Publications
Claims Review: Issue 2
| Title | Contents | |
|---|---|---|
| 1 | Reefer container settings | Article on increase in claims |
| 2 | Agent's liabilities to authorities | Ship agent claim |
| 3 | Agent sued for principal's debts | Ship agent claim |
| 4 | Alleged wrongful cancellation of charter party | Ship broker claim |
| 5 | Release of cargo without original B/L and against indemnity | Ship agent claim |
| 6 | Lloyd's Agent's liability for cargo survey | Ship agent claim |
| 7 | Agent joint in action for misdescription | Ship agent claim |
| 8 | Agent sued as co-carrier of cargo | Ship agent claim |
| 9 | Contamination of tank container of wine | Ship agent claim |
CLAIMS REVIEW - ISSUE 2
In this, the second edition of the ITIC Claims Review, we would like to draw the attention of the Club's ship agent Members to the increasing number of claims (about 15 in the past year varying between US$ 15,000 and US$ 150,000 each in value) which have resulted from reefer containers either being left off power at the load or discharge port or carried at the wrong temperature due to agent error.
All the following claims resulted from ship agents failing to arrange for reefer containers to be plugged in whilst in the port area:
FROZEN PRAWNS from Lagos left off power on the quay in Newcastle, England for ten days. ICE CREAM for export from the U.K. to Beirut left off power because the agent failed to inform the reefer engineers of its arrival. PUMPKINS, YAMS and SWEET POTATOES off power at Kingston, Jamaica for a week found to be bad on arrival at the London fruit market. FROZEN PINEAPPLE CONCENTRATE off power at Valencia for four days over a holiday weekend.
Other claims resulted from errors by ship agents in entering temperatures on ship's documents or in inputting incorrect details into computers:
CHEESE from Denmark to the U.K. carried at 0º C instead of -20º C. CONCRETE ADDITIVES from Bremerhaven to Helsinki which needed to be maintained at +10 º C to prevent frost damage, carried at -6º. BOTTLES OF WINE from Antwerp to the U.S. carried at -20º C, and FROZEN BEEF at +2º C because the temperatures for two reefers had been transposed by the agent.
Unfortunately there is generally no defence to these claims. Members handling this type of business can give valuable assistance to the Club and to themselves by taking whatever steps they can within their organisations to eliminate these simple errors which have such expensive consequences.
Agent's liability to authorities
An agent at Karachi acted for charterers of a vessel which arrived at the port and was discharging a heavy package on to a barge which sank, taking the cargo with it. The Karachi Port Authority held the agent liable for the cost of salvaging the barge and cargo in their capacity as agents for the carriers. The agent, in turn, obtained a letter of indemnity in the amount of Rps 500,000 from the carriers' P&I Club.
In the event the salvage operation proved to be extremely lengthy and cost far more than had been originally estimated. The amount invoiced by the Port Authority was Rps 1,338,792 (US$ 43,866).
In the meantime, the carriers had encountered severe financial difficulties and had ceased to trade. Furthermore, they had failed to pay their P&I Club calls and their insurance cover had been cancelled from inception. The agent was able to collect the amount of Rps 500,000 (US$ 16,383) covered by the P&I Club's letter of indemnity but remained liable for the balance i.e. Rps 838,792 (US$ 27,483).
The Club appointed lawyers in Karachi to attempt to negotiate a reduced settlement with the Karachi Port Authority but their efforts were unsuccessful. The agent was obliged to pay the full balance, which was equivalent to USD 34,210, and was reimbursed by the Club.
This claim highlights the value of the cover provided by the Club under Rule 3(3) and is an example of the way in which the Club's Rules have been designed to protect its Members from risks which are peculiar to their business.
Agent sued for principal's debts
The agents were appointed as general agents in the UK for liner operators who went bankrupt owing approximately £7 million to their creditors.
