comité Maritime International (CMI) who believed that the important thing was quickly to provide rules on the liability of tanker owners for oil spillage. The draft rules were debated by CMI and taken over by the United Nations organisation Inter-Governmental Maritime Consultative Organization (IMCO) In 1969 a new International Convention on Civil Liability for Oil Pollution Damage was signed, putting the liability clearly on shipowners for the costs of clean-up and private claims. The extent of their liability was closely related to the availability of Reinsurance, in practice the maximum amount of 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 and all other claims under a separate head. To spread the risk from the London market, shares in the contract were sought in the USA and the major countries of Europe. A measure of the change in the overall liabilities was that since the original pool reinsurance contract was initiated in 1951 the call rate had increased thirty-fold and the overall retention of the clubs, their amount of responsibility, four-fold. Now included in the contract was the tanker owners’ voluntary agreement concerning liability for oil pollution (TOVALOP), a stop-gap measure offered by the tanker owners to governments while the International Convention was coming into force. Under TOVALOP, owners had agreed voluntarily to compensate clean-up costs incurred by governments, provided at least 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. The Americans particularly considered what they wanted to do and whether they would be parties to the emerging oil pollution conventions. There were all sorts of hearings and investigations. Deciding to go it alone by way of national legislation, they had hearings both in the House of Representatives and in the Senate. The most important influence there was Senator Ed Muskie from Maine, who was a contender to be the Democrat candidate for the White House. He saw himself riding into the 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 Children helped clean oil from beaches to make representations to Senator Ed Muskie’s committee. We did it to at least two committees, one in the House of Representatives and Senator Muskie’s in the Senate. The reason why they wanted to hear what the English had to say was because when they asked the American insurers, they all said: ‘Post- Torrey Canyon we won’t insure oil pollution.’ You may say ‘Why is that?’ and the answer, whether people like it or not, is that the London market now, as then, is the catastrophe risk-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 and butter for London. It is what we live on, even if, in the recent past, some Lloyd’s underwriters have made heavy losses by not 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 old time 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. We said that we were certain because we had tried it. We had been all over the world and it was basically what was placeable in the London insurance market, notably Lloyd’s. There was a small market outside, but he thought that we were trying to defend 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 and said: ‘Mr. Miller would you like to continue these discussions in my room.’ So I and my lawyers and John Shearer from the 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 more capacity.’ Eventually I lost my temper with him and I said, ‘Look Senator Muskie, I am an insurance broker. If there was more 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 instant he saw that my self-interest was the other way he believed what I said, which rather irritated me. That is how we started having to make direct representations in the United States about liability insurance. The outcome of these hearings in terms of legislation was the 1970 Water Quality Improvement Act, with a limit of $14million in 1970/71. In 1972 that was amended 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 Israel against Egypt, Jordan and Syria. In upsetting the pattern of trade and creating uncertainty, it was a long-term setback though for the international shipping community. Nobody could have foreseen that the Suez Canal was to 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 the development of larger tankers, this time ULCCs. Six years later events in the Middle East were once more to demonstrate 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 and Norwegian Governments having notified their nationals that no prosecutions will be instituted for overloading of ships which may, during the closing of the Suez Canal, pass the Cape of Good Hope (a seasonal winter zone) after loading to summer marks during the winter period, a number of ships of various flags are loading deeper in this way. Members have been 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 felt that if this should occur, and the shipowners right to limit liability be attacked, Members should not count on recovery from the 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 November devaluation of sterling, the third such move at an 18-year interval. For nearly 18 months the British economy had 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 a run 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. On devaluation, at a rough guess it stood to lose £5 million. Against that, savings were minor. For example, there was 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 advance call 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 lose by such transactions. A longer-term, comprehensive solution was needed, as the investment manager John Shearer realised: Shortly after devaluation, I announced at a directors’ meeting that they were something like £15 million worse off than they were before. After that loss they instructed me to look for somewhere else to do business. I had talks with the Treasury and the Bank 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 said that 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 the Bermuda Club on 17 February 1969. The whole process of investigating various tax havens and assuring freedom from 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 for moving 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 20 February 1971. It was a wise move. Sterling was still a crisis currency, falling for instance from over DM11 to the pound in 1967 to DM2.95 in October 1990, when it joined the European Exchange Rate Mechanism. That rate could not be sustained and two years later membership of the ERM was suspended. So rapid was the decline of sterling that the original claim of DM17 million on the 1966 explosion of the Moselstein, at the time the biggest claim on the reinsurance contract to date, was no longer an advantageous deal when settled for DM7 million in 1973. It would have been better to settle at the exchange rate available when the claim was first presented. In the meantime, following the US decision in August 1971 to end global fixed exchange rates; the pound had been allowed 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 a new perspective and a better sense of direction. The move was recognition of the new international character of the UK Club. Of the 31 directors, the British were now in a minority. Change of place also meant a management shift. 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 by Dawson Miller and later by the partners Sidney Fowler and John Shearer. There was very little social contact within the board 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 more questions were asked at the directors’ meetings and the managers were under much closer scrutiny, which meant they had to react and get their act together, to have more information at their fingertips. What actually happened was that some of the work at the directors’ meetings was subdivided. Somebody would stand up and give an account of the claims; John Shearer would talk about the finances, John Henderson about underwriting. They, in turn, would put pressure on the people in their departments to produce practically everything they could anticipate the directors asking. There was this increasing interest by the directors in the way the club was being run. In this respect, the composition of the board was significant. It had been the policy of the club since its foundation to have a board of directors who were mainly senior men in their companies. Directors of their own companies and of the club would have a strategic view while insurance managers brought welcome technical knowledge in addition. Celebrity Cruise’s ship Horizon calling at New York

Having moved from London, its base for 100 years, to Bermuda, the club felt it impolitic to draw attention to the fact through a great celebration of its centenary. There was a perfunctory look-back in the 1969 annual report and 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 experience and great charm, knew every member personally, as it was a much smaller club. At the meetings Dawson was taking it all in 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 that needed throwing out because he would call a chap to lunch and say, ‘Look here Jack, this case is foul. Don’t push it.’ ‘You think I should withdraw it?’ ‘Well, it is up to you: Dawson said. ‘That would be marvellous.’ It worked wonderfully. It was the end of the club management as a family business, which had stretched over three generations and almost 90 years. That heritage was not to change abruptly but it was the end of an era. The management style would alter and so would the balance of power between the managers and the directors. The club was clearly international; it had to become more professional.