As is not unusual in such cases, some creditors of the line, including suppliers, sought to recover their losses wherever possible and a number of them commenced legal proceedings against the agents alleging that they had not disclosed their agency status or alternatively had acted as agents for an undisclosed principal. The liquidators also pursued the agents for outstanding freight due to the line which the agents had offset against claims from suppliers.
After extensive enquiries the Managers were satisfied that there was an effective defence to every claim. Furthermore, they strongly believed that it was important to clearly establish the capacity in which all ship agents act, notwithstanding that this would entail long and costly proceedings. In the event, all claims against the agents were successfully repudiated over a period of four years but the legal costs amounted to US$ 70,840.
This particular matter serves as a reminder to Members to make adequate provision for costs and expenses when deciding the amount of cover they require. The limit of indemnity selected is the maximum amount payable by the Club for any one claim inclusive of all costs and expenses. These costs often exceed any sum paid in settlement of a claim and they tend to increase year by year.
Alleged wrongful cancellation of charter party
Brokers were authorised by charterers in South America to fix a ship for a time charter voyage from Uruguay to Peru with a cargo of bagged rice. The charterer stipulated that the ship had to present at the load port by 8th May at the latest.
The broker encountered considerable difficulty in locating a suitable ship but finally found one which would become available in Chile. The charter was therefore arranged on the basis that delivery would be accepted in Chile and the ship would then ballast round Cape Horn to load in Uruguay. The broker calculated the time for the voyage from Chile to Uruguay and felt that the latest date for delivery at the Chilean port would have to be 27th April, and duly sent a re-cap of the fixture to the charterer showing laycan as 25/27 April. Owner's broker then requested a correction in the re-cap to show laycan dates as 25/28 April and the charterer's broker therefore agreed to make the change, but unfortunately omitted to advise the charterer.
The ship sailed from the Chilean port a few minutes before midnight on 28th April but the charterer, being still under the impression that the cancelling date was 27th April, proceeded to charter a substitute vessel through another broker when the original ship had not delivered by midnight 27th April. On 29th April the charterer instructed the broker to notify owners that they were cancelling the ship.
Owners reluctantly accepted cancellation and immediately claimed the amount of US$ 427,712 as damages arising from wrongful cancellation. The Managers quickly concluded that, as the broker was clearly liable, the best course of action would be for the Club to dispute the quantum of the claim on behalf of the charterer and the broker.
The dispute went to arbitration and the arbitrators found in favour of the owners who were awarded US$ 353,704 and 75% of the costs of the award. Costs paid by the Club amounted to US$ 155,429 and the total cost of the claim was US$ 509,133 - a large price to pay for one small oversight.
Release of cargo without original Bill of lading and against indemnity
The ship agent took delivery of a container of nickel silver scrap valued at US$ 34,222.80 on arrival at Calcutta from Kaohsiung. Shortly after arrival the consignee, a sole trader, called at the agent's office claiming to be the legal owner of the cargo and seeking a delivery order.
He said the original B/L had been misplaced and offered to provide an indemnity in the usual form in which his bank would join. The agent agreed to the request and provided and indemnity from in the shipping line's recommended wording for completion.
The consignee returned later with the indemnity which appeared to be in order, and was given a delivery note to enable him to take delivery of the goods. Shortly afterwards, the shipper informed the line that he had not received payment for the goods and that the original Bill of Lading remained in the possession of the Bank. Thereupon the agent wrote to the consignee demanding immediate production of the original Bill of Lading and also wrote to the Bank requesting them to make payment to the shipper. The consignee replied sending a copy of a letter he had sent to the shipper rejecting the cargo and alleging serious shortage and excessive quantities of plastic and dust in the scrap.
The Bank, in their reply, explained that the consignee had called at the Bank with the indemnity and asked an official to verify his signature on the document. This was done and examination of the indemnity which the consignee had delivered to the agent revealed that the Bank had merely verified the signature and had not joined in the indemnity. Subsequently the consignee had again called at the Bank and told them that he had already taken delivery of part of the cargo against the letter of indemnity whereupon the Bank requested him to pay the amount due in full for onward transmission to the shipper. When he refused to do so, the Bank reported the matter to the local police authority.
Action was taken to block certain fixed deposit accounts of the consignee amounting to US$ 9,000 approx. The shipper made a claim upon the carrier for US$ 37,185.80 which was paid and the agent immediately applied to the court for an order requiring the consignee to provide security for the amount of the shipper's claim and seeking attachment of bank accounts and other assets.
The Club's P&I representative and a lawyer in India were instructed to investigate and report to the Club but there was little that could be done other than to await the outcome of proceedings against the consignee who at the time could not be traced. The claim against the Member was settled, less the deductible and the amount held in the blocked bank account.
This claim serves to remind Members of the "Recommended ITIC Guidelines for staff involved in the release of cargoes" which have been sent to all Members.
Lloyd's Agent's liability for cargo survey
A Lloyd's agent was instructed to carry out pre-shipment surveys on twelve consignments of frozen swordfish chunks and the surveys were completed over a period of approximately four months. The buyer required the agent to warrant that laboratory tests had been carried out prior to shipment to establish the mercury content of not less than 5% of the swordfish selected on a random representative basis.
The agent asked the State Laboratory to carry out the surveys. The correct number of cartons were opened, samples were taken and the analysis report showed that the mercury content was within the specifications. Unfortunately, the agent had omitted to tell the Laboratory that all samples must be analysed separately and the Laboratory, in accordance with their normal practice, mixed the samples together and analysed only one or two composite samples. Furthermore, the wording of the agent's survey reports suggested that 5% of the cartons had been both sampled and tested.
On arrival in the United States the consignments were subjected to additional analysis by the US Authorities and the majority were found to contain mercury in excess of the permitted maximum. The cargo was rejected as being unfit for human consumption and the US importer suffered considerable financial loss which was only partially covered by his cargo insurers.
Subsequently the agent received a claim for US$ 1,000,000 from the importer and the Club instructed lawyers to act for the agent and the Club. Legal proceedings were commenced against the agent in the Californian Courts and the Club's San Francisco Correspondent, was instructed to assist the lawyers' California office in the preparation of the defence.
Detailed investigations revealed certain information which was useful to the defence but the documentary evidence against the agent was difficult to dispute. An attempt to obtain a summary judgement to dismiss the claim against the Lloyd's agent was dismissed in California and the Club decided that a negotiated settlement was the better option. The negotiations were lengthy and protracted but agreement was finally reached whereby the claim was settled in the sum of US$ 412,500. Inevitably, substantial costs had been incurred amounting to US$ 247,727.
This claim is yet another reminder that the financial consequences of simple errors are impossible to foresee and highlights the need to carry the highest affordable level of insurance.
Agent joint in action for misdescription of origin
The carriers of a cargo of 21 x 40' containers of acetate tow, which was discharged at a U.S. port from Brazil, instructed their local agents to arrange for the goods to be reloaded into containers belonging to another shipping line and transported to Houston to connect with the other line's service to Hong Kong. The local agents also received an instruction from the owners of the goods to arrange for new descriptive labels to be affixed to the pallets of acetate tow before the goods were reloaded. The new labels were provided by the owners of the goods and were passed by the agent to the company employed by him to reload the goods into the line's containers. The agent then arrange for the containers to be trucked to Houston where they were loaded on to a ship for carriage to Hong Kong.
More than a year later the agents received a summons naming them 19th out of 20 defendants in a suit brought by the buyers of the acetate tow in Hong Kong alleging that all parties had conspired either knowingly and wilfully or negligently to defraud the buyers. the Club appointed lawyers to defend the agents and their enquiries revealed that the new labels provided by the original owners of the goods stated "Made in USA" whereas the acetate tow was actually of Brazilian origin. The agents, who had arranged the re-labelling, were alleged to have conspired to defraud the buyers into paying the price for high quality acetate tow rather than the inferior product actually received.
The buyer's claim was for US$3m and the Club's lawyers vigorously rejected the allegation against the agents. Eventually the parties agreed to settle and the agents made a modest contribution of US$ 5,000 towards the settlement. Unfortunately, however, as so often happens in such cases the price of success was high and the Club paid legal costs in excess of US$ 35,000.
Agent sued as co-carrier of cargo
The agent in Thailand was appointed to act for the Hong Kong owners of a ship which called at Bangkok to load a cargo of 13,300 MT of bagged rice for discharge in West Africa. On completion of the loading, the agent signed the bill of lading on behalf of the Master in accordance with the Mate's receipt.
Nothing further was head of this shipment until 15 months after the cargo had been discharged in West Africa when the agent received notice from the Thai Court that they were being sued as "co-carriers" by the cargo underwriters for loss and damage to the cargo in the amount of approximately US$ 103,500.
As soon as the claim was reported, the Club appointed lawyers in Bangkok to protect the agent's interest and to advise on their exposure to the claim. At the same time, efforts were made to persuade the owners and their P&I Club to take over the defence of the claim, but without success. Attempts were then made to join the owners in the proceedings against the agent as third party defendants but these attempts were also unsuccessful as the Plaintiff's claim against the owner was already time-barred under the terms of the bill of lading. The Club's lawyers also advised that the Thai Court would not, in any event, have granted leave to serve third party proceedings outside Thailand as actions can only be brought in the Thai Courts against companies domiciled in Thailand. The unfortunate agent therefore found himself the sole defendant in an action for loss and damage to cargo, not because he was domiciled in a country whose law imposed a liability upon him as a carrier when he was only acting as an agent.
The matter came before the Bangkok Civil Court and after a number of hearings the Club's lawyers advised that the agent had little chance before the Court of a successful defence and recommended an attempt be made to reach an out of court settlement. In the event this was achieved and the Plaintiffs accepted a payment of US$ 52,559 from the agent. The total cost of this claim to the Club, after the member's deductible, was US £ 63,325.
Subsequent investigations revealed that the chances of making any recovery were too remote to warrant incurring further costs.
Contamination of tank container of wine
Member, acting as agent for the carrier, arranged for the provision of a tank container to a wine exporter for the shipment of 21,000 litres of wine from Australia to the USA. On arrival, the consignee refused to take delivery as the accompanying documents did not include the relevant certificate of food quality. He also alleged that the wine was contaminated. Arrangements were made for the tank container to be returned to Australia where tests could be carried out and, if necessary, the wine distilled to remove its alcohol content.
Enquiries revealed that the tank container had been used previously for a cargo of liquid detergent and a steam clean as well as the replacement of all gaskets and seals to remove all traces of the detergent would have been necessary to bring it up to food quality standard. Unfortunately, this was not done and the wine had become contaminated.
As a clean B/L had been issued the carrier had no defence to a claim from the shipper but the carrier in turn looked to the agent for indemnity under the terms of their Agency Agreement.
The tank container had been ordered by the agent from a yard which was not conversant with food quality standards as the yard in question was not normally used for the storage of tanks intended for the carriage of commodities requiring food quality standards.
The agent's written instructions to the yard specified the tank required by container number and also that it was intended for the carriage of a cargo of wine but this did not oblige the yard to undertake any course of action to ensure that contamination of the contents would not occur. It was incumbent on the agent to ascertain the previous content of the tank from import container files but this was not done.
The liability of the shipper was investigated but as any reasonable inspection of the tank before filling would not have revealed the presence of residues of liquid detergent harboured within the seals and gaskets these investigations were not pursued.
In due course, a claim for A$89, 299 was made upon the carrier and the Club decided to obtain their agreement to the agent negotiating a settlement direct with the shipper to agree the best possible terms and to avoid unnecessary costs. This was done and settlement was agreed at A$ 61,000. No costs were incurred.
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Permission to reproduce or distribute this document can be obtained from Charlotte Kirk, ITIC, tel: (0)20 7204 2928, email: ITIC@thomasmiller.